Underconsumption | A Critique of Crisis Theory

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The Greek Workers Show the Way

May 23, 2010

A reader wants to know how the crisis that has developed in European and world financial markets will affect the current economic and political situation.

In the first week of May, renewed panic hit world financial markets. This time the crisis was centered in Europe and the European government debt market. The immediate cause of the crisis was the fear that the government of Greece would not be able to meet payments on its bonds that were coming due later in the month.

The resulting panic drove the interest rate on Greek government bonds well into the double digits, while stock markets plunged around the world. The crisis began to spread from the bonds of Greece to the bonds of other weaker European powers such as Portugal, Spain and Ireland.

Both Washington and the European governments fear that a major new contraction in credit could set in that would end the weak economic recovery that has been visible since the middle of last year, and renew the worldwide economic downturn—perhaps transforming the “Great Recession” into Great Depression II.

After a round of frantic emergency meetings over the weekend of May 8-9, the European Union, the International Monetary Fund and the U.S. Federal Reserve announced a round of emergency measures to raise almost a trillion dollars aimed at propping up the global credit system and bailing out the holders of Greek government debt—not the Greek people—while preventing the collapse of the euro.

The situation was so grave that French President Nicolas Sarkozy canceled a scheduled visit to Moscow to celebrate the surrender 65 years ago of Nazi Germany. During the frantic meetings, German Finance Minister Wolfgang Schauble collapsed and had to be hospitalized.

The Monthly Review School

February 28, 2010

One of our readers wants to know what is my opinion of the “Monthly Review School.” Before reading this reply, I strongly urge readers to read my reply on the “transformation problem” if you have not already done so. This reply depends in part on the arguments developed in that reply.

The Monthly Review School is a tendency in U.S. Marxism centered on the monthly socialist magazine Monthly Review, which has been published since 1949. Though it has never been organized in the form of a political party, it is held together by certain common ideas in both economics and politics.

The book “Monopoly Capital,” published in 1966 and co-authored by the Marxist economists Paul Sweezy (1910-2004) and Paul Baran (1910-1964), is considered by its members to be the leading work produced by the school. The central figure of the tendency was the remarkable Harvard-trained U.S. economist Paul Sweezy.

In addition to Paul Sweezy, the most important figures in the Monthly Review School included Paul Baran, who like Sweezy was a professional economist and author of the “Political Economy of Growth” (1955); Leo Huberman (1903-1968), a talented popularizer of Marxist ideas; Harry Braverman (1920-1976), who was an industrial worker and trade unionist before joining Monthly Review and whose main work is “Labor and Monopoly Capital”; and economist Harry Magdoff (1913-2006), author of the “Age of Imperialism” (1969) among other works.

The current editor of Monthly Review, is John Bellamy Foster (1953- ), a professor of sociology at the University of Oregon. He can be considered the school’s current leader. He is very knowledgeable in economics, and has written much about Marx’s views on ecology and agriculture.

The Monthly Review School bears the marks of the society that produced it, that of the United States. The United States not only had by far the highest degree of capitalist development in the last century. It was—and is—the center of world imperialism. Along with Great Britain, the United States by the beginning of the current century had become the leading example of the decay of capitalism in the imperialist countries.

Gold Bullion, Jewelry, and the Monetary and Non-Monetary Uses of Gold

January 31, 2010

A reader asked to what extent gold jewelry can be considered money. A second reader wants to know the implications of the crisis theory developed in my posts for the so-called transformation problem—the transformation of values into prices of production as a result of the equalization of the rate of profit.

Both are excellent questions, and they point to the method behind these posts.

When I first conceived the “Project” back in the 1970s, I imagined that I would write up a section on the nature of the law of value, surplus value, money and prices, and competition, and then finish it with a section on crises. Hadn’t that been Marx’s plan?

Well it proved too much for even Marx!

In fact, the basic work on value, surplus value and its division into profit (interest plus profit of enterprise) and rent, money and prices had, after all, been done by Marx. Marx based himself on his predecessors, the bourgeois classical political economists, especially David Ricardo. Therefore, the basic work of criticizing bourgeois political economy was already accomplished.

In order to cut the “Project” down to size, I assumed that readers would already have mastered Marx’s critique of political economy. Not only do we have the work of Marx, but we have many popularizations of that work, though in the nature of things some of these popularizations are better than others.

Factors that Limit the Life Span of the Capitalist System

December 6, 2009

In this final post in the series that began in January 2009, I will summarize the various factors that make impossible the permanent existence of the capitalist system of production.

First, let’s examine the effects of the tendency of the rate of profit to fall. Many Marxists see this tendency as the crucial factor that dooms the capitalist system to perish in the long run.

Capitalism is above all a system of production for profit and only profit. But Marx showed that with the growth of the productivity labor—expressed under capitalism by a rise of the organic composition of capital—the rate of profit tends to fall. A major contradiction of capitalism is that though it is a system of production for profit its very development tends to lower the rate of profit. Doesn’t this make the downfall of capitalism inevitable sooner or later.

Can the World Market Ever Become Exhausted?

November 29, 2009

A century ago, the belief that the world market was headed for eventual exhaustion was widely accepted among the left wing of the Social Democracy, especially in the German-speaking world. But the refutations of Rosa Luxemburg’s “Accumulation of Capital” and her “Anti-Critique,” based on Marx’s volume II diagrams of capitalist reproduction, pretty much discredited the idea that the world-market could ever face a situation ofpermanent exhaustion.

Cyclical crises were viewed as being caused by disproportions among the various branches of production. Such disproportions were viewed as temporary. In the long run, the limits of the market were seen as the limits of production.

Yet no less a Marxist than Frederich Engels himself apparently shared the idea that the world market could become exhausted. Engels believed this not only in the days of his youth but at the very end of his life. In chapter 31 of volume III of “Capital,” Marx’ used British export data to demonstrate that each successive peak in the industrial cycle exceeded its predecessor. Engels included in brackets this interesting note, which I will quote in full:

“Of course, this holds true of England only in the time of its actual industrial monopoly; but it applies in general to the whole complex of countries with modern large-scale industries, as long as the world-market is still expanding [emphasis added—SW].”

So in 1894—the year before he died—Engels could still imagine a time when the world market would no longer be expanding. It is significant that the above remarks of Engels appear in volume III of “Capital,” nine years after Engels had brought out volume II of “Capital,” the volume that includes Marx’s famous diagrams of simple and expanded reproduction. Therefore, presumably Engels was throughly versed in Marx’s theories and mathematical diagrams of simple and expanded reproduction, but he apparently didn’t draw the conclusion that so many other Marxists drew from them. That conclusion being that as long as the correct proportions were maintained between the various branches of production, the market would only be limited by production.

Otto Bauer’s Answer to Rosa Luxemburg

November 22, 2009

Of all the Social Democrats that criticized Rosa Luxemburg’s “Accumulation of Capital,” the most important contribution was that of Otto Bauer (1881-1938). Bauer was a leader of the Austrian Social Democratic Party and became the party’s top leader in 1918.

In order to refute the breakdown theory that Rosa Luxemburg presented in her “Accumulation of Capital,” Bauer developed a diagram of expanded capitalist reproduction that, unlike Marx’s, included a rising organic composition of capital and consequently a falling rate of profit.

Bauer set himself the task of proving that even in the face of a falling rate of profit, expanded reproduction could not only proceed smoothly, it could do so at an accelerating pace. An accelerating rate of accumulation—a rising rate of economic growth—would be necessary if full employment was to be maintained in the face of the rising labor productivity implied in Bauer’s diagram.

Bauer’s diagram of expanded reproduction does illustrate some of the fundamental laws of motion of the capitalist system that Marx’s own diagrams do not. Unlike Marx’s diagrams, Bauer’s diagram includes the rising organic composition of capital, a falling rate of profit, a rising mass of profit, and the faster development of Department I—the department that produces the means of production—relative to Department II—the branch that produces the means of personal consumption.

Bauer’s diagram therefore illustrates some basic laws of motion of the capitalist system that Marx developed only in volume III of “Capital” and therefore, according to Marx’s method of presentation, is unknown in volume II. Not only the quantitative growth of the productive forces but also their qualitative growth are illustrated in Bauer’s diagram of expanded capitalist reproduction.

Economic Crises, the ‘Breakdown Theory’ and the Struggle Against Revisionism in the German Social Democracy

November 15, 2009

Among the assertions of the revisionist movement, led by Eduard Bernstein within the German Social Democratic Party, was their claim that generalized world economic crises were unlikely to recur. Similar claims were made during the 1960s—taken seriously by certain Marxists of those days—as well as during the recent “Great Moderation.”

Bernstein thought that general crises were already a thing of the past in the late 1890s. A little premature to say the least! This was well before such economists as John Maynard Keynes and Milton Friedman, who according to their followers had discovered the way to abolish capitalist crises without abolishing capitalism itself. It seems that such bourgeois claims—always duly echoed by certain forces in the workers’ and left movements such as Bernstein’s original revisionists—are themselves cyclical.

While Bernstein and other like-minded forces in the old Social Democracy held that capitalist crises were fading away, revolutionists like Rosa Luxemburg put great emphasis on the periodic capitalist economic crises. To the revolutionary wing of the Social Democracy, the recurring capitalist economic crises were a sign of the approaching “breakdown” of capitalism, the very “breakdown” that the revisionists denied. The revisionists pointed to the “fact” that crises were becoming less intense and generalized as a sign that capitalism was adapting itself to the new forces of production that were being created.

Bernstein and his fellow revisionists drew the conclusion that the perspective was not a workers’ revolution that would overthrow the political rule of the capitalist class and then transform the capitalist form of economy into socialism. Instead, the revisionists foresaw a gradual and more or less continuous reform of the existing social order in the interest of the workers.

Or, as Bernstein put it, the movement is everything, the final goal is nothing. From the revisionist perspective, a major future capitalist economic crisis would only get in the way of the struggle for reforms. The different views on capitalist crises and their future among the German Social Democrats of a century ago coincided with the divisions between the revolutionists on the left, the revisionists on the right, and the centrists who wavered between the two.

In the years that followed, and down to our own day, the attitude toward crises and the tendency toward a an economic breakdown of capitalism has continued to divide the left and right wings within the workers’ movement.

Historical Materialism and the Inevitable End of Capitalism

November 8, 2009

Unlike idealist schools of history, the historical materialism of Marx and Engels sees both the origins of human life and the succession of economic and political forms that have marked the course of human history as rooted in the origins and transformations of human material production.

Unlike other animals, who are collectors of their means of subsistence, humans are producers who make and use tools to modify raw materials provided by nature. Our ape ancestors over millions of years of both biological and social evolution were gradually humanized as they shifted from merely collecting foodstuffs and began to modify foodstuffs and other raw materials with the aid of tools.

Over the last ten thousand years, human society has evolved from classless primary communism—called hunting and gathering societies by academic anthropologists—to various forms of society divided into ruling non-working classes and direct producers who work for and are exploited by the ruling classes.

The successive ruling classes of history have ruled through a special organization called the state. According to historical materialism, the transition from classless and stateless primary communism to the various early forms of class rule through state organizations took place because of the development of new forces of production—particularly the development of animal husbandry and agriculture—that were no longer compatible with the traditional classless clan-tribal mode of social and economic organization.

In turn, the early class societies themselves were transformed as the instruments of production grew in power. Eventually, the forces of production grew to a point that they required the capitalist mode of production with its world market, free competition and wage labor. Unlike the earlier forms of class rule, capitalist society by its very nature is not local but engulfs the entire globe. It destroys any other form of human society that stands in its way.

Does Capitalist Production Have a Long Cycle? (pt 4)

July 24, 2009

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

“The Great Depression,” wrote bourgeois economist J. Bradford DeLong, “has central place in 20th century economic history.” He explained: “In its shadow, all other depressions are insignificant. Whether assessed by the relative shortfall of production from trend, by the duration of slack production, or by the product—depth times duration—of these two measures, the Great Depression is an order of magnitude larger than other depressions: it is off the scale. All other depressions and recessions are from an aggregate perspective (although not from the perspective of those left unemployed or bankrupt) little more than ripples on the tide of ongoing economic growth. The Great Depression cast the survival of the economic system, and the political order, into serious doubt.”

The economic crisis of 1929-33 though it was in some ways just another cyclical crisis of overproduction clearly involved other factors that converted a “normal” cyclical economic crisis into something quite different. What was it? In order to distinguish the crisis of 1929-33 from normal capitalist cyclical crises, I will call it the super-crisis.

The Great Depression of the 20th century

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

The Ideas of John Maynard Keynes

May 22, 2009

The ideas of the English economist John Maynard Keynes, 1883-1946, achieved their greatest influence during the 1960s and early 1970s. In those days, Keynes was widely credited by his followers among the economists for saving capitalism itself.

The story told by the Keynesian economists went something like this. In the dark days of the Depression of the 1930s, capitalism to all appearances was approaching the end of its road. When the Depression began, the traditional liberal economists, who had long dominated the economics profession, claimed that capitalism would quickly recover from depression without government intervention. Therefore, these economists urged the government to do virtually nothing to encourage economic recovery.

After all, the traditional economists argued, this had always worked in the past. Recovery had always followed recession. But the Depression of the 1930s, the story goes, was different. The economy was showing no signs of recovering on its own. As a result, many young people, including a certain number from the ruling capitalist class itself, were turning toward Marxist ideas. The replacement of capitalism by socialism seemed increasingly likely in the near future.

A Critique of Crisis Theory