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Like all bubbles this will burst

Marxist Analysis · 2026-05-13

Core Argument

The article argues that the US-led economic expansion of the late 1990s rests not on genuine productive growth but on a speculative financial bubble of historic proportions. This bubble — manifest in astronomically inflated share prices, absurd price-earnings ratios, and a consumer boom financed by debt — is unsustainable and will burst, triggering a global slump. The central claim is that the "New Paradigm" ideology, which asserts that permanent prosperity has been achieved, is a self-serving illusion. The real dynamic is the classical pattern of overaccumulation and speculative mania, which will inevitably give way to crisis, shattering the fragile recoveries in Europe and Asia and exposing the bankruptcy of pro-capitalist policies.

Theoretical Grounding

The analysis is grounded in the Marxist theory of crisis, particularly the understanding that capitalism is inherently prone to boom-slump cycles driven by the contradictions of accumulation. The article does not deploy the tendency of the rate of profit to fall as an explicit mechanism, but its argument rests on the classical Marxist insight that speculative bubbles are not aberrations — they are symptomatic of underlying overproduction and the search for fictitious outlets for surplus capital. The piece draws on the long tradition of Marxist analysis of financial crises, from Marx's own discussions of credit and fictitious capital in Capital Volume III, through Lenin's analysis of finance capital, to later Marxist work on the decoupling of financial markets from productive value. The invocation of historical bubbles — Tulip Mania, South Sea Bubble, 1929 — situates the argument within a materialist understanding of capitalist irrationality, where "human folly" is not the cause but the expression of objective economic pressures.

Conjunctural Relevance

The article was written in July 2005 but addresses the conjuncture of 1999–2000, on the eve of the dot-com crash. It identifies the US as the "global economy's buyer of last resort," absorbing surplus production from Japan, Germany, Indonesia, South Korea, and Brazil. The specific data points are striking: the Dow Jones index took 88 years to reach 1,000 but only 15 to reach 10,000; eBay's price-earnings ratio stood at 3,762; internet shares were in the "twilight zone." The article notes that even Milton Friedman — the high priest of monetarism — acknowledged parallels with 1929 and the Japanese crash of 1990. The piece correctly identifies overproduction emerging in agriculture, steel, cars, and computers, and points to rising interest rates and a falling dollar as the likely triggers. The conjuncture is one where the longest post-war boom has peaked, profits are falling, and the world economy is dangerously dependent on a single, fragile centre of demand.

Where the Argument Continues

This article is an early warning shot from the Socialist Appeal editorial board, written before the dot-com crash of 2000–2002. The argument continues across the In Defence of Marxism corpus in several directions:

  • On the 2008 crash: Later IDOM articles trace how the bursting of the dot-com bubble was temporarily patched over by the housing bubble and financialisation, only for the underlying contradictions to explode in 2008. The 2005 article's logic is vindicated and extended.
  • On the long-term crisis: Subsequent pieces develop the argument that the post-2008 period is not a recovery but a protracted depression, with repeated bubbles (quantitative easing, tech stocks, crypto) and ever-lower growth.
  • On imperialism and trade wars: The article's mention of "cut-throat" competition between Europe and America is developed in later analyses of US-China rivalry, tariffs, and the fracturing of global supply chains.
  • Against the Stream episodes: The podcast regularly returns to the theme of bubbles and crisis, updating the analysis for each new conjuncture — from the 2020 COVID crash to the 2022–23 interest rate hikes.

Connections

  • Marx, Capital Volume III: On credit, fictitious capital, and the tendency of the rate of profit to fall. The article's implicit framework is Marx's analysis of how overaccumulation drives capital into speculative outlets.
  • Hilferding, Finance Capital: On the fusion of industrial and banking capital and the role of speculation in the monopoly stage.
  • Galbraith, A Short History of Financial Euphoria: Cited in the article, this work provides historical parallels that reinforce the Marxist critique of bubble ideology.
  • Minsky, Stabilizing an Unstable Economy: Though not a Marxist, Minsky's financial instability hypothesis is compatible with the article's emphasis on debt-driven bubbles and the inevitability of crisis.
  • Other IDOM articles: "The 2008 Crash: Ten Years On," "The Long Depression," "Bubbles, Busts and the Crisis of Capitalism" — all develop the same theoretical line across different conjunctures.
  • Against the Stream episodes: "Is the Boom Real?" (2021), "The Next Crash" (2023), "Crisis and the Working Class" (2024).

Key Quotes

  1. "The British economic recovery - heralded by Gordon Brown - is hanging by a thread. It rests on the fragile foundations of a consumer boom in Britain, and far more importantly, in the United States."

  2. "America, in turn, has become the global economy's buyer of last resort, soaking up the goods churned out by factories in Japan, Germany, Indonesia, South Korea and Brazil."

  3. "With a price-earnings ratio of more than 35 times and an income yield of just 1%, Congdon says, Wall Street 'is just not expensive: it has never been remotely like this before.'"

  4. "No speculative bubble has ever broken gently. From the Tulip Mania of the 1630s to the South Sea Bubble, through the Railway Mania of the 1840s to the Wall Street Crash of 1929, and from the Japanese crash of 1990 to the S. E. Asian crisis of 1997, all have had huge economic ramifications."

  5. "The signs of a revival in S.E. Asia and in Europe are being heralded as a turnaround for world capitalism. But the underlying problem of overproduction still remains, and will be exacerbated with these countries struggling to sell their cheapened commodities on the world market."

  6. "Slump and crisis is endemic to capitalism. Only socialist policies can resolve the problems facing the working class here and abroad."