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On the origins of the crisis (beyond finance)

please post articles, papers, videos and lecture notes on the origins of the current crisis which look beyond the specific issue of finance and financialisation towards capitalist fundamentals.

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  • Joseph Choonara: Marxist accounts of the current crisis Issue: 123 Posted: 24 June 09 Just as medical science progresses through pathology, Marxist political economy develops through the analysis of the actual crises of capitalism. It is therefore no ...
    Posted Aug 23, 2009, 1:17 PM by sean rudi
  • Sander: "Crisis of Value" and "Value-Creation and the Crisis Today" Two brilliant assessment of the crisis and its causes from Internationalist Perspective. These articles develop insights from Roots of the Capitalist Crisis, perhaps the most comprehensive Marxian prediction of the ...
    Posted Aug 13, 2009, 11:50 AM by John Clegg
  • Foley: "The anatomy of financial and economic crisis" The Anatomy of Financial and Economic CrisisDuncan FoleyThe Gildersleeve Lecture at Barnard College, April 17, 2009. The talk investigates the theory of financial and economic crises as a ...
    Posted Jun 2, 2009, 4:33 PM by David Calnitsky
  • Kliman: "On the Roots of the Current Economic Crisis and Some Proposed Solutions" Andrew Kliman"On the Roots of the Current Economic Crisis and Some Proposed Solutions"from Marxist-Humanist Initiative ...
    Posted May 2, 2009, 1:20 PM by David Calnitsky
  • Carchedi: "The Return from the Grave" A clear analysis and critique of different Marxian crisis theories as they apply to the current crisis which argues strongly in defense of Marx's theory of the falling rate ...
    Posted Mar 28, 2009, 11:20 PM by John Clegg
  • Kliman: “The Destruction of Capital” and the Current Economic Crisis On his new webpage devoted to "crisis intervention" Andrew Kliman has provided a timely analysis of profit rate tendencies and their relevance to understanding the current crisis:     “The Destruction of ...
    Posted Feb 4, 2009, 2:17 PM by f tcm
  • Laibman: The Onset of the Great Depression II URPE blog entry The Onset of the Great Depression II: Conceptualizing the Crisis by David Laibman* [Note ...
    Posted May 12, 2009, 8:31 PM by John Clegg
  • Kart Heinz Roth: "Global crisis – Global proletarianisation – Counter-perspectives" Newly added to the Wildcat website:Kart Heinz Roth: "Global crisis – Global proletarianisation – Counter-perspectives"It combines an astute analysis of the crisis with a survey of global class composition ...
    Posted Jan 14, 2009, 9:31 AM by John Clegg
  • Bellamy Foster and Magdoff: "Financial Implosion and Stagnation" "Financial Implosion and Stagnation: Back To The Real Economy" by John Bellamy Foster and Fred MagdoffThe definitive Baran-Sweezyite "under-consumptionist" account of the current crisis. The last chapter ...
    Posted Jan 2, 2009, 7:13 AM by John Clegg
  • Smith "Causes and Consequences of the Global Economic Crisis" Murray E.G. Smith "Causes and Consequences of the Global Economic Crisis: A Marxist-Socialist Analysis"see attached pdf
    Posted Nov 26, 2008, 2:10 PM by John Clegg
  • MASSIMO DE ANGELIS — NEXT LAP IN THE RAT RACE? FROM SUB-PRIME CRISIS TO THE “IMPASSE” OF GLOBAL CAPITAL. This article traces the development of the current crisis in the context of the last 30 years planetary class deals/struggles. 
    Posted Nov 13, 2008, 1:29 AM by Massimo De Angelis
  • Loren Goldner: The Biggest ‘October Surprise’ Of All, A World Capitalist Crash An unconventional take on the crisis, focussing on the growth in unproductive labor, and the "decadence" of post-WWII capitalism. Also presents a program for the transition out of capitalism ...
    Posted Nov 17, 2008, 3:07 PM by John Clegg
  • The Problem Is Capitalism, Not Just the Banks Uses Henryk Grossman to point to the crisis' origins in low profit rates, and points to the futility of Keynesian solutions, with special focus on Australia.The Problem is Capitalism ...
    Posted Oct 19, 2008, 6:51 AM by David Calnitsky
  • Contradictions of Economic Growth in the Neoliberal Era: Accumulation and Crisis in the Contemporary U.S Economy by David M Kotz from RRPE. Abstract: "In the neoliberal form of capitalism, economic expansion tends to be accompanied by rising ...
    Posted Oct 17, 2008, 1:29 AM by Maya Gonzalez
  • Fred Moseley, US Home Mortgage Crisis: How Bad Will it Be? Causes and Solutions. Paper given at the North American Historical-Materialism Conference in April 2008, at York University in Toronto.
    Posted Oct 17, 2008, 1:13 AM by Maya Gonzalez
  • Perelman: "How to think about the crisis" Michael Perelman "How to Think About the Crisis"PDF of the same article
    Posted Oct 15, 2008, 5:57 PM by John Clegg
  • Wallerstein: "The Depression: A Long-Term View" Commentary No. 243, Oct. 15, 2008 "The Depression: A Long-Term View" The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering ...
    Posted Oct 15, 2008, 2:36 PM by John Clegg
  • Federici and Caffentzis: "Must the Molecules Fear as the Engine Dies?" -- Notes on the Wall Street "Meltdown" Dear Midnight Notes Friends,     What do the current crisis and restructuring of the financial system imply for us as we join the rest of the world in the dog house ...
    Posted Oct 12, 2008, 2:10 PM by John Clegg
  • Panitch and Gindin: "The Current Crisis A Socialist Perspective" Link. Excellent comprehensive historical analysis of the origins of the crisis, paying attention to the interelation of international monetary standards, FED policy, and the transformation of the reproduction of the ...
    Posted Oct 12, 2008, 2:15 PM by John Clegg
  • Bello: "A Primer on Wall Street Meltdown" A Primer on Wall Street Meltdown by Walden Bello. not particularly insightful, but may be interesting as an example of an underconsumptionist view of the crisis. like many marxists he ...
    Posted Oct 10, 2008, 11:19 PM by John Clegg
  • Richard Wolff lecture notes Economic Crisis and Socialist Strategy. notes by onto. a clear introduction to the basics of this can see a short video of him saying some of the same ...
    Posted Oct 8, 2008, 9:58 PM by John Clegg
Showing posts 1 - 21 of 21. View more »

Joseph Choonara: Marxist accounts of the current crisis

posted Aug 23, 2009, 12:59 PM by sean rudi   [ updated Aug 23, 2009, 1:17 PM ]

Issue: 123

Posted: 24 June 09

Just as medical science progresses through pathology, Marxist political economy develops through the analysis of the actual crises of capitalism. It is therefore no surprise that the current paroxysm has sparked both a revival of interest in Marxism1 and a flurry of responses by prominent Marxists. My focus here should not be taken to indicate that non-Marxist accounts are unworthy of engagement. A number of mainstream economists have been forced, whether enthusiastically or reluctantly, to grapple with the realities of the system.2 But the crisis has also revealed the paucity of what passes for academic economic theory, captured in an astonishing admission by Willem Buiter, a London School of Economics professor and a former member of the Bank of England monetary policy committee:

The typical graduate macroeconomics and monetary economics training received at Anglo-American universities during the past 30 years or so may have set back by decades serious investigations of aggregate economic behaviour and economic policy-relevant understanding. It was a privately and socially costly waste of time and other resources. Most mainstream macroeconomic theoretical innovations since the 1970s…have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and aesthetic puzzles of established research programmes, rather than by a powerful desire to understand how the economy works—let alone how the economy works during times of stress and financial instability. So the economics profession was caught unprepared when the crisis struck.3

The record of Marxists has been better. Nonetheless, their approaches to the crisis are far from homogenous, have often been developed in isolation from each other and diverge on several points. Here I consider widely accessible accounts that have appeared in English over the past few months, appraising their strengths and weaknesses relative to each other and to the tradition associated with this journal.4

The “real” and the financial

All Marxist accounts of the current crisis have been forced to recognise its financial dimension. The crisis has been marked by the near collapse of the banking system in several countries and began with the bursting of the subprime mortgage bubble in the US. One of the first Marxist accounts to draw attention to subprime was produced by Robin Blackburn, who wrote on this subject as early as spring 2007, a few months before the real panic began:

In recent months “subprime” defaults have jumped. A Lehman Brothers analyst warns that some $225 billion worth of subprime loans will be in default by the end of 2007 but others say the figure will be nearer $300 billion. The “equity tranch” [the riskiest slice of the repackaged debt] is now dubbed “toxic waste” by the insiders and analysts are waiting to see which bodies float to the surface… The default crunch will not only cause great unhappiness to the victims who stand to lose their homes—it hurts the housing market and increases the chances of a downturn.5

Back then the term subprime barely warranted a mention in most newspapers. The Financial Times was more attentive than most, carrying an article entitled “Subprime Sickness”, which argued:

There are plenty of reasons to believe that the [subprime] fallout can largely be confined to the sector… Even the fact that so many Wall Street banks were heavily involved in the subprime sector…need not be a cause for alarm. The exposure for any bank should be small. Typically they did not hold on to such mortgages, but packaged them up and sold them on in securitisation…securitisation is doing what it is intended to do—spreading the risk.6

Unlike the Financial Times, Blackburn was “ahead of the curve” because he had focused in the preceding years on developing a detailed analysis of the fragilities of the global financial system.7 However, it was possible to see the outlines of a potential crisis from a different starting point. International Socialism published a remarkably prophetic article in summer 2007, which, by coincidence, came out just in time for the onset of the credit crunch. This saw the growth of finance originating in the decline of profit rates during the post-war boom and the failure to sufficiently restore them from the low levels they had reached by the 1980s. This led to a scramble for alternative outlets for profits:

Low levels of past profitability do not stop capitalists imagining that there are miraculous profits to be made in the future and in sucking surplus value from all over the world to be ploughed into projects aimed at obtaining them. Many of these are purely speculative gambles in unproductive spheres, as with bubbles in real estate, commodities markets, share prices and so on… Against such a background, corporate profits will be being puffed up until they lose touch with reality, and things will seem to be going very well until overnight it is discovered they are going very badly.8

These two different accounts illustrate a dividing line in Marxist analyses of the current crisis. Some emphasise the internal logic of “financialisation” and tend to see the financial crisis as impinging upon the “real” economy from the outside; others, while recognising the importance of the financial dimension, emphasise the underlying problems in the “real” economy that drove the expansion of finance and paved the way for the crisis.

The distinction between the “real” and the financial has to be qualified in two ways. First, the growth of finance has, in part, been driven by traditional corporations based in the “real” economy. For instance, by 2003, 42 percent of General Electric’s profits were generated by its financial wing, GE Capital.9

Second, and more fundamentally, for Marxists the financial system is not simply something grafted onto a pure, non-financial capitalism. Whenever money ceases to function simply as money, when it also functions as capital, it opens up the possibility of credit and financial speculation.10 As David Harvey has recently argued, “There is a more dialectical relationship between what you might call the ‘real’ and ‘financial’ sides of the economy”.11

The real questions at stake are whether financial growth is driven by processes autonomous from the non-financial areas of the economy; whether the current crisis is a new type of crisis or is rooted in tendencies Marx identified, even if the crisis is deferred and given unique characteristics by the growth of finance;12 and whether the dynamic of the system has been fundamentally changed by a process of “financialisation”. I will begin by considering those accounts that emphasise the transformation of capitalism through finance over the recent period.

Robin Blackburn and Peter Gowan

For Robin Blackburn, “Financialisation now runs the gamut from corporate strategy to personal finance. It permeates everyday life, with more products that arise from the increasing commodification of the life course, such as student debt or personal pensions, as well as with the marketing of credit cards or the arrangement of mortgages”.13

Few writers have been as effective as Blackburn in explaining the complexities of finance to a lay readership. But his essays show relatively little engagement with the concepts traditionally associated with Marxist political economy and tend to consider the wider economic system only insomuch as it has been drawn into the financial world. As Geoff Mann points out, “The analysis of value, money and capital…are not part of Blackburn’s discussion, but they remain an essential part of the political-economic stakes”.14 Blackburn has replied that he implicitly operates within a Marxist framework. But his positive statement of what this framework consists of seems to emphasise the limited capacity of workers to consume, arguing that “the root cause of the crisis was, quite simply, poverty” and increased consumption by Chinese workers could “help to lift the global economy”.15

Often his writing gives the impression that the rise of finance comes out of finance itself: “Two processes that took hold in the 1950s and 1960s nourished financialisation—new principles of consumer credit, and the rise of institutional finance and fund management”.16 Peter Gowan,17 another Marxist associated with the journal New Left Review, put an even harder case for the autonomy of finance: “An understanding of the credit crunch requires us to transcend the commonsense idea that change in the so-called real economy drives outcomes in a supposed financial superstructure”.18 For Gowan, financialisation was an answer to problems faced by US capitalism as a whole.19 But he saw the growth of finance mainly as a product of changes within finance itself which were supported as a deliberate strategy by the American (and in a subordinate role the British) elite.20 He put a powerful argument that this elite was not ignorant of the problems of financial bubbles, but that they believed that, “between blow-outs, the best way for the financial sector to make large amounts of money is to sweep away restrictions on what private actors get up to…[and] when bubbles burst and blow-outs occur, the banks, strongly aided by the actions of the state authorities, can cope with the consequences”.21

Just how swollen has the financial system become? “As a percentage of total US corporate profits, financial sector profits rose from 14 percent in 1981 to 39 percent in 2001,” writes Blackburn.22 “In 2006, no less than 40 percent of American corporate profits accrued to the financial sector,” according to Gowan.23 This is a huge chunk of the US economy (although the US economy represents only about one quarter of the world system). But in a period characterised by a series of bubbles, profits estimated by looking at balance sheets composed of assets rising in price can be based on what Blackburn calls “fantasy valuations”.24

What has to be explored is not just the scale of the financial sector measured in its own terms, but the effects of its growth on real accumulation. The financial sector can swell far beyond the scale justified by the value created in the productive economy.25 But this process cannot continue indefinitely. Finance in itself does not create new value, and eventually its profits must be obtained from the productive sector of the economy. In this context, crisis can be seen as “a call to order by the law of value” when the productive sphere must try to cash the cheques written by finance.26

Some of the accounts of financialisation risk making exaggerated claims about the changes wrought by “neoliberal” or “financialised” capitalism.27 For Blackburn, “From the standpoint of the ‘pure’ investor, the corporation itself is an accidental bundle of liabilities and assets that is there to be rearranged to maximise shareholder value, which in turn reflects back the fickle enthusiasms of the investors. The corporation and its workforce are, in principle, disposable”.28 The idea that shareholder value is the central preoccupation of the ruling class as a whole is questionable, especially given the reaction to the banking crisis in which governments and central bankers have, where necessary, inflicted substantial losses on shareholders. More generally, David Harvey, in a book quite favourable to financialisation theories, argues that in recent decades “the power of the actual owners of capital, the stockholders, has been somewhat diminished” relative to those actually running companies.29 For instance, institutional shareholders are rarely involved in the day to day running of corporations. Of course, there are tensions within the ruling class, and these are exacerbated in crises, but the short-term interests of shareholders do not always win out.

Finally, there are political implications to the financialisation arguments. According to Gowan the crisis poses a choice between two models: “A public-utility credit and banking system, geared to capital accumulation in the productive sector, versus a capitalist credit and banking system, subordinating all other economic activities to its own profit drives”.30

Similarly, Blackburn writes, “When properly embedded in structures of social control, finance can help to allocate capital, facilitate investment and smooth demand”.31 “The solution…is not to abandon money or finance but to embed them in a properly regulated system”.32 Geoff Mann has challenged such views: “Turning over our upside-down world requires not just the taming or grounding or redistribution of value, but its destruction. The overthrow of capitalism is the only way out. In short, it is the acceptance of the necessity, not the inevitability, of revolution that makes a Marxist adequate to Marx’s analysis”.33

Blackburn has replied that the sorts of demands he raises are “transitional measures that address the deep crisis in effective ways…which would benefit new collective and democratic institutions, in the shape of a network of social funds”.34 Demands short of revolution are certainly important. Through winning such demands workers become aware of their power to collectively transform society and confident of their strength to do so. But the relationship between these demands and the movement from below is left a little vague—with Blackburn seeing his prescriptions as measures to be brought in once a “seriously anti-capitalist government has been established” creating a system of “financial dual power”.35

Costas Lapavitsas

Another Marxist associated with financialisation theory, Costas Lapavitsas, gives more consideration to the wider problems in accumulation, writing that “productivity growth has been problematic from the middle of the 1970s to the middle of the 1990s, most significantly in the USA”.36 But he is reluctant to root this in a long-term crisis of profitability:

It is not so much that real accumulation does not generate enough profitable avenues for banks to lend. Rather, productive capitals can increasingly meet their financing requirements either by retaining profits or by borrowing directly in open markets… Banks have been edged out of this business, and have to seek other avenues of profitability.37

Lapavitsas produces figures for the percentage of corporate liabilities represented by bank loans in the US, Germany and Japan. However, shifts in these figures do not seem dramatic enough to explain a systemic transformation of capitalism—from about 12 or 13 percent in the US in the 1980s to about 10 percent through the 1990s and then falling to about 5 to 6 percent in the current decade; and remaining at above 30 percent and around 40 percent, after slight declines, in Germany and Japan respectively.38

The growth of consumer finance across many economies in recent decades is, however, undeniable.39 Banks have moved into “areas that are not directly connected with the generation of value and surplus value…finance has become relatively autonomous from productive enterprises as well as growing rapidly”.40 Lapavitsas’s account makes a rather abstract appeal to shifts in the “forces and relations of production” to explain the rise of finance. But this runs the risk of lapsing into a determinism that seeks to explain the trajectory of the system through recent innovations in information and communication technologies:

The impact of new technologies on the sphere of finance has been dramatic. Finance might have become neither more efficient nor more productive in terms of intermediation per worker, but it has become capable of operations that were previously completely impossible. The changes are apparent in terms of the internal organisation of financial institutions, the speed of transactions, the feasibility of financial engineering, the links between financial markets, the techniques of pricing and risk management, and so on. Not least, finance has become technically capable of dealing with huge numbers of individual borrowers.41

Technological innovation can, of course, open up new areas of potential profit making. But this innovation should not be seen as an autonomous process that develops in isolation from the economy. In particular, it is necessary to account for the flows of surplus value into different areas of the economy that spur waves of restructuring and innovation.42 An account of the long-term decline in profitability in the productive economy has the advantage of explaining why the incentive to invest in these areas declined and why finance exploded.

But whatever the causes, Lapavitsas has raised important questions about the consequences of financialisation. Traditionally Marxists have argued that the profits made by industrial capitalists and the interest earned by those who lend them money are each claims on a portion of the surplus value generated through the exploitation of workers in the productive economy.43

Lapavitsas has put forward the clearest alternative analysis. He has argued that banks are now involved in the “direct exploitation” of consumers to make profits. This is “direct” because it is a mechanism lying outside capitalist production, instead occurring in the sphere of circulation. It is exploitation, he argues, because finance is now seen as necessary for many workers to cover basic living costs.44

But exploitation in a Marxist sense has a quite specific meaning.45 It relates to the extraction of surplus value from workers even though the commodity they supply, their labour power, is obtained by the capitalist at its value. The surplus value generated is not a “swindle” as pre-Marxist socialists had argued but a result of the gap between the new value created by labour over a given period of time and the value required to reproduce that labour power (the wage).46 The mechanisms associated with financialisation do not generate surplus value,47 and Lapavitsas has more recently used the less loaded phrase “financial expropriation”, which he defines as a process by which financial institutions “extract profits directly and systematically out of wages and salaries”.48 As anyone with an overdraft can testify, it is undeniable that banks make profit out of personal finance. What is at stake is not whether this takes place but whether it represents a “systemic transformation of the capitalist economy”.49

Such processes are certainly not historically novel. In the context of a discussion of the “lending” of houses to workers at usurious rates in 19th century capitalism, Marx writes:

That the working class is also swindled in this form, and to an enormous extent, is self-evident; but this is also done by the retail dealer, who sells means of subsistence to the worker. This is secondary exploitation, which runs parallel to the primary exploitation taking place in the production process itself. The distinction between selling and loaning is quite immaterial in this case and merely formal, and…cannot appear as essential to anyone, unless he be wholly unfamiliar with the actual nature of the problem.50

The analogy with price rises by retailers who sell wage goods to workers is apt. If almost 20 percent of disposable income went towards debt-servicing in the US by 2007,51 this means that it has become more expensive for the system to reproduce labour power. To the extent that wages rise to account for this, it is a mechanism that shifts surplus value from capitalists concerned with production to those concerned with lending money, just as an arbitrary rise in the price of bread would (if wages rose correspondingly) shift surplus value to bread-producing capitalists. To the extent that wages are held down, it represents an increase in overall exploitation of workers, just as an arbitrary rise in food prices would under conditions of wage repression. And to the extent that workers default on their debts, whether credit cards or subprime mortgages, it represents a decline in a market in fictitious capital, with banks (and others) holding claims over future wage income, some of which turn out to be worthless. Whatever happens, the generation of surplus value within capitalist enterprises remains central to the system as a whole.

David McNally

Of those Marxists who offer accounts stressing wider economic processes, rather than financialisation, I intend to concentrate on those who see the period since the 1970s as one in which capitalism has been unable to resolve underlying problems in accumulation. There are, however, exceptions. A recent paper by David McNally argues that the crisis cannot be understood simply through a focus on financialisation, which is “unable to explain why this crisis has not been restricted to financial markets, or to probe its interconnection with the problems of global over-accumulation”. 52 But he also rejects the notion that crisis “is just the latest manifestation of a crisis of profitability that began in the early 1970s”.53

He substantiates this by referring to Fred Moseley’s figures showing a restoration of profit rates.54 However, there are different estimates of profitability. According to the method used by Robert Brenner, in the US the return on fixed capital has oscillated around 10.5 percent since 1974, down from an average of around 14 or 15 percent in the preceding period.55 Other major economies such as Japan and Germany also seem to have witnessed similar falls.56 Andrew Kilman gives average rates of profit in the US of 28.2 percent for 1941-1956, 20.4 percent for 1957-1980 and 14.2 percent for 1980-2004.57

The evidence suggests only a partial restoration of profitability, driven, in particular, by increased exploitation. McNally argues that this underpinned a new period of accumulation that “enabled capitalism to avoid a world crisis for 25 years”—specifically from the recession of the early 1980s through to the current crisis.58 This accumulation was, for him, centred on East Asia up until the East Asian crisis of 1997-8. After that continued growth was premised on a bubble of credit, particularly credit supplied by the same East Asian economies, rather than rapid accumulation. In other words, McNally changes the start date for the period of financialisation and credit-driven growth from the early 1980s to 1997.

There are, however, several problems with his periodisation. First, it is not clear that the rapid accumulation in East Asia was concentrated in the period from 1981 to 1997. Chinese growth rates remained high even after 1997, a “paradox” that McNally himself recognises.59 By contrast, Japan, the biggest East Asian economy, grew steadily in the 1980s but then stagnated after 1991, something strangely elided in his account. Second, the world system may have avoided a crisis on the scale of the current one for 25 years, but there was a serious crisis in the US in 1990-1 and another in 2000-1.

Third, McNally does not sufficiently explore the relationship between accumulation in East Asia and the larger Western economies. Is there evidence that somewhat increased profitability in the West led to a wave of investment in East Asia concentrated in the period before 1997? This certainly does not seem to hold for the 1980s when, for instance, foreign direct investment into the East Asian economies remained fairly constant and low relative to investment in the major OECD economies.60

Fourth, McNally’s claim that “financialisation” took off after 1997 is dubious. While the East Asian economies certainly helped fuel credit growth in the US after 1997, for instance by building up large reserves of US Treasury bonds, many of the elements that would be carried to grotesque proportions in the run-up to the current meltdown were already in place. The first sharp rise in the US debt to GDP ratio was between 1981 and 1987, followed by a second sharp rise from 1997, which accelerated after 2001. The rise in the financial share of corporate profits took place in two bursts, the first in 1985-1994, the second from 2001.61

The Monthly Review school

Writers associated with Monthly Review, an influential journal of the US left, stress the stagnation of late capitalism, rather than its dynamism. The journal has regularly reported on the crisis, and a collection of recent articles by John Bellamy Foster and Fred Magdoff has been published as a short book.62

The authors pay serious attention to the growth of finance, providing a detailed analysis of consumer debt in the US and of mechanisms associated with financial speculation. But unlike many such accounts, this growth is seen as a result of problems faced by the wider economy and is not seen as representing a new stage: “Although the system has changed as a result of financialisation, this falls short of a whole new stage, since the basic problem of accumulation within production remains the same”.63

This “problem of accumulation” is, for Foster and Magdoff, the one first identified by Paul Sweezy and Paul Baran in the 1960s: that post-war capitalism contains an inherent tendency towards stagnation. This was, for them, driven by the formation of monopolies that could manipulate prices, creating surplus profits that the system struggled to absorb. The result was productive overcapacity, and hence slowing investment, along with the growth of areas of “waste” spending such as arms production to absorb this surplus.64 The massively overblown financial system represents another such waste area.65

In many ways the pioneering analysis of Monthly Review (MR) paralleled that of International Socialism (IS), as developed by Tony Cliff, Mike Kidron, Chris Harman and others, and a greater interaction between these two traditions would strengthen both.66 But the MR tradition seems to suffer from three drawbacks relative to this IS tradition. First, for MR, crisis is seen as a result of limited consumption. The roots of this go back to Paul Sweezy’s writings:

The process of production is and must remain, regardless of its historical form, a process of producing goods for human consumption…means of production are never produced except with a view to their ultimate utilisation, direct or indirect, in turning out consumption goods… The real task of an underconsumption theory is to demonstrate that capitalism has an inherent tendency to expand the capacity to produce consumption goods more rapidly than the demand for consumption goods.67

But in a Marxist framework the demand for output comes from both consumption and investment in means of production, and some of the latter will be used to produce yet more means of production, and so on—this source of demand being limited by the rate of profit. Underconsumption (or overproduction) is best viewed as a symptom of crisis rather than the cause.68

However, Foster and Magdoff, working in a framework that assumes monopolies manipulate prices to boost their “surplus”, have little place for Marx’s “law of the tendency of the rate of profit to fall”.69 Their stress on limited consumption allows the authors to rely heavily on John Maynard Keynes, Michal Kalecki and subsequent left Keynesians for their general account of crisis.70 This means, for instance, that while the IS stressed the development of waste areas such as arms spending as a means of draining surplus value away from accumulation, and so reducing the downward pressure on profit rates, Foster and Magdoff stress the role of arms spending as a boost to demand that could offset underconsumption.71

Second, the MR tradition can overemphasise the tendency to stagnation. Their analysis relies upon the idea that the formation of giant firms prevents the entry of potential rivals into a sector of the economy because they cannot raise the funds necessary to break into the market. But this overlooks the capacity of financial systems to draw such funds together if sufficient profits seem to be on offer—often doing so with the backing of the state, as with the rise of Japan, the “Asian Tiger” economies and then China.72

Faced with these challenges, even the US economy restructured to an extent after the crisis of the 1980s and again in the mid to late 1990s.73 The MR tradition seems little interested in these forms of competitive struggle, in part because it holds a particular vision of inter-imperialist rivalry. Imperialism is seen primarily as the plunder of the Third World, rather than a system of conflict between rival national capitalisms within a system that develops unevenly.74 Foster and Magdoff explain that they have limited the analysis in their collection of essays to US capitalism75—but it is impossible to explain the trajectory of the world system without taking imperialist rivalry into account.

Finally, while the MR tradition has the great strength of drawing attention to the changes in capitalism, these need to be integrated together with Marxist value theory. However, the MR tradition, in assuming late capitalism to be characterised by monopoly rather than competition, which was for Marx what enforced the law of value,76 have relegated the role of value theory to a secondary position. As Harvey, citing Sweezy and Baran’s Monopoly Capitalism, writes:

The transition from competitive to monopoly to state monopoly forms of organisation certainly appears to represent a movement away from the “authority” of competition and therefore a movement away from the regulatory power of the law of value. Some Marxists have drawn such a conclusion. Baran and Sweezy, for example, argue: “We cannot be content with patching up and amending the competitive model which underlies [Marx’s] economic theory… In an attempt to understand capitalism in its monopoly stage, we cannot abstract from monopoly or introduce it as a mere modifying factor; we must put it at the very centre of the analytical effort.” The abandonment of the “competitive model” in Marx certainly does entail abandoning the law of value—which, to their credit, Baran and Sweezy are fully prepared to do. The trouble is that we cannot withdraw this, the linchpin of Marx’s analysis, without seriously questioning or compromising all of the other Marxian categories.77

Robert Brenner

Robert Brenner is another Marxist who has looked in detail at recent empirical trends within the capitalist system. He has also, in a number of talks and articles, set out an eloquent and detailed analysis of the current crisis. He is critical of the notion that this is simply a crisis of financialisation:

It’s understandable that analysts of the crisis have made the meltdown in banking and the securities markets their point of departure. But the difficulty is that they have not gone any deeper. From Treasury secretary Paulson and Fed chair Bernanke on down, they argue that the crisis can be explained simply in terms of problems in the financial sector. At the same time, they assert that the underlying real economy is strong, the so-called fundamentals in good shape. This could not be more misleading.78

He sees a low level of investment since the 1970s as originating from low profit rates: “The declining economic dynamism of the advanced capitalist world is rooted in a major drop in profitability, caused primarily by a chronic tendency to overcapacity in the world manufacturing sector, going back to the late 1960s and early 1970s”.79 The slowdown in investment and repression of wages as corporations attacked workers led to low levels of demand, with the gap being plugged by increasing levels of debt. A series of stock market and financial bubbles helped to keep the system moving forwards.80 But profit rates were only partially improved: “Non-financial corporations…raised their profit rates significantly, but still not back to the already reduced levels of the 1990s”.81 So, for Brenner, the crisis we are seeing today is a deferred crisis, one that would have broken before, had not various counteracting mechanisms come into play.

There are many similarities between Brenner’s framework and the IS tradition, particularly his emphasis on low rates of profit. But there are also differences. Notably, Brenner sees low profitability as rooted in overproduction and overcapacity, brought about by competition between blocs of capital with investments of fixed capital of differing age and efficiency.82 As new capitals with more advanced and efficient fixed capital enter a sector, those with older “sunk” investment engage in price-cutting to maintain market share or suffer from excess capacity—either way the profit (the return on the total investment made by the capitalist) falls. Brenner concentrates on US manufacturing, where there was significant competition from Japanese and German exports from the mid-1960s, and suggests that a fall in profit rates in this area then impacted upon the wider profitability of the economy.

There are problems with such an account. For one thing, as Fred Moseley points out:

Ironically, Brenner’s theory is fundamentally the same as Baran and Sweezy’s theory in Monopoly Capital, even though, superficially, they appear to be opposite theories. The basic assumption in both theories is that the rate of profit is determined by the degree of competition (inversely) or the degree of monopoly (positively) in the economy… For Marx…the degree of competition or monopoly in individual sectors affects only the distribution of the total amount of profit among those sectors; it does not affect the total amount of surplus value or the general rate of profit.83

In other words, even if it is the case, as Brenner argues, that intensified competition in manufacturing reduced prices in this sector, this in turn would reduce the price of inputs for capitalists who use these manufactured goods—and could be expected to raise the profit rates in other areas of the economy. To claim that a reduction of competition in manufacturing would solve capitalism’s problems is wrong, even if it could redistribute some surplus value to manufacturing from other areas of the economy.84 In addition, Anwar Shaikh has shown, in a painstaking empirical study:

There is little evidence of any impact on relative prices from “overcompetition”, and their movements do not in any case correlate with those in profitability. Equally importantly, persistent “overcapacity” cannot explain the secular fall in profit rates, because they exhibit persistent downward tendencies even when (partially) adjusted for variations in capacity utilisation… The empirical results strongly indicate that secularly falling profitability is an intrinsic feature of post-war accumulation in all three dominant capitalist countries [Germany, Japan and the US].85

An alternative explanation of this trend is required. For Marx, the tendency for profit rates to fall was based on a rising organic composition of capital (roughly the ratio of investment in plant, equipment and raw material to that in wages). This squeezes out the source of surplus value (what Marx calls “living labour”), relative to overall investment. Unfortunately, Brenner rejects this explanation, believing it to be paradoxical that capitalists would “adopt techniques that decrease their own rate of profit”.86

But it might be perfectly logical for the first capitalist in a sector to make a productivity-raising investment, driving down the value embodied in the individual commodities they produce, because this would allow them to undercut rivals, grabbing market share and boosting profitability in the short term. It is the succeeding process in which the innovation spreads through a particular sector, driving down prices, that puts pressure on profit rates. Eventually, every capitalist in a particular sector would have to introduce the new technology, because, even though the resulting rate of profit is lower, failure to do so means that they cannot compete with rivals by charging the new, lower price—and the reduced profits now on offer are better than no profit at all.87

Having rejected this Brenner is left with a detailed narrative focusing on the rise and fall of rival blocs of capital locked into competitive struggle in a particular phase of the system’s development. But what is required is both a general account of the tendencies towards crisis, based on Marx’s value theory, and an account of the “specific structural forms taken by capitalism during its history”, which shape how these tendencies work themselves out.88 I will turn next to two theorists who have sought to apply Marx’s law of the tendency of the rate of profit to fall to contemporary capitalism, before looking at the IS tradition’s account of the historical development of the system.

Andrew Kliman

Andrew Kliman has, like Brenner, argued that the current meltdown is rooted in a long-term failure of capitalism to shrug off problems that emerged from the 1970s: “The crisis is rooted in the fact that capital was not destroyed to a sufficient degree during the global economic slump of the mid-1970s”.89 This follows Marx, who saw crisis as a mechanism through which the capitalist system can restore profitability and temporarily work out the contradictions that build up in periods of growth:

From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.90

The collapse in the price of machinery, raw materials and other inputs during a crisis, along with the failure of whole companies (and attacks on wages and conditions of workers), can boost the profitability of firms that survive:

If a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3 percent. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30 percent. That is a tremendous spur to a new boom. Thus the post-war boom which followed the massive destruction of capital that occurred during the Great Depression and World War Two came about as a result of that destruction.91

Kliman makes a distinction between an “observed” and an “underlying” rate of profit. He claims that the latter is a mathematical limit governed by two variables—the rate of growth of living labour and the rate at which value is accumulated—which Kliman believes are both more or less constant.92 The observed rate will tend to fall towards this limit, before being boosted by the destruction of capital in crisis—if this destruction of capital is able to take place. Kliman’s formulation is essentially a mathematical proof of the direction profit rates should move in, rather than a description of their concrete movements. There seems little reason to believe that the accumulation rate and expansion of living labour will stay constant in the short term, but Kliman believes that they may be trendless when considered over long historical periods.93 It appears that his argument is directed against the large number of Marxist theorists who have rejected the law of the tendency of the rate of profit to fall altogether.94 But for those who already accept this tendency, which would include most of those who have written in this journal in recent years, a focus on actual movements of the organic composition of capital, which in turn imply changes to profit rates, may be more useful.

Kliman’s central point about the destruction of capital stands, whatever approach is taken and, of course, begs the question of why the contradictions did not work their way out of the system.95 Kliman points to the reluctance of policy makers to allow the current crisis to destroy capital.96 This in turn needs to be embedded in an account of the trajectory of capitalism since the Second World War, showing why this reluctance is greater than it was in previous crises, a point I shall return to below.

Anwar Shaikh

Anwar Shaikh is the Marxist theoretician who, perhaps more than any other, has stressed the centrality of the rate of profit to the dynamics of the system. For Shaikh the current crisis is a “structural crisis that had been postponed or turned into a false boom”. The period since the 1970s has been one in which the amounts of profit generated by the system have risen but profit rates have been “essentially stagnant”.

The additional point added by Shaikh’s analysis is that it is necessary to look at sustained shifts in interest rates alongside profit rates in order to understand the accumulation that did take place in recent decades. “What stimulates accumulation is not the profit rate but the profit rate net of the cost of borrowing capital, ie the interest rate. If the profit rate is flat and interest rates are falling, the incentive to accumulate is kept alive, though it’s kept alive artificially.” The prime rate (the interest rate that businesses care about) tended to rise gradually from the end of the Second World War, with the rise accelerating sharply in the late 1970s and early 1980s, before beginning a gradual long-term decline.97

This created a “false boom” based on “profit of enterprise”—the term used by Marx in the third volume of Capital for profits net of interest payments. The long decline in interest rates also allowed consumer debt to grow for a period without, at least initially, massively increasing the debt repayments made by workers.98

Pulling the insights together

What is required is an analysis of capitalism as it ages combined with the rigour of Marx’s value theory, drawing on the insights of many of the theorists I have surveyed.

Aging capitalism leads to the growth of unproductive and “waste” areas of economies. For instance, the IS tradition emphasised the role of arms spending during the long post-war boom. Military rivalry between the two Cold War superpowers, which maintained high levels of arms spending following the Second World War, created a “permanent arms economy”.99 This spending could stabilise the system as a whole by functioning as a “leak” out of the circuit of capital and thus draining off surplus value that otherwise would have been accumulated.100

The permanent arms economy contained the seeds of its own collapse. The boom period also saw the rise of “non-militarised state capitalisms” (notably Japan and Germany), which spent less on defence. They could invest a greater proportion of surplus value in export industries, undercutting the major arms spending economies in these areas by engaging in price competition. In the wake of the rise of these powers, and reductions in the defence budgets of the US and USSR, arms spending, though still high in absolute terms, ceased to keep pace with the growth of the world economy.101

Other forms of spending that are not directly productive of surplus value have also grown, and done so more evenly across the advanced capitalist economies and without subsequently declining. These include unproductive expenditures, for instance advertising.102 There are also areas that might be described as “indirectly productive”, such as public healthcare and education, which do not directly yield surplus value but which are essential to the reproduction of the kinds of labour power required in a modern capitalist economy.103

The rise of waste can stabilise the system but it is also a burden on the particular capitalist economy in which the waste spending takes place. Fred Moseley, for instance, believes that the rise of unproductive labour had as great an impact in reducing the US profit rate from the late 1940s to the mid-1970s as the rising organic composition of capital.104

In the post-war period the system did not grow as rapidly as it might have if all the surplus value had been accumulated in productive areas. However, nor did the ratio of investment to labour grow, or the rate of profit fall, as rapidly as it would otherwise have done. It was this that allowed the boom that followed the Second World War to extend for an unprecedented duration. When from the mid-1970s onwards crisis returned, it impacted upon a world that had been transformed during the long boom. In particular the units of capital—the firms within the system—had become larger through the processes of concentration (the gradual accumulation of capital) and centralisation (mergers and takeovers) identified by Marx.105

This meant that the very mechanism that clears out the system and restores it for a time to some level of health—economic crisis—had become more dangerous for the system. The collapse of one or two giant multinationals now posed the risk that profitable sections of the economy could be dragged down alongside unprofitable sections. The firms that made up the economy had also become more deeply intertwined with the state and financial system, and indeed the recent growth of finance has exacerbated the problems.106 The growing dangers explain the recent panic over the implosion of Lehman Brothers and the way the state has intervened to manage the restructuring through bankruptcy of the US car giants GM and Chrysler.107

The unwillingness of capitalist states to allow crisis to sweep through the system does not imply a collapse into permanent stagnation. Capitalism remains a system of competitive accumulation, along with imperialist rivalry, even if large firms have more freedom to determine prices until competitors harness the resources required to enter a market.108 But unless there is destruction of capital on a sufficient scale, a sustained boom for the system as a whole, as opposed to temporary and localised booms, is unlikely—and periods of stagnation across areas of the system a real possibility.

As Kliman and Brenner argue, a sufficient destruction of capital certainly did not take place in the 1970s or early 1980s. Instead mechanisms came into play that deferred the crisis at the cost of generating growing contradictions that permeated the system. There was a dramatic increase in the rate of exploitation from the 1980s onwards. This is reflected, for instance, in the extension of the working year in America, to the extent that “in manufacturing the average worker put in nearly two weeks more in 2002 than in 1982”.109 The offensive on labour allowed for a partial, but only partial, restoration of profit rates.110

Finance, fictitious capital and real accumulation

The other mechanism deferring crisis was the growth of finance as capitalists and some states sought investment opportunities beyond the rather unprofitable productive economy. This had three effects.

The first was to prevent a crisis arising from the inability of firms to sell their output and so “realise the surplus value” embedded in the goods and services produced by the system.111 If profit rates are high, limited consumption by workers is not a problem because there is plenty of demand for machinery, raw materials and so on. In a period of low profitability—and therefore low average levels of investment—the restriction of workers’ wages can create huge problems. The growth of debt, especially personal debt in economies such as the US, allowed consumers to form a “market of last resort”, providing the demand to keep capitalism in business.

The second effect was to create the illusion of profitability and dynamism through asset price bubbles. As profits sought an outlet in the world of finance there was a process of accumulation of what Marx calls “fictitious capital”. Fictitious capital does not mean capital that does not exist, or necessarily imply fraud of some kind. Rather it is investment in “paper claims” over a share of value to be produced. The fact that fictitious capital entitles the owner to a stream of income makes it appear like real capital that a capitalist might throw into production to generate surplus value or loan out at the going rate of interest.

One classic example would be the bonds issued by governments, which entitle the owners to a share of future tax revenue; another would be the shares issued by companies that entitle shareholders to dividends that are a portion of the surplus value generated by the company.112 Marx points out that, even when the paper claim “does not represent a purely fictitious capital…the capital-value of such paper is nevertheless wholly illusory”. In other words, if we are dealing, for instance, in shares in a productive enterprise, the paper is merely a “title of ownership which represents this capital”. Marx cautions against the illusion that the titles are the actual capital: “Capital does not exist twice, once as the capital-value of titles of ownership (stocks) on the one hand and on the other hand as the actual capital invested, or to be invested, in those enterprises”.113

Fictitious capital can be traded. Indeed, Marx argues, it circulates according to “its own laws of motion”, different from the laws of motion of real capital.114 The market prices of shares might rise and fall depending on how the income flowing from them compares with that which can be obtained from other sorts of investment. Because the price of shares and other examples of fictitious capital can fluctuate in this manner, investors may also start to speculate—purchasing them in the expectation that their prices will rise and they can later be sold at a profit. In an economic “bubble” investors outbid each other in the chase after such claims and, in the process, raise their prices. So, for instance, shares in a company can be pushed well above the level represented by the actual value of the plant and equipment it owns.

The process of “fictitious accumulation” associated with rising asset prices could boost the balance sheets of the firms involved, especially financial corporations, creating the illusion of profitability.115 In addition, although fictitious accumulation in itself produces nothing, it could spur some development of productive areas of the economy, which can add to the sense of dynamism. (For instance, the workers who serve coffee at the Starbucks branches that have sprung up across the City of London are productive workers, even if their customers are often not.)

The third effect of the growth of finance was to further reduce the pressure for profit rates to fall. One reason for this is that the growth of the financial sector is in itself a growth of waste. The investment that goes into buildings or wages in the financial sector is unproductive—it does not lead to the generation of new surplus value and is therefore a burden on productive capital. It constitutes a “leak” from the system in much the same way as arms spending did in the post-war boom.

However, not all the money harnessed by finance represents such a leak. In the traditional Marxist picture banks gather “interest-bearing capital” which they loan to industrial capitalists, who then use it to generate surplus value, some of which then goes to the bank as interest. When this happens, “fictitious accumulation” translates into real accumulation.116

If, as Lapavitsas and others have argued, banks are increasingly interested in lending to workers rather than industrial capital, how does this modify the picture? The lending gives banks a claim over workers’ future earnings. This has the effect of raising the rate of exploitation of the workers, unless they succeed in forcing their employer to pay higher wages, in which case the employer in effect pays for the interest on the workers’ loans through a reduction in their surplus value. The bank then has the possibility of using the interest payments for productive investment.

But there is nothing automatic about finance flowing towards productive ventures, rather than speculation. For instance, mortgages and other debt have, over recent years, been repackaged as securities with names such as “collateralised debt obligations”. Capitalists could then gamble on the future value of these. Derivatives called “credit default swaps” were created, which insured against people defaulting on their loans. These too became subject to speculation.117 More generally, as a whole series of markets in fictitious capital were created or expanded, with increasingly tenuous relationships to the generation of surplus value in the wider economy, the market prices of these assets lost touch with the underlying process of value creation.118 As long as the resulting speculative bubbles were growing, these markets could act as a temporary a “reservoir” for surplus value (as opposed to a permanent “leak” because some of this value could, in principle, find its way back into production, for instance if assets were sold and the money ploughed into a productive firm). As each bubble collapsed, another one had to be blown on an even greater scale. But crisis always threatened to force markets in fictitious capital back into line with the prospects for value production in the wider economy.

The destruction of fictitious capital goes hand in hand with the wider devaluation of capital through crisis. In principle it can help pave the way for future expansion by removing a burden on productive capital, by accelerating the processes of restructuring through crisis (for instance, by firms taking over failing rivals whose share price has collapsed) and by removing some of the claims on future value.119 But in practice it is increasingly hard to disentangle fictitious accumulation from real accumulation. If banks that have speculated unwisely go bust, they can drag down firms that have borrowed to invest in production. If financial institutions that are seen as central to the system have lost money and are threatened with collapse, states may step in to bail them out, and they will expect either productive sectors of the economy or workers to pick up the tab.120

So the collapses taking place in finance are adding to the trauma of the productive sectors of the economy, even as the chronic problems afflicting these sectors for 30 years are exposed and the credit dragging the system forward is withdrawn. Financial expansion is best seen as a “counteracting tendency”, deferring crisis, but one of a transitory nature. The price paid for this temporary fix was the creation of enormous imbalances within the economy—including the growth of unsustainable levels of debt, soaring financial and trade imbalances such as those between China and the US, and the formation of economic bubbles on an enormous scale. These features of the previous period help explain why, when the deferred crisis eventually broke, it did so with enormous speed, global reach and coordination, and with such terrible severity.


1: This has been the object of some fascination in the mainstream press, which has reported a seven-fold increase in sales of Marx’s Capital in Germany, the success of a Manga comic version of the work in Japan and now a musical, currently in production in Shanghai, which, according to the director, “will bring Marx’s economic theories to life in a trendy, interesting and educational play that will be fun to watch”.

2: For instance, Graham Turner’s recent book (2008) or, from a more right wing perspective, Martin Wolf’s latest work-see Callinicos, 2009. On Turner’s book, see also Murphy, 2009.

3: Willem Buiter, “The Unfortunate Uselessness Of Most ‘State Of The Art’ Academic Monetary Economics”, Maverecon, 3 March 2009,

4: For an illuminating discussion of the International Socialist tradition in political economy, listen to Alex Callinicos’s recent seminar on the subject-available from

5: Blackburn, 2007a. The article was written in the wake of a short and sharp decline in stock markets on 27 February 2007. The warning by a “Lehman Brothers analyst” was particularly ironic. A year and a half later Lehman Brothers’ exposure to toxic assets caused it to implode in the largest bankruptcy in world history-six times bigger than the previous record (WorldCom) and ten times bigger than Enron.

6: “Subprime Sickness”, Financial Times, 23 February 2007. By September 2008 the last two surviving Wall Street investment banks had changed their status to that of commercial banks.

7: See for example Blackburn, 2007b.

8: Harman, 2007, pp157-158.

9: Blackburn, 2006, p44.

10: Marx, 1972, pp338-343; Lapavisas, 2003, pp66-70. And, historically, credit pre-dates productive capital: “Interest-bearing capital, or, as we may call it in its antiquated form, usurer’s capital, belongs…to the antediluvian forms of capital, which precede the capitalist mode of production”-Marx, 1972, p593.

11: Harvey, 2009, p18.

12: I argue the latter in Choonara, 2008.

13: Blackburn, 2006, p39.

14: Mann, 2009, p120.

15: Blackburn, 2009, pp129-130. Blackburn draws on Turner, 2008, to make this argument. But while the great strength of Turner’s book is to root credit bubbles in wider economic patterns, in particular wage repression, from a Marxist perspective it is also necessary to consider tendencies arising from accumulation, in particular Marx’s famous law of the tendency of the rate of profit to fall. Blackburn also claims that his account is framed by the writings of the Marxist authors Robert Brenner, Andrew Glyn and Giovanni Arrighi (see, for instance, Blackburn, 2008, pp65-66) but there are important differences between these theorists precisely over questions such as the cause of the decline in profitability. So, for example, Moseley, 1999, pp132-133, contrasts the approaches of Glyn and Brenner.

16: Blackburn, 2008, p85.

17: As we were going to press we were saddened to hear of the death of Peter Gowan after his courageous battle with cancer.

18: Gowan, 2009, p5. He argued that this break with the “common sense” meant that “real actors” such as US homeowners were not responsible for the crisis and that “new actors” based on a “New Wall Street System” were to blame. But this seems to beg the question of whether some of the “old” capitalist actors in the wider economy (as opposed to US workers) were also to blame-Gowan, 2009, p6.

19: Panitch and Gindin, 2009, puts forwards a position similar to Gowan’s: “The current economic crisis has to be understood in terms of the historical dynamics and contradictions of capitalist finance…the origins of today’s US-based financial crisis are not rooted in a profitability crisis in the sphere of production.” Elsewhere, these authors have argued that the development of the “New Wall Street System” effectively resolved the crisis of profitability of the 1970s. See Panitch and Gindin, 2006, and the response Callinicos, 2006.

20: Gowan, 2009, pp7-9.

21: Gowan, 2009, p21. See also Brenner, 2004, where the emerging system of “Stock Market Keynesianism”, as he puts it, is explicitly seen as a response to the failure of profit rates to recover.

22: Blackburn, 2006, p39.

23: Gowan, 2009, p7.

24: Blackburn, 2008, p69.

25: By “productive economy” I mean, following Marx, the areas of the economy producing surplus value, the basis of profit and interest payments.

26: Husson, 2008, p2.

27: Harman, 2008a, is a particularly vehement rejection of such accounts.

28: Blackburn, 2006, p43. See also Lapavitsas, 2009b, p20.

29: Harvey, 2005, p33.

30: Gowan, 2009, p21.

31: Blackburn, 2008, p84.

32: Blackburn, 2008, p106.

33: Mann, 2009, p126.

34: Blackburn, 2009, p128.

35: Blackburn, 2009, pp133, 134.

36: Lapavitsas, 2008a, p11.

37: Lapavitsas, 2008b, p19. See Lapavitsas, 2009b, pp14-19, for a more lengthy discussion.

38: Lapavitsas, 2009a, p13.

39: Although, again, the trends are less sharp than sometimes implied. See the graphs in Lapavitsas, 2009a, pp14-17.

40: Lapavitsas, 2008b, pp17-18.

41: Lapavitsas, 2009b, pp12.

42: And many of the innovations required were in place before financialisation took off. See, for instance, Panitch and Konings, 2009, p69.

43: Fine, 2008, p3.

44: Lapavitsas, 2008a, p15.

45: Choonara, 2009, pp29-35.

46: Marx, 1970, pp164-172.

47: Something Lapavitsas, of course, recognises-2009b, p10.

48: Lapavitsas, 2009b, p8. The term “direct exploitation” is especially confusing because Marx uses the phrase to mean exploitation of labourers in production, ie in the opposite sense to Lapavitsas-see, for instance, Marx, 1972, p244.

49: Lapavitsas, 2009b, p13.

50: Marx, 1972, p609.

51: Lapavitsas, 2008b, p19.

52: McNally, 2008, p4.

53: McNally, 2008, p3. Jim Kincaid, 2008, has put forward a much harder version of the argument, claiming, “The basic story of the world economy over the past 25 years has been one of rising profits, and growth in output and levels of capital accumulation. Advances in productivity have not undermined profitability.” I have not considered his argument here because it was developed prior to the current crisis, but see Harman, 2008b.

54: McNally, 2008, p4. See, for example, Moseley, 2008, p171. See Moseley, 2003, for the evolution of his account.

55: Calculated from Bureau of Economic Analysis data.

56: For this, and a careful critique of Brenners’ method, see Shaikh, 1999.

57: Kliman, 2009, pp3-4.

58: McNally, 2008, p4.

59: McNally, 2008, p10.

60: Liu, Chow and Li, 2006, p3. And even at its subsequent peak, foreign direct investment into East Asia, excluding Japan and South Korea, was substantially lower than flows into the OECD economies. See also, UNCTAD, 2006, pp39, 82.

61: See, for example, the graphs in Foster and Magdoff, 2009, pp47, 55.

62: Foster and Magdoff, 2009. Some of the essays that make up the book are available from

63: Foster and Magdoff, 2009, p77.

64: See Foster and Magdoff, 2009, pp63-65, for a summary of this account of “monopoly capitalism”.

65: Foster and Magdoff, 2009, pp83-84.

66: See Harman, 1984, for an account of the IS tradition.

67: Sweezy, 1970, pp162-186.

68: Carchedi, 1991, pp184-186; Carchedi, 2009; Fine and Harris, 1979, p79. See also Cliff, 2001, p106.

69: They do point out that in crisis capital is “devalued” boosting profitability-Foster and Magdoff, 2009, p20. They follow this up by quoting Marx, who writes, “The real barrier of capitalist production is capital itself.” The passage comes from part three of the third volume of Capital, entitled “The Law of the Tendency of the Rate of Profit to Fall”. The subsequent sentences have some bearing on the MR analysis: “Capital and its self-expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers”-Marx, 1972, p250.

70: See for example, Foster and Magdoff, 2009, pp12-20.

71: Foster and Magdoff, 2009, pp42-44.

72: See Brenner, 1999, and the references therein.

73: Harman, 2007, pp151-152.

74: Foster and Magdoff, 2009, pp41, 75-76, 87.

75: Foster and Magdoff, 2009, p21.

76: Choonara, 2009, pp21, 68-70, 77.

77: Harvey, 2006, p141. Sweezy claimed that he had merely “transformed” value theory, but if this is the case, he transformed it beyond recognition. See Howard and King, 1992, p120.

78: Brenner, 2009.

79: Brenner, 2008.

80: See, for example, Brenner, 2004.

81: Brenner, 2008.

82: He provides the most detailed account of his approach in Brenner, 2006, pp27-40. For detailed critiques of this work, see the symposium in issues 4 and 5 of Historical Materialism, in particular Harman, 1999; Callinicos, 1999; Moseley, 1999; Shaikh, 1999; Carchedi, 1999.

83: Moseley, 1999, p139.

84: Moseley, 1999, p145.

85: Shaikh, 1999, p115.

86: See Brenner, 2006, pp14-15, and, in particular footnote 1 where he links his rejection of Marx’s account to the “proof” by Okishio. For refutations of Okishio see Kliman, 2007; Carchedi, 1999; Shaikh, 1999.

87: Shaikh, 1999, pp121-122. For an introductory elaboration of Marx’s law of the tendency of the rate of profit to fall, see Choonara, 2009, pp68-78.

88: Callinicos, 1999, pp18, 25-28.

89: Kliman, 2009, p1. Earlier Kliman wrote a useful account of the developing crisis for International Socialism (though obviously, like all the articles penned at this stage, it has now been overtaken by events)-Kliman, 2008.

90: Marx, 1972, p249; Choonara, 2009, pp79-82.

91: Kliman, 2009, p1. Brenner, 2009, also puts forward the view that “it’s by way of crisis that, historically, capitalism has restored the rate of profit and established the necessary conditions for more dynamic capital accumulation… The current crisis is about that shakeout that never happened.” For the role of the Second World War in the recovery from the 1930s, see Freeman, 2009.

92: The precise expression for the limit will depend on how much constant capital is fixed and how much is circulating. See the references in Kliman, 2009, for the maths.

93: Personal correspondence.

94: See Kliman, 2007, chapter 7, for a terrific defence of Marx in the face of this barrage. Carchedi, 2009, also provides a powerful vindication of Marx’s explanation of why the profit rate falls.

95: Although there are debates over terminology. According to David Harvey, “Capital that is not realised is variously termed ‘devalued’, ‘devalorised’, ‘depreciated’ or even ‘destroyed’. Marx-or his translators-seem to use these terms interchangeably and inconsistently. I shall restrict my own uses of them in the following way. The ‘destruction of capital’ refers to the physical loss of use-values. I shall restrict the use of the idea of ‘depreciation of capital’ largely in accordance with modern usage, to deal with the changing monetary valuation of assets… And I shall reserve the term ‘devaluation’ for situations in which the socially necessary labour time embodied in material form is lost without, necessarily, any destruction of the material form itself”-Harvey, 2006, p84.

96: Kliman, 2009, p1.

97: See, for instance,

98: Shaikh, 2008; all quotes are my transcriptions from this recording.

99: See, for instance, Kidron, 1970.

100: Choonara, 2009, pp134-137. Harman, 1984, chapter 3, gives a more detailed explanation of the role of arms spending.

101: For instance, US arms spending now represents between 4 and 5 percent of GDP, compared to about 10 percent in the late 1950s. World arms spending was about 2 percent of world GDP in 2007.

102: On the astonishing amounts spent on advertising in the US, see the figures in McChesney, Foster, Stole and Holleman, 2009.

103: Choonara, 2009, pp45-49.

104: Moseley, 2003, pp217-218.

105: Choonara, 2009, pp90-95.

106: “The effect [of the growth of finance] was not to subordinate state capacities to market forces, but rather to make political intervention all the more necessary-not least in fighting fires sparked by financial volatility-as well as more feasible… The result was the step by step construction of a too big to fail regime, whereby intermediaries that were so large and so interconnected that their failure would bring down a significant part of the system could count on the US state, and especially the Treasury, to come to the rescue”-Panitch and Konings, 2009, p72.

107: There has been some “restructuring through crisis” in recent decades-Harman, 2007, pp151-152. Anwar Shaikh, 2008, makes a similar point about the crisis of the 1970s: “You had recovery in the 1980s because of job losses, because of bankruptcies, because of business failures and because of a decline in real wages…which greatly stimulated the profitability of surviving companies.” Shaikh contrasts this with the crisis in Japan, which, he argues, the state prevented from sharpening through business failure and which was, consequently, a much more drawn out crisis.

108: Even in the most extreme version of monopolisation-bureaucratic state capitalism as practised in the USSR-in which the law of value was “partially negated”, competition reasserted itself through the struggle to produce use-values, in particular weapons, enforcing a drive to accumulate-see Cliff, 1996, chapter 7.

109: Moody, 2007, p34.

110: See Harman, 2007, for a detailed discussion.

111: Marx, 1972, p244.

112: These are the examples given in Marx, 1972, pp465-468.

113: Marx, 1972, p466.

114: Marx, 1972, p465.

115: Although often this was rather opaque. On the kind of financial wizardry practised in the City of London, see Lancaster, 2009.

116: Fine, 2008, p3.

117: Ultimately it was credit derivatives issued by AIG that brought down the insurance giant. For more on the way credit default swaps were exploited by bodies such as pension funds to get round statutory requirements for them to invest only in safe concerns, see Carchedi, 2009.

118: And in some cases the assets created were so complex and unique that markets for them simply did not exist. Those who held the assets had to guess how much they were worth. This has created a situation where many banks hold assets (often off their balance sheets) that have turned out to be worth only a fraction of their “market” price. It was in this context that the recent announcements by the Bank of America of losses of $15.3 billion and Citigroup of $18.7 billion “confirmed what many experts have long suspected: the subprime losses of 2007 were a bullet that fatally wounded the banks. Many lost so much money on toxic subprime mortgage-related derivatives that they have been essentially insolvent for more than a year”-Financial Times, 18 January 2009.

119: See Perelman, 2008, especially pp29-31.

120: For instance, the British government admits it has lost at least £50 billion bailing out banks.


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Sander: "Crisis of Value" and "Value-Creation and the Crisis Today"

posted Aug 7, 2009, 4:08 PM by John Clegg   [ updated Aug 13, 2009, 11:50 AM ]

Two brilliant assessment of the crisis and its causes from Internationalist Perspective. These articles develop insights from Roots of the Capitalist Crisis, perhaps the most comprehensive Marxian prediction of the current crisis. We at RPOTC feel ashamed that it has taken us so long to post it here. 

Crisis of Value

The following article will appear in Internationalist Perspective # 51

There’s no need to repeat that we are in the midst of the worst crisis of capitalism since the 1930’s: even in the mass media this has become a mantra. But why are we in this mess? The course of action (or inaction) that is advocated depends on the answer to this question. Already, the way in which the crisis is portrayed implies an answer. The mass media has inundated us with stories of greed, stories of mismanagement and of lack of regulation. The “Anglo-Saxon,” “neo-liberal” model of unbridled free markets has been thoroughly discredited, the economic heroes of the right have fallen from their pedestals, and good old Keynes is back in fashion. The new consensus favors more regulation, more state-intervention, and more debt creation by the state in order to counter-act the deflationary pull that is contracting the economy. The debate is only about how much. That is a debate that, by its nature, is waged within the left of the capitalist political spectrum. It pits those who believe that fine-tuning the symbiosis between the state and private capital leads to the best of all possible worlds, against those who hallucinate that, through gradual statification of the economy, they will ease capitalist society into socialism. But the latter support the first in their narrative of the crisis as a result of greed, mismanagement and deregulation. They both critique capitalism, to various degrees, but their critique is a positive one. They share and propagate the belief that capitalism can be improved upon. That makes them the most crucial defenders of capitalism today.

There is another answer to the “why are we in this mess?” question. An answer that was implied in the recent Greek riots, in the refusal of workers in France to share responsibility for the crisis, in the refusal of workers in China to obey the law, in the determination of unemployed construction workers in the US spontaneously organizing themselves to give back empty property to the answer that says: capitalism is obsolete. It's time for something new.

If the time comes that this answer swells into mass struggles, there will be a need for a strong pro-revolutionary political movement that articulates clearly what is then intuitively felt and, through its clarity, helps to wipe the dust of time and memory loss, and all the ideological cobwebs off the mirror, so that the collective worker can recognize himself. Today, what these pro-revolutionaries have to say is not very popular. Again and again, they throw cold water on the proposals of the left (or the right) to make some improvements in the current system. To the reproach: “but what do you propose then concretely?” they can only say: uncompromising resistance against the misery that capitalism in crisis is inflicting on the working class. They can only offer the hope that in this resistance, the working class will transform itself into a class for itself, and thereby free humankind; that in its self-organization, post-capitalist society will begin to take shape. As a result, pro-revolutionaries are called utopians by those who do not dare to stare reality in the face, and who cling to illusions in the name of “realism.”

In contrast to the left, the pro-revolutionary critique of capitalism is a negative one. It claims that the current crisis will worsen, whatever measures are taken. At best, these measures will slow its acceleration, but any reflation will be a reflation of the bubble; because the bubble is not only in real estate and in finance. The world economy as a whole is a bubble that must explode or deflate, with terrible consequences for the vast majority of humanity, regardless of how and by whom this is managed. In its first phase, this deflationary pressure quite naturally manifested itself in a crisis of confidence in the banking system, which could, for now, be stemmed by state intervention. The force of the deflationary trend, and the degree to which the state resists it, will determine how quickly this will become a crisis of confidence in the state, in the dollar, in the euro etc. When that point is reached, there is no other higher power that can come to the rescue. Capitalism becomes the most dangerous when the flight forward is the only alternative left.

The negative critique of capitalism claims that it can’t be repaired because the crisis is the direct result of the historic over-ripeness of its very foundation: the value-form.

A world of value

Value is the most powerful god on earth, worshiped and obeyed as no other. We humans invented it, but we serve its needs, not the other way around. We suffer and die, so that its accumulation can continue. Although a human construct, it has autonomized itself and appears to us as an outside force like the weather, which we can try to manipulate, but to which ultimately we must adapt and suffer its consequences, however terrible.

Even though it has become completely irrational for society to continue to base its interactions on the value-form, value could not exist without rational thinking and is entirely logical. Its logic has become increasingly complex with the development of capitalist society, and implies now the necessity of money, banks, states, borders, armies, police, unions, churches and pornography and many, many prisons, some called “prisons,” others “schools,” “factories,” “offices” or “barracks.” According to the logic of value, none of that can be dispensed with. It begins quite simply though.

It’s quite logical that societies that produce a surplus product, beyond their own needs of reproduction, engage in exchange. It’s logical that such exchange creates a market, where everybody wants to sell as high as possible and everybody wants to buy as low as possible. It’s logical then that the exchange of commodities will occur on the base of the amount of average labor time needed to produce them. If a commodity fetches a higher price than others requiring the same amount of socially necessary labor time (snlt), labor power will flow to its production to take advantage of the higher yield, until oversupply on the market forces it down so that its value (snlt) is exchanged for an equal amount of value (snlt). In this way, the more a society’s production is geared to the market, the more the law of value decides where its labor power is allocated. Value is the architect of capitalist society.

Markets and money and thus value existed before the capitalist mode of production. But the law of value can operate only to the degree that concrete, specific labor becomes abstract, undifferentiated labor. It supposes an equality of labor of different sorts so that it is interchangeable and there is the constant possibility to shift labor power from one area of production to another. The expansion of the market thus logically led to the next step: labor power itself became a commodity, freely bought and sold. That was the birth of capitalism, which is based on the fact that this commodity creates value, while its own value, like that of other commodities, is determined by the snlt required for its production. The worker works 10 hours, but the production of the goods and services he needs to be able to continue to sell his labor power requires only 5 hours of snlt. 5 hours is the equivalent of the labor power he sold yet he works 10 hours. The value of the 5 other hours goes to the capitalist who owns the product of his labor. The value of a commodity in capitalism thus becomes: c+v+s, in which c (constant capital) stands for the value of the past labor (machinery, infrastructure, raw materials) that is consumed in its production, v (variable capital) for the value of the new labor power that is used in its production, and s (surplus-value) for the snlt that labor power expended on its production minus the snlt needed to reproduce its own value (v).

Money makes the world go round

While previous ruling classes had squeezed society in order to amass wealth and power, with the advent of capitalism, the accumulation of abstract value through the production of s became the goal of society, the driving force of the economy. That required another pre-capitalist invention capitalism could not exist without: money. The value of that very peculiar commodity, with the unique ability to represent abstract value and therefore to be exchangeable for all other commodities, and thus making their exchange possible, was originally, like that of other commodities, the snlt needed to produce it. Money existed already as a particular commodity before it became the universal commodity making possible the exchange of all others. What made it money was the fact that the characteristics of this particular commodity (typically precious metals), made it the most suitable to measure the value (snlt) of other commodities, thus making it possible to express their value in prices (in a quantity of money). But as soon as the market arose, there was a need for a middleman in the exchange of commodities. For complex exchanges to take place, it had to be possible to sell without buying and to buy without selling, to exchange commodities for a general medium of exchange, representing exchange value in general.

While this second function of money is made possible by the first, it also stands in contradiction to it. As a measure of value (as a particular commodity) it didn’t matter how much of it was present (money didn’t need to be there for the values of other commodities to be expressed in it, they only had to be, as Marx put it, "ideally transformed" into money to be compared), but the value of its material substance of course mattered very much. As a medium of exchange (as the general commodity), the material substance of money didn’t matter: inasmuch as it is only a symbol of exchange value in general, any symbol accepted as such will do. But since it represents exchange value as against all commodities, its quantity now matters very much and must grow (or decline) in proportion to the quantity of commodities the circulation of which it makes possible. As a medium of exchange, at first sight it doesn’t really alter the process of barter, but only makes it more complex: instead of the direct exchange of commodities (C-C), we now have a barter of a particular commodity for the universal commodity money (C-M) and another one of money for another particular commodity (M-C). But the process is altered fundamentally because now: "the acts of purchase and sale ... appear as two mutually indifferent acts, separated in time and space .… Their indifference can develop into the fortification and apparent independence of one against the other. But in so far as they are both essential moments of a single whole, there must come a moment when the independent form is violently broken and when the inner unity is established externally through a violent explosion. Thus already ... in the splitting of exchange into two acts, there lies the germs of crises, or at least their possibility." (1)

This split of exchange into two acts also is what allowed money to acquire a third function, essential to capitalism. It presupposes the first two functions and unifies them.

Once money is a particular commodity that measures exchange value and a general commodity that mediates and thereby splits exchange, it becomes the universal material representative of wealth, a commodity in which exchange value can be stored and thus accumulated. Thus, the accumulation of money became the alpha and omega of society’s reproduction. “Money makes the world go round,” as the song says: it is advanced to buy constant capital and labor power (c+v), whose productive consumption creates more value (c+v+s) and thus more money. And so on, ad infinitum. Profit guides the way. Since the desire for more money is endless, capitalism’s capacity to expand seems endless too.

It seems almost a perfect system, except for one thing: value isn’t stable. It isn’t permanent. That is clear enough for most commodities: if they remain unsold, they lose their value. But money seems different. Other commodities are "perishable money" as Marx wrote, they must be transformed into money or lose their value. But money, "the imperishable commodity," can store its value and need not be transformed.

But it only looks that way. Money is the universal representative of wealth only because it is exchangeable. That means that its capacity to store value remains real only in so far as its exchangeability remains real, in so far as "real exchange value constantly steps into the place of its representative, constantly changes places with it, constantly exchanges itself for it." (2) This doesn’t mean that the value of money equals the value of the goods it circulates. Accumulation requires saving; value must be able to leave the reproductive cycle and return to it. There must be a "hoard" of money capital which functions as latent productive capital, that flows into the sphere of production when accumulation requires it, that, while not functioning as a means of circulation, remains a potential means of payment. But the degree to which this hoard, this money capital, represents real value and not just fictitious capital, is not simply determined by the value it represented when it was withdrawn from the reproductive cycle. All money is by definition a claim on future value and can therefore only expand to the degree the creation of value expands. Money capital is merely an affirmation of possession of a share of the total value. If that total value shrinks, or expands at a slower rate than money capital, the latter represents less value and thus must be devalorized.

The instability of value also explains why accumulation is a necessity in capitalism. Only by setting in motion productive forces and thereby producing surplus value, and thus expanding value (or stealing from those who do), can existing capitals prevent their own devalorization.

The dual nature of the commodity

Before the products of human labor were commodities, made for a market, they had of course a value too. The value of bread for instance, was that it was nutritious and tasted good. People wanted it. It had a use-value.

In order to have exchange-value, a commodity needs to have a use-value. This doesn’t mean that it has to be objectively useful, only that it has to take a concrete form that makes it desirable for someone with the money to buy it. This is the element that prevents the accumulation of value from becoming completely autonomous from the actual needs of society. This accumulation needs to take the form of an expansion of use-values, even if this is only a means to expand abstract exchange value, which is the real goal and function of the capitalist.

So the expansion of use-values and exchange-value must develop in tandem, as a unified process. Yet they are quite different. As a use-value, a commodity has specific characteristics that define it. But its exchange-value is not an inherent quality of the thing. Rather, it is the value of the capital advanced for its production plus surplus value. It is a social relation, capital-labor. While conquering the world and eliminating or marginalizing all other modes of production, capitalist commodity production reproduces and spreads this social relation continuously.

The dual nature of the commodity, exchange-value and use-value, explains its success in doing so. The hunt for surplus value yielded an ever-growing surplus product, and this superior productivity was "the heavy artillery with which it batters down all Chinese walls" (The Communist Manifesto). If we see history as an incessant struggle to overcome the conditions of scarcity humankind was born into, and thus as a progression of labor productivity, capitalism appears as a necessary and unavoidable phase. That it is also a transitory phase is again due to the dual nature of the commodity.

The crisis is in the commodity itself, in its dual nature. Today it is quite obvious that use-value and exchange-value are unhinged. Never has productivity, and thus the capacity to expand use-values, been as great. At the same time, never has the growing incapacity to expand exchange value manifested itself as clearly as in today’s world, drowning in overcapacity , while more and more human needs remain unmet. The expansion of use-values and of exchange- value no longer work in tandem. Profit determines whether, where, and when, labor power is allocated. Two billion people are unemployed because capital can’t use them to expand exchange-value. The expansion of exchange-value is in trouble and it is the expansion of the capacity to produce use-values that dug the hole from which it can’t get out without causing massive destruction.

Exchange-value has become a ridiculous measuring rod for a society whose real wealth is no longer based on labor time.

As Marx put it: "The creation of real wealth comes to depend less on labor time and on the amount of labor employed, than on the power of the agencies set in motion during labor time, whose 'powerful effectiveness' is itself in turn out of all proportion to the direct labor time spent on their production, but depends rather on the general state of science and on the progress of technology ... The human being comes to relate more as watchman and regulator to the production process itself ... He steps to the side of the production process instead of being its chief actor. In this transformation, it is neither the direct labour time he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body -- it is, in a word, the development of the social individual which appears as the great foundation-stone of production and of wealth." (3)

But for most of the ascendant period of capitalism, this conflict between real wealth and capitalist wealth did not yet arise. Use-values and exchange-value expanded in tandem. Gradually, capitalism took over all forms of commodity production, and expanded commodity production to domains where it had never before existed. This reorganization of production meant a socialization of the labor process. Bringing workers together in a collective workplace, giving them specialized tasks, making their labor interchangeable, all brought huge cost savings and productivity growth. This rising productivity meant that the difference between the snlt workers performed and the snlt needed to produce their necessities grew, even if the latter expanded too as a result of workers struggle and societal changes. The more proletarians were hired, the longer they were made to work and the lower the value of their reproduction, the more unpaid labor time was pooled and the more surplus value was created. Employment, productivity, and profit, grew hand in hand. The more proletarians were created by the development of the productive forces, the more productivity and value creation increased. They therefore seemed synonymous. The more material wealth, the more profit. There was a balance between the growth of exchange-value and of use-values. The wellspring of both was the same: surplus-labor. The law of value was in harmony with the productive forces of that period.

The transition to the real domination of capital

There are two ways to produce surplus value. For centuries, capitalism’s focus was on the most obvious one: lengthening the working day. Capitalism did not yet develop a new, intrinsically capitalist method of production. The weaver made cloth as he did before, but now he did it in a manufactory for a wage. Obviously, the longer he worked for that wage, the more surplus-value the owner of the product of his labor obtained.

There is another way to produce surplus value. Instead of increasing the absolute length of the working day (which has its natural limits), increasing the relative part of the working day during which the worker performs cost-free for the capitalist, by decreasing the other part, the snlt that is the equivalent of what he buys with his wage. In other words, the more the value of the worker’s wage falls, relative to the value of what he produces, the more surplus-value he creates.

But the value of his workers’ wage is something the capitalist has no direct control over, other than by trying to intensify the labor process above the social norm. Of course he always tries to push the wage under the value of the labor power and often succeeds, thanks to an oversuply of workers or the successful use of violence and ideology against them, still, under normal conditions, the law of value regulates the labor market like any other, which means that at least tendentially, labor power is bought at its value. Generally, the decline of the relative value of the wages, is not the result of what any particular capitalist does, but of the rise of the general productiveness of society, which makes the commodities which the worker needs ever cheaper.

What the worker needs is a limited quantity of use-values, that enable him to stay healthy, to raise a family, to have a home and enough food for body and mind…use-values that expand with the changes of society but that remain a reflection of what, in a given society, is considered necessary for the reproduction of labor power. The more productive that society is, the less snlt is required to produce these use-values and consequently the higher the relative surplus-value for the capitalist.

Marx saw capitalism’s main source of profit shifting from absolute to relative surplus-value. But by increasing the productivity of labor, a capitalist does not directly obtain more value. “"A working day of a given length creates the same amount of exchange-value, no matter how productivity may vary" (4). The increase in productivity means only that this "given value is spread over a greater mass of products." His greater productivity does not reduce the value of his workers’ wages, not unless he sells commodities destined for them. So what’s his motivation to invest in it?

His incentive comes not so much from the opportunity to create more value than from the opportunity to grab more value created elsewhere. From the possibility of a surplus-profit. It arises “as soon as the individual value of his product falls below its social value and can be sold accordingly above its individual value”. (5) The social value is the quantity of snlt which in a given economy is required for the production of a given commodity and thus tends to be defined by the average, preponderant methods of production. So those who need more snlt to produce that commodity make a less than average profit and those who need less, obtain a surplus-profit. It’s important to note that this surplus-profit, resulting from an increase of labor-productivity, is not necessarily an extra-profit for capital as a whole. The total value, and thus the total purchasing power, does not swell with it. Assuming that the length of the working day, the value of labor power and the intensity of the labor process stay the same, the rate of surplus value production stays the same too. In Marx’s view, assuming a closed capitalist system, all sv=unpaid snlt and the total profit=total sv. So if the capitalist with the higher labor productivity produces no more sv but gets a higher profit, what is the source of his surplus-profit?

For Marx, by definition, no value is created outside the production process (6). No sv originates in the phase of circulation, in which the commodities resulting from production are bought and sold, to be unproductively consumed or employed as new productive forces. But while in this circulation no sv is created, it is redistributed. The market rewards the capitalist who pushes the value of a commodity under the social norm. But it rewards it with value that comes from elsewhere, be it from competitors who are forced to accept less than the snlt that went into their own production, or from buyers who obtain less value in exchange.

That reward was so rich that the hunt for surplus-profit became the dominant driving force of capitalist accumulation. As a result, capitalism became the most fertile soil ever for the development of science and technology. Every capitalist not only has a strong incentive for technological innovations (surplus profit) , he is also forced to adopt them. Those who fail to do so, produce commodities with a value-content that is higher than the socially average market value at which they’re sold. They thus make a less than average profit and, when the difference grows, go belly-up. The surplus-profit disappears when the productivity-raising technological innovation spreads and becomes itself the social norm. But the hunt for it continues. Capitalists, as well as entire sectors and countries, who succeed in continuously maintaining a higher than average rate of productivity-growth, continuously obtain surplus-profits, which originate as surplus-value produced elsewhere.

The focus on surplus-profit through technological innovation, and its by-product, the resulting decline of the value of labor power and thus rise of relative surplus-value, changed society to its core. A new, specifically capitalist process of production began to take shape. Marx called this ‘the transition to the real subsumption of labor’ (or ‘real domination of capital’) because technology allowed the law of value to penetrate deep into the labor process. Capitalism now not just dominated the production processes inherited from the past but reshaped them entirely. Science and technology made that possible but their own development in turn became more and more shaped by the law of value, by the purpose of reducing snlt, to obtain surplus-profit.

Gradually, the production process became entirely different. The worker used to be at its center, his tools were appendages of his limbs. But now the relation was reversed: the worker became an appendage to the machine, which dictated his work pace and all of his actions, which made every gesture measurable as a quantity of snlt.

At first sight, this evolution has only benefits for capitalism. It unleashes giant advances in productivity, in the capacity to create real wealth. This in turn makes it possible to reduce the part of the working day spent on necessary labor (for the reproduction of labor-power) and thereby increases the part that is surplus-labor, that yields surplus- value. It furthermore gives capitalism the power to extend its realm, both inward and outward; to transform the entire world into its image.

While the transition to real domination is a long historical process that continues to our day, its theoretical endpoint, a world in which the law of value penetrates all parts of the planet, all aspects of civil society, transforms every object, every activity into a commodity, absorbs every emanation of social, political and cultural life into the fabric of the market, comes creepily close to what we are living.

Beneficial as this transition was for the reach of the law of value, it also shattered the harmony within value itself.

"On the one side, it calls into life all the powers of science and of nature ... in order to make the creation of wealth (relatively) independent of the labor time employed on it. On the other side [the law of value dictates] to use labor time as the measuring rod for the giant forces thereby created, and to confine them within the limits required to maintain the already created value as value." (7)

Use value and exchange value, the two sides of the commodity, become unhinged. Use-values grow exponentially through technification, a process in which living labor is subtracted, replaced by technology. But the growth of exchange-value requires that living labor-power is added. The exponential growth-rate of use-values also clashed with the narrow basis on which the conditions of consumption in capitalism rest.

Capitalism is born out of conditions of scarcity and presupposes them. Abundance makes it sick, because abundance in capitalism can only mean overproduction. Without scarcity, it cannot “maintain the already created value as value”.

The inevitable fall of the rate of profit

The seeds for the periodic self-destruction of capital are already contained in the value-form itself but sprouted as a result of the transition to the real domination of capital. Productiveness now becomes determined, not by the amount of labor time spent in production but by the application of science and technology, set in motion and steered by the collective worker. The productivity-growth creates a pull in opposite directions. On the one hand, it increases the unpaid part of the working day (relative surplus-value), on the other, it decreases living labor in production, from which the surplus-value can never be more than a part. So while at certain times the first pull is stronger and the rate of profit rises, over the long run, the tendential fall of the rate of profit dominates, because there is no immanent limit to the degree in which the value of a commodity can fall, in which the production process can be run on past labor with ever less living labor; while for relative surplus-value, "its barrier always remains the relation between the fractional part of the day which expresses necessary labor and the entire working day. It can only move within those boundaries." (8)

Hence in the long run, the rise in the rate of surplus-value cannot stop the tendential fall of the rate of profit. What to the capitalist appears to be the cure, makes capitalism sicker. Confronted with a falling rate of profit, the incentive for the capitalist to lower the individual value of his product below the social value, becomes even greater. In doing so, he further reduces living labor in production, of which sv is but a part.

The decline of living labor in production means ever less of it sets in motion ever more past labor. The commodity contains ever less value, and the part of that value that represents the consumption of past labor continuously tends to grow in relation to new, living labor. That also means that more and more past labor is required to add living labor, the source of surplus-value. Ever more capital is needed to set productive forces in motion; the treshold for capital-formation is continuously raised. Where that treshold is not met, productive forces that might be employed when the treshold was lower, remain paralyzed.

But while technification (or the rise in the ‘organic composition of capital’ –occ-, the ratio past labor/living labor) in production slows down the creation of exchange value, it also cheapens the commodities needed for the next round of production like all others. So this next round will require relatively less value than the previous one. We have already seen that the cheapening of consumer goods decreases the relative value of the wages (even when they buy more use-values) and so increases relative surplus-value. The cheapening of producer goods (or constant capital) does not directly create more value for capital but by reducing the need for value also counter-acts the impact of the rising occ on the profit-rate. Still, exchange value must grow, even if production costs fall. Capitalism is production for profit and profit “expresses the increase of value which the total capital receives at the end of the processes of production and circulation over and above the value it possessed before this process of production, when it entered into it” (9) The value of the capital advanced must increase, that is the goal of the whole undertaking. The devaluation of constant capital is a cost-saver for the capitalists who must buy it, but for those who sell it, since it expresses the fact that their production required less living labor, it means that the source of their profit has shrunk. The capital advanced for their production incurs a loss, its rate of profit falls and, by the logic of the market, the tendential equalisation of the rate of profit spreads its loss over the entire economy (10).

Real domination means productivity-growth based on the reduction of the snlt in production, on a relative reduction of the creation of new value. The same process explains why, to set in motion additional labor power, more past labor is required; why the treshold of capital is continuously raised. In today’s capitalism, these ‘instep costs’ not only involve production costs –indeed, the latter tendentially decline relative to other costs. For cars they have shrunk to less than 60% of the total cost of the product (compared to 85% in 1925), for semi-conductors to 14% . Huge marketing expenditures are necessary to compete in today’s world. A company like Nike pays considerably more to the celebrities who appear in its commercials than to the workers who actually make their shoes. These unproductive instep costs also include –via taxation- a share of the many faux frais which capitalism must incur to maintain its grip over society. The rising treshold thus implies a tendency to growing concentration of capital.

The fall of the rate of profit on the one hand and the rising treshold for capital formation on the other, make crises a necessity for the continuation of capitalist accumulation. Crises make existing capitals lose their value and while this is disastrous for them, this devalorization also mean that the value of the productive forces, especially constant capital, falls in relation the value created by their productive consumption. Crises therefore restore the rate of profit and thus the conditions for a new round of accumulation.

That is why the tendential fall of the rate of profit takes a cyclical form rather than being a linear progression that takes capitalism to a critical point x at which accumulation becomes impossible. It therefore doesn’t explain why a crisis must at some point become a global breakdown of the capitalist economy, the more so since it does not affect all capitals equally. Competition on the market affects a redistribution of surplus value, which rewards the stronger competitors, those with a higher than average capacity to bring the individual value of their product under the market value, with surplus profits. Crises therefore affect the weaker competitors first and their collapse strengthens the stronger ones which can gobble them up at a bargain price and take over their market-share.

But the tendential decline of surplus-value creation in production is not the only way in which the conflict within the value-form between exchange-value and use-value creates obstacles to the accumulation of capital.

How the contradiction affects the realization of value

The accumulation of capital is a process of self-expansion in which surplus-value is produced and then realized in such a way that it produces more surplus-value. Marx analyzed, mainly in the second volume of Capital, how this cycle of self-expansion works. Not surprisingly, it is the only part of his theory which received praise from bourgeois economists (11) who saw in it a demonstration that a well-managed capitalism can grow forever. But not all Marxists agreed with him. Rosa Luxemburg claimed that capitalism could only expand if it realized the surplus-value destined for expansion outside capitalism, on an extra-capitalist market. Her basic confusion was that she transposed the realization-problem of the individual capitalist to capital as a whole. In order to use his surplus-value to expand his production, the individual capitalist cannot consume it all himself; he must sell it in order to transform it into money to buy new producer goods and new labor power. He needs an outside-buyer. That would not be the case however, if he would have produced himself all the producer and consumer goods he needed for his expanded reproduction. That is the case for the total capital. Its surplus-value contains all the elements it needs to expand. It possesses them already and therefore does not need an outside-buyer perse; what it needs is their smooth circulation within capitalism. It needs money to grow at a pace that keeps it in balance with the growth of the value it circulates.

However, Marx analysis of expanded reproduction, rather than proving that capitalism can grow ad infinitum, leads to the conclusion that this expansion is dependent on the establishment of several balances, proportionalities in production and circulation, whose disruption impedes accumulation. These balances are achieved through the operation of the law of value, through the mutual determination of production and the market (12). Their disruption is a constant possibility yet the tendency to equilibrium is constant too, as long as capitalist development and the law of value are in harmony, as long as exchange-value and use-values work in tandem. The more real domination develops, the less that is the case. The exponential growth of use-values makes the realization of the exchange-value they contain, increasingly problematic. “The self-realization of capital becomes more difficult to the extent that it has already been realized”. (13)

I will briefly examine the three balances that are crucial to the accumulation of capital:

  • between sectors of production
  • between productive and unproductive consumption
  • between money and all other commodities.

1: between sectors of production.

There is a balance needed between any sector of production and the rest of the economy but the symbiotic development can be examined the clearest when we divide capitalist production in a Department I (the production of producer goods) and Department II (the production of consumer goods). For the total capital to grow, a balance between them is necessary, not only in exchange value but also in use-values: “The transformation of one portion of the product's value back into capital, the entry of another part into the individual consumption of the capitalist and working classes, forms a movement within the value of the product in which the total capital has resulted; and this movement is not only a replacement of values, but a replacement of materials, and is therefore conditioned not just by the mutual relations of the value components of the social product but equally by their use-values, their material shape." (14)

If Dep.I produces more constant capital than it and Dep II need for their expanded reproduction, it is stuck with an unsaleable residue. The value that went into its production is wasted, for the capitalist as well as for the total capital. Likewise the expansion of Dep II is bound by the demand from Dep I. This doesn’t mean that they must grow at the same rate. Given the technification (the growth of the occ), in real domination, Dep I must grow faster than Dep II, and the relative part of its surplus value that is realized within that same department thus grows likewise. The market realizes this dynamic balance, by punishing overproduction with devalorization, and rewarding investment in undercapitalized markets. By moving capital around, by allocating labor power.

But under real domination, with the hunt for surplus-profit through technification in the driver’s seat, a distortion takes place. Capitalists begin to expand as if there was no limit to their market. It is true that the tendency to do so existed already under formal domination. “ It makes its appearance as soon as the immediate purpose of production is to produce as much surplus-value as possible, as soon as the exchange-value of the product becomes the deciding factor. But this inherent tendency of capitalist production does not become adequately realized – it does not become indispensable, and that also means technologically indispensable- until the specific mode of capitalist production and hence the real subsumption of labour under capital has become a reality.” Now, “instead of the scale of production being controlled by existing needs, the quantity of products made is determined by the constantly increasing scale of production dictated by the mode of production itself .”(15)

The more it develops, the more wasteful capitalism becomes. How and why do capitalists ignore what the market tells them? They can do so only within limits of course, which are proscribed by the size of their surplus profits. Capitalists raise their occ and with it, their productive capacity, for the surplus-profit they obtain when they lower the individual value of their product under the market-value. They can absorb some overproduction and still stay ahead. And their competitors are forced to do the same for mere self-preservation.

How does that affect the balance between the departments? Surplus-profits are obtained through technification. Its greater inherent capacity for technological change gives Dep.I an advantage. Innovations tend to flow from Dep.I to Dep.II. This edge already is a source of surplus-profit and thereby a cause of over-accumulation in Dep I. But the main reason that Dep.I is driven to over-accumulation under real domination is that competition forces capitalists to buy new technology that raises productivity, even if the machines they are using are far from used up. These machines have transferred only a part of their value into new commodities yet lose all their remaining value. Marx called this ‘moral depreciation’. For capital as a whole, it is not really different from overproduction. The more the transition to real domination progressed, the more this moral depreciation became a massive phenomenon, accelerating in times of fast-paced technological change. For instance, in recent decades, the power of computer chips has quadrupled roughly every 3 years, which means that companies, in order to stay competitive, have to replace their computer-systems regularly, long before they are worn out. The balance between the departments of production established by the market increasingly violates the balance required by their sound, symbiotic development.

2. between productive and unproductive consumption.

Productive demand is finite. It does not automatically grow because productive capacity grows. If, for instance, the productive capacity of a knife producer increases, while everyone else’s remains the same, the knife producer either overproduces, or gets new customers at the expense of other producers, or finds new markets, but neither of the latter two options “depends on his good will; nor on the mere existence of an increased quantity of knives”. And if all other capitals accumulate at the same rate as the knife-producer, “it would not follow from this that they would need even one percent more knives, because their demand for knives isn't connected at all with the expansion of their own product, nor with their increased capacity to buy knives." (16)

Productive demand is the demand for producer goods (constant capital) and for the consumer goods workers need to maintain their labor power. The finality of the latter is the clearest. The continuous decline of the value of the commodities that define the value of labor power made it possible to increase the mass of these commodities, and the way real domination changed society and thus needs, made that also necessary. But they still remain a limited quantity, not so much defined by the productive capacity then by what still are the basic human needs: shelter, food, health care etc. There is no reason for the capitalist to pay the worker more than that, not if he can find another worker willing to work for no more than the value of labor power. The capitalists making consumer goods would like the demand of all workers to rise above the value of their labor power, but none of them is willing to set the good example at the expense of his own profit. Quite the contrary. His impulse is to drive the wage under the value of labor power. His impulse is to raise his productivity, make more with less living labor, thereby constraining the growth of the productive demand for consumer goods.

At the same time, that increases the growth of demand for constant capital. This implies also a growing trade within Dep. I, making it less dependent on the demand of Dep.II for the realization of its surplus- value. Still, this does not mean that there are no limits to the growth of demand for constant capital. Exchange value remains tied to use-value, and thus to the final consumer, no matter by how many steps it is separated from him in the increasingly complex production system. "Constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption." (17). So, despite moral depreciation, use-values’ exponential growth becomes an obstacle to the realization of the exchange-value produced in Dep.I as well. “The more productivity develops, the more it[capitalism] finds itself at variance with the narrow basis on which the conditions of consumption rest." (18)

But the potential demand for commodities that are unproductively consumed, is infinite. Only imagination imposes a limit on the commodification of desires and there’s always a desire for more arms and more luxury, for more status-symbols. Furthermore, the more capitalist society develops, the more it develops a need for all sorts of unproductive labor and thereby a growing market for unproductive consumption. But nobody would deny that the capital advanced to produce the goods to meet the needs of bureaucrats, policemen and the poor who stand no change at ever being employed but still demand to survive, comes out of the taxation of the rest of the economy. Out of the total surplus-value. It thus can hardly be seen as contributing to the accumulation of the total capital. For the determination of the exchange value of a commodity, the questions, what its specific use-value is and by whom it is consumed for what purpose, are irrelevant. But when looking at the accumulation of the total capital, they become crucial. "If accumulation is to take place, part of the surplus product must be transformed into capital. But short of a miracle, only those things can be transformed into capital which are utilisable in the labour process (i.e. the means of production), and in addition such articles which are suitable for the maintenance of the worker (i.e. the means of subsistence). (…)In a word, surplus-value is only convertible into capital because the surplus product whose value it is, already contains the material constituents of new capital."(19)

Still, unproductive consumption is “absolutely necessary for a mode of production which creates wealth for the non-producer and which therefore must provide that wealth in forms which permit the acquisition only by those who enjoy.” (20) Not all value can be reinvested, given the finality of productive demand. Accumulation requires that a portion of the value created takes the form of use-values specifically designed for the enjoyment of the rich. With productivity rising continuously, the surplus product grows continuously, and the part of that surplus product that is unproductively consumed, can grow too. And it must, so that the surplus-value created in its production is realized and can re-enter, as money that may be productively invested, the bloodstream of capital. But once again, a balance is required, both in exchange value and in use-values. The growth of unproductive consumption is bound by the growth of surplus-value production and thereby by the growth of productive consumption. Therefore it cannot compensate for a decline of the latter. Less productive consumption means less surplus-value production and thus less surplus-value available for unproductive consumption.

There is, in theory, an ideal balance possible between productive and unproductive consumption, as there is between Dep.I and Dep.II. Market forces tendentially establish them but in both cases, real domination lead to a tendentially growing imbalance. We have seen earlier how the hunt for surplus-profit created a structural over-accumulation of producer goods, a growing waste of value. Today, the industrial corpses all around us show us the reality of moral depreciation, of the instability of value.

The over-expansion of unproductive consumption is also a hallmark of real domination. Since the transition towards it began, we have seen a constant expansion of the ‘public sector’ (not only in absolute size but also as part of the national economy) which is, not entirely but largely, unproductive. It consumes an ever larger part of the total value but, for the most part, does not create any. What we also see is that capitalists must spend an ever larger part of their budget on expenses (marketing, insurance etc) which do not add value to the commodity but must be incalculated in their price. Real domination requires ever more unproductive costs, to manage the obstacles it itself creates.

The transition to real domination is not only an expansion, extending the realm of value and absorbing the whole world into it, it is also a process of expulsion of living labor from production. As it integrates, it throws out. Today it has thrown out more than two billion potential workers from the labor market. The unproductive cost that comes with managing this excess population, preventing social explosions, pandemics etc, constantly grows. And that’s but a small part of the total unproductive cost that capitalism must spend on controlling, punishing, isolating, lullebying, deceiving, guarding, shooting, destroying and so on. The more the contradiction between exchange-value and use-value exacerbates, the more the tendential fall of the profit-rate and finality of productive consumption come to the fore, the more capitalism must spend unproductively, to maintain its grip on society.

3. Between money and all other commodities.

“A commodity conceals the contradiction of use-value and exchange-value. The contradiction develops further (..) and manifests itself in the duplication of the commodity into commodity and money.”(21)

This duplication began when money became the middleman in the circulation of goods, when the exchange of commodities C-C became C-M-C. The total value of production now took the form of commodities and money, the general, universal commodity representing exchange value against all others commodities. This duplication does not mean a duplication of value. Money is not a source of value but its representation. The value of money in circulation is identical to the value of the commodities in circulation, as is shown by the fact that, when its quantity increases faster than the latter, money devaluates and inflation results.

Society reproduces itself through a cycle of C-M-C, which is also, when we take a different starting point, a cycle of M-C-M. That is what accumulation is all about: money is transformed in productive commodities in order to become (more) money again. In C-M-C money serves only as an agent of exchange and remains constantly enclosed in the circulation of commodities, while commodities are being withdrawn from it and consumed. But in M-C-M money is no longer the means but an end in itself. It becomes clear that it is something more than an instrument of circulation, that it can step outside of it and acquire a seemingly independent existence as a store of value. That it is not only a general commodity that mediates exchange but also a particular commodity that can be withdrawn from circulation like any other.

But why doesn’t it lose its value when it is uncoupled from its circulation, since, as mere paper, or today not even that, it does not have any value of its own? The answer is that the total value of a capitalist economy consists not only of the value in circulation but also of financial capital that is, in essence, latent productive capital that at some later point transforms back into productive commodities. Because, seen over a longer period, it is formative of new value, it continues to represent real value even though it has momentary turned its back to the circulation of value. That latent productive capital is absolutely necessary for the expanded reproduction –imagine a capitalism without savings or credit!- and its size must become ever larger under real domination, given the increase of the occ, of the scale of production and of the treshhold of capital formation.

There is, again in theory, an ideal balance possible between money on the one hand, and the value in circulation plus the value of latent productive capital on the other. In practice, it has rarely been achieved. Its original form, precious metal, constrained money’s unbalanced growth yet made its quantity dependent on the output of the gold- and silver mines instead of the needs of value-circulation. Fiat-money, with a ‘value’ set by the state, removed this externally imposed discipline on money-creation but made it also quasi-inevitable that it would grow unbalanced, that the state would try to solve its problems by throwing money at them. But the market punishes that by devalorizing money. The potential of inflation to wreck an economy has by now been experienced so many times that it hardly needs to be explained in detail.

But the imbalance is not only created by excessive growth of money in circulation. The money in the hoard can also grow far beyond the real value of the latent productive capacity of the economy. That is what happens when the fall of the rate of profit, the structural overproduction of technology, the exhaustion of productive demand and the growing weight of unproductive consumption, set up the conditions for ‘a perfect storm’.

The first phase of the storm is a massive creation of fictitious capital. In the cycle of capital, the phase C-M, the transformation of commodities into money, must always go on. The owner of the commodities, be it technology or consumer goods or labor power, cannot choose not to sell this year. But in that same cycle, the phase M-C, the transformation of money into commodities, must not go on. Money can stay money. Park its value in the hoard. It appears “the imperishable commodity”, and the more other commodities show how perishable their value it is, the more desirable it becomes.

As a particular commodity, competing with all others for the total demand, money has the inherent advantage, because it "satisfies every need, in so far as it can be exchanged for the desired object of every need, regardless of any particularity. The commodity possesses this property only through the mediation of money. Money possesses it directly in relation to all commodities, hence in relation to the whole world of wealth, to wealth as such." (22)

The more a fall of the general rate of profit combines with an exhaustion of productive demand, the fewer the chances to transform money into commodities and become more money as a result. So the incentive to accomplish M-C falls. More M stays M. The incentive to convert commodities into pure exchange value is stronger than the incentive to reconvert exchange value into use values, and thereby depresses the productive demand further. The growing demand for financial assets pushes their prices up, which seems to confirm not only that money is an imperishable commodity but also that its value can grow on its own, which further increases demand for them.

The first to be hurt by this are the weakest competitors, therefore money flows away from them, towards the center of the economic system. The latter’s increasing global nature accelerates the trend. Stephen Roach, the chief-economist at Morgan Stanley estimated in 2004 that 80% of the net-savings of the world flowed to the US (23). Where it was more than welcome. The way in which the American and British financial sector in particular invented new financial ‘commodities’ and inflated their prices, thereby accommodating the demand for refuge of global capital, has been sufficiently documented elsewhere (24). This has been very profitable for them. But you didn’t have to be a Marxist to see that the vertiginous growth of the ‘value’ of financial capital, at a pace far above the expansion of the real economy, was due for a reality-check.

Thus begins the second phase of the storm, the implosion of the bubble. The value in the hoard appears not to be so imperishable after all. The lack of production and realization of new value exposes its disfunctionality as latent productive capital. The more the contradiction develops, the more it must devalorize. The existing value ‘parked’ in the hoard, cannot maintain itself as value. The capitalist class today is having the same kind of discussions as in the 1930’s. ‘We must swim against the deflationary tide and prop up demand so that growth of the real economy restores confidence in the hoard! But we can do this only by creating debts that will crush us!’ There’s truth to both sides of that argument. And there’s no solution to it. Because the incentive to accomplish M-C cannot be forced. Government-spending cannot raise the rate of profit, it cannot invent productive demand. The incentive to seek refuge from productive investment into the hoard cannot be stopped. Any reflation, to the extent it is successful, reflates the bubble.

That leads to the third phase of the storm.

The metabolism between developed capitalism and its environment

Capitalism did not grow in a lab. No clear picture can be drawn of its development and present state without taking into account the metabolism of capitalism with the non-capitalist world in which it was born, as well as the metabolism between developed capitalism and the underdeveloped parts of the world.

The initial relation can be boiled down to one word: expropriation. In order to produce surplus-value, capital needed resources. To have free access to them, they needed to be commodified, they had to become constant and variable capital. The feudal womb from which capitalism came, had to be destroyed. This process was a very brutal one. Raw materials were plundered. Independent producers were robbed of their means of production to force them to become proletarians. The history of this process, Marx noted, “is written in the annals of mankind in letters of blood and fire” (25). He called it “primitive accumulation” because, logically, and roughly also historically, it precedes real capitalist accumulation, based on the production of surplus value, and makes the latter possible. He saw it as a crutch capitalism needed to get on its feet, after which it could do without.

However, primitive accumulation, in the sense of obtaining value from other sources than surplus-value, never ended. Plunder did not go out of fashion because of capitalism’s self-expansion, since it’s an excellent tonic against the tendential fall of the profit-rate. Capitalism’s morals haven’t changed. It has been estimated that the plunder of rubber and human resources in Congo, organized by the Belgian king Leopold II in the late 19th century, cost the lives of 10 million people. Today, no more rubber is extracted in Congo, but there are still important mineral resources, whose plunder, and the wars it engenders, again costs the lives of millions.

Capitalism interacted with the non-capitalist world not through expropriation alone but also through exchange. Because of its superior productivity, the exchange was always to its advantage. This is also true for the exchange between developed capitalism and its underdeveloped parts, between capital with a high occ and high productivity-growth, and capital with a low occ and low productivity-growth. The exchange yields a surplus-profit to the former because "there is competition with commodities produced in countries with inferior production facilities, so that the more advanced country sells its goods above their value (..) Just as a manufacturer who employs a new invention before it becomes generally used, undersells his competitors and yet sells his commodity above its individual value (..). He thus secures a surplus-profit." (26)

But real domination, and the technification of society that comes with it, ineluctably creates a tendency towards increasing intra-trade between developed capitals. The more technified society becomes, the more the use-values it needs are themselves technified, products of a complex production process; and consequently the less the products, first of non-capitalist producers, and later also of capitalist production with a low occ, fit into its market. So under real domination the metabolism between developed capitalism and non-capitalist/low occ-capitalist production tendentially falls and thus becomes less effective in counter-acting the fall of the rate of profit, while also losing significance as a source of demand.

But real domination causes another ineluctable tendency that has the opposite effect. It implies an ever widening extension of the scale of production which brings with it an ever greater reach of the law of value. The reach went inward, commodifying everything, finding in all sorts of social practices a source of value-production, and it went outward, to the farthest corners of the earth. This movement of extension in itself counteracts capitalism’s contradictions, because the exertion engages developed capitalism with its surroundings, increasing the metabolism.

But while ineluctable as a tendency, the extension of capitalism’s scale ran into several obstacles. First, logically, and historically, was the lack of development of capitalist production itself and in particular of its means of transportation and communication (mtc). The development of the latter (from railways to the internet) has always been a decisive factor in phases of accelerated scale-extension and thus of increased metabolism. Second, there is the intervention of state power, obstructing the law of value. As long as the scale-extension was such that the vast majority of production was destined for the domestic market, protectionism made a lot of sense for those countries where the conditions for an industrial take-off were present. It certainly helps to understand how the US and Germany could become the leading industrial countries by the end of the 19th century. But once the scale-enhancement has reached the point that the domestic market is insufficient for the national capital, that companies become so large and productive that they need a broad international market to realize their surplus-value, protectionism becomes counter-productive (still, after all its negative experience with it, capitalism is not immunized against its creeping return. When it does, it will signal a flight forward, a step towards war). Third, scale-extension requires money to expand with it, able to function on an international scale: an international currency. At several points in capitalism’s history, the narrow basis of money (precious metals) or its arbitrary growth and thus instability (fiat-money) prevented the technological potential of scale-extension from being realized. Fourth, there are the physical limits of the planet. These limits are not completely rigid: technological progress allows for the more efficient use of existing finite resources. But the more they are expanded, the more difficult it becomes to expand them further, the more marginal their expansion is in relation to the system’s needs. When the whole world operates on the base of the law of value, no virgin territory can be invented for capital to plunder and for the law of value to penetrate and establish the metabolism that counteracts capitalism’s contradictions.

There is, in the end, nothing capitalism can do against that fourth obstacle, though at several points in its history it was able to make considerable progress in overcoming the first three. That was most notably the case in the period following the Second World War. With the dollar as an expansive yet stable international currency, with the sharp reduction of protectionism in the vast dollar-economy, and with the costs of the mtc falling steeply when new technological applications, held back by the war, flowed through the economy, an extension of scale was accomplished which activated the factors counter-acting capitalism’s contradictions and thereby produced, for more than a quarter of a century, the strongest growth-figures capitalism had ever known.

What has been called “globalization” was another such confluence of political and technological factors which widened the terrain for developed capital and thereby softened its contradictions. The collapse of the Russian bloc and the removal of other obstacles to free trade on the one hand, and the spread of information-technology and the fall of mtc-costs which it helped to bring about, on the other, rekindled the metabolism. It did so mainly by creating an unprecedented potential for combining the technology and production methods of developed capitalism with labor power whose value is determined by the living conditions in underdeveloped countries. This raised the rate of surplus- value both directly, and indirectly for other capitals, by lowering the value of the commodities their workers need and thus raising relative sv, and thereby counter-acted the tendential fall of the rate of profit. Thus a large part of Fordist production (assembly-line work) moved to previously underdeveloped parts of the world. The industry that remained in the developed countries moved towards “post-Fordism” (with automation, rather than mechanical technology, at the nexus of production). Given the chronic overcapacity of the world economy since the end of the post-WWII boom, and its drag on the profit-rate, the hunt for surplus-profit directed capital away from Fordism’s focus on increasing the volume of production, towards seeking a new relative scarcity by producing new commodities (producer and consumer goods), that give it a monopolistic or semi-monopolistic market-position and thus a surplus-profit. Developed capital became increasingly dependent on this way of obtaining surplus-value. Even though such market-positions are temporary, a brisk pace of technological innovation, or of market-campaigns that transform a shoe into an “Air Jordan,” assure the continuity of the competitive advantage.

There have been earlier moments in which the same focus on conquering semi-monopolistic market-positions has been striking, most notably around the turn of the 20th century and in the 1920’s, two periods in which the contradictions of capital were also maturing. As in the past decade, it was made possible by a fast pace of technological innovation and of concentration of capital, and made necessary by the threat of overcapacity and of a falling rate of profit.

These were also times in which technological change provided the impetus for an extension of scale. Every such period goes through two phases: a first one, in which the spread of new production methods rekindles the metabolism and creates ample opportunities for surplus-profits whose origin lies in the growth of surplus-value production the metabolism makes possible; and a second one, in which the use of the new production methods is homogenized and the metabolism is consequently reduced. It was the homogenization of the Fordist production process in developed capitalism, for instance, which brought the post-WWII boom to a halt and made overcapacity and a falling rate of profit reemerge.

The same technological change that created the opportunities for surplus-profit in the era of “globalization,” exacerbated capitalism’s contradictions. In the automated factory, living labor, the source of surplus value, is greatly reduced. The fast pace of innovation accelerates moral depreciation, the hidden overproduction of constant capital. Nowhere are these trends more striking than in the most emblematic sector of post-Fordist production: digital commodities. There is no doubt that software and other information goods play a crucial and ever growing role in the creation of use-values today. But, although they may yield high profits for the capitals that produce them, they create very little exchange-value for the total capital. What Marx wrote about machines: “however young and full of life the machine may be, its value is no longer determined by the necessary labour-time actually objectified in it, but by the labour-time necessary to reproduce either it or a better machine” (27) is also true for them. Since the snlt required to reproduce them (to copy them) is close to nothing, they tend to devalorize rapidly and thus contain very little surplus-value. The profits made with their sale are surplus-profits, resulting from monopoly positions, protected by patents and copyrights, which have been greatly expanded in recent decades (Microsoft takes out about 3000 patents a year) and which are imposed on the market by the power of the state.

Software therefore clearly expresses the absurdity of the perpetuation of the value-form. On the one hand, it potentially raises productivity and the versatility of production and thus real wealth to hitherto undreamed of heights, on the other, it makes exchange-value, capitalist wealth, decline. On the one hand, it is a means to obtain surplus-profits, enforced by the state rather than the market, and on the other, because of its social nature and its almost valueless reproducibility, it resists commodification and invites sharing; diffusion no longer based on the value-form.

In recent years, we have seen a generalization of the myriad applications of information technology throughout the globalized chain of production. So in this period of extension too, possibly the last important one in the history of capitalism, the phase of homogenization has begun, facing capitalism once again with its insoluble contradictions.

Crisis, war and revolution

No capitalist wants to see his capital lose its value. But in trying to avoid that fate by lowering the individual value of his product beneath its social value, he brings it closer. We have seen that the total capital can only maintain its value by valorizing. It cannot stop accumulating. It needs to reproduce itself and grow in the process … or devalorize. Inevitably, the upward curve of the growth of existing capital meets the downward curve of the growth of creation and productive realization of new value. Then crisis becomes necessary to restore the conditions for accumulation. The larger the size of existing capital relative to new value creation, the more devalorization is required and thus the deeper the crisis must be. Real domination inevitably leads to the point where the size of existing capital is so great that crisis alone cannot accomplish the necessary devalorization.

Theoretically it always can, since, in theory, there is no floor beneath which the value of constant and variable capital cannot sink, as long as it’s above zero. So it must be able to sink to a point where expanded reproduction becomes profitable again. But in the real world, it can’t. The minimal needs of the working class to remain viable as variable capital, the minimal needs of society to remain viable, are a floor that resists further devalorization. The deeper the crisis, the more capitalists suffer, the more the working class suffers, the more social tensions rise. The instability of value translates itself into the instability of society. The urge to stop the bleeding, to break the spiral and to start a reverse dynamic going becomes irresistible. To the extent that it still can, the capitalist state tends to act against the deflationary trend by pumping money into the economy so as to stimulate demand and shore up profit-rates.

To the extent that it is successful, it is sabotaging the crisis mechanism that the accumulation process needs to heal itself. Or rather, it stretches it out; it shoves it into the future. Fictitious capital is used to stem devalorization, but all that new fictitious capital in its turn lays claim to future profits. If the economy can’t provide them, the inclination grows to use industrial power for military goals, to forcefully take elsewhere the surplus-value it cannot create, in order to meet the claims of its capital and prevent its collapse. This fits very well with the need to control the turbulence in society with nationalism and the fixation of social anger on a common enemy.

So the development of real domination at some point quite “naturally” leads to war, if capitalism is in a position to impose it on society. This war is in the first place waged for plunder but at the same time becomes functionally necessary for the continuation of the value based economy. It must finish off what the crisis started. So it becomes an integral part of the accumulation cycle. That doesn’t mean that war is a mechanical response to the need for devalorization, that the latter alone determines when and where war breaks out, how long it lasts or how devastating it is. History is not a clockwork mechanism. Wars are not monocausal, but the present article is not the place to examine their complexity. Nevertheless, the theoretical conclusion that the development of real domination leads to a point where the crisis alone cannot restore the conditions for accumulation, corresponds to the reality of the world wars of the 20th century.

Wars, of course, were nothing new. Capitalism waged revolutionary wars and wars of conquest, sometimes both at the same time. But never had they been such orgies of self-destruction. Never had capitalism cannibalized itself, globally and with industrial efficacy. Never was there so much value destroyed. Regardless of the intentions and pathologies of the warmongers, that was the function wars rendered for the accumulation process. Hundreds of millions died, so that value could live.

World War One can therefore be seen as the manifestation of a new historical framework for the reproduction of society. One in which, at irregular intervals, a combination of crisis and war is needed to cleanse the system. This new period has been termed “decadence” (28). For the working class it means that choosing for capitalism (trusting it, allying with it, integrating into it) in the end means choosing suicide. With the onset of decadence, the gap between the positive and the negative critique of capitalism becomes unbridgeable.

By definition, wars are an enormous loss of value for the total capital. But that’s what they need to be for the accumulation process. This does not mean that any war necessarily restores the conditions for accumulation. It does so only to the extent that it has the same effect as crisis, only more so. War devalorizes capital by destroying it, thereby eliminating its claims on future profits, restoring a balance between the claims of existing capital and actual value creation. In that regard, World War II was much more effective than World War I, which was one of the reasons why the post-WWII boom lasted so long. That its end did not immediately trigger a global economic breakdown cannot be explained by state-capitalist intervention and the massive creation of fictitious capital alone, although these helped to postpone the hour of reckoning. But the main reason why it could be postponed was “globalization” and its beneficial impact on the rate of profit and the growth of productive demand. This was not enough however to restore the global growth rate, which plummeted in the early 1970’s and has never recovered (29). Meanwhile, the growth of fictitious capital has accelerated ever since. In this decade, the imbalance between money as a general commodity, circulating other commodities, and money as a particular commodity, hoarded for its claim on future value, has grown to grotesque proportions. It has been estimated that the former represents only 2% of money transactions on any given day. (30) All the rest is money traded for its own sake, that is, for its expected capacity to grow in value by claiming its share of surplus value yet to be produced. So the few trillions of dollars, euros and other currencies that evaporated since the collapse of the American housing bubble triggered the return of the crisis, represent only a small fraction of the capitalist wealth that still must disappear for the restoration of the conditions for accumulation.

So once again, capitalism is on a path towards collapse and/or war. But the future will not re-enact the past. I am not predicting World War III. What I do predict is that devalorization will continue and worsen. How the capitalist class, and more importantly, how the working class will react to that, is not a given. But the capitalist class really doesn’t have much choice, except in the ways and means it employs to try to keep its grip on society. The working class does have a choice. It can do nothing and cling to the irrational hope that in the end things will somehow work themselves out. Or it can take its future into its own hands and finally end the rule of the value-form over society.

The time to think of revolution is now.


June 2009. 


1. Marx, Grundrisse (Penguin edition), p.197-198. 

2. Idem, p.212

3. Idem, p.704-705.

4. Marx, Capital vol.1, (Penguin edition) p.656

5. Marx, Results of the immediate production, addendum in Capital, vol.1, p.1024

6. Marx saw the labor power needed to bring the commodity into the reach of the consumer as an extension of production into the phase of circulation, and thus adding value to the commodity and creating sv for capital. 

7. Marx, Grundrisse, p.706

8. Idem, p.340

9. Marx, Economic Manuscripts of 1861-63,Third Chapter. Capital and Profit, pt.6

10. Or, in other words, surplus-profit. More on the process of the equalization of the rate of profit in "The Roots of Capitalist Crisis part 3: From Decline to CollapseInternationalist Perspective 32-33. The tendential fall of the rate of profit is one of the most contested analyses of Marx. It seems counter-intuitive: Increasing productivity through technological innovation means more profit for the capitalist, so why shouldn’t it also mean that for capitalism? The answer is that the interests of individual capitalists and those of the total capital, the value-system, often conflict. The irrationality of capitalism is the sum of countless rational decisions by capitalists. The “proof” that the tendential fall of the rate of profit a mere red herring was supposedly delivered by the Okishio-theorem, which came to the opposite conclusion from Marx’s. I know little of mathematics,but I know that any such scheme can only be as good as its assumptions. Okishio assumed that the same commodities have the same price before and after production. He took it as a given that their value is stable while Marx’s point was precisely that it falls. So Okishio’s conclusion and starting point were the same. More on this in: Kliman: Reclaiming Marx’s Capital, chapter 7, Lexington Books 2007

11. According to Paul Samuelson, “economists of all schools can agree that Karl Marx did make one stellar contribution” (with his analysis of expanded reproduction). (Samuelson, Economics (McGraw Hill, 10th edition), p.865. 

12. See Marx, Capital, vol. 3, (New World Paperbacks), chapter 10, p191

13. Marx, Grundrisse, p.340

14. Marx, Capital, vol.2 (Penguin) p.470

15. Marx, Results… op.cit. p.1037

16. Marx, Theories of Surplus-Value, vol.3, (Progress ed) p.118

17. Marx, Capital, vol.3, p. 245

18. Marx, Capital, vol.3, p.305

19. Marx, Capital,vol.1, p.726-727

20. Marx, Results…, p 1046

21. Marx, Theories…, vol. 3, p.88

22. Marx, Grundrisse, p.218

Stephen Roach: Economic Armageddon Predicted. Boston Herald, November 23, 2004

24. Amongst others, by: Peter Gowan, ‘Crisis in the Heartland’, in New left Review 55. 25. Capital, vol.1, p. 875.

26. Capital, vol.3, p. 238

27. Capital, vol. 1, p. 528

28. This is not a perfect term, since it is usually associated with amorality and in Marxist politics with the position that capitalism reaches a point at which it can no longer develop its productive forces. We, by contrast think that they have developed considerably during capitalism’s decadence, since what makes them develop, the hunt for surplus-profit, has only intensified. To name the new framework, some prefer the term “era of retrogression,” others “permanent crisis.” The latter term is in my view not a good choice, since, by its very nature, no crisis is permanent. But more important than the choice of a word is the recognition that a new phase, with stark choices for the world, and for the working class in particular, had opened.

29. The average per capita worldwide growth rate was 2.9% in 1951-1973 and 1.6% in 1974-2003.(Angus Maddison’s annual data)

30. See: Bernard Lietaer, The Future of Money, Random House 2002.

Value-Creation and the Crisis Today

The recent implosion of the real estate bubble in the USA and related credit crisis have not yet triggered a collapse of the global capitalist economy but they do bring us one step closer to it. Marx’ value-theory is an indispensable instrument to understand what is happening. It allows us to see how the tenacity of the capitalist mode of production is directly related to its development of new methods of exploitation, new terrains for value-creation. But it also makes it possible to understand how capitalists, in their unceasing hunt for surplus value, are making capitalism more obsolete and are raising the obstacles that make its economic breakdown inevitable, to new heights. The following article analyses the evolution of the conditions for value-creation from the emergence of Fordism to the present-day impasse, from which only a working class revolution offers a way out.

Introduction: On Relative Surplus Value

In Capital, vol.1, Marx attaches great importance to the distinction between absolute and relative surplus-value (SV), which he clearly defines:

    “I call that surplus-value which is produced by the lengthening of the working day absolute surplus-value. In contrast to this, I call that surplus-value which arises from the curtailment of the necessary labour-time, and from the corresponding alteration in the respective lengths of the two components of the working day, relative surplus-value” (Capital, Penguin Ed, vol. 1, p.432).

He goes on to explain that the second is a function of the rise in productivity in those branches of industry which determine the value of labour-power, adding that a rise of productivity in sectors which neither directly nor indirectly produce means of subsistence, does not alter the value of labour-power and therefore does not increase relative surplus-value. From this follows that the increase of relative surplus-value is not a conscious, direct method by which the generic capitalist seeks to increase his profit but rather a by-product of capitalism’s general tendency of raising productivity: “When an individual capitalist cheapens shirts, for instance, by increasing the productivity of labour, he by no means necessarily aims to reduce the value of labour-power and shorten necessary labour-time in proportion to this. But he contributes towards increasing the general rate of surplus-value only in so far as he ultimately contributes to this result.” (p.433)

Even though it is mainly a by-product of capitalism’s technological drive rather than a consciously sought result, Marx considers relative SV the main source of profit for capitalism when it develops a specifically capitalist production process, when it becomes the real subsumption of labour (the real domination of capital). So when he explains this transition, he begins by recalling the importance of relative SV:

    “We have demonstrated the crucial importance of relative surplus-value. This arises when the individual capitalist is spurred on to seize the initiative by the fact that value = the socially necessary labour-time objectified in the product and that therefore surplus-value is created for him as soon as the individual value of his product falls below its social value and can be sold accordingly above its individual value. With the production of relative surplus-value the entire real form of production is altered and a specifically capitalist form of production comes into being (at the technological level too).” (pp. 1023-1024)

There is an apparent contradiction between this quote (from “Results of the immediate process of production”, the chapter of Capital, vol. 1 that he decided not to include when that work was published) and the first ones (from part 4 of volume 1). In the first, Marx is saying that the capitalist, by lowering the value of his product does not automatically create more relative SV, that he does so only to the extent that this contributes to a reduction of the value of labour-power in general. In the second, he seems to be saying that he does: when the individual capitalist lowers the value of his product, he writes, “surplus-value is created for him”. It’s easy to misunderstand this as implying that the cheapening of the product is itself creating SV, which would mean that its source would not be labour power but technology. That would contradict the very basis of his value-theory, in which there is no other source of SV but labour-power. But that is not what he meant. The confusion arises in part because he is explaining things on the basis of analyses that are not part of vol. 1 but vol. 3, which is probably the reason why he decided not to include “Results…” in vol. 1. But Marx did not mean to deny that the rise of relative SV under the real domination of capital is due to anything else but the reduction of the relative value of labour-power or to imply that going under the market-value creates SV for capital as a whole. Rather, he wanted to point to the genesis of the shift from absolute to relative SV as the principal source of profit growth, and explain it as a result of a change in the basic method by which capitalists seek to increase their profits. Whereas under formal domination this method consisted mainly in reorganizing production on the basis of buying labour-power, changing peasants and craftsmen into workers and making them work as many hours as possible, now the principal method became cheapening the individual value of the commodity under its market-value in order to obtain a surplus-profit which results from a transfer of SV on the market, in the phase of circulation. That is a form of redistribution of SV, not of its creation, but the more this becomes the dominant method of seeking profit, the more means of subsistence are cheapened by the general rise of productivity, so that the paid portion of the working day shrinks in proportion to the unpaid portion.

It’s important to distinguish what drives capitalists from what makes capitalism a success or failure. The conditions for the incentive to produce and the overall conditions for accumulation are related but not the same. We have analyzed elsewhere how real domination creates a widening gap between the growth of exchange value and use values which places obstacles before capitalism, in its phase of production (tendential fall of the rate of profit) and (dialectically linked to it) in its phase of circulation (overcapacity) which it cannot overcome except through massive devalorization in crisis and war. These obstacles confront capitalists as a force from outside like stormy weather but meanwhile their drive remains to obtain profits by going under the market value and to seek the conditions to make that possible. It should be noted that, the more homogeneous the conditions of production become, the more extra-capitalist producers and capitalist producers with a relatively low OCC (‘organic composition of capital’, the ratio of indirect, past labour to direct, living labour) are marginalized, the more difficult that becomes. In Capital, vol. 3 Marx remarks, if the whole world production would be in the hands of a few giant companies, “the vital flame of production would be altogether extinguished.”


Since there are conflicting definitions of that term, let me clarify what I mean by it: industrial mass production with mechanical technology at its center and the constant increase of the scale of production as its never ceasing purpose; the large, integrated and centralized company is its typical form of appearance, the assembly-line its hallmark, repetitious, monotonous work whose content and pace is dictated by the machine characterizes the labour process and Taylorism characterizes the management of that labour process.

The first real assembly-line was introduced in a Ford-plant in 1913, but this was preceded by several decades of changes in the production process in that direction. Fordism expressed the general tendency of capitalism to raise labour productivity by lowering the value of commodities while increasing their volume, and as such realized its general tendency to reduce socially necessary labour-time, thereby realizing its latent tendencies to falling profit-rates and overproduction.

These obstacles do not exist on a merely abstract theoretical level but in the real world. As such, they are also a function of the concrete, specific characteristics of capitalism as an historical product, such as the presence of counter-acting factors to the tendential fall of the rate of profit (like the potential metabolism with extra-capitalist production) and the development of the economic-political structure of capitalism at a given point in history. This explains why the instances of massive devalorization in the 20th century occurred when they did and why Fordism knew its apogee only after the Second World War, when the Bretton-Woods framework created for the first time a vast global (more or less) free trade zone with a common, expansive world currency, serving both as means of circulation and means of payment. No longer hemmed in by national borders (or at least much less than before), no longer hampered by the vagaries of national currencies or the tight restrictions of the gold standard (although the dollar remained, in theory, tied to gold, and all other main currencies thus indirectly also), the productivity-raising potential of Fordism was finally unleashed, creating a vast increase of relative SV-extraction. 

This explains the strength and duration of the post-war boom. But with the homogenization of Fordist production conditions in North-America, Western Europe and Japan, the growing marginalization of underdeveloped countries and the impediments created by the cold war context to the expansion of the world market, the same twin obstacles returned by the late 1960’s. To these difficulties must be added the strong resistance of the working class to the intensification of the labour process which Fordism made technologically possible. The high cost of un-utilized productive capacity made Fordism, by its nature, particularly vulnerable to strikes as well as to stagnation of market expansion. Furthermore, global overcapacity leads to chronic stagnation, even for the strongest capitals. As Marx explains in Capital vol. 3, in conditions of overcapacity, the social value is determined by the most favorable conditions of production, eliminating the surplus profit which those would yield under normal circumstances. The incentive to speculate replaces the incentive to invest. 

The world currency was also the currency of a particular nation, which created the irresistible possibility for the U.S. to use its position to try to spend its way out of trouble, at the expense of the entire dollar-zone. This forced the U.S. to untie the dollar from the gold standard (formally in 1971, de facto earlier) after which monetary expansion went out of control. The impossibility of resolving capitalism’s contradictions by throwing money at them resulted in the stagflation of the 1970’s and, by the end of the decade, brought the world economy at the brink of paralyzing hyper-inflation. It was time to try something else.


It is not a perfect term since it seems to suggest that Fordism is a thing of the past which is hardly the case. Nevertheless, in the 1980’s, something different emerged at the cutting edge of capitalism. But the changes in the mode of production proper were only part of it. A seismic shift in the overall structure of world capitalism (the end of the cold war, the end of China’s autarkic course and the resulting globalization) provided the context for post-Fordism to thrive.

The changes were guided by several goals:

  • To find access to the cheap labour power available in the less developed parts of the world economy in order to counter the falling rate of profit. Aside from its direct benefits, this also gave capital leverage against the working class in the developed countries to push down real wages and thereby increase profits.
  • To reduce the vulnerability of capital to working class resistance, through structural changes in the organization of production allowing greater flexibility and adaptability. The centralized, vertically integrated structure of the Fordist company gradually gave way to a more decentralized, more specialized, spread out and horizontally integrated mode of operation that diminished the concentration of the working class and thus its ability to join together in struggle. At the state level, this was expressed by so-called neo-liberal policies (It also implied a less cooperative relation with the trade unions).
  • (related to this :) to move away from Fordism’s dependency on scale-enhancement as the principal method to bring the individual value of commodities under the social value. Given the fact that this had led to overcapacity and that capitalism was powerless to overcome this without massive devalorization, developed capitals aimed more and more to restore conditions of relative scarcity through the development of new commodities (both producer and consumer goods), giving their makers monopolistic or semi-monopolistic market-positions and hence surplus-profits. Even if such market-positions could only be temporary, a brisk pace of technological innovation assures the continuity of a competitive advantage and thus of surplus-profits.

The main characteristic of the post-Fordist mode of production is that automation replaces mechanical technology at the nexus of production. While the first large scale development of automation dates already from the late 1950’s, it accelerated enormously since the 1980’s with the development and widespread application of information technology (IT). Together with this, the importance of applied science in general in the production process grew enormously and thus also the role of what’s been called immaterial or cognitive labour. This entailed a huge change in the composition of the working class, whose most decisive component now embodies what Marx foresaw:

    “He steps to the side of the production process instead of being its chief actor. In this transformation, it is neither the direct labour time he himself performs, nor the time during which he works, but rather the appropriation of his own general productive power, his understanding of nature and his mastery over it by virtue of his presence as a social body – it is, in a word, the development of the social individual which appears as the great foundation-stone of production and wealth.” (Grundrisse, Penguin edition, p.705)

While Marx, in my opinion, meant with “the social individual,” the whole working class (and thus including the Fordist worker who remains an essential component of the production process), his description is particularly apt in regard to the post-Fordist worker. That his enormously productive collective labour is the foundation-stone of much wealth today seems clear. That post-Fordist production yields huge profits is also clear. But what does it mean for the creation of value? After all, direct labour time may no longer be the great foundation-stone of wealth, but it remains the measuring rod, the foundation-stone of the law of value.

Post-Fordism and Value-creation

Let’s examine how post-Fordism, and the globalization (new division of labour) which it helped to make possible, have affected the creation of surplus-value.

1. It diminished the value of constant capital C (machinery, infrastructure, raw materials) and thus increased profits (S/C+V) by leading to cost savings on many levels. It has led to greater efficiency of resources, a faster turnover of capital, lower storage costs, lower transportation and communication costs, etc.

2. It has diminished the value of variable capital V (labour power) by reducing the value of the commodities which workers need (and thus increased the rate of relative SV).

3. It has increased the intensity of labour. IT made possible a deeper penetration of the law of value inside the production process and a much closer management and control of that process (‘post-Taylorism’ is even more ruthless and controlling than its predecessor).

4. It has greatly enhanced the mobility of capital and thereby altered the balance of forces between capital and labour in the former’s favour, which has also helped to increase S/V.

5. It led to the transfer of a large part of Fordist production to previously underdeveloped parts of the world, China in particular. Conditions there, made accessible by geo-political changes and the steep decline of transportation and communications costs as well as other technological developments, opened the door to a vast increase in both absolute and relative surplus value extraction. The increased metabolism with extra-capitalist producers and low OCC-capitalism should be stressed in this regard. It is these backward conditions which determine what the means of subsistence are but for high OCC production they represent very little value. The historically unprecedented possibility to combine the living conditions of low productivity-society with the technology and production methods of high productivity-society yields a very high rate of SV. The vast majority of the commodities thus produced are cheap consumer goods destined for the market of developed countries. So they lower the value of labour power there (increasing relative SV) and are a main reason why inflation staid so low for so long (another one is the global context of overcapacity, which, as Marx explains in Capital vol. 3, brings the social value of a commodity down to the value of those which are produced under the most favorable conditions, in other words, the cheapest). Furthermore, this transfer was relatively painless because the simultaneous move of developed capital into post-Fordist production created a division of labour, a complementary development. To this could be added the market that their development provided for the developed countries, but as we shall see further, as impressive as it is, it has severe limits.

6. It has, together with the global reorganization of capital which it helped to bring about, greatly facilitated the penetration of the law of value into areas that were not yet commodified, and thereby it opened important new avenues for value creation. Examples include the displacement of family farms by agribusiness, the displacement of services (in the marxian sense: labour that is directly consumed rather than creating a commodity that enters into the flow of capital) by service-industries, as well as the appearance of new services and goods as a direct result of its development, and even the displacement of labour exchanges done freely between family members, friends and neighbours by commodified exchanges.

All these factors have stimulated value-creation to a great extent (quite aside from the question of who benefited from this). But like all periods of innovation, it had its “sturm und drang”-period, after which the effect began to diminish, in part because of the homogenization it accomplished. In China, wages are rising, pushed up inevitably because changes in the very world the workers inhabit (technification of cities, destruction of the semi-proletariat which obtains part of its means of existence by farming on small plots of land) increases the value of labour power, despite the decline in industrial employment caused by the decay of low OCC-production, and the continuing flight of millions of unsettled peasants to the cities. Furthermore, the demand of the new Fordist production in China for prime resources, oil in particular, in combination with the prospect of their depletion becoming more realistic, is pushing up their prices, increasingly neutralizing China’s export’s beneficial effect on inflation. Inflation is rising rapidly in China. And in India too. Despite the growth of call centers there, the number of jobs being created by IT is lower than the number of indebted farmers committing suicide. In model-city Bangalore, the slums are growing much faster than the prosperous parts of town. Expulsion and destruction are inevitable companions of post-Fordism’s globalization.

While it’s true that the usual suspects stay on the cutting edge in IT, we are witnessing a generalization of its myriad applications throughout the globalized chain of production. This homogenization accelerates the pace in which gains in productivity are generalized. That means that the value savings which those gains allow, are lost more quickly because of the decline of the social value (the social reproduction cost) of the commodity. The faster this decline happens, the more a gap tends to open between the value of the capital advanced for production and the (social) value of the commodities resulting from production.

Marx emphasized that the effect of the increase of the OCC and the productivity-gain it causes, is two-edged. On the one hand, it increases SV/V, the rate of surplus value, by reducing necessary labour-time (the value of the goods that constitute the value of labour power). On the other, it diminishes the weight of living labour in production, and therefore also of the part of it that is unpaid, surplus value. From the pace of living labour’s decline depends whether a rise of a part of it (SV/V) can compensate the decline of the total (V+SV). Which force is the strongest today? The characteristics of automation are such that the second is increasingly winning. This is especially clear in the most emblematic product of post-Fordism, digital goods and software in particular. Their growing role –as means to obtain profit, as components of the production process, tools to create wealth, tools for creativity, communication and consumption- in society cannot be denied. It is true that the creation of these goods requires a lot of labour power. This labour power is exploited by capital, its value and surplus value is crystallized in the commodity that results from it. But this value is fleeting. No matter how many hours have been spent to create a particular digital commodity, the value of its copy is, like of any other commodity, equal to the value of the direct and indirect labour spent to make it plus (average) profit on the capital advanced. In the case of digital goods, it is almost nothing. What Marx wrote about machines: “However young and full of life the machine may be, its value is no longer determined by the necessary labour-time actually objectified in it, but by the labour-time necessary to reproduce either it or the better machine. It has therefore been devalued to a greater or lesser extent” (Capital vol.1, p.528) is true for all commodities. The fact that digital commodities may be highly profitable should not deceive us. Their producers obtain SV, but it comes from their customers.

But it is in the nature of information in general, and of the inherently communicative structure of IT in particular, to invite sharing, and thereby to pull the market price of digital commodities down to their next to nothing market value. That’s why the IT-sector is the most glaring example of the growing tendency to monopoly-capitalism (which has echoes in the periods preceding World War One and the 1920’s). The steep increase in the use of patents, copyrights, licences etc to commodify the knowledge that leads to surplus profits (Microsoft takes out 3000 patents a year), implies the need for a world order in which their price can be enforced, and the untamable tendency of the market to subvert this, of the law of value to pull the price down to its real social value, can be checked. This, together with the desire for control over resources, weighs heavily on geopolitics and on American military strategy in particular.

Marx called the devaluation caused by a fast decline of reproduction costs “moral depreciation”. It does not affect only digital goods. The faster the pace of technological innovation and of its integration in production and consumption, the more constant capital loses its value before it has transferred its value into other commodities. The more technological innovation is chased for the surplus profits that it yields, the more the capitalist investor is willing to bear the cost of moral depreciation. In an earlier text, I called this hidden overproduction. It is one of the principal ways in which the market-barrier manifests itself today.

The market-barrier manifests itself not in the form of an absolute limit to the consumption power of capitalist society but in the form of growing disproportionalities. The high rate of technological innovation of post-Fordism has accelerated a long-term tendency of real domination to over-accumulate producer goods and under-accumulate consumer goods, of which moral depreciation is an expression. Another disproportionality created by the drive for surplus profit is caused by its own success, paid for by the reduction of the value of labour power as well as with the SV of other capitalists who must buy at a price above the value. With concentration of wealth on one side, creating a steep increase of demand for all sorts of luxury goods and thus a higher rate of profit in the production of goods destined for unproductive production, and a relative decline of the demand for productive consumption on the other, the proportionality achieved by the market further deviates from the proportionality required for accumulation (analyzed in Capital vol.2) and further mortgages value-creation. To this should be added a rise of unproductive, ‘faux frais’ in general, which includes the costs of maintaining order and projecting power. The cost of the wars in Iraq and Afghanistan are approaching $1 trillion. The costs of anti-terrorist protection and of controlling excess population go far beyond that (in the US more than 1 % of the adult population is in prison). In addition, there is the rise in costs which capitals on the cutting edge must incur to stay on the cutting edge. Many global companies spend more capital on marketing than on production in order to create a socially perceived, artificial scarcity (for example, the difference between “Nikes” and simply sneakers) that yields surplus profits. 

Car factory in Germany


The Present Crisis

Despite the relative success of capitals on the cutting edge to create, for themselves, new markets yielding surplus profits, the overall context remains one of overwhelming overcapacity. Nevertheless, capitalism avoided a collapse, thanks to the fall of the value of labour power. But to keep the world economy growing in the face of global overcapacity, it had to be fed by an exponentially growing monetary expansion. This was what happened in the 1970’s too, but during that period monetary expansion was aimed more at slowing the erosion of general purchasing power, because of the high cost of unused production capacity in the Fordist economy. The 1980’s began with an abrupt curtailment of the growth of money in circulation to rein in inflation. But public dept continued to grow at an accelerating rate, while state expenditures shifted from supporting the social wage to unproductive spending such as armaments. Even more important was the expansion of the financial sector. With the elimination of most restrictions on the mobility and activities of financial capital, it grew enormously, creating all sorts of financial instruments promising to preserve and expand the value parked in them. Since all that money did not circulate goods, it did not raise their prices, so it caused no general inflation. Its fictitious character would manifest itself in other ways.

The first winner of the post-Fordist era was Japanese capital which was very successful in the 1980’s in lowering the individual value of the commodities of its export-sector under the social value by pioneering post-Fordist reforms. Japan amassed huge profits but experienced growing difficulties in investing them in a way that did not disrupt the foreign markets, in the first place the American market, on which it depended and that did not cause inflation to rise in its domestic economy. The alternatives were to keep hundreds of billions of dollars in the bank (subject to huge losses when the dollar was devalued) or to park them in property whose price was perceived as able to resist the general trend of diminishing value; in other words, to speculate. Japanese capital did both. Speculation feeds on itself because the rising demand it engenders delivers massive profits at first. Because this is a pyramid-game, it always ends in even more massive losses. When the bubble burst, Japan sank into protracted stagnation. That this did not lead to depression was mainly due to the fact that, globally, post-Fordism continued to expand and Japan remained a first-rate competitor.

The next bubble exploded in South-East Asia with strong reverberations in Latin America and Russia (which later recovered thanks to the rising oil price). The enormous devalorization which property (including labour power) in these countries suffered reinforced the safe haven-appeal of assets in the central countries. This, and the cutting edge position of American capital in the most profitable sectors of production, as well as the size of the U.S.-market, created an ever growing stream of savings to the US. By 2004, 80% of the net-savings of the world flowed to the US.

But a growing size of the expansion of the U.S. market was supported by nothing. Year in year out, the U.S. consumed more than it produced, now to the tune of more than $800 billion a year, a figure which vastly underestimates the amount of the value-transfer. In return, the rest of the world acquired stocks, bonds, treasury-notes and other debt-certificates as well as other property, with a nominal value of many trillions of dollars. The U.S. was the only country which could do that, because of its control over the world currency. But it also seems to have consciously stimulated the safe haven-effect through its global policies, as well to have encouraged the inflation of its assets, in particular with various policies to stimulate demand for its unproductive FIRE (Finances, Insurance, Real Estate) sector. Inevitably, it grew dependent on it. By 2004, it needed its ‘fix’ of $2.6 billion of foreign capital a day, just to keep going.

So that was the basic mechanism that kept the train on the tracks: the US kept market expansion alive, the profits were spread more globally, but a huge and growing part of these profits had to remain hoarded, unable to reenter into circulation or its fictitious origin would be exposed by inflation.

But the promise to capital that is hoarded in financial assets and real estate is that it will be kept alive, that it will be protected from devalorization in a world in which the overall direction is towards falling values. The promise is kept as long as demand is rising strongly. But when it begins to peter out, the speculative nature of the undertaking is revealed. The U.S. was not the only country whose paper value grew disproportionally. That the expansion of money was untethered from the blunt instrument of the gold standard was inevitable and logical. But in order to circulate value and retain credibility as a means of payment, the expansion of money had to remain tied to the expansion of value. That was not the case. Money transactions related to material goods production counted 80% of the total global transactions in 1970, a ratio which by 1997 had already dropped to 0.7%. In the U.S., since 1985, money has been growing more than six times faster than production.

Last year, the declining global demand for U.S. stocks and bonds, and the desperate attempts to keep up demand in real-estate by offering ever cheaper mortgages (many of them sold with deceit and without regard to the buyer’s ability to pay), showed what was coming: Another exploding bubble, but now at the centre of capitalism.

With house-prices falling, already more than 10% of American home-owners owe more in mortgage-obligations than what their house is worth. Millions are facing foreclosure. The continuing decline threatens to wipe out several trillions of household-wealth. The asset-deflation is not limited to real estate but is spreading to the credit market and beyond. Nobody has any idea how big the losses could be in the parallel financial markets. For example, the market of credit default swaps (derivatives), total $45.5 trillion, more than twice the size of the entire US stock market. It consists of trade in contracts that promise payment in case of a company defaults, which can be sold, by both parties of the contract and get traded over and over again, without any guarantee that the buyer of the contract will be able to pay in case of default. The more the US sinks into a recession, the faster this market will deflate.

With so much wealth evaporating, the non-payment of countless transactions and the banks forced to tighten their loaning practice, the crisis snowballs to the production sector, leading to a wave of bankruptcies and rising unemployment, and inflation fostered by the attempts to slow the tide by increasing public spending and lowering interest rates. A painful downturn of the American economy, and by extension of all the other economies depending on it, is inevitable.

It would be easy to imagine a credible scenario of how this crisis could spiral into becoming the great depression of the 21st century. Quite a few intelligent persons do. They may be right. But they may also underestimate how the capacity of the global capitalist class to act in concert when push comes to shove, has grown since the previous depression. I don’t think the US can pull itself up by its own bootstraps. It must count on the dependency of its trading partners on the American market. On the fact that they have no alternative to the present global trade patterns, and thereby are obliged to come to the rescue and invest in the recovery of the American economy. The crisis itself will have a considerable tonic effect for the strong who survive it. But nothing will be solved. This crisis is a milestone, marking the beginning of a new phase, characterized by increasingly intense economic shocks which could set the scene for increasingly intense class struggle.


March 4 2008

Foley: "The anatomy of financial and economic crisis"

posted Jun 2, 2009, 4:31 PM by David Calnitsky

The Anatomy of Financial and Economic Crisis
Duncan Foley

The Gildersleeve Lecture at Barnard College, April 17, 2009. The talk investigates the theory of financial and economic crises as a social coordination problem. It discusses the origins of the 2007-8 crises in financial fragility and global structural instability of capital movements and effective demand. The talk ends with suggestions for a new regime for the global economy based on fixed exchange rates, capital movement controls, and political regulation of key prices.

Kliman: "On the Roots of the Current Economic Crisis and Some Proposed Solutions"

posted May 2, 2009, 1:15 PM by David Calnitsky

Andrew Kliman

"On the Roots of the Current Economic Crisis and Some Proposed Solutions"

from Marxist-Humanist Initiative

Carchedi: "The Return from the Grave"

posted Mar 28, 2009, 1:16 PM by John Clegg   [ updated Mar 28, 2009, 11:20 PM ]

A clear analysis and critique of different Marxian crisis theories as they apply to the current crisis which argues strongly in defense of Marx's theory of the falling rate of profit.

Kliman: “The Destruction of Capital” and the Current Economic Crisis

posted Feb 4, 2009, 2:03 PM by f tcm

On his new webpage devoted to "crisis intervention" Andrew Kliman has provided a timely analysis of profit rate tendencies and their relevance to understanding the current crisis:



“The Destruction of Capital” and the Current Economic Crisis



Andrew Kliman

Professor, Department of Economics

Pace University

Pleasantville, NY 10570



1st Draft, January 15, 2009




One key concept in Karl Marx’s theory of capitalist economic crisis is “the destruction of capital through crises” (Marx 1989: 127, emphasis omitted).  He meant by this not only the destruction of physical capital assets, but also, and especially, of the value of capital assets.  This paper analyzes the current crisis in the light of that concept. 

I will argue that the crisis is rooted in the fact that capital was not destroyed to a sufficient degree during the global economic slump of the mid-1970s.  Unless and until sufficient destruction of capital occurs (perhaps in the present slump?) there can be no new, sustainable boom.  This is because the destruction of capital restores profitability; without enough destruction of it, profitability will remain too low.  Yet policymakers, unwilling to allow capital to be destroyed to a sufficient degree, have repeatedly chosen to “manage” the relative stagnation by encouraging excessive expansion of debt.  This artificially boosts profitability and economic growth, but in an unsustainable manner, and it leads to repeated debt crises.  The present crisis is the most serious and acute of these.  Policymakers are responding to the crisis by once again papering over bad debts with more debt, this time to an unprecedented degree.  I will conclude by exploring some possible consequences and political implications of this response.

In an economic slump, machines and buildings lie idle, rust and deteriorate, so physical capital is destroyed.  More importantly, debts go unpaid, asset prices fall, and other prices may also fall, so the value of physical as well as financial capital assets is destroyed.  Yet the destruction of capital is also the key mechanism that leads to the next boom.  For instance, if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%.  But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%.  That is a tremendous spur to a new boom.   Thus the post-war boom which followed the massive destruction of capital that occurred during the Great Depression and World War II came about as a result of that destruction.

If, on the other hand, capital is not destroyed to a sufficient degree, there is no boost in profitability.  Yet why isn’t profitability great enough to sustain an economic boom even without such a boost, without capital being destroyed? 

The answer, I believe, is that the “underlying” rate of profit––the rate toward which the empirically observed rate of profit tends in the long-run, all else being equal––is chronically too low to permit a healthy rate of economic growth. The “underlying” rate depends in part upon the rate of growth of surplus-value, and thus upon the rate of growth of employment, but this latter rate is held down by labor-saving technical progress.  There are several other determinants of the “underlying” rate of profit as well, all of which seem to be fairly stable in the long run.[1]  There is thus little reason to expect the “underlying” rate to rise or fall over time. 

One might infer from this conclusion that I reject Marx’s law of the tendential fall in the rate of profit.  Actually, the opposite is the case.[2]  If it is indeed the case that the “underlying” rate of profit is chronically too low to sustain a boom, and that the empirically observed rate of profit tends in the long-run to converge upon this too-low “underlying” rate, then the rate of profit does tend to fall if it initially starts off at a higher level.  That will be the case at the start of every boom, after the crisis and the attendant destruction of capital have boosted the observed rate of profit.  I believe that the tendential fall in the rate of profit to which Marx referred is just this tendency of the observed profit rate to fall downward toward the “underlying” rate (see Kliman 2003:123–26).  This falling tendency persists until capital is once again destroyed to a degree sufficient to offset it. 

* * *

In the 1970s and thereafter, policymakers in the U.S. and abroad have understandably been afraid of a repeat of the Great Depression, especially of the destabilization of the capitalist system and the radicalization of working people that accompanied it.  They have therefore repeatedly attempted to retard and prevent the destruction of capital.  This has “contained” the problem, while also prolonging it (and, I shall argue, exacerbating it).  As a result, the global economy has never fully recovered from the slump of the 1970s, certainly not in the way in which it recovered from the Great Depression and World War II. 

For instance, in the developed “Western” countries (including Japan), and in the world as a whole, the average growth rate of Gross Domestic Product (GDP) per person during the 1973–2003 period was just barely more than half the growth rate between 1950 and 1973 (see Figure 1).  Excluding China, the worldwide growth rate fell by almost two-thirds.[3]


Figure 1



If we look at the average rate of profit of U.S. corporations by taking the ratio of their pre-tax profits to their net stock of fixed capital assets valued at actual purchase prices (see Figure 2), we observe a strong recovery of corporate profitability following the Great Depression but the lack of such a recovery in the period since the slump of the mid–1970s (except for the bubble-induced spike during the last few years).  During the 1941–1956 period, after capital had

been destroyed on a massive scale, the rate of profit averaged 28.2%.  The high rate of profit in the early part of the 1941–1956 period was partly due to government borrowing and spending during World War II, but the rate of profit remained very high for more than a decade thereafter, which is clear evidence of a sustained boom rather than a debt-induced bubble.  However, the rate of profit then fell to an average of 20.4% in the 1957–1980 period.  Moreover, despite frequent claims that neoliberal policies and globalization brought about a sustained recovery from the crisis of the 1970s, the rate of profit continued to fall in the1981–2004 period, to an average of 14.2%.[4] 

The sharp rise in the rate of profit in the 1941–1956 period, and the lack of a sustained recovery in profitability following the crisis of the mid-1970s, is consonant with the above analysis of the effects of full-scale versus incomplete destruction of capital.  It is also consonant with the hypothesis that the observed rate of profit has a tendency, in the absence of a sufficient destruction of capital, to converge upon a too-low “underlying” rate.

In order to mitigate the effects of this phenomenon, and perhaps hoping to overcome it, policymakers have tried to prop up growth and profitability artificially throughout the last three decades.  For instance, the slump has been contained in the developed countries to some degree by “exporting” it to the most vulnerable parts of the Third World.  In the U.S., profitability has been propped up by means of a decline in real wages for most workers and other austerity measures.  Most importantly for the present analysis, the sluggishness of the economy has been papered over by an ever-growing mountain of mortgage, consumer, government, and corporate debt.  

For instance, reduced corporate taxes have boosted the after-tax rate of profit relative to the pre-tax rate, but this boost has been financed by additional public debt.  More than three-eighths of the increase $6.8 trillion increase in U.S. Treasury debt after 1986 (through fiscal year 2007) is attributable to reduced corporate taxes as a percentage of corporate profits.  Almost all of the remaining increase in the government’s indebtedness is used to cover lost revenue resulting from reductions in individual income taxes, reductions that have served to prop up consumer spending and asset prices artificially.  Similarly, the effects of declining real wages have until recently been mitigated by easy-credit conditions and rising prices of homes and stocks, brought about by Federal Reserve policies and other means.  This has allowed consumers and homeowners to borrow more and save less.  Whereas Americans saved about 10% of their after-tax income through the mid-1980s, the saving rate then fell consistently, bottoming out at 0.6% in the 2005–2007 period.

In the long run, however, debt cannot be used to "grow the economy" faster than is warranted by the underlying flow of new value generated in production.  Efforts to do so create bubbles, but bubbles burst.  The current economic crisis, which began with and remains centered in the crisis in the U.S. housing market, provides a striking example of this phenomenon.  In large part because the Federal Reserve pursued a “cheap-money, easy-credit” strategy in order to prop up the economy in the wake of the collapse of the dot-com boom, 9/11, the recession of 2001, and the drop in employment that continued into mid-2003, home mortgage borrowing as a percentage of after-tax income more than doubled from 2000 to 2005, rising to levels far in excess of those seen previously. This caused home prices to skyrocket.  Mortgage debt and home prices both doubled between start of 2000 and the end of 2005.  

But the rise in home prices was far greater than the growth of value from new production that alone could guarantee repayment of the mortgages in the long run.  New value created in production is ultimately the sole source of all income, including homeowners’ wages and salaries, and therefore it is the sole basis upon which the repayment of mortgages ultimately rests.  Between 2000 and 2005, total after-tax income rose by just 35% percent, barely one-third of the increase in home prices. This is precisely why the real-estate bubble proved to be a bubble.[5]

Thus, in the period since the crisis of the mid–1970s, there have been recurrent upturns that have rested upon debt expansion.  For that reason, they have been relatively short-lived and unsustainable.[6]  And the excessive run-up of debt has resulted in recurrent crises, such as the Third World debt crisis of the early 1980s, the savings and loan crisis of the early 1990s, the East Asian crisis that spread to Russia and Latin America toward the end of the decade, the collapse of the dot-com stock market boom shortly thereafter, and now the crisis in the U.S. housing market that has triggered the most acute economic crisis since the Great Depression. 

* * *

Policymakers are responding to this crisis with more of the same––much, much more.  The U.S. government is borrowing a phenomenal amount of money, for the $700-plus Troubled Assets Relief Program (TARP), Obama’s stimulus package, etc., etc.  If these measures succeed, full-scale destruction of capital will continue to be averted.  But if the analysis of this paper is correct, the consequences of success will be continuing relative stagnation and further debt crises down the road, not a sustainable boom.  To repeat, unless sufficient capital is destroyed, profitability cannot return to a level great enough to usher in a boom.  And given the huge increase in debt that the U.S. government is now taking on, the next debt crisis could be much worse than the current one.  It is therefore not unlikely that the next wave of panic that strikes the financial markets will be even more severe than the current one, and have more serious consequences.

If the new policy measures fail, we may soon be facing a very severe slump.  It might not be as nearly as bad as the Great Depression, but it might be even worse.[7]  It might lead to full-scale destruction of capital and a new boom, but in the 1930s, capitalism’s self-correcting mechanisms proved too weak to bring that about.  Recovery required both massive state intervention––which is taking place again––and the destructiveness of World War.  This time around, it is not inconceivable that we will descend into fascism or warlordism before that point is reached. 

Now that a shift away from the “free market” and toward government intervention and regulation is taking place, it is important to recognize that there is nothing inherently progressive about this.  It is true that during the New Deal, intervention and regulation were accompanied by some progressive social welfare policies, but that was because a gigantic mobilization of working people forced the U.S. government to make concessions in order to save the capitalist system.  If it can save the system without giving such concessions, increased intervention and regulation will be just that––intervention and regulation, period.  We have already seen that the TARP bailout money isn’t there to make our lives better.

As in the 1930s, working people need to mobilize in order to protect themselves during the crisis as well as they can.  They need to look to themselves, not to the government.  By getting their demands met, they will help themselves in the short run.  We should be aware, however, that concessions are not a solution to the economic crisis, not a pathway to a new boom.  Concessions do not restore profitability, but as long as we remain within the confines of the capitalist system, a new boom will require destruction of capital to an extent sufficient to restore profitability. 

We may soon be in a situation in which great numbers of people begin to search for an explanation of what has gone wrong and a different way of life. We need to be prepared to meet them halfway with a clear understanding of how capitalism works, and why, when push comes to shove, it cannot work to the benefit of the vast majority. And we need to get serious about working out how an emancipatory alternative to capitalism might be a real possibility.



Kliman, Andrew.  2003. Value Production and Economic Crisis: A temporal analysis. In Richard

Westra and Alan Zuege (eds.), Value and the World Economy Today (London and New York: Palgrave Macmillan).

Kliman, Andrew.  2007.  Reclaiming Marx’s “Capital”:  A refutation of the myth of inconsistency.  Lanham, MD:  Lexington Books.

Kliman, Andrew.  2008.  A crisis for the centre of the system.  International Socialism, No. 120.  Available at

Marx, Karl.  1989.  Karl Marx, Frederick Engels: Collected Works, Vol. 32. New York: International Publishers.

[1] These other determinants are the rate of exploitation, the share of profit that is reinvested, and the rate of increase in nominal values (prices) relative to real ones.  The first two move within strict limits and should be expected to be roughly constant over the long run.  If there is not an excessive run-up of debt (which, I argue below, is ultimately self-negating), so should the last determinant.  See Kliman (2003:123–26) for a fuller discussion. 

[2] The Okishio theorem was long thought to have shown that Marx’s law is a logical impossibility, but the theorem has been disproved.  See Kliman (2007, Chap. 7).

[3] I have used the authoritative data compiled by Angus Maddison for the 1950–2003 period, available at  His GDP figures are measured in constant 1990 international dollars (Geary-Khamis dollars). 

[4] The data come from the Bureau of Economic Analysis of the U.S. Department of Commerce, available at  Profit data are from NIPA Tables 6.17 A though D, line 1, and fixed asset data are from Fixed Asset Table 6.3, line 2.  I have divided profits by the cost of fixed assets at the end of the prior year. 

[5] See Kliman (2008) for sources and further analysis of the housing market crisis.

[6] Figure 2 provides some indication of the effects of debt-induced expansions.  Accelerating inflation artificially propped up the nominal rate of profit in the mid-to-late 1970s, but ultimately led to a disinflationary slump; it also helped prolong a boost in the price of oil that gave rise to the Third World debt crisis.  The 1990s was the decade of “the new economy,” a debt-financed dot-com boom that ended as a burst bubble.  And of course the spike in profitability between 2002 and 2007 was debt-driven and unsustainable.

[7] Impressive-looking forecasts notwithstanding, no one knows or can know at this point.  In the absence of stable conditions and meaningful precedents from the past to draw upon, forecasts are little more than hunches with numbers attached.  

Laibman: The Onset of the Great Depression II

posted Jan 29, 2009, 11:38 AM by David Calnitsky   [ updated May 12, 2009, 8:31 PM by John Clegg ]

URPE blog entry

The Onset of the Great Depression II: Conceptualizing the Crisis

by David Laibman*

[Note: This text will appear in the "Editorial Perspectives" section of the July 2009 issue of Science & Society. That issue will also contain a Call for Papers for a forthcoming special issue devoted to Marxist Perspectives on the Capitalist World Crisis.]

The Onset Of Great Depression II: Conceptualizing The Crisis

At this writing (January 2009), firms in all sectors of the U. S. economy are cutting their payrolls; unemployment and homelessness are soaring; and the working class is taking the biggest hit to living standards in several generations, raising deep doubts about the capacity of our capitalist society in the near term to ensure overall social reproduction. Similar trends are evident around the world, reflecting a heightened degree of interconnection and transnationalization. Mountains of debt — consumer, business, government, offshore — continue to accumulate, and the fragility of the international financial system becomes daily more apparent, dashing any hope of a quick recovery. We should begin by saying, loud and clear: The Marxist understanding of the inherent instability and progressive unworkability of capitalism has been vindicated! We Marxists have, in our different ways of course, been saying that the “free world” golden age, the long boom, the “free market,” the end of history — whatever — are all one big myth; that capitalist accumulation, with its immanent trope toward polarization, reckless expansion, irresponsibility and instability, is increasingly problematic from any standpoint affirming human survival and fulfillment. We have always known this, while legions of mainstream pundits and scholars have not known it, and have been incapable of knowing it. (They still are.)

Then why don’t we feel vindicated? Why do we feel helpless, like the proverbial deer in the headlights? Where is the confident projection of a future beyond capitalism, to help fuel the sort of massive democratic upsurge that secured the October Revolution of 1917, the U. S. New Deal in the 1930s, and the social wage of the advanced capitalist societies of Western Europe in the post-World War II period? Part of the problem, of course, is that Marxist predictions of crisis have often turned out to be wrong, so that when a crisis “finally” does emerge we experience it in the same way as the correct statement of a stopped clock (which is, after all, right twice a day). The old joke haunts us: “Marxists have successfully predicted ten of the last two crises to hit the U. S. economy.” We need to know: how can we use our grasp of fundamentals to produce a superior analysis of this crisis? How can we avoid succumbing either to the sterile maximalism of simply asserting that “capitalism = crisis” and vapid talk of “general crisis,” on the one hand; or joining the hoards of talking heads who spew forth endless details of sub-prime mortgages, financial derivatives, bailouts, “latest developments,” etc., with the associated anything-is-possible/ nothing-is-possible chatter, on the other? Well, we can but try. The answer won’t be found, in my view, in the form of endless empirical description, nor by means of the “Marxist econometric model” that the late David Gordon so meticulously sought. Nor will it be found in further study of Marx’s texts, although that study remains important as one source of useful insight. As always in these essays, I argue that conceptual clarification is essential, and in this instance I believe a specific conceptual gap has been a defining feature in the work of Marxist economists in capitalist countries who are systematically hostile toward the early-socialist states of the 20th century (the so-called “Western Marxists”). More on that in a moment.

Crises of capitalist accumulation have traditionally been categorized into “cyclical” and “structural.” One can, of course, deploy both concepts simultaneously, as when investigating the cyclical and structural aspects of a given crisis. Cyclical crises are the periodic, and periodically necessary, wrenching adjustments in the path of accumulation, revealing the general recurring tendency of capitalism to undermine its own conditions for further expansion. They have been sub-categorized into crises of “realization” (based on deficiency of demand), and crises of “liquidation” (based on excessively low profit rates). Structural crisis, by contrast, occurs when a given stage of accumulation (or “social structure of accumulation”) must necessarily give way to a succeeding one. One example is capitalism’s need for a qualitatively enhanced form of state regulation, an institutional transformation of the early 20th century that was mightily resisted by capital, even as that system’s most thoughtful representatives saw the need for it and mass working-class struggle from below brought home its necessity. Another such stage (or “stadial”) conception of crisis rests on the “social structure of accumulation” (or, in a different formulation, the “regime of accumulation”) that emerged in the post-World War II period, characterized by “Fordist” mass production, Keynesian demand management, and a capital-labor accord ensuring (relative) class peace in exchange for assured worker participation in rising productivity. The structural crisis was the stormy period of the 1970s emerging from the unraveling of this arrangement.

I would like to propose, amplifying this set of distinctions, a three-way conceptual frame, in which cyclical crisis is sub-divided into two sub-categories: accumulation, and balance-of-forces. We therefore have three crisis types: 1) accumulation-cyclical; 2) balance of forces-cyclical; and 3) stadial-structural. These can be combined to characterize a particular conjuncture. Accumulation-cyclical crises are the classical crises of overproduction, with either the realization or the liquidation aspect in the dominant position. They embody a central capitalist contradiction: individual capitals must seek ever-higher profit rates in ways that undermine the conditions for their realization, where these conditions involve both demand and the nature of production (mechanization, concentration and centralization of capital, etc.).

Stadial-structural crises (to skip over the second type for the moment) refer of course to the stadial, or stage-like, character of capitalism. The stormy transition to a more intense regime of state regulation has already been mentioned; it took the first Great Depression (GD I!) to force it through (1). Now, some seven decades later, the structural contradiction is different: capitalist units of control (firms), as a result of persistent concentration (growth in the size and interdependence of productive units), centralization (gathering of control into fewer and fewer hands), and the rise of information technology, have grown beyond the limits of capital’s own state regulation.

In recent years the rise of “offshore” dollars (until recently the unchallenged international reserve currency) and financial centers has increasingly eroded the power of government stabilization bodies, and even eclipsed the reach of supranational entities such as the IMF and World Bank. The potential for instability in the enormous transnational capital market, enhanced by the rise of financial derivatives whose face value is now many times world GDP, has been richly described by many, but here we place it in the framework of an immanent outcome of continuing capitalist accumulation.

The attenuation of actual and potential regulatory power on the part of governments may be seen as an instance of capitalism, in the late 20th and early 21st centuries, gradually re-asserting its characteristic elemental quality. To understand this fully, however, we must now invoke the second of the three crisis categories: balance of forces-cyclical. Of the three, this one is, I submit, the least well understood, largely because of the widespread failure on the “Western” left to appreciate the revolutionizing role of the Russian Revolution and of the early socialist societies to which it gave rise. October 1917 set in train a powerful movement from below; this movement shaped the path of accumulation throughout the world, including in the advanced capitalist countries. The emergence of a post-capitalist state, in a huge land mass, created a basis for independent political and social development of exploited and impoverished classes in all parts of the capitalist world, and gave Great Depression I its special character as a threat to capitalism as such. This, it should be noted, is true despite the material weakness and political and cultural deformation that were part of Soviet society and its development. The combined effect of the revolutions, both successful and unsuccessful, of the early 20th century and the Depression was to create a massive shift in the balance of class forces in favor of the working class and related subaltern social classes and strata. Except in the USSR and, postwar, Eastern Europe and China, this shift did not eventuate in a transfer of state power or the overthrow of the capitalist ruling classes; it did, however, result in a period in which the elemental capitalist process was repressed, attenuated, forced to function in muted fashion and to respond to popular demands. So alongside early socialist construction to the east, we have European Social Democracy, the social wage, various and sundry “capital-labor accords,” the break-up of the colonial empires, Keynesian stabilization and regulation in the west. The history of the latter decades of the 20th century, until the present, is one of the gradual undoing of this working-class position of strength and reversion of the balance of class forces to its more normal state: a passive, apolitical working class and a healthily (from the capitalist standpoint) valorized labor-power commodity. The decline in trade union membership in the United States is a factual symbol of this history.

And standing in glaring contradiction to it is the emergence in the USA of widespread working-class home ownership after World War II. Reflecting the social advance of the working class, home ownership was also central to the subsequent ideological derailment, as was “consumerism,” the suburban life style, and much else. But the accumulation of personal wealth in the form of real estate was also a growing threat to the classical proletarian condition, and therefore an obstacle to the progressive re-emergence of unfettered capitalist class rule. What was needed — again, from the standpoint of capital — was nothing less than a new re-dispossession of workers on a large scale. From this standpoint, the crisis — for capital — is the advanced social and political position of the working class that emerged following the mobilizations related to the world wars, the Depression, the victory over fascism — and the continued existence, and threat, of the Soviet Union. The resolution of the crisis is re-proletarianization, much more advanced in the USA than in, say, Western Europe.

Now, with these pieces of the puzzle in place, we can briefly describe the present crisis. It is a perfect storm of crisis: a coming-together of accumulation- cyclical, balance of forces-cyclical, and stadial-structural elements.

The crisis of overproduction has been a long time in the making. But financialization — the enormous increase in debt of all kinds — constitutes, as we well know, an offset. When consumer demand is restricted owing to a falling wage share of income (as has been happening since sometime in the 1970s), the gap can be papered over by installment plans, and other forms of consumer borrowing. Public debt can prop up aggregate demand. U. S. factories can ship goods to the rest of the world, and lend the world the money to pay for them. (Of course, this relationship was reversed in the 1980s and 90s, and we now borrow massively from the world, instead of lending to it.) The question, however, is: how far can this process go? How far can the rubber band be stretched, before it breaks?

This writer remembers doing research into debt ratios (consumer debt to personal disposable income, overall debt to GDP, etc.) in the early 1970s, and concluding, truly and ominously, that these ratios were all then just surpassing their 1929 levels! Surely a sound basis for predicting an imminent collapse — which, however, came along almost 40 years later. (Shades of “predicting ten out of two crises.”)

Now the question — how much debt leverage is possible? — seems unanswerable, unless we bring in the balance of forces cycle (the one that, as noted, many Marxists have trouble with). Why, for example, when the mortgage market showed signs of trouble last year, was a new securitization not possible? Tension in this market has been on the rise for years, after all. The answer may well lie along these lines: Repackaging and underwriting of the bad loans was possible, in principle; it would simply have required the sort of lofty thinking and long time horizon that goes against the grain of capital — like chimpanzees standing erect on two legs for short periods — but can be accomplished by them through use of the state apparatus. What happened, however, is that powerful ruling circles in banking and finance (and politics) concluded that the housing crisis should not be further postponed; that it was now both necessary and politically possible. The crisis of homelessness in the U. S. working class is precisely the assertion of a central capitalist imperative: reproduction of the proletarian status of workers ultimately requires their propertylessness (2). This need not be thought of as a simple conspiracy: it is rather that the balance of forces have evolved, in what from our standpoint is an unfavorable direction, to a point at which powerful players in the financial markets, and in government, now think the consequences of saving low-income home ownership are worse than the consequences of letting that ownership slide. This may appear as nothing other than good financial decision making, but it ultimately results from a shifting world balance of class forces, in which the demise of the Soviet Union, while certainly not the only factor, was nevertheless a crucial one. And that, as they say, is where the rubber band snaps.

So. We have an accumulation-cyclical crisis in potential form, developing over time. We have a regulatory-stabilization apparatus designed to either avert the actual economic downturn, or at least soften the blow (this is what they mean by a “soft landing”), an apparatus which however is increasingly undermined by elemental transnationalization. Finally, the balance-of-forces chickens come home to roost: the will to offset the downturn evaporates as the political need to do so vanishes. A perfect storm. When the sea change in working-class consciousness and organization occurs — notice that I say “when,” not “if” — the ruling circles will then need enhanced forms of regulation appropriate to their own newly transnationalized world economy, and they will find that these forms are not in place! Moreover, those forms may not even, ultimately, be possible. But all that, as they say, is (yet) another story.


1. Actually, what we call the (first) Great Depression is really the second. Economic historians are familiar with the period 1870-93 (or thereabouts), a time of depressed trade and high unemployment that was well entrenched in popular consciousness, until erased by the momentous turn of the 1930s. (How quickly we forget!) The crisis of the late 1800s may be considered structural, resolved by the rise of the trusts and robber barons. I will, however, begin the count with the more recent Great Depression (GD I), as we wonder whether we are standing on the threshold of its successor.

2. The use of Medicare as a means of re-dispossession — withholding health care from the elderly until they spend down and are thus divested of their homes, farms, and paper assets, and their children deprived of their inheritance — is yet another element in this overall strategy, one that requires separate and detailed treatment.

* David Laibman is Professor of Economics at Brooklyn College and the Graduate School, CUNY, and Editor of Science & Society. His most recent book, Deep History: A Study in Social Evolution and Human Potential, was published in 2007 by SUNY Press. He can be reached at

Kart Heinz Roth: "Global crisis – Global proletarianisation – Counter-perspectives"

posted Jan 9, 2009, 12:09 PM by John Clegg   [ updated Jan 14, 2009, 9:31 AM ]

Newly added to the Wildcat website:

Kart Heinz Roth: "Global crisis – Global proletarianisation – Counter-perspectives"

It combines an astute analysis of the crisis with a survey of global class composition from the 1970's till today, and a suggestion about what form a revolutionary proletarian response to the crisis might take. Although I take issue with certain aspects of the text (such as his underconsumptionism, and accordant limited support for Keynesian counter-cycular measures) I like the way it takes class composition as its central problematic, both in terms of making sense of the crisis and making sense of a revolutionary response to it. Prol-Position did something similar in Stop Looking Into the Headlights but Roth's text looks more deeply into the global structural foundations of the crisis.

Bellamy Foster and Magdoff: "Financial Implosion and Stagnation"

posted Jan 2, 2009, 7:05 AM by John Clegg

The definitive Baran-Sweezyite "under-consumptionist" account of the current crisis. The last chapter from Bellamy Foster and Magdoff's new book, The Great Financial Crisis: Causes and Consequences (Monthly Review Press, January 2009).

Smith "Causes and Consequences of the Global Economic Crisis"

posted Nov 26, 2008, 2:09 PM by John Clegg

Murray E.G. Smith "Causes and Consequences of the Global Economic Crisis: A Marxist-Socialist Analysis"

see attached pdf

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