4 SOCIAL SCIENTIST
Portents of Banking Breakdown
The shadow of a bank crisis hangs over the western world. Though no major bank has been affected as yet, the collapse of smaller banks and financial houses has been averaging one a month. The failures of the Herstatt Private Bank in Germany, of the Swiss subsidiary of the Lloyds Bank (with a loss of ^30 million) and of several other financial institutions sent shock waves through the stock markets. It is feared that should a major bank go broke under pressure of liquidity demand, it may set in motion a run on the banks upsetting the monetary system as it happened in 1931 when the Kredit Austatt of Austria collapsed.
A number of countries are running up heavy payment deficits temporarily offset by massive loans from abroad. Britain's current account deficit is of the order of ^4000 million. Although Italy recently secured a loan of 2 billion dollars from \Vest Germany, she has turned for further assistance to the EEC which is likely to grant a short-term extension for the 1.8 billion dollar loan repayable in September. France is reportedly acting as the mediator to negotiate oil dollars for Italy.
There has naturally been a flurry of consultations among international bankers to save the situation. In mid-September at a meeting in Basle of the Bank for International Settlements, the representatives of USA, Western Europe and Japan announced that they would seek international co-operation to prevent banking disasters. Earlier, a meeting in Paris of the monetary authorities of six West European countries decided to formulate joint policy to overcome common economic problems. The US Federal Reserve Board has promised to come to the rescue of other central banks as a lender of last resort. Thus the crisis involving international payments and finance, the monetary system and industrial production are all getting interwoven, threatening the entire fabric of capitalist society.
Marx on Capitalist Crises
Crises are part and parcel of the capitalist economy and their basic cause was diagnosed bv Karl Marx : "From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.^1 Marx goes on to pinpoint where the contradiction originates :
The limits within which the preservation and self-expansion of the value of capital resting on the expropriation and pauperization of the great mass of producers can alone move—these limits come continually into conflict with the methods of production employed by capital for its purposes, which drive towards unlimited extension of production, towards production as an end in itself, towards unconditional development of social productivity of labour. The means—unconditional development of the productive forces of society—comes continually into conflict with the limited purpose,"the self-expansion of the existing capital.2