Are we headed to another Great Depression … or something else

by Jehu

I have been reading this argument for why the CoViD-19 emergency will not lead to collapse of capitalist accumulation: “No, we’re not heading toward the next Great Depression.” I am constantly on the lookout for articles like this, because they offer a counter-argument to my own and thus challenge my own argument with a skeptical fresh opinion.

In this case, the writer, Cullen Roche, appears to think that the question of the outcome of this emergency hinges “on the outcomes of an exogenous virus” epidemic. I think he is making an error in this view, a typical error made by most bourgeois simpletons, but one that is all too often shared by many communists as well. Whether the capitalist mode of production collapses at this point has nothing at all to do with the pandemic.

The pandemic, as we stated from the outset, is only the trigger for the crisis.


But let’s read his argument.

Following his view that the course of the pandemic will determine the course of the crisis, Roche sees two likely scenarios for how this crisis will play out: “short and sharp” and “shorter and sharper”.

Scenario Number One, which Roche thinks could last about 24 months, is the “shorter and sharper” of the two. It assumes that social distancing works, herd immunity builds, treatments improve, warm weather helps and we stave off the virus long enough for a vaccine to be developed before the next flu season.

Scenario Number Two, which Roche thinks may last as long as 36 months, is the “short and sharp” version of the crisis. This scenario assumes the virus mutates and lingers through the summer, decimating the population much like the Spanish Flu did in 1918.

While scenario number two lasts perhaps as long as three years, in neither case, should it take the so-called economy as much time to recover from the effects of the pandemic as it took to recover from the 2008-09 financial crisis. In Roche’s opinion, there is no possibility that we will suffer through an interminable recovery like the one society experienced during the Great Depression.

Which is probably great news for speculators like Roche, since, in truth, there was no actual recovery from the Great Depression. Instead, the United States and its allies just destroyed most of their competitors within the world market at the cost of some 80 million dead. The last imperialist power standing, the United States, picked up all of the marbles because everyone else was devastated by war.

Three reasons Roche thinks there won’t be a replay of the Great Depression

In any case, Roche says the US will not go through another Great Depression type event and he gives three persuasive reasons why:

First, Roche argues the so-called economy is more diversified than it was back in 1929. The Great Depression was a crisis of overproduction. As such, the heavy reliance on industry and agriculture for employment at that time meant that overproduction in those two sectors immediately translated into massive unemployment spread widely throughout the so-called economy.

Roche has a point: To give a good example of this, when unemployment throughout the US generally stood at 24.9%, in Michigan it was 34%. This was because, until 1929, Detroit had been the fourth-largest city in the country with a population of 1.6 million people with 160,000 of them working in the auto industry. By 1931, auto sales cratered, more than 200,000 were out of work, banks were insolvent and Detroit was declared the hardest hit of 19 cities by the U.S. Census.

The dependence on auto production made Detroit one of the fastest growing cities in the United States — and one of the hardest hit by the depression. Roche’s argument is that today we are generally less dependent on any single industry than we were in 1929. This translates into a more resilient economy that can weather downturns and shocks like the CoViD-19 pandemic to an extent that might not have been possible during the Great Depression.

Second, Roche argues that the dollar is no longer tied to a commodity money — okay, to be honest Roche does not exactly say this, but this is what he means when he says:

“In 1929, the government responded in all the wrong ways. It tightened m0onetary policy, tightened trade, tightened fiscal policy. That exacerbated all the problems that led up to the Depression.”

Roche has another good point, even if he states it badly: When the economic contraction of the Great Depression hit the so-called economy in 1929, a real industrial contraction took place that was followed by a monetary contraction. The reason money supply contracted was simple: Once the economic contraction began in 1929, fewer commodity transactions took place in the market. Less money was needed in circulation to facilitate these transactions. This is what Roche incorrectly calls “tightened monetary policy”. To maintain a stable peg between gold and the dollar at $20.67 to a troy ounce of gold, the US Treasury was forced to reduce the quantity of dollars in circulation.

It is also true that trade tightened after 1929. The Great Depression was an economic contraction. Domestic and international trade always shrink during an economic contraction. And, with economic activity falling, it was no surprise that government tax revenue was falling as well. During the Great Depression, governments did what they always did when tax revenue fell, namely, balance their budgets to avoid running deficits.

Third, Roche argues that what the so-called economy is going through is not an economic crisis at all, but a sudden stop of economic activity caused by a natural disaster:

“Most recessions occur because of a fundamental problem in the economy. This isn’t a fundamental problem with housing or trade or something like that. This is a recession that’s more akin to staying home from work for fear of getting sick…”

Roche scores another hit: Think of what happens during a blizzard or a hurricane. Economic activity comes to a standstill for a period of time. A blizzard can immobilize a region for a couple of weeks. But once we dig our way out from under the snow, economic life resumes as before. (Hopefully, if the weather forecast doesn’t predict several more feet of snow over the next few weeks.)

The CoViD-19 pandemic is a natural disaster, but without all of the usual damage to the physical infrastructure usually associated with one. The physical capital is still in place, no infrastructure has suffered damage. Unlike many economic crises, the financial system appears sound on the surface, while the government still has access to any number of conventional and unconventional policy tools to stimulate the so-called economy.

Natural disasters don’t cause depressions, even though they may depress economic activity for a time.

To summarize Roche’s argument, then, another event like the Great Depression is unlikely to emerge from the COVID-19 pandemic because natural disasters have never triggered a depression, government policies are in place to prevent one from occurring and the economy is diversified enough today to withstand the shock of a sudden stop forced by the spread of the virus.


Roche makes an interesting argument, but I still think he is wrong. To see why let’s start by addressing his arguments one at a time.

Why diversified economies are just as vulnerable to depressions

Like many people who look at the cause of extreme events like depressions, Roche focuses on the concrete forms of economic activity prevailing now and during the Great Depression. What he and almost all economists miss, however, is that these forms are superficial and have no real bearing on the actual operation of the mode of production itself.

Capital is the production of surplus value, production for profit. It is the buying and selling of labor power for purposes of creating profit. What concerns a capital when they purchase labor power is not what particular commodity they are going to produce — an ear of corn, a car, or a Netflix movie — but whether they can produce that commodity, whatever it is, at a profit. If they think they can produce it profitably, they will; if not, they won’t.

To give you an obvious example, Roche is a speculator, although he probably prefers the term “investor”. Today, he may invest his capital in Amazon. Tomorrow he may move it to Tesla. The day after he may be bullish on Disney. Next week he may exit all his present positions and buy Apple. Roche moves his capital this way without ever once thinking of himself as an online retailer, an automaker, a media mogul or a high tech guru. No matter where his capital is invested, he remains a pragmatic capitalist seeking the highest returns for his capital at any given time.

As a capitalist, Roche never falls in love with his investments and never identifies with them.

Basically, this is how all capitals function. Yet, during the Great Depression, a very large number of capitals suddenly stopped operating altogether because they could no longer operate profitably. Diversification has nothing to do with this problem, since we assume capital more or less will migrate to those parts of the so-called economy where the opportunity for profit is the greatest. The problem for capitals is that during a depression, there is no place to migrate to, since every sector of the economy is operating at a loss.

A depression is caused by overproduction, but specifically overproduction of capital in all of its forms — money capital, industrial capital, etc. —  not just too many cars, too much corn or other commodities. The problem is that there is too much capital in every form, everywhere in the economy, seeking to expand itself as capital, not a lack of places to invest the capital. And this will be true during the onset of a depression no matter how diversified an economy is.

The Great Depression was not caused by a banking panic, or bad monetary policy

Roche is one of those poor bewildered simpletons who has been indoctrinated his entire life in the monetarist dogma that the Great Depression was initially just an ordinary recession. The recession took a turn for the worse into a depression because the initial downturn was exacerbated by a banking panic and poor government monetary policy. In fact, neither a banking panic nor bad monetary exacerbated the Great Depression; rather, as I have shown above both the panic and monetary tightening were consequences of the Great Depression.

The tightening of the money supply was driven by the normal imperatives of money’s function in a commodity production and exchange system. Roche wants us to interprets the actions of United States Treasury in the 1930s by a standard that did not exist until after the 1930s, when Keynesian counter-cyclical policies were generally adopted in the United States. What Roche fails to acknowledge is that Keynesian counter-cyclical policies were adopted precisely because the conventional approach to depressions followed up until 1929 (including the practice of maintaining a stable peg of the state issued currency to money) did not prevent the accelerating economic contraction.

However, despite my objections to Roche fuzzy history of the Great Depression, I most certainly do not want to leave the impression that Keynesian counter-cyclical policies would not have worked. Just the opposite: the Great Depression showed that the conventional approach to depression up until that time was obsolete. Once the economic contraction started in 1929, either the working class or the bourgeois state had to take control of production — there was no other alternative.

Production for profit could not continue on the basis of exchange value. Money itself (and by this, of course, I mean gold or another commodity money) had to be abolished, because it had become a material impediment to social production. The truth of this statement is to be found in the argument of the bourgeois economists themselves. In every industrial economy of the period, the contraction ended only after the national currency was severed from gold. Even today, not a single country issues a currency tied to a commodity money.

But having acknowledged, from the bourgeois point of view, that there was a role for state intervention in the 1930s along the lines that Keynes wrote, the question remains whether such intervention is still possible today? Roche seem to think so, but I have my considerable doubts.

Let me offer two:

First, when the contraction began in 1929, money supply did tighten, just as Roche argues. One consequence of the tightening money supply was that interest rates went through the roof. Part of Keynes prescription was to lower interest rates by making cheap credit available. Today, the state faces a different problem. In many cases interest rates have reached and even broken through the zero lower bound. It is not at all clear there is any real effectiveness to monetary policy under these conditions.

Second, when the contraction began in 1929, a huge mass of capital was idled. At the same time unemployment went through the roof. Part of Keynes prescription was for the state to borrow the idle capital and put those millions of unemployed workers to work. Since 1982 or so, the state continues to run massive deficits each year just to keep up with the ever accumulating massive population of surplus workers. And, since 2001 or so, and despite soaring deficits, the state has been unable to contain the steady growth of the surplus population of workers permanently locked out of productive employment even before the emergency. Now this emergency has added ten of millions of more workers to that line in a matter of weeks.

Monetary and fiscal counter-cyclical policy were already showing signs of decreasing effectiveness prior to the pandemic, what reason do we have to assume they will prevent capitalism from sliding into a new Great Depression now?

Natural disasters don’t cause depressions, but…

One problem with Roche’s argument that natural disasters don’t cause Great Depression is that society has never seen a natural disaster quite like this one.

Roche is analyzing the problem the same way he might analyze a localized event like a blizzard, earthquake, hurricane or any other severe natural event. The CoViD-19 pandemic, however, triggered the cessation of capitalist accumulation throughout the world; it was not a localized event. And it did not just shut down the accumulation process for a weekend or a week, but two months now and running.

We have no way to model the impact of a global sudden stop of capitalist accumulation, because a global sudden stop of capitalist accumulation has never occurred in the entire history of the mode of production. The closest we have come to such an outlier event is a world war. And a world war is really like the opposite of a global sudden stop in that the entirety of the forces of production are working overtime to support massive armies in the field.

If a world war is (apart from its human toll) an incalculably massive wasteful expenditure of human labor and capital, a sudden stop like the one we just went through is (apart from its human benefit) a massive reflexive economizing on human labor and capital. And the effect is unlike a blizzard, hurricane or earthquakes in that “we” (an admittedly ambiguous term here) have some latitude (within certain definite limits) in what activity “we” choose to continue and which activity we choose to halt for the duration.

During that period, the forces of production continued to be transformed in very unpredictable ways. If we choose not to go to Florida for a vacation, or shop in malls or eat at restaurants, this has huge implications for how capital is deployed within the mode of production. Entire sectors and supersectors in the United States economy disappear overnight — brick and mortar retail, restaurants, leisure and hospitality, air travel, hotels, car rentals, private education.

Other sectors operate on altogether different bases — retail and entertainment have largely moved online, business is working remotely, agriculture has been devastated by the loss of the lucrative restaurant business. Many core industries, like manufacturing and meatpacking, eventually will be forced to completely eliminate human labor in order to rid itself of CoViD-19 vulnerabilities.

And the above changes are coming on top of changes that were already slated to upend the mode of production over the next decade and which adoption will undoubtedly be accelerated by the economic impact of the pandemic, such as autonomous vehicles, lights out production, machine learning and blockchain.

Few of the capitals emerging from the shutdown even know what their new landscape will look like at this point.

Finally, the single sector of the so-called economy that has never been called into question since the Great Depression, the state, is now facing severe and immediate fiscal constraints at the state and local level. It cannot afford to wait two or three years for an economic recovery when there is every indication that this event may have reduced real GDP this quarter by as much as 50% in a matter of weeks.

The fiscal hemorrhaging at the state and local level will accelerate the collapse; just as it did during the Great Depression.

All depression are produced by an overaccumulation of capital

Which brings us back to why this pandemic may have just triggered a replay of Great Depression on a still more ominous and devastating scale.

As I have argued above, the Great Depression was not produced by any of the causes cited by Roche above. It was not caused by a lack of diversification of economic activity, although the so-called economy was less diversified than it is now. It was not caused by a banking panic, although banks failed by the thousands. And it was not caused by a natural disaster, although we have images of the dustbowl that greatly damaged agriculture of the American and Canadian prairies during the 1930s.

The Great Depression, like all depression that preceded it, was a crisis of overaccumulation — or overproduction — of capital. And this is critical to understand, because before this pandemic emerged, the world market was already locked in just this sort of crisis of overaccumulation of capital. Tensions had already been rising between countries over markets. Stagnation and tepid growth was being experienced in many countries.

In a sense, the crisis of overaccumulation of capital that produced the Great Depression never went away. Instead, it was momentarily relieved by the outbreak of World War II and devastation that followed. Then the crisis was attenuated by decades of false prosperity produced by Keynesian stimulative economic policies. These policies have, over time, seen interest rates fall inevitably toward the dreaded zero lower bound and beyond in many parts of the world market, while deficit spending has driven public debt to more than one hundred percent of GDP in many countries.

Outright return to the dark days of the Great Depression with its 25% unemployment and landscape littered with idled factories has been avoided for the most part, but at the cost of massive deficit spending and currency debasement. In place of the mass of idle capital and surplus population of workers seen during the 1930s, we have inherited a swollen state machine that now absorbs forty percent or more of GDP just to keep people working.

When the pandemic hit a huge part of the so-called economy evaporated overnight — brick and mortar retail, restaurants, leisure and hospitality, air travel, hotels, car rentals, private education. And when these sectors went away, so did the market for an equally huge part of what remained — malls, office space, agriculture products, convention space, and more. Many countries found that their exports markets collapsed. Farmers were left with unsold cattle. Entire economies were rocked because they had no place to sell their oil.

Unlike during the 1930s, much of this has happened so quickly that we don’t even realize it has happened yet — it hasn’t begun to bubble to the surface of our consciousness. That’s going to change. Soon, governments too will be forced to balance their budgets to take account of this new reality. And once that process begins, the implications of what has occurred will begin to filter through the noise.

No, we’re not heading toward the next Great Depression; we’re headed to communism