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This text is in response to an invitation to defend the economic analyses of the ICC in the pages of Revolutionary Perspectives (journal of the Communist Workers’ Organization (CWO)). We do not propose here to enter into the tangled web of misrepresentation and confusion which forms the CWO’s ‘critique’ of the economic analyses of Luxemburg and the ICC: more detailed responses to the issues raised by the CWO and others will appear in future issues of the International Review. Here we want to concentrate on the main accusations leveled by the CWO at the ICC, and ‘Luxemburgist economics’ in general.I. The ‘law of value’
Above all, there is the assertion, constantly reappearing in the texts of the CWO, that Luxemburg’s theory of the saturation of markets “abandons Marxism and the theory of value”. Maybe the CWO feels that by repeating this astonishing claim often enough it will actually become true. However, the authoritative language with which the CWO banishes Luxemburg from the realm of Marxism cannot hide the true significance of these claims: the profound misunderstanding, on the part of the CWO, of the ‘theory of value’ and its role in Marxist economic analysis.
The CWO claims that Luxemburg “abandoned value theory by asserting that the fall in the rate of profit could not be the cause of the capitalist crisis”1. But the inevitability of crises and the historical necessity for socialism is to be explained not simply by this or that tendency of capitalist production, such as the falling rate of profit, but by the Marxist understanding of value production itself.
The determination of the value of commodities according to the labor time contained within them is not specific to Marxism. As is well known, this conception was the central feature of the work of the most important classical bourgeois economists, up to and including Ricardo. But the Marxist understanding of value is diametrically opposed to that of the bourgeois economists. For the latter, the capitalist system of commodity production, and the exchange of commodities according to their value, is a harmonious social relationship which expresses the equality of humanity in the equal exchange, by free individuals, of the proceeds of human labor. Value production thus ensures the just distribution of the wealth of humanity. Underlying this is the conception of value production as the natural form taken by human labor. As Luxemburg put it, “just as the spider produces its web from its own body, so laboring man (according to the bourgeois economists) produces value.” The production of exchange value (of commodities for sale on the market) is seen as identical with the production of use value (production directly for the satisfaction of human needs). Just as all societies of the past were based on value production, so assuredly will be those of the future.
Against the bourgeois vision of not only the ‘liberty, equality and fraternity’ but also the ‘eternity’ of capitalist society, the Marxist understanding of value production is based on the contradiction between the production of exchange value and the production of use value. According to Marxism the production of exchange value is neither the natural, nor eternal form of human production. It is a specific historical form of production which characterizes a society whose aim is production for its own sake, as opposed to and, inevitably, at the expense of the direct satisfaction of human needs. Production of exchange value in the form of generalized commodity production is therefore a mechanism not of equal but unequal exchange, whose function is the expropriation of value from the working class (and also from the small-scale capitalist and independent producers, the petty bourgeoisie) for the purpose of the accumulation of capital: the restriction of consumption for the purpose of the development of the means of production.
This corresponds to the needs of humanity at a certain stage of development, but at a certain point the production of exchange value, the concentration of the energies of humanity towards the single overriding aim of the development of the means of production, places increasing social restrictions on the rational utilization of the means of production. It must give way to a new society: socialism, production directly for human needs, where the potential abundance created by capitalism is transformed into social reality: the material well-being of the whole of humanity.
But not only the historical necessity for socialism, but also the means by which it is to be achieved, is derived directly from Marxist value theory: if the aim of value production is the restriction of consumption in favor of the development of the means of production, then the means by which this is accomplished is, and can only be, the exploitation of the working class. In the bourgeois conception of value, the exchange of commodities allowed the whole of humanity to benefit from the development of the productive forces. Marx showed that the opposite is the case: the fundamental social and economic relationship within capitalism, the capital-labor relationship, in which labor power itself is transformed into a commodity, enshrines the permanent impoverishment of the working class. The greater the development of the productive forces, the greater is the exploitation of the working class, and the more limited are the possibilities for the working class to enjoy the potential abundance created by the development of the productive forces. The contradiction between use value and exchange value, between the material potential of capitalist production and the social restrictions to the realization of this potential, is expressed in the growth of class antagonisms, and above all in the struggle between the producer of wealth, the proletariat, and the representative of capital, the bourgeoisie. The objective necessity for socialism is mirrored by the subjective necessity for the proletariat to seize control of the means of production from the bourgeoisie: only the proletariat, through its own emancipation, can liberate humanity.
The Marxist ‘labor theory of value’ is thus not primarily an economic model of capitalist accumulation, but above all, a social and historical critique of capitalism. To be sure, Marxism alone permits the elaboration of models of this kind. But socialist principles are not derived from such a model. On the contrary, such a model can only be derived from an analysis whose premise is the understanding of the historical necessity for socialism contained in the Marxist theory of value.
How then do we define a value analysis in Marxist terms? The basic principles of Marxist value theory are to be found, not in the detailed analyses of for example Capital, Vol. III, but in the revolutionary program of the proletariat, set out by Marx and Engels in the Communist Manifesto: these are first of all the historical transience of capitalism and the historical necessity for socialism on a world-wide scale, and secondly, the revolutionary nature of the working class.II. The ‘falling rate of profit theory’ as an abstract critique
To define a value analysis, as the CWO does, in terms of adherence to an economic model based on an abstraction from one partial aspect of capitalist development (the tendency for the rate of profit to fall) actually denudes Marxism of its revolutionary content. For it replaces the social and historical critique of capitalism enshrined in the Marxist law of value, by a purely economic critique. The interaction of social classes is replaced by the interaction of economic categories, which in themselves explain neither the historical necessity for socialism nor the revolutionary nature of the working class.
Marx’s understanding of the tendency for the rate of profit to fall is based on the understanding that labor is the source of all value. Capital investment can be divided into two categories: variable capital, ie human labor power, and constant capital, ie raw materials, machinery and other fixed capital; but while the value of constant capital is merely transferred to the commodities which are produced, the variable capital yields an additional value which forms the capitalist’s profit. But with the development of capitalism, the organic composition of capital (ie the ratio of constant to variable capital) tends to rise, and therefore the rate of profit (ie the ratio of profit to total investment) tends to fall. As the productivity of labor rises with the development of industry, a greater and greater proportion of the capitalist’s expenditure is devoted to raw materials and increasingly sophisticated machinery, and the value-producing component of his investment, human labor power, falls in proportion.
In RP, no.8, the CWO attempts to show, following the analyses of Grossman and Mattick, that at a certain point the global value of “constant capital will be so large that the surplus value produced will be insufficient to fund further investment”2. This is the core of all analyses which like the CWO’s attempt to understand the capitalist crisis solely in terms of the tendency for the rate of profit to fall. Such analyses admit that this tendency can and does pose immense problems for the individual capitalist, but they also insist that this aspect is considered to be entirely secondary to the main problem of the profitability of global capital. As Mattick says in his commentary on the work of Grossman which forms the basis for the CWO’s own analysis, “to understand the action of the law of value and accumulation we must first disregard these individual and external movements and consider accumulation from the point of view of total capital”3.
In this analysis, as the quote from RP suggests, the cause of the crisis is thus seen as an absolute shortage of surplus value on a global level. Here we can see at once the consequences of abstracting from the real world of capitalist development, and looking at capitalism solely in terms of the relationship between abstract economic categories like constant and variable capital. The individual capitalist, in the real world, needs a certain mass of surplus value to invest if his investment is to yield returns at the required level of profitability. But the level of profitability and the mass of surplus value required are determined entirely by his competitive struggle with other individual capitalists. If he cannot produce at levels of profitability equivalent to or greater than his competitors, he faces certain extinction. And with the development of industry, the rate of profit tends to fall, while the mass of surplus value required for investment at competitive levels of profitability increases all the time. But if one disregards this competitive struggle, how can one determine the point at which global capital is unable to produce ‘enough’ surplus value to invest at the required level of profitability? In a theoretical capitalist world without competition this question becomes meaningless, since the factor which determines the ‘required level of profitability’, the competitive struggle itself, is absent.
In his abstract model of capitalist accumulation, Grossman assumes that the required level of profitability for global capital is one which allows constant capital to grow each year by 10% and variable capital by 5%. When the rate of profit falls much below 10% this growth becomes impossible and, according to Grossman, the crisis begins.
Of course it is quite clear that once the rate of profit f alls much below 10% then you can’t go on increasing constant capital by 10% and variable capital by 5% for very long. We don’t need a statistical table to understand that. But why this should pose an insoluble problem for global capital remains obscure. Despite the impressive statistical gloss of Grossman’s analysis he fails completely to show what terrible calamity would befall capitalism if constant capital grew by only 9% and variable capital by 4%. Or for that matter if the figures were 8% and 3%, or 3% and 1%!
Of course the actual figures in Grossman’s tables are purely fictitious. But the tables attempt to describe the “inner law of capitalist development” by showing that when the global rate of profit and thus of accumulation falls below a certain level, the whole process of production is disrupted, and a period of economic convulsions begins.
According to Mattick there are two reasons why the fall in the rate of accumulation leads to a crisis for global capital. First of all because it causes unemployment -- if the rate of growth of variable capital falls below a certain level it is unable to keep pace with the growth in population. Secondly, because if the rate of growth of constant capital falls below a certain level the “productive apparatus cannot be renewed and expanded to keep pace with technical progress”4. This obsession with economic categories thus leads finally to the conclusion that the cause of the capitalist crisis is a technical inability to satisfy the needs of continued accumulation, and thus the needs of humanity. But nothing could be further from Marx’s own analysis, which sees the crisis in terms of the social contradictions arising from capitalism’s increasing technical ability to satisfy these needs.
So much for the inability of the productive apparatus “to keep pace with technical progress”. If this tendency was the only ‘contradiction’ of capitalism, capitalism could, through the rational distribution of surplus value, continue forever with a falling rate of profit, and an ever-growing ability to satisfy the needs of humanity -- both in terms of the abundance of commodities and also the physical well-being of humanity, since in this situation the ‘growth of unemployment’ would merely represent the increase in leisure time as a dynamic capitalism freed itself from the necessity of reliance on human labor for the production of commodities. This would apply whether the rate of profit in global terms was 10%, 5%, 1% or even less! In this sense Luxemburg was perfectly correct when she stated that “there is still some time to come before capitalism collapses because of the falling rate of profit -- roughly until the sun burns out” (Luxemburg, The Anti- Critique).
In point of fact this rational distribution of surplus value is, in general terms, the aim of Keynesian economics, an analysis based explicitly on the recognition of the falling rate of profit.
“In Keynes’ view, capital stagnation expresses the capitalist’s inability or unwillingness to accept a decreasing profitability ... Keynes came finally to the conclusion that the duty of ordering the current volume of investment cannot be safely left in private hands.” (Mattick, Marx and Keynes)
Keynes did not see why falling profitability should pose insoluble problems for capitalism. But what Keynes’ bourgeois vision prevented him from understanding was how the social foundations of capitalism prevent the kind of rational distribution of surplus value that he advocated. The aim of capitalism, as Marx pointed out is “to preserve the self-expansion of existing capital, and to promote its self-expansion to the highest limit” (Marx, op cit). We are concerned, therefore, not with the rational distribution of surplus value on a global scale, but with the attempts of each individual capital to maximize its own surplus value. The origins of the crisis are to be found not primarily in the global relation between constant and variable capital, but in the social relationship between individual capitals, whose competitive struggle for surplus value finally prevents the realization of surplus value on a global scale.
The CWO, while obsessed with the abstract and in fact fictitious trend towards an absolute shortage of surplus value on a global level, tends to minimize the competitive struggle between individual capitals. Instead the CWO emphasizes the various mechanisms, such as credit and international loans, which allow capitalism to mitigate somewhat the worst effects of the competitive struggle5. This concern with the possible development of a ‘supra-national’ capital which can transcend the framework of the state is, as we shall see, a common feature of those analyses based exclusively on the falling rate of profit and the accompanying tendency towards the centralization of capital. This conception consigns the inevitable collapse of capitalism (brought about by the falling rate of profit) to a dim and rather uncertain future, while ignoring, or even denying, the main factor which, in the real world of capitalist accumulation, propels the system towards crisis and decay: the competitive struggle between individual capitals.III. The falling rate of profit theory as an historical critique
The ‘individual’ capital may be a large conglomerate, or the modern state capitalist economy. Today it might seem that with the integration of separate national economies into the overall economies of the imperialist blocs, we can see the emergence of a capitalist unit which transcends even that of the national economy. But in reality this represents not so much the emergence of an international planned economy within the imperialist blocs, as relations of force between the various national capitals within each bloc, and the economic and military domination of the two most powerful economies within the two blocs, ie Russia and America. But in any case the point is that the centralization of capital on the level of the nation or even that of the imperialist bloc does not represent in any sense a movement towards a real supranational capitalist economy: on the contrary it represents, in the emergence of imperialist antagonisms of an even greater scale, the inability of capitalism to ever transform itself into a single world economy. It is this inability which in the final analysis leads to the destruction of capitalism.
In this sense what Luxemburg wrote in What is Economics? is even more applicable today:
“While the innumerable units -- and today a private enterprise, even the most gigantic is only a fragment of the great economic structure which embraces the entire globe -- while these units are disciplined to the utmost, the entity of all the so-called ‘national economies’, ie the world economy, is completely unorganized. In this entity which embraces oceans and. continents, there is no planning, no consciousness, no regulation, only the blind clash of the unknown, unrestrained forces playing a capricious game with the economic destiny of man. Of course even today, an all powerful ruler dominates all working men and women: capital. But the form which this sovereignty of capital takes is not despotism but anarchy.” (Luxemburg, What is Economics?)
In the historical development of this ‘anarchy’ we can nevertheless determine a consistent trend: from the absorption of individual capitals by large conglomerates in the competitive struggle, to the fusion of these conglomerates into national monopolies and the progressive consolidation of all national capital into a single state capital defended by the military power of the state. At the same time capitalism was invading-the furthest corners of the world, destroying the old pre-capitalist social relations and replacing them with its own. By the eve of World War I, the ‘mature’ capitals of Europe and America had entirely divided up the world between themselves; in the struggle of the colonial powers for the control of the world market, economic competition gave birth to that monstrous offspring -- imperialist war.
Since 1914 -- the era of permanent crises and imperialist war -- the weaker imperialist powers have been destroyed in the holocaust of world war, and today finally capitalism has reached the culmination of its development -- the confrontation of two major imperialist powers, their tutelar states grouped around them in rival blocs. And while the productive potential of humanity is greater than ever, the means of production are dedicated to the development of new and terrible means of destruction, while more than half of humanity slides deeper into starvation and destitution. For the working class, even the meager compensation in terms of ‘consumer goods’ for the long years of open crisis and war, for the ever-growing intensity of exploitation, for the continuing insecurity of daily existence and the inhumanity of work under capitalism -- even this meager compensation is progressively lost as unemployment and austerity become the order of the day. The logical conclusion of the anarchy of capitalist production is shown to be the destruction of humanity itself.
How are revolutionaries and the working class to understand this development and the situation they find themselves in today? Not through the dry erudition of Hilferding, nor the mathematical tables of Grossman, nor in the bland assurances of the CWO that our day will come when the rate of profit falls to this or that level, although of course “we are still a long way off from such a situation”, but ... through the living historical analysis of Rosa Luxemburg! Whatever the flaws of Luxemburg’s analysis it had the great merit of being based on the understanding that a Marxist analysis, an analysis based on the Marxist theory of value, is above all a social and historical analysis. For the general laws of capitalist development elaborated by Marx is not capitalist development itself, but the framework for an understanding of capitalist development in the real world. An analysis which confines itself within the narrow limits of economic categories is as inadequate for an understanding of the development of capitalism, as it is for an understanding of the general, historical necessity for socialism.
To illustrate this let us take just one feature of modern capitalism, the most important single characteristic of modern capitalism for the working class to understand: the qualitative difference between the crises of growth of nineteenth century capitalism and the crises of decay of twentieth century capitalism. Clearly this does not arise from different global rates of profit during the two periods, but from the different historical conditions in which the crisis occurs.
Of course an analysis based on the tendency for the rate of profit to fall does not in itself prevent an historical analysis of this kind. We can see this concern with the historical development of capitalism, with the social restrictions of capitalist development, in one of the best analyses, contemporary with Luxemburg’s, based on this tendency -- that of Bukharin in Imperialism And World Economy:
“There is a growing discord between the basis of the economy which has become worldwide and the peculiar class structure of society, a structure where the ruling class (the bourgeoisie) itself is split into ‘national’ groups with contradictory economic interests, groups which, being opposed to the world proletariat, are competing amongst themselves for the division of the surplus value created on a world scale ...
The development of the productive forces moves within the narrow limits of state boundaries while it has already outgrown these limits. Under such conditions there inevitably arises a conflict, which given the existence of capitalism, is settled through extending the state frontiers in bloody struggles, a settlement which holds the prospect of new and more grandiose conflicts ...
Competition reaches the highest, the last conceivable stage of development. It is now competition of state capitalist trusts in the world market. Competition is reduced to a minimum within the boundaries of the ‘national’ economies, only to flare up in colossal proportions, such as would not have been possible in any of the preceding epochs.” (Bukharin, Imperialism and World Economy)
The analysis of the CWO, and also those of Mattick and Grossman, in which the historical conditions of capitalist development are only a peripheral element, clearly mark a regression from this social and historical analysis of Bukharin, which is quite obviously closely related to the description of the anarchy of capitalist production in What is Economics? Nevertheless even in Bukharin’s analysis there is still a certain inadequacy. Bukharin sees imperialist war as an inevitable outcome of capitalist development. But it is also, to a certain extent, seen as part of the process of capitalist development, a continuation of the progressive expansion of capitalism in the nineteenth century:
“War serves to reproduce definite relations of production. War of conquest serves to reproduce these relations on a higher scale ... (imperialist) war cannot halt the development of world capital ... on the contrary it expresses the greatest expansion of the centralization process .., in its influence on economic life, the war in many respects calls to mind industrial crises, differing only from the latter by a greater intensity of social convulsions and devastations.” (our emphasis) (Bukharin, ibid)
In Bukharin’s analysis war is thus the traditional cyclical crisis of capitalism expanded and intensified to the nth degree. But imperialist war is much more than this: it reflects on the contrary the historical impossibility of capitalist development. The First World War was not simply a new historical form of the cyclical crisis: it inaugurated a new era of permanent crisis in which war is not merely the logical outcome of capitalist development, but the only possible alternative to proletarian revolution.
We can see Bukharin’s error repeated in the analysis of the CWO: “Each crisis leads (through war) to a devaluation of constant capital, thus raising the rate of profit and allowing the cycle of reconstruction -- boom, slump, war -- to be repeated again”6. Thus for the CWO, the crises of decadent capitalism are seen, in economic terms, as the cyclical crises of ascendant capitalism repeated at a higher level.
Let us look at this point more closely. If this were in fact the case, we would clearly expect to see the same characteristics to be present both in the periods of reconstruction following world wars and in the periods of economic expansion following the cyclical crises of the nineteenth century. Now there are certain superficial similarities between the two periods. Levels of production, for example, have greatly increased, at least in the period following World War II. This is because labor productivity has continued to increase throughout the period of decadence: the technical development of the means of production has not ceased for an instant, nor could it unless capitalist production came to a complete halt. The same applies to the process of capital concentration which has continued uninterrupted from the very beginning of capitalism to the present day.
But capitalist production does not come to a total halt with the onset of decadence. It continues and will continue until capitalist society is overthrown by the proletariat. We have to be able to account for the specific form taken by capitalist production during its decadent period -- in the absence of the proletarian revolution -- namely, the cycle of crisis, war, reconstruction etc, and particularly we must be able to account for the period of rapidly rising production that took place after World War II. But first and foremost our analysis must be able to account for the impossibility of any progressive capitalist development throughout the entire period of capitalist decadence, not only during wars and crises, but in the periods of reconstruction as well.
To clarify this let us look at the most important characteristics of the progressive period of capitalist expansion during the nineteenth century:
-- first of all the numerical growth of the proletariat: the absorption of a growing proportion of the world’s population into wage labor;
-- secondly, the emergence of new capitalist powers, like America, Russia and Japan;
-- thirdly, the growth of world trade, in the sense that non-capitalist and ‘young’ capitalist economies played an increasingly important role.
In short capitalist development in the nineteenth century was expressed by the internationalization of capital: more and more of the world’s population were integrated into the process of the development of the means of production made possible by capitalist social relations. It was for this reason that the revolutionary movement in the nineteenth century supported the struggle to establish capitalist relations of production in the underdeveloped areas, not only in the colonial countries, but also in such countries as Germany, Italy and Russia, where archaic social or political conditions threatened to arrest the process of capitalist development.
We can see that in decadent capitalism none of these characteristics are present7:
1. In the developed areas the increase in the proletariat has not kept pace with the increase in population. In some areas, such as Russia, Italy and Japan, non-capitalist strata have been absorbed into the proletariat, but this growth has been insignificant compared with the global trend towards the exclusion of large sectors of the world population from all economic activity whatsoever. This trend is expressed in the historically unprecedented growth of mass starvation and destitution during the past sixty years.
2. No new capitalist powers have emerged during this period. Of course some industrial development has taken place in the underdeveloped countries, but in general the economic gap between the old capitalist economies and the economies of the ‘third world’, even the most fortunate in terms of natural resources such as China, has widened at an increasing rate. For example, as we pointed out in the Decadence of Capitalism: “from 1950-60 (the highpoint of post-war reconstruction) in Asia, Africa and Latin America the number of new wage earners in every hundred inhabitants was nine times lower than in the developed countries.”
3. Parallel to this the underdeveloped nations’ share of world trade has not grown but tended to decline since 1914.
Thus in terms of the internationalization of capitalist production, the period since 1914 has been at the very least one of economic stagnation. Moreover this is the most meaningful way of looking at capitalist development, since the most important thing is to understand why economic development has been almost entirely restricted to the small group of nations which were already major economies before 1914; and in more general terms to understand the immense discrepancy between the levels of accumulation which would appear to have been possible during this period, if only the global rate of profit is taken into account, and those which have actually been achieved. One need only consider the extent to which the productive forces have been devoted to the various forms of waste production (arms, advertizing, planned obsolescence etc) which do not contribute to the accumulation of capital, or at the immense reservoir of ‘hidden’ productive potential that is revealed during world wars, to gain an idea of the magnitude of this discrepancy.
If according to the CWO, imperialist war, by raising the rate of profit, provides the conditions for a new period of capitalist development, why have all the characteristics of progressive capitalist development been absent since 1918? If on the other hand the CWO recognizes, and this is in fact the case, the qualitative change in the nature of capitalist development since 1914, what are the economic causes of this?
We have already shown that the tendency for the rate of profit to fall, considered as an abstract, global tendency, cannot explain the historical limitations of capitalist development. But neither can the historical analysis put forward by the advocates of the ‘falling rate of profit theory’ which sees decadent capitalism as a continuation of the cyclical crises of the nineteenth century -- except that competition is no longer between individual capitalists, but between rival state capitalist economies -- account for the restriction of economic development since 1914. In fact once we have disposed of the erroneous conception that the crisis is caused by an absolute shortage of surplus value, it is clear that an analysis based solely on the tendency for the rate of profit to fall leads to exactly the opposite conclusion: war should, as Bukharin implies, lead to a new period of vigorous economic growth, the creation of new fully developed capitalist economies and the integration of vast sectors of the non-proletarian strata into capitalist production. In Bukharin’s later work, Imperialism and the Accumulation of Capital, the logical conclusion of his earlier analysis is stated explicitly: just such a vision of a dynamic post-war capitalism “revealing the staggering wonders of technological progress” is used to justify the abandonment of revolutionary politics by the decaying IIIrd International. The CWO, which does not admit that this is also the logical conclusion of its own analysis, claims that Bukharin’s “wretched political conclusions” are a “non-sequitor” to his economic analysis. But Lenin had clearly shown in his introduction to Imperialism and World Economy the dangerous political consequences of this type of analysis:
“Can one, however, deny that in the abstract a new phase of capitalism to follow imperialism, namely a phase of ultra-imperialism (ie an international unifications of national ... imperialisms which ‘would be able’ to eliminate the most unpleasant, the most disturbing and distasteful conflicts such as wars, political convulsions etc) is ‘thinkable’? No. In the abstract one can think of such a phase ... There is no doubt that the development is going in the direction of a single world trust that will swallow up all enterprises and all states without exception ... in practice however he who denies the sharp tasks of today in the name of dreams of soft tasks of the future becomes an opportunist.” (Lenin, ‘Introduction to Bukharin’ in Imperialism and World Economy.)
Here Lenin is expressing the theoretical inadequacy of contemporary ‘orthodox’ Marxist economics, which was the basis of both Bukharin’s and Lenin’s own analyses, to explain the political reality which confronted the proletariat: the decadence of capitalism, and the new era of wars and revolutions. To provide a theoretical, economic explanation of this political reality was the task Luxemburg had set herself in The Accumulation of Capital. But this required an analysis which took account of the other fundamental contradiction of capitalist production: the contradiction of the market.IV. Luxemburg’s analysis
As capitalism develops the productive forces, the working class is only able to consume a smaller and smaller proportion of the growing output of commodities. In its simplest possible terms, this is the ‘markets theory’ on which Luxemburg bases her analysis. In this sense Luxemburg’s analysis flows directly from the Marxist understanding of value production which we outlined at the beginning of this text: the ‘markets problem’ arises directly from the fundamental characteristic of capitalist production: “the restriction of consumption for the purpose of the development of the means of production”.
We have already shown elsewhere that the ‘markets problem’ plays a central role in Marxist theory8. In fact the two aspects of the capitalist crisis are both reflections of the same underlying trend: the rising organic composition of capital. This not only leads to the tendency for the rate of profit to fall, but also tends to lead to the contraction of the market. This is because the working class can only consume commodities equal to the total value of its wages, and the growth of labor productivity (ie the growing organic composition of capital) means that total wages are equivalent to an ever-decreasing proportion of total output.
These two tendencies do not however at first constitute an insoluble problem for capitalism. The fall in the rate of profit provided the impetus for the elimination of small-scale or backward capitals, and their replacement by large-scale technologically advanced capitals which could compensate for the falling rate by a rising mass of profit. The contraction of the ‘home market’ on the other hand propelled the ‘geographical’ extension of capitalism as the search for new markets led to the destruction of pre-capitalist areas of production and the opening up of new areas for capitalist development.
These two tendencies are quite clearly interrelated9 . The falling rate of profit imposes the necessity on each capitalist to reduce the wages of his workforce to the maximum possible extent, which further restricts the internal market for capitalism as a whole and propels its expansion into outlying areas of non-capitalist production. The saturation of markets imposes the necessity on each capital to sell its commodities at the lowest possible prices, which further exacerbates the problem of profitability and stimulates the concentration and rationalization of existing capital. Together they account for the characteristic features of capitalism in its ascendant phase: the rapid technological development of the means of production, and at the same time the rapid expansion of capitalist relations of production to the farthest corners of the globe.
We do not have the space here to describe in detail the role played by non-capitalist markets in the development of capitalism. But the crucial importance of these areas lays in the opportunity they provided for capitalism to enter a relationship of exchange (exchanging commodities of all kinds for the raw materials vital for continued accumulation) with economies which because they did not produce on the basis of profitability provided an outlet for the capitalist surplus without threatening the home market. It is important to understand that capitalism could not use any peasant or tribal community as ‘third buyers’ for its surplus commodities. Only well-developed pre-capitalist economies, such as those of India, China or Egypt, which could offer goods in exchange for the capitalist surplus were really able to fulfill this role. But this process itself (as Luxemburg shows vividly in Section Three of The Accumulation of Capital) inevitably led to the transformation of these economies into capitalist economies which could no longer provide an outlet for the surplus production of the capitalist metropoles, but on the contrary depended on the further extension of the world market for their own survival. It was in these circumstances that capitalism turned its attention to the unexplored regions of the world such as Africa. But the new markets created in the colonial struggle for these economic wastelands were insignificant compared to the markets demanded by the rapid growth of world capitalism.
According to Luxemburg, it is at this point, when no further significant areas of non-capitalist production exist which can provide new markets to compensate for the contraction of the existing capitalist market, that the ascendant period of capitalist development comes to an end and the period of decadence, of permanent crisis, begins. The two tendencies which once provided the impetus for capitalist accumulation become a vicious circle which forms a barrier to capitalist accumulation. The search for new markets becomes a ruthless competitive struggle in which each individual capitalist is forced to reduce profit margins to a minimum in order to compete on a shrinking world market. Profitable production increasingly becomes impossible, not only for backward and inefficient capitals, but for all capitals, regardless of their levels of development. Wages are more and more ruthlessly cut in the search for profitability. But as wages fall and investment declines the markets contract at an increasing rate, reducing still further the possibility for profitable production.
The two most important aspects of our analysis which have been summarized above are:
-- first of all, that it is the saturation of the world market which is the historical turning point between the ascendant and decadent periods of capitalist development;
-- secondly, that the permanent crisis of decadent capitalism cannot be understood without taking the two interrelated aspects of the crisis, the saturation of the world market and the tendency for the rate of profit to fall into account.
In fact we can say plainly that all the contradictions caused by the falling rate of profit could be resolved by a rise in the rate of exploitation, as Mattick admits when he states that “a situation in which exploitation cannot be increased enough to offset the tendential fall in the rate of profit is not foreseeable”10, if the resulting crisis on the level of the markets did not further exacerbate the problem of profitability.
In fact to deny that overproduction is a contradiction inherent to capitalism means, in effect, to proclaim the immortality of the system. Ironically this point is made quite clearly by Grossman, writing about Say, the bourgeois economist:
“Say’s theory of markets, that is the doctrine that any supply is simultaneously a demand and consequently that all production, in producing a supply creates demand, led to the conclusion that an equilibrium between supply and demand is possible at any time. But this implies the possibility of the unlimited accumulation of capital and expansion of production, as no obstacles exist to the full employment of all the factors of production.” (Grossman, ‘Marx, Classical Political Economy and the Problem of Dynamics’ (part 2), in Capital and Class, no.3.)
On the other hand, the markets problem could be resolved by increasing investment to absorb otherwise unsalable surpluses, as Mattick for example maintains: “So long as there exists an adequate and continuous demand for capital goods, there is no reason why commodities entering the market should not be sold”11 if the falling rate of profit did not impose on this new investment levels of profitability which would further exacerbate the problem of the markets.
This interrelationship between the two aspects of the crisis is implicit in Luxemburg’s analysis. For despite the claim made by the CWO that Luxemburg does not take the tendency for the rate of profit to fall into account, her entire analysis is based on the restriction of the market caused by the rising organic composition of capital (and thus the falling rate of profit). Marx’s diagrams of expanded reproduction (capital accumulation) in Capital, Vol II, show that each year the entire surplus value produced, in terms of produce and consumer goods, is reabsorbed as new elements of production (constant and variable capital). It is on the basis of these diagrams that the CWO and others claim that there is no markets problem so long as accumulation continues at a sufficient rate. But these diagrams do not take into account the rising organic composition of capital. Luxemburg shows that when this is taken into account it is the process of accumulation itself which, by constantly reducing variable capital relative to constant capital, creates the problem of overproduction.
The constant need to reduce expenditure of variable capital means that new investment, far from solving the existing problem on the level of the market (by realizing existing surplus value) exacerbates the problem at an even greater rate than before.
The CWO also claims that Luxemburg abandons Marx and value theory by “looking outside the value-labor relationship, beyond the realms where the law of value reigns supreme, in order to find her saturated markets, her failure of the consumer”12. But it should be clear from all that we have said above that this is either a misunderstanding or a deliberate falsification of what Luxemburg was saying. The expansion of capitalism into outlying pre-capitalist areas of production is seen as a solution to the problem of the saturated market in existing areas of capitalist production. It is through the ‘geographical’ extension of capitalism that new markets are created to compensate for the contraction of the home market.
In this Luxemburg was following Marx’s own conception, as we have already shown in ‘Marxism and Crisis Theory’ in International Review, no.13. Where Luxemburg goes beyond Marx is the determination of the historical limits of this process of the “expansion of outlying fields of production”. But in this way she also determines the historical limits to capitalist accumulation itself, the historical conjuncture at which the tendency for the rate of profit to fall and the contraction of the market cease to be a spur to capitalist development, and become twin aspects of a mortal crisis which condemns capitalism to an ever-deepening cycle of declining profitability and contracting markets, whose outcome is the single alternative: war or revolution, barbarism or socialism.V. Economic theories and the struggle for socialism
When the CWO asserts that Luxemburg’s economic analysis leads to serious political confusions, which lead eventually to ‘anticommunist’ positions, we can thus answer quite simply by saying that Luxemburg provided not only the first, but also the clearest economic explanation for the single most important political issue which has confronted the proletariat for the past sixty years: the historical and global decadence of capitalism. It is upon the clear understanding of decadence as a permanent reality of contemporary capitalism, that all the positions defended by today’s revolutionary minorities depend.
None of the analyses based solely on the falling rate of profit have so far been able to account for this reality. Grossman’s mathematical tables purport to show how, eventually, the long-awaited moment will arise when capitalism is unable to function because of an absolute shortage of surplus value, but he was completely unable to relate this abstract model to the real world, where other forces had already propelled capitalism into an epoch of irreversible decline. Mattick, who in discussions with the ICC has maintained that the final crisis of capitalism might not occur for another 1,000 years, has finally admitted in his later works (for example, Critique of Marcuse, Merlin Press) that his economic analysis does not lead to any definite conclusions about the future of capitalism. Both Mattick and Grossman, moreover, maintain that the state capitalist economies of Russia and China are immune from the effects of the crisis -- Grossman remained a committed supporter of Stalinist Russia to the end of his life. The CWO, despite its political understanding of decadence as both a global and permanent phenomenon, has an economic analysis which also pushes the collapse of capitalism into the indefinite future. This leads them to the absurd, contradictory position that capitalism is decadent and yet... “the end of capitalism is not in sight”13.
We do not have space in this text to discuss any further the serious political dangers which accompany this underestimation of the depth of the present crisis. But all this reminds us uncannily of the contemporary critics of Luxemburg, the “little Dresdener experts” of nineteenth century orthodox Marxism ... who as capitalism plunged headlong towards World War I, speculated on the possibility of a new era of a ‘peaceful capitalism’ -- while strictly adhering to Marxist orthodoxy by maintaining that ‘eventually, sometime in the future, capitalism will collapse because of the falling rate of profit’.
Of course not everyone who adheres to the falling rate of profit theory follows these renegades into the ranks of the counterrevolution. As we have shown a correct political analysis doesn’t flow directly from an economic analysis: it depends on the contrary on keeping a firm grasp of the fundamental tenets of Marxism -- the historical necessity for socialism and the revolutionary nature of the working class.
Equally the class interests of the proletariat are not derived from economic analyses, but directly from the experience and the lessons of the class struggle. It was on this basis that Lenin and Bukharin were able, despite the limitations of their economic analysis, to defend the interests of the world proletariat in 1914. On the other hand a ‘Luxemburgist’ analysis does not in itself guarantee adherence to revolutionary political positions: two postwar ‘Luxemburgists’ for example, Sternberg and Lucien Laurat, were, politically, supporters of the counter-revolutionary social democrats.
But if we reject the mechanical relationship between economic analysis and political positions, this does not mean that we see economics as simply a “decorative addition to Marxism” as the CWO claims. On the contrary we recognize that a coherent economic analysis is a vital factor in proletarian consciousness: by welding together all the lessons of proletarian experience into a single unified world view, it can enable the proletariat to understand, and thus more decisively confront the many problems which it will encounter on the long path to communism.
Obviously, we still have a long way to go before we can completely understand the development of capitalism since 1914, and particularly since 1945. As we stated at the beginning of the text, these points will be taken up by future texts in the International Review. But we re-affirm that, for all the reasons stated above, only a ‘Luxemburgist’ analysis can provide a coherent explanation of the political reality which confronts the proletariat today.
To sum up, we reject the analysis of the CWO, based exclusively on the tendential fall in the rate of profit, since:
-- it is a partial analysis which cannot in itself account for the economic forces which lead to the collapse of capitalism. As an abstract theory it leads logically to the conclusion that capitalist production can continue indefinitely;
-- as a consequence of this it leads to a serious under-estimation or even denial of the depth and the consequences of the present crisis.
We earnestly suggest that the comrades of the CWO abandon trying to show how far away we are from the end of capitalism, peek out for a moment from the pages of Capital Vol. III and the abstract analyses of Grossman and Mattick, and turn their attention to the present crisis which is unfolding in the world about them, and its political implications for the proletarian struggle and the revolutionary movement.
For ourselves, we undertake to continue the important work of economic analysis. In particular we set ourselves the following two tasks:
-- to develop our analysis of capitalism since 1914 and particularly since 1945 to situate the present crisis within the framework of the permanent crisis of capitalism since 1914;
-- to expose all those theories, which have arisen both outside and within the proletarian camp, which deny the reality of the present crisis, consign the crisis of capitalism to the distant future, or claim that the contradictions of capitalism can be overcome within the framework of the state capitalist economy, or the ‘workers' state’.
We take as our framework the Marxist understanding of economics outlined by Rosa Luxemburg in 1916:
“In Marxist theory, economics found its perfection, but also its end as a science. What will follow, apart from the elaboration of Marxist theory in details -- is only the metamorphosis of this theory into action, ie the struggle of the international proletariat for the institution of the socialist economic order. The consummation of economics as a science constitutes a world-historic task; its application in organizing a planified world economy. The last chapter of economics will be the social revolution of the world proletariat.” (Luxemburg, What is Economics?)
1 See ‘The Accumulation of Contradictions’, in Revolutionary Perspectives, no. 6, p. 7.
2 ‘Credit and Crisis’, in RP, no. 8, p. 20
3 Mattick, The Permanent Crisis, Henryk Grossman’s Interpretation of Marx’s Theory of Capitalist Accumulation.
4 Mattick, ibid.
5 ‘Credit and Crisis’, RP, no. 8.
6 ‘Accumulation of Contradictions’, RP, no. 6, p. 18.
7 See the ICC pamphlet The Decadence of Capitalism for a more detailed description of the following points.
8 See ‘Marxism and Crisis Theory’ in International Review, no. 13.
9 In fact it would be remarkable if this were not the case since Marxism has always understood that the production of value and its realization (sale) are two interrelated aspects of the same process. Crises in the production process itself are reflected at the level of exchange and vice-versa. When the CWO condemns Luxemburg because she sees the crisis arising in the ‘secondary area’ of distribution, they have clearly forgotten the long struggle of Marx and Engels against “vulgar socialism (which) has taken over from bourgeois economists the consideration and treatment of distribution as independent of the mode of production” and against, as Engels put it more bluntly, “the nonsense which comes of writing on economics without so much as having grasped the connection between production and distribution.” (Marx, Critique of the Gotha Program, and Engels, Anti-Duhring)
10 Mattick, Marx and Keynes.
11 Mattick, ibid.
12 RP, no. 6, op cit, p. 17.
13 RP, no. 8, op cit, p. 28.