which has also been published by a booklet with the same title.

The first instalment appeared in Liberation November.

Over-accumulation and Depreciation/Destruction of Capital

Where bourgeois economists see the surface phenomenon of commodity glut during depression, Marx lays bare the deeper substance of overproduction/over-accumulation of capital and shows how this comes about:

“A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour… Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit — this is always true of newly developing fresh offshoots of capital — or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative over-population, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles — unemployed capital at one pole, and unemployed worker population at the other.

“Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital.”(ibid, p 250-51; emphasis added)

Such a situation naturally leads to an unseemly scramble among capitalists:

“So long as things go well, competition effects an operating fraternity of the capitalist class … so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface …” (ibid, p 253; emphasis added)

In the age of imperialism this is replicated on an international scale, with nation states engaged in fierce battles over who is to bear the brunt of the huge losses. Costs of crises are spread differentially according to the economic (including financial), political and military prowess of rival states. Imperialist war – being the fastest method of this destruction – appears on the horizon as a real or potential ‘solution’ to capitalist crisis.

In whatever manner and through however fierce a struggle the losses may be distributed among individual concerns (and among different states or trade-and-currency blocs on the international plane), the overriding need for returning the system to some kind of equilibrium has to be fulfilled. And that is fulfilled through destruction of part of capital values:

“…the equilibrium would be restored under all circumstances through the withdrawal or even the destruction of more or less capital. This would extend partly to the material substance of capital, i.e., a part of the means of production, of fixed and circulating capital, would not operate, not act as capital…

“Part of the commodities on the market can complete their process of circulation and reproduction only through an immense contraction of their prices, hence through a depreciation of the capital which they represent. The elements of fixed capital are depreciated to a greater or lesser degree in just the same way.

“… definite, presupposed, price relations govern the process of reproduction, so that the latter is halted and thrown into confusion by a general drop in prices. This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.” (ibid, pp 253-54)

But all this does not, by itself, mean the end of the world. Once the necessary devaluation has been accomplished and over-accumulation eliminated, ‘normal’ accumulation can go on:

“…the cycle would run its course anew. Part of the capital, depreciated by its functional stagnation, would recover its old value. For the rest, the same vicious circle would be described once more under expanded conditions of production, with an expanded market and increased productive forces.” (ibid, p 255)

But what is normal need not be permanent. Expanded capitalist reproduction is intensified reproduction of all its contradictions and within the recurring cycles reside the seeds of violent destruction of the system:

“The highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation [devaluation] of capital, degradation of the labourer, and a most strained exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises, in which by momentous suspension of labour and annihilation of a great portion of the capital, the latter is violently reduced to the point where it can go on.... Yet these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow.” (Grundrisse, p 750, emphasis added).

Credit and Crisis

Drawing attention to a basic contradiction of capitalist accumulation, Marx observed: “The credit system appears as the main lever of over-production and over-speculation in commerce solely because the reproduction process, which is elastic by nature, is here forced to its extreme limits, and is so forced because a large part of the social capital is employed by people who do not own it and who consequently tackle things quite differently than the owner, who anxiously weighs the limitations of his private capital in so far as he handles it himself.”

A very realistic explanation of why the financial institutions behave so irresponsibly with their customers’ money, isn’t it? Marx goes on:

“This simply demonstrates the fact that the self-expansion of capital based on the contradictory nature of capitalist production limits an actual free development only up to a certain point, so that in fact it constitutes an immanent fetter and barrier to production, which are continually broken through by the credit system. Hence, the credit system accelerates the material development of the productive forces and the establishment of the world-market. …At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the old mode of production.” (ibid, p 441, emphasis added)

Crises in the Age of Imperialism

In the age of imperialism or monopoly capitalism (which Lenin identified as the economic essence of imperialism) or even more in the post- war era of monopoly finance capitalism (as Sweezy and Baran had called it) crises, like capitalism in general, have taken on several new features, requiring us to go beyond Marx and enrich our understanding in light of the experience of the past hundred years.

Two Types of Crisis

A crisis can be (a) episodic/conjunctural, or (b) structural/ systemic. The former affects only some parts of the system or particular spheres – say financial or commercial -- or this or that particular branch of production, or a particular group of countries. It can be dramatically severe – the South Asian meltdown of late 1990s or the dotcom bubble burst in the first decade of the present century for example – yet amenable to a temporary or partial resolution by means of partial measures without greatly disturbing the existing modalities and structures of capital accumulation. Such crises are like “great thunderstorms” (in Marx’s words) through which they can discharge and ‘resolve’ themselves, to the degree to which that is feasible under the given conditions. This is possible because they do not call into question the ultimate limits of the established global structure in an immediate sense. However, the underlying deep-seated structural contradictions of capitalism wait to reassert themselves again in the form of the next violent eruption. In the process a point is reached where these contradictions no longer lend themselves to ad hoc resolution by superficial measurers and their cumulative impact manifests itself in the shape of a structural/systemic crisis – one that is universal in character (affecting all segments of the international economy) and global in scope (sparing almost no country/region). Such is the nature of the crisis we are living through now. It affects the basic structure, the totality of the capitalist system and its very heart, which in our time lies in the hegemonic financial sector.

Relative to a thunderstorm-like episodic crisis, the time scale of a structural crisis is likely to be less instantaneous or convulsive and more extended and protracted; and its mode of unfolding might be called creeping, although it may start with violent eruptions like the collapse of Lehman Brothers and other biggies in 2008 and the “Great Crash” prefiguring the “Great Depression” (GD).

History of Structural Crises: An Outline Sketch

For Marxists the present worldwide structural crisis was not unexpected. To run and stumble from crisis to crisis, restructuring the accumulation process to cope with new challenges after major, epochal ones – such has been the mode of existence of late capitalism. Looking back on its history since the transition to imperialism began, we can locate four such structural crises that occurred with striking regularity at intervals of nearly four decades:

1. The “Great Depression” (as it was called before the greater one that struck in 1929) of 1890s was caused primarily by rapidly shrinking profits resulting from “cut-throat competition” among big trusts and cartels. In the US, the Sherman Act, the first major anti-trust legislation, was therefore passed in 1890. The profitability problem was sought to be overcome by structural changes like the rise of big international banks and the emergence of finance capital through “coalescence of bank and industrial capital”, domination of financial oligarchies and other monopolies, speculation overshadowing production and export of capital surpassing export of goods, etc. – as Lenin pointed out in Imperialism.

2. These changes led to the hegemony of and restoration of profits for finance based on overextension of debt and speculation on the bourses. But the “roaring 1920s” ended in the great stock market crash of 1929 and the GD that followed. How this crisis came about and was overcome we shall discuss shortly.

3. In the 1970s and 80s, the downward movement of profit rates resurfaced and, compounded by the oil crisis and chronic inflation, assumed the shape of stagflation. The crisis of the dollar and end of the Gold Standard became conspicuous fallouts of the crisis. Capitalism went through another bout of restructuring – the neoliberal globalisation and financialisation (more later).

4. And now this new model of growth is engulfed in a severe crisis apparently brought about by unscrupulous activities of greedy, “too big to fail” banks with full state support, and one that demonstrated the unsustainablity of credit- driven, bubble-led growth. The quest for a solution continues, with hardly a ray of light expected at the end of the tunnel.

This is not purported to be a complete account of the entire history: for example, we have not touched the role of wars. We have only tried to show that these epochal crises were watersheds differentiating distinct phases of late capitalism – violent ruptures leading to paradigm changes in its structure, in its forms and mechanisms, partly obfuscating the essential continuity of this mode of production. There is another important point, which we have saved for separate discussion in the last two chapters. It pertains to the impacts of mass movements, past and present, against attempts of the bourgeoisie and its state to transfer the entire burden of crisis on to the shoulders of the working people.

Among the four structural crises, we shall do well to take a closer view of the GD (and its consequences) and the present crisis. Both of them, significantly, had their common proximate causes in unfettered activities of monopoly finance capital (e.g., debt explosion and excessive speculation) and in this sense constituted crises of liberalism – liberalism of the old type then and of a new variety now.

From Great Depression to ‘Golden Period’

As mentioned above, the big monopolistic banks and corporations that marked the advent of imperialism at the turn of the 20th century went about their reckless plunder in a way that led to the Great Depression. Combined with other factors like powerful struggles of working classes (more later) and the political challenge posed by vibrant socialism, the devastation caused by GD forced the lords of capital to mend their ways to some extent. This came to be known as the New Deal (in the United States) and welfare state/social democracy (in Western Europe).

Essentially, the rich reckoned the time had come to accept some sort of compromise and a modicum of regulation, hoping that by giving up some of their privileges, they would be able to preserve most of them. Key sectors of the economy, including banking, transporta­tion, electric power, and communications were thus brought under state regulation. Big corporations began to – in the US they were compelled to by the National Labor Relations Act, known as the Wagner Act (1935) – bargain with labour unions rather than trying to crush them. Important social programmes such as unemployment compensation and public health care were created and expanded.

Simultaneously, the Marshall Plan was launched by Washington to aid the process of rejuvenation of war ravaged economies of Japan, East Germany and other allies, while the IMF and the World Bank were set up to help development under US tutelage.

In the US, the marginal income tax rate on the rich rose to 92% on the highest incomes in the early 1950s. Abandoning the old “free market” belief that recessions and depressions would automatically cure themselves, governments began to intervene more vigorously (through fiscal and monetary policies for example) to stabilise the economy and keep the unemployment rate low.

All this, together with other factors like the pent up consumer demands of war years, ushered in the so-called Golden Age of Capitalism (1948–73) which experienced unparalleled growth in advanced capitalist countries. While evils of imperialism did not vanish, there was noticeable improvement in the economic condi­tions and purchasing power of the working people in these countries, which helped sustain extended reproduction, but sure enough, not permanently.

1970s: Crisis Strikes Again

In two to three decades, the space for expansion newly created by the devastating war was exhausted. From late 1960s and particularly since the oil shock (1973) which substantially raised production costs, the bad old maladies began to resurface: overproduction, excess capital, dwindling profit rates. In the face of heightened competition from firms in Japan and the newly industrialising countries, employers in the US and Europe tried to push their labour costs down, giving rise to sharpened conflict between labour and capital. The ruling classes went on an offensive – as we shall soon see – both directly (e.g., by crushing strikes and curbing TU rights) and indirectly through the state (e.g., transfer of state funds from social programmes to the private sector in the shape of trade credits, direct subsidies, tax cuts for corporations and the rich etc.; privatization of public services – which also helped capitalists find investment opportunities for their excess funds – and so on).

Neoliberalism and its Critical Features

This was about when, from mid-1980s onwards, liberalism – the doctrine of absolute freedom of capital from social control – returned with a vengeance in a new shape in a new historical context marked by the gradual retreat of (a) welfare state/social democracy in Europe; (b) the “actually existing socialisms” and (c) nationalist mixed economies in certain third world countries. Neoliberal capitalism was born. At first it was better known as Reaganomics and Thatcherism, and spread from the US and the UK through the developed economies and then Latin America to the rest of the world. Theories like monetarism, supply-side economics, trickledown theory (if top echelons get rich fast, the wealth will percolate down; so growth alone and not egalitarianism is to be cared for) etc were used to justify whatever capital found necessary. Even the name of the system was sought to be changed from good old capitalism – simple yet revealing – to the vague and ideologically cloaked term “free market” or “market system”. Side by side with a patently fraudulent economic system thus arose what John Kenneth Galbraith called, in the title of his last book, “The Economics of Innocent Fraud” (2004).

After more than two decades of good times for the super rich, the largely deregulated financial system collapsed in 2008, pulling the global economy down with it. The more important specific causes responsible for this can be located in three most visible features of neoliberalism in the advanced economies: international relocation and reorganisation of production and associated services; enormous debt traps that caught hold of individual consumers as well nations; unprecedented dependence on financialisation as a way of circumventing stagnation in the productive sector and on asset bubbles as growth steroids. These are the major factors that first promoted nearly three decades of economic expan­sion and then led to a massive crisis. Let us discuss these in barest outline.

First, the relocation referred above – a component of the accelerated global integration of capital, production processes and markets, briefly called globalisation – restored handsome profits for TNCs but led to huge job losses and relative destitution of the majority in the advanced capitalist countries. Inequality grew rapidly, as profits rose while work­ers’ real wages fell. Between 1979 and 2007, the aver­age inflation-corrected hourly wage of non-supervisory workers in the US declined by 1 percent, while inflation-correct­ed nonfinancial corporate profits after taxes rose by a remarkable 255 percent. Surging profits pleased the capitalists, but it also gave rise to a problem: who would buy the growing output that comes with economic expan­sion?

The ‘solution’ was found in easy credit and subprime loans. As noted earlier, banks and other financial institutions made a fortune from these practices, while markets for goods and services were kept up by ordinary people buying with borrowed money. Here is the second feature of neoliberal capitalism: a veritable credit explosion and near absolute hegemony of the expanding financial sector. Big manufacturing businesses diversified rapidly into banking, insurance, real estate, wireless communications etc., which became their main source of profit. The beginnings of such trends were noted by Lenin in his time, but now they reached unprecedented proportions.

The repeal of the Glass-Steagall Act in the US (which was passed in the wake of the crisis of 1930s and prohibited the mixing up of ordinary commercial banking and the more precarious operations of investment banking) in 1999 symbolized the almost complete deregulation of the financial sector. It became extremely complex, opaque, and ungovernable, with huge banks and financial institutions pursuing ever-riskier activities. Reckless lending was also made to several nations, giving rise to the phenomenon of sovereign debt crisis. The US borrowed its way to growth and became the world’s largest debtor since the onset of the neoliberal era. It is currently spending more than 8% of its national income on interest payments, which is expected to rise to 17 % by the end of the 2010s.

The third feature of neoliberal capitalism has been a “stagnation-financialization trap”[1] where a series of big asset bubbles[2], such as the dotcom and then the real estate bubble of the 2000s, temporarily help overcome the stagnation and then go bust.

Long ago, American economist Hyman Minsky theorized that cheap credit and easy liquidity would sow the seeds of an asset price bubble and when the inevitable crash came, businesses and households would find themselves in an over-borrowed situation. Broadly speaking, this was what happened. The 2000s real estate or housing bubble created an estimated $8 trillion of bubble-inflated real estate value, which was about 40 percent of the market value of homes in the United States. The real estate bubble created “fictitious” wealth that enabled people to borrow from banks to pay their bills, with their home as security. Household debt grew and grew, from a manageable 59 percent of household income in 1982 to an unmanageable 126 percent by 2007. Then the whole house of cards tumbled down. The banks held trillions of dollars in exotic assets that lost their value when home prices plummeted – suddenly they were bank­rupt. Working people suddenly could not borrow any more but had to start repaying their debt in 2008, and so their purchasing power fell sharply, leading to a severe eco­nomic collapse. The big crisis had begun.

[1] John Bellamy Foster and Robert W. McChesney, “The Endless Crisis”, Monthly Review Press.

[2] An asset bubble occurs when speculative buying drives the price of some asset, such as real estate, far above its actual economic value.

Crisis of Neoliberalism

In its country of origin, the federal government and the Federal Reserve bailed out the banks and passed a stimu­lus bill that stopped the initial freefall in the economy. Governments across Europe followed suit. However, precious little was done to solve the problems of the 99%: high unemployment, low wages, unredeemable debt, homelessness, and underwater mort­gages. Today, corporations have plenty of funds but hesitate to invest because there is hardly any increase in demand from cash-strapped or unemployed consumers. The Federal Government is cutting expenditure under the 2011 “austerity deal” in the US House of Representatives, further dampening the markets. The housing sector is yet to recover from the body blow it suffered nearly five years ago.

In sum, three years after the recovery phase of the business cycle began, officially ending the Great Recession in the United States in June 2009, the US economy continues to stagnate – call it “Third Depression” after Paul Krugman or “The Long Slump”, as Robert E. Hall, the then president of the American Economic Association (AEA), said in an address to the AEA in January 2011. In his 2011 bestseller The Great Stagnation, Tyler Cowen showed that the U.S. economy has been characterized by “a multi-decade stagnation” that started well before the financial crisis hit the country. The defining characteristic of the present stagnation is limping, halting recovery punctured by relapses. This was what the US experienced in the 1930s and Britain did even earlier. Regarding the British experience, Engels wrote in the middle of the 19th century: “a chronic state of stagnation … Neither will the full crash come; nor will the period of longed-for prosperity… A dull depression, a chronic glut of all markets for all trades, that is what we have been living in for nearly ten years.” (The Condition of the Working Class in England)

No better is the situation in Europe and Japan. In Japan growth slowed to 0.3% by the middle of this year. Surveys released on 1 August 2012 showed manufacturing activity in the 17-nation euro zone contracting for the eleventh straight month in July as a downturn that began in the periphery sank deeper roots into the core, not sparing star performer Germany or France, the region’s second biggest economy. (By the way, India’s industrial output shrank by 1.8 percent in June 2012). Across the Chanel, Britain’s PMI (purchasing managers’ index, computed on the basis of monthly statistical reports from private sector managers covering items like new orders, output, employment, suppliers’ delivery time and stocks of purchases) plummeted to a more than three-year low, shrinking at its fastest rate in more than three years. GDP growth in the 27 countries of the European Union (EU) has fallen from 2.4 per cent in the first quarter of 2011 to 0.8 per cent in the last quarter, according to the Organisation for Economic Co-operation and Development (OECD) Secretariat. The severity of the downturn can be gauged from employment figures too.

The Explosive Job Crisis

International Labour Organisation’s “World of Work Report 2011” dubbed chronic high unemployment “the Achilles heel of economic recovery in most developed countries” and added, “… there is a vicious cycle of a weaker economy affecting jobs and society, in turn depressing real investment and consumption, thus the economy and so on. This vicious circle can be broken by making markets work for jobs – not the other way around.” However, this is not being done. “Recent trends reflect the fact that not enough attention has been paid to jobs as a key driver of recovery. Countries have increasingly focused on appeasing financial markets.” (Emphasis ours)

Precisely because of this policy orientation, the job crisis is only worsening. According to the ILO report “EuroZone Job Crisis: Trends and Policy Responses” released in July 2012, total employment remains 3.5 million lower than before the crisis. “Most alarming, following a modest recovery in 2010 and 2011, employment has fallen since the start of 2012 in half of the Eurozone countries for which recent data are available.” The same trend is witnessed in most other countries, and for the same reason.
According to the World Development Report 2013 released by the World Bank in September 2012, at a time when the world is struggling to emerge from the global crisis, some 200 million people including 75 million under the age of 25 are unemployed. “The youth challenge alone is staggering,” World Development Report Director Martin Rama said, adding that “More than 620 million young people are neither working nor studying. Just to keep employment rates constant, the worldwide number of jobs will have to increase by around 600 million over a 15-year period.”

From people’s perspective the unemployment problem is one of the most painful manifestations of the systemic crisis and together with food crisis it presents a grave danger to the system itself. This is best appreciated by the World Economic Forum (see report on third cover) and no less concerned are other international authorities.

According to World Bank Chief Economist and Senior Vice President Kaushik Basu, “Jobs are the best insurance against poverty and vulnerability. Governments [he forgot to add: should but do not] play a vital enabling role by creating a business environment that enhances the demand for labour.” World Bank Group President Jim Yong Kim said, “We need to find the best ways to help small firms and farms grow. Jobs equal hope. Jobs equal peace. Jobs can make fragile countries become stable”. Such advice, of course, has absolutely no takers among policymakers hired by monopoly finance capital.

European Sovereign Debt Crisis

One of the novel features of the present round of economic turmoil is that some countries – such as Greece, Portugal – in the Euro area have sunk so deep in debt that they find it difficult or impossible to re-finance their government debt (i.e., pay interests and repay the principal) without the assistance of third parties like the IMF. This is known as the European sovereign debt crisis, which has called in question the very sustainability of the European monetary integration and the future of the euro. One wonders, how did things come to such a pass?

To be brief, when the common currency (Euro) was created, banks utilised the opportunity and the euphoria to lend freely to Spain, Greece and other financially weak nations. This flood of easy credit fuelled huge housing bubbles, enormous profits for lenders and real estate dealers, as well as mountains of debt. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before.

Late last year, the European Central Bank (ECB) lent some 489 billion Euros to European Banks at the extremely generous rate of just 1% over 3 years. The latter are relending from this fund to these governments at 10% or more. Why doesn’t the ECB lend directly to the governments? Because an article in the treaty governing ECB forbids it to do that. Actually the purpose of this particular article was to ensure that the ECB is not pressured by governments to print money and make loans and this is understandable. But there should be some flexibility for serious contingencies like the present one, which is missing.

This rigid rule helps big banks make easy money by borrowing cheap and lending at high interest. The banks can take the risks because they know they will be bailed out if their loans go bad. This is one of many instances showing how vested financial interests formulate selfish policies that hamper recovery and make life even more miserable for ordinary people.

BOX: 1

Inequality of Wealth and Income

(From memoirs of Marriner S. Eccles, who served as Chairman of the Federal Reserve under Franklin D. Roosevelt from November 1934 to February 1948. Here he gives his own interpretation of the Great Depression.)

“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. [Emphasis in original.]

Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low …. The stimulation to spend by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product – in other words, had there been less savings by business and the higher-income groups and more income in the lower groups – we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.

Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices.

This then, was my reading of what brought on the depression.” [from Beckoning Frontiers (New York, Alfred A. Knopf, 1951)]

BOX: 2

“Failure of policymakers, especially those in Europe and the United States, to address the jobs crisis and prevent sovereign debt distress and financial sector fragility from escalating, poses the most acute risk for the global economy in the outlook for 2012-2013. A renewed global recession is just around the corner. The developed economies are on the brink of a downward spiral enacted by four weaknesses that mutually reinforce each other: sovereign debt distress, fragile banking sectors, weak aggregate demand (associated with high unemployment and fiscal austerity measures) and policy paralysis caused by political gridlock and institutional deficiencies.”

- From Executive Summary, World Economic Situation and Prospects 2012(United Nations Publication)