RSA video and podcast of David Harvey on the credit crunch – David Harvey has read, re-read and taught Marx’s Capital every year for the last four decades. According to him ‘any sane person today would join an anti-capitalist organisation, because otherwise we are screwed’ (or something along those lines) –

And the podcast from Thinking Allowed –  http://www.bbc.co.uk/programmes/b00s3fzq

 My summary of the above two together – These are relevant to the question ‘Assess the relevance of Marxist theory to an understanding of contemporary society’

This is really quite advanced stuff for an A level student – and quite difficult to understand – I will try and clarify if you don’t get it – catch me at the end of the day sometime!

David Harvey’s basic theory is that Capitalism is a system that grows in boom-bust cycles – the bust phase being what is commonly known as an ‘economic crisis’, which typically requires Nation States to step in and ‘rebalance’ the system to get economic growth going again.  The problem is that the solutions to one economic crisis simply lay the foundations for another crisis, or downturn in economic growth, at some future point in another part of the world, or another sector of the economy.

David Harvey demonstrates one way in which Marxist theory is still relevant to understanding contemporary events – Here is how Harvey explains the ‘credit crunch’ in Marxist terms –

He starts off by pointing out that ‘the excessive power of finance capital’ is the root problem of the current crisis – In other words the banking and credit industries who lend money had (and still arguably have) too much power – but how did this happen?

Harvey goes back to another ‘economic crisis’ in the 1970s to explain this. At this point in history, he points out that wages, especially in the manufacturing sectors, in Europe were too high in order for Capitalists to make a profit. This crisis was solved by outsourcing manufacturing to the developing world where labour is cheaper and a combination of high unemployment in the West and Thatcher breaking the power of unions in the 1980s. This then meant that overall labour costs were lower, restoring profitability and economic growth.

However, wages provide people with the money that buys goods – thus a reduction in wages lead to a reduction in the demand for goods and services, which again reduces profit for Capitalists –

The solution to this problem was ‘pumping up the credit economy’ – or encouraging consumers to get out their credit cards and take on more debt.  The average British household has trebled its debt in the last thirty or forty years, most of this debt being in the form of mortgages, which most of us regard as a normal part of adult life.

The end result of this is that the banking and finance sectors have grown massively in recent years – before the credit crunch, in the mid 2000s, they represented 30% of the British economy. The profits of these industries have soared in 1990s – whereas manufacturing profits were declining and Harvey argues that Britain has screwed the manufacturing industry to keep the financiers happy –

Something else that happened in the last decade was the ‘deregulation of the finance sector’ – banks and hedge funds were given more freedom to lend – and many banks such as Northern Rock did so to people who could not realistically afford to pay back what they borrowed – eventually people woke up to this fact and the banking sector of the economy started to collapse (economic growth based on debt which needs to be repaid – once it’s realised this can’t be repaid it causes a crash)

Of course in Britain, this was a disaster, because baking  represented 30% of our economy – so the government bailed the banks out – and now we have a massive national debt – and what are the Tories doing – cutting our public services by 25% and raising the pension age so we, the tax payer,  can pay for this.

What are we actually paying for – the billions of pounds of profit that the heads of banks have taken in wages and bonuses over the last two decades. We are paying for them – The unequal accumulation of wealth has not stopped – in 2009 more billionaires were created in India than ever and in the same year the managers of the 5 biggest hedge funds in the world shared bonuses of $15 billion.

The wealthy are doing fine out of the credit crunch, while we the people, in our ignorance of how Thatcher and the Bliar pimped our nation to the transnational capitalist class over the last three decades, pick up the bill for their wealth years later.  

Harvey’s theory is that Capitalism can never solve its own crisis problems – it just moves them around geographically – eventually it is the little man that gets shafted while the wealthy just go on getting wealthier. This is classic Marx – all that has really happened since his day is that Capitalism has become more complex, some may say convoluted, but at its root – Capital will always make the little man pay for his wealth accumulation.

Harvey argues that any sensible person right now would join an anti capitalist organisation. If you decide to join one, an interesting debate would be ‘what level of violence is it acceptable to use against the Capitalist class and their Tory apologists in order to get your money back?’

Of course Harvey has his critics, and you might like to read the commentary below the video…