Economic Growth Rates and the Luxemburg Theory of Pre-cap markets.

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Economic Growth Rates and the Luxemburg Theory of Pre-cap markets.
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Comrades may remember I wrote a criticism of markets theory some time ago based on a re-read of the Accumulation of Capital by Rosa Luxemburg.   I would like to follow that up again as quite accidentally I recently came across this chart of historical growth in the world economy as used by Thomas Piketty in his book  (Capital in the Twenty-First Century). 

It is not what I expected to see because it implies that economic growth rate was higher post 1914 than in capitalism ascendance period  whereas i would have expected a high growth rate in ascendancy preceding a plateauing of growth rates in decadence.  It indicates however a much higher growth in the global economy in decadence at least until the latter part of the 20th Century     The explanation for lower growth rate in ascendancy must be that production in that period was low tech and inefficient, and limited in scale to a relatively few countries.  As the capitalist economy has developed and established a complete hold over national markets globally post 1914 then the drive to improve productive technology and increase efficiency has really taken hold and productive capacity grows absolutely but also more rapidly - as per Piketty’s chart above.

Being based on GDP measures, these figures presumably include waste production such as armaments, insurance etc but excluding them would not make a significant alteration to the growth curve of the chart even if the absolute levels of GDP were reduced.

The significance of this chart is clear, economic growth rate ie accumulation cannot be dependant on pre-capitalist markets as per the Luxemburgist theory.  To support her theory the growth rate ( as opposed to absolute levels) would have been higher during ascendancy and slowing down post 1914 .  We don’t need to answer the question of just how much pre-capitalist market remains at any given time in this period, its just clear that market growth must be diminishing for this hypothesis to be valid

 

 

I have often wondered how to incorporate into decadence theory the fact that the population has grown so rapidly during the last century.  Again a growth rate that has also been almost exponential over the 20th century.  Comparing this second chart with the first,  it seems there is a correlation.  It would appear that capitalisms economic growth has facilitated the population growth as a ‘reserve labour force’.

In the Accumulation of Capital, Luxemburg suggests the opposite would be true: ”The natural propagation of workers and the requirements of accumulating capital are not correlative in respect of time or quantity.  Marx himself has most brilliantly shown that natural propagation cannot keep up with the sudden expansive needs of capital. If natural propagation were the only foundation for the development of capital, accumulation, in its periodical swings from overstrain to exhaustion, could not continue, nor could the productive sphere expand by leaps and bounds, and accumulation itself would become impossible.”  

Luxemburg’s argument here is that the pre-capitalist areas provide the labour that capitalism needs for accumulation to take place but it seems completely absurd to suggest that pre capitalist markets have grown exponentially in decadence prior to being incorporated into capitalism.  In the real world of the 20th Century it would appear that the opposite to what Luxemburg hypothesized 100 years ago is true.
 

 

This third chart used by Piketty also adds to the picture.    The drop in the rate of return on capital correlates to the Marxism concept of the rate of profit and it does indeed show a higher level during the period of ascendancy of capitalism and then drop post WW1 down to a low point around at the time of WW2. Whilst it has increased since as we would expect during the period of reconstruction after the war, we do once again we will need to exclude waste production (but also state costs and social wage costs) from the calculation but in this case, there will be a significant impact reducing the rate of profit indicated in the chart. 

The overall implications it seems to me are that the FROP theory is given justifying factors whereas Luxemburg’s pre capitals markets theory is not.

I would like to bring in a little more of how Luxemburg justifies her theory that “accumulation of capital becomes impossible in all points without non-capitalist surroundings,”

Instead of developing the  link between extra capitalist markets and capitalism's growth in ascendancy as her analysis in Accumulation of Capital clearly establishes, Luxemburg makes the rather doubtful leap of logic and says that without pre-capitalism markets Capitalism cannot accumulate.  Our experience of decadence appears to contradict these interpretations anyway.   We have certainly seen the expansion of credit being used to facilitate ongoing accumulation process and we have seen how the destruction of war is used to devalue capital and stimulate new cycles of accumulation.

The other element of the problem of accumulation for Luxemburg lies in the equation, C+V+S.  Basically if this equation represents the product of once cycle of accumulation then she is suggesting that within capitalism from the only sufficient financial capital exists at the end of the previous cycle of accumulation to be able capitalize c+v.  For her, Surplus Value (s) must be sold out of the capitalist sphere, in social strata and forms which do not produce in capitalist and consequently “accumulation of capital becomes impossible in all points without non-capitalist surroundings,”.  This appears to be based on the idea that c+v, the pre-existing level of capital accumulation is matched by a equal value of financial capital being available in circulation and that there is no financial capital remaining to purchase the equivalent value of s.  However is this not a fallacy. There is never a full amount of money in circulation to match accumulated wealth.  Fixed capital does not need to have to be matched by money is circulation, that is the point, it is already fixed. 

Given that Luxemburg wrote the Accumulation of Capital in 1913, should we not with hindsight be interpreting her analysis  as having more to say more to say about how the economy in ascendancy functions rather than about decadence. 

I would be very interesting to hear what others have to say about this as either my interpretations are faulty and/or Piketty's statistics are incorrect or Luxemburg was wrong on this issue

d-man
2 critiques

The graphs don't show in your post.

As to Rosa's analysis being perhaps more valid for the period before 1914, that is indeed really the only question (and so all discussion on later phenomena is a red herring, including your graphs). To reject her theory in fact means to reject it precisely for the period before 1914. Your other objections are familiar, so unless you want to be more specific, I don't know what to add (perhaps just disagree on war destruction's stimulating effect - I recall this was a subject of debate between ICC and ICT).

I'll repost here this good critique (from 1934) of her theory: https://libcom.org/library/critical-introduction-rosa-luxemburgs-economic-works-wolf-motylev

And some shorter critique: http://www.ruthlesscriticism.com/rosa.htm

Link
Missing Graphs

Oh well i tried.  Thanks for letting me know dman, i had a go a following your guidance on putting in photos and interestingly enough the graphs do show up on my  computer when i access the forum  so i guess the technology has defeated me.

Not sure if anybody will make the effort now but the graphs are on this site

http://piketty.pse.ens.fr/en/capital21c2

and included in the document: 'the set of figures and tables (pdf)'

Graph 1 is Fig 2.5

Graph 2 is Fig 2.2

Graph 3 if Fig 10.10

 

As for your other comments d-man i dont understand them - are you saying her theory is valid post 1914 but not prior???   I will however have a look at the text you suggest.

With the post i was aiming to question the ICCs interpretation of luxemburgism and the need for pre-cap markets rather than anybody elses interpretation

 

 

 

d-man
If you reject her theory (as

If you reject her theory (as I do) it is on the basis of its faulty analysis of capitalism and imperialism prior to 1914. And so, having rejected her theory, discussion of phenomena post-1914 (like your graphs) becomes superfluous.

Perhaps the simplest point against her theory (that pre-capitalist markets realise/absorb the capitalist surplus) is that market demand is another word for money, ie gold and silver, not capitalist credit. So she generalises the case of primitive accumulation (stealing gold from the Americas) into a constitutive feature of capitalism. It is true that the California and Australian gold rush still had a character of simple commodity production and they provided a great boost for the development of capitalism. And still in the 20th century the slave labour in the gold mines of Stalinist Russia and South-Africa also gave capitalism a lease of life. But clearly pre-capitalist societies (including for instance simple commodity producers in the West like the peasants in France) could not and did not ever continously provide enough of such amounts of gold/silver in exchange for the capitalist surplus goods.

MH
A few brief points

Link, I’m not going to deal with your main arguments against ‘Luxemburgism’ here but a few brief points on your post…

Growth

The graph of historical growth in Piketty’s book appears to refute not only ‘Luxemburgism’ but our whole position on capitalist decadence. And yet you don’t comment on this. Surely we need to deal with this issue first?

Link wrote:

“Being based on GDP measures, these figures presumably include waste production such as armaments, insurance etc but excluding them would not make a significant alteration to the growth curve of the chart even if the absolute levels of GDP were reduced.”

Oh really? Where is your evidence for this? Research by the ICC has shown that “industrial production in decadence reaches 60% of what it could have been, in short that the braking power of capitalist social relations on the forces of production is in the order of 40%. Again, this is underestimated…” (See “Understanding the Decadence of Capitalism, Part 4”, http://en.internationalism.org/ri/054_decadence_part04.html)

Population

Your quote from Luxemburg simply shows her agreeing with Marx that population growth cannot keep up with capitalism’s need for self-expansion. The question of population growth is dealt with in more detail in the Anti-Critique, where she argues that “In general, the influence of capitalist development leads, sooner or later, to a slowing down of the population growth”, but who would disagree with this as a general statement? I agree there is a discussion to be had here about growth in decadence but if you look at Piketty’s graph it actually shows population growth falling since 1950.

Rate of profit

Whether Piketty’s third chart really does show the fall in the rate of profit I’ll leave to others to comment on but you yourself admit we need to exclude waste production, etc, so my first comment about growth rates in decadence again applies.

 

MH
Fall in the rate of profit

I haven’t read Picketty’s book but according to the CWO review he categorically denies the Marxist conception of the falling rate of profit: “Although he finds the rate of profit falls from the 1950s when it is about 11% to 4.5% in 2010, over the 200 year period this appears as an anomaly. He finds a steady rate of profit of between 4% and 5% for the last 200 years.” (http://www.leftcom.org/en/articles/2015-08-07/piketty-marx-and-capitalism%E2%80%99s-dynamics).

It may be better to ignore Picketty altogether and engage with what the ICC actually says about Luxemburg’s theory. But first I think you need to address the issue you’ve raised about growth rates in decadence.
 

Link
Dman, I had not realised you

Dman, I had not realised you rejected luxemburgs idea for pre 1914 nor seen anyone argue that on this forum.  I am interested to hear why you don’t consider extra capitalist markets a source of input of wealth into an emerging capitalism.  Capitalism phase of colonialism was to search out riches for trade and this includes gold silver but is not just about that, it was also about new produce, labour, raw materials and land itself.  Ultimately it became also about migration to build new enterprise.  These all contributed to the growth of capitalism and in Luxemburg's terms acted as inputs into the system.  If it wasn't significant for the then existing markets, then why were the colonial nations so keen on pursuing these policies?  I cant see much argument with this but do please explain your interpretation

d-man
why foreign trade

But those raw materials, labour etc. of pre-capitalist areas cannot realise, ie monetize, the surplus value. The necessity for colonialism lies not in Rosa's realisation problem. So what is the explanation? I refer again to the 1934 soviet intro to her works:

Quote:
If the rate of profit in the sale of goods within the country and abroad were equal, if capitalism did not develop unevenly, if always the proportionality is kept, then the need for external trade could be really explained only by the geographical division of labor. But capitalism would not be capitalism then.

The possibility of realization by means of foreign trade of high rates of return follows primarily from differences in the level of the national market values (i.e., the socially necessary labor time), from the fact, that an advanced country, selling goods to a backward (albeit capitalist) country even below the market value of that country, sells them all the same above its market value, i.e., appropriates the unpaid labor of a backward country, and realizes thereby superprofit. The backward country is exposed in this case to exploitation, despite the fact that the exchange is profitable for it, since it gets the goods cheaper, than it could produce them itself.

It goes on futher with quotes from Marx, etc.

For an article-series on the world market see here (it's written by a member of the Decist opposition group).

Link
Thanks for your comments MH

Thanks for your comments MH and persevering with the graphs.   Im not trying to justify Piketty’s analysis – which seems to be that levels of inequality relate to capacity to grow!! - but I was interested in his financial data.  Agreed the growth of the world economy is apparently peaking during the reconstruction period after WW2 and starting to level out (and even drop if Pikettys projections are valid?)  This still implies significant growth in the overall size of the world economy during the first half of the 20th and indicates a higher rate of overall growth even now than was achieved in ascendancy.    This I can understand in the sense that the world is now a much larger place. It is comprised off a large number of capitalist nation economies competing intensely for market shares.   Pre 1914 there were economies in the capitalist heartlands operating at a much lower level of production plus small and undeveloped capitalist economies in the rest of the world amid research rich pre-cap economies.

Are his statistics on this topic valid?  Please say if you have other figures that contradict these but I don’t think we should just ignore them if they don’t quite fit theory.     I can add another link for world growth (still cant get the graph up on the forum however !!!)

https://ourworldindata.org/economic-growth#globally-over-the-last-two-millennia-until-today

The next section of this document is saying that GDP per capita has also similarly in the 20th Century which must link into the population growth issue too.  Also your point about population growth falling is correct but total population still continues to grow and flatten off according to the projections only in the 21st century  World population appears to have more than doubled since the 1960s and approx 5x since 1900.  How do rate the signifance of this and why has it happened?  Is it the population within capitalist society growing so much, if so why or is it pre capitalist population growing in the undeveloped world, in which case how is that possible?  For me only linking that pop growth to those figures on  the growth of world economy make any sense but im happy to hear other explanations.

https://ourworldindata.org/world-population-growth/#key-changes-in-population-growth

(it may be that Piketty is using  OurWorld in Data as a source?)

I don’t think that these figures questions the ascendancy-decadency concept however but rather the question of how we look at crisis theory.  The key period is the period around WW1 period when we agree that capitalism created a genuine world market and moved into its imperialist phase.  This is the key change determining the onset of decadence. 

 

There has been a problem with explaining decadence in terms of permanent crisis as though everybody is absolutely worse off at all times.   Its clear however that significant economic development has taken place in decadence, crisis theory needs to better address the impact of crises within decadence.  That was where my criticism of luxemburgism came from, its incapacity in my view and with hindsight of course,  to explain the process of  any accumulation in decadence

In terms of the impact of waste production on the gdp figures of the economic graph my point was that it was the plotting of the graph that would change not its overall shape and not the relative growth in decadence over and above the period of ascendancy.   As you say 40% waste production is very high but if you take that 40% of every years level growth then the chart would still show a standard deviation curve ( sorry, is that the right mathematical term I cant remember ) indicating that growth is higher in the 20th century than in the 19th. 

In terms of the falling rate of profit,  I don’t think there is anything in the theory that says there must be a lower rate of profit in decadence than in ascendancy.  The rate of profit would be going up and down during both ascendancy and decadency depending on conjunctural crises and their impact.   In fact I would think that exploitation of pre cap markets would increase the ROP in ascendancy .  In decadence capitalism has then had to find ways to compensate for the loss of this option through increased exploitation, war and credit.   Perhaps I should emphasise here I don’t see the FROP of profit as a theory antagonistic to the idea of increased competition for markets. Sure you are right though about taking up the cwo's view of Piketty

The increase level of production is a reflection of the impact  increased size of market place and the frop a reflection of inability of cap to achieve profits from that market.

MH
Picketty, FROP and decadence

Link, I think you a being a bit disingenuous about your use of Picketty’s graphs. In you first post you explicitly claim they refute Luxemburg’s theory and ‘prove’ the falling rate of profit:

Link wrote:

The significance of this chart is clear, economic growth rate ie accumulation cannot be dependant on pre-capitalist markets as per the Luxemburgist theory.

The overall implications it seems to me are that the FROP theory is given justifying factors whereas Luxemburg’s pre capitals markets theory is not.

Also, on the FROP in decadence:

Link wrote:

“In terms of the falling rate of profit, I don’t think there is anything in the (FROP) theory that says there must be a lower rate of profit in decadence than in ascendancy.”

Really? The CWO, who obviously defend the FROP as the sole explanation of decadence, argue that this is precisely the case; read their review of Picketty:

“…the effect of the 1930s slump and World War 2 was to raise the rate of profit but thereafter the falling trend reasserts itself. The higher rate of profit in the peripheral countries has raised the global rate but again the downward trend remains. The rate of profit in the peripheral countries though higher than that in the core countries tends to fall more steeply.”

They even produce a graph showing the rate of profit falling since 1860:

http://www.leftcom.org/files/2015-08-07-profit-graph-2.png

But to come back to the main issue, you seem to imply the ICC believes there is no economic growth in decadence:

Link wrote:

“There has been a problem with explaining decadence in terms of permanent crisis as though everybody is absolutely worse off at all times. Its clear however that significant economic development has taken place in decadence…”

In the bilan of 40 years of its existence the ICC openly admitted that it has tended to defend a ‘catastrophist’ vision and consistently overestimate the pace of the economic crisis, which led it to underestimate the growth of China etc. But where has it ever argued that decadence means no economic growth?

So I think you've raised some real issues abour Luxemburg's theory, which I'd still like to come back on,  but it also seems like you've set up a bit of a straw man on the question of growth in decadence?

jk1921
growth

MH wrote:

In the bilan of 40 years of its existence the ICC openly admitted that it has tended to defend a ‘catastrophist’ vision and consistently overestimate the pace of the economic crisis, which led it to underestimate the growth of China etc. But where has it ever argued that decadence means no economic growth?

So I think you've raised some real issues abour Luxemburg's theory, which I'd still like to come back on,  but it also seems like you've set up a bit of a straw man on the question of growth in decadence?

 

I always thought the issue with decadence was not that economic growth stops or even that growth rates can't be higher than ascendance, but that captialist social relations no longer serve the objective development of humanity, which isn't something that can reduced to growth rates.

Link
Shall we start again MH. I

Shall we start again MH. I prefer to think i was showing some ingenuity in my arguments but so it goes,  I apologise for all sloppy expressions.  However where you criticise me for saying the ICC says no economic growth in decadence but what i said was 'There has been a problem with explaining decadence......' and you criticise me for saying that Piketty's statistics 'prove the falling rate of profit' whereas what i said was they give 'the FROP theory is given justifying factors...'  I think the term pot and kettle come to mind as much as strawman.

So starting again lets agree with JK's statement above '... the issue with decadence was not that economic growth stops or even that growth rates can't be higher than ascendance, but that captalist social relations no longer serve the objective development of humanity, which isn't something that can reduced to growth rates.'    I think this is well stated but what i was trying to get at before was that it was not always as clearly expressed ie the ICC and all of us took a somewhat catastrophist view of decadence in the past.

Is that the best starting point.  I went over your EXCELLENT article on decadence again in which you very pointedly argued that the level of growth in decadence is much less than what it could have been.  

I think both MH and JK have explained things very well but what i was trying to get at before was that it was not always as clearly expressed.

I think the key points I wanted to make are that i was genuinely surprised by Pikettys chart on growth and the levels that were achieved during what we conceive of as decadence.  (Also I note that my second source - our world in data - was also used in that EXCELLENT article on decadence so maybe the figures arent to be discarded.)   So are these figures wrong?  My next key point is my objection to the luxemburgist theory that accumulation is dependant solely on the existence of pre-capitalist markets - because how can growth be increasing in a period when pre-capitalist markets must be at least diminishing if not reduced to very low levels.  

Now i think i am correct that the ICC does not reject that luxemburgist theory (and clearly Luxemburg had a 'catastrophist vision') and its a discussion of that that i wish to contribute too.  Neither does the ICC stick strictly to that theory either and has been making some re-evaluation of crises in decadence and has commented on the issue of growth of China.  I havent gone back to find quotes to this effect so do tell me if im wrong 

So MH you agree that i have raised real issues with luxemburg's theory and i look forward very much to what you have to say about them.  I am sure what you say will be very interesting and thoughtful and I promise to take it seriously. I know im creeping but i am just hoping it will persuade you to overlook my weaknesses 

 

MH
Luxemburg's theory

Link if I’ve seemed deliberately argumentative I apologise but I was just trying to clear the decks of false arguments.

So firstly on growth in decadence I think we’re all now agreed there has been a ‘somewhat catastrophist view’ in the past, and our position has not always been clearly expressed. Marxism is an empirical method and we need to be able to show empirically exactly how and why capitalist social relations are fettering the productive forces today. This would allow us to show how and why Picketty’s graphs are wrong or misleading, but maybe someone with more understanding than me can contribute on this issue?

Secondly, on Luxemburg’s theory. You’ve picked up on her statement that “the accumulation of capital becomes impossible in all points without non-capitalist surroundings”. Taken literally, this appears to fly in the face of 100 years of capitalist decadence. Of course, strictly there are still ‘non-capitalist surroundings’ in the world, but as these are progressively destroyed in decadence one would expect to see a correspondingly deepening crisis in graphs of economic growth. As you quite rightly point out, this does not appear to be the case.

But the thing is, I don’t think this is meant to be taken literally. Why? Partly because Marx makes similar-sounding statements in Capital about the contradictions of capitalism leading to its eventual “dissolution”. Marx, I think like Luxemburg, is talking here at the level of the objective laws of the capitalist system, in order to demonstrate that at this level its contradictions are indeed fatal. But Luxemburg herself makes it quite clear she is not arguing that capitalism will somehow automatically collapse:

The more ruthlessly capitalism sets about the destruction of non-capitalist strata at home and in the outside world, the more it lowers the standard of living for the workers as a whole, the greater also is the change in the day-to-day history of capital. It becomes a string of political and social disasters and convulsions, and under these conditions, punctuated by periodic economic catastrophes or crises, accumulation can go on no longer. But even before this natural economic impasse of capital’s own creating is properly reached it becomes a necessity for the international working class to revolt against the rule of capital” (Accumulation, chapter 32)

So I don’t think it’s true to say that Luxemburg had a 'catastrophist vision'. Whether you are correct to say the ICC doesn’t stick strictly to her theory needs to be answered by a member of the ICC but I suspect it relates to the point above and how we interpret her theory….

 

Link
I agree there is a real

I agree there is a real problem in determining exactly what the Luxemburg and indeed Lenin said about the future of capitalism a century ago.  Both will have accepted the potential of either socialism or barbarism  They were making predictions based on their experience up till WW1 and its not a criticism  of them to say things have turned out differently  Lenin saw imperialism as the highest phase (the final phase?) of capitalism and suggested that it 'is the transition from capitalism to a higher system' and Luxemburg i think saw the war as the starting point of a 'period of political and social disasters and convulsions'  My interpretation is she meant barbarism is a more explicit sense than we would apply it to the current period.  However i can accept that she could have been less catastrophist than i implied so let me have a bit of time to read up on chapter 32 and i will comment on that later.  I will also have a look at the cwo text you mentioned

My reading of Chapter 26 however is that the inability of capitalism to accumulate without  pre-capitalism markets is absolutely central to her thesis.  The whole of the previous chapters in  Accumulation of Capital is working up to this one point and the a lot of the rest is justification of this point just as the Anti-critique is.  At this point in the book she is quite clearly focussing on this one idea, that capitalism needs external markets as the only means by which it can accumulate; that surplus value cannot be realised within capitalism but has to be realised outside capitalism in those unconverted non-capitalist internal and external markets.  She repeats the point sufficiently and in different ways to be able to say that it must be taken literally.   Having said this i am not clear on the point you are making about Marx's statement about the dissolution of capital.  Re Luxemburg though is the failure of accumulation then not her view of how barbarism comes about?

What are the implications?   Here  i am outside my comfort zone already.   I think it becomes possible  to clarify our understanding of the process of decadence and becomes possible to explain decadence more clearly without the implication of catastrophe.   I dont think it eliminates the concept of saturated markets but I would say it put more emphasis on the driving force of competition and its limitations. The focus of understanding crises and ruling class responses goes onto issues of state capitallism, war, credit, technological and social change.  It think it leads to possible correlation between an understanding of markets and the FROP.  Sorry feeling guilty now cos this just me musing now and im busy for the next couple of days.  I am clearly going to have to come back later in the week when i have some time to think and read some more

d-man
pro-Luxemburg article

Erwin Reiner, Some Remarks on Automation, Science and Society 28 (4):432 - 447 (1964). Reiner seems to have been a philologue (specialised in French).

 

[And a reference to some article on the law of the tendency of the rate of profit to fall, from the post-war boom era by the French marxist Henri Denis: Rate of Profit and National Income, Science and Society 23 (4):298 - 316 (1959).]