Crises of Capitalism and Revolutionary Situation
2 November 2003
The Role of Credit Mechanism in Exacerbating the Crisis
With the development and spread of the banking system, the work of allocating capital, which had previously been managed by private money lenders and individual capitalists, was taken over by banks that grew on substantial scales. Thus, banking system and credit mechanism became the strongest lever to push the capitalist production beyond its limits. With the utmost intensification and centralisation of capital in the age of imperialism, massive growth of banks and the domination of finance capital, the credit system gained central importance in the workings of capitalism. The need for loans grew incredibly as a result of the fact that capitalist production and trade made colossal progress not only within national borders but also on an international level.
Credit occupies a very significant role in the history of the development of capitalism. Marx points out that competition and the credit system, the two most powerful levers of centralisation, develop in line with the development of capitalist production and accumulation. Having furtively crept in as the humble assistant of accumulation in early stages, the credit system, with its invisible strings, now increasingly channels the sources of money, spread around the society in large or small amounts, into the hands of individual or associated capitalists. But, says Marx, “it soon becomes a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralisation of capitals.”
The imperialist stage of capitalism lays bare that the credit system is used in attempts to overcome the inevitable barriers that confront the capitalist market due to the conflict between overproduction and the limited purchasing power of the masses. But, credit has by no means eliminated the source of capitalist crises. On the contrary, the attempts to postpone or alleviate crises by such means have prepared the grounds for greater ones.
Credit system enables larger investments which increase the organic composition of capital, and consequently, reduce the rate of profit. Marx points out that as the capitalists are compelled to utilize enormous means of production on larger scales and to set in motion all the mainsprings of credit to this end, there occurs an increase in industrial quakes. Since the expansion of markets falls behind the enormous growth in production. At this point it becomes necessary to avoid some misunderstandings. Market question does not, as once falsely alleged by Narodniks, arise from the shrinkage of market as a result of capitalist development. As pointed out by Lenin during his struggle against such misconceptions of Narodniks, capitalist development, in fact, expands the market. But, this expansion always lags behind the colossal growth of the productive forces.
As production piles up along with capitalist development, there occurs an ever-growing need for larger markets. Hence, each depression leads the capitalist system to incorporate new markets which remains uncaptured or partially exploited. And therefore, as the capitalist system matures, relieving potentials become scarce. In the words of Marx, “the world market becomes more and more contracted, fewer and fewer markets remain available for exploitation”. Precisely because of this conflict, depressions become more frequent and severe. In the end, the maturation of the world capitalist system is accompanied by imperialist wars that are provoked by imperialist powers for the purpose of creating new markets and re-dividing the existing ones.
Credit system serves as a catalyst in the capitalist reproduction process. Therefore, it aggravates the problem of overproduction and speculation. Marx explains that the credit system accelerates the material development of productive forces and creation of the world market. It is the very historical task of the capitalist mode of production to bring its material foundations to such a level of development. But at the same time, the credit mechanism accelerates the capitalist depressions and creates the elements of dissolution of the old mode of production. Hence, as if denying itself in one sense, it prepares the ground for the transition to a new mode of production. Marx explains the two characteristics immanent in the credit system in his following words: “The two characteristics immanent in the credit system are, on the one hand, to develop the incentive of capitalist production, enrichment through exploitation of the labour force of others, to the purest and most colossal forms of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth; on the other hand, to constitute the form of transition to a new form of production.”
Credit system stimulates production by resolving the funding problem of capitalists who desire to make investments in various industries. Besides, it also stimulates consumption of broad masses by spreading buying on credit. Hence, it appears to be providing a remedy for depressions of capitalism, whereas, in fact, it exacerbates them. Whether in the form of investment credit or consumer credit, in reality, there is no way of keeping the credit taps turned on indefinitely. In order that banks and credit institutions maintain the credit system, the amounts of credit they lend must be repaid with interest. As repayment problems pile up, credit expansion would cease and credit taps would be tightened. In a system where the sustainability of the reproduction process is based on credit, it is inevitable that a depression emerges with suddenly tightening credit taps. This is precisely the reason why the capitalist crisis seems at first to be a cash and credit depression, although, in fact, it builds up in the form of overproduction. Resulting from the falling rate of profit and rising interest rates, the accelerating speculation in stock markets attracts significant amounts of money-capital in such periods. In reality, however, the “excess profit” in stock markets is of speculative character, not stemming from an expansion of the production process. And, it suddenly collapses as the depression breaks out in the stock markets.
With depression, the credit system suffers an enormous collapse: “The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.” Serving as a lever for pushing the capitalist production process beyond the obstacle of private property and national boundaries, the credit system accelerates the expansion of capitalism on a world scale on the one hand, and provides the basis on which crises that break out in different countries grow in a much more deeper way into a global crisis on the other. Once depression breaks out, “it then becomes evident that all these nations have simultaneously over-exported (thus over-produced) and over-imported (thus over-traded), that prices were inflated in all of them, and credit stretched too far. And the same break-down takes place in all of them.”
It is common knowledge that the United States has been the driving force of the long-term economic growth in the aftermath of the Second World War. In the United States, where one-fifth of total world output is supplied, the credit mechanism is the main factor that keeps the market buoyant despite ebbs and flows of industrial cycles. For this reason, the US economy has occupied the first place in terms of the amount of consumer and corporation loans. The reality behind the boom in 1990s and its unexpectedly protracted character was also the credit mechanism. These years saw a gigantic rise in consumer credits in almost all capitalist countries. Thus, the spending capacity of the working class and toiling masses, who in fact had very limited purchasing power, has been inflated through credit mechanism. During this “consumption frenzy” created by the capitalist system, broad masses kept the capitalist economy buoyant for a long time, ignoring the fact that the credits were to be repaid with interest.
But, just as it is impossible to escape natural laws through daydreaming, it is also impossible to avoid the disastrous results of inner laws of capitalism. In the face of inevitable obstacles resulting from these laws, the economic growth cannot be sustained forever by means of credit pumping. The recession in the markets can be postponed by increasing government expenditures and inflating credits, but this works only up to a point. In fact, the problems, which seem to be postponed for a period, constitute a hazard that poses threats to the global banking system in the form of bankruptcies in sequence and collapse. With loans not repaid reaching enormous amounts, things change into their opposite. As new credits cease to be available on the one hand, the sums of debts, grown like a snowball with accumulated interests, draw broad masses into destruction. This results in sudden and large scale shrinkages in demand. What becomes apparent in such a situation is an uncontrollable tendency towards depression, which deepens more and more with interactive effects among aforementioned factors becoming ever-more adverse. Indeed, “the disaster”, from which Japan has been suffering since a long time, has finally reared its head in the United States. And together with its tremors, this driving force of the global economy has now drifted the entire capitalist system into a turbulent period.
 Marx, Capital, Vol.1, p.435
 Marx, “Wage Labour and Capital”, CW, Vol.9, p.228
 Marx, Capital, Vol.3, p.306
 Marx, Capital, Vol.3, p.173
 Marx, Capital, Vol.3, p.337
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