2008 : The spectre of Karl Marx returned.

From the Commune, May 2009, a view presented at the outset of the Great Recession.


In January 2007, the Financial Times, declared that emerging market economies would continue to power ahead. Capitalism was triumphant. The ghost of Karl Marx had been laid to rest. But then just when the progress of the unfettered market appeared unstoppable it spectacularly crashed.  Some of the world’s biggest banks collapsed. The housing and credit bubble burst. In September 2008, Northern Rock in Britain and Fannie Mae and Freddie Mac in the USA were rescued by governments with huge sums of tax payers money. The Bradford and Bingley building society was salvaged by the state and the Lehman Brothers financial empire fell to the ground. Alan Greenspan, former chairman of the federal bank, in the USA, confessed that his free market confidence in the self-interest of bankers had been wrong. (1)

Bourgeois politicians were forced to eat their words and stand on their heads. The mantra of government economic intervention bad, free markets good, heard for over two decades was replaced by nationalization of banks and government bailouts for failing capitalists and capitalism. In October 2008 the New Labour government, a champion of the free market for a decade, bailed out leading banks with £50 billion. This was only the first bailout. Another bailout followed only months later. The Neo-Liberal free market melt down was so shocking that The Times carried a portrait of Karl Marx with the words: ‘he is back’. (2)



The spectre of Marx brought the fear that the Neo-Liberal theory of the end of history or the prediction that there was no alternative was  ideology or  a class bound set of ideas which mystified  history. Neo-Liberalism was an ideological god that has failed. This is a judgment not from a marxist revolutionary, but an assessment from the Financial Times economics editor, Martin Wolf. In the conservative view of Martin Wolf, “we are facing the deepest, broadest and most dangerous financial crisis since the 1930s”. (3) The IMF is predicting a downturn of 3% to 3.5% in economic growth, in 2009, in the advanced economies.

Martin Wolf is not  confident that the bank rescue plan of the Obama administration in the USA will work. In a moment of Neo-Liberal regression he declares that the US fiscal rescue package is not a true market mechanism.What is truly frightening for Martin Wolf is the ideological vacuum. Whereas previously there was a kind of fairness in the market, and everyone was free to fail or succeed according to their competencies or risk taking, now failure had been rewarded with huge sums of money in tax funded bonuses to bankers. This has undermined capitalist legitimacy. There is a lot of public anger which could become dangerous.

There is serious uncertainty in governments world-wide, particularly in Europe and the USA about what can be put in the place of free market economics. Political commentators such as Seumas Milne  believe it is free market capitalism that is bankrupt not capitalism.(4) Keynes is back, not Marx. A new regulated capitalism is required. It is 35 years since Jim Callaghan, the Old Labour prime minister, bowed to Neo Liberalism and declared that the Labour Party could not spend its way out of a crisis.  But at the G20 summit, summoned at the end of 2008 after the economic tsunami had struck, New Labour leader, Gordon Brown, an ideological son of Thatcher, turned his ideology upside down, advocating that international governments should spend their way out of recession. Only in that way could the globalized economy survive.

Many commentators were hoping that a new Bretton Woods agreement would emerge from this gathering of the world’s leading bourgeois politicians. However, there was no agreement on a global fiscal rescue package. There were also protectionist undercurrents. The political leaders of France and Germany, two countries with a strong manufacturing base who were arguably less damaged by the economic tornado, were more reluctant to pour public tax payers’ money into the  pockets of bankers. Shortly before the G20 summit was reconvened in April 2009 – where Gordon Brown intended to save the financial world with state subsidies – there was, in the words of Vince Cable, the Liberal Democrats Treasury spokesperson, ‘a very British coup’, in which Mervyn King, the governor of the Bank of England, sent his tanks down the Mall, stating that Britain could not afford another state financial stimulus.

What we are faced with is a structural crisis of capital accumulation: a historical turning point. The rise to power of Neo-Liberalism began with a similar if less profound crisis in the mid 1970s. The capitalist system did not crash, but sunk into a malaise of inflation and stagnation. Keynesian-influenced economic intervention in capitalist markets was perceived to have failed. Britain was economically bankrupt and bailed out by the IMF in 1976. Dennis Healy, stated that the Keynesian spending party was over. Earlier in 1973, in Chile,  there had been the pioneering experiment in Neo-Liberal state building and economic deregulation with privatization of state assets. This was on the back of a US and CIA inspired military coup led by General Pinochet, Thatcher’s  friend. The Chicago boys, economists trained in the Neo-Liberal economics of Milton Friedman, reconstructed the Chilean economy along monetarist lines following the bloody suppression of the ‘enemy within’, or the organised workers’ movement.

Friedman had been a liberal voice in the wilderness in the 1950s and 1960s during the decades of the “post war settlement”, or the high point of Keynesian welfare capitalism, along with the other guru of the Neo-Liberals, Friedrich Von Hayek, who had erroneously predicted that the extension of collectivism and state intervention in the west would lead to totalitarianism. Although Hayek and Friedman presented their Neo-Liberal views as fundamentally different from the politics and economics of the mixed economy, in fact, they are a variations on a capitalist theme. Keynes and Beveridge, the architects of welfare capitalism, were intellectual liberals. They wanted to save capitalism.

In the view of Keynes, left to it self, the capitalist market would implode. Unregulated capitalism had slumped in the 1930s with mass unemployment and the failure to reform orthodox economics and the state was a factor leading to the barbarism of the Second World War. The compromise between the forces of labour and capital following the war was based on the popular front against fascism. and  the politics of full employment and state intervention to modernise the capitalist state and society. This was embedded liberalism.

The capitalist golden age of the post war settlement was built on the financial agreements made by the world’s foremost capitalist states at Bretton Woods where the World Bank and the International Monetary Fund were established. The financial strength of the American dollar propped up other currencies. And the entire structure depended on the support of the military power of  American imperialism which enabled, amongst other things, the cheap and abundant supply of oil. The economic boom was related to the sheer physical destruction of the war and the loss of economic values. The arrangements were also predicated on the destruction of the organisations of the German working class by the Fascists and the role of Stalinism in France, Greece, Italy and elsewhere in holding back and undermining revolutionary threats to capitalism.

Historically the return to market intervention was a return to a previous form of capitalism. British capitalism did eventually turn to liberal internationalism in 1846 after 150 years of protectionism and state violence had placed it so far ahead of its competitors that there was no fear of competition. If embedded liberalism arose out of the ashes of the Second World War and the Great Depression, Neo-liberalism was born in the midst of the 1970s crisis of accumulation when Keynesianism proved unable to control inflation. Oil prices quadrupled in 1973 which reflected the decline in the military and political power of the USA. The financial bedrock of Bretton Woods, the convertibility of the dollar into gold, disintegrated in 1971.

The long boom was over. Keynesianism was stuck in orthodoxy and was unable to renew itself to creatively deal with new problems. There was a return to pre-Keynes Liberalism. The most influential Neo-Liberals were Frederick Hayek and Milton Friedman. There were differences between them, but here the focus is on their popular influence among politicians or a broad sketch of their main themes. Hayek and Friedman were passionately anti communist and hostile to socialism and most forms of collectivism. They were veteran propagandists for capitalism and were fighters for their pro capitalist views. They were conviction economists. They wanted to shape pubic opinion with “think tanks” and make their ideology synonymous with common sense and individual freedom. Faith or confidence in the spontaneous order of the free market had to be restored.

They asserted that markets were superior to the economic activity of the state.  The state and collectivism were to be rolled back. Industrial militancy and the enemy within had to be faced down. Privatisation and deregulation to free up markets were to be brought in. Stock values and finance were emphasized. Public expenditure was to be cut back to halt inflation. Taxes were to be cut. It has been calculated that between 1979 and 1986  in the UK “out of the £8.1 billion in tax cuts  nearly half went to the richest ten percent and almost two-thirds to the richest 20%”. (5) To control inflation, sound money was to be established and full employment to be abandoned as an aim. Unemployment and wages would find their “natural level”. Respect for profits and profitability were to be restored.

In Marxist terms, the reserve army of labour was to be re-established and the conditions to facilitate exploitation improved. The success of the capitalist offensive in rolling back the post war gains of the working class can be seen in Rosemary Crompton’s estimate that between 1979 and 1994, after housing costs the incomes of the richest 10% in the UK grew by over 60% while the poorest 10% fell by nearly 10% (p. 144). Yet in free market ideology, inequality generates general prosperity or the trickle down effect, and poverty is an individual failing, not a structural issue.

The spontaneous market leads to unintended outcomes so there is no intention to create inequality. So there cannot be injustice. Despite this ideological gloss, David Harvey (2007) provides the statistics that expose the international reality underneath the Neo-liberal propaganda for capitalism. “The net worth of the 358 richest people in 1996 was equal to the combined income of the poorest 43% of the world’s population a total of 2.3 billion people” . Some billionaires have a greater income than some countries’ GNP.

The ideology of Neo-Liberalism has debased the meaning of freedom to the advocacy of free enterprise and the market mechanism.  Thatcher famously declared that for her society did not exist. When she became prime minister in 1979 Thatcher boasted that she would significantly cut public expenditure and reduce the state sector. But after a decade of Neo-Liberal government,the overall size of the public sector was not reduced and state spending as a percentage of GDP remained at the same levels of expenditure as the first days of her conservative government. Thatcher’s flagship was the right to buy policy which was a large factor in her political support, but this was an individual form of state collectivism since state assets were sold at state subsidised prices at the expense of collective provision in the past and future. A case of the state expanding and rolling rightward. The agricultural sector or rich landowners were protected by the state from the full rigours of the market and vast amounts of public money was spent on the military and the Falklands War. And the full power of the state was mobilised to defeat the miners’ union and destroy mining communities. Later George W. Bush also introduced steel tariffs and other protectionist measures. Huge sums of public money were used to force Iraq to be “free”. State industry in Iraq was privatised by the occupying power and sold to foreign firms. So much for spontaneous market forces.

The ideological inspiration for the self-regulating free market is Adam Smith who famously declared in his Enquiry into the Wealth of Nations “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from regard to their own interest” .(7) For Smith it is not humanity which brings people together, but the self-centred instrumental use of other people.   Paradoxically self-interest left to itself or the natural propensity to truck and to barter resulted in the general good. There was a rational harmoniser at work to balance supply and demand like a law of gravity.

The 1998 Nobel Prize winner in economics, Amartya Sen, highlights that in the Theory of Moral Sentiments, Adam Smith “extensively investigated the powerful role of non-profit values” (8).Smith was not an apologist for capitalists in the manner of some of his admirers. He did not always side ideologically with the masters. For instance, he criticised capitalists who had tacit combinations to keep wages down while supporting the suppression of workers combinations or unions. The discovery of another side to Adam Smith seems to have become the main lesson of the crash for many commentators. As we have seen, Amartya Sen, for one, states that early advocates of the market such as “Smith did not take the pure market mechanism to be a free-standing performer of excellence, not did they take the profit motive to be all that is needed”. (9)

Hayek’s capital apologetics are circular definitions based on the assumption that the only rationality is free market anarchy.  For Hayek as long as it remains a spontaneous order, the particular results of the social process cannot be just or unjust. But the market is not free-standing, free of politics, a natural order or an ideologically neutral economic machine. If there are less job vacancies than job seekers, then there is collective unfreedom. The current crisis structured unemployment level is 2 million with a prediction of 3 million by the end of the year.

While in Hayek’s theory, capital is free to organise internationally, workers are not free in Hayek’s theory to organise solidarity action. Even peaceful picketing is coercive and wage militancy is dangerous and makes the market ineffective. Indeed, Hayek has no room for trade unions in his idealised free market or as he states “it would indeed be a highly desirable state of affairs if the workers should not feel the necessity to form unions” (10) Desirable for the bosses, but the workers did and do feel the necessity to join unions.

The current structural crisis of capitalism has shown the hollowness of free market propaganda. The April 2009 G20 summit of the world’s leading states has still not been able to find a new deal to rescue capitalism. As Chris Giles of the Financial Times noted, despite the huge amount of money earmarked to the IMF for crisis intervention, there has been no international agreement on specific measures to clear up international toxic debt.(11) There is also the spectre of the Great Depression with a growing protectionist mood. The World Bank has 73 examples of protectionism, including President Barack Obama signing into law ‘American clauses’ which discriminate against foreign suppliers.(12)

There is a growing perception that the economic collapse is not just part of a cycle of boom and bust, but a system failure. Sunk in astronomic debt and liability in trillions, what is the way out? Is capitalist austerity the only future? The capitalist honeymoon is over in Eastern Europe. Hungary might follow Iceland into national bankruptcy. There is mass unemployment in China. Will rural migrant workers still have a job to go back to in the world’s workshop, China‘s cities?(13) Over two million homes have been repossessed in the USA. A sober Financial Times journalist Dominique Moisi compared the mass anger against bankers in the USA to the mood during the French revolution. (14)

This might be a historical exaggeration, but it does indicate the transformation of public consciousness and the political radicalization taking place. Factory occupations have returned to the Britain. In France general strikes have taken place and more are planned. In Greece there have been riots. Capitalism has been seen to be inherently unstable, riddled with fraud, greed, and inequality. On a world scale capital has failed to satisfy the elementary requirements of humanity despite utilitarian talk of the happiness of the greatest number.

What has been visible recently is the fragility of capitalism and the open-ended nature of history. There has been talk of green shoots of economic recovery, but this is superficial speculation which reflects the effects of recent measures such as printing money.  But as Martin Weale, the director of the National Institute of Economic and Social Research explains, there are still headwinds ahead: a pause in the economy before resuming its decline.  The spectre of Karl Marx is back.

For Marx, the capitalist market system was not a spontaneous natural creation, but a coercive political process in which agricultural producers were separated from the land and the means of production, with nothing but labour power or ability to work in exchange for wages as proletarians. Whereas the  exchange of work for wages is formally equal in the market, in the sphere of production there is exploitation, oppression and alienation. Parliamentary democracy excludes the sphere of the workplace, where there is dependence and subordination. Capitalist economics are structurally separate from politics.

Communists argue for a qualitatively different democracy of the freely associated producers in institutions of popular power such as the Paris Commune or the Soviets of Russia 1917. Capitalism is not a permanent natural order, and socialism is still on the historical agenda. Not state-socialism which Marx opposed, but authentic socialism from below, the self emancipation of the working class.

Barry Biddulph 2009.


1 Andrew Clarke , The Guardian, October 24, 2008.

2 Editorial, The Financial  Times,21 October,2008.

3 Martin Wolf , The Financial Times, 25 March 2009.

4 Seumas Milne, The Guardian, October 23 2008.

5 Rosemary Crompton, Class and Stratification,Polity Cambridge,2008

6 David Harvey, Neo Liberalism, p.34

7 Adam Smith, The wealth of Nations, Oxford university press,2008,p.22

8 Amartya Sen,Financial Times,March 11,2009.

9Amartya Sen,New York Review of Books,march April 2009.

10 F.A. Heyek, The Constitution of Liberty, Routledge,1990,p.274.

11 Chris Giles,Financial Times, 3. April, 2009.

12 Editorial,Financial Times, 30 March,2009.

13 Editorial,Financial Times,3 April, 2009.

14 Domonique Moisi, Financial Times,3 April, 2009.

15 Daniel Pimlott, Financial Times,13 May ,2009.