THE present crisis of the advanced capitalist world differs from any preceding crisis; it represents a climacteric for capitalism, a major turning point in its entire history. For the first time in its history not only does capitalism not have any means of deliberately getting out of the crisis and initiating a new boom, but no such possible means are even visible on the horizon.
Laissez-faire capitalism in any case does not have any internal mechanism that would automatically end a crisis and start a new boom. The level of output and employment in such an economy depends upon the “state of confidence” of the capitalists. When their “state of confidence” is low, they refrain from undertaking investment expenditure, which keeps employment and output in investment goods production low; this, in turn, keeps down the demand for consumption goods, and hence the employment and output in the consumption goods sector. Thus the total employment and output in the economy is governed by the “state of confidence” of the capitalists, and a crisis is characterised by a particularly low “state of confidence”. In a laissez- faire capitalist economy caught in such a crisis, no internal mechanism exists for suddenly turning around the “state of confidence”, and hence for ending the crisis and starting a new boom.
Some would argue, against this, that new innovations are forever forthcoming, crisis or no crisis; and as new innovations become available, the prospects of profit-making, by introducing such new innovations before one's rivals have done so, improve. This leads to a revival of investment, and hence of employment and output, even in a laissez-faire capitalist economy caught in a crisis. This argument, however, is untenable: the sheer availability of innovations does not lead to their introduction into the production process, and hence to larger investment, if the capitalists' “state of confidence” is low, which it is in a crisis. Several innovations, for instance, appeared in the inter-War years, but far from overcoming the Great Depression, they did not get introduced because of it. Hence the proposition that a laissez-faire capitalist economy lacks any internal mechanism for overcoming crises remains valid.
Historically, the fact that capitalism has overcome crises, and that too fairly quickly, is because it has not been laissez-faire capitalism of the textbook kind. It has had access to external props which it has used to overcome crises. In the entire period before the First World War, the colonial system provided such an external prop. Colonial markets such as India were available “on tap”; British goods could be sold in the Indian market at the expense of local products (while Britain's own market was open to European goods) and the surplus extracted from India, that is, the excess of what was taken from India over what it absorbed, went to the temperate regions to which Europeans were migrating, to constitute Britain's overseas investment. By the First World War, however, the capacity of the colonial system to provide such an external prop had got substantially exhausted.
In the post-Second World War period, state intervention in “demand management”, which had been suggested by John Maynard Keynes, constituted the new external prop which quickly overcame incipient crises. In fact, the reason why the Great Depression of the inter-War period was so protracted and painful is that capitalism in that period was between external props and, for that very reason, without an external prop.
What is true of the present crisis that makes it comparable to the Great Depression is that capitalism now is once again without any external prop; where it differs from the Great Depression is that there are no obvious external props on the horizon. State intervention in demand management, which had been undermined outside the United States earlier, has now been finally buried in the U.S. itself, with Barack Obama's agreement with the Republicans to cut the fiscal deficit, and the downgrading of U.S. public debt by the credit-rating agency Standard & Poor's (S&P) because even this agreement is considered insufficient. While state intervention is being buried, there is nothing to take its place.
The introduction of state intervention in demand management itself had not been easy. In 1929, Keynes had advocated, through Lloyd George, the leader of the Liberal Party to which he belonged, a system of public works financed by fiscal deficit to take care of the unemployed, whose numbers then were just about half of what they were to become in the trough of the Depression. But the British Treasury, under the influence of the City, the seat of British finance capital, turned down the proposal on the grounds that any violation of the doctrine of “sound finance”, which held that governments should balance their budgets (these days the doctrine, enshrined usually in “fiscal responsibility” legislation, allows a small fiscal deficit relative to gross domestic product, or GDP), was unproductive. Keynes himself saw the doctrine of “sound finance” as just bad economics; but underlying this bad economics was class interest.
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