MONTHLY REVIEW has a long history of providing serious Marxist economic analysis. Authors and economists like Paul Sweezy, Henry Braverman, and Paul Baran offered many important theoretical contributions, all grounded in analysis of the real economy in attempts to explain the record of twentieth century capitalism.

It is in this tradition that John Bellamy Foster and Fred Magdoff offer their latest contribution—a collection of essays from the monthly journal that analyzed the credit crunch and deepening recession as events have unfolded in recent years. The book includes a lot of important data exploring how the deregulation in the finance sector led to massive speculation. Financial engineering helped create asset price bubbles in tech stocks and then housing. These developments were driven by the explosion of profits in the financial sector—much of which is now being unwound in the credit crunch and the subsequent recession in the real economy.

The book is an important contribution in developing a Marxist account of the current crisis and its roots. Its strongest points include its description of the rise of financialization in the past thirty years—a look at the growth in size and influence of financial, insurance, and real estate firms and the explosion in the size and use of debt throughout the economy. 

The format of the book also provides for an interesting read. With the essays largely unaltered from their original publication, the reader gets a clear view of how Monthly Review authors analyzed the changes and responded to the unfolding crises. It also provides a stark reminder of how quickly things changed in recent years. What initially looked like a problem in one corner of the financial system unfolded into the deepest crisis since the Great Depression.

The final chapter, written in late October 2008, brings the narrative through the most acute phase of the crisis to date—analyzing the collapse of Lehman Brothers, the bailout of AIG and the initial $700 billion TARP aimed at bailing out the system. Foster and Magdoff conclude that we have reached a global turning point, which will hopefully lead to a more rational social order, but only if people rise up and “seize control of their political economy, replacing the present system of capitalism with something amounting to a real political and economic democracy; what the present rulers of the world fear and decry most—as ‘socialism.’”

The picture has changed some in the months since the last chapter was written, but the intervention of the Federal Reserve, the Obama stimulus package, and Treasury Secretary Timothy Geithner’s creation of new facilities and programs have so far failed to stabilize the system. As a result, the book retains its full relevance.

For better or for worse, however, the authors continue in the framework that Baran and Sweezy originally laid out in the 1966 text, Monopoly Capital. In the current crisis, Foster and Magdoff see a confirmation of this long-held argument. The monopoly capitalism thesis begins with the observation that, at the brink of the twentieth century, capitalism was transformed by the rise of giant corporations. This constituted a major departure from the capitalism of Marx’s time, which was a “freely competitive system” made up of “small, family-based firms that had little control over price, output and investment levels.” Because monopolies have greater control and are less likely to be destroyed during capitalism’s crisis periods, so the argument goes, they create a more stable (if less dynamic) phase of capitalism.

The result is that capitalism, in its new “natural” state, is a stagnant system. The periods of growth over the past century, then, have been the exception to capitalism’s modern “natural” state. Monopoly becomes the explanation of major economic crisis, replacing Marx’s theory of the “long-term tendency of the rate of profit to fall,” which Baran and Sweezy rejected. 

In the “monopoly capital” theory, it’s the economic booms—the departures from stagnation—that need a special explanation. According to this view, the Great Boom of the mid-twentieth century arose from a succession and combination of “temporary factors,” such as: the building of consumer savings during the Second World War; the second great wave of automobilization following the war; the rebuilding of the European and Japanese economies; Cold War arms spending; the growth of the sales effort marked by the rise of advertising; the expansion of finance, insurance, and real estate; and the preeminence of the dollar as the international currency.

When they illustrate stagnation, Magdoff and Foster point to real GDP growth rates in the U.S. as evidence of “creeping stagnation.” But what this analysis leaves out is growth in the rest of the world, where real GDP growth rates over the same period do not show as dramatic a drop. In fact, the 2000s showed faster growth rates than either the 1980s or 1990s. 

While most observers see two periods—the postwar boom (from the late 1940s up through the early 1970s) and the neoliberal era (1973 to today)—Foster, Magdoff and others who subscribe to the Baran-Sweezy analysis see capitalism as being in an unchanged state. Furthermore, they deny that there has been any sort of growth of capitalism in the past thirty years. “The 1970s saw a return to conditions of stagnation, reminiscent of the 1930s but not so gloomy, that remained with the U.S. and world economy ever since,” they write in one chapter.

The authors do not seem to see much significance in the break that took place from Keynesian policies, which dominated the initial postwar period, to the more recent era dominated by monetarist and neoliberal policies. This policy break would seem to indicate some sort of shift within capitalism. Foster and Magdoff do have an analysis of Keynesianism. But much of that is absent here. Instead, they describe the more recent years as being “monopoly-finance capitalism,” not a new stage but only a variation of what already existed—a variation created by the contradictions of monopoly capitalism itself.

Magdoff and Foster argue that the rise in financialization is a response to capitalism’s tendencies toward stagnation. They point to the way that profits have been decoupled from non-residential investment in recent years. Financialization is not the only factor at play, however, as Magdoff and Foster do acknowledge. Also at work here is the long-term downward pressure on U.S. workers’ wages and benefits. More families had to become two-income households and to take on debt in order to maintain or increase consumption levels. In 2006, for example, the share of GDP going to corporate profits reached 10.3 percent—the highest level ever—while the portion going to wages dropped to 45 percent. (In 1970, wages and salaries peaked at 53.6 percent of GDP). Economists at Goldman Sachs wrote, “The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income.”

Lastly, while Foster and Magdoff make many mentions of capitalism as a world system, most of their statistics and arguments are centered on the United States. So it’s unclear, for example, how the rapid economic growth rates experienced in China during the last thirty years are supposed to dovetail with the idea that the whole neoliberal era has been characterized by stagnation.

Regardless of the debate over the causes and consequences of the current economic crisis, however, there can be broader agreement over the conclusions. Magdoff and Foster see this as a moment when socialism should be back on the agenda. As they write, the economic crisis shows not only the opportunity but the necessity for creating an alternative to capitalism—a system based on meeting human need rather than one based on profits. In the end, the book is a vital contribution in developing a Marxist analysis of the ongoing crisis and should be a must-read for anyone looking to understand how we’ve reached this point.