The essential divergence between Marx’s analysis and the CWO’s
Inspired by the theories developed by the councilist Paul Mattick, the CWO defends a very mono-causal and partial view of the dynamic of capitalism, basing itself exclusively on the law of the tendential fall in the rate of profit as developed by Marx in Capital. In their view, this law is at the root both of economic crises, the advent of decadence and the numerous wars seen throughout the world. Following Marx, we also consider that this law plays an essential role in the dynamic of capitalism, but as he himself underlined, it only intervenes as one of the “two acts of the capitalist process of production”. Marx always showed very clearly that, to complete the cycle of accumulation, capitalism must not only be able to produce sufficient profit – this is “ but the first act of the capitalist process of production” (and it is at this stage that the falling rate of profit reveals its full importance) – it also has to sell all the commodities it produces. This sale constitutes what Marx calls “the second act of the process”. This is fundamental in that this sale on the market is the indispensable condition for realizing, in the form of surplus-value to be re-invested, the entirety of the labour crystallized in the commodity during the course of production. Not only did Marx constantly stress the imperious necessity to pass through these two acts since, as he put it, if one of the two was not present, the whole cycle of accumulation remains incomplete; he also gives us the key to the relations between these two acts. Marx always insisted on the fact that, though closely linked, the act of production is “independent” of the act of selling. He even pointed out that these two acts “are not identical”, not only in time and place, but also “logically”. In other words, Marx taught us that production does not automatically create its own market, contrary to the fables of bourgeois political economy; or, again, that “the extension of production does not necessarily correspond to the growth of the market”. Why? Simply because production and the market are determined differently: the extraction of surplus labour (the first act of production) “is only limited by the productive power of society” (Marx), whereas the realization of this surplus labour on the market (the second act, selling) is essentially limited by “the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum”. As a result , Marx argues, “The market must, therefore, be continually extended”. He even goes on to say that that this “internal contradiction”, resulting from the immediate process of production, “ seeks to resolve itself through expansion of the outlying field of production”.
Thus, when Marx in his conclusion to his chapter on the law of the falling rate of profit summarises his overall understanding of the movement and contradiction of the capitalist process of production, he talks of a play in two acts.
The first act represents the movement of “acquiring surplus value”: “With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions”. In the second act “The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist”. Marx also makes a precision about the relations between these two acts of production and sale: “The conditions of direct exploitation, and those of realising it, are not identical”.
The conception of the CWO/IBRP is very different. It reduces the capitalist process of production to the first act (“With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions”). Nowhere in its article does the CWO invoke the necessity for the second act, the need for the entire mass of commodities to be sold. And for good reason: in line with Paul Mattick, the IBRP claims that production itself engenders its own market. For the IBRP, this second act only poses a problem if there is an insufficient amount of surplus value to be accumulated as a result of the fall in the rate of profit. The crisis of overproduction is determined exclusively by difficulties encountered in the first act of production. But we have already seen that, for Marx, these two acts of production are not identical, that they are logically separate “Since market and production are two independent factors- that the expansion of ones does not correspond with the expansion of the other” (Marx, Theories of Surplus Value, Chapter headed "Ricardo’s theory of accumulation and a critique of it", Sub-section13, p 524). This means that production does not automatically create its own market or, to put it another way, that the market is not fundamentally determined by the conditions of production but by “the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits” (See footnote 6 for reference).
A position already refuted by Marx over a century ago
This position of the CWO/IBRP is more than a century and half old. It’s the vision developed by bourgeois economists like Ricardo, Mill and Say, to whom Marx replied quite clearly on a number of occasions: “Those economists who, like Ricardo, conceived production as directly identical with the self-realisation of capital -and hence were heedless of the barriers of consumption or of the existing barriers of circulation itself, to the extent that it must represent counter-values at all points, having in view only the development of the forces of production (...) Mill...(copied from the dull Say): supply and demand are allegedly identical, and should therefore necessarily correspond. Supply , namely, is allegedly a demand measured by its own amount. Here a great confusion...” (Karl Marx, Grundrisse, The Pelican Marx Library, 1973, p 410) . What is the basis of Marx’s response to this “great confusion” of bourgeois economics, repeated by the CWO/IBRP?
First of all, Marx fully agrees with these economists in saying that “Production indeed itself creates demand, in that it employs more workers in the same branch of business, and creates new branches of business, where new capitalists again employ new workers and at the same time alternatively become market for the old”; but he immediately added, approving a comment by Malthus, “the demand created by the productive labourer himself can never be an adequate demand, because it does not go to the full extent of what he produces. If it did, there would be no profit, consequently no motive to employ him. The very existence of a profit upon any commodity presupposes a demand exterior to that of the labourer who has produced it” (Marx, Grundrisse, The Pelican Marx Library, 1973, p 410). Marx here is only expressing what he said earlier about the limits to society’s consumer power being “based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits”.
But how exactly does Marx explain this last point? Like all previous modes of production based on exploitation, capitalism revolves around a conflict between antagonistic classes over the appropriation of surplus labour. Consequently, the immanent tendency of capitalism consists, for the ruling class, of constantly trying to restrict the consumption of the producers in order to be able to appropriate the maximum of surplus value: “Every capitalist knows this about his worker that he does not relate to him as producer to consumer, and (he therefore) wishes to restrict his consumption, i.e. his ability to exchange, his wages, as much as possible” (Grundrisse, Section two: "The circulation of capital, demand by the workers themselves", p 420)
This immanent and permanent tendency for capitalism to try to restrict the consumer power of the exploited is just another illustration of the contradiction between the social and the private, i.e. the contradiction between the increasingly social dimension of production and its private appropriation. From the private point of view of each capitalist taken individually, wages appear as a cost to be minimised just like the other costs of production; but from the social point of view of the functioning of capitalism taken as a whole, the mass of wages appears as a market in which each capitalist finds an outlet for his production. Marx continues his explanation for this in the same passage (the emphases are his) “ Of course he (the capitalist) would like the workers of other capitalist to be the greatest consumers possible of his own commodity” (...) But this is just how the illusion arises -- true for the individual capitalist as distinct from all the others -- that apart from his workers the whole remaining working class confronts him as consumer and participant in exchange, as money-spender, and not as worker. It is forgotten that, as Malthus says, ‘the very existence of a profit upon any commodity pre-supposes a demand exterior to that of the labourer who has produced it’, and hence the demand of the labourer himself can never be an adequate demand. Since one production sets the other into motion and hence creates consumers for itself in the alien capital’s workers, it seems to each individual capital that the demand of the working class posited by production itself is an ‘adequate demand’. On one side, this demand which production itself posits drives it forward, and must drive it forward beyond the proportion in which it would have to produce with regard to the workers; on the other side, if the demand exterior to the demand of the labourer himself disappears or shrinks up, then the collapse occurs”(Grundrisse, Section two: "The circulation of capital, demand by the workers themselves" p 420).
It is therefore the pursuit of the private interests of each capitalist – spurred on by the class conflict for the appropriation of a maximum of surplus labour – that pushes each one to minimise the wages of his own workers in order to appropriate a maximum of surplus value; but in doing so, this immanent tendency of the system to compress wages gives rise to the social basis for the limits of capitalism since its result is to restrict society’s capacity to consume. This ‘social/private’ contradiction for reducing the consuming power of the mass of society to a minimum is what Marx calls “antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits”. Or, in other words, “the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest”.
The marxist analysis of capitalism's economic contradictions
Having examined the essential difference between Marx’s analysis and the CWO’s, and having seen how Marx already replied to similar arguments well over a century ago, we now have to examine how Marx really analysed the dynamic and contradictions of the capitalist mode of production.
Each mode of production in the history of humanity – such as the Asiatic, ancient, feudal and capitalist – has been characterized by a specific social relation of production: tribute, slavery, serfdom, wage labour. It is this social relation of production which determines the specific link between those who own the means of production and the producers, around a class conflict whose substance is the appropriation of surplus labour. It is these social relations which are at the heart of the dynamic and the contradictions of each mode of production. In capitalism, the specific relation which links the workers to the means of production is wage labour: “Thus capital presupposes wage labour; wage labour presupposes capital. They reciprocally condition the existence of each other; they reciprocally bring forth each other” (Karl Marx, Wage Labour and Capital, Marx and Engels, Selected Works, Lawrence and Wishart, 1991, page 80). It is this social relation of production which both imprints the dynamic of capitalism, since it constitutes the sphere for the extraction of surplus value (the first act of the capitalist process of production) and at the same time contains insurmountable contradictions, since the conflict for the appropriation of this surplus value tends to restrict society’s capacity to consume (this is the second act of capitalist production, sale): “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” (Marx, Capital, Vol 3, Chapter 30: "Money capital and real capital: 1", p 615) . It is from these difficulties both within and between the two acts of the capitalist process of production which engenders “an epidemic that, in all earlier epochs, would have seemed an absurdity -the epidemic of overproduction (Marx and Engels, The Communist Manifesto, "Bourgeois and proletarians", Marx and Engels Collected Works, Vol.6, page 490). This is why Marx constantly repeated that “In the crises of the world market, the contradictions and antagonisms of bourgeois production are strikingly revealed” (Marx, Theories of Surplus Value, "Ricardo’s theory of accumulation and a critique of it", sub-section 8, p 500).
Wage labour is a dynamic relation in the sense that, in order to survive, the system, spurred on by the tendency of the rate of profit to fall and by competition, must constantly push the exploitation of wage labour to its limits, extend the field of application of the law of value, constantly accumulate and extend its solvent markets:
“With the development of capitalist production and the resultant reduction in prices, there must be an increase in the quantity of goods, in the number of articles that must be sold. That is to say a constant expansion of the market becomes a necessity for capitalist production” (Marx, Capital Vol 3, "The Results of the immediate process of production, Penguin books", page 967)
“In world market crises, all the contradictions of bourgeois production erupt collectively; in particular crises (particular in their content and in extent) the eruptions are only sporadical, isolated and one-sided.
Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion of reproduction and accumulation, and therefore constant reconversion of revenue into capital, while on the other hand, the mass of the producers remain tied to the average level of needs, and must remain tied to it according to the nature of capitalist production” (Marx, Theories of Surplus Value, Book 2, "Ricardo’s theory of accumulation and a critique of it", sub-section 14, page 534-35). And, within this dynamic, the law of the falling rate of profit occupies a central place in that it pushes each capitalist to compensate for the fall in the rate of profit in each of its commodities through mass production in order to compensate and even increase its total quantity of profit. Each capitalist thus faces the necessity to realize an ever-growing quantity of commodities: “This phenomenon arising from the nature of the capitalist mode of production, that the price of an individual commoditiy or a given portion of commodities falls with the growing productivity of labour, while the number of commodities rises; that the amount of profit on the individual commodity and the rate of profit on the sum of commodities falls, but the mass of profit on the total sum of commodities rises (...) In actual fact, the fall in commodity prices and the rise in the mass of profit on the increased mass of cheapened commodities is simply another expression of the law of the falling profit rate in the context of a simultaneously rising mass of profit” (Marx, Capital, Vol 3, Part 3, Chapter 13, p 338).
But wage labour is also a contradictory relation in that, while production on this basis assumes an increasingly social character and spreads across the whole world, the surplus product is still privately appropriated. By basing himself on this "social-private" ontradiction Marx demonstrates that in a context where "Over-production arises precisely from the fact that the mass of the people can never consume more than the average quantity of necessaries, that their consumption therefore does not grow correspondingly with the productivity of labour"
"He (Ricardo) overlooks the fact that the commodity has to be converted into money. The demand of the workers does not suffice, since profit arises precisely from the fact that the demand of the workers is smaller than the value of their product, and that it [profit] is all the greater the smaller, relatively, is this demand. The demand of the capitalists among themselves is equally insufficient" (Theories of Surplus Value, Book 2, chapter 16, "Ricardo’s Explanation for the Fall in the Rate of Profit and Its Connection with His Theory of Rent").
“If it is said, finally, that the capitalists only have to exchange their commodities among themselves and consume them, then the whole character of capitalist production is forgotten, and it is forgotten that that what is involved is the valorization of capital, not its consumption” (Marx, Capital, Vol 3, Part 3, chapter 15, 3 ‘Surplus capital alongside surplus population’, p 366).
In the ascendant phase of capitalism, in a context where, as Marx said, the gains in productivity, although spectacular for the time, still remained limited and where private appropriation confiscated the essential of the latter since “consumption... does not grow correspondingly with the productivity of labour", the generalisation of wage labour, on the “narrow basis on which the conditions of consumption rest”, inevitably restricted the outlets with regard to the relatively huge needs of the enlarged reproduction of capital, obliging the system to constantly find buyers not only within but, more and more, outside the sphere of capital and labour. “.. the more capitalist production develops the more it is forced to produce on a scale which has nothing to do with immediate demand but depends on a constant expansion of the world market” (...) The mere relationship of wage-labourer and capitalist implies;
1. that the majority of the producers (the workers) are non-consumers (non-buyers) of a very large part of their product, namely, of the means of production and the raw material.
2. that the majority of the producers, the workers, can consume an equivalent for their product only so long as they produce more than this equivalent, that is, so long as they produce surplus-value or surplus product. They must always be overproducers, produce over and above their needs, in order to be able to be consumers or buyers within the limits of their needs (...)
Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay” (Marx, Theories of Surplus Value, Vol 2, Lawrence & Wishart, 1969, pages 468, 520, 534)
In this context, Marx clearly demonstrated the inevitability of crises of overproduction through the relative restriction of demand - the consequence, on the one hand, of the necessity for each capitalist to increase production in order to increase the mass of surplus value to compensate for the fall in the rate of profit, and, on the other hand, of the recurrent obstacle encountered by capital: the outbreak of the crisis through the relative shrinking of the market needed as an outlet for this production, which takes place long before any insufficiency of surplus value engendered by the tendency for the rate of profit to fall: “in the course of reproduction and accumulation, small improvements are continuously building up, which eventually alter the whole level of production. There is a piling up of improvements, a cumulative development of productive powers.> requires a constantly expanding market and that production expands more rapidly than the market, then one would merely have used different terms to express the phenomenon which has to be explained—concrete terms instead of abstract terms. The market expands more slowly than production; or in the cycle through which capital passes during its reproduction—a cycle in which it is not simply reproduced but reproduced on an extended scale, in which it describes not a circle but a spiral—there comes a moment at which the market manifests itself as too narrow for production. This occurs at the end of the cycle. But it merely means: the market is glutted. Over-production is manifest. If the expansion of the market had kept pace with the expansion of production there would be no glut of the market, no over-production.
However, the mere admission that the market must expand with production, is, on the other hand, again an admission of the possibility of over-production, for the market is limited externally in the geographical sense, the internal market is limited as compared with a market that is both internal and external, the latter in turn is limited as compared with the world market, which however is, in turn, limited at each moment of time, [though] in itself capable of expansion. The admission that the market must expand if there is to be no over-production, is therefore also an admission that there can be over-production. For it is then possible—since market and production are two independent factors—that the expansion of one does not correspond with the expansion of the other; that the limits of the market are not extended rapidly enough for production, or that new markets— new extensions of the market—may be rapidly outpaced by production, so that the expanded market becomes just as much a barrier as the narrower market was formerly” (ibid, p 524-525)
The CWO still disagrees with Marx
Although it is central in explaining the development of the recurring crises of overproduction throughout the life of capitalism, the contradictory dimension of wage labour, which tends to constantly reduce the solvent market in relation to the growing needs of accumulation, is obviously not the only factor analysed by Marx in the appearance of these crises. There is also the imbalance in the rhythm of accumulation between the two main sectors of production (means of consumption and means of production), the different speed of turnover in the various branches of production, the falling rate of profit, etc. Marx wrote a lot about these elements but we can’t go into his arguments in the framework of this article. Nevertheless we need to point out that, among all these other factors contributing to the outbreak of crises of overproduction, the tendency for the rate of profit to fall indeed occupies a central place – Marx in fact saw it as key o understanding the decennial cycles of the first two thirds of the 19th century: when the dynamic towards rising profits is inversed, it engenders a depressive spiral which slows down accumulation and the reciprocal demand between the different branches of production; consequently it leads to the laying-off of workers and the compression of wages etc. All these phenomena come together to create a general glut of commodities.
The crisis of overproduction thus often appears both as a crisis in the profitability of capital (the falling rate of profit) and of distribution (the lack of solvent markets). This dual nature of the crisis is connected to the fact that each capitalist taken individually searches to reduce wages as much as he can (without any social concern for global outlets) and, at the same time, tries to increase productivity to the maximum in the face of competition (which eventually affects the rate of profit: the crisis of valorisation). The private and conflict-ridden nature of capitalism prevents any medium or long-term regulation that would allow it to balance out its contradictory tendencies: overinvestment (over-accumulation) and the relative lack of outlets return to periodically block the accumulation of capital and reduce its rate of growth.
However, Marx demonstrated that the tendency for the rate of profit to fall was not at all the result of a repetitive schema, determined in some atemporal and algebraic way. It had to be analysed and understood in its specificities each time it manifested itself since, with the three factors that determined it (wages, productivity of labour and productivity of capital) several scenarios are possible, above all when the combination of these three factors can, in turn, be reduced by counter-tendencies which vary noticeably in the course of time: availability of a large domestic market; colonialism; investment in countries or sectors with a lower organic composition of capital; increase in female labour or immigrant labour etc.
In order to function properly, capitalism has to both produce at a profit and sell the commodities so produced. According to Marx these two requirements, in the real conditions of capitalism, are eminently contradictory. They cannot be made compatible in the medium and long term because competition, private appropriation and the conflict over the appropriation of surplus labour are a social barrier to capitalism being able to regulate these contradictions in any durable way. It is the fundamental social relation of production under capitalism – wage labour – which determines this.
Why do we think it necessary to make this precision, which could appear somewhat technical and complicated to someone who is not used to handling these economic concepts and their reciprocal relations? Because it enables us to demonstrate the fundamental divergences between Marx’s view and that of the CWO, while at the same time preventing any potential for false polemics.
Yes, with Marx, we do consider that the dynamic towards the fall in the rate of profit also serves to engender crises of overproduction, but here again the CWO’s approach is very different from Marx’s:
1. When it completely ignores the contradictory dimension of wage labour – something which Marx underlined again and again – which is the first and main basis of the crises of overproduction, since it results in the permanent tendency to restrict the consumer power of the wage labourers and thus the solvent markets needed for the realisation of a growing mass of commodities.
2. When instead of seeing this social contradiction which resides in the wage labour relation, it makes the fall in the rate of profit the exclusive mechanism of the crises of overproduction and even the alpha and omega of all the economic contradictions of capitalism, including its decadence and all imperialist wars.
3. Finally, when it makes the dimension of solvent markets strictly dependent on the expansion or contraction of production, which in turn is determined solely by the evolution of the rate of profit; whereas, to use Marx’s own terms, the two acts of the process of production, production and sale, are not identical, are independent, and are not logically connected. The best proof of the profoundly erroneous nature of the CWO’s vision, which we will explain at greater length in another article, is the fact that for more than a quarter of a century the rate of profit has been clearly on the rise, and is equivalent to the levels it reached during the "thirty glorious years" that followed the Second World War…whereas the rates of growth in productivity, of investment, of accumulation and thus of growth have been declining or stagnating! This paradox is only comprehensible when you understand that the crisis is the consequence of the relative insufficiency of solvent markets, resulting from the massive contraction of the mass of wages – a contraction which in turn results from the drive to re-establish the rate of profit.
Marx and Luxemburg: an identical analysis of the economic contradictions of capitalism
How does capitalism overcome its immanent tendency to restrict its solvent markets? How does it seek to resolve this contradiction, which is internal to its mode of operation? Marx’s response is very clear and it is identical throughout his work:
“The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer, and become ever more uncontrollable. This internal contradiction seeks to resolve itself through expansion of the outlying field of production”( Capital, quoted above)
“this demand which production itself posits drives it forward, and must drive it forward beyond the proportion in which it would have to produce with regard to the workers; on the other side, if the demand exterior to the demand of the labourer himself disappears or shrinks up, then the collapse occurs” (Grundrisse, quoted above).
This understanding of Marx is precisely what Rosa Luxemburg took up in her book The Accumulation of Capital. In a way, this great revolutionary prolonged Marx’s developments by writing the chapter on the world market which is one of those that Marx was unable to complete. The entirety of Rosa’s work is traversed by this notion of Marx that “this demand which production itself posits drives it forward, and must drive it forward beyond the proportion in which it would have to produce with regard to the workers; on the other side, if the demand exterior to the demand of the labourer himself disappears or shrinks up, then the collapse occurs”. She drew out this idea by showing that, since the totality of the surplus value of global social capital needs, if it is to be realised, a constant extension of markets both internal and external, capitalism was dependent on the continual conquest of solvent markets both at national and international level: “By this process capital prepares its own destruction in two ways. As it approaches the point where humanity only consists of capitalists and proletarians, further accumulation will become impossible. At the same time the absolute and undivided rule of capital aggravates class struggle throughout the world and the international economic and political anarchy to such an extent that, long before the last consequences of economic development, it must lead to the rebellion of the international proletariat against the existence of the rule of capital…Modern imperialism.. is only the last chapter of its historical process of expansion: it is the period of universally sharpened world competition between the capitalist states for the last remaining non-capitalist areas on earth” (Luxemburg, Anti-Critique).
Rosa concretised this idea and contextualised it in the living reality of capitalism’s historical pathway, and this in three areas:
1. She masterfully describes the concrete progression of capitalism through its permanent tendency to “expand the outlying field of production”, explaining the birth and development of capitalism within the commodity economy that came from the ruins of feudalism up until its domination of the whole world market.
2. She grasped the contradictions characteristic of the imperialist epoch, this “international phenomenon which Marx did not see: the imperialist development of these past 25 years…this upsurge inaugurated, as we know, a new period of effervescence for the European states: their unprecedented expansion towards the remaining non-capitalist areas and countries of the world. From the 1880s onwards, we witnessed a new and particularly violent impetus towards colonial conquest” (Junius Pamphlet).
3. Finally, as well as analysing the inseparable historic link between capitalist relations of production and imperialism, showing that the system could not live without expanding, without being imperialist in essence, Rosa Luxemburg also demonstrated at what moment and in what manner the capitalist system entered its phase of decadence.
Once again, Rosa Luxemburg merely took up and developed an idea repeated many times by Marx since the Communist Manifesto: “The proper task of bourgeois society is the creation of the world market, at least in outline, and of the production based on that market” (Marx to Engels, 8 October 1858). Taking up Marx’s intuition about the moment capitalism would enter into decline, and virtually in the same terms, Luxemburg clearly drew out the dynamic and the moment: “we now have behind us the, so to speak, previous youthful crises which followed these periodic developments. On the other hand, we still have not progressed to that degree of development and exhaustion of the world market which would produce the fatal, periodic collision of the forces of production with the limits of the market, which is the actual capitalist crisis of old age…if the world market has now more or less filled out, and can no longer be enlarged by sudden extensions; and if, at the same time, the productivity of labour strides relentlessly forward, then in more or less time the periodic conflict of the forces of production with the limits of exchange will begin, and will repeat itself more sharply and more stormily”. Social Reform or Revolution.
Since that point, the relative exhaustion – that is, in relation to the needs of accumulation – of these markets would precipitate the system into its decadent phase. Rosa responded to this question from the very start of the 1914-18 war, considering that the world inter-imperialist conflict had opened an era in which capitalism would be a permanent barrier to the development of the productive forces: “the necessity for socialism is fully justified as soon as the rule of the bourgeois class ceases to bear with it any historic progress and becomes a barrier and a danger to the further evolution of society. This is precisely what the present war has revealed with regard to the capitalist order” (Junius Pamphlet). The system’s entry into decadence was thus characterised not by the disappearance of the extra-capitalist markets (Marx’s “demand exterior to the labourer”) but by their insufficiency with regard to the needs for enlarged accumulation. In other words, the mass of surplus value realised in the extra-capitalist markets had become insufficient to recuperate the necessary fraction of the surplus value produced by capitalism and destined to be re-invested. A fraction of total capital could find no outlet on the world market, signaling that overproduction, which had been episodic in the ascendant phase, was now becoming a permanent obstacle to capitalism in its decadent phase. This idea of Luxemburg’s had already been put forward in an explicit manner by Engels in a letter he wrote to FK Wischnewtsky in February 1886: “For if there are three countries (say England, America and Germany) competing on comparatively equal terms for the possession of the Weltmarkt, there is no chance but chronic overproduction, one of the three being capable of supplying the whole quantity required”.
Enlarged accumulation has thus slowed down but not stopped. The economic history of capitalism since 1914 is the history of the development of palliatives to this process of strangulation; and the inefficacity of these palliatives has been shown, among other things, by the great crisis of the 1930s, the Second World War and these last 35 years of crisis.
This total identity between Marx and Rosa Luxemburg in their analysis of the contradictions of capitalism render completely absurd the unfounded accusations – propagated by Stalinism and leftism and unfortunately taken up by the IBRP – which tries to oppose the two and claim that (a) Marx’s explanation for the crises resides in the falling rate of profit whereas Rosa’s resided in the saturation of markets (b) that Marx identified the contradictions of capitalism within production whereas Luxemburg situated them in the sphere of realization; or (c) that for Marx the contradiction was "internal" to capitalism (production) whereas for Luxemburg it was "external" (the market). None of this makes any sense once you understand that it is capitalism’s own internal and contradictory laws which tend to restrict the ultimate social demand and engender the recurring crises of overproduction. This is precisely what Marx and Luxemburg were saying.
Conclusion to the first part
Pushed by the necessity to extort a maximum of surplus labour, capitalism subjects the whole world to the dictatorship of wage labour. In doing so, it sets up a formidable contradiction which, by restricting the consumer power of society in relation to en ever-growing production of commodities, engenders a phenomenon unknown in all previous human history, the crises of overproduction: “In the crises of the world market, the contradictions and antagonisms of bourgeois production are strikingly revealed”.
Marx linked the crises of overproduction to the barriers imposed by the wage relation to the growth of the ultimate consuming power of society, and more specifically of the wage labourers. More precisely, Marx located this contradiction between, on the one hand, the tendency towards “the absolute development of the productive forces”, and thus to the unlimited growth of the social production in value and in volume; and, on the other hand, the limits to ultimate growth of society’s consumer power. It is this contradiction which he refers to in Theories of Surplus Value as the contradiction between production and consumption: “In world market crises, all the contradictions of bourgeois production erupt collectively; in particular crises (particular in their content and in extent) the eruptions are only sporadical, isolated and one-sided.
Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay” (Vol.2, p 534-535)
In this article we have seen that, while the falling rate of profit indeed plays a role in the emergence of crises of overproduction, it is neither their exclusive nor even their main cause. We will see in another article that its is also not sufficient for explaining the great stages in the evolution of the capitalist system, nor its entry into decadence, nor its tendency to engender increasingly widespread and murderous wars that have put the very existence of humanity in danger.
Engels, who was very well acquainted with the economic analyses of Marx, not least because he spent years working on the manuscripts of Volumes II and III, was quite clear about this. When in the preface to the English edition of Volume I of Capital (1886) he underlined the historic impasse of capitalism, he referred not to the fall in the rate of profit but to the contradiction which Marx continually referred to: the contradiction between the “absolute development of the productive forces” and the “limits to the ultimate consumer power of society”: “While the productive power increases in a geometric, the extension of markets proceeds at best in an arithmetic ratio. The decennial cycle of stagnation, prosperity, over-production and crisis, ever recurrent from 1825 to 1867, seems indeed to have run its course; but only to land us in the slough of despond of a permanent and chronic depression” And this “slough of despond of a permanent and chronic depression” to which he referred was none other than the warning signal of the system’s entry into decadence, an entry into decadence which would be marked by “chronic overproduction” as Engels said in the same year in the letter to Wischnewtsky. We can now understand why it was indeed the analyses of Rosa Luxemburg which were in line with those of Marx and Engels and not those of the IBRP.
 See the article in Revolutionary Perspectives nº 37
 “The creation of this surplus-value makes up the direct process of production, which, as we have said, has no other limits but those mentioned above. As soon as all the surplus-labour it was possible to squeeze out has been embodied in commodities, surplus-value has been produced. But this production of surplus-value completes but the first act of the capitalist process of production — the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus-value thus produced swells to immense dimensions. Now comes the second act of the process. The entire mass of commodities, i.e. , the total product, including the portion which replaces the constant and variable capital, and that representing surplus-value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society. But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the consumption of the bulk of society to a minimum varying within more or less narrow limits. It is furthermore restricted by the tendency to accumulate, the drive to expand capital and produce surplus-value on an extended scale. This is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer, and become ever more uncontrollable. This internal contradiction seeks to resolve itself through expansion of the outlying field of production. But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest. It is no contradiction at all on this self-contradictory basis that there should be an excess of capital simultaneously with a growing surplus of population. For while a combination of these two would, indeed, increase the mass of produced surplus-value, it would at the same time intensify the contradiction between the conditions under which this surplus-value is produced and those under which it is realised” (Capital Vol III, section III, "Exposition of the Internal Contradictions of the Law").
“This contradiction between the production of surplus value and its realisation appears as an overproduction of goods, and this as a cause of the saturation of markets, which in its turn interferes with the system of production, so making the system as a whole incapable of counter-acting the fall in the rate of profit. In fact the process is the reverse. While capitalism is a productive-distributive unity, what happens on the market is nothing but what happens within the relations of production and cannot be otherwise. It is the economic cycle and the process of valorisation which makes the market ‘solvent’ or ‘insolvent’. One can only explain the ‘crisis’ of the market from the starting point of the contradictory laws which regulate the process of accumulation” (Text by Battaglia for the First Conference of the Communist Left, 1977).
 “In production, men enter into relation not only with nature. They produce only by co-operating in a certain way and mutually exchanging their activities. In order to produce, they enter into definite connections and relations with one another and only within these social connections (...) the relations of production in their totality constitute what are called the social relations, society, and, specifically, a society at a definite stage of historical development, a society with a particular, distinctive character. Ancient society, feudal society, bourgeois society are such totalities of production relations, each of which at the same time denotes a special stage of development in the history of mankind” ( Marx, Wage Labour and Capital, in Marx and Engels, Selected Works, p 78-9)
 In its article, the CWO gives us a quote from Marx which seems to indicate that his analysis of the crisis is based entirely on the falling rate of profit: “These contradictions... lead to explosions, crises in which momentary suspension of all labour and annihilation of the greater part of the capital, violently lead it back to the point where it is enabled to go on fully employing its reproductive powers without committing suicide. Yet these regularly recurring catastrophes lead to their repetition on a higher scale and finally to its final overthrow" (Marx, Grundrisse, p 750). If the CWO had taken the trouble to cite the whole passage, they would have seen that, a few lines earlier, Marx talks about the necessity for the “extreme development of the market”, since he explains that "This decline in the rate of profit is identical in meaning (1) with the productive power already produced, and the foundation formed by it for new production...(2) with the decline of the part of capital already produced which must be exchanged for immediate labour...(3)... the dimensions of capital generally, including the proportion of it which is not fixed capital; hence intercourse on a magnificant scale, immense sum of exchange operations, large size of market and all-sideness of simultaneous labour; means of communication etc., presence of the necessary consumption fund to undertake this gigantic process" (ibid p 749). This is what the CWO never talks about and Marx talks about all the time: the “extreme development of the market”.
 “To the same extent as the value and durability of the fixed capital applied develops with the development of the capitalist mode of production, so also does the life of industry an industrial capital in each particular investment develop, extending to several years, say an average of ten years (...) The cycle of related turnovers, extending over a number of years, within which capital is confined by its fixed component, is one of the material foundations of the periodic cycle (in the original French version the word crises is used, as it is in the German original) in which business passes through successive periods of stagnation, moderate activity, over-excitement and crisis” (Marx, Capital, Vol 2, Part 2, Chapter: "The overall turnover of the capital advanced", p 264) “But only after mechanical industry struck root so deeply that it exerted a preponderant influence on the whole of national production; only after foreign trade began to predominate over internal trade, thanks to mechanical industry; only after the world market had successively annexed extensive areas of the New World, Asia and Australia; and finally, only after a sufficient number of industrial nations had entered the arena -only after all this had happened can one date the repeated self-perpetuating cycles, whose successive phases embrace years, and always culminate in a general crisis. which is the end of one cycle and the starting-point of another. Until now the duration of these cycles has been ten or eleven years, but there is no reason to consider duration as constant. On the contrary, we ought to conclude, on the basis of the laws of capitalist production as have just expounded them, that the duration is variable, and that the length of the cycles will gradually diminish” (Karl Marx, Capital, Vol 1, "The general law of capitalist accumulation", Penguin Classics, 1990, footnote p 786).
 Such as the tertiary sector or new industrial branches
 For a more developed argument on this point, both on the theoretical and statistical level, the reader can refer to our article on the crisis in IR 121.
 "I examine the system of bourgeois economy in the following order: capital, landed property, wage-labour; the State, foreign trade, world market…The entire material lies before me in the form of monographs, which were written not for publication but for self-clarification at widely separated periods; their remoulding into an integrated whole according to the plan I have indicated will depend upon circumstances”. ("Preface to a Contribution to the Critique of Political Economy"). These are the opening lines of the Preface. Unfortunately, circumstance decided otherwise and did not give Marx the chance to compete his original plan.
 Marx wrote a whole section of Theories of Surplus Value (book II, chapter 17, section 14) on this question. The title of this section could hardly be more explicit: "The Contradiction Between the Impetuous Development of the Productive Powers and the Limitations of Consumption Leads to Overproduction. The Theory of the Impossibility of General Over-production Is Essentially Apologetic in Tendency".