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The class struggle and the economic cycle Once again on the World Economy

Marxist Analysis · 2026-05-13

Core Argument

The central thesis is that the so-called "New Economic Paradigm" — the claim that information technology and globalisation have abolished the boom-slump cycle — is a bourgeois illusion that will be shattered by an inevitable crisis. Woods and Grant argue that the present boom, far from representing a qualitative break with previous capitalist expansions, exhibits all the classic contradictions identified by Marx: over-investment in a single sector (information technology), a massive expansion of fictitious capital on the stock exchanges, an unprecedented growth of private and corporate debt, and a systematic squeeze on wages that has driven productivity gains without corresponding increases in working-class living standards. The boom is a "colossus with feet of clay" — a speculative bubble that must burst, with the only question being the precise timing and severity of the crash.

The article insists that the continuation of the boom does not mean the class struggle is off the agenda. On the contrary, labour shortages, intensification of exploitation, and growing inequality are already producing a "molecular process of revolution" — a ferment visible in Seattle, the Austrian protests, and the Business Week poll showing 72% of Americans believe big business has too much power. The slump, when it comes, will not automatically produce revolution, but it will shatter the psychological foundations of bourgeois rule, particularly in the United States, where illusions in the market have sunk deepest roots.

Theoretical Grounding

The analysis is grounded in Marx's theory of the trade cycle as elaborated in Capital, particularly Volume III. The key concepts deployed are:

  • Fictitious capital: The stock market boom is understood not as a reflection of real wealth creation but as a speculative bubble in which shares are "paper money with no real value." The $92 trillion derivatives market is cited as the most extreme expression of this phenomenon.

  • The contradiction between production and consumption: The boom is driven by investment in Department I (means of production), particularly IT, but this cannot escape the fundamental contradiction between capital's drive for unlimited surplus value and the limited consuming power of the masses. The article explicitly rejects the claim that just-in-time production has abolished overproduction.

  • Absolute and relative surplus value: Much of the productivity gain attributed to new technology is actually the result of intensified exploitation — longer working hours, greater pressure on muscles and nerves. The official US working week has risen from 40 to 50 hours.

  • The role of credit: Credit is understood as the mechanism by which capital temporarily expands the market beyond its natural limits, but this debt must eventually be repaid. The article draws a direct parallel between the US in 2000 and Japan in the 1980s, where a similar credit-fuelled bubble led to a decade-long depression.

  • The tendency of the rate of profit to fall: This is referenced via the bourgeois concept of "diminishing returns" and through Michael Roberts' accompanying analysis. The falling rate of return on new technology investment is identified as the point at which the boom will turn.

The article situates itself within the Marxist tradition that insists on the concrete analysis of each cycle rather than mechanical prediction. It frankly admits an earlier error in timing the recession, but argues this does not invalidate the method. The broader theoretical framework draws on Trotsky's concept of the "molecular process of revolution" and Lenin's dictum that "politics is concentrated economics" — while warning against a mechanical reading of this relationship.

Conjunctural Relevance

The article was written in October 2000, at what it correctly identifies as the peak of the dot-com boom. The specific conjunctural features it analyses are:

  • The US economy as the sole motor of global growth: The boom is overwhelmingly American. Europe has only recently begun to participate, Japan remains mired in a decade-long recession, and the Asian "miracle" has already collapsed. This makes the US the single point of failure for the entire world economy.

  • The IT sector as both driver and vulnerability: The entire expansion depends on one sector — information technology. Venture capital investment reached $45 billion in 1999, up from $3.7 billion in 1990. But many "new economy" firms (Amazon, Priceline) have yet to earn any profit. The Nasdaq has already fallen 27% from its March 2000 peak.

  • Unprecedented debt levels: US private debt stands at 132% of GDP. Household debt has risen from 85% of personal income in 1992 to 103% in 1999. 54% of American household income now comes from the stock market — a staggering vulnerability.

  • The dollar-Euro contradiction: The weak Euro is boosting European exports but importing inflation, forcing the European Central Bank to keep interest rates high. The US current account deficit is 4% of GDP, and America's total foreign liabilities stand at $1.5 trillion.

  • Growing class struggle beneath the surface: The article cites the Business Week poll showing 72% of Americans think big business has too much power, the Verizon strike, the Seattle WTO protests, the Austrian protests against Haider, the Ecuadorian revolution, and the Paddington rail crash as symptoms of a "molecular process of revolution" already underway.

The article's prediction — that a serious slump is inevitable, that it will be deepest in the US, and that it will have profound political consequences — was borne out by the 2001 recession and the subsequent collapse of the dot-com bubble, though the article underestimated the extent to which the Federal Reserve's response (aggressive interest rate cuts) would prevent a full-scale depression.

Where the Argument Continues

The article is part of a sustained series of economic analyses by Woods, Grant, and Roberts. The argument continues in:

  • "On a Knife's Edge" (earlier document referenced multiple times): Establishes the framework for understanding the cycle and the role of the Asian crisis.

  • Michael Roberts' "From Bulls to Bears" (appended to the original publication): Provides the detailed statistical analysis of the falling rate of profit that the Woods/Grant article presupposes.

  • "The New World Disorder" (referenced in passing): Explains why the path of war, taken in 1914 and 1939, is now closed to the ruling class.

  • Ted Grant's "Will There Be a Slump?" (written in the 1950s): The earlier prediction that Keynesian policies would inevitably lead to inflation and crisis, which the article cites as vindicated.

The article leaves open the question of whether the slump will be a "soft landing" or a deep depression, and whether the Fed will cut or raise interest rates when the crisis hits. It also does not develop a detailed political programme for the period of crisis, beyond asserting the need to reunite the Marxist vanguard within the mass organisations of the working class.

Connections

  • Marx, Capital Volumes I-III: The theoretical foundation, particularly the analysis of the trade cycle, fictitious capital, and the tendency of the rate of profit to fall.

  • Trotsky, "The Molecular Process of Revolution": The concept used to explain the ferment beneath the surface of the boom.

  • Engels, Capital Volume III (Supplement): The reference to Lancashire cotton manufacturers' illusions about the Chinese market.

  • Michael Roberts: His accompanying article provides the empirical backbone for the rate of profit analysis. His later work on the long downturn develops the themes introduced here.

  • Business Week, The Economist: The article relies heavily on bourgeois sources to make its case, quoting Mandel's "The Coming Internet Depression" and the Business Week poll at length. This is a deliberate method — showing that even the most intelligent representatives of capital recognise the unsustainability of the boom.

  • Hegel: The observation that "nobody has ever learnt anything from history" is used to puncture the claim that the ruling class has "learned the lessons" of 1929.

Key Quotes

  1. "Contrary to the protestations that 'the fundamentals are sound', the present boom is a colossus with feet of clay. We have already explained in earlier documents that a large part of the money that is invested in the Stock Exchange is what Marx called fictitious capital - paper money with no real value."

  2. "The main reason why people in the USA are spending so much is the Stock Market boom which seems to provide people with a never-ending supply of new purchasing power... But there is another side to this phenomenon. If there is as much as a dip in the Stock Exchange, or even if it just stops growing, the effect on the market will be immediate and severe."

  3. "The defenders of the NEP insist that there have been fundamental changes in the US economy. There have undoubtedly been some changes... For example, there have been changes in the workforce. A very large part of the workforce - not only the American, but particularly the American - no longer consists of full time workers with long-term contracts... We must ask ourselves what happens when this boom begins to get into trouble?"

  4. "The American economy is already displaying many of the symptoms associated with the peak of a boom. Growth is more than five percent - well above what is considered to be a sustainable rate - while unemployment is at a record low and labour shortages have begun to appear. Commodity prices - notably oil - have started to rise, and wages must inevitably follow."

  5. "The whole history of crises shows that the central banks rarely do the right thing at the decisive moment... The behaviour of the monetary authorities is also rooted in the objective situation. Once the slump starts, the key decisions are to a large extent taken out of Greenspan's hands. They will be taken for him by the famous 'market forces'."

  6. "The collapse of the boom will undoubtedly have a fundamental effect, shaking up the psychology of all classes. The longer it is postponed, the higher the Stock Markets soar, the greater the likelihood of a hard landing at the end... When the dream of prosperity turns to ashes - which it will - the road will be open for a rapid transformation of the consciousness of millions of people, not only in the working class but also in the middle class. A lot of people can pass straight from Republicanism to revolution."