CHAPTER THREE
The Dynamics of the System
Illusions and reality
The history of capitalism in Marx's time and that of his immediate successors was punctuated by economic crises that occurred about once every ten years-there were 15 in the US in the 1 1 0 years between 1810 and 1920. For a few years firms would invest on a large scale, taking on new workers; building new factories and buying new machines would create a demand for the products of industries like construction, steel and coal, which in turn would take on new workers; the new workers would receive wages which in turn enabled them to buy goods. Very fast rates of economic growth led firms to do everything they could to lure people from the countryside-and increasingly from other, poorer countriesinto selling their labour power in the towns. Unemployment would fall to around 2 percent. Then something always seemed to go wrong. Giant firms would suddenly go bust, cancelling the demand for the products of other industries, where firms would also go bust; right across the economy workers-many only recently drawn into industry-would be sacked; their loss of buying power then ensured that the crisis ricocheted from industry to industry; panic would sweep through the capitalist class, while unemployment shot up virtually overnight to 10 percent or higher, where it would stay for months or even years until a new period of rapid growth took off.
The mainstream economics of the time denied that such "crises of overproduction" were endemic to the system, basing their arguments on a populariser and vulgariser of Adam Smith's ideas, Jean-Baptiste Say. His "law" argued that supply and demand must always coincide, since every time someone sold something someone else must have bought it: supply, it was claimed, created its own demand. So John Stuart Mill argued:
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