The Global Financial Crisis has been an issue of great focus for many academicians, politicians, and financial analysis since its emergency in 2008. This has been as a result of its impact on the various sectors of the world economies. In this essay, the major focus of analysis is based on the Marxist capitalist approach. It will be argued that, compared to the liberalism and realism approach, the Marxian views have a more convincing analysis regarding the global financial crisis. Therefore, the essay will concentrate on the way the Marxian views approach the global financial crisis. The bottom line in all the sections of this research is that the capitalist economic development goes through stages, which are of a recurrent nature, and in line with the Marxist conception of economic situation.
Before delving into the Marxist analysis of capitalism and its explanation on the Global Financial Crisis, it is important to provide an overview of the Global Financial Crisis itself. The global financial crisis started penetrating the world economy in 2008 from the United States. It was instigated by a shortfall in liquidity in the banking system (Ivry, 2008). As a result many financial institutions collapsed, the national government engaged in banks bailout process, the stock markets across the globe entered into downturns; the crisis also affected the mortgage sector.
Thus, the resulting effect on the underdeveloped countries has been observed in many situations characterized by impoverishment, industrial decline, and environmental degradation which have led to increase in diseases and starvation, as well as civil wars (Mackler, 2002). Therefore, many economists have considered this financial crisis to be the worst ever since 1930, when there prevailed the great depression crisis (Business Wire News, 2009) After its beginning, the global financial crisis has led to business collapse, reduction in the wealth of consumers, government bailouts, and financial activity drop (Baily & Elliott, 2009).
Marxist Analysis of Capitalism
The Marxian view asserts that in a society that is of a capitalist nature, the bourgeoisie who are considered to be the economic minority are exploited and dominated by the proletariat, or rather the majority (Flynt, 1998). Therefore, in this view, capitalism exploits especially in the manner in which the labor that is unpaid is removed from the labor market (Flynt, 1998). So labor is considered to be a commodity in the market, where by the bourgeoisie take ownership of the production process even though the process in itself is of a social nature. Ostensibly, the Marxian approach was based on the growth of the capitalist humanity. Karl Marx had begun his analysis with the concept of the production of commodities. Accordingly, commodities signified important objects of external origin produced with the purpose of exchange within the market (Stanford Encyclopedia of Philosophy, 2003).
When analyzing the global financial crisis in the light of Marxism, there is an essential need to use the capitalist economic principles. These economic thoughts were developed out of Karl Marx's analyses (Plato.stanford.edu, n d). Furthermore, according to Nick Beams, the financial crisis analysis under the Marxism ideologies must be based on the laws of capitalist economy as well as on a conception of the interface between the capitalist economy principles and the capitalism's historical development, which are of basic influence on the financial crisis (Beams, 2010).
In addition, Joseph Schumpeter, who was opposed to the Marxist ideas, applauded the method as well as the analysis that Marx used when he affirms that Marx was successful in the attainment of the historical development of the capitalist economy (Schumpeter, 1976, p.44). His analysis is logical as portrayed by the different phases of the historical development process; and that these historical facts could be used to shade more light as well as to verify the outcomes of the envisioned Marxian economic approach. Furthermore, for Schumpeter, the Marxian approach offers what could be called a chemical blend, where the approach is used to influence the outcome of results; this is because through him we are able to see the way in which we can have the economic theory turn into a historical analysis (Schumpeter, 1976, p.44).
According to Nick Beams, Marx did not lay deeper analysis on capitalism, but rather a historical progress; and that his developments were explained in depth by Leon Trotsky who came up with a notion that emerged to be significant in the development of the synthesis of the progress of capitalism in providing an explanation for the financial crisis (Beams, 2010). Therefore, according Trotsky, there is need for a clear distinction between the short-term oscillations of the economy in the capitalist understanding, and the long-term growth stages (Trotsky, 1975, p.22, cited in Beams, 2010).
Even though the extreme recession after the First World War, could have led to a recovery, a question that arose from the bourgeois economists was whether the analysis of capitalism as examined by the Marxists was a creation of the reformist fancy; moreover, in the bourgeois understanding, the survival of capitalism led to a disputation of socialism ideologies, especially with regard the Russian Revolution during the 1917 (Beams, 2010). Furthermore, the analysis as built by Trotsky asserts that there were overt indications of economic recovery that could bring the crisis to an end, even though it never indicated whether the capitalist system was viable or not (Beams, 2010). As a result, it simply indicated that capitalism was progressive and could not revert to its initial stage; it could rather lead to a new situation which could be an avenue for another serious economic crisis (Beams, 2010).
In response to the question of whether the new recovery of the development of the capitalist curve was possible, Trotsky observes that providing that a failure of the working class to rise in struggle for revolution, and then allowing the bourgeoisie to take charge of the destiny of the world for a considerable period, it is assumed that a new point of stability will be attained (Trotsky, 1973, p.263). In his understanding, Europeans will experience great unemployment, and food shortages and the United States could undergo an economic crisis for approximately 20 years, and then another recovery could possibly follow (Trotsky, 1973, p.263).
Thus, as a result of the aforementioned analysis, which reflected the proceeding years after 1921, there is need to focus on the Trotsky's method of analysis. It is very important to note that there have been different stages of the development of capitalism starting with the great boom during 1851 to 1873, then to the great depression between 1873 and 1896, and finally the capitalist expansion which occurred during the 20th century (Beams, 2010). Further still, there has been a continued experience of the phases described by Trotsky; that is during the inter-war moment which was not similar to the post-war period that featured recovery, and also, the periods between 1970 and 1980; finally the period of between 1990-2008 that characterize a new stage of the development process of the capitalist (Beams, 2008).
Moreover, the major aspect of contention in this case is the main source of these stages, and not, their existence per se; this is simply because, Trotsky was engendered to oppose the Kondratiev's understanding that the long-term development stages were dictated by capitalist economic course, similar to the short-term changes in the cycle of business (Beams, 2010). In contrast, the development of the upsurge was dictated by foreign instances under whose path the development process goes through, a situation that has gained popularity since the death of Trotsky (Beams, 2010).
During the 1970s' economic crisis, capitalism reacted by rapid economic restructuring as well as the restructuring of the social interactions; this was with a view of restoring the increased accumulation as well as the crunch in the profit rate even though this development was not automatic but rather that the bourgeoisie who had been retained by the economic crisis were meant to ignite the development process (Beams, 2010).
Moreover, the economic changes during the era of Thatcher and Reagan governance were responsible for the destruction of those industries that were the pinnacles of the boom of post-war (Beams, 2010). Of greater significance during this period was capital finance; however this did not come as a result of the absence of better investment opportunities. But, as asserted by Marx, both the promotion as well as the deficiency of swindling did exist which boosted the strife of capital to incline towards the development of new technologies that could spearhead increased profitability on firms and other industries (Beams, 2010).
As a result, the role played by capital financing was of immense significance in the restructuring of the so called capital industry. It ensured that new production technologies were developed, and that costs were reduced, thus resulting in outsourcing, and consequently igniting the production process of the global scale (Beams, 2010). However, these processes that set off in 1980s were not sufficient enough to lead to capitalist upsurge without a vast change in the foreign circumstances that harbor the progress of capitalist production, which in this case is the economic scenery (Beams, 2010).
As a result of this, the Soviet Union was disbanded while China was incorporated into the worldwide capitalist market. Furthermore, the domestic economic design in those capitalist countries that were regressive was also seen to emerge, hence the introduction of the unrestricted market system (Beams, 2010). Consequently, the global capitalist economy underwent a major shift in terms of its structure, starting with the addition of labor force into the market; but these workers were underpaid compared to their colleagues in developed countries (Beams, 2010). This outcome reflected Trotsky's prediction of 1920s even though it didn't take place in the exact way that he had envisioned.
However, when comparing the capitalist upsurge of 1990s with the one after the World War II, there is a very big distinction. Whereby, during the aftermath of World War II those American industries that were efficient in production had to move out to other parts of the world, especially to progressive capitalist nations. Moreover, according to Nick Beams, the percentage increase in profit during the boom period was attributed to increased labor productivity in the capitalist nations (Beams, 2010).
Nevertheless, it is important to note that capitalist production makes extra use of the labor market. This method of wealth accumulation ensures that profits are increased not through direct use of surplus labor but rather through the use of financial undertakings. In addition, this implies that wealth is stored in terms of claims that are based on the properties owned by the companies in question. The same applies to bonds, implying that profit doesn't have to be generated through the process of production alone but rather through the use of money for the generation of more money, even though still these financial entitlements are still based on properties. These happenings signify that in the due course of time, the principles of political economy have been defied by the moments of monetary capital, reflecting the Marxian view of economic crunch, as envisioned in the laws of gravity.
Thus, as the growth of finance capital progressed, so is the profit growth rate. And this led to increased money supply by the central banks to the financial system. However, as the rate of interest declined, returns on risky assets too declined. This therefore required the development of new assets that were riskier than the previous ones, leading to a sub-prime tragedy in which commercial banks issued credit without taking into consideration the extent of risk. Moreover, more liquidity was injected into the financial system, and as a consequence leading to increased house prices (Beams, 2010).
Accordingly, as a result of the collapse of the United States housing market coupled with the collapse of the sub-prime, there followed a chain of reactions in the entire United States, followed by the worldwide financial regime. In this case the sub-prime catastrophe speeded up the crisis which had been observed in the immediate previous decades of history.
The emergency of the economic crisis saw central banks and governments inject money into the financial institutions; that is, public debt replaced private debt. Even though this was meant to clear out the valueless assets from these institutions and transfer the responsibility to the governments, the resulting effect was more disastrous. Thus, according to Nick Beams, it has been the task of the capitalist state to bring back value to the financial system through the social as well as class reform in a straight attack against the labor force (Beams, 2010).
In the course of this analysis, the Marxian analysis of capitalism has been developed over the years leading to the current economic crisis which set foot in 2008. And as it has been observed, a new era of history should be given rise to which envisions the course of history in the years to come, through the upsurge of both class and social skirmishes. This era will take a new form; the bourgeoisie will now use new methods of ruling, and the proletariat will live experience novel settings that are imposed by the bourgeoisie.
Therefore and as rightfully explained by Anatole Kaletsky, this outcome will signify a new type of capitalism which is in coherence with the Marxian view regarding the method of production of the capitalists (Kaletsky, 2010, p.177). Kaletsky however disputes the Marxian insistence that it was this production that could lead to self-overthrowing by asserting that capitalism rather adjusts itself to the crises, and will continue to do the same (Kaletsky, 2010, p.177).
However, as rightfully explicated by Nick Beams, capitalism will adapt itself through the intensification of the surplus labor value from the labor market so as to enhance capital accumulation by cost-cutting (Beams, 2010). Capitalism will also adapt itself through the restructuring process which should be done globally (Beams, 2010). However, the mode of self-adaptation will threaten the survival of the civilization of humans which it purports to promote. Thus, a rationally planned world socialist economy should be given way so as to promote the historical process. Views of liberalism and realism have very contradicting views, with the former uplifting the role played by free market forces to influence economic reactions. And the latter highlights the role played by individual circumstances in influencing the economic readjustments. However, the Marxist view, as it has been observed in the due course of history, has provided a compelling avenue for the analysis of the global financial crisis.