In the interests of an objective assessment of the opposing positions, we have reproduced the Socialist Party EC’s reply to our first document, “What is the cause of the current capitalist crisis?”. Our reply to this document is “In Defence of Marx’s Law of the Tendency of the Rate of Profit to Fall”.
This document is a reply to What Is the Cause of the Current Capitalist Crisis? (endorsed by eleven comrades). Written by Lynn Walsh, this statement is endorsed by the Executive Committee of the Socialist Party (England and Wales).
Introduction
1. Earlier this year a number of comrades in the Socialist Party Scotland and the Socialist Party (England and Wales) initiated a discussion on Marxist economics, particularly on the Law of the Tendency of the Rate of Profit to Fall (LTRPF). They have drawn heavily on The Failure of Capitalist Production, by Andrew Kliman, whom they celebrated as an “unsung hero”. At the same time, they made a series of severe, sweeping criticisms of our economic analysis and perspectives. We replied to Kliman’s ideas and to their criticisms in The Causes of Capitalist Crisis: A Reply to Andrew Kliman, by Peter Taaffe and Lynn Walsh. We particularly took up their false political method and incorrect programme, strategy and tactics which, in our view, are linked to their economic doctrine. Subsequently, eleven comrades have produced a document, What Is the Cause of the Current Capitalist Crisis? This, in our view, fails to respond to most of the criticisms we made of their ideas in our first document. The Eleven distance themselves from Kliman: “… none of the supporters of this document endorse Kliman’s political conclusions”. Their document mainly reiterates and elaborates on their criticisms of our economic analysis. This is our reply to their document.
The law and the tendency
2. The Eleven claim they recognise the need for perspectives. But they give no analysis of trends in the Brit- ish, the US or world economy, even the outline of a perspective. They raise the “possibility of an impending capitalist collapse”, based on their doctrinaire interpretation of the law of the tendency of the rate of profit to fall (LTRPF). Instead of the complex interplay of economic and social forces analysed by Karl Marx, they adopt a monocausal approach.
3. The presentation in their document is completely contradictory. On the one side, they acknowledge the counter-tendencies to the LTRPF explained by Marx. They recognise that Marx explained that the counter- tendencies tended to slow down the fall in the rate of profit, and “moderate” or “hamper” or “retard and partly paralyse” the fall in the rate of profit. They quote Marx (Capital, Volume 3, Chapter 14, page 346): “Thus the law acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced.” (All quotations from Marx’s Capital in this reply are from the Penguin edition.)
4. Yet, it is clear from their arguments that they regard the LTRPF as a more or less invariable ‘law’ – in fact, as ‘The Law’ – rather than a tendency. In effect they present the LTRPF as a breakdown theory (rather than a theory of recurrent crises), analogous to the idea of breakdown put forward by Heinrich Grossman in the inter-war period. Basing himself on the assumption of a growing disproportion between constant capital, variable capital and capitalists’ consumption, Grossman calculated that through each annual cycle there would be steadily diminishing production of surplus value – leading to a catastrophic breakdown of capitalism – after 35 years. Grossman’s theory illustrates the danger of imposing an arbitrary schema onto real social processes.
5. The Eleven argue that, at the onset of the great recession in 2007, the law became “strikingly pronounced” and that “the counter-tendencies exhausted them- selves and there was a sudden plunge in the mass of profit being made by US capitalism”. Nowhere do they attempt to analyse the counter-tendencies and the way they have been operating in the world economy during the last few decades. For instance, what effect has productivity gains in some sectors of the economy had on profitability and investment? What effect has the entry into the global labour force of 500 mil- lion low-paid workers in China and other developing countries had on the organic composition of capital?
6. The Eleven’s interpretation of Marxist theory is that the LTRPF is a remorseless, inexorable and irreversible trend, accompanied by the steady erosion and eventual exhaustion of the counter-tendencies outlined by Marx.
7. For instance, their interpretation of the crisis which broke out at the end of 2007 is that an economic crisis (propelled by the fall in profits) triggered the financial crisis. This, however, is the opposite of what actually happened. The collapse of the banking and financial system, which was triggered by the collapse of the US housing bubble and the associated securitised mortgages and financial derivatives (e.g. credit default swaps), brought about a severe credit squeeze which paralysed production and severely depressed consumer spending. No doubt the financial crisis arose from deeper economic problems, going back at least to the decline of profits at the end of the post-war up- swing and in the 1970s.
8. The Eleven, however, simply assert that the economic crisis triggered the financial crisis without any analysis of the situation. They ignore the fact that Marx clearly states that the LTRPF operates over a long period, and indirectly through more immediate causes. Even with a stable, organic composition of capital and a sustained level of profitability, there would have been a collapse in the US and in the global economy as a result of the financial collapse in 2007. For instance, foreclosures in US housing began to rise sharply in
2005, and it appears likely that this shakiness of the housing market, which was the key to the growth of the previous period, preceded the fall in corporate profits. According to RealtyTrac (23 January 2006), there was a
25 per cent increase in the number of new foreclosures in 2005 (846,986 properties in the US entered some stage of foreclosure).
9. Marx writes that a fall in the rate of profit “appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital alongside a surplus population”. (Capital, Vol 3, Ch 15, p350)
10. In other words, long-term problems of profitability give rise to overproduction (a deficiency of money- backed demand for goods), speculation (the housing bubble, speculation on commodity markets, etc.), and crises (giving rise to mass unemployment). The advocates of a fundamentalist interpretation of the LTRPF dismiss these factors as mere “proximate” (immediate) causes of crisis. However, such ‘immediate’ causes can last for considerable periods, and they determine the economic and political conditions under which the working class has to live and struggle. For instance,
‘speculation’, with periodic crises in financial markets that contributed to recessions in the real economy, has been a feature of US and global capitalism ever since the end of the post-war upswing. This was a result of the capitalist class’s attempt to overcome its problems of capital accumulation and profitability by turning to- wards finance, on the basis of a massive, unprecedented expansion of credit and the money supply.
11. Moreover, the massive expansion of the money sup- ply, without an accompanying explosion of inflation, points to the fact that for a whole period there has been massive overcapacity in the world economy, with the flooding of global markets with cheap consumer goods, partly through productivity rises but mostly because of low-cost production in China and other ‘emerging markets’ (South-East Asia, Brazil, etc.). Without the consistent cheapening of consumer goods there would undoubtedly have been an explosion of inflation, given the enormous amounts of credit pumped into the world economy.
12. This situation also makes it likely that many corporations supplying world markets under conditions of intense competition failed, at the prices they actually sold their goods, to realise all the surplus value (potential profit) embodied in those commodities, thus reducing their profitability.
13. The Eleven reject any role for the restricted consump- tion of the working class, dismissing this as an “under- consumptionist” approach. Their favourite quotation is from Capital Volume 2, Chapter 20, page 486, where Marx says: “It is a pure tautology to say that crises are provoked by a lack of effective demand or effective consumption.” However, it is clear that Marx is arguing against the simplistic idea that a deficiency of demand for consumer goods could easily be overcome simply by paying workers higher wages. He was answering those who at that time put forward that argument, like many contemporary Keynesians (e.g. Paul Krugman). It is quite clear that Marx was answering the simplistic idea that “the working class receives too small a portion of its own product, and that the evil would be remedied if it received a bigger share, i.e. if its wages rose…”
14. The simplistic formula of raising wages ignores the fact that wages and consumer demand are integral parts of a sequence of relations and processes. They are part of a complex chain of causation. As we have explained many times in relation to Keynesians such as Krug- man, and the same applies to the Keynesian approach of the editors of Monthly Review, it would not resolve the crisis to pay the workers more. If wages are subsidised by the state, it would give rise to higher deficits, higher debt, higher taxation, etc. If higher wages are paid by the capitalists, it will cut into their profits, and capitalists will only invest and continue to accumulate capital on the basis of making what they see as acceptable levels of profits.
15. There is ample evidence that Marx considered that the restricted consumption of the working class played a key role in economic crises. “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses, in the face of the drive of capitalist production to develop the productive forces as if only the absolute consumption capacity of society set a limit to them.” (Vol 3, Ch 30, p615) [In some editions of Capital this passage is printed as a footnote by Friedrich Engels, who edited Capital Vols 2 and 3 from Marx’s manuscripts and notes.]
16. Moreover, in Volume 3, Chapter 15, Development of the Law’s Internal Contradictions, Marx explicitly points to the importance of consumption. “The conditions for immediate exploitation [the extraction of surplus value from workers in the production process] and for the realisation of that exploitation [the conversion of surplus value into money-profit through the sale of commodities] are not identical. Not only are they separate in time and space, they are also separate in theory. The former [the extraction of surplus value] is restricted only by the society’s productive forces, the latter [the realisation of profits] by the proportionality between the different branches of production and by the society’s power of consumption… And this is determined… by the power of consumption within a given framework of antagonistic conditions of distribution, which reduces the consumption of the vast majority of society to a minimum level, only capable of varying within more or less narrow limits.” (p352)
17. In the US and other advanced capitalist countries since 1980, workers suffered not only from stagnant wage levels, the result of direct exploitation at work, but their “power of consumption” was restricted by the neoliberal political framework – regressive taxation which exacerbated extreme income inequality, rising costs for education, health and insurance, and more recently the mortgage scams associated with the housing bubble which burst in 2007-08.
18. Marx continues: “It [realisation] is further restricted by the drive for accumulation, the drive to expand capi- tal and produce surplus value on a larger scale.” There is, says Marx, a competitive struggle among capitalists to improve production and extend its scale, as a means of self-preservation. “The market, therefore, must be continually extended, so that its relationship and the conditions governing them assume ever more the form of a natural law independent of the producers and become ever more uncontrollable. The internal contradiction seeks resolution by extending the external field of production. But the more productivity develops, the more it comes into conflict with the narrow basis on which the relations of consumption rests.” (p353) These comments by Marx, in one of the three chapters in Volume 3 dealing with the LTRPF, make it absolutely clear that he regarded the demand for consumer goods as an integral part of the process of reproduction and expansion of capital.
19. Marx undoubtedly regarded recurrent cyclical crises as an inevitable feature of capitalist economy. He refers to “the turnover cycles in which modern industry moves – inactivity, growing animation, prosperity, overproduction, crash, stagnation, inactivity, etc…” (Capital Vol 3, Ch 22, p482)
20. Undoubtedly, Marx regarded the LTRPF as a fundamental feature of capitalist society. The basic contradiction involved in this tendency is that the introduction of new technology, while it raises the productive power of social labour, may at the same time raise the organic composition of capital and lead to a fall in the rate of profit. Marx pointed to the dread with which bourgeois economists like David Ricardo regarded the falling rate of profit. “… their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth but actually comes into conflict at a certain stage with the latter’s further development.” (Vol 3, Ch 15, p350)
21. However, as we have shown, Marx recognised that “the same causes that bring about a fall in the general rate of profit provoke counter-effects that inhibit this fall, delay it in part even paralyse it. These do not annul the law, but they weaken its effects. If this were not the case, it would not be the fall in the general rate of profit that was incomprehensible, but rather the relative slowness of this fall. The law operates therefore simply as the tendency, whose effect is decisive only under certain particular circumstances and over long periods.” (Vol 3, Ch 14, p346)
22. Nevertheless, Marx rejected the idea that under capitalism there would be a continuous rise in the organic composition of capital, and consequentially a continuous fall in the rate of profit. He criticised Adam Smith, who held that view: “When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, overproduction and crises are something different. Permanent crises do not exist.” (Theories of Surplus Value, Part 2, p497) In reality, the Eleven treat the falling rate of profit as a “permanent effect”, as ‘The Law’, as the continuous movement towards breakdown.
23. Marx gave great importance to the LTRPF but he rejected any idea that it provides a monocausal theory of crisis. The interplay of the core tendency of the profit rate to fall as a result of additional capital accumulation, on the one side, and the counteracting tendencies, on the other – not to mention broader social conditions of crisis within capitalism – rules out a monocausal explanation.
24. Regrettably, Marx was unable to complete a worked- out theory of capitalist crisis and business cycles. In his plan for Capital: A Critique of Political Economy, set out in the 1860s, Marx envisaged six books. (Allen Oakley: The Making of Marx’s Critical Theory, p107) Book 4 was ‘the state’; book 5, international trade; book 6, world market and crises. Marx was only able to complete the first book of the plan: Capital. In the three volumes of Capital and other writings, which covered capital, landed property, and wage labour, there are many digressions dealing with crises, but they fall short of a systematic treatment.
25. It is clear, however, that in order to analyse the current situation of world capitalism, and to formulate perspectives for working-class struggle, we have to consider the roles of the state, international trade, and the contradictions of the world market. The sovereign debt crisis (linked to the crisis of the big banks and finance houses) is clearly a major factor in the prolongation of the current world crisis. International trade, particularly the massive imbalances between the surplus and the deficit countries, e.g. US-China, and the distortions of the world currency system, are also a major factor. Another factor is the intense competitive struggle between corporations and national capitalist economies for global markets, fields of investment, commodities, etc.
26. There is no reference to these factors in the document of the Eleven. These factors cannot simply be dismissed as “surface phenomena” or “proximate” (immediate) causes of crisis. They are crucial factors in analysing the global crisis of capitalism. Yet for the Eleven it appears there is no need to analyse these issues, as the LTRPF is sufficient to explain the crisis of 2007/08 and the ‘great recession’ – and to provide a perspective for the next period.
A note on the LTRPF
27. The growth of production increases the demand for workers which tends to push up wages. Under pres- sure of competition, capitalists introduce labour- saving technology, displacing workers, who join the unemployed (the reserve army of labour). This puts further downward pressure on wages. As a result, there tends to be an increase in the organic composition of capital, the ratio of constant capital (means of production, etc.) to variable capital (wages). Constant capital does not increase in value (hence it is constant) but is congealed labour, the product of previous production. Constant capital is steadily used up in the course of production. It is only labour power that creates new value in the production process (hence variable). A rise in the ratio of constant (dead) capital to variable (living) labour tends to bring with it a fall in the rate of profit (ratio of profit to capital employed).
28. However, Marx gives several ‘counteracting factors’. In Volume 3, Chapter 13, Marx says: “The law that the fall in the rate of profit occasioned by the development of productivity is accompanied by an increase in the mass of profit is also expressed in this way: the fall in the price of commodities produced by capital is accompanied by a relative rise in the amount of profit contained in them and realised by their sale.” (p332) In Chapter 14, Counteracting Factors, Marx refers to, among other factors, the more intensive exploitation of labour (which increases the mass of profit), the cheapening of the elements of constant capital through productivity increases (which mitigates the rise in the organic composition of capital in value terms) and, very importantly, the issue of foreign trade. Marx poses the question: “Is the general rate of profit raised by the higher profit rate made by capital investing in foreign trade, and colonial trade in particular?” (p344) “… the same causes that bring about a fall in the general rate of profit provoke counter-effects that inhibit this fall, delay it and in part even paralyse it. These do not annul the law, but they weaken its effect…” (p346)
Bourgeois evidence
29. “Our view [say the Eleven] is that the crisis is primarily due to a persistently declining rate of profit and it is supported by a range of robust and peer review research from reputable sources.” However, the main evidence they present in their document is ‘bourgeois evidence’ from the Shift Index produced by Deloitte, one of the Big Four accountancy and management consultancy firms.
30. Deloitte certainly hype up their own report. They claim that they “discovered that asset profitability (ROA) [return on assets – approximating to the rate of profit] has fallen steadily for the past four decades”. (Shift Index
2010, p8) Their chart, ‘exhibit 6’ (p10), shows a steady downward trend. This is similar to the chart produced by Kliman (The Failure of Capitalist Production, p84/5.5). There is no explanation of the statistical methods by which Deloitte have produced this smoothed-out trend. The graph shows that the ROA has fallen from 4.2 per cent in 1965 to a low of 1.2 per cent in 2009. The trend, in our view, does not correspond to the actual movements of the economy. (See our previous document, The Causes of Capitalist Crisis: A Reply to Andrew Kliman, paragraphs 35-46.) Deloitte themselves admit that their findings have been widely challenged. However, “after questioning and re-questioning our data and our assumptions, we came back to the same conclusions. The downward trend in company performance is accurate; the assumptions are reasonable, and further analy- sis confirms these persistent trends.” (Shift Index 2010, p10) In other words, they have boldly validated their own conclusions!
31. One of the main conclusions of Shift Index 2011 is that “passionate workers” are key to the success of companies: “Passionate workers drive sustained performance improvements, inspire innovation and possess both a ‘questing’ disposition which drives them to seek new sources of knowledge, and a ‘connecting’ disposition which drives them to build relationships within the organisation and outside of its walls to tap into the latest thinking and insights.” (2011, p16)
32. Lack of “passionate workers” leads to a decline in profitability. The answer is obvious. Firms should make use of Deloitte’s management consultancy services. The Shift Index reports undoubtedly give the strong impression of a glorified sales pitch for Deloitte’s consultancy services. Incidentally, one of the factors they give for a sharp rise in business bankruptcies is “financial challenges and skittish consumers”. “Smaller businesses and start-ups are particularly challenged by the limited access to capital and lower consumer spending of this downturn.” (2010, p15)
33. In another piece of ‘bourgeois evidence’ regarding profitability (not referred to by the Eleven), the investment bank, Goldman Sachs, came to very different conclusions from Deloitte’s (The Savings Glut, the Return on Capital and the Rise in Risk Aversion, by Kevin Daley and Ben Broadbent, 27 May 2009). They say in summary that: “In the years preceding the crisis, the global economy was also characterised by rising returns on physical capital…”
34. Surveying the main features of the world economy prior to the onset of the great recession, they write: “There was an increase in the global rate of return on physical capital.” Their data cover the ten biggest economies, covering more than 75 per cent of global GDP. “… we show that the global return on physical capital rose through the 2000s, reaching a record high in 2006 and that, even in the midst of the credit crunch, it remained relatively high.” (p2) Further, “far from declining in line with real bond yields, the global return on capital has trended up over the past decade or so. Even in 2008, by which stage the financial crisis had begun to hit profits materially, the global ROC remained above the long- term average.” (p7)
35. The Goldman Sachs paper shows (figure 3) a strong recovery of profits from the mid-1980s. Thereafter there is a decline down to the mid-1990s, with an oscillation of profits during the subsequent business cycle, but again a strong recovery after 2000 to a peak in 2006. They give more importance in explaining the crisis which broke out in 2007 to the “global current account imbalances [which] increase sharply from the turn of the century until the onset of the credit crunch”, and to the crisis within the financial system. We should, of course, treat this analysis critically, but Goldman Sachs’ picture of profitability corresponds more closely with the actual movements of the world economy than the “persistently downward trend” claimed by the Eleven.
36. There is no point in repeating our comments on the rate of profit statistics given in our previous document. It is ironic, however, that an academic paper cited by the Eleven with reference to profits and investment (J Tapia Granados, Does Investment Call the Tune?, Research in Political Economy, May 2012) includes a table (p18) for US corporate profits 1950-2010 which shows broadly the same trends as the chart given by Michel Husson in his paper, La Hausse Tendencielle du Taux de Profit (The Tendential Rise of the Rate of Profit, January 2010). [See: The Causes of Capitalist Crisis: A Reply to Andrew Kliman, paragraphs 35-46.]
Inequality
37. The Eleven allege that we argue that “the crisis was caused by rampant inequality, falling wages, massive increases in consumer debt and a lack of demand for capitalist goods and services”. We do not argue that these factors are the cause of the crisis, which arose from the decline of profitability at the end of the post- war upswing and the turn by the capitalists to financial speculation. But we do argue that these developments have enormously exacerbated the contradictions in present-day capitalism, making it much more difficult for the capitalist class to find a way out of the current crisis.
38. Neoliberal policies over the last 30 years have produced extreme inequality in the US and other major capitalist economies. In the US, wage stagnation has been reflected in the stagnation of household in- comes, despite more women working and workers working longer hours.
39. Consumer spending grew, despite stagnant incomes, and accounted for around 70 per cent of US GDP. However, this was based on a flood of credit, resulting in a steady accumulation of debt which ultimately became unsustainable. Securitised mortgages (with tax breaks) linked to the house-price bubble was a significant source of consumer spending – increased housing equity was used as collateral for more and more credit.
40. The stagnation of working-class incomes clearly restricted the purchasing power of the working population, which would have been higher on the basis of a more equitable distribution. High income earners do not spend such a high proportion of their incomes as working people – they save it and invest in property and financial assets.
41. “In the United States, the top 1 per cent of the population doubled its share in national income from around
8 per cent in the mid-1970s to almost 16 per cent in the early 2000s. That eerily replicated the situation that existed just prior to the crash of 1929, when the top 1 per cent reached its previous high water mark.” (Branco Milanovic, The Haves and Have-Nots, 2011, p193)
42. “The real median wage in the United States has been stagnant for 25 years, despite an almost doubling of GDP per capita. About one half of all real income gains between 1976 and 2006 accrued to the richest 5 per cent of households.” (Milanovic, p194)
43. “The surge in consumption was based on an increase in household debt, from 48 per cent of GDP in the early 1980s to 100 per cent of GDP before the crisis.” (Milanovic) Household debt as a share of disposable income rose from around 60-70 per cent in the mid-1960s to 130 per cent by 2007.
44. The shift in income distribution was based on a shift in the balance of social forces in society. Relations developed during the New Deal and the second world war, “such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality”. (Emmanuel Saez, Striking it Richer: Evolution of the Top Incomes in the US, 5 August 2009, p4 – see also 23 January 2013 update)
45. If the top 5 per cent are taken out of the calculation, the debt-to-income ratio for the bottom 95 per cent rose from under 80 per cent in 1989 to 150 per cent in 2007. (Barry Cynamon and Steven Fazzari, Inequality and Household Finance During the Consumer Age, Levy Economics Institute, February 2013)
46. Cynamon and Fazzari estimate that “about 8 per cent of aggregate demand was based on unsustainable borrowing of households in the bottom 95 per cent of the income distribution… Much of the growth of demand since the mid-1980s was generated by the unsustainable lend-and-spend dynamic of the consumer age that presumably has been lost.” (p19) “The growth in debt accelerates dramatically after 2000, entirely due to the rapid rise in mortgage debt.” (Cynamon)
47. “… Stagnant real-wage growth for the majority of the working population [in the US] has translated into no or slow growth in household real income for the majority of households.” (Mark Setterfield, After the Great Recession [ed. Cynamon], 2013, p168)
8. This information on income distribution and debt show the way in which the “power of consumption” of US workers “within a given framework of antagonistic conditions of distribution” has been more and more limited in the recent period. The living standards of the majority of workers have not yet been driven down to the desperate levels of the 1930s, but they have been drastically eroded from the relatively comfortable levels of the 1960s.
Corporate profits and cash piles
49. The Eleven criticise our analysis of surging corporate profits in the advanced capitalist countries (ACCs) and the huge cash piles accumulated by many of the big companies. They “don’t reject” our figures, but say the “idea that the capitalists are sitting on cash piles doesn’t match up with the facts”. Corporate cash reserves, they claim, are outweighed by piles of debt. However, the main burden of debt in the US and other ACCs is carried by the public sector and the household sector. The commercial property sector and the small and medium business sector both carry a burden of debt. Moreover, some of the big corporations, while they are hoarding cash, are also borrowing money at cheap rates in order to pay for investment and particularly for hand-outs to their shareholders (through dividends and share buy- backs). Apple is a prominent example.
50. Yet a cursory reading of capitalist media, such as the Financial Times, New York Times, Reuters, Bloomberg, etc., will show regular comments on the surge of corporate profits, on the one side, and the weakness of ‘capex’, that is, capital investment in new plant, machinery and technology, on the other.
51. We quoted Reuters and other sources in Socialism Today (No.158, May 2012): “‘Everybody knows that companies worldwide are sitting on cash, generating cash and have the capacity to borrow yet more. But where will it go? The optimistic answer would be into the real economy. The reality is probably into mergers, acquisitions and [share] buy-backs.’ (Reuters, Breakingviews, 3 April 2012)
52. “In the UK, non-financial companies are estimated (by accountants Deloitte) to be holding £731.4 billion (Q3 2011), the highest level on record. (Press release, 7 February 2012) As with other countries, this figure does not include cash held in offshore accounts to avoid taxation at home. This hoard is six times bigger than total UK business investment for 2011 (£118 billion). One example is Rolls Royce, one of British capitalism’s most successful companies. ‘Like much of corporate Britain, Rolls Royce has been piling up money for a rainy day. At the end of 2010 it had £2.9 billion in cash stashed away. Its net cash (i.e. excluding debt) rose to £1.5 billion last year, equivalent to around 15% of revenues.’ (The Economist, 19 May 2011)
53. “The same magazine comments: ‘British firms in aggregate have been spending less than they earn for most of the past decade. Saving has increased since the financial crisis struck: at the end of last year the corporate funds left after capital spending, tax, interest and dividends reached 6.2% of GDP… Companies are meant to be repositories of peoples’ savings, but instead have been huge savers themselves’.”
54. Cash hoards in the EU are estimated to be around €2 trillion, while in the US they were at least $2 trillion, not including the huge amounts of cash held overseas by many US companies’ foreign subsidiaries.
55. “Japanese companies’ liquid assets have soared by around 75 per cent since 2007, to $2.8 trillion… [Canadian companies hold] nearly $300 billion in cash…” (The Economist, 3 November 2012)
56. The surge in corporate profits goes against the Eleven’s preconceived conception of a persistent fall in the rate of profit. They are unable to accept the reality, consistently reported in the financial press. Moreover, they argue in their document that profits spur investment (contrary to the Keynesian theory that increased investment drives profits). While it is true that profits are generally the motivating force for capitalist corporations, it does not follow that high profits will under all conditions lead to increased investment. The current conjuncture is clearly unusual, as is recognised by a number of capitalist commentators. For instance, James Saft (Reuters columnist, carried in the Interna- tional Herald Tribune, 17 July 2013) comments on the “bizarre behaviour of corporations during the most recent recovery in profits, which took them into nose- bleed territory. Basic economic theory holds that companies, which on the whole like to make more money, invest in new production when their margins and profits are high. That simply did not happen this time around, which is perhaps why job growth really be- came solid only once housing began to bubble again.”
57. Quoting a financial assets manager, Robin Harding (Financial Times, 24 July 2013) comments that: “Profits and overall net investment in the US tracked each other closely until the late 1980s, with both about 9 per cent of gross domestic product. Then the relationship began to break down. After the recession, from 2009, it went haywire. Pre-tax corporate profits are now at record highs – more than 12 per cent of GDP – while net investment is barely 4 per cent of output. The pattern is similar, although less stark, when looking at corporate investment specifically.”
58. “This change,” he comments, “is profoundly odd. Economic theory says investment is driven by profitable opportunities on one side and the cost of capital on the other. High profits suggest there are decent opportunities to make money; historic lows in interest rates and highs in the stock market mean that capital is dirt cheap. Yet investment does not follow.” In 2012, for instance, Apple reinvested only about 20 per cent of its cash generation within the company, and made a record company bond issue to pay for a $50 billion buy-back of its own shares.
59. In September, the Financial Times welcomed the revival of share prices which followed the renewal of the Federal Reserve Bank’s quantitative easing programme and the increase in corporate mergers and acquisitions. “Companies on both sides of the Atlantic are still awash with liquidity. Cash on UK balance sheets stand at about £670 billion, or some 50 per cent of gross domestic product. In the US it is about $1.8 trillion. Companies’ miserliness has been a product of their lack of confidence in the level of demand and consequent concern about equity [share prices] values.” (Editorial, The Mega Deal Makes a Comeback, 5 September 2013)
60. Many sectors of existing markets are currently over- supplied given the levels of money-backed demand, and this especially applies to the electronic goods market which is near saturation in many markets. In many sectors there is global overcapacity, intensive competition (which weakens ‘pricing power’) and limited money-backed consumer demand. Corporate bosses and investors do not believe that the extensive development of new markets would bring them sufficient extra profits to justify the extra investment. Moreover, the capitalists are clearly fearful of further upheavals in the global economy, given the euro crisis, the sovereign debt crisis, ‘geo-political threats’ (e.g. war in the Middle East, threats to oil and gas supplies, etc.), the growth of protectionism, the continued imbalances between the major economies, and a whole catalogue of other intractable problems.
61. “When capitalism is profitable,” say the Eleven, “it should be a sign that it is healthy.” But this is not true under all conditions. Global capitalism is far from healthy!
62. The problem for the Eleven is they have a schema that does not match reality. They say there is a continuous decline in the rate of profit: so how can there be a surge in corporate profits? They say high profits lead to increased investment: so why are the cash hoards tied up in financial assets and not invested in manufacturing and the development of new markets? Their abstract schema has rendered them incapable of analysing economic reality and its political repercussions.
The profits squeeze analysis
63. For the Eleven, the LTRPF – narrowly interpreted by them as ‘The Law’ – is the fundamental cause of capitalist crisis. Other possible causes are dismissed as merely “proximate” (immediate) causes. Thus they scornfully dismiss restricted demand, that is, insufficient money-backed demand to valorise existing capital or to realise the surplus value created in production, as “under-consumptionism”, which is like a dirty word in their dictionary.
64. It is not surprising, therefore, that they reject the theory – advocated by Andrew Glyn among others – that the decline of profitability in the late 1960s and 1970s was due to an over-accumulation of capital in relation to available labour supply. Owing to the strength of the working class in that period, under conditions of virtually full employment and strong union organisation, which gave rise to extensive militant strike waves, there was a fall in the profit share (share in the value of output) and a corresponding increase in the share of output taken by wages. This phenomenon is known as a ‘profits squeeze’. Because they will admit to no other cause but ‘The Law’, the Eleven dismiss this analysis out of hand.
65. They claim that Andrew Glyn substituted his own theory of over-accumulation for a Marxist theory of crisis based on ‘The Law’. Andrew’s theory was a heresy, a false doctrine, that the leaders or some of the leaders of the Socialist Party are supposed to have adopted!
66. Marx, however, was much less dogmatic than the Eleven. He recognised that even the most fundamental theory, when applied to reality, is bound to have variants. He recognised (Capital, Vol 1, Ch 25, The General Law of Capitalist Accumulation, and in Vol 3) that, under certain conditions, the strength of the workers could produce a profits squeeze. Drawing theoretical conclusions from the capitalism of his own time, Marx did not consider such a development to be the most likely course of events. Clearly, if the expansion of capital leads to a labour shortage, wages will rise. However, the capitalists will then invest in labour-saving equipment and raise productivity, thus displacing some of the workforce. This will increase unemployment, swelling the reserve army of labour, which will tend to depress wage levels. Increased investment in capital equipment, however, will lead to a rise in the organic composition of capital, and subsequently (counteracting factors aside) a fall in the rate of profit.
67. Yet Marx (Vol 1, Ch 25) outlines a different variant, though not the most typical in that period. He refers to the cyclical formation, greater or lesser absorption and reformation of the reserve army of labour (the unemployed). Sometimes, he says, the labour market is relatively undersupplied. Marx clearly regarded the over-accumulation of capital in relation to the work- force as an exceptional circumstance, but nevertheless presented it as one possible trend. He clearly regarded it as a development over a relatively short period. However, the post-war upswing (1950-73) was an exceptional period prolonged for 25 years – with near full employment, when the balance of forces was for a time tipped in favour of the working class in Britain and other ACCs. Internationally, the Stalinist states acted as a counterweight to capitalism. Furthermore, Marx assumes that under certain conditions there can be a stable organic composition of capital, where investment is largely of an extensive, broadening character rather than intensive (that is, spreading existing production techniques wider rather than accelerating the development of more advanced production based on new technology).
68. Marx (Vol 1, Ch 25, p790) says that wages are exclusively regulated by the reserve army of unemployed. At the height of the post-war upswing capitalism in many of the ACCs was in the position of having mostly used up its reserves of labour (women workers, small farmers, small business-people) and was restricted by social/political limits to continued immigration. This gave rise to a shortage of labour, and wages consequentially rose.
69. In the prosperity phase (up until the mid-1960s), there was a favourable cycle of investment and productivity gains which simultaneously allowed high profits and relatively high wages. However, the slowing down of productivity growth led to a crisis. Because of the strength of the workers at that stage, the wage share increased – and the profit share decreased – a profits squeeze. The profit share is one determinant of the profit rate and, under conditions of weak output growth and sales, a fall in the profit share will pull down the rate of profit.
70. Andrew Glyn showed (in collaboration with Bob Sutcliffe, British Capitalism, Workers and the Profits
Squeeze, and John Harrison, The British Economic Disaster) that the profits crisis of British capitalism and other major ACCs was due to a profits squeeze. Their data show that the share of profits in company net output 1950-70 (per cent) steadily declined: from 25.2 per cent between 1950-54 to 12.1 per cent in 1970. (Glyn and Sutcliffe, p58)
71. Figures for the ACCs (1953-72) show that “the mass of capital operated by each worker has not systematically grown faster than the productivity of labour in the post-war period. Thus the cost of means of production in terms of the labour time required to produce them (or to put it another way, the value of capital operated by each worker) has not generally increased.” (Glyn and Harrison, p176) These figures show that there was not a significant rise in capital stock (constant capital) that would have generally raised the organic composition of capital (that is, increasing constant capital rela- tive to variable capital – wages) in that period.
72. Manufacturing profit (1951-77) for the ACCs sharply declined. In the case of Britain, for instance, manufacturing profit as a percentage of value of output declined from 30.8 per cent in 1951 to 4.7 per cent in 1975 and 9.6 per cent in 1977. (Glyn and Harrison, p177)
73. “Considering the profits of the whole company sector, excluding those earned overseas, while valuing capital at current prices, we find that the rate of profit fell from 11 per cent in 1964 to 8.8 per cent in 1967, 6.8 per cent in 1969 and 5.8 per cent in 1970.” (Glyn and Sutcliffe, p66)
74. Some would-be Marxists argue that attributing the crisis in the 1970s to a profits squeeze – the counterpart of an increase in the share of wages – is tantamount to blaming the workers for the crisis. However, the workers only enjoy periods of relative prosperity as a phase in the cycle of capitalism, which inevitably leads to further periods of crisis and privation for the working class. The post-war upswing was an exceptional period of growth of capitalism but, as we predicted, it inevitably collapsed through its inner contradictions.
75. (For a fuller explanation of the crisis of profitability from the mid-1960s through the 1970s, see Lynn Walsh: What Are the Causes of the Current World Capitalist Crisis? Socialism Today No.40, July/August 1999.)
76. Despite the clear evidence in Capital that Marx ac- cepted that, under certain conditions, there could be over-accumulation of capital in relation to labour supply, the Eleven allege that Andrew Glyn substituted his own theory for Marx’s theory of crisis based on ‘The Law’. They quote Andrew as saying: “The explanation [of crisis] based on the LTRPF is wrong.” However, what Andrew Glyn actually says is: “The explanation for the general fall in the rate of profit from the mid-1960s cannot therefore be the operation of the LTRPF.” (Glyn and Harrison, p176) In other words, the profits squeeze explanation is being applied to the period between the mid-1960s and 1980 when the British Economic Disaster was written. Moreover, Glyn and Harrison go on to say: “The explanation based on the LTRPF is in our view wrong. But is nevertheless based on an important and correct notion at the centre of Marxist thought, and absent from some accounts of the profits squeeze: the idea that the root of the problem is too much accumulation.” (p177) This does not appear to be a sweeping dismissal of Marx as ‘wrong’, but an application of theoretical comments by Marx to the peculiar situation of the late post-war upswing.
77. In our view, the profits squeeze analysis explained the crisis of profitability that developed at the end of the post-war upswing. It was valid for that particular conjuncture. We do not consider, however, that the profits squeeze analysis is a general theory of crisis that invalidates the LTRPF.
78. The closing phase of the post-war upswing (characterised by ‘stagflation’) came to an end after 1980 with the Thatcher-Reagan ‘counter-revolution’, which introduced neoliberal policies based on the deregulation of financial markets, privatisation of state companies, attacks on social spending, and an assault on trade union organisation and rights. Above all, the changes led to the appearance of mass unemployment, which undermined the bargaining strength and wages of the working class. There was a process of deindustrialisation in the ACCs and offshoring of manufacturing to cheap-labour economies abroad. This completely changed the situation – self-evidently, the profits squeeze analysis no longer applied to capitalism in this new period.
79. The Eleven claim they are defending the Marxist cat- egory of the LTRPF. However, they have turned it into a rigid, categorical imperative, with more in common with Kant than Marx. Their doctrinaire method has nothing in common with Marxist method. If Marx were still around to see this ‘orthodoxy’, he would once again comment: “All I know is that I am not a Marxist.”
The nationalisation of the banks
80. The Eleven claim that, as a result of being infected by the profits squeeze ‘heresy’, we have “partially adopted” some of the reformist ideas that Andrew Glyn adopted after he left us and moved away from Marx- ism. Andrew (as the Eleven say) was the author of an excellent pamphlet published by Militant in 1978 (and reprinted in January 1983): Capitalist Crisis: Tribune’s ‘Alternative Economic Strategy’ or Socialist Plan? Based on the position of Militant, the pamphlet criticised the reformist programme of the AES and put the case for a socialist plan. The AES called for nationalisation of the banks and selective nationalisation and planning agreements for industry. On the other side, the Militant pamphlet called for a state monopoly of credit and nationalisation of the monopolies, and a socialist plan of production. Our position on this has not changed, though of course the formulation of our demands may vary according to conditions.
81. After Andrew left us, he moved to a left-reformist posi- tion. In 1985 Andrew wrote a pamphlet for the Campaign Group of Labour MPs – A Million Jobs a Year: The Case for Planning Full Employment. The pamphlet argued for the nationalisation of the banks but, with regard to industry, it argued for ‘planning agreements’, price controls, import controls, etc. This was re- viewed in our magazine, Militant International Review (Spring 1987), by Bob McKee. He correctly contrasted the flawed case for planning agreements with the big corporations to the case for socialist planning put in Andrew’s earlier, Militant pamphlet, Capitalist Crisis. The review in the MIR put our common position and we would make the same criticisms of the reformist case for ‘controlling’ private industry today. (Subsequently, Bob McKee left us and became an adviser to City financiers.)
82. Now the Eleven are trying to claim that we have a similar position to the one outlined by Andrew Glyn in A Million Jobs a Year. According to the Eleven, Lynn Walsh “believes that the banks should be nationalised first, and this would ‘unavoidably pose the question’ of nationalisation of the rest of the economy after an undefined amount of time”.
83. This is a ludicrous misrepresentation, a wilful distortion of our actual position. In a review of Paul Krugman’s book, A Way Out of Depression?, Lynn Walsh took up Krugman’s call for a Keynesian-type stimulus for the US economy: “A programme to provide jobs and stimulate growth would require the mobilization of the working class. Moreover, increased taxation itself will not be sufficient to develop the economy. The dramatic raising of the living standards of the majority of the population would require the resources (additional real wealth) created by increased production.
84. “The banks and finance houses would have to be nationalised (not bailed out and propped up at public expense), and run under democratic workers’ control and management. This would ensure the credit required to develop all sectors of the economy. There would also have to be capital controls to prevent any flight of capital. Such measures would undoubtedly meet the entrenched resistance of the capitalist class. State intervention in favour of the working class would unavoidably pose the question of the takeover of the commanding heights of the economy, to form the basis of a democratic plan of production (run by elected representatives of the workers and the wider community).
85. “Any government carrying out such a policy would need an international perspective, collaborating with the workers’ movement in other countries to develop socialist planning at an international level.” (Socialism Today No.161, September 2012)
86. The banks are brought to the fore because they were at the centre of the financial crisis that broke out at the end of 2007 and triggered a slump in the world economy. There was – and still is – furious anger at the role of the banks and at the huge bailouts at the public’s expense. Nationalisation of the banks “would unavoidably pose the question of the takeover of the com- manding heights of the economy, to form the basis of a democratic plan of production”. Where is the reference to “first” nationalising the banks, or to nationalisation of the commanding heights “after an undefined amount of time”?
87. Another quote from an article by Lynn Walsh (Spain: Bank Bailout Can’t Stop Euro Death-Spiral, The Socialist No.722, 13 June 2012) calls for taking over the banks “for a start”, as “the first step towards the socialist planned economy…” This does not in any way imply stages, where one stage has to run its course before we can move on to further measures.
88. Our approach has nothing in common with the position put forward by Andrew Glyn in A Million Jobs a Year, where he argues that the limited effectiveness of planning agreements would demonstrate the “eventual necessity of the full implementation” of nationalisation
of the commanding heights. This would come after “discussion and evaluation” through “the process of struggling to shape the development of the economy”.
89. We agree with Andrew Glyn’s analysis of the ‘profits squeeze’ during the period of the late 1960s and 1970s (though not as an alternative in general to Marx’s LTRPF). But this does not mean that we agree, or have ever agreed, with Andrew’s ideas after he left us, moving away from Marxism and adopting left-reformist ideas.
90. For instance, in Socialism Today (No.105, November 2006), we carried a review by Lynn Walsh of Andrew Glyn’s Capitalism Unleashed (2006). The review com- ments on some of the excellent material in the book on the global economy under neoliberalism. At the same time, it is critical of some of the analysis and conclusions (or lack of conclusions). For instance, Andrew questioned whether the situation in that period could be considered as a ‘crisis’ for capitalism. Taking this up, we wrote: “… We have to look beyond the present conjuncture, recognising that the current system of politico-economic relations (the prevailing neoliberal regime) will not last indefinitely, and is in fact preparing its own downfall.” “… Capitalism Unleashed does not give sufficient weight to the catalytic elements of future crises.”
Financialisation
91. On the issue of financialisation and neoliberalism, the Eleven say there is “nothing new”, “despite the ram- pant growth” of finance. Financialisation is merely the continuation of a long-term trend, not in any way a new phase or stage in the development of capitalism. This goes together with their view, based on their doctrinaire interpretation of LTRPF, that there was no recovery in profits after the early 1980s trough – during the period when the capitalists of the US, Britain, etc., turned towards anti-working-class neoliberal (ultra- free-market) policies. They claim there is solid factual evidence for their view, but (as we have shown in our earlier document) the available data overwhelmingly show a partial recovery of profits after the early 1980s trough.
92. The Eleven are correct, of course, in saying that financialisation and neoliberal trends have not fundamentally changed the character of capitalism. However, they are incorrect in dismissing these trends as merely “surface features”, merely the stocking up of “fictitious” capital. 93. The sheer scale of the growth of finance capital indi- cates there has been a change in the form of capitalism. For instance, in The Trillion Dollar Meltdown (2008), Charles Morris wrote: “World GDP has increased spectacularly over the past 25 years, but nothing like the explosion of credit. The total of global financial assets [stocks, bonds, loans, mortgages, etc.], which essentially are claims on GDP, was about the same as global GDP in the early 1980s. At the end of 2005 [shortly before the beginning of the great recession], according to recent IMF fund analysis, global financial assets were about 3.7 times as high as global GDP. In other words, outstanding financial claims not only covered this year’s GDP, but the next several years’ as well. Financial derivatives, which represent claims on financial instruments, were a relatively rudimentary market in the 1980s. Their notional value by the end of 2005, however, was three times higher than the total of all financial instruments, and more than ten times higher than total global GDP.” (134-135) (Based on: Global Financial Stability Report, IMF, April 2007)
94. This is more than just a “surface feature”. Quantity changed into quality. Moreover, the global money supply also increased exponentially from the beginning of the 1980s to the present time.
95. Our analysis has been based on a recognition that the huge expansion of credit – combined with setbacks and retreats of the workers’ movement – allowed the capitalist class to postpone a deep global crisis for some time (though there was a succession of regional and partial crises). However, we always warned that the bubble would burst, that there would be a collapse of the financial sector which would provoke a major crisis for capitalism. There was never any question for us that the development of finance could overcome the underlying problems of accumulation of capital. From the time of the Asian currency crisis in 1997, in particular, we predicted that the world capitalist economy, through a series of crises, was moving towards a major downturn.
96. It is, however, pure doctrinaire blindness on the part of the Eleven not to recognise that there was a major turning point for world capitalism around 1980. From the late 1960s there was a decline in profitability and the emergence of stagflation (inflation combined with high unemployment) in the 1970s. On the basis of the new trends within capitalism, Thatcher in Britain and Reagan in the US, followed by other bourgeois leaders internationally, launched an assault on the features of the previous period (progressive taxation, high social spending, recognition of union rights, etc.). The US Federal Reserve under Paul Volcker implemented ‘monetarist’ policies, to squeeze out inflation, mas- sively increasing unemployment during the early 1980s. Under neoliberal policies, capitalist govern-ments launched an assault on working-class living standards and rights. They facilitated the growth and increasing dominance of finance capital through de- regulation of the finance sector, privatisation of state industries, and globalisation, which involved the transfer of big sectors of manufacturing production to low-cost economies (China, South-East Asia, Brazil, etc.).
97. These trends were massively reinforced by the collapse of the Soviet Union and other Stalinist states after 1989. This led to a weakening and political disorientation of the workers’ movement (which we have analysed many times), which allowed the bourgeoisie to carry through a counter-revolution against the working class. To dismiss these profound changes as “surface features” is frankly ludicrous.
98. The piling up of financial assets is dismissed by the Eleven as a mere accumulation of “fictitious capital”. But whether the assets of the financial sector are de- rived from the profits of production or profits made purely through financial speculation, they all represent a potential claim on the wealth produced. Moreover, through globalisation of finance, a share of these financial assets have been used in the transfer of production and technology to semi-developed economies like China, Brazil, etc., accelerating the industrialisation of those countries and the emergence of stronger working-class forces. The balance of the global economy has changed dramatically since the early 1980s.
99. The Eleven categorically reject the idea of “a new stage in the development of capitalism”. Does that mean that they reject Lenin’s characterisation of imperial- ism at the time of the first world war as a new stage in the development of capitalism? Lenin did not see the development of capitalism purely as the secular (long- term) unfolding of abstract economic trends. In his introduction to Nikolai Bukharin’s book, Imperialism and the World Economy (1915), Lenin wrote that the problem of imperialism “is the most essential problem in that realm of economic science which examines the changing forms of capitalism in recent times”. Each period of capitalism is characterised by “a system of economic relations”, which goes through a period of formation, development and crisis. Lenin refers to the need to examine imperialism “as a definite stage in the growth of most highly developed capitalism”. Incidentally, Lenin’s own book, Imperialism: The Highest Stage of Capitalism, originally carried the subtitle: ‘The Newest Stage of Capitalism’. It was never called the final stage of capitalism, as some of our critics seem to think. He underlines the importance of analysing the change between the comparatively “peaceful capital- ism” of 1871-1914, on the one side, and the new epoch of imperialist conflict, “full of sharp abrupt changes, catastrophes, conflicts…”
100.Recognition of new forms of capitalism, however, does not mean that there has been a fundamental change in the character of capitalism as a system of exploitation. While recognising a new stage in the development of capitalism, Lenin writes: “This change was caused by nothing but the direct development, growth, continuation of the deep-seated and fundamental tendencies of capitalism and production of commodities in general.” Capitalism today is still capitalism. But it would be foolish not to recognise the different forms of capitalism represented by the ‘Keynesian’ features of the post-war upswing, on the one side, and the neoliberal features of the last three decades, on the other.
101.The Eleven say that ‘financialisation’ has been dreamed up by Keynesian economists. It is, however, a real phenomenon, and it would be foolish to base ourselves exclusively on authors with whom we can completely agree. For instance, Lenin drew on the study of JA Hobson (Imperialism, 1902), commenting: “Hobson’s book on imperialism is useful in general, and especially useful because it helps to reveal the basic falsity of Kautskyism on this subject.” (Lenin: Note- books on Imperialism, Collected Works, Vol 39, p116) Lenin did not, of course, share Hobson’s social-liberal views (Hobson anticipated some of the reformist ideas of Keynes).
102.The Eleven are claiming that we see the current crisis as a purely financial crisis. That means (according to them) that we advocate a return to more rigorous state regulation of the banks and the finance sector generally. We even call for the nationalisation of the banks, but not (according to them) the nationalisation of the commanding heights of the economy. The logic (according to them) is that, if finance is the cause of the problem, taking over the financial sec- tor will overcome the crisis. They are accusing us, it seems, of fighting against the financial system and its political allies, but not fighting against capitalism itself.
103.This is clearly not our position, as anyone who reads our material without prejudice would know. We have criticised those reformists, many basing themselves on neo-Keynesian ideas, who see neoliberal developments as primarily a question of policies implemented by governments basing themselves on ultra-free-market policies. Some undoubtedly advocate a return to the policies of the post-war upswing, completely failing to understand that neoliberal developments and the dominance of the finance sector arise from trends within capitalism. They are reinforced and institutionalised by policy, but combating the free-market offensive of capitalism requires much more than a change in policy. Many in the Occupy movement, for instance, are for a fight against the banks and finance houses, but do not at the moment see the need to overthrow capitalism.
104.That is clearly not our position. We stand (as explained elsewhere) for the nationalisation of the banks and the nationalisation of the commanding heights of the economy as the basis for a socialist planned economy.
105.“Neither can it [the cause of the crisis] be found in the financial/credit system”, they say, although conceding that “Marx did accept the possibility of limited monetary crises.”
106.The 2007-09 crisis and its aftermath (still continuing) was clearly provoked by a financial crisis – a convulsion of the banking and finance sector. Obviously, the financial crisis ultimately arose from the underlying crisis of accumulation, including the decline of profits in the 1970s which provoked the capitalists’ turn towards finance. But for over two decades the finance sector played a dominant part in the Anglo-Saxon economies and many other advanced and semi-developed capitalist countries.
107.In a footnote to Capital Volume 1 (Ch 3, p236), Friedrich Engels distinguishes between a monetary crisis that arises during a general industrial and commercial crisis, on the one hand, and the “special sort of crisis” that “may appear independently” and affect “industry and commerce by its backwash”.
108.“The monetary crisis, defined in the text as a particular phase of every general industrial and commercial crisis, must be clearly distinguished from the special sort of crisis, also called a monetary crisis, which may appear independently of the rest, and only affects industry and commerce by its backwash. The pivot of these crises is to be found in money capital, and their immediate sphere of impact is therefore banking, the stock exchange and finance.”
109.The collapse of the US housing bubble, which was linked to the speculative financing of mortgages, triggered a crisis throughout the whole finance sector. The collapse of Lehman Brothers led to a seizing up of credit within the banking and shadow-banking systems. This was clearly a “special sort of crisis”. The severe credit squeeze spread to the whole economy and triggered an economic downturn. Given the global reach of the US finance sector and the weight of the US economy, this provoked a global downturn.
110.In Volume 3 (Ch 15, p363) Marx describes the effect of a breakdown in the credit system: “This disturbance and stagnation paralyses the function of money as a means of payment, which is given along with the development of capital and depends on those presupposed price relationships. The chain of payment obligations at specific dates is broken in a hundred places, and this is still further intensified by an accompanying breakdown of the credit system, which had developed alongside capital. All this therefore leads to violent and acute crises, sudden forcible devaluations, an actual stagnation and disruption in the reproduction process, and hence to an actual decline in reproduction.”
111.This passage clearly applies to the crisis of 2007/08, when the chain of payment obligations broke in a hundred places, accompanied by the breakdown of the credit system, leading to violent and acute crises, and actual stagnation and disruption of the reproduction process…
112.Incidentally, Marx also comments that it is not only within the production process that workers can be exploited (through the extraction of surplus value from their labour power), but also in the sphere of consumption. Workers, Marx says, can be swindled in the realm of consumption: “This is secondary exploitation, which runs parallel to the primaryexploitation taking place in the production process itself.” (Capital, Vol 3, Ch 36, p745) Undoubtedly, many, many workers were swindled through the development of the housing bubble and the scams associated with subprime mort- gages. Tens of thousands have subsequently lost their homes as a result.
113.Under certain conditions, capitalist crises can be provoked by external events, such as wars or oil price rises (e.g. in 1973). It cannot be ruled out, moreover, that a global economic crisis could be triggered by a default
of the US government as a result of its dysfunctional political system. Undoubtedly, all such external events can be traced back to economic causes, but it is vulgar Marxism to reduce every event, every conflict, to immediate economic causes. Internal (endogenous) forces interact with external (exogenous) forces to stimulate economic upswing or to produce crises.
114.Why do the Eleven insist that the source of capitalist crisis “is to be found in production and only in production”? Is it not because, for them, the only cause of crisis is ‘The Law’ – and no other cause – which operates through the production process? No other explanation is necessary or can be allowed to undermine ‘The Law’.
Conclusion
115.At the beginning of their document, the Eleven assert the need for correct short-term and long-term perspectives based on an examination of economic evidence. On the falling rate of profit, however, they present no evidence apart from Deloitte’s suspect graph (and they make no comment on our criticism of Andrew Kliman’s figures in our previous document, The Causes of Capitalist Crisis, paragraphs 35-46). Leaving this aside, the sections of their document on perspectives are among the most muddled and mistaken in the whole document.
116. Part of their argument is based on a verbal quibble. Characterising the current period as one of “low growth” is, according to the Eleven, all right; characterising it as a period of “stagnation” is not. (Among other things, they falsely claim that we argue that the stagnation is caused by an excess of uninvested profits. What we actually argue is that uninvested corporate profits are a sign that the corporations are limiting themselves to existing markets, and cannot extensively develop into new markets on the basis of satisfactory levels of profit. This situation reflects the overcapacity and the limits of money-backed consumer demand internationally.)
117.According to the Eleven, our “stagnationist” position puts us in the same camp as Karl Kautsky, one of the reformist leaders of the German social democracy in the 1930s, who, they say, believed that “stagnation was the deciding factor in changing consciousness”. This has never been our position. We have always recognised that it is events, sudden turns and changes, and mass struggles, which lead to changes in consciousness and the radicalisation of different layers of the working class.
118.The immediate period ahead is likely to be one of slow growth, continued high unemployment, and government-imposed austerity. However, in our publications and documents we have always advanced conditional perspectives, with possible variants. For instance, in an article on the euro crisis, under the subheading
‘Another Slump?’, we wrote: “In fact, world capitalism faces a prolonged period of stagnation with, at best, a weak cycle of limited growth or, at worst, another slump even deeper than 2007-2008.” (Lynn Walsh, Socialism Today No.154, December/January 2011/12)
119.This, however, is not good enough for the Eleven. Only the sure and certain promise of the collapse of capital- ism provided by the LTRPF – ‘The Law’ – can inoculate Marxists against the dangers of reformism. This is the basis of their ultra-left rejection of transitional demands and the transitional programme (dealt with in our previous document).
120.Because we do not accept their monocausal interpretation of ‘The Law’ as the fundamental driver of capitalist crisis, we are condemned for having a multi-causal conception of crisis – and, once again, we are lumped together with Kautsky. We have nothing in common with Kautsky, who abandoned genuine Marxism in favour of reformism; and, with the outbreak of the first world war in 1914, sided with his own ruling class against the workers of the world, and opposed the October revolution in 1917.
121.As explained in this document, we fully accept LTRPF as an important tendency within capitalism, one which expresses the ultimate limitations of the capitalist mode of production. However, we do not accept a monocausal interpretation of the LTRPF as an invariable law, the sole significant cause of capitalist crises.
122.The LTRPF and its interplay with counteracting factors show the possibility of crisis. As with other potential causes (e.g. overproduction/restricted demand), the conversion of the possibility of crisis into actual crisis, especially a generalised crisis of the system inter- nationally, takes place through a series of contradictory processes. No doubt they are all interrelated, and could be traced back to deeper causes but, as Engels points out, the economic data required to reveal the underlying economic relations only become available long after the events themselves have unfolded.
123.He wrote: “If events and series of events are judged by current history, it will never be possible to go back to the ultimate economic causes. Even today, when the specialised press provides such rich material, it still remains impossible even in England to follow day by day the movement of industry and trade on the world market and the changes which take place in the methods of production in such a way as to be able to draw a general conclusion for any point in time from these manifold, complicated and ever-changing, factors, the most important of which, into the bargain, generally operate a long time in realms unknown before they suddenly make themselves forcefully felt on the surface. A clear overall view of the economic history of a given period can never be obtained contempora- neously, but only subsequently, after the material has been collected and sifted. Statistics are a necessary auxiliary aid here, and they always lag behind.” (Friedrich Engels, Introduction [1895] to Karl Marx’s The Class Struggles in France 1848 to 1850, Marx and Engels Collected Works, Vol 27, p506)
124.Today, there is undoubtedly much more data available but, at the same time, the world economy is much more complex than in the time of Marx and Engels, and Engels’s essential point remains valid. For instance, how is it possible to calculate the organic composition of capital in corporations that span many countries with very different levels of productivity and wage costs? Or reliably calculate a global rate of profit?
125.We have to base our perspectives on an analysis of the contradictions in capitalism at different levels: economic, social and political. Our perspectives take ac- count of the contradictions in global economic, political and strategic relations.
126.We have, in our view, accurately analysed the complex world events of the previous period and worked out perspectives for each successive phase that overwhelmingly stood the test of time. The Eleven make no comment on this. Concretely, what perspectives do they put forward?
127.The ‘perspective’ of the Eleven is, in reality, “… the possibility of an impending capitalist collapse that will make the disgusting austerity measures pale by comparison”, which will detonate the revolutionary movement of the working class. Then capitalism will be “burst asunder” with “the expropriation of the expropriators”. There is no outline of the kind of processes that capitalism will go through heading for its impending collapse, or of the way in which working- class consciousness will develop. Moreover, referring to “gloomy portents”, the Eleven predict that, in the event of a capitalist collapse like the 1930s, there will be the threat of fascism. They do not understand that, despite defeats and setbacks, mainly because of the lack of clear ideas, adequate leaders and reliable mass organisations, the working class in this period has not been physically smashed as in the 1930s. In the next period, with the deepening crisis of capitalism, the working class will be strengthened and radicalised.
128.The reference to the “expropriation of the expropriators” comes from Capital Volume 1, Chapter 32, The Historical Tendency of Capitalist Accumulation, a short but inspiring chapter in which Marx looks for- ward to the abolition of capitalism. However, there is no mention of the LTRPF. Marx attributes the demise of capitalism to its fundamental social contradiction. “The centralisation of the means of production [in the hands of fewer and fewer capitalists] and the socialisation of labour reach a point at which they become incompatible with their capitalist integument [outer form]. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (929)
129.The ideas in the document of the Eleven will not equip Marxists for the coming period of struggle. There is no coherent argument running through their document, only a dogmatic commitment to a deterministic inter- pretation of Marx’s LTRPF. On the contrary, if adopted they would mislead and derail our cadres.
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