For two-and-a-half years the world has been in the throes of a severe business depression. The consequences of that depression have been far-reaching. Unemployment has mounted to fantastic heights, until to-day about 30 million workers in the leading countries are unable to find jobs.
In fact, the world-wide incidence and growth of unemployment are so pronounced that even those who but a short time ago were seriously alleging that unemployment was due to the unemployed being too lazy to work, if the chance to do so were offered to them, have been effectively silenced.
Nobody now pretends that there are jobs waiting round the corner, and that it is only love of lining up in a queue that keeps workers on the “dole” or the bread line. There are no jobs, just as there are no markets for the thousand and one commodities produced by industry and which the producers find they cannot sell. Plant stands idle just as men and women stand idle. If there are 300,000 miners in Great Britain who will never again be employed to go down a pit, there is likewise redundant plant of all kinds which will cease to be operated.
The only difference is that capitalism has to feed its redundant workers in order to avoid trouble; its redundant plant it sooner or later scraps. For examples of this scrapping of plant, it is sufficient to refer to the Lancashire Cotton Corporation, Ltd., and National Shipbuilders’ Security, Ltd. The first of these companies was incorporated in 1929 on the initiative of the Bank of England.
According to a prospectus published in “The Times” of March 26th, 1931, “the aim of the Corporation is to acquire between 9 million and 10 million equivalent spindles, and it is intended that production shall be concentrated in the most efficient mills . . . the remaining mills being scrapped.” The National Shipbuilders’ Security, Ltd., was also begotten by “the Governor and Company of the Bank of England.” It was incorporated. “for the purpose of assisting the shipbuilding industry by the purchase and dismantling of redundant and obsolete shipyards . . . and the re-sale of the sites under restriction against further use for shipbuilding” (see prospectus in “The Times” of January 21st, 1931).
It is a pretty commentary on a social system that it has to devote new savings to the destruction of existing capital equipment because it has too much!
Not only has capitalism come up against the problem of surplus workers and redundant plant, but it is struggling to live down the effects of a too bountiful Nature. Vast areas in America are being thrown out of wheat cultivation, cotton acreage is reduced, Brazil is burning coffee, and wondering whether all her efforts to get stocks down to an “economic level” will be nullified by a bumper crop in 1933-34, sugar cane is not being cut in Cuba, oil wells are shut down in nearly every field, copper output is restricted, as is that of nitrate, the stocks of which equal three-and-a-half years’ consumption.
The list could be extended to include practically every raw material, but these few examples will suffice to show that want exists to-day, not because there is too little but because there is too much. All that is lacking is the opportunity to make profits, and because of this workers and plant stand idle, misery is widespread, and since Nature will not withhold her gifts they have to be refused or dissipated.
Under conditions such as these, which if we had not experienced them might be unbelievable, it is not surprising that universally the question is raised: “What has caused this crisis? What is its cure?” If the answer given to this question is to be of any value, there must be brought to the consideration of the subject an historical knowledge of previous crises. Such knowledge is conveniently provided by the late H. M. Hyndman’s “Commercial Crisis of the 19th Century,” published in a new edition with a preface by J. A. Hobson (Allen & Unwin, Ltd.: 3/6).
This book is probably the best Hyndman ever wrote. It is a classic of its kind; it has always been so recognised in interested circles. No one who wishes to understand economic development during the nineteenth century can afford to ignore it. It undoubtedly has its defects. The chief of these is a certain scrappiness in the treatment of the subject. In a work which attempts to cover so wide a field in less than two hundred pages, incompleteness is, however, inevitable. One thing for which the reader will search its pages in vain is, as Hobson points out in his preface, an explanation of why a system of production based on profit-making “expresses itself in a recurrent failure of demand to keep pace with supply.” Nevertheless the book is exceedingly useful, particularly at the present time.
Hyndman confined himself to an “historic account of these successive failures.” He succeeds sufficiently well in his purpose for us to be able to agree with the statement, made in Hobson’s preface, that “those who witness to-day in almost every trade and every country masses of idle workers facing idle machinery and untilled fields will be disposed to give close and serious consideration to Hyndman’s declaration that ‘the capitalist class has virtually declared its own inability to conduct the business of the community.’ ” In those words of Hyndman are summarised our case against capitalism, and our justification for urging the workers to become Socialists.
It is usual to hear the present crisis spoken of as being unique. It is explained as being due to reparations and war debt problems, the hoarding of gold by Central Banks, the failure of creditor countries to lend to debtor countries, and again in the same quarters as being caused by over-borrowing by debtor countries. Economic nationalism and the raising of tariff barriers are blamed to a greater or less extent. Finally, every explanation involves a reference to the stultifying effects on business of the fall in prices.
The explanations are as numerous as the suggested remedies, of which the most popular are those which aim at raising the price level through manipulation of the currency. In this group of proposals fall the suggestions for the introduction of bimetallism, managed paper currencies, and international monetary conferences.
Only a slight knowledge of economic development during the past century is necessary to show that far from being a unique phenomenon, the present crisis is of the same kind as those of the past, and that the so-called “explanations” only repeat the explanations put forward by the men who lived through the crises of the nineteenth century. Further, the remedies now proposed merely represent a refurbishing of old ideas.
Certain unimportant characteristics of each crisis are, of course, particular to the crisis concerned, but in their broad outlines, all crises present the same features.
The resemblance between one crisis and another even goes to the point, of those who live through any particular crisis, imagining that it is something entirely different from anything that has gone before, and of those of them who advocate remedies always thinking that the adoption of their proposals will prevent the recurrence of crises in the future.
But just as a war to end war only sows the seeds for another war, so the melting away of a crisis in a burst of renewed activity only prepares the way for the next crisis. Until that fact is clearly realised, the true cause of a crisis cannot be appreciated, for not until then will it be seen that the fundamental cause of all crises must be the same. This is to say that it must be a continually operating cause, and cannot be something, such as reparations or war debts, particular to the individual crisis. Such special factors may, of course, intensify a crisis when it comes, delay its solution or help to determine the time of its occurrence. Their responsibility for causing it cannot be carried further than that.
Crises are inherent in the capitalist system of production owing to the fact that production is based on the principle of profit-making, not on that of satisfying needs. Goods are produced in order to be sold at a profit. When trade is booming productive capacity is extended in order to increase the opportunities to make profits. New plant is installed, new sources of supplies of raw materials are opened up to enable the output of finished products to be increased.
Competition between producers to secure the lion’s share of the profitable markets leads to production being extended further and further. Finally a point is reached when the supply exceeds the demand. Markets are glutted. Production has to be curtailed, first in one sphere and then gradually in others.
Prices fall as stocks are unloaded. Workers are dismissed, and as their wages cease the demand for commodities further declines. The spiral is then leading downwards to business stagnation, bankruptcies and widespread unemployment. The boom has dissolved into a depression. There is a crisis. Then in time stocks run off, there are a number of bankruptcies, demand revives, and the mad dance through the figures of boom and slump goes on again.
This is a brief description of the course and cause of all crises. Any attempt to explain or deal with a crisis that ignores the profit-making basis of capitalism ignores essentials, and can only deal with what are, more or less, irrelevancies.
Once it is realised that crises arise because the object of production is the making of profit, all remedies, such as those for currency reform, of which so much is now heard, must be dismissed as futile. As they fail to take account of the fundamental cause, they cannot hope to prevent its operation in the future, whatever temporary relief they may afford. The only means by which economic crises, such as the present, can be permanently banished from the world is by the overthrowing of capitalism. Until the present system of society is superseded by one from which profit-making has been eliminated, crises will, and must, occur periodically.
A study of past crises by revealing the correspondence in events between them and the present crisis will help to put the popular explanations and suggested remedies for to-day’s depression in their proper perspective and to demonstrate the truth of the assertion made above that crises are inherent in the capitalist system of production. Here it is impossible to consider the crises of the past in detail. That has been done by Hyndman, and readers are recommended to study what he has written on the subject. Certain features of past crises will, however, be discussed so that the similarity between present and past events may be demonstrated.
Before doing this, however, it is worth referring to one aspect of economic crises which is too frequently overlooked. To appreciate the real significance of an economic crisis it is essential to realise that what takes place in a time of crisis over the whole business field and in several countries is taking place continuously locally and in particular spheres of business. In some industry or place, plant, workers, and commodities are always proving to be redundant, as the supply of the particular commodity outruns the demand. It is when this condition becomes general and pronounced that the disease is glorified with the title of crisis and the general manifestation is treated as some rare event.