We didn’t really need to see Britain’s Labour government being given its instructions from those higher-up to understand that they are just a continuation of the past 14 years of Tory misrule. The – now unravelling – budget last month was clearly a continuation of the neoliberal extremism which has dogged the UK for the past half-century… more borrowing, more taxation, more corporate welfare for the multinationals, and more impoverishment for those at the bottom. Indeed, the only oddity is the publicity given to Fink’s meeting with Starmer, since until now our real rulers have preferred to stay behind the curtain.

One reason for the more overt signalling is that things are getting desperate – not just in the UK (although we are leading the charge) but across the western states generally. Geopolitically, the growing challenge from the BRICS bloc, along with Trump’s threat of tariffs as sanctions, risks the unravelling of global supply chains and serious (possibly fatal) damage to the Eurodollar monetary system. At a national level, the discrediting of the hyper-liberal self-identifying “left” has opened the way for nationalist populist movements to enter government and, again, undermine the neoliberal system of international trade. These though, are superficial when compared to the one thing that Karl Marx (almost) got right.

Understanding that Marx was a creature of his time, what he witnessed in the course of Britain’s second (coal-powered) industrial revolution, was a vast increase in the production of capital goods. And it was through this lens that he developed the idea of a “crisis of overproduction.” Put simply, in order for capitalists to make a profit, they had to pay the workers less than the value that the workers provided (this was wrong, but bear with me). But ultimately, it was the workers, collectively, who had to purchase the manufactured goods (and the products made with them). But since the workers had less income than the value of all of the products, the capitalists would be unable to sell all of their products. This would lead some to go out of business, laying off their workers and forcing their suppliers out of business. Others would try to avoid bankruptcy by lowering their costs… the largest of which was the wage bill. But the collective impact of these measures was that the workers would have even less income to spend. And so, even more capitalists would be unable to sell their goods. And so, the crisis tightens.

What Marx got wrong is that it wasn’t (primarily) the workers which added value, but the vast energy unlocked from burning coal to generate the power for industrial machinery. In an economy – like mid-nineteenth century Britain’s – where energy (coal) was cheap and abundant, both wages and profits could increase without impacting purchasing power across the economy. The same was true on a gargantuan scale during the oil boom in post-war America. Nevertheless, Marx was (sort of) correct in pointing out that ultimately the workers had to have sufficient income to purchase the goods (and services) being created if the economy was to avoid a crash. And since, in the modern world, this manifests as a decline in consumption, it is better to regard it as a “crisis of under-consumption” than of over-production – particularly in the services sector where a single product (a video, TV programme, computer game, etc.) is sold over and over with no additional production.

Steve Keen’s modelling, which allowed him to correctly predict the 2008 crash, adds to our understanding by introducing the modern system of debt-based fiat currency. That is, in the post-war years, and certainly by 1971, the western economies shifted from gold-backed currencies issued by governments to fiat currencies mostly issued by banks. This shift meant that collateral replaced gold on the other side of the ledger… and for a large part of the total loan book, collateral amounted to little more than the ability of an entity (household, company, or government) to repay the loan with interest. What Keen was able to demonstrate was that even a slowing of the rate of borrowing in our debt-based system is sufficient to produce a crisis of under-consumption. Moreover, the system did not have to wait for bankruptcies to materialise to enter a downward spiral… all that was required was for banks to tighten lending standards even further to send spending plummeting.

Insofar as people think they know anything about the 2008 crash, they will likely talk about “sub-prime mortgages,” since this was the most visible element of the crisis as it affected ordinary people. Mis-selling, shadow banking and insurance, and lax rating agencies were also involved. As was the voracious appetite for easy money among the world’s banking and financial corporations. But all of this misses an essential point – that the people who couldn’t afford their mortgages had recently been people who could afford their mortgages. The game was rigged, of course. It depended upon people being able to service the debt (i.e., pay the interest) while they waited for the housing market to rise sufficiently to sell their houses at a profit. And those who entered the game early enough managed to end up owning mortgage-free properties. Those who came late to the party fared much worse though… but why?

In two words, interest rates. Something happened to the global economy around 2005, which caused “inflation” to increase above the arbitrary two percent desired by governments and central banks. Central banks responded by jacking up interest rates in the mistaken belief that this – rather than the global recession of the early-1980s – was what had ended the inflation of the 1970s. In one – particularly egregious – manner, this was true, insofar as the rise in interest rates caused the banking crash which resulted in the depression we have been living through ever since. Indeed, in the UK, rising housing costs – caused by the rate rises of the past two years – are the main component of the unexpectedly high rate of CPIH inflation today.