Why Capitalism Didn’t Fold in 1933

Stagnation Theory

In 1966 Paul Sweezy, founding editor of the Monthly Review, and economist Paul Baran first set out what they describe as “stagnation theory” in their book Monopoly Capital. In later writings, Swezey describes how the massive “financialization” of the US economy, which started in the 1970s, served as a partial antidote to the stagnation that is inevitable under monopoly capitalism.

According to Sweezy (and many others) it was only the massive economic boost of World War II military spending that saved capitalism in the thirties and forties. There was a brief post war boom in the fifties and sixties, as consumers rushed to buy goods that were unavailable during the war. When the sixties ended, stagnation set in again, accompanied by a marked slowing of profits and growth. Neither declined to 1930s levels, according to Sweezy, thanks to the “financialization” of the American economy.

A Giant Ponzi Scheme

“Financialization” describes the process of creating profits without actually producing a profit or service. In the US it injected massive amounts of money (the nice word is credit, but it’s really debt) into the economy in three ways: massive government spending and indebtedness (to private financial interests), a massive increase in consumer indebtedness and an explosion of the financial industry itself.

From 1980 to the 2008 crash, the banking, insurance and investment sector became the largest growth sector of the US economy. Beyond financing unprecedented levels of consumer, business and government debt, it also involved a lot of outright speculation. In addition to commodities and derivatives trading, it also included leveraged buy-outs of productive sector companies with borrowed money, loading them with more debt and reselling them at a profit. Former Wall Street economist Michael Hudson points out that the takeover of health care by private insurance companies was part of this massive ballooning of the financial sector.

As Sweezy describes, the enormous “wealth” created by the financial sector helped to drive the “real” or productive economy. However he also warns – as far back as 1982 – that it’s basically a Ponzi scheme. That it can only continue so long as the economy continues to grow – if allowed to go on too long the speculative bubble will burst, resulting in a collapse as bad or worse than the Great Depression.

The ABCs of the Economic Crisis

Political economists Fred Magdoff and Michael Yates elaborate on Sweezy’s analysis in their 2009 book The ABCs of the Economic Crisis. They point out that stagnation continued during the 1980s and 1990s, despite the life support provided by “financialization.”  GDP growth dropped from 4.4 to 3.3 percent in the 1970s, with a further decline to 3.1 percent in the eighties and nineties, with a further decline to 2.2 percent in 2000.

They use the example of the auto industry to describe why stagnation is inevitable under end stage monopoly capitalism. Immediately after World War II, consumers bought a lot of cars and trucks, which were unavailable between 1941 and 1945. However by 1970 all Americans who wanted cars or trucks, and the world’s poorer nations didn’t have a mass market large enough to take the excess of cars being produced. And as consumer buying slowed, so did profits and GDP growth. Obviously the same was true of other durable goods (refrigerators, washing machines, dishwashers, vacuum cleaners, etc)

They argue that major social service cuts occurred under Reagan, Bush I, Clinton and Bush II – not because these men were more conservative than the presidents who preceded them – but because a steady downward trend in growth and profits meant the US no longer had the resources to support generous social programs enacted during the boom years of the fifties and sixties.

In Yiddish It’s Called Chutzpah

They also point the significant drop in inflation adjusted wages and purchasing power that accompanied the decline in profits and growth. That to keep workers consuming, the corporate sector compensated by giving them credit cards instead – lending them the money at 18-20% interest that they were no longer paying in wages.

To be continued

The Most Revolutionary Act on radio:

Gorilla Radio – Chris Cook, Victoria British Columbia

(click on link)

Chris and I discuss how I was first targeted, following my decision to support the occupation (of an abandoned school)  that led to the formation of Seattle’s first African American Heritage Museum – as an alternative to the crack cocaine epidemic among the city’s African American teenagers. We also talk about my research into HIV AIDS, my hospitalization and the Veterans Administration psychologist I worked with who also helped GIs illegally stationed in Cambodia in the sixties and seventies (and terrorized into keeping quiet about it).

XZone Interview with Rob McConnell begin_of_the_skype_highlighting     end_of_the_skype_highlighting

(click on link  – show is syndicated – fast forward the music to hear interview)

Rob and I discuss the phone harassment, break-ins, attempts to run me down – and my psychiatric hospitalization. We also talk about the political activities that seemed to lead the government to target me – including my research into HIV AIDS – and my inability to get help from the Seattle police. Then we cover the whole area of conspiracies in general, which are more accurately called State Crimes Against Democracy (SCADS).

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