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The Causes Of The Panic*

Lecture delivered in the Garrick Theater, Chicago, Sunday morning, Nov. 24, 1907.

That which is self-contradictory must be transitional; a house divided argainst itself cannot stand. Change is the law of all things, and the only thing in the universe that never changes is the law of change. Everywhere in the cosmos new combinations arise. If some endure longer than others, it is, so far as we can see, because their parts are more harmoniously related, while other less fortunate combinations are the victims of an internecine war, carried on between the various parts of the whole, and resulting in rapid, and, perhaps, violent disintegration.

Ninety-five thousand years is Morgan's estimate of the longevity of tribal Communism, and when we examine that social state and find that it contained no private property, no class divisions, no unemployed problem, we are able to form some opinion as to the reasons for its stability. On the other hand, capitalism, which contains all these things, and many more of the same nature, is tottering to its fall after a reign of little more than a century.

The truth is that the existing social order is a mass of contradictions; its main feature is the antagonism of its parts. To explain how these antagonisms arose, in what they consist, and how they may be abolished, is the task of sociology. So far, the efforts of the official sociologists have resulted in a dismal failure. "We have no real science of society," wailed Benjamin Kidd, and it was impossible for a thinker of his theological tendencies and class affiliations to perceive the reason.

Perhaps no greater misfortune could befall any man, following the university for a profession, than to hold a chair in sociology, or its subdivision, political economy. The most rudimentary attempt to apply to sociology those illuminating methods which have transformed physics and biology, brings him face to face with the fact that the people who have endowed his chair, and to whom he is indebted for his salary, belong to a class of

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useless social parasites, who expect his theories to harmonize with the way they get their living.

And so he must choose between the loss of his position, and becoming a practitioner of the noble art of "how not to do it."

In political economy the case is even worse. The professors of political economy have danced on hot plates, and in their efforts to escape the truth have exhibited an intellectual dexterity that has made their so-called science a perpetual comedy. At last, realizing instinctively the hopelessness of their position, they have stopped thinking altogether, and have degenerated into mere collectors of statistics.

Nowhere does this colossal incapacity, resulting from compulsory self-stultification, appear more clearly than in their abortive speculations as to the causes of panics.

In point of absurdity we are fairly safe in awarding the cap and bells to the English economist, Stanley Jevons. Endowed with a brain which had much in common with that of Mr. Mallock, he succeeded in attracting much attention to his theory of sun spots. It appeared to Jevons that sun spots showed periodical fluctuations which ran in cycles of about ten years. If the presence of many sun spots meant unusual activity on the face of the sun, that would mean the radiation of more heat, which would mean more sunshine for the earth, consequently better crops, and, therefore, a season of prosperity. On the other hand, when sun spots were scarce, sunshine would decrease, cold and wet weather would prevail, crops would fail, and then would come the panic.

Unfortunately, Sir William Herschel, the greatest astronomer of that day, declared that it was impossible to say whether or not the sun spots had anything to do with the climate, deciding that on this point "nothing decisive can be obtained." Again, the dates of the various panics contradicted or supported the sun spot dates with an impartiality which led Mr. Jevons to express his "disgust" with the behavior of both.

These difficulties, however, did not prevent the publication of an extensive literature on the theory and the printing of enough books to load a ship.

In his "Commercial Crises of the Nineteenth Century," H. M. Hyndman dismisses Jevons' theory as follows: "This theory was actually accepted for a time, until what was perhaps the worst crisis of the century came in the same year with one of the finest harvests ever known on the planet, and when also the sun's disc was exceptionally afflicted with spots. Then it became apparent to the most credulous that the spots on the sun had as much influence on industrial crises as the spots on the leopard

in the Zoological Gardens; and that the genius before whose shrine our professors of political economy at Oxford and Cambridge still prostrate themselves had only added another to his long list of blunders."

In the first half of the last century panics had become a recognized item in English social life, and many theories as to their causes were put forward. The theory that there was too much paper that was not backed by gold, until people lost confidence in it, was pressed by so many that in 1844 the Peel Bank Act was passed. This law divided the Bank of England into a banking department and an issue department. The banking department could only get notes from the issue department by depositing an equal amount of gold with the latter. When the banking department was called upon for deposits, in order to get the gold it had to return the notes, which were thus withdrawn from circulation. This act had no effect in staving off panics, but instead had to be itself suspended during the three successive panics of 1847, 1857 and 1866, the first suspension occurring only three years after the passing of the act. A similar act adopted by Austria met the same fate.

In fact, panics seem to pay little attention to monetary systems or currency regulations.

Prof. Jones, of Wisconsin University, who took his degree by writing on this question, and whose book is perhaps the most extensive extant on the subject, says: "The diversity of monetary conditions among the principal countries of the world, coupled with the fact that most of them have been visited by crises, warns us from attaching too much importance to details at this point."

We may here dismiss that group of idealists who hold the "psychological" theory of crises. Horace White, who is a type of this school, observes: "These undulations of trade, of alternate activity and depression in business, have their root in the mental and mortal constitution of mankind." This is, of course, the precise opposite of the position of the materialist who maintains that things mental and moral grow out of the material facts, and that these latter are the "root."

"Loss of confidence" is a result of the panic, and has no 1ace in any statement of the "causes."

Insufficiency of gold, wild-cat speculation, the greed of trusts, and many other things of the same order undoubtedly accentuate the horrors of a panic, and, it may be conceded, that some of them hasten its coming. But he would be a bold Socialist, or rather, no Socialist at all who would assert that any

one, or all of the above mentioned items combined, would be sufficient to explain the phenomenon we call a panic.

We shall now take up the Socialist explanation of this problem.

We shall here dispense with that analysis of the origin and growth of capitalism, bringing with it those various antagonisms essential to its nature, which has been so brilliantly presented by Engels in his reply to Duehring.

But before proceeding to the main theory we shall consider the antagonism described by Engels as "An antagonism between the organization of production in the individual workshop and the anarchy of production in society generally." This anarchy in general production has played an important part in all crisis. As no one capitalist knew what other capitalists were doing with regard to the supply of any commodity, all engaged in a mad rush to get to the market first and dispose of their goods.

It is just at this point that the Revisionists, who claim to have outgrown Marx and discarded his obsolete theories, imagine they have found an excellent foothold for their criticism. Anarchy of production, Bernstein maintains, belongs to the early stages of capitalism, and the crises, produced by that cause, will disappear as capitalism reaches later stages.

This was to be accomplished by the trusts regulating production according to the normal demand. Unfortunately for Marx, this could not be foreseen in his day, so his theory explodes and his self-appointed successor, Bernstein, comes forward to take his place. It must be a little disconcerting, however, to have so many Socialists object to the substitution.

Nay, the trusts had already sufficiently regulated industry as to break through the cycle of crises so that they did not reach over into the twentieth century, although one was supposed to be due about the beginning. The appearance of a panic at this time, in the most trustified country in the world, while it may not shake Bernstein's faith, will probably lose him some followers.

"Their (the Revisionists') mistake lies," says Louis Boudin, one of the foremost Marxian scholars in America, "in assuming that the anarchy of production' is, according to Marx, the only cause of commercial crises. As a matter of fact, the cause mentioned is not only not the only, but not even the chief cause of crises mentioned by Marx."

That chief cause, says the same writer, is a "constant" factor which no trust can ever regulate, and which cannot be abolished until the capitalist regime is abolished. It is "the dual position of the laborer as a seller of his laborpower and a purchaser of

the products of his labor-power, and the creation of a surplusproduct flowing therefrom which must result in an overproduction of commodities quite apart from the anarchy of production.'


Overproduction, or, as it is sometimes expressed by its other phase, compulsory underconsumption by the working class, is undoubtedly the real cause of panics.

This theory is referred to as "orthodox" and "rather stereotyped," both of which criticisms apply with even greater force to Gravitation and the diurnal motion of the earth. The only thing that is relevant is the question of its truth. Revisionism, with an air of profound wisdom, hints like Hamlet, "I could an' I would," and suggests that great truths have been discovered, which are destined to replace the fallacies of Marx and Engels. Some day we shall be told what these epoch-making principles are, and "the jig will be up." For the present, however, revolutionary conservatives will have to wait until Bernstein lets the cat out of the bag.

One reason for the orthodoxy of the overproduction theory is that its truth is so readily perceived. The great Utopians made no mistake on this point. Robert Owen understood what had happened at the close of the war of 1815.

He said: "The war was the great and most extravagant customer of farmers, manufacturers, and other producers of wealth, and many during this period became very wealthy. And on the day on which the peace was signed, the great customer of the producers died, and prices fell as the demand diminished, until the prime cost of the articles require for war could not be obtained. *** Barns and farmyards were full, warehouses loaded, and such was our artificial state of society that this very superabundance of wealth was the sole cause of the existing distress. Burn the stock in the farmyards and warehouses, and prosperity would immediately recommence, in the same mannner as if the war had continued."

Fourier called the crisis "a crisis from plethora," when "abundance becomes the source of distress."

Jones says: "The first writer to furnish a consistent theory of the relation between crises and the industrial problem generaily was Rodbertus."

Rodbertus' book made its appearance in the middle of the last century, in the form of a letter to his friend Kirchmann. Of this letter Marx said: "It sees through the nature of capitalist production."

Rodbertus says: "If every participant in exchange always retained the entire product of his labor, if his purchasing power,

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