Everybody is agreed that capitalism is undergoing a serious crisis, but different people read this crisis differently. The commonest view, held even by progressive economists like Paul Krugman and Joseph Stiglitz, is that the crisis is entirely a consequence of the collapse of the housing ''bubble''; since in this situation of crisis, private expenditure, whether on consumption or on investment, is unlikely to increase in the foreseeable future, a revival is possible only through an increase in State expenditure, which means that both in the United States and in Europe, far from adopting austerity measures, the State should instead be increasing its expenditure. The fact that this panacea for crisis is not being adopted is then explained by the ''bad economics'' of the opinion makers, the ''bad faith'' of the Republicans, the callousness of the Right, and so on. This view in short sees the crisis exclusively as an isolated, one-off phenomenon, a predicament to which the US economy, and hence the world economy, happens to have fallen because of the collapse of a ''bubble''-based boom, which the earlier irresponsible monetary policy of the Federal Reserve Board under the chairmanship of Alan Greenspan had connived to stimulate.

The problem with this view is that it is extremely limited; it does not see the whole truth. The crisis caused by the collapse of the housing ''bubble'' is only a part of the story; it is itself located within a fundamental structural crisis of capitalism. Indeed the ''dotcom'' and housing ''bubbles'' had kept this structural crisis hidden; with their collapse we not only have the crisis caused by this collapse itself , but its superimposition upon the basic structural crisis which now gets revealed as well. Since this structural crisis is embedded in the logic of the capitalist system, what we have is a systemic crisis, not a sporadic or a cyclical one, from which there is no easy way out. In short we have entered a period of protracted crisis of capitalism, reminiscent of the 1930s, which will open up, not immediately but through a whole chain of political developments that it will unleash as in the 30s and the 40s, real revolutionary possibilities of transcending the system.

Let us begin by asking the question: why is there so much opposition to State expenditure as a means of overcoming the crisis both in the United States and Europe? Why is there a persistent demand for ''austerity'' which is bound to aggravate the crisis? To say that it is only ''bad economics'' is not enough. The ''economics'' that acquires hegemony at any time is the one that the hegemonic class endorses (a proposition that is particularly true of economics because it has such a direct bearing on State policy). The ''bad economics'' is one of the mechanisms through which the corporate-financial interests that dominate contemporary capitalism exert their pressure. ''Austerity'' is being imposed because finance capital is opposed to large-scale State expenditure to stimulate the economy.

It is not opposed to State activism as such, but it wants that activism to take the form of providing incentives to itself, of promoting its own interests, as the means of reviving the economy. It does not want direct State action for this purpose through larger public expenditure. Any State action that operates independently of finance capital, that seeks to work directly instead of working through the promotion of corporate-financial interests, undermines the social legitimacy of capitalism, and especially of the corporate-financial interests, for it raises the question: if the State is required to fix the system then why do we need the system at all, why not have State ownership itself? Finance capital in the U.S. therefore has no objections to $13 trillion of State support for stabilizing the financial system; but the moment the question of State expenditure for reviving the economy is raised, it begins to preach the virtues of ''austerity''. The era of hegemony of finance therefore is an era where ''State intervention in demand management'' a la Keynes recedes to the background.

Now, capitalism always requires some exogenous stimuli for sustaining its growth. It can sustain growth purely on its own steam, i.e. purely because growth had been occurring, for some time, but if growth peters out for any reason, including the emergence of bottlenecks because of growth itself, then an opposite spiral of lower and lower investment and declining growth sets in which carries it towards a stationary state, i.e. towards a state of simple reproduction. Extricating the system out of simple reproduction and ensuring that growth does not lose steam and collapse back into a state of simple reproduction is something that is ensured by the operation of a set of exogenous stimuli.

Historically two sets of exogenous stimuli have played this role. The first is the entire colonial system that played this role right until the first world war. The term ''colonial system'' is used here not just to refer to colonial and semi-colonial possessions like India and China, but also to the so-called ''settler colonies'' from where the ''native population'' was driven away to accommodate immigrants from the capitalist core. The ''colonial system'' propped up growth under capitalism in the following manner: along with migration of population to the ''settler colonies'' or the temperate regions of white settlement, there was also a parallel migration of capital to these regions from the capitalist core, but this ''export of capital'' from the core was made possible through an appropriation of surplus from the colonial and semi-colonial possessions. So the ''drain'' of surplus without any quid pro quo from India and other colonies financed the capital exports from the capitalist core to the settler colonies.

But underlying these movements in ''value'' magnitudes there were also important changes relating to commodity composition: Britain the leading capitalist country, and also the leading capital-exporting country, did not produce goods which were in high demand in the settler colonies like the United States. The demand there was substantially for raw materials, i.e. minerals and primary commodities, which were produced in the colonial possessions. Hence Britain's capital exports were made possible first by British goods like textiles being sold in the Indian and other eastern markets, and goods from the these latter countries being exported to a matching, or, where ''drain'' occurred, to an even greater, extent from these countries. British goods could be sold in the colonial and semi-colonial countries because they were markets on ''tap'': their markets could be used for unloading British goods, to the extent required, any time.

This entire pattern of global movement of capital and commodities, which was very convenient from the point of view of the capitalist core, underlay the prolonged boom that capitalism witnessed from the mid-nineteenth century until the first world war. After the first world war this pattern collapsed. Domestic bourgeoisies in colonies wanted their own space; Japan emerged as a rival to Britain in Asian markets; the scope for investment in the ''new world'' got exhausted with the ''closing of the frontier''; and the scope for further de-industrialization in economies like India also began to get more and more limited. The Great depression of the 1930s was an expression of the fact that the old mechanism for stimulating buoyancy in capitalism could no longer function.

The Depression ended only when the second major exogenous stimulus for capitalism, namely State expenditure, came into effect, initially for war preparations, and after the war, under the impact of working class pressure and the threat of socialism, for introducing some ''welfare state'' measures. But, ''State intervention in demand management'' has also now run its course: the emergence of international finance capital as the hegemonic force under capitalism has, for reasons mentioned earlier, has attenuated the scope for it. Capitalism in short now lacks any mechanism for imparting sustained growth to it.

This moreover is happening in a context when the need for such a mechanism is becoming ever more acute. Let us see why. With globalization there has been much freer flow of capital, including in the form of finance, and also of goods and services, across countries than ever before in the history of capitalism. As a result capital from the metropolis (and domestic big capital as well) can locate production in the third world countries, where wages are low because of the existence of massive labour reserves, and export to the metropolitan markets. This in turn makes the wages of workers in the metropolitan countries vulnerable to the downward drag exerted by the labour reserves existing in the third world countries. In the United States, for instance, in the last three decades the real wage rate of workers has fallen in absolute terms by nearly thirty percent.

In third world countries in turn it is not as if the real wage rate increases; on the contrary the immiserization and displacement of petty producers, including peasants, that is another hall-mark of globalization entails a swelling of the reserve army of labour which also exerts a downward drag on the real wage rate of workers that constitute the active army of labour for capitalism. Taking the world economy as a whole therefore there is a tendency for the real wage rate of the workers to decline, or at the very least, not to increase. At the same time, however, there is a steady rise in labour productivity, which means that the share of surplus value is total output increases.

Now, since a rupee of output coming to the workers gives rise to a much larger amount of consumption that a rupee coming to the capitalists, any rise in the share of surplus value in output has, other things remaining the same, a demand-depressing effect. If capitalists' investment increased when the extra rupee came to them, then this demand-depressing effect could be overcome, and the entire produced output could be realized. But, we have already seen that the tendency for capitalists' investment, far from rising, is to remain subdued or depressed in the absence of any mechanism for sustained growth. The net result therefore is a pronounced tendency towards over-production crises. The capitalist State that could have provided an antidote to this tendency towards over-production by stepping up its expenditure, and thereby absorbing a larger share of surplus value and helping its realization, cannot do so because of the opposition of finance capital to larger State expenditure.

It follows therefore that the incapacitation of the capitalist State as a provider of demand at will, not only leaves world capitalism without the requisite exogenous stimulus for the maintenance of sustained growth, but also pushes it further into stagnation for an additional reason, namely the tendency for the share of surplus value to rise in world output. World capitalism is thus caught in a deep structural crisis from which there are no obvious escape routes. This is not to say that capitalism will collapse, for that never happens. But as in the thirties a new conjuncture is emerging that is pregnant with historic possibilities for the transcendence of the system.

January 6, 2012.