The Monthly Review School

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.

The United States, though it has in the past experienced many economic strikes, and its workers have formed at times strong, militant trade unions, has hardly had any workers’ movement—unions and working-class political parties—in the European sense. Indeed, instead of speaking about the workers’ movement, Americans speak of the “labor movement.”

This refers to a trade union movement—now very much weakened—that in politics has had no party of its own but rather supports the Democratic Party. The Democratic Party began as the party of the Southern slave holders and then of the “Jim Crow” Southern segregationists. In the North, both during and after slave times, it was based on racist political machines—such as New York’s Tammany Hall. These machines pretended to defend the white working class against—the African American and other “non-white workers.” (1)

At no time has the Democratic Party been a party of the working class. In this regard, its history is very different from the history of the Social Democratic, labor, and Communist parties of Europe.

Facing this uniquely difficult and often hostile political environment, Marxism has been much weaker in the United States than it has been in Europe, not to speak of many countries of Latin America, Africa and Asia. For example, Paul Baran, the co-author of Monopoly Capital,” who taught at Stanford University in California, was for many years the only tenured avowed Marxist economics professor in the United States. Despite his tenure, Stanford did everything it could to make Baran as uncomfortable as possible in the hope he would resign. But he never did.

When a man like Baran, who originally came from Ukraine and lived at various times in Germany and the Soviet Union—both with very rich Marxist traditions—came to the United States, he found himself in an environment where such basic Marxist concepts as labor value and surplus value were virtually unknown among his fellow professional economists. Baran as well as Sweezy therefore developed their own special terminology in an attempt to reach economics students completely unfamiliar with even the most elementary Marxist ideas. This terminology, however, has led to difficulties as I demonstrate below.

Paul Sweezy and the origins of the Monthly Review School

Sweezy was the son of a vice president of the First National Bank, which when Sweezy was born in 1910 was one of the most powerful banks on Wall Street. First National was one of the corporate ancestors of today’s Citigroup.

The young Sweezy was a brilliant economics major at Harvard during the super-crisis of 1929-33. While attending Harvard, he was trained in the standard neo-classical marginalist economic doctrine that dominated—and still dominates—university economics departments in the United States.

A young man as sensitive and intelligent as Sweezy was increasingly repelled by an economic doctrine that had no explanation for the economic social disaster that was unfolding across the globe and hit the United States itself especially hard.

Sweezy briefly flirted with the Austrian School. This school as we have seen did have an explanation for the economic crisis unlike most other marginalist schools. But Sweezy, despite his bourgeois origins, was far too sensitive to the horrors the majority of the people was experiencing under capitalism—especially during the worst days of the Depression—to become attached to this arch-reactionary tendency. Instead, in his search for an explanation of the economic disaster Sweezy turned toward the left.

He began to consider himself a Marxist after he read Leon Trotsky’s “History of the Russian Revolution.” However, Sweezy did not become a “Trotskyist” but instead became a strong supporter of the American version of the Popular Front. (2)

“I was definitely a partisan of Popular Front tactics,” Sweezy explained to an interviewer late in his life, “and Popular Front politics, which, of course, included the Communists, and to a considerable extent there were periods and situations in which they were the dominant factor. But I, like many other left intellectuals, felt that the main problem in the 1930s was fascism, and anti-fascism was a responsibility, and to play any part in it you had to make alliances and coalitions with whoever was on the same side. When the war finally came, of course, the aim was to defeat fascism—German, Japanese fascism.” (Monthly Review, May 1999)

In the United States, Popular Front politics meant becoming a supporter of Roosevelt’s New Deal. The young Sweezy hoped the reforms of the Democratic administration might break the stranglehold of the capitalist class on American politics and society and thus open the door to still more radical transformations in the direction of socialism.

With this outlook, Sweezy spent several summers working for government agencies in Washington. “That was,” Sweezy explained, “something that was quite usual in the New Deal period, during vacation in the summertime. I spent three summers altogether in Washington. For example, I went to the National Planning Board—later on it became called the National Resources Planning Board—and that’s when I did the study on monopoly groups, under Gardiner Means, who was looking around for people. This was happening in several of the New Deal agencies. They were given a lot of freedom to hire outside, to get people in for a few months, or sometimes for longer. All of the good people in the New Deal period, I think, had some kind of connection with the New Deal agencies.” (Monthly Review, May 1999)

It is hard to imagine today that a young radical intellectual could—or would even want to—obtain a summer job in Washington with a U.S. government agency. Today, the U.S. government is widely recognized as the center of world reaction and counterrevolution. Monthly Review itself has done much to educate the world throughout its more than 60-year history in this regard. But that was not how the U.S. government was viewed by many newly radicalized left-wing intellectuals in the 1930s.

In those days, Adolf Hitler was casting a dark shadow over Europe. There were widespread hopes among the left-wing intelligentsia that the United States and the Soviet Union would form a broad alliance against fascism and world reaction that would advance the cause of both democracy and socialism.

This was the political climate in which Sweezy began to develop the economic ideas that were later to form the foundations of what is now known as the Monthly Review School.

As he moved leftward, the young Sweezy was greatly influenced by John Maynard Keynes and his rejection of Say’s Law, which was and is one of the pillars of traditional economic liberalism—both in its pre-marginalist and marginalist phases. Like other young left-wing economists of the time, Sweezy was attracted to Keynes’s view that the real cause of the mass unemployment of the 1930s was a lack of monetarily effective demand.

The marginalist economic theory in which Sweezy, like all professional economists, was trained assumes “free competition.” Supposedly, free competition, assuming there are no monopolies—to marginalists, the main monopolies are the trade unions—would lead to “full employment” both of workers and machines. Keynes, who was a long-time marginalist economist himself, now challenged this view. The fact that an economist of the stature of Keynes—Britain’s leading bourgeois economist—was saying this was quite an eye opener to the young Sweezy and many other economists of his generation.

Other young economists inspired by Keynes but much more radical than he was in their outlook began to notice that the real world capitalist economy was dominated not by “free competition” of “neo-classical” textbooks but by powerful monopolies—cartels, syndicates and trusts—giant corporations that owned and operated many “enterprises.” How could the presence of powerful capitalist monopolies be worked into the basic marginalist theory that these young economists had learned in their university studies?

Sweezy threw himself into this effort. In his first important work, he examined the working of an early cartel in the British coal mining industry. Despite, or perhaps because of, his youth, he became one of the leaders in the extension of marginalist price theory to situations where monopoly is assumed, as opposed to “free competition.”

In addition, as a non-tenured economics professor at Harvard, he became an associate of the exiled, strongly pro-capitalist marginalist but brilliant economist Joseph Schumpeter. Schumpeter is most well known today for his theory of innovations by capitalist entrepreneurs. Such innovations, according to Schumpeter, drive the capitalist economy forward.

Schumpeter was attracted to Sweezy and in turn influenced Sweezy—and through him in times to come the Monthly Review School—to a certain extent, though Schumpeter’s influence was far less than Keynes. Sweezy’s view expressed in “Monopoly Capital” that the stagnationist tendencies of monopoly capitalism can be overridden by great technological innovations such as the railroad and the automobile reflect Schumpeter’s influence on him and can be considered Schumpeter’s contribution to the Monthly Review School.

Sweezy as a Marxist

As an economic thinker, Sweezy’s starting point was that of a bourgeois marginalist economist, not so different from Milton Friedman. (3) If the Depression had not occurred, it is possible—though considering Sweezy’s critical bent far from certain—that he would have spent his life teaching marginalist economics to generations of college students. But the Depression did occur, and like it did with many other young intellectuals, it threw Sweezy out of the conservative groove for which he seemed destined.

Unlike was the case with many radicalized young intellectuals of the 1930s, Sweezy remained a supporter of socialism throughout the remainder of his long life and, after World War II, a consistent opponent of American imperialism. Even when being left wing went out of fashion, first during the so-called Cold War after World War II, and then again in Sweezy’s old age in the days of Reagan, Thatcher, Deng Xiaoping, Mikhail Gorbachev and Boris Yeltsin, Sweezy stuck to his anti-capitalist, anti-imperialist and socialist guns. This along with his intelligence set him far above the mass not only of the economists but of the radical intellectuals of his generation as a whole. Sweezy was not one to change his ideas according to the changing intellectual fashions of the moment.

As the Cold War set in, Sweezy began to realize that many of the hopes he held during the Popular Front years of the 1930s and 1940s were in fact without foundation. It became clearer that the United States had during World War II really aimed at smashing Germany and Japan as independent imperialist powers, and not at fighting fascism and spreading democracy as Popular Front supporters had hoped. Indeed, the U.S.-dominated Federal Republic of Germany—West Germany—was run by “former” Nazi’s from top to bottom. Hardly what we would expect if the United States had really been motivated by “anti-fascism.”

Like many left intellectuals, Sweezy had been employed during the war in the U.S. Office of Strategic Services, or OSS, the main U.S. intelligence agency and forerunner of the CIA. Today it seems strange that a left-wing intellectual like Sweezy could possibly have ever worked for a forerunner of the CIA. But, in fact, many left intellectuals did, including Paul Baran and Herbert Marcuse.

Since Sweezy was clearly pro-Soviet, he was assigned to the work the agency was doing towards undermining the British empire, the U.S.-supposed ally along with the Soviet Union in the “war against fascism.” In fact, while the United States was waging a shooting war against the German and Japanese imperialists, it was preparing to dismantle the British Empire once the war was over. Britain was going to emerge from the war deeply in debt to the United States—its one-time colony—and it would not be in much of a position to resist U.S. demands.

The end of the Popular Front era and the coming of the Cold War

By the time he launched Monthly Review in 1949, Sweezy had lost most of his youthful Popular Front illusions about the real nature of U.S. imperialism. He had also learned that due to his Marxist views he would not get tenure at Harvard University, despite the fact that he enjoyed the support of no less a figure than Joseph Schumpeter.

The message was clear: If Sweezy wanted a career as a professional economist either in government or the universities, or even the trade unions, he would have to give up his Marxist views and agree to prostrate himself to the now worldwide empire of U.S. imperialism. Sweezy refused to do so. (4)

By following this path, Sweezy proved that he was head and shoulders above the great bulk of the left intellectuals of the Popular Front days. Instead of joining the U.S. imperialist crusade against communism, like many former left intellectuals did, Sweezy, along with Leo Huberman, founded Monthly Review and remained a principled, consistent foe of American imperialism to his dying day more than half a century later.

Sweezy and Marx

The young Sweezy had many advantages over the average radical worker or intellectual when it came to his study of Marx. He was, after all, already a highly accomplished economist. But this was also a disadvantage. He not only had much to learn from Marx, he had a lot to unlearn from his youthful mis-education as a bourgeois marginalist economist. How successful was Sweezy at unlearning the many false bourgeois economic ideas that he had absorbed in his youth?

In 1942, Sweezy published a book, “The Theory of Capitalist Development.” The work was based on notes that he used for his lectures at Harvard, where he was an economics teacher during the 1930s. The book was the product his coming to terms with Marx.

In this work, Sweezy generally defended Marx’s conclusions but with certain reservations. His most important reservation was his rejection of the law of the tendency of the rate of profit to fall. Sweezy supported the view of various bourgeois critics of Marx who denied that there is any real tendency of the organic composition of capital to rise as capitalism developed. Wasn’t technological development as likely to be capital saving—that is, constant capital saving—as opposed to labor saving—that is, variable capital saving? As labor productivity advances, isn’t the cheapening of the means of production and raw materials likely to offset the rise in the technological composition of capital, thus preventing a rise in the ratio of constant to variable capital?

Sweezy seems to have been repelled by the viewpoint of the Grossman-Mattick school that is today quite influential among Internet Marxists. According to the Grossman-Mattick school, the Depression—and capitalist crises in general—was caused by a rate of profit and a rate of exploitation of the workers that was too low to maintain capitalist prosperity. The Grossman-Mattick school held that the capitalists could pull out of their crises if the workers were exploited even more. To Sweezy, this probably sounded much like the views of capitalist reactionaries who opposed the New Deal reforms and the rise of the new industrial unions of the CIO—even though the arguments of Grossman-Mattick came from the pro-revolution left rather than the reactionary right.

In contrast to this view, the left-wing Popular Front-orientated economists of the 1930s saw the origins of the Depression as lying in the lopsided distribution of national income—in Marxist terms, wages plus surplus value—in favor of the capitalists. The Depression was viewed as the result of “underconsumption” on the part of the workers, who could not afford to buy back the products of their own labor. The Popular Front-era young economists, including Sweezy, hoped that a radical redistribution of the national income in favor of the workers—in Marxist terms, a fall in the rate of surplus value—would provide the effective demand necessary to cure the Depression and prevent the recurrence of new economic crises and their associated mass unemployment.

Sweezy, therefore, agreed with the Marx critics who denied that there was any downward tendency in the rate of profit due to a tendency of the organic composition of capital to rise. Later, in “Monopoly Capital,” he went further and claimed that under monopoly capitalism the law of the tendency of the rate of profit to fall had been replaced by the law of the tendency of the surplus to rise. (5)

Sweezy on Marx’s theory of value and surplus value

“There is,” Sweezy told his interviewers, “in U.S. and international Marxism, the split between those who want to throw out very much that is essential to and valuable in Marxism—like the centrality of class, or labor value theory and its corollaries—and the other, polar opposite tendency, to find everything in Capital. It’s between the real revisionists who want to throw it all out or change it all around, and those who don’t want to change anything. We were very much between those two poles in the sense that we wanted to preserve the central methodologies, spirit, and character of Marxism, but not in a fundamentalist and dogmatic way.” (Monthly Review, May 1999)

Sweezy specifically rejected the views of Ian Steedman, who as we saw in my last reply urged Marxists to abandon the law of labor value and with it Marx’s theory of surplus value. But Sweezy also warned against so-called “fundamentalists” who want to “find everything in Capital” much like a certain type of Christians who want to find the answers to everything in the Bible.

Of course, there are dogmatic Marxists who have memorized certain phrases from Marx, Engels, Lenin and so on and repeat them like trained parrots, frequently out of context. Still, I believe that it is people like Steedman, who urge the abandonment of the law of labor value and would lead the socialist movement into a blind ally of vulgar economics, who represent by far the greater threat. Behind the Steedmans lie the professional Marx refuters—the hired guns of capital—that never have much difficulty finding employment in the universities—unlike Sweezy! And behind the professional Marx refuters lies the power of the capitalist class itself.

Compared to them, the “dogmatic Marxists” are intellectual lightweights who, especially in our reactionary times, have no serious social forces behind them.

I think we should be very careful when he borrow terms from theology—like dogma, orthodoxy, and fundamentalist—and apply them to Marx’s work. Bourgeois Marx refuters love to do this, claiming that Marx’s work is not really science but a form of religion. But in reality the work of Marx belongs not to the sphere of religion—theology—at all but to science.

“Capital” is a work of science much like Newton’s “Principia Mathematica,” Darwin’s “Origin of the Species,” and the works of Albert Einstein. No more than Newton, Darwin or Einstein did Marx have the “last word” on anything. The concept of the “last word” belongs properly not to science but to theology, the view that certain writings are not the work of human beings but of God Himself and cannot be questioned by mere humans. Such views are completely alien to Marx, who never claimed to be anything but a man.

All the same, we disregard those “who have seen farther than others because they had stood on the shoulders of giants” at our peril. Even today, for example, though Newton’s famous law of gravity has been superseded by Einstein’s theory of general relativity, the orbits of artificial satellites continue to be calculated according to Newton’s law of universal gravitation. In their proper domain, Newton’s inverse square law of gravity continues to be adequate, though for other problems such as explaining certain features of the orbit of the planet Mercury, Newton’s law of gravity is inadequate and we need the more powerful theory of general relativity.

However, Einstein could not have developed general relativity without being throughly conversant in Newtonian physics and Newton’s law of gravity. Nor could he discard the powerful mathematical tool that Newton invented—differential and integral calculus. Indeed, Einstein had to spend years deepening his own knowledge of calculus, which by then had been developed beyond anything that Newton had achieved, precisely in order to complete his theory of general relativity.

Nor is Einstein’s general theory of relativity the last word. Under certain extreme conditions, Einstein’s laws themselves break down. Today, physicists are striving to go beyond it by developing a theory of “quantum gravity,” which, however, is proving extremely difficult to do. Just like Einstein would not, however, have been able to go beyond Newton if he had not throughly mastered Newtonian physics, the physicists who work on the various attempts to develop a theory of quantum gravity must have throughly mastered Einstein’s general theory of relativity among other things, the very theory they are attempting to supersede.

Similarly with Darwin. The discovery of the gene by Mendel, and then DNA and RNA, has greatly deepened our understanding of evolution beyond what Darwin was able to achieve. But Darwin’s great discoveries still form the foundations of modern biology. (6)

The same is true of any attempt to extend, much less supersede, the economic theories developed by Marx.

Marx’s economic theories are thoroughly grounded on the work of his predecessors, as anybody who has ever seriously read Marx quickly discovers. Marx like Newton saw farther than his contemporaries because he “stood on the shoulders of giants” such as, for example, David Ricardo and other economists and thinkers both well and little known. (7) Today, anyone who wants to advance the science of economics further must in turn stand on the shoulders of the giant Karl Marx and his law of labor value.

We can’t find the answer to all things in “Capital” or any other book by a human being, but the price of not fully mastering “Capital” is likely to be very steep for anyone attempting to advance economic science beyond the level achieved by Marx.

‘Monopoly Capital’

The work “Monopoly Capital,” first published in 1966 and co-authored by Paul Baran and Paul Sweezy, forms the foundation stone so to speak of the Monthly Review School. To what extent is “Monopoly Capital” a great work of science such as “Principia Mathematica,” the “Origins of the Species” and “Capital,” or to what extent is it simply a popularization of certain Marxist ideas in terms more familiar to young economics students of the 1960s toward which it was aimed?

Unlike Sweezy’s earlier work, “The Theory of Capitalist Development,” Baran and Sweezy did not use such basic Marxist categories as value and surplus value in this work explicitly. Sweezy himself indicated that this was because he was trying to reach an audience that was unfamiliar with these Marxist concepts, university students who were studying (marginalist) economics, much like Sweezy himself had done a generation earlier.

This is not unprecedented in Marxist literature. For example, Lenin’s famous 1916 pamphlet “Imperialism, a Popular Outline,” also does not mention value and surplus value as such. Lenin did this because he, like Baran and Sweezy later, was also trying to reach people who were unfamiliar with even basic Marxist ideas. This is why Lenin called his pamphlet a popular outline.

As important as Lenin’s “Imperialism” is, it would be a great mistake to imagine that this work has the same relationship to “Capital” that Einstein’s theory of general relativity has to Newton’s theory of gravity. Lenin clearly had Marx’s basic economic discoveries clearly in mind when he wrote the pamphlet. The soon-to-be leader of the Russian Revolution did not believe that the development of capitalism in his day had invalidated any of Marx’s basic economic discoveries. If Lenin had believed otherwise, it would have been his duty to write not a “popular outline” for people who had not mastered Marx but on the contrary a full-scale work for people who had mastered Marx’s theory explaining where Marx had gone wrong or how economic development since the time of Marx had invalidated certain aspects of Marx’s economic theory.

It seems, however, that Sweezy—and his co-author Paul Baran—believed that capitalism had changed far more fundamentally than Lenin or any other early 20th-century Marxist believed it had. “Neither Lenin nor any of his followers,” Baren and Sweezy wrote in “Monopoly Capital,” “attempted to explore the consequences of the predominance of monopoly for the working principles and ‘laws of motion’ of the underlying capitalist economy. There Marx’s Capital continued to reign supreme.”

This implies that what is needed is not a “popular outline” like Lenin’s “Imperialism” but a new “Capital” that would explain how the new phase of capitalism—if it should really still be called capitalism—emerged out of the economic laws discovered by Marx. Is the law of labor value still valid for the new phase of capitalism, assuming it is still really capitalism? And if the answer is yes, then how had the operations of the law of value changed between the capitalism of Marx’s day and the new monopoly economy that came to dominate the 20th century? For example, is Marx’s theory of surplus value still valid for the new monopoly economy?

Yet Baran and Sweezy described their work as an “essay.” It certainly is not a book that takes us beyond “Capital” in the way that the work of Einstein takes us beyond Newton’s laws of gravity.

For example, if the economic theory of “Capital” needs to be replaced, or to use the words of Baran and Sweezy, “Marx’s Capital should no longer reign supreme,” Baran and Sweezy had the duty to explain exactly how the operations of the law of value have been modified or been replaced altogether in the monopoly-dominated economy of the 20th century.

However, anybody who is familiar with “Capital” and “Monopoly Capital” knows that the latter work does nothing of the kind. “Monopoly Capital” does not develop Marx’s law of value, surplus value, and money and price for the new conditions of the 20th century economy. Instead, such crucial economic categories as value and money are not dealt with at all.

The surplus

When it comes to surplus value—or the economic surplus—Baran and Sweezy offer this definition: “The economic surplus, in the briefest possible definition, is the difference between what a society produces and the costs of producing it.”

There are serious problems with this definition. First, Baran and Sweezy talk about societies in general. But what Baran and Sweezy should have addressed if the old capitalist economy had been changed as much as they claimed by the rise of monopoly is, what is the specific form that surplus product takes in the new monopoly-dominated economy, and how does this form differ, if it does differ, from the surplus value of the “competitive” capitalist economy analyzed by Marx?

Indeed, if you ask any businessman where profit—the surplus—comes from, he will explain that he first calculates how much it costs him to produce a commodity, and then he adds a certain profit onto that cost to calculate the price he must charge if he is to realize a “fair” profit without which he will not be able to remain in business. In economic science, we have to do better than this. This is especially true if we are trying develop an economic theory that goes beyond that developed by Karl Marx.

Indeed, after “Monopoly Capital” was published, there was a debate among reviewers on whether or not Baran—who died before the book’s publication—and Sweezy still believed that Marx’s law of value described the basic operations of the economy of the 20th century. One reviewer, David Horowitz, who was then a young left-winger—he later became an extreme reactionary—hailed Baran and Sweezy for junking Marx’s law of labor value—much like Ian Steedman would later urge the socialist movement to do.

How did Marx explain his theory of “the surplus”surplus value? In contrast to Baran and Sweezy’s definition of “the surplus,” Marx explained that in all forms of class society the surplus product represents unpaid labor performed by the actual producers for the ruling class. The form that the surplus product takes, however, varies with the particular form of class society.

Take the societies based on chattel slavery, where the worker—the slave—is the private property of the boss. Chattel slavery creates the appearance that all labor that is performed by the actual producers—the slaves—is unpaid labor. Indeed slave labor is frequently described as a situation where the worker-slaves work for nothing.

Is the slave’s labor really entirely unpaid labor as it appears to be? No. If the slave owners provided no means of subsistence whatsoever to the slaves, the slaves would quickly die. And the means of subsistence that the slave owners must provide for the slaves if they wish to remain slave owners are produced through human labor. Therefore, despite appearances to the contrary, the slaves are paid for part of the labor they perform.

Under capitalism, with its wage labor, the opposite illusion prevails. It appears that the workers are paid for all the labor they perform. The neo-classical marginalists build their whole theory of distribution as the reward earned by each “factor of production” around this appearance.

It was Marx’s greatest discovery that under capitalism, despite the appearance that all the labor performed by the “free wage workers” is fully paid for by the capitalists, the workers are in reality forced to perform under pain of starvation a considerable amount of unpaid labor for the capitalist class. Indeed, because of the vast growth of labor productivity under capitalism compared to that under slavery or feudalism, the ratio of unpaid to paid labor can rise much higher than was the case in those earlier modes of production and exploitation.

Only under feudalism, where the workers—the serfs who are bound to the soil—work part time on their own land for themselves and part time on the lord’s land for the lord, is the essence of surplus labor out in the open.

Paul Sweezy later indicated that he upheld the continuing validity of Marx’s theory of value and surplus value under monopoly capital. He expressed regret at the confusion that the substitution of the term “the surplus” for surplus value had caused. Sweezy also made clear that he rejected Ian Steedman’s suggestion that the socialist movement abandon the law of labor value.

But did Baran and Sweezy really apply Marx’s law of value and surplus value in “Monopoly Capital” even if they did not employ Marx’s terminology?

While the supporters of the Monthly Review School might disagree, I can find no trace of Marx’s theory of value and price in “Monopoly Capital.” Instead, Baran and Sweezy apply the marginalist theory of price and its extension to the situation of monopoly that the young Sweezy himself played a key role in developing back in the 1930s.

“The appropriate general price theory,” Baran and Sweezy wrote in “Monopoly Capital,” “for an economy dominated by such [monopoly] corporations is the traditional monopoly price theory of classical and neo-classical economics [emphasis added—SW].” (8) Neo-classical economics is understood among professional economists as another name for marginalist economics.

First, is the price theory of the classical and neo-classical economists the same? Not at all.

The classical economists, especially Ricardo, analyzed value and price in terms of the labor law of value, as I explained in my last reply. The so-called neo-classical economists—the marginalists—specifically rejected all forms of the law of labor value. Instead, they replaced that law with the theory that prices reflect scarcity relative to subjectively determined human needs. Therefore, the classical theory of price is hardly the same as the marginalist or neo-classical theory of price.

And what about Marx? In this sentence, Baran and Sweezy seem to be completely unaware that Marx had anything to say about price at all.

This slipping back into marginalism shows that Sweezy—and apparently Baran, as well—had not unlearned the false marginalist theories that he was taught in his youth. Later, Sweezy supplemented the marginalism of his youth with the theories of both Keynes and Marx. Apparently, the authors of “Monopoly Capital” held three theories in their heads—one was neo-classical marginalism, two the theories of Keynes, and three the theories of Karl Marx.

Sweezy—and Baran—were capable of going from one theory to the other in the most naive way without realizing apparently that these economic theories are fundamentally incompatible with one another. Unfortunately, in “Monopoly Capital,” it is theories ultimately derived from the marginalists and Keynes that dominate—not those of Marx.

Under the influence of marginalism, Sweezy believed that before the rise of monopoly in the final years of the 19th century, the capitalist economy really did tend towards “full employment” as the marginalists claimed. Later, however, prices that had previously been determined through free competition as described by the marginalists—prices being equal to marginal cost—were modified. A modified marginalist price theory was needed—prices being equal to marginal revenue—to described the formation of these monopoly prices. (9)

Unfortunately, in “Monopoly Capital,” by starting with the marginalists rather than Marx, Baran and Sweezy doomed themselves to a superficial and ultimately incorrect analysis of the entire question of monopoly prices.

John Bellamy Foster on ‘Monopoly Capital’

“In Monopoly Capital,” Foster writes, “Baran and Sweezy described advanced capitalism, exemplified by the United States, as an economic and social order dominated by giant, monopolistic (or oligopolistic) corporations—the product of the concentration and centralization of production described by Marx in Capital. The central trait of the system was a tendency for surplus (value) to rise—a phenomenon made possible by the effective banning of genuine price competition in mature, monopolistic industries, together with continually rising productivity.”

In the first sentence, Foster points out that in “Capital” Marx predicted production would become more concentrated—the industrial production carried out by each individual industrial capital would grow—and more centralized—the number of individual capitals—corporations—engaged in particular lines of production would decline. He also indicates that, following Sweezy’s later clarifications, “the surplus” is identical to surplus value. So far so good.

Using Marx’s law of labor value to say the productivity (of labor) is rising is exactly the same thing as saying that the values of commodities are falling. But since according to “Monopoly Capital” effective price competition among the dominant monopolistic industries is banned, they are able to charge prices that are above both their direct prices and prices of production of the commodities they produce.

Over time the general price level will increasingly detach itself from the underlying labor values, not only during the boom phase of the industrial cycle—or upward long waves—but on a permanent basis. This is where the differences begin to appear between the theory of prices derived from marginalism that Baran and Sweezy employ in “Monopoly Capital” and the theory of values and prices of Marx.

Remember, according to Marx’s theory of price, prices are specific quantities of use values of the money commodity—gold bullion. Ultimately, therefore, prices represent weights of gold bullion—money material.

Do the industrial capitalists (corporations) that produce gold bullion, or money material, have any monopoly power of their own, and can they ban competition among themselves at least in terms of the ratio at which they exchange their commodity—gold bullion—with other commodities? Certainly, the gold bullion-producing industry should be ranked as a mature industry. It has been around in one form or another for thousands of years, and it been organized in corporate form for many decades.

If the gold mining and refining industry that produces gold bullion has the same monopoly power as other mature monopolistic industries, wouldn’t their monopoly power therefore exactly cancel out the monopoly power of the industries whose commodity prices are defined in terms of the very commodity that the gold capitalists (corporations) produce?

In this case, the monopolies will have no ability to raise the general price level—leaving aside cyclical fluctuations—above the levels determined by the prices of production—which are ultimately determined by the relative labor values of both the money commodity and all other commodities. See my reply on the transformation problem for a detailed discussion of this question.

But perhaps the industrial capitalists (corporations) that produce gold bullion have no such monopoly power? Perhaps among them the most cutthroat competition rages. Still, even then there will be strict limits on how far the monopoly-dominated industries will be able to raise the general price level of their commodities above the general level of the prices of production of all other commodities.

If our non-gold producing monopolies raise the general price level too far above the direct and production prices of commodities, the gold bullion producing industry will not be able to make any profit at all. And no industrial capitalist (corporation) will make a commodity if there is no profit in it—not even if the commodity is gold bullion—money itself.

When the industrial capitalists (corporations) engaged in the production of gold cannot earn a sufficient profit, gold production declines. Since the turn of the 20th century, this happened on two occasions, and we are witnessing it once again at the beginning of the new century.

When World War I broke out in Europe in August 1914, prices had already been rising with only brief interruptions for 18 years. Then the outbreak of the war disrupted expanded capitalist reproduction and sent prices measured in terms of gold bullion—not just in terms of depreciated currency—soaring.

As the market prices of commodities rose above their prices of production, the result was a sharp drop in the level of gold production due to the sudden collapse of the profitability of gold mining and refining industries. This was followed by the huge deflation of prices in 1920-21 in terms of gold—and currencies that were not devalued or only moderately devalued against gold.

A similar price deflation repeated itself between 1929 and 1933, the years of the super-crisis. These price crashes far exceeded anything that had occurred before in the history of capitalism. They certainly don’t fit with the claim made in Monopoly Capital that price competition among the dominant monopoly corporations had been suppressed giving them the power to prevent the prices of their commodities from falling.

Yet these collapses of the general price level occurred not during the period of competitive capitalism but well within the period of monopoly capitalism. In terms of gold—but not in terms of devalued dollars—prices were further lowered after the devaluation of the U.S. dollar by 40 percent by the Roosevelt administration between 1933 and 1934.

Then the war and the industrial cycles that were dominated by the boom phase that followed the war led to a considerable rise in the price level once again. This perhaps caused the authors of Monopoly Capital to forget about the violent price deflations that had occurred in 1920-21 and 1929-33, well within the monopoly capitalist era. In term of devalued dollars prices in the United States reached all-time highs.

But in terms of gold bullion, prices were still below the level that prevailed at the end of World War I. All the rise in general prices relative to the prices that prevailed right after World War I reflected Roosevelt’s 40 percent devaluation of the U.S. dollar. By 1966, the very year that Monopoly Capital was published, a credit crunch suddenly developed that pointed to a new deflation of the general price level.

The only way that prices in terms of U.S. dollars and other paper currencies were kept on an upward trajectory was through a new massive devaluation of the dollar and the other currencies that were more or less linked to it in terms of gold—real money. In order to avoid classic deflation—a fall in the general price level in terms of currency—a massive devaluation of the U.S. dollar occurred during the 1970s that far exceeded Roosevelt’s devaluation of the dollar in 1933-34.

Instead of a 40 percent devaluation, there was about a 90 percent devaluation of the U.S. dollar once the dust settled in the wake of the “Volcker shock” of 1979-82. Instead of the dollar price of gold hovering around $35 an ounce like it did between 1934 and 1968, the dollar price of gold was hovering around $350.

In terms of gold—real money—the general price level has never returned to the level that prevailed in the 1960s when Baran and Sweezy wrote Monopoly Capital.

As we all know, in the fall of 2008 panic gripped the global financial markets, and it looked for awhile as if the general price level was about to collapse again. The only thing that prevented a huge decline in dollar prices was the doubling of the “monetary base” by the U.S. Federal Reserve System over a few months.

The result has been a new devaluation of the U.S. dollar as measured by the dollar price of gold. The dollar price of gold has risen from about $675 an ounce when the crisis began in the summer of 2007 to around $1,100 today, an effective devaluation of 39 percent, so far.

Overall since the beginning of the monopoly capitalist era around 1900, the amount of gold a U.S. dollar represents in circulation has fallen from around 1/20.67 to 1/1,100 troy ounce of gold. Or what comes to exactly the same thing, the gold represented by a thousand U.S. dollars has fallen from 48.4 troy ounces of gold in 1900 to 0.91 troy ounce today. The long-term rise in the general price level that has occurred since the beginning of the age of the dominance of the monopoly corporations is therefore entirely explained by the huge debasement of currencies in terms of gold bullion, the money commodity.

Other eras long before the rise of monopoly capitalism, or capitalism in any form, have witnessed similar “price revolutions” when the precious metal content of the coinage was reduced allowing the state to increase the quantity of debased coins in circulation. The result was that the price of bullion rose in terms of the debased coins and with it the prices of commodities in general in terms of the debased coinage.

Today, the same result is achieved by running the printing press or its “electronic equivalent” and allowing the currency price of gold to rise. If the rules of the international gold standard still applied, this would not be allowed, and the general tendency of prices since World War I would, across cyclical fluctuations, have been strongly downward.

In explaining the “tendency of the surplus” to rise by the alleged ability of the monopoly corporations to raise prices without regard to falling labor values, Baran and Sweezy were chasing a paper illusion. That was the penalty they paid by starting with the marginalist theory of price, which is based on mere appearances as opposed to the science of Karl Marx.

More on monopoly capitalism and price

This is not to say the capitalist monopolies—cartels, syndicates and giant corporations, also known as trusts—are an illusion. They are very much a reality.

Once capitalist enterprises have reached a certain size—or concentration of capital—the “barriers to entry” become considerable. The close ties between the monopolistic industrial firms and the banks work in the same direction. Where will any would-be challengers to the existing monopolies get the financing?

For a much longer period of time than would have been possible in pre-monopoly days, certain industries will be able to maintain their selling prices at levels far above the prices of production of their commodities. They do this by limiting production, limiting productive capacity, and dividing up the market among themselves, thus keeping competitors out. In this way, they are able to realize a rate of profit on their capital above and beyond the average rate of profit.

But this process can only go so far. In order to maintain their monopoly prices, the monopolies—cartels or trusts—must limit production. As Baran and Sweezy understood, this means they will accumulate sums of idle money capital creating, as Baran and Sweezy put it, a problem of “absorbing the surplus.”

If the monopolies do not invest this capital—or, to use Marx’s words, transform their realized surplus value into new industrial capital—more and more of their total capital over time will consist of idle money capital that does not produce a penny of surplus value—or profit. (10) Therefore, the rate of profit on their total capital—this is what counts for the capitalists—will steadily decline, and their monopoly super-profits will disappear, as Baran and Sweezy themselves pointed out.

In the real world, the monopolies will throw their idle money capital onto the money market—with or without the intermediation of the banks or other financial institutions—so that they will realize at least the average rate of interest on their money capital. However, the rate of interest will still be below the average rate of profit, not to speak of the rate of monopoly profit. So over time, the rate of return on our monopolists’ capital will tend to fall below the average rate of profit and towards the rate of interest.

Therefore, monopolies under pain of a fall of the rate of profit on their total capital below the average rate of profit and towards the rate of interest—which itself will be doomed to fall towards a mathematical limit of zero as more and more of the total capital consists of idle money capital—must sooner or later transform their “surpluses” or accumulated profits into new industrial capital—in their own lines of production causing production to rise once again, thereby undermining monopoly prices, or invest in other lines of industry causing production to rise in those lines of industry and undermining their monopoly profits and prices. In this way, the tendency of super-profits to be leveled once again to the average rate of profit inevitably asserts itself sooner or later and with it the fall of market prices towards—and periodically below—the prices of production.

This is why—once the effects of currency devaluation against gold is taken into account—the monopolies have been so unsuccessful over the long run in maintaining the general price level. The lack of success of the monopolies in maintaining the general price level has forced governments and their “monetary authorities,” fearing the ruinous effects of collapsing general price levels, to resort at periodic intervals to drastic currency devaluations.

But these periodic devaluations lead to problems of their own such as the tendency of the rate of interest to rise at the expense of the profit of enterprise, thereby undermining the very incentive to produce surplus value. Indeed, in my opinion the sky-high interest rates that prevailed after the Volcker shock that wiped out the profit of enterprise was behind the “financialization” phenomena of the last few decades.

Over time the existing monopolies must decay and their monopoly profits and monopoly prices disappear. The idle masses of realized surplus value in money form—surplus in Baran and Sweezy’s terminology—are thrown onto the money market where they become converted into the “finance capital” that sooner or later is employed in creating new centers of industrial production that undermine not only the old centers but the old imperialist countries themselves.

The result is the uneven development of capitalism that Lenin described in “Imperialism.”

The rise of new centers of industrial production—as old centers of industry decay—gives rise to new overproduction crises, stagnation, intensified competition and the rise of new stronger monopolies that are then doomed to repeat the same cycle over again.

Some examples from the concrete history of monopoly capitalism

When it comes to very large enterprises, the state often plays a decisive role in their launching. U.S. President Obama has just announced the U.S. government will be providing loan guarantees to build the first new nuclear power plants in the United States in 30 years. Another example is the U.S. government’s nursing the new “General Motors” as a kind of “gigantic start-up enterprise” in an a attempt to create what in effect will be, if it succeeds, a new for-profit automobile manufacturing corporation.

Therefore, old monopolies are often challenged by rising enterprises located in other countries where governments provide crucial backing. An example was the rise of German, Italian and Japanese firms in challenging what had been the almost unchallenged monopoly of Detroit’s “big three”—General Motors, Ford and Chrysler—after World War II. (11)

In 1946, it looked as if that big-three automobile monopoly would last forever. Washington indeed played with the idea at the end of World War II of using state power to forcibly de-industrialize both Germany—the so-called Morganthau Plan—and Japan, which would have further consolidated the Detroit automobile manufacturing monopoly, among other things.

But the inevitable resistance to dismantling of the industries of Germany and Japan, which would have destroyed the livelihoods of millions of German and Japanese workers at a time when the Soviet Union and the Communist parties associated with it had vastly increased influence and prestige due to their role in defeating Nazi Germany, forced Washington to drop the idea.

Instead, the U.S. government decided to encourage renewed capitalist development in Western Europe and Japan in a bid to drown the postwar radicalization of the workers in those countries in a wave of capitalist prosperity—which included very real concessions to those workers. In addition to de-radicalizing the workers of Western Europe and Japan, Washington aimed to undermine the construction of socialism in the Soviet Union and its new Eastern European allies by surrounding them with “thriving consumer societies.” Unfortunately, Washington’s policies were highly successful on both counts.

But U.S. imperialism paid a price. Within a few decades, it faced growing competition from Western Europe and Japan in auto, steel, chemical and other industries. This meant vanishing super-profits and then vanishing profits for the U.S. auto, steel and other once dominant U.S. monopolies whose entrenched power had so impressed Baran and Sweezy as late as 1966. Within 15 years of the publication of “Monopoly Capital,” the once mighty U.S. steel producing industry was largely in ruins.

In the final stages of the “cold war” against the Soviet Union, Washington did everything it could to encourage the pro-capitalist reforms of the new Deng Xiao-ping leadership in the Peoples Republic of China. This policy was again highly successful. It helped cement the de facto alliance between China and the United States against the Soviet Union in the final stages of the Cold War.

The successes of the capitalist reforms in China greatly strengthened the “pro-perestroika” right wing of the ruling Communist Party of the Soviet Union in its struggle with the pro-socialist construction wing of the ruling Communist Party. Gorbachev and his “reform”-minded supporters could point to the newly rich in China and say we, too, could live like that if we adopt similar polices.

U.S. imperialism achieved a huge victory when far from thriving under the policies of the pro-capitalist “reformers,” the Soviet Union instead collapsed. But here, too, a price was paid by American imperialism in the form of growing competition from China.

Crisis theory missing in the Monthly Review School

While the Monthly Review School to its credit has put a great deal of emphasis on excess capacity, chronic unemployment and capitalist stagnation or slow growth, it has had very little to say about periodic crises of overproduction. Indeed, the term “overproduction” does not even appear in the index of “Monopoly Capital.”

I believe that this was a hangover from his early marginalist mis-education that Sweezy never really overcame. He, too, tended to assume that the capitalist economy-based “free competition,” such as prevailed in the first three-quarters of the 19th century, really did tend towards “full employment and growth,” as his Harvard mis-educators no doubt “explained” to him. Sweezy—as did many younger left-wing economists of the 1930s—assumed it was the growth of the capitalist monopolies—cartels and trusts—or giant corporations—that was behind the business stagnation and mass unemployment of the 1930s.

I think this inverts the relationship between economic stagnation—actually crises—and monopoly. Marx traced the beginning of the world capitalist system back to the 16th century. But a he pointed out that certain elements of capitalist production can be traced all the way back to Italy in the 14th century. Born between the 14th and 16th centuries, the capitalist mode of production has been developing for about 500 years now.

But the periodic crises of generalized industrial overproduction on the capitalist world market only began with the crisis of 1825. Considering the 500-year history of capitalism and its world market, these crises are still even today a relatively new phenomena. Within 75 years—a mere human lifetime—of the first generalized capitalist crisis of overproduction in 1825—we are well into the era of the capitalist monopolies. Indeed, Lenin in “Imperialism” dates the beginning of the domination of the monopolies—the imperialist era proper—as the year 1900, exactly 75 years after the first modern global economic crisis of generalized industrial overproduction.

Therefore, the periodic crises of generalized industrial overproduction began just before the rise of modern capitalist monopoly. In these posts and replies, I have shown that the tendency of production to grow faster than the market is deeply rooted in commodity production itself. Indeed, it is rooted in the split between exchange value and use value, which contains in embryo the polarization between the commodity and its independent value form—money.

But it wasn’t until it became possible to increase industrial production at a very rapid rate through the application of steam-powered mechanization to the production process that recurring periodic crises of overproduction began. Once they appeared, modern capitalist monopoly soon followed.

Every crisis is followed by a sometimes longer sometimes shorter period of stagnation or depression. During the stagnation phase of the industrial cycle, a huge amount of potential productive capacity and human labor power lies idle.

What is the effect of this crisis-spawned stagnation on competition? It intensifies the competition that leads to the formation of monopolies. The monopolies then introduce elements of stagnation of their own aimed at staving off new crises. For example, new investment is curtailed in order to limit excess capacity, and certain inventions are bottled up.

But only for awhile. Sooner or later, a sudden expansion of the market occurs, and the tendency of capitalist production to expand without limit reasserts itself. Once again this ends in a new crisis (or crises) of the general overproduction of commodities but on a higher level of development. This ends in renewed stagnation, increased competition, more centralization of capital and the emergence of new monopolies.

In this way, we can explain both the long stagnations, accelerated competition leading to monopoly, and new explosive surges of capitalist growth followed by new crises, new stagnation and new leaps in the centralization of capital—such as we are seeing once again today. Is this not the real concrete history of monopoly capitalism since the turn of the 20th century?

Baran and Sweezy’s attempt to explain away periods of growth unconvincing

Baran and Sweezy’s theory that it is monopoly itself that is the main cause of stagnation implies a steady deepening of the stagnationist tendency, since modern monopoly began to develop in the 1870s. Indeed, Baran and Sweezy held that stagnation is the normal state of the monopoly-dominated capitalist economy. In “Monopoly Capital,” Baran and Sweezy therefore are forced to explain away periods of rapid capitalist growth that have occurred since the monopolies appeared.

Automobilization and the 1920s prosperity

It is here that I find their explanations particularly unconvincing. For example, Baran and Sweezy held that the prosperity of the 1920s was largely caused by by an epoch-making innovation, the automobile. Here we see the influence of Schumpeter. Not only automobile production and the production of the raw and auxiliary materials needed to produce automobiles but a vast new infrastructure of roads, gasoline stations and so on had to be created. This in turn made possible suburbanization—the building of housing plus large shopping malls and schools located in the suburbs—all of which created huge orders for industry.

But this process was only in its early stages when the super-crisis of 1929-33 bought it to a screeching if temporary halt. Shouldn’t the super-crisis have occurred several decades later, when the process of automobilzation and suburbanization was largely completed? Indeed, on a global basis the process of automobilization still has a long way to go even today.

Worse yet are the claims of Baran and Sweezy that the growth of unproductive expenditures such as military expenditures and the “sales effort” can transform monopoly-induced capitalist stagnation into surging capitalist growth. Here we see the influence not of Schumpeter, who always opposed these kind of theories, and still less of Marx, but of Keynes.

Certainly a sudden shift to a war economy after a long period of crisis-induced capitalist stagnation, such as that of the 1930s, can lead to a sudden surge of production and dramatic drops and even the virtual disappearance of unemployment. Men like Baran and Sweezy who were then alive were undoubtedly greatly impressed by the sudden transition from what appeared to be the endless stagnation of the 1930s to the “prosperity” of the U.S. war economy.

However, the conversion of factories and other productive forces that normally produce the means of production and the means of subsistence for the workers to war production undermines the entire process of capitalist expanded reproduction over the long run. The growth of unproductive expenditures would better explain stagnation than growth.

Between the 1930s and 1960s, Sweezy seems to have believed that economic crises could always be avoided if the government was willing to spend sufficient sums of money. In “Monopoly Capital,” Baran and Sweezy even claimed that tax-financed government expenditures would stimulate the economy—even if the money was spent in perfectly wasteful ways.

They claimed that tax-financed expenditure had a multiplier effect of one. That is, for every dollar the government raised in taxes and spent, an extra dollar of monetarily effective demand would be created above and beyond what would have existed without the taxes and expenditure.

Is this true? If the taxes come from the wages of the workers, no new net demand will be created. The purchases by the state or its dependents will be offset by reduced purchases by the workers.

Suppose at least some of the taxes fall on profits. Baran and Sweezy apparently assumed that profits that are taxed away by the state would otherwise be hoarded by the capitalists, while the fall in the after-tax rate of profit will have no negative effects on the capitalist rate of investment—the replacement of old and the creation of new industrial capital—at all.

These are extremely unrealistic assumptions. Using these types of assumptions, Baran and Sweezy wrongly predicted that the corporations would press for more and more government spending, even if it meant taxing themselves, in order to solve their problems of insufficient demand! Things have not turned out that way! No capitalists will pay their customers to purchase their commodities. They are interested in profits, not merely sales for the sake of sales.

From Popular Front to Cold War

In his youthful Popular Front years, Sweezy had been optimistic that this alleged need of the capitalists for growing government expenditures, even if they were financed by taxes on the capitalists themselves, would lead to expanded social programs such as expanded public housing construction.

But with the outbreak of the Cold War, Sweezy saw that his Popular Front era hopes were not being realized. Instead, social spending by the government as a percentage of GDP seemed to be frozen at the not-so-high level of the last years of the New Deal. The rise of government expenditures above that level was purely the result of military spending for the Cold War.

Only in the 1970s, with the rise of the phenomena of “financialization” and the return to sharper crises, did Sweezy seem to realize the problem of eliminating crises under the capitalist system was not as simple as he had imagined. The whole financial system was becoming more and more unstable. The corporations, contrary to the predictions of “Monopoly Capital,” were becoming ever more resistant to taxation and were highly successful in reducing the rates at which they were taxed. As the financial system became more fragile, the government found it harder to simply borrow more money—or print it—to create more “effective monetary demand.”

If it borrowed or printed too much money, currencies plunged, the rate of interest on government bonds soared, and inflation roared. Afterward, when currencies were finally stabilized—the Volcker shock—super-high interest rates ate up the profit of enterprise undermining the incentive of the capitalists to carry out industrial production at all.

This is why the Obama administration—much to the chagrin of the more liberal Keynesians—has announced that it will freeze government spending—apart from war and social security spending—starting in 2011 when, even according to government officials, unemployment is still expected to be abnormally high—relative to the “normal” high level of unemployment in the United States.

Sweezy, always alert to new economic trends even in his old age, called attention to the whole new phenomena of “financialization.” In his last writings, and after him other members of the Monthly Review School, have put a great deal of emphasis on what John Bellamy Foster now calls monopoly-finance capital. In his final years, Sweezy was fascinated by Marx’s formula for interest-bearing capital, M—M’, and the extra M—the difference between M’ and M—seeming to appear out of nowhere without the intervening process of production.

But Sweezy was unable to explain why “financialization” arose in the first place and how it fitted into the long-term evolution of capitalism. He and Baran had certainly not foreseen it in “Monopoly Capital.” He admitted he was not able to integrate the financialization phenomena into a broader economic theory.

Sweezy blamed the effects of old age for his lack of success in this regard, and he was indeed by then a very old man. But I think the reason for Sweezy’s lack of success in this regard lies deeper. In his youth, Sweezy had only partially understood Marx and, just as importantly, never liberated himself from his marginalist mis-education that he received at Harvard. Then he was further mis-educated by Keynes and his followers during the Popular Front years of the 1930s.

Mastering Marx’s ideas is extremely difficult for those who come to them with fresh minds, but it can be even harder for those whose heads have been filled with the false ideas of marginalism and Keynesianism during their formative years. Therefore, despite his great intelligence, Sweezy—like most other professional economists who wrestled with Marx—was only partially successful in mastering him. Sweezy could have brilliant insights, but all too often he lapsed into his old marginalist ways of seeing things, or into simple impressionism when confronted with new and unexpected developments in the capitalist economy.

During Sweezy’s long life as an economist, these developments included the apparent eclipse in the power of Wall Street banks—finance capital—under the New Deal, which had seemed so all-powerful during the 1920s; the end of Popular Front reformism after World War II and the era of accelerated economic growth in the world capitalist economy of the 1950s and 1960s that followed; and finally the growth of “financialization” in Sweezy’s final years.

My biggest criticism of ‘Monopoly Capital’

This critique of the Monthly Review School would be incomplete if I didn’t mention the most objectionable passage in “Monopoly Capital” from a Marxist perspective: “The answer of traditional Marxist orthodoxy—that the industrial proletariat must eventually rise in revolution against its capitalist oppressors—no longer carries conviction. Industrial workers are a diminishing minority of the working class, and their organized cores in the basic industries have to a large extent been integrated into the system as consumers and ideologically conditioned members of the society.”

Instead, Baran and Sweezy put their revolutionary hopes in the struggle between American imperialism and the oppressed nations of of the world. These struggles, they hoped, would eventually prepare the way for the revolutionary transformation of U.S. society along socialist lines in the future. Here in a nutshell we see both the strengths and the weaknesses of the Monthly Review School.

These lines do reflect in an impressionistic way the political situation in the United States in the 1960s when “Monopoly Capital” was written. The United States was then fighting the war against the Vietnamese people, which inspired not only the largely student-based anti-war movement but the Black power movement as well, which together were shaking American society. The AFL-CIO union federation, a strongly anti-communist organization, on the other hand was a strong supporter of the war against Vietnam, much as it had been a strong supporters of the United States during both World War II and the Korean War.

Certainly the socialist transformation of society whether in the United States or elsewhere is unthinkable without the overthrow of the monstrous dictatorship over most of the nations of the world that U.S. imperialism established after 1945 and which unfortunately has been extended even further since Baran and Sweezy wrote “Monopoly Capital” as result of the Gorbachev-Yeltsin counterrevolution in the former USSR.

But we must never forget that all modern nations are themselves divided into classes, both imperialist countries—including the United States, its satellite imperialist “allies” Japan and the nations of Western Europe including Great Britain—and the oppressed nations of the “third” world that with varying degrees of success are trying to free themselves from the U.S. world imperialist dictatorship. And the main classes within all modern nations are more than ever the capitalist class and the working class.

Regardless of its numbers and degree of organization and class consciousness in any particular country at any particular moment in time, the most important part of the working class remains the part that produces surplus value. Without the producers of surplus value, the capitalist ruling class and its hangers-on could not physically survive for very long.

In the oppressed nations, it is the working class that has little alternative but to fight against imperialism to the end, while the native capitalists are always seeking agreements and compromises with imperialism—though even the capitalist class of the oppressed nations are sometimes forced to struggle against imperialism to a certain extent. The clashes between the capitalist classes of the oppressed countries and the working classes including the various strata of the peasantry waver between the pole of struggle represented by the working class and the pole of compromise represented by the local capitalists.

Struggles led by the capitalists of oppressed nations and even the struggles that are led by peasant-based parties of the oppressed nations can lead and have led to democratic progress, accelerated capitalist development, and better conditions for the workers to struggle against the native capitalist class. But only when the working class organized as the ruling class comes to power is it possible to transcend capitalism and begin the construction of a socialist society. This is not only what Marx’s theory predicted, but more importantly it is what the revolutions of the 20th century confirm both positively and negatively.

In the imperialist countries, it is the workers who are asked to sacrifice, often with their lives, when the peoples of the oppressed nations do not lie down but fight back even if under bourgeois leaderships—or as in Afghanistan today under the leadership the Taliban with its religious ideology. It is the sons and now the daughters as well of the working class that are driven into the armed forces by the “economic draft” and lose their lives in these now never-ending wars against the peoples of the oppressed nations of the world that continue under Obama as they did under Bush.

As long as the U.S. working class and the working classes of the other imperialist countries enjoy the benefits in the form of a share of the imperialist super-profits, they are not likely to oppose imperialism. But when the oppressed fight back, the “alliance” of the working class with its ruling imperialist capitalist class within the imperialist nations is shaken. The stronger the resistance of the oppressed countries to imperialist dictatorship is, the more this is so.

It becomes clearer that imperialist countries, too, are divided into two main antagonistic classes. These are the capitalist class, the appropriators of surplus value, and the wage workers, the producers of surplus value. In the end, therefore, contrary to the authors of “Monopoly Capital,” it must be the surplus value-producing or industrial working class that must rise in revolution against the capitalist class. (12) This is true in both the oppressed countries and the imperialist countries alike. If the uprising of the working class does not develop, or if it lacks sufficient revolutionary sweep when it does, it is only a matter of time before the capitalist class and its dying capitalist system of exploitation destroys modern civilization altogether.

Towards the next reply

We have seen throughout these posts and replies that the development of commodity production leads to the polarization of commodities and their independent value form—money—which at a high level of development leads to the periodic crises of overproduction.

The development of commodity production at the same time leads to the polarization of the nations of the world between a handful of oppressing nations and a large number of oppressed nations. The strong side of Paul Sweezy was that after the end of the Popular Front period he understood this. From that point onward, he was always on the side of the oppressed peoples in their struggle against his “own” imperialism. This is a lot more than can be said for many other Marxists who may have been formally closer to Marx’s terminology and theories. Anybody who criticizes a man like Paul Sweezy must never forget this.

But most importantly of all, within these nations both the oppressed and the oppressor alike, the unfolding of the contradictions of commodity production at a high level of development leads to the development of the class that has nothing to sell but its labor power, on one side, and the capitalist monopoly owners of the means of production, on the other, who live off the surplus value produced by the sellers of the commodity labor power.

Another polarization has been developing over the last century within Marxist crisis theory. That is, between theories of crises—or in the case of the Monthly Review School, the theory of capitalist stagnation—that attribute crises to the problems of producing surplus value and those that attribute crises—or stagnation—to the problems of realizing the surplus value.

The Grossman-Mattick school see the causes of crises in the insufficient—for capitalist prosperity—production of surplus value, while Rosa Luxemburg a century ago or the Monthly Review School today correctly sensed that capitalist society has a fundamental inability to fully consume the vast and growing sum of commodities that it is able to produce.

In this, both the school of Luxemburg and the Monthly Review School later were correct against their sometimes more “orthodox” opponents. But neither Luxemburg a century ago or the Monthly Review School today have really understood why the value, including the surplus value, contained in the commodities that capitalist industry is capable of producing cannot in practice be fully realized. They have not been able to answer the arguments of their “orthodox” Marxist opponents who claim that if the proportions of production are correct the realization of the value, including the surplus value, of commodities presents no problem.

My posts and replies are attempting to overcome this polarization and show that both tendencies in Marxist theory have part of the truth, but neither fully grasp how contradictory capitalist production under which we live really is. In my opinion, until we grasp this, we will never be able to return to the heights of economic science reached by Karl Marx—let alone climb up on his giant shoulders and see even farther than he did.

What next?

One of our readers has sent in a question on what I think about Paul Volcker’s—yes this the same Paul Volcker of Volcker shock fame—proposal to reform the banking system. This raises the the whole question of the growing power of capitalist monopoly, particularly in the sphere of finance and banking and its implication for the future of the capitalist system. Since this reply has centered on the nature of capitalist monopoly, which plays such an important role in the Monthly Review School, the reply due in two weeks can be seen as a continuation of the current one.


1 Starting with the New Deal, the African-American population in the North—the African Americans in the South were generally denied the right to vote before the 1960s—supported the New Deal reforms more consistently than the white population, despite the racism of Roosevelt’s Democratic party in both the South and the North. The so-called “Roosevelt coalition” included the industrial workers of the North—both white and African-American—and the racist Jim Crow segregationists in the South, who in addition to being virulently racist—and in those years sometimes anti-Semitic, as well—were opposed to any move to unionize workers in the South.

The Civil Rights movement made the continuation of the Roosevelt coalition impossible. A realignment of the Democratic and the Republican parties followed. The racist wing of the Democratic Party, including many of the racist “white ethnics” of the North, who were the traditional base of the old-line Democratic machines, shifted over to the Republicans, while liberals, who had often supported the Republicans against the racist and corrupt Democratic machines like New York City’s Tammany Hall, shifted to the Democratic Party. As mentioned, African Americans who could vote—mostly limited to the North—had already shifted to the Democratic Party during the New Deal. As part of the realignment of the parties, the African Americans who gained the right to vote in the South as a result of the mass struggles of the Civil Rights movement have consistently voted for the Democrats since they were enfranchised in the 1960s.

2 Trotsky, then in exile, and his followers strongly denounced the Popular Front policies adopted by the Seventh and, as it turned out, last World Congress of the Communist International, also known as the Comintern, as a betrayal of Marxist and Leninist politics. From the viewpoint of the American Trotskyists, Sweezy was at best a dangerous “Stalinist” sympathizer if not worse. Many years later, however, Harry Barverman, who had been a long-time American Trotskyist, joined the Monthly Review staff and made his own contributions to the Monthly Review School.

3 Milton Friedman (1912-2006), also a young economist in the 1930s, belonged to the same generation as Paul Sweezy. Among professional American economists, Paul Sweezy and Milton Friedman represented polar opposites. Sweezy became a consistent enemy of U.S. imperialism and a supporter of socialism, while Friedman was an equally consistent supporter of capitalist reaction and U.S. imperialism. Friedman, too, was influenced by the Depression, but his reaction was to explain it away thorough his so-called monetarist theory, which blamed the Depression on the blundering interference of the Federal Reserve Board—a government agency—which allowed the “money supply” to contract by one-third, thereby bringing on the Depression.

4 For awhile in the 1950s, Sweezy was actually threatened with imprisonment for being in “contempt” of the legislature of the U.S. state of New Hampshire. The threat passed when the U.S. Supreme Court finally threw out the case against him.

5 Actually, Marx would agree that the surplus—assuming the surplus is the same as “surplus value”—not only tends to rise but must rise if capitalism is to survive. Marx believed that the rate of surplus value—the ratio of unpaid to paid labor—would tend to rise as capitalism and with it labor productivity continued to develop. Second, Marx held that the mass of surplus value—the amount of unpaid abstract labor performed by the working class measured in terms of some unit of time—would rise and indeed must rise—leaving aside short-term fluctuations—as long as capitalism survived.

But Marx saw no contradiction between the rise of the total quantity of surplus value and a tendency for the rate of profit to fall as the organic composition of capital rises.

6 Bourgeois authors make much of the role of the Soviet agriculturalist T. Lysenko, who rejected Mendel’s theory of genes. If you follow the popular bourgeois press, you would think that the only impact the Russian Revolution had on science was Lysenko’s rejection of genetics and its disastrous effects on science. In fact, despite the Lysenko affair the Russian Revolution overall greatly stimulated the natural sciences in the Soviet Union and throughout the world. Compared to the damage done to science—and not only what had been Soviet science—by the Gorbachev and Yeltsin counter-revolution, the damage done by Lysenko was minor.

However, it remains true that Lysenkoism did have a disastrous impact on the development of biology and more practically on agriculture in the Soviet Union. Both Stalin and Khrushchev supported Lysenko because he promised huge increases in agricultural production if the laws of genetics were disregarded. Needless to say, no progress at all was achieved in Soviet agriculture by ignoring the discoveries of biological science as regards genetics.

But what about economics? By ignoring the discoveries of Marx in economics, aren’t “our” university departments being run by so many Lysenkos and with similar results? This is while our professional economists with few exceptions were caught completely flatfooted by the economic crisis that began in 2007. They still can’t explain the super-crisis of 1929-33 even 80 years after the event!

The only difference between our professional economists and Lysenko was that Lysenko and his supporters labored under the illusion that they could help build a new society free from exploitation by ignoring the findings of biological science, while our professional economists ignore the findings in economic science made by Marx in the service of the outmoded system of capitalist exploitation.

7 For example, philosopher Thomas Hobbes, who first made the distinction between labor and labor power, which I mentioned in the last reply. But there are countless other examples.

8 While I can’t be sure of this, I think that Baran and Sweezy are using the term “classical economists” in the sense that Keynes used the term in his “General Theory.” Keynes openly borrowed the term “classical economists” from Marx, but he extended the term to the “classics” of marginalism. The fact that Baran and Sweezy seem to be completely oblivious in this passage to the crucial differences between the Ricardian and marginalist theories of value, and in light of the well-known influence of Keynes on Sweezy, it seems that Baran and Sweezy are using the term “classical economists” in Keynes’s and not Marx’s sense.

9 The marginalists claim that if the economy is in perfect equilibrium prices will equal marginal costs. This is based on the assumption that the individual industrial capitalists have virtually no influence on prices. That is, no change in the level of production of an individual industrial capitalist will have any measurable effect on the relationship between supply and demand and therefore on the price. This situation, called by the marginalists “perfect competition” in most of their literature, is treated as the norm.

According to the extension of marginalist price theory that deals with monopolies, it is claimed that prices will tend to equal marginal revenue. Here it is assumed that the individual industrial capitalists have enough effect on the total supply of a particular commodity that any decision on their part to change the level of production will have a significant effect on the price they can sell their commodity at.

10 Or, strictly speaking, it is only potential capital.

11 At the present time, the U.S. media are playing up the safety scandals around the Japanese automaker Toyota’s cars. It seems these involve issues ranging from the placement of floor mats around gas pedals to sophisticated computer software that controls the anti-lock braking system in modern automobiles. Could this campaign be an attempt to put a dent in Toyota’s sales and hand over market share instead to Ford and the “new General Motors” at Toyota’s expense?

12 By industrial working class I mean that part of the working class that produces surplus value, not any particular commodity. The surplus value-producing working class is the natural leader of the rest of the working class—the commercial working class and other sections of the working people who are oppressed and exploited in various ways by the ruling capitalist class.


3 thoughts on “The Monthly Review School

  1. A friend recently sent me an academic paper entitled “Financialization and Marx: Giving Labor and Capital a Financial Makeover” (Review of Radical Political Economics 2009; 41; 458 originally published online Sep 30, 2009).

    In your reply on the Monthly Review School, you touch on one aspect of financialization: the U.S. deindustrialization owing to the extremely high interest rates stemming from the major depreciation of the dollar that occurred in the 1970s. This paper focuses on the other side of financialization: the great expansion of consumer debt, the securitization of that debt, and the development of derivatives to “manage” the associated risk for the money capitalist investors. Could you discuss this side of financialization from the standpoint of Marx’s theory of value and surplus value?

  2. Hello,

    I hate to bother, but among the many, many places you cite neither a book nor page, one quote jumped out at me: “…to use the words of Baran and Sweezy, ‘Marx’s _Capital_ *should no longer* reign supreme.'” (emphasis in the original, I assume?) By the context, I gather the book is _Monopoly Capital_: but which page?

    Oddly, a few paragraphs above I’m pretty certain you correctly quote Baran and Sweezy as saying that “Marx’s _Capital_ continued to reign supreme” as a starting point for the analysis of monopoly. This appears to present a contradiction. Maybe not, but some clarification would be helpful, no?

    As one hoping to learn from a thorough critique of the dominant school of thought on the financial crisis, I was turned off by your rather feeble, though lengthy, attempts to pillory Sweezy personally. Sweezy’s supposed inability to purge himself his marginalist/Keynesian (read: “bourgeois”) past unfortunately becomes central to your argument. It seems to me only to detract from the more useful parts of your analysis/critique.

    Also, I have to admit to feeling quite shocked at your supposition that marginalism or Keynesianism—if learned ‘out of order’—might cause so much ‘confusion’ [?] that even someone like Sweezy would go on to make what appear to be colossal errors. Wow! I never thought either perspective was so logically consistent as to cause such an outcome, especially in the case of Sweezy.

    Maybe that’s why Sweezy critiqued—or, more appropriately, critically engaged with (can’t that be a *good* thing?)—Keynes and Keynesianism, starting with (big surprise) his first major book, _Theory of Capitalist Development_ (chapter XIII, I believe) and then repeatedly in MR and later books?

    Incidentally, it is in the latter work that more complicated issues, like the labor theory of value, the transformation problem, surplus, etc. are discussed *at length* (including in several detailed statistical appendices). Here, too, is to be found the germ of monopoly capital theory itself—discussed entirely in Marxist terms and in repeated, fruitful engagement with the foremost Marxist theorists of Sweezy’s time (all happen whom happen to be from outside the U.S.—so much for the ‘insularity’ criticism).

    Also, it would be unfair not to mention the series of 5 books published after _Monopoly Capital_ (with Harry Magdoff), would it not?

    Paul M. Sweezy and Harry Magdoff, The Dynamics of U.S. Capitalism: Corporate Structure, Inflation, Credit, Gold, and the Dollar (New York: Monthly Review Press, 1972).

    Harry Magdoff and Paul M. Sweezy, The End of Prosperity (New York: Monthly Review Press, 1977).

    Harry Magdoff and Paul M. Sweezy, The Deepening Crisis of U.S. Capitalism (New York: Monthly Review Press, 1981).

    Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987).

    Harry Magdoff and Paul M. Sweezy, The Irreversible Crisis: Five Essays (New York: Monthly Review Press, 1988).

    In these works I think you’d find answers to some of your objections, like the missing analysis of financialization. It must be admitted that they did not use the term itself (like that should matter) but their identification very early on of the explosion in consumer/business debt—and its relation to falling real wages, ever more powerful and reckless banks, more menacing financial bubbles, etc.—is quite plain, even if not *completely* developed. This incredibly complicated issue has been continually developed by others in the same tradition, most notably John Bellamy Foster, Fred Magdoff, and Michael Yates.

    Your engagement with this continued analysis would be very welcome.

    In solidarity,


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