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World capitalism in crisis Part One

Marxist Analysis · 2008-09-26

Core Argument

Alan Woods argues that the 2008 financial crisis is not a liquidity problem or a failure of confidence, but the inevitable result of the internal contradictions of capitalism — specifically, the explosive growth of fictitious capital during a long speculative boom that could not be sustained. The central thesis is that the crisis is systemic, not accidental. The bailout of Wall Street by the US government is not a solution but a transfer of losses from the capitalist class to the working class — "socialism for the rich and free market economics for the poor." Woods insists that no amount of state intervention can resolve the underlying crisis because the capitalist system is inherently anarchic and cannot be planned or regulated. The only genuine resolution would be the revolutionary overthrow of capitalism itself.

Theoretical Grounding

The article draws directly on Marx's analysis of fictitious capital and credit cycles, particularly from Capital, Volume 3, Chapters 30-32. Woods quotes Marx at length to show that crises are not primarily monetary phenomena but arise from the overextension of credit on the basis of real production. The distinction between money-capital and real capital is central: the vast sums circulating in derivatives and credit default swaps are not real wealth but claims on future surplus value that cannot be realised when the underlying production falters.

The analysis also draws on the Marxist theory of monopoly capitalism and the dominance of finance capital. Woods situates the crisis within the long-term tendency of the rate of profit to fall, which drives capitalists to seek speculative outlets when productive investment becomes unprofitable. The low interest rate policy of the Federal Reserve is presented not as a policy error but as a symptom of overaccumulation: there was too much capital chasing too few profitable investment opportunities.

The article is firmly within the Trotskyist tradition of political economy, rejecting Keynesian or reformist solutions as incapable of addressing the root causes of crisis. It treats the state as an instrument of class rule, not a neutral arbiter.

Conjunctural Relevance

Written on 26 September 2008, the article captures the precise moment when the financial panic was at its peak. Woods references specific events: the collapse of Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae, Freddie Mac, and Washington Mutual; the $700 billion Troubled Asset Relief Program (TARP) proposal; the protests by New York construction workers and unionists outside the New York Stock Exchange; and the political deadlock in Congress between Democrats and Republicans over bailout conditions.

Woods notes that the fall in US house prices in early 2008 (14.1% officially, 16% in real terms) had already exceeded the worst point of the Great Depression (10.5% in 1932). He highlights the $90 trillion notional value of the credit default swap market — more than double the total outstanding credit in the world — as a measure of the fragility of the entire financial system.

The article also anticipates the geopolitical shift in wealth towards Asia, noting that Morgan Stanley's search for capital in Asia "underlined how quickly the world's wealth was moving away from the US."

Where the Argument Continues

The article is explicitly Part One of a two-part series. Part Two, also by Alan Woods and published the same day, develops the argument further, examining the international dimensions of the crisis and the prospects for working-class resistance. The article also references several other pieces published on marxist.com in the same period:

  • Mick Brooks, "Bail-out blackmail" (25 September 2008)
  • Mick Brooks, "Fannie and Freddie nationalised – let's take over the rest" (8 September 2008)
  • Michael Roberts, "Socialism for the rich, capitalism for the poor!" (22 September 2008)
  • Michael Roberts, "Financial meltdown deepens" (16 September 2008)
  • Michael Roberts, "The credit crunch – one year on" (16 September 2008)
  • Rob Sewell, "Capitalism has failed. Period" (22 September 2008)

The article also references Woods's own World Perspectives 2008, which had predicted the crisis earlier in the year. Readers seeking to understand the longer-term trajectory of the crisis should consult the broader corpus of Michael Roberts's work on the tendency of the rate of profit to fall, and the ongoing World Perspectives series published annually by the RCI.

Connections

The article should be read alongside:

  • Marx, Capital, Volume 3, Chapters 30-32 (on money-capital and fictitious capital)
  • Lenin, Imperialism, the Highest Stage of Capitalism (on the dominance of finance capital)
  • Trotsky, The Crisis of World Capitalism (1931) and The Third International After Lenin (on the relationship between economic crisis and revolutionary strategy)
  • Michael Roberts, The Great Recession: A Marxist View (2009) — a book-length treatment of the 2008 crisis
  • The annual World Perspectives series published by the RCI, which provides ongoing conjunctural analysis

The article also connects to the broader Marxist debate on the tendency of the rate of profit to fall, particularly the work of Andrew Kliman and Guglielmo Carchedi, though Woods does not engage this debate explicitly here.

Key Quotes

  1. "The present financial crisis, which was predicted by the Marxists long ago, is the direct result of a long period of uncontrolled speculation, which produced the biggest bubble in history."

  2. "This means nationalizing the losses and privatising the profits, or, to use the wonderful expression of Gore Vidal, socialism for the rich and free market economics for the poor."

  3. "The capitalist system is anarchic by its very nature. It can neither be planned nor regulated. The attempt to stabilize the financial sector by pumping in huge amounts of cash will only succeed in making the already super-rich richer still. But it will have no lasting effect on the market."

  4. "Marx pointed out long ago that the ideal of the bourgeois was to make money out of money, without going through the painful process of production. In the last period they appeared to have achieved this idea (except in China where there has been a real development of the productive forces)."

  5. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." (Marx, Capital, Vol. 3, quoted by Woods)

  6. "The bourgeoisie suffers from periodic bouts of manic depression, passing rapidly from extreme optimism to the depths of despair. On both sides of the Atlantic, where previously there was 'irrational exuberance', now there is gloom and doom."