AFSCME Local 444 retired
Whenever I feel a little demoralized or begin to question whether the struggle for a better, more humane world may come to naught, I can always find relief within the serious journals of capitalism. For it is in these journals that the ideas of Karl Marx are confirmed to me. Nothing is guaranteed of course. Capitalism may well destroy life as we know it through its devastating effect on the environment. But once the problem is understood, once the way the world works is laid bare for all to see, then, like the drug addict who finally admits that he has an addiction, a solution is possible. Marx the philosopher provided the basis for a solution.
The U.S. is currently going through a major economic crisis that most agree has its roots in the housing industry. As we know, housing is a private business. The production of shelter in capitalist society, particularly in the U.S, the belly of the beast, is set in to motion by individuals or groups of individuals whose sole aim is to reap return on their investment, on the capital they invest in this venture.
Business Week, a major journal of the U.S. capitalist class, has as its cover story for its October 10th issue, an article on the housing crash. (1) In the same issue, it makes the point that there is a "mountain of homes on the market" (2). Why, one might ask, are there homeless people? Why do people have to spend more and more time at work simply to provide shelter for themselves and their families? The answer to that is not complicated. The production of shelter in capitalist society is not for shelter; it is for profit, shelter is incidental to it.
The article gives some examples of the severity of the crash as some homebuilders are slashing prices drastically; as much as $100,000 in some cases in what it calls “overbuilt areas.” Investors and big builders describe their present strategy as “shock treatment” in order to lower inventory. (We could be talking about cars or vacuum cleaners here couldn’t we?) They want to take the losses quickly and return to a market where consumption resumes and profit can be made once more. ‘They’re better off clearing the showrooms than sitting on an asset that’s likely wasting.” comments Lawrence White, an economist whose role it is to give the system and the capitalist class confidence and ideological justification for its existence. “That’s like idle capacity on a factory floor.” he adds.
So to deal with what Marx called, overproduction, they need to reduce the excess supply over demand. Business Week points out that this price slashing is extreme but if “price cuts aren’t deep enough or builders don’t rein in production enough, they won’t clear out the glut of unsold homes.”
But as extreme as this measure is, the authors point out that profit margins were as high as 35% at the boom’s peak and the “shock treatment”, selling the home at what they describe as “fire sale prices” pushes them down close to “nil”. Close to nil is not nil and it is not losing your home. And what about past gains? How many billions have they made in interest from the wageworker that pays that mortgage? One can only imagine the vast sums that have been made by speculators and investors in this housing boom. This “shock treatment” is designed to get their pain over with quickly in order to return to the trough and feed off the backs of workers and the middle class that need shelter.
Cutting prices in this way, in “one fell swoop” as BW describes it, forces working people who are trying to sell their homes to do the same in order to avoid bankruptcy or owing more to a moneylender than their home is worth. Of course, this has a far more devastating effect on workers, the homeowners, than the capitalist. Business Week admits that this can be a “severe psychological blow” and adds that “for some homeowners, it’s a catastrophic financial blow as well.”
“Homeowners are always slower than builders to bite the bullet and cut their asking prices”, the authors inform us. This is a problem for the builders/investors as it slows the reduction in the surplus, therefore lengthening the time it will take for a return to consumption and profit taking. It could mean that margins that are close to nil could drop to nil minus 5 or nil minus 10 therefore threatening their shelter. It’s one thing to not make as much profit but losing one’s home; ouch!
This is why homeowners are “slower” than builders and those that invest in the production of housing or buy individual units for investment. For most homeowners they are selling the roof over their heads, their shelter. It is only natural that people would try to keep themselves and their families housed as long as possible. Other than equity in the home itself, which may or may not have reached the level that afforded the homeowner some extra cash to take that vacation or buy that car, or in many cases, get that medical procedure they so desperately needed, the motivation for buying a home was for shelter for them and their family not an investment, an act of throwing money in to circulation in order for it to return to them multiplied. They are wage earners predominantly.
So the days have gone when prospective homebuyers would camp outside developments to “bid on dirt lots” writes BW. Instead, homeowners are desperately trying to keep their heads above water. The article then goes on to describe how the collapse has affected one worker, a cocktail waitress with 20 years on the job. The house she paid $367, 000 for, putting down $77,000 of her hard earned money is now worth about $60,000 less. She Lives in Las Vegas where foreclosures are the highest in the nation and has unfortunately developed cancer forcing her to miss work. The moneylenders never miss an opportunity though and she’s surviving on credit cards. You can bet that in the main, the same people who lent her the money for her home are the same who invest in her casino and probably don’t pay her while she’s off sick and the same people who lend her the credit card money that is temporarily helping her survive. They are the owners of capital.
No doubt this is an example, one of millions, of what the authors of this article describe as “a catastrophic financial blow.” In case any of its readers may feel a pang of remorse, or worse, question their actions or the society in which they live, the authors bring in the heavies to remind their class that there is no alternative, that this crisis is as natural as daybreak and that the times of easy money, of earning money without having to work for it, will return. “As painful as situations are, however, the excesses must be wrung out of the market before the sector or broader economy can recover. It’s unfortunately a necessary part of the process.” Says Richard DeKaser, a economist for one of the large moneylenders. And all will be well, adds Daniel Oppenheim, a Banc of America analyst, “There are a few weak rays of light at the end of the tunnel…..Builders are taking the painful step of cutting production……Builders definitely responded more quickly this time, and that’s a good thing.”
Why is this occurring: billions of dollars wasted, millions suffering catastrophic psychological and financial disaster. Surely, this type of social upheaval must have a devastating effect on personal relations, the family and our children. This type of existence must also have an effect on personal health. Alcoholism, smoking, stress, the lack of security, the fear of getting sick or becoming homeless are also by-products of this social phenomena, the business cycle.
If we know that these events occur on a regular basis, surely we can prevent them. We can prevent them, but capitalism cannot prevent them. Overproduction, the excess of supply over demand, meaning that the capitalists cannot sell their products, has its roots in the private ownership of the means of production, an integral part of the market economy. They cannot sell them because workers, the overwhelming majority of consumers, are not able to buy them, not because we don’t need them. As the homes lay empty, millions of homeless walk our streets. Meanwhile, the dashing mayor of San Francisco is waging a war against the homeless, driving them from sight to who knows where, while the media pushes the idea that they are homeless due to their own personal failings.
As thousands of savers lined up at a British bank that went under due to the U.S. subprime crash, speculators in London were rejoicing as they made millions betting that these loans would default. Is this a productive activity? Is this the end of civilization?
The housing crisis and any other catastrophic economic crises are avoidable. They are not acts God. They are the natural consequences of the so-called free market. The free market has devastating effects on the majority of the world’s people’s. Hunger, poverty, disease; these are all caused by the market and are preventable.
Production under capitalism is set in to motion for the purpose of private accumulation but for public consumption. This is a contradiction that has to be resolved. And the way to resolve it is to take the financial institutions housing, agriculture, manufacturing, in other words, the production of life’s necessities out of private hands and place them under working people’s management and control.
Capital and its allocation, what we do with the resources, the wealth we create, must also be collectivized and placed under the control and management of working people.
A struggle to regulate and to curb excesses is obviously a positive struggle, and, can be somewhat successful in alleviating some of the worst market horrors. We learn though struggle. In the quest for a better life, questions are raised about the system itself. But the ruling class controls the manufacture of ideas. The dominant ideology in society is the ideology of the ruling class and every ruling class from the slave owners of ancient Greece to today’s capitalists perpetuate the idea that their social system is the end of history; that there is no other way. But we must reject this and recognize that despite great efforts to reform it, we cannot make capitalism friendly. We cannot make it humane, it is inherently vicious and in its present stage completely rotten.
Marx, more than any other philosopher or economist, examined the present economic system with a magnifying glass, figured out how it worked and offered a future. Not the future that Stalin represented although, just as dictators in a capitalist economy share traits of capitalist democracy, the system that existed under Stalin shared traits of a socialist and planned economy. We can learn from the betrayal of that revolution, especially that it was not the planned economy that was at fault.
As we read about the present crisis we should review what Marx wrote over 150 years ago. He wrote of the economic crisis that he noticed occurring around him. It is a long quote but it is worth reading as is the entire little piece it came from, The Communist Manifesto. When I was young I refused to read this book because of Stalinism, but on reading it I realized that Stalinism could not be what Marx was describing.
“For many a decade past the history of industry and commerce is but the history of the revolt of modern productive forces against modern conditions of production, against the property relations that are the conditions for the existence of the bourgeois and of its rule. It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”
Manifesto of The Communist Party K. Marx F. Engels 1848
(1) That Sinking Feeling. Business Week, 10-6-06
(2) ibid Business Outlook