90 years after the 1929 crash: decadent capitalism can never escape the crisis of overproduction

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Ninety years ago, the stock market crash of 1929, which announced the economic crisis of 1930, confirmed what the First World War had meant: that capitalism had definitively passed into its period of decadence. In a few months, tens upon tens of millions of people fell into total destitution. Of course, during this period, the bourgeoisie learnt to attenuate the violence of the crisis but, despite the lessons drawn from it, this crisis has never really been surmounted. This confirms that, in the period opened up by the First World War, the contradictions of capitalism could only lead to a degradation of the living conditions of the great majority of humanity.

A crisis on a world scale

Without any ambiguity, the crisis of 1929 corresponded to the diagnostic made by Marx and Engels in the Manifesto of the Communist Party regarding the economic crises already hitting capitalism in the XIXth century: "A social epidemic breaks out which in any other epoch would seem absurd: the epidemic of overproduction". Such a diagnostic is much more valid when one takes into account that the crisis of 1929 didn't just happen with the stock market collapse of October 24 and 29, 1929, but that before these dates the situation continued to get worse in more and more sectors of the economy and in more and more countries.

Thus, in the United States, production in the automotive and construction sectors had fallen since March 1929, a fall which was generalised to the whole of the economy in the summer of that year. Moreover, economic activity in general was falling in the European countries which themselves had suffered a stock-market crash prior to that of the United States: in these conditions, upward speculation on the New York stock-market could only come up against the decrease in profits and end up in a crash.

The reason for this fall in economic activity in the central countries of capitalism was, on the one hand, the world overproduction of agricultural products since the middle of the 1920's, which meant a lowering of returns from agriculture; and, on the other hand, the persistent weakness of wages which had increased much less than production in all of the industrialised countries. Such a dynamic totally verified the cause of overproduction that Marx identified: "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit". [1]

Of course, the stock-market crash severely cut the reserves of finance capital and prompted the bankruptcy of such great financial institutions as the Bank of the United States, further aggravating overproduction since it became more difficult to finance the accumulation of capital. Then a drastic fall in investment added to a massive overproduction of productive assets, a general tendency which had already existed for several years. This dynamic provoked a rapid acceleration in the fall of industrial production. Similarly, because of the realities of international and commercial relations, the aggravation of the crisis became global. We should note that it was in the two most developed countries, the USA and Germany, that the fall of economic activity was fastest and deepest.

However, during the first months which followed the crash, the bourgeoisie and the majority of its economists, blinded by the idea of an eternal capitalist system thought, along with US President Hoover, that "everything will be sorted in sixty days" and that as in the crises of the XIXth century, an economic recovery would spontaneously appear. The violence of the crisis caused profound disarray in the dominant class but, since it was first of all a question of maintaining a minimum of profit, the reaction of businesses had been massive cuts in jobs and reductions of wages. All the major countries, despite some hesitations, tried to hold onto their financial credibility by maintaining balanced budgets and reducing public spending. The United States led a policy of reducing the monetary mass, and massive increases in direct and indirect taxes were voted on in June 1932; in Germany, Chancellor Brüning (nicknamed the "Chancellor of Hunger") increased taxes, lowered the wages of state workers by 10% and unemployment pay in 1930 ; then, in in June 1931, even harder measures were taken against the unemployed. In France, from 1933, different governments cut public spending, retirement pay and wages of state workers, and in 1935 these same wages were further cut by 15% and then by 10%.

The other orientation adopted by nation states to protect their national economy was protectionism: all countries followed in the footsteps of the United States whose Congress had voted for the Smoot-Hartley law before the crash of October 1929, which increased customs tariffs by 50%. In fact the 1930's saw a real commercial and monetary war developing between the major powers. In particular, the floating of the Pound Sterling and its more than 30% devaluation decided in September 1931, as well as the devaluation of the dollar by 40% in 1933, showed that each of the big powers, in the image of Great Britain and its Commonwealth which decreed "imperial preference" for their foreign trade, were falling back back into their zones of influence.

The implementation of such policies reveals that the bourgeoisie had not understood that it hadn't the means to halt the overproduction which was relentlessly being pushed along by capitalism's contradictions. The ruling class hadn't yet understood that this was a different period from the one before the First World War, a period when capitalism was in its ascendant phase; in this period crises had led to new phases of growth because the world market was still open and thus permitted the most modern and dynamic national capitals to find new markets. allowing them to overcome the cyclical problems of overproduction. But, as Rosa Luxemburg showed, the First World War was the concrete manifestation that the world market was globally carved-up between the major powers and that there weren't enough new markets to conquer. This implied that capitalism's crisis would lead either to its destruction by the working class or to a new world war. Consequently, the policy of national states in the three or four years following the 1929 crash, guided by the experience of the preceding century, not only could not reduce the impact of overproduction but, on the contrary, aggravated it.

In fact, as the economist Charles P. Kindleberger said, these years saw "a slide towards the abyss". Between autumn 1929 and the first quarter of 1933, the GNP of the United States and Germany was cut in half and the average level of world prices fell by 25%. Such a downturn in economic activity provoked a fall in profits which explains why in the 1932, net investment in the USA was close to zero. In other words, many businesses did not replace their old machinery. As Keynes said, beyond a certain level of falling prices and thus losses, businesses could no longer repay their debts and banks could only collapse - and that's what happened. Large banks went bankrupt in every country. May 13 1931, the KreditAnstaldt[2]  ceased payments: in July of the same year, the great German bank Danabank was also on the edge of bankruptcy and, as the panic spread, every German bank closed for three days; in the United States, at the beginning of 1932, the number of defaulting banks were such that newly-elected President Roosevelt was obliged to shut down the whole banking system and more than a thousand banks never re-opened.

The consequences for the working class were terrible: unemployment shot up in every country; by the end of 1932 unemployment was at least 25% in the United States (in this country there was no help for the unemployed) and 30% in Germany[3]. A great number of workers worked part-time in total destitution; unemployment pay was reduced in Germany and Britain; queues of careworn people, some in rags, waited in lengthening lines outside soup kitchens while tonnes of production that couldn't be sold was destroyed. In Brazil, they were even burning unsold stocks of coffee to run locomotives! Finally, increases in taxes sunk a pauperised working class even lower.

What lessons did the bourgeoisie draw from the 1929 crisis?

The collapse of the world economy obliged the bourgeoisie and certain of its experts to call into question their old liberal and non-state intervention precepts, raised concerns about balanced budgets and led to an examination of this crisis of overproduction, which the bourgeoisie artfully re-baptised, after the theory of Keynes, "insufficiency of demand".

In order to remove the real threat of the collapse of capitalism, nation states had first of all to take the productive apparatus in hand, sometimes directly as was the case in France for rail transport or in Britain for London transport and air transport. But above all this grip of the state was expressed through the control of enterprises and businesses by regulation, adopting management structures that conformed to the interests of the national capital: this was the content of President Roosevelt's famous "New Deal" in the United States or the De Man plan in Belgium. The US administration imposed the "Banking Act", creating a banking insurance organisation that the banks had to adhere to if they wanted to receive funds from the Central Bank (FED). Another law set up supports for agricultural prices and proposed indemnities to the growers if they reduced their cultivated areas.  In industry the "NIRA" law (National Industrial Recovery Act, 1933) required industrial branches to organise fixed quotas of production and sale prices (in Germany it was the corporations who were made responsible); as well as this, it accorded the right of the unions to sign collective agreements, allowing them a greater hold on the working class. Such state legislation which was similarly found in other countries such as France under the Popular Front, did not increase the value of wages since prices grew faster. To reduce overproduction, these laws aimed not only to reduce production but also to re-launch demand through budget deficits. Thus NIRA organised a great public works project including the sanitation of the Appalachian Valley, the construction of the Triborough Bridge in New York or the great water works of the Tennessee Valley Authority. The same will existed in Germany from 1932, with the construction of motorways, the building of canals and sanitation projects over certain geographical zones. These moves towards state control, aimed at artificially increasing demand while strengthening control over the working class, were also adopted by the British bourgeoisie when it reintroduced unemployment benefits, implemented retirement benefits and stimulated building works.

The development of the state's grip over capital, implemented in quite a chaotic manner in the 1930',s would go on to have a great future. It was even theorised in what would be called "Keynesianism". Control over the whole of capital by the state by using a range of means (from nationalisation to support for businesses by public bodies) went on to become more and more systematic. More and more massive indebtment of the whole economy under the impetus of the state, as well as the practice of public deficits, had the aim of attenuating the effects of overproduction. Similarly, the implementation after World War II of the "welfare state", extending what had been done in Western Europe in the 1930's, constituted a regulation of demand while also being an instrument of ideological control over the working class. Just like the 1930's the deployment of all these means allowed the state to stagger the effects of overproduction. But in no case can the bourgeoisie really resolve this crisis and overcome the problem of overproduction.

Today, the crisis of the capitalist system continues to deepen, even if it is at a much slower rate than the 1930's. It confirms that state capitalism is unable to put an end to overproduction because this latter is inherent to capitalism. In fact, the response of capital to the crisis is itself an expression of the senility of the capitalist mode of production which doesn't cease to deteriorate. State capitalism, the policy of all states, only allows a managed limitation of the effects of the permanent crisis and it does this at the cost of sharper and more destructive contradictions in the future.

Vitaz, October 8 2019


[1]  Marx, Capital, chapter XVII

[2]  A bank which held Austrian finance capital.

[3]  Some figures published by the bourgeoisie put these numbers much higher


Economic Crisis