The Crash of ’87

This article was published in a Capital and Class symposium on the 1987 crash. Its analysis retains its full force.

It compared the 1987 and the 1929 crash, and explored the historical similarities between the long US postwar decline and the UK’s, from the mid-nineteenth century. It situated both in a rigorousvalue-theoretic framework rooted in Marx’s concept of superprofit.

It was the author’s first such published attempt. It combined, critically, Kondratieff’s account of long waves as developed by Ernest Mandel, with Kindleberger’s concept of hegemony. The article did not refer to the falling rate of profit, but did introduce the competitive struggle for shares of surplus profit between the advanced or imperialist powers. In distinction from Kindleberger and later Kennedy, I argued that the US hegemonised not the world as a whole but the high-productivity powers only. US leadership consisted in organising all aspects of the extraction of surplus profit from the third world, whose economic superexploitation, and political suppression, it organised on behalf of the other great powers.

The three sources of this surplus or superprofit are: technical superprofit, arising from possession of superior productive techniques; financial superprofit, arising from control over financial institutions and flows; and commercial superprofit, arising from monopolistic manipulation of trade.

The article compared these three sources of surplus profit to three legs of a tripod. Stable hegemonies -UK in the mid-19th Century, US in the mid-20th – rest on all three. Instability arises because these sources of surplus profit are ultimately incompatible. A country that specialises in financial and commercial advantages, above all when cemented by a world military role, does so at the cost of its technical advantage – the development of its productive forces.

The US emerged from world war II dominating all three sources of surplus profit. To avoid the fratricidal competition that led to world war I, it created a division of labour between specialists in each form of surplus profit. This was however inherently self-destructive. Germany and Japan, denied all right to imperial expansion, were confined to intensive development, specialising in technical superprofit. This steadily eroded the US’s technical advantage, forcing it into ever greater dependence on its commercial, financial, and ultimately military advantages.
This in turn eroded the material basis of US hegemony, namely, its ability to use its surpluses to buttress its potential rivals’ combined dominance of the third world. 1987 was a critical turning point. From then on, the US was driven to the ‘America First’ policies that led it successively into the first Gulf War, neoliberalism, ‘globalisation’, and finally the neoconservative gambit.
The economic origins of this succession of detours from the US’s 2008 rendezvous with its destiny are mapped out in this article.