In an orgy of speculation, prices on the New York Stock Exchange (NYSE) doubled in the four years and eight months between April 1, 1924 and Dec. 31, 1928. The ensuing stock market crash was an important factor in the terrible crisis and depression that began in October 1929.
It took only two years and four months for prices on the NYSE to double to today's levels. But more significant, present prices are 35 times higher than in 1928 - and even adjusting for the overall rise in prices since 1928, "real" stock prices have multiplied three-and-a-half times.
And that means that the rate of exploitation has multiplied three-and-a-half times, as well: Today employers are getting three-and-a-half time more profit from each hour of labor than in 1928.
So, many ask, "Will there be another crash like the one that started in 1929? Will it be accompanied by a severe economic crisis, with the working class again bearing the brunt?"
Although I am not one to warn of depression "around the corner," the present situation has at least two things in common with the 1920s.
Today, as then, the rise in stock prices applies only to the largest, most powerful monopoly corporations, most notable the 30 that make up the Dow Jones Industrial index - IBM, American Express, Boeing, DuPont, General Electric, General Motors, International Paper and Philip Morris, among them. (Yes, the Dow Jones, the prime measure of the NYSE, is based on only 30 companies.)
Secondly, mergers are rapidly furthering monopolization. with anti-trust laws going almost unenforced and with President Clinton actively involved, as in promotion of the Boeing-McDonnell merger, which will reduce to three the significant armament manufacturers.
The fact is that market prices have risen faster than profits. Plain speculation plays a part but is not the decisive factor. The demand for stocks rises even faster than supply.
"Why?" you ask. Because people with savings - professionals, corporate and government bureaucrats, a few highly-paid white- and blue-collar workers - no longer put their savings in banks, which pay low interest. Instead they buy "mutual funds" either directly or via salary deductions such as 401(K) arrangements. The brokerage houses which own these funds collect $15-$20 billion of new savings each month, much of which they use to buy stocks.
Another important source of funds flowing into the stock market comes from capitalists around the world who view U.S. imperialism as protection from their own working class.
As the contradictions of world capitalism and the mass struggles of the workers mount, so does the flow of funds into the "safe haven" of the United States.
So back to the question at hand: Will soaring stock market prices reverse? Will there come a time when mass panic sets in and more money is taken out of mutual funds than is put in, so that the fund's managers will have to sell stocks? Yes, definitely. And the higher the market rises the steeper will be the fall.
Excessive speculation is but one of the components creating the danger of a sever economic crisis. Another is indebtedness - defaults in credit card and other forms of borrowing. The working class as a whole is losing economic ground and will ultimately lead to falling retail sales, major down sizing and mass layoffs - all classical ingredients of crisis.
Elements creating instability, including speculation, are very strong and cannot be ignored in assessing prospects. What to do about it? In the long run, only socialism can solve the problems of imperialism's inevitable economic crisis.
But in the shorter run, the lot of the working class can be improved only through mass, united fightback: strong unions winning higher wages, a shorter workweek, safer conditions, enactment of a government jobs-creating program. Passage of the Jobs Creation and Infrastructure Repair Act, authored by Rep. Matthew Martinez (D-Calif.) would be a a good start.
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