This blog post examines the fundamental reasons why financial crises recur and the nature of crises hidden within the capitalist structure.
We are still in the midst of a crisis
When the U.S.-originated financial crisis began in 2008, many believed it would quickly subside. Many people thought such a situation was merely a temporary setback that would pass, or hoped it would. Yet we are still living in an era of crisis.
Due to its structural characteristics, capitalism continuously creates a vicious cycle. As long as the capitalist system exists, banks must constantly inflate money through credit creation, someone must incur debt and go bankrupt, and within this, financial capital continues to generate ever-greater profits. The Federal Reserve Board (FRB), which prints the dollar—the world’s reserve currency—remains a private institution to this day. The U.S. government must request the FRB to produce U.S. currency, the dollar.
Speculative capital, which has caused so much suffering for ordinary people in our financial capitalist society, remains highly active domestically. Foreign capital acts as major players in the seven major commercial banks, and in the case of KT, over 40% is held by Wall Street financial capital. Though countless people gathered on Wall Street to denounce the 1% dominating the 99%, capitalism continues unabated, and the system remains unchanged.
What is alarming is that the current global economic downturn is unfolding in an extremely unusual manner. Signs of slowing growth and recession are becoming increasingly evident worldwide. The U.S. Office of Management and Budget (OMB) has lowered its economic growth forecast, and China’s growth rate continues to decline due to a contracting real economy. The Eurozone faces a similar situation. The economy has been declining for six consecutive quarters through the first quarter of 2013. Our country, too, has fallen into the shackles of ‘low-growth, long-term stagnation’. Voices proclaiming ‘the economy is tough’ and ‘it’s a recession’ are erupting everywhere, and the government is also racking its brains, unable to find a solution. However, this is not solely the government’s fault. The capitalist system itself inherently carries these risks, making it a problem beyond anyone’s control. Unless capitalism is modified or transformed, and as long as we live within this capitalist system, such crises are bound to recur endlessly.
Why does crisis follow boom?
The inflation-deflation economic cycle mentioned above reveals a facet of the crises capitalism inherently faces. As banks increase the money supply through lending and central banks print money to generate interest that doesn’t exist in the system, inflation peaks, and deflation—what we call an economic crisis—inevitably follows. As credit becomes available, starting with those with good credit and extending to those with poor credit, people focus on consumption rather than productive activities. This leads to bubbles bursting and widespread bankruptcies. When central banks take measures to reduce the money supply, cash shortages emerge in the market, and financial crises become difficult to resolve. This is no longer a mere regional issue but a global one.
Starting with the Great Depression in the 1920s, numerous financial crises have occurred, and Korea was no exception. Crises created by capitalism have persistently erupted across Europe, Asia, the United States, and everywhere else in the world. Let’s hear from Professor Jonathan Wolff of the Philosophy Department at University College London.
“What is happening now is the boom-bust cycle or trade cycle. Marx said that future capitalism could not escape the business cycle. Booms come, and busts follow. Marx believed that the scale of these cycles would grow larger and their intervals shorter, ultimately leading to the demise of capitalism. His prediction that the scale of the cycles would increase was incorrect. However, his view that capitalism could not escape the business cycle was correct.”
The capitalist world firmly believed that anyone could prosper through effort, regardless of social status or class. Some people thrived during the boom. Yet suddenly, everything vanished, and they became losers overnight. Why did this happen? We must find the answer.
Over the past 250 years, capitalism has periodically weathered waves of crisis. Each time, new ideas in economics served as our compass to navigate the crisis. From now on, we will meet the great economists who appeared in moments of crisis and saved the world. The reason we, living in a small country in Asia, must know the economists of Europe and America is that the economic system we live in is fundamentally the same as that described in Adam Smith’s The Wealth of Nations.
