The Marxian Theory of Crisis, Capital and the State[1]

David Yaffe, 1972

Original source: Bulletin of the Conference of Socialist Economists, Winter 1972, pp5-58.

Also published on here.

"The abandoning of the materialist basis leads inexorably from revolutionary socialism to reformism" – Henryk Grossman[2]


1. Introduction

2. Marxist political economy 
(a) Capital production
(b) 'Capital in general' and 'many capitals'
(c) Productive and unproductive labour

3. The general law of capital accumulation and the theory of crisis
(a) The rising organic composition of capital
(b) The tendency of the rate of profit to fall and the crisis theory

4. Incorrect versions of the theory of crisis
(a) The possibility of crisis confused with its cause
(b) The disproportionality thesis
(c) The underconsumptionist thesis

5. The state and the theory of crisis
(a) Introduction
(b) Theories of the role of armaments production in the economy
(c) State expenditure - conclusions

1. Introduction

Marxists have always defended themselves with ardour against the attack that they hold to a ‘crude’ determinist theory of history. Unfortunately, their anxious protestations have too frequently led to a rejection of the ‘materialist’ basis of Marxist theory itself. That capitalism, admittedly with the interference of two world wars, has shown its capacity to survive and expand, has further made it all the more difficult to accept a theory that shows the historically limited character of this ‘mode of production’. Discussion has, therefore, since the 1930s involved stressing particular aspects of Marxist theory to the detriment of the ‘total’ conception of Marx’s work.

Among Western philosophers and sociologists attempts to reinterpret Marx concerned the emphasis on the ‘humanistic’ writings of the early Marx against the ‘scientism’ of the later writings. The Frankfurt School of philosophy and sociology represents what is probably the earliest version of this ‘humanism’. The idea of ‘Critical Theory’ elaborates the distortions of human relations under capitalism and contrasts them with the ‘potential’ of a more rationally organised society. The ‘possible’ or ‘potential’ is counterposed to the ‘actual’ and the concept of ‘enlightenment’ is supposed to link the two. While for Marx the historical ‘necessity’ of the new society is shown in the contradictory development of the old society, for the critical theorists there is no such ‘necessity’. This development has its counterpart in ‘Marxist’ political economy. Paul Baran’s use of potential and actual economic surplus in relation to underdeveloped countries[3] and the ‘wastage’ of the alleged abundant surplus as described in Baran and Sweezy’s Monopoly Capital employ similar ‘critical’ concepts.[4]

What all the above positions have in common is a rejection of the ‘general laws of motion of capitalist society’, as developed by Marx in Capital, for ‘late’ capitalism. The contradictions of capitalist production for these theorists, where they have not been completely contained, do not lie in the production process itself but must be located in the ideological, technological and political spheres.

Many of the academic Marxist economists during this period have been more concerned to show how much of Keynes was or was not anticipated by Marx than to examine the limits to and contradictory nature of state intervention in capitalist economies.[5] The period of ‘stability’ since the second world war and the consequent ‘ideological’ hold of ‘Keynesianism’ have certainly contributed to this state of affairs, but, with increasing instability and growing unemployment in Western economies in the recent period new explanations are being sought. The failure of Social Democratic governments to substantially alter the condition of the working-class, and in Britain the complete subservience of the Labour Party as government party to the interests of international capital, have given added impetus to these tendencies since the mid 1960s.

If the capitalist mode of production can ensure, with or without government intervention, continual expansion and full employment, then the most important objective argument in support of revolutionary socialist theory breaks down. It will be the aim of this article to show that the ‘value analysis’ of capitalism as developed by Marx, must still be the starting point for an analysis of contemporary capitalism. On the basis of such an analysis it will be shown that state intervention in the economy, far from resolving the central contradictions of capitalist production has only given them new expression. Stagnation and inflation as two of the central features of advanced capitalist economies today indicate the limits and crisis-ridden nature of capitalist production.

The article will be in two main parts. The first section will contain an analysis of Marx’s theory of crisis. It will attempt to answer various criticisms of that theory and examine, in particular, two false versions of the theory: the underconsumptionist and disproportionality theory of crisis. The second section will begin an analysis of the role of state intervention in the economy and will attempt to indicate the limitations of intervention by the capitalist state implied by the earlier analysis of the theory of crisis.

2. Marxist Political Economy

(a) Capital production

What distinguishes Marx from his Classical predecessors is that he never loses sight of the fact that the ‘value-producing’ process, central to capitalist production, is only an historical form of the material production and reproduction process of society. The labour process becomes a ‘value-producing’ process and the social relations are transformed into economic categories under capital production. Capitalist production is oriented not towards consumption needs, this is the production of use-values, but towards production for profit, that is the production of exchange-values. It is the dual nature of a commodity under capitalist production conditions, that is as a use-value and exchange-value, that constitutes the most general contradiction of the capitalist system. This may be put in another form: while the labour process is only limited by the natural resources available, by the historical stage of development of the social productivity of labour and the mass of labour in society, the labour process as a ‘value-producing’ process has much narrower limits. Under capitalist production natural resources are only utilised, the social productivity of labour only developed, labour is only employed if it serves the self-expansion of capital, i.e. the reproduction of the existing capital values and the creation of additional value, surplus-value. Capitalist production therefore, is the production of exchange-values through the production of commodities, the objective being surplus-value as additional exchange-value.

Accumulation is the continuous process of reproduction and self-expansion of capital (Verwertungsprozess des Kapitals), it is the reproduction of capital on a progressively increasing scale.[6] Necessarily, accumulation is also the reproduction of the capitalist social relation on a progressive scale, ‘more capitalists or larger capitalists at this pole, more wage workers at that’[7] So long as capitalist relations of production exist, so long as one class owns the means of production as capital, and another has to sell its labour-power to live, so long will the end and aim of production be the accumulation of capital.

Before an analysis of the accumulation process itself is possible it is necessary to say something about Marx’s methodology and, in particular, about the concepts ‘capital in general’ (Kapital im allgemeinen) and ‘many capitals’ (vielen Kapitalien) or capital in its ‘real’ form of competition.

(b) ‘Capital in general’ and ‘many capitals’

It is the particular form that social relations take under capitalist production, their fetishistic form, which makes it all the more necessary for political economy to start from simple (abstract) conceptions and move by a process of increasing concretisation to grasp the concrete reality.[8] ‘The method of advancing from the abstract to the concrete is but the way of thinking by which the concrete is grasped and reproduced in our mind as concrete.’[9] The failing of what Marx called ‘vulgar economy’ is that it remains in the ‘estranged outward appearances of economic relations’. In so doing it takes on an apologetic character for the given social relations and by treating them as ‘eternal’ fails to grasp their contradictory character. ‘But all science would be superfluous if the outward appearance and essence of things directly coincided’,[10] and it is precisely this point that indicates the indispensability of the value analysis for Marx’s total work.

Marx begins this analysis in Volume I of Capital by examining the exchange of commodities. From this he deduces that Value or expenditure of abstract human labour lies at the basis of commodity-exchange, independent of the use-values of the commodities. He then moves on to the only form in which the value of commodities can be expressed, that is exchange-value. After deducing the money form of value he goes on to analyse the capital form of value. It was the examination of capital, of value that generates surplus-value (value in process[11]), which presupposes a definite historical relationship, the wage-labour relationship (labour power as a commodity), that was to take up the major proportion of Marx’s effort and work.

In order to develop the concept of capital it was first of all necessary to abstract from ‘many capitals’ or the action of capitals on one another through competition. The latter would be analysed after the consideration of what they (many capitals) have in common, as capital.[12] In the Grundrisse the point is made very clear:

‘Capital, in so far as we are considering it here ... is capital in general.  Value, money, circulation etc. prices etc. are presupposed, just as is labour, etc. However we are concerned neither with a special form of capital nor with individual capital as differentiated from other individual capitals, etc. We are remaining with its process of generation and growth (Entstehungsprozess). This dialectical process of generation and growth is nothing but the ideal expression of the real movement of capital. The later relationships are to be regarded as a development from this ‘central core’ (Keim)....’[13]

It follows that the later form of capital is contained in embryonic form (Keimform) within the general concept of capital. This means not only the ‘civilising’ dynamic tendencies of capital but also the latent contradictions which drive capital beyond its own limits.[14]

Marx refers to ‘capital in general’ sometimes as ‘the capital of the whole society’[15] or nation, or as the general economic basis of one class as opposed to another class.[16] ‘Capital in general’ is not a mere abstraction or an arbitrary abstraction, but an abstraction that must be understood as the differentia specifica of capital in distinction to all other forms of wealth.[17] If we are to comprehend the basic presupposition of the capital relation – the relation of capital and labour and the role of surplus-value as the driving force of capitalist production – then we must begin our analysis with ‘capital in general’ undisturbed by a consideration of ‘many capitals’ or the actions of capitals on one another.

A scientific analysis of competition is not possible before we have a conception of ‘capital in general’, that is, of the ‘inner nature of capital’.[18] Competition is the ‘essential locomotive of bourgeois economy’ which nevertheless does not create or establish its laws but merely allows them to be realised (‘allows them to be exhibited but does not produce them’).[19] Capitalist production exists in its most ‘adequate’ form in so far as free competition develops. Nevertheless, as soon as capital feels itself threatened it will ‘seek refuge in other forms’, which appear to perfect its rule as capital ‘through curbs on free competition’.[20] Marx offers here a clear context for understanding capitalism in its ‘latest’ stage. It is precisely the nature of capital itself and the preservation of its rule as capital that is central for an understanding of capitalism in its ‘monopoly’ stage. It has not ceased to be capital by virtue of the ‘curbs on free competition’. On the contrary it is precisely the ‘rule of capital’ that makes the ‘curbs on free competition’ necessary. It follows, therefore, that the analysis of ‘capital in general’ is still the starting point of any analysis of contemporary capitalism. The value analysis of Volume I of Capital still retains its validity, and although the ‘law of value’ is ‘modified’, it nevertheless is the basis for any serious consideration of modern capitalism. The ‘modifications’ and this includes interventions by the capitalist state, are within limits governed by the preservation of the ‘rule of capital’ itself and so modern capitalism, like the capitalism of Marx’s day, is subject to value-analysis.

Baran and Sweezy are, therefore, wrong when they assert:

‘The Marxian analysis of capitalism still rests in the final analysis on the assumption of a competitive economy.’[21]

It rests on an analysis of ‘capital in general’, undisturbed by considerations of competition, that has as its basis the value relations examined in Volume I of Capital. As long as capital and therefore capitalist production relations exist whether the market structure is competitive or monopolistic, the value analysis is central.[22]

Volume I and II of Capital are primarily concerned with an examination of ‘capital in general’ and the special forms of the existence of ‘capital in general’ as fixed and circulating capital. That this is often not understood has lead to all kinds of confusion when considering Marx’s theory of crisis and its relevance for an examination of contemporary society. It is not surprising that so many critics of Marx have talked of a contradiction between Volume I and III of Capital (e.g. Bohm-Bawerk); and others have confused ‘capital in general’ with capital in ‘reality’, ‘many capitals’ (e.g. Rosa Luxemburg). It is only in Volume III of Capital that Marx begins to ‘locate and describe the concrete forms which grow out of the ‘movements of capital as a whole' as they approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves’.[23]

(c) Productive and unproductive labour

This distinction, so central to Marx’s theory of accumulation, is one often misunderstood by both Marxists and Marx’s critics. No discussion of the role of State intervention is possible until this distinction is clarified.

productive labourer is one who works for the self-expansion of capital and produces surplus-value for the capitalist through the production of commodities.[24] It is labour which is directly exchanged with capital for the purpose of augmenting capital.[25] The use-value of the commodity, in which the labour of a productive labourer is embodied, is in no way relevant to this definition; the commodity ‘may be of the most futile kind’.[26] The definition of productive labour is the expression of a definite social relation of production, that is, of capitalist production. Therefore, any ‘moralistic’ definition of productive labour, i.e. useful to society, has nothing in common with Marx’s definition and merely confuses the issue by abstracting from the particular mode of production and type of society. The goal of the capitalist production process ‘is the accumulation of wealth, the self-expansion of value, its increase; that is to say the maintenance of the old-value and the creation of surplus-value. And it achieves this specific product of the capitalist production process only in exchange with labour, which for that reason is called productive labour.’[27]

Unproductive labour is labour that is not exchanged with capital but directly with revenue, that is with wages or profits.[28] This means that services paid out of the wage of workers or the income of capitalists are unproductive from the capitalist standpoint. They constitute a reduction of the surplus-value that is available for reinvestment as capital. The case of services, e.g. education, which actually maintain or raise the value of labour-power or alter the skill (complexity of labour) of the labourer is slightly more complicated. Marx talks of such services as yielding in return ‘a vendible commodity etc. namely labour-power itself, into whose costs of production these services enter’.[29] But the utility of the service alters nothing as far as the economic relation is concerned, as revenue is exchanged against labour. The result of the service, by its very nature, cannot even be guaranteed by those rendering the service.[30] The case of State expenditure on education exactly fits this category. In so far as education increases the total value of labour-power (of all labourers) and has little or no effect on the value-forming potential of the labourer (skill etc.) besides leading to a fall in the average rate of profit, it alters the redistribution of the social product in favour of the labourers and at the expense of surplus-value. To the extent that it increases the skill etc. of the worker and/or productivity in the wage goods industries the latter effects are compensated.[31]

Mere circulation costs from the standpoint of capitalist production are unproductive. Although wage-labour is performed and the capitalist ingesting in this sphere receives a profit, no addition to surplus-value, to total social capital, is made. Such costs, necessary for the realisation of profits, reduce the overall rate of profit. The employment of commercial workers, office staff etc. increase the expenses of the industrial capitalist and therefore the mass of capital to be advanced without directly increasing surplus value. If the extra costs are Δc, then the rate of profit will be reduced from s/c to s/c + Δc.[32] The labourer who works in the commercial sphere still performs unpaid labour and his cost to the capitalist is the value of his labour-power:

‘He creates no direct surplus value, but adds to the capitalists’ income by helping to reduce the cost of realising surplus-value, inasmuch as he performs partly, unpaid labour.’[33]

These purely commercial costs are to be separated from the costs of transport shipping, storage etc. These are regarded as part of industrial production. A change in the object of labour, in the commodity takes place. In the case of transport ‘its spatial existence is altered, and along with this goes a change in its use-value, since the location of this use-value is changed’.[34] Such labour is regarded as productive labour.

It follows from all this that, from the standpoint of capitalism as a whole, ‘variable capital’ represents only the wages of productive labourers not of the total labour force. Further, surplus-value is not equal to the total surplus-product but to the surplus product of productive labourers. So the share of wages and profits in national income does not tell us very much about the rate of exploitation. It is quite reasonable to assume that, if the unproductive (including the non-profitable state) sector is growing at a faster rate than the productive sector, total wages as a share of national income can grow and the rate of exploitation can still rise. This is because a part of net income imputed to wages is in reality a part of surplus-value produced by productive labourers. This latter point indicates one of the problems in trying to find statistical counterparts for the Marxian categories.[35]

To conclude this section we have the following important results. Variable capital represents only the wages of productive workers. Surplus-value is the total profit of the productive sector. Constant capital is the part of the means of production employed in the productive sector. The rate of exploitation and organic composition of capital relate to the variables as defined above. The unproductive part of total production becomes relevant when we discuss the rate of profit. Here it will be included as an extra-cost. More capital is advanced in order to finance this unproductive sector and so the rate of profit will be correspondingly lower.[36]

Having clarified the meaning and role of some of the central categories of Marxist political economy we now turn to the general theory of accumulation and crisis.

3. The general law of capital accumulation and the theory of crisis

a) The rising organic composition of capital

Capitalist production has as its aim and driving force the production of surplus-value as additional exchange-value. Surplus-value is the difference between exchange-value of labour-power (representing that part of the working day in which the worker produces the equivalent of his own means of subsistence, necessary labour-time) and its productive capacity (representing the total working day). So that an increase in the productivity of labour, viewed capitalistically, makes no sense unless it increases surplus-value, i.e. decreases the value of labour-power or the time necessary to sustain and reproduce the workers. In other words, the productivity of labour is constrained by the need to produce value and surplus-value, is bound to the reproduction and self-expansion of capital.

The class struggle cannot prevent the fall in the value of labour-power (as productivity increases)[37] but it can prevent, however, the occurrence that the value falls in the same relation as the productivity increase. That is, ensure a rise in real wages takes place with increases in productivity at the same time as an increase in surplus-value.[38]

While, in exceptional cases, extended reproduction on the same technological scale is possible, in general, accumulation ‘revolutionises out and out the technical processes of labour’.[39] Since continuous accumulation under capitalist production conditions soon comes across the limits of the existing working population, that is since the normal working day has its physical and social limits,[40] a transition from the production of absolute surplus-value (extension of the working day) to that of relative surplus-value (decreasing the necessary part of the working-day by an increase in the social productivity of labour) takes place. Together with this change, occurs, generally, an increase in the intensity of labour as capitalism tries to obtain more value per unit of time (increased expenditure of labour in a given time[41] from the same worker). Both increased productivity and greater intensity of labour augment the mass of articles produced in a given time and therefore shorten the part of the working day necessary to produce the wages of the workers. In so far as increasing intensity of labour requires, as compensation, an equivalent increasing real wage, it has no effect on the rate of exploitation. Otherwise, it will increase it.[42] The increase of the intensity of labour has also physical and social limits so that the main method open for increasing surplus-value under developed capitalist conditions of production is to increase the productivity of labour, i.e. through technical change.

Increases in the productivity of labour from the standpoint of material production involve a change in what Marx calls the technical composition of capital.

‘This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other.’[43]

Increases in productivity involving increases in the technical composition of capital are represented under capitalist production by changes in the value composition of capital, i.e. the ratio of constant capital, or value of means of production, and variable capital or value of labour power. Between the technical and value composition there is a ‘strict correlation’. Marx expresses this relation by saying that:

‘The value composition, in so far as it is determined by its technical composition and mirrors the changes of the latter (is called) the organic composition of capital.’[44]

The importance of grasping the process of accumulation from both its material and value side is crucial for understanding Marx’s general theory.

The increase in the mass of means of production per worker (rise in the technical composition) is not merely a technical premise which enters into Marx’s argument at a particular stage. It is the expression in general terms of the only way that the productivity of labour can rise under capitalist production, that is, by the extension of the social division of labour. This latter process, accompanied by an increase of the mass and volume of means of production, is also the basis of Marx’s argument that the organic composition of capital, insofar as it is determined by the technical composition, will rise, although not as fast as the technical composition, due to the increasing productivity of labour.

‘With the growth in the proportion of constant to variable capital, grows also the productivity of labour, the productive forces brought into being, with which social labour operates. As a result of this increasing productivity of labour, however, a part of the existing constant capital is continuously depreciated in value, for its value depends not on the labour time that it costs originally but on the labour time with which it can be reproduced and this is continuously diminishing as the productivity of labour grows. Although, therefore, the value of the constant capital does not increase in proportion to its amount, it increases nevertheless because its amount increases even more rapidly than its value falls.’[45]

Marx regarded it as an incontrovertible fact,[46] as a self- evident or a tautological proposition[47] that the organic composition of capital should rise. To show that this was not a mere assertion but follows logically from the concept of capital itself will be the concern of the rest of this section.

The compulsion to employ machinery under capitalist production and to increase by these means the productivity of labour is expressed in reality by competition and the consequent need to reduce the costs of production. But this is not its explanation which must be deduced, in terms of Marx’s method, from the concept of capital itself.[48] The concept of capital is a contradictory one. On the one side we have capital as ‘value in process’ as value attempting to expand itself without limit and on the other side we have the working population, the limited basis of that expansion. Capital, therefore, must, on the one hand, try and make itself as independent as possible of that basis in its process of self-expansion; it attempts to reduce the necessary labour time to a minimum by increasing the productivity of labour. On the other hand it needs to increase the basis of its expansion, that is the labour-power available for exploitation; that means to increase simultaneously the working population. This can be expressed in another way. Given the working-population (in labour-time units, i.e. number of working days multiplied by the time per working day) available to society, then surplus-value can only be increased by increasing the productivity of labour, that is, by a reduction of the (relative) working population. Similarly, assume a given development of the productive forces then surplus-value can only be increased by increasing the available working population, i.e. by an increase in the (relative) working population. Marx then argues that

‘the unity of this contradictory tendency therefore, of the living contradiction, (comes) first with machinery’.[49]

The dialectical solution to this contradiction (its removal to a higher level) is to increase the scale of production through the replacing of living labour by objectified (dead) labour in the form of machinery. In this sense machinery in so far as it comprises fixed capital is capital in its most adequate form.

‘Thus machinery appears therefore as the most adequate form of fixed capital and fixed capital in so far as capital can be considered as being related to itself, as the most adequate form of capital generally.’[50]

Marx clarifies this important point in the following passages taken from the Grundrisse:

‘In machinery, objectified (dead) labour appears in the labour process itself as the dominating force opposed to living labour, a force represented by capital in so far as it appropriates living labour. . .’

The development of the means of labour into machinery is not fortuitous for capital; it is the historical transformation of the traditional means of labour into means adequate to capitalism….

Thus the full development of capital does not take place – in other words, capital has not set up the means of production corresponding to itself – until the means of labour is not only formally determined as fixed capital but has been transcended in its direct form, and fixed capital in the shape of a machine is opposed to labour within the production process....

The quantitative volume, and the efficiency (intensity) with which capital develops as fixed capital, thus shows in general the degree to which capital has developed as capital, as domination over living labour and the degree to which it dominates the production process in general. It also expresses the accumulation of objectified productive forces and likewise of objectified labour….’[51]

What we have tried to show from an examination of the concept of capital is the necessity of increasing the social division of labour, through the application of machinery and therefore, of replacing on an increasing scale living labour by objectified (dead) labour. It follows from this that both the technical composition of capital and the organic composition of capital must increase in the process of capitalist production although the latter will not increase as quickly as the former due to increases in the productivity of labour.[52]

This is clearly expressed by Marx when he says:

‘However much the use of machinery may increase the surplus-labour at the expense of necessary labour by heightening the productiveness of labour, it is clear that it attains this result, only by diminishing the number of workmen employed by a given amount of capital. It converts what was formerly variable capital, invested in labour power, into machinery which, being constant capital does not produce surplus-value….’[53]

The necessity to continually extend and substitute objectified labour for living labour is clearly expressed in the condition for the introduction of machinery for the purpose of cheapening a product. That is, that less labour must be expended in the production of the machine than the (paid) labour (value of labour power) that is displaced by the employment of the machinery. The limit to the use of the machinery is given by the difference between the value of the machine and the value of the labour power replaced by it.[54] This latter point can be expressed algebraically as follows:

ct + 1 - ct  <  vt - vt + 1    (usual notation)

Clearly if all labour available for exploitation is to be employed in the interest of capital this requires a further extension of the division of labour (material side) and C must increase at a faster rate than V for total social capital (value-side). Likewise if we consider total social capital in periods ‘t’ and ‘t+1’ and let w be the total value produced in one period of production, then with the usual notation:

Ct + Vt + St =  wt

Ct + 1 + Vt + 1 + St + 1 =  wt + 1

If the total working-time available to capital for its employment remains constant (v + s = const) then for accumulation to take place:

wt + 1 >  wt

so that with or without an increase in the rate of exploitation, if all labour is to be employed:

Ct + 1   >  Ct
Vt + 1       Vt  

If the working population increases then accumulation would have to be that much faster (greater than the increase in the working population) to satisfy the condition for the introduction of machinery and the expansion requirements of capital.

Before finally concluding this section we must say something about capital saving innovation. This term can only have real significance if the innovation is brought about by ‘gratis’ increases in the productivity of labour. In general ‘the increase in the productive power itself must be paid for from capital, it is not free (gratis)’.[55] In such a case all the above arguments hold. What of the case where the cheapening of the elements of constant capital comes about ‘gratis’? Marx compares this to the increased exploitation of natural wealth by the mere increase in the tension of labour power. ‘Science and technology give capital a power of expansion, independent of the given magnitude of the capital functioning.’[56]

A number of points can be made here:

(1) Capital saving innovation is a confusing ideological term. From the standpoint of total social capital such innovation is labour-saving; less labour time is necessary to reproduce constant capital. Such innovation would therefore allow accumulation to take place at a much faster rate without the increase in the organic composition that would have occurred without the innovation. So that accumulation and expansion will be given an impetus. Unless such inventions are continually re-occurring the general tendency of the organic composition to rise would reappear. Logically such ‘gratis’ inventions have to be treated separately from the accumulation process. They modify it but do not belong to its internal logic. To give any more significance to such inventions it has to be shown that, necessarily, they must continually re-occur.

(2) The introduction of such inventions pre-supposes that a developed capital structure already exists. That is, the development of capitalist production has taken place along the lines indicated above; accumulation and the consequent rising organic composition of capital. So that new ‘waves’ of such inventions have as a presupposition for their introduction into the production process a further normal development of capitalist production.

(3) The effect of such inventions will be less the higher the organic composition of capital already achieved i.e. more developed and widespread is capitalist production.

(4) There is no reason to assume that such ‘gratis’ inventions will not affect labour equally. After all a great deal of so-called ‘scientific management’ is concerned with just such an application of ‘science’ to the labour process. If this is the case, the effect of such ‘gratis’ increases in productivity will be even more limited for the organic composition.

b) The tendency of the rate of profit to fall and the crisis theory

That it is inherent in capitalist production for capital in the process of its self-expansion, to create an ever-increasing basis for that expansion, that is, the proletariat,[57] and at the same time seek to increase the productiveness of social labour, that is set into motion a constantly increasing quantity of means of production with less expenditure of labour power, leads to the formation of the industrial reserve army.

‘The same causes which develop the expansive power of capital, develop also the labour-power at its disposal. The relative mass of the industrial reserve army increases therefore with the potential energy of wealth.’[58]

Marx calls this the absolute general law of capitalist accumulation which like all other laws, he says, is modified in its working by many circumstances.

This law is the general expression of the contradictory nature of capitalist production, of the increase in the social productivity of labour under the ‘domination of capital’. The size of the reserve army is relative to the rate of capital accumulation. During periods of stagnation and average prosperity it weighs down on the working population and during periods of rapid expansion, being a reservoir of labour power, holds back the ‘pretensions’ of the labour force.[59]

The process of capitalist production, of accumulation and the increase of the social productivity of labour has so far been examined through an analysis of its ‘invisible and unknown essence’. The appearance of surplus-value and rate of surplus-value ‘on the surface of the phenomenon’ in the form of profit and the rate of profit is the next step in the analysis.

‘Although the rate of profit thus differs numerically from the rate of surplus-value, while surplus-value and profit are actually the same thing and numerically equal, profit is nevertheless a converted form of surplus value, a form in which its origin and the secret of its existence are obscured and extinguished. In effect, profit is the form in which surplus-value presents itself to view, and must be initially stripped by analysis to disclose the latter.’[60]

The general law of capitalist accumulation from the standpoint of capital (and the capitalist) represents itself ‘on the surface of the phenomenon’ as a tendency of the rate of profit to fall. This is not a mechanical or algebraic relation but the expression of the contradictory nature of the accumulation process from the standpoint of capital.

The development of the social productivity of labour under capitalism leads to a decrease of exchange-value of commodities relative to their use-value (they are produced with less expenditure of labour-time) together with an increase of the mass of use-values. The accompanying rise in the organic composition of capital means that the mass of the means of production grows faster than the mass of labour employed from the material side, and from the value side, constant capital grows faster than variable capital. However, due to the increasing productivity of labour the value-composition rises slower than the technical-composition. If the rate of exploitation, the proportion between surplus and necessary labour-time remained the same, the rise in the organic composition of capital would lead to a falling rate of profit since it is only the variable part of capital that yields surplus-value, while the rate of profit is measured on total investments, i.e. constant and variable capital. This inherent tendency for the rate of profit to fall is called by Marx

‘the most important law of modern political economy and the most essential one for understanding the most complicated relationships. It is the most important law from an historical standpoint’.[61]

Since the increase in the organic composition of capital represents an increase in productivity, the rate of surplus-value will not remain constant but will be increased because the value of the mass of products constituting the equivalent for the necessary labour-time is cheapened. This is the result of an increase in relative surplus-value.

‘The tendency of the rate of profit to fall is bound up with a tendency of the rate of surplus-value to rise, hence with a tendency for the rate of labour exploitation to rise…. Both the rise in the rate of surplus-value and the fall in the rate of profit are but specific forms through which growing productivity of labour is expressed under capitalism.’[62]

Does this mean that the fall in the rate of profit can be completely compensated by an increase of surplus-value? Or as Sweezy puts it

‘it is not possible to demonstrate a falling rate of profit by beginning the analysis with the rising organic composition of capital’.[63]

Marx was quite aware of this objection when he said that

‘the compensation of the reduction in the number of labourers by means of an increase of exploitation has certain insurmountable limits. It may, for this reason, check the fall in the rate of profit, but cannot prevent it entirely’.[64]

Sweezy could find no real answer to this problem because he fails to see the capitalist process of production from both its value and material side. His own discussion rests on purely value considerations whereas Marx sees the process in its entirety. Surplus-value is produced by living labour and the physical and social limitations and possibilities involving this labour affect the production of surplus-value.

‘Inasmuch as the development of the productive forces reduces the paid portion of employed labour, it raises the surplus value, because it raises its rate; but in as much as it reduces the total mass of labour employed by a given capital, it reduces the factor of the number by which the rate of surplus-value is multiplied to obtain its mass. Two labourers, each working 12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours, even if they could live on air and hence did not have to work for themselves at all.’[65]

Although the argument is unclear as to what is the surplus labour-time of the twenty-four labourers, the point is clear. While the means of production per man employed have no ‘finite’ limit theoretically the mass of surplus-value produced by a worker has an impassable limit, namely the duration of the working day. Further as capitalism develops it becomes increasingly more difficult to shorten the necessary labour-time by an increase in productivity.

‘The greater the surplus-value appropriated by capital because of the augmented productivity … or the smaller the already established fraction of the working-day which provides an equivalent for the workers so much the smaller is the increase in surplus-value which capital can obtain from an increase in productivity. Surplus-value increases, but in ever diminishing proportion to productivity. To the extent that capital is already developed ... so much the more frightfully must it increase productivity even to expand (i.e. to increase surplus-value) by a lessened proportion – because its barrier always remains the proportion between the fraction of the day which expresses necessary labour and the entire working-day. Only within these boundaries can it move.’[66]

Marx gives numerous arithmetical examples in the Grundrisse of the decreasing effect an increase of productivity of labour will have, the smaller is the already established part of the working day which provides an equivalent for the workers. We shall just give one of his extreme examples which makes the point very clear. Suppose the necessary labour is already reduced to 1/1,000 of the working day. The total surplus-value would be 999/1,000. Increase the productivity of labour by a thousand so that the necessary part of the working day is 1/1,000,000 and the total surplus value is 999,999/1,000,000. Now the increase in surplus-value due to a thousand-fold increase in productivity will be

999,999   -   999       =       999       
1,000,000    1,000        1,000,000

≈   1   

So that a thousand-fold increase in the productivity of labour increases surplus-value by less than 1/1001 (or 0.1 %).[67] While this rather unrealistic example only brings the point home, the point can be made more generally.

If n is the labour-time available to society (assumed constant). Then with the usual notation

v + s = n                                                                                                              (1)

If e is the rate of exploitation (= s/v).


s/e + s = n                                                                                                           (2)

So that   

s (1/e + 1) = n                                                                                                     (3)

Differentiating (3) with respect to time, we obtain

d/dt (1/e + 1) – s/e2  de/dt  =  0                                                                          (4)

That is;

1/s  .  ds/dt = 1/(1+e)  . 1/e .  de/dt                                                                     (5)

So that a unit increase in s will require a larger increase in e, the larger e is already. So that the higher the rate of exploitation (the less-time it requires to reproduce the value of labour-power) the greater must be the increase in the rate of exploitation in order to increase the mass of profits sufficiently to compensate for the falling rate of profit.[68]

The tendency of the rate of profit to fall is an expression of the increasing difficulty in raising the rate of exploitation sufficiently to satisfy the self-expansion requirements of capital as capitalism progresses.

The accumulation process involves a rise in the organic composition of capital a rise in the productivity of labour and a relative decrease (absolute increase) in the labour employed. These express themselves in a tendency of the rate of profit to fall, although the mass of profits or surplus-value absolutely increases and the rate of exploitation increases. This means:

‘The progress of the process of production and accumulation must therefore be accompanied by a growth of the mass of available and appropriated surplus labour and consequently by a growth of the absolute mass of profit appropriated by the social capital…. The same laws, then, produce for the social capital an increase in the absolute mass of profit and a falling rate of profit.’[69]

So long as accumulation increases the mass of profits sufficiently to compensate for the falling rate of profit, all is well. This is the case if capital grows at a faster rate than the rate of profit falls. This only expresses the fact that capital of a higher organic composition of capital must grow at a faster rate than that of a lower composition to employ the same, let alone an increased amount of labour-power.[70]

Besides the immanent tendency, within the accumulation process, to check the tendency of the rate of profit to fall by an increase in the mass of profits there are other counteracting tendencies that can apply temporarily. These are the increase in the rate of surplus-value by lengthening the working-day or intensification of labour, the pushing down of wages below their value, the cheapening of the elements of constant capital, and foreign trade.[71] The fall in the rate of profit is, therefore, not linear but in some periods is only latent coming to the fore more or less strongly in other periods and appearing in the form of a crisis cycle.

On this theory capitalism is always driven to a higher and higher productivity of social labour in order to produce sufficient surplus-value for the continuous reproduction and expansion of the growing capital. But this process is a contradictory one.

‘The contradiction … consists in this that the capitalist mode of production has a tendency to develop the productive forces absolutely, regardless of value and of the surplus-value contained in it and regardless of the social conditions under which capitalist production takes place; while it has on the other hand for its aim the preservation of the value of the existing capital and its self expansion to the highest limit (that is an ever accelerated growth of this value).’[72]

When the expansion of production outruns its profitability, when existing conditions of exploitation preclude a further profitable capital-expansion or what amounts to the same thing, an increase of accumulation does not increase the mass of surplus-value or profits, an absolute over-accumulation has occurred and the accumulation process comes to a halt. This interruption of the accumulation or its stagnation constitutes the capitalist crisis. It represents an overproduction of capital with respect to the degree of exploitation. From the point of view of profitability at this stage, existing capital is at the same time too small and too large. It is too large in relation to the existing surplus-value and it is not large enough to overcome the lack of surplus-value. Capital has only been over-produced in relation to profitability. This is not a material overproduction for the world in this respect is undercapitalised.[73] This stresses once again the central contradiction between the commodity as a use-value and as an exchange-value, between production for use and that for profit.

There exists besides the Marxian theory of value and accumulation (of which the second is only a more concrete development of the first) no separate theory of crisis.[74] As Mattick has put it:

‘Marx's value theory of capital development is at once a general theory of accumulation and a special crisis theory; that is to say neither one nor the other can be dealt with separately.’[75]

Although the actual crisis has to be explained out of the real movement of capitalist production, credit and competition,[76] it is the general tendencies of the accumulation process itself and the long-run tendency of the rate of profit to fall that constitutes the basis of that explanation. These tendencies have been analysed through an understanding of the ‘inner nature of capital’. The overproduction of capital arises out of the conflict between the increase and development of the productivity of labour from a material standpoint and the narrow basis and aim of that development under capitalist conditions of production, i.e. the self-expansion of capital.

The real barrier of capitalist production is capital itself. It is the fact that capital and its self-expansion appear as the starting and closing point, as the motive and aim of production; that production is merely production for capital, and not vice versa, the means of production mere means for an ever expanding system of the life process for the benefit of the society of producers. The means – unconditional development of the productive forces of society – comes continually into conflict with the limited end, the self-expansion of the existing capital.’[77]

We have shown the tendency that capitalism has towards overproduction and crisis without considering competition. In the discussion so far it has also been assumed that all goods are actually sold at their value and there are no realisation difficulties; that is the tendency towards crisis and overproduction of capital can be deduced independent of such considerations. In order to indicate why the crisis takes the form of ‘periodically reoccurring cycles’ with each cycle tending to be more severe than the last, we need to discuss the role of the crisis in restoring the conditions for a new profitable expansion.[78] It is here that competition becomes a decisive factor in the whole discussion.

With a relatively decreasing mass of surplus-value in relation to the growing mass of constant capital, competition for this declining mass becomes a vital element in the accumulation process. Competition is the result of the struggle for profits and extra-profits accompanying the rise in the productivity of labour. For those first introducing new methods of production can sell their cheaper produced commodities above their price of production, and under their social value (above their individual value). Competition is the force that equilibrates different production prices to a new social average value.

‘a fall in the rate of profit connected with accumulation necessarily calls forth a competitive struggle. Compensation of a fall in the rate of profit by a rise in the mass of profit applies only to the total social capital and to the big, firmly placed capitalists. The new additional capital operating independently does not enjoy any such compensating conditions. It must still win them and so, it is that a fall in the rate of profit calls forth a competitive struggle amongst capitalists, not vice versa.’[79]

Competition comes into its own in the crisis situation. The crisis, while representing an end to the accumulation process, is nevertheless the precondition for its continuation on a higher level. In the crisis profitability of capitalist production is restored, in principle, in a number of ways. Assuming no physical destruction of capital takes place (either through lack of use or abandonment or destruction through war), the same quantity of use-value, of means of production, before the crisis represents a smaller exchange-value of means of production after the crisis through devaluation of constant capital. However, neither the rate of surplus-value nor the mass of surplus-value are affected as they relate to the unaltered use-value of capital and hence to its unaltered productive capacity. Hence the rate of profit will increase because the same amount of surplus-value relates to a lower total capital. Clearly, this only holds once the expansionary process has begun again and represents a redistribution of profits (or potential profits) in favour of those capitalists who have managed to buy up capital ‘cheaply’.

Secondly, with the centralisation and restructuring of capital that takes place in the crisis through competition, only the more productive capitals survive and allow for a higher social productivity of labour with increased markets. It is this mechanism which decreases the value of labour-power and thereby increases the rate of exploitation and mass of surplus-value. The larger markets allow for increasing ‘economies of scale’.

Thirdly, this restructuring usually includes the abandoning of part of the least profitable and often obsolete constant capital and as such frees the surviving capital (in money or commodity form) for new, more productive investment.

Fourthly, due to the relative surplus-population (increase in unemployment) wages, which had a tendency to go above their value in the period of prosperity previous to the crisis, are now temporarily pushed below their value. Simultaneously, the working-day can also be lengthened and the intensification of labour can be increased resulting in an addition of surplus-value. Further through ‘rationalisations’ in the labour-force new methods and techniques of work, new methods of production can be introduced without the ‘frictions’ that would have taken place before the ‘disciplining’ effect of the crisis on the labour-force.

All these factors together play a role in the restoration of profitability of capital and this allows the accumulation process to continue on a new higher level. The crisis therefore removes the temporary barrier to further accumulation but only to set new limits on a higher level still.

We have explained why competition has only been introduced at this stage. In effect competition takes place throughout the production process reflecting the striving after surplus-value and tending to equalise profit rates, establishing prices of production and driving the less efficient capitals out of business. But it is only in the crisis that competition really becomes ‘a life and death struggle’.

‘Under all circumstances, a portion of the old capital would be compelled to lie fallow, to give up its capacity of capital and stop acting and producing value as such. The competitive struggle would decide what part would have to go into this fallow state. So long as everything goes well, competition effects a practical brotherhood of the capitalist class as we have seen in the case of the average rate of profit, so that each shares in the common loot in proportion to the magnitude of his share of investment. But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and load as much as possible upon the shoulders of some other competitor ... competition then transforms itself into a fight of hostile brothers. The antagonism of the interests of the individual capitalists and those of the capitalist class as a whole then makes itself felt as previously the identity of these interests impressed itself practically as competition.’[80]

The overproduction of capital, and therefore the crisis, was due to the fact that accumulation and the expansion of production had outrun profitability. Given the degree of exploitation any further capital invested would not yield sufficient profits. The crisis mechanism restructures capital and increases the rate of exploitation so that a new expansion becomes possible. In this sense the capitalist crisis can be regarded as the strongest counteracting tendency to the long-run tendency of the rate of profit to fall.[81] The tendency towards ‘breakdown’ and stagnation therefore takes the form of cycles due to the effects of the countertendencies of which the actual crisis is an extreme case.

‘Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus, the law acts as a tendency. And it is only under certain circumstances, and only after long periods that its effects become strikingly pronounced.’[82]

The actual periodicity of crises simply stems from the ability of capitalism to overcome the overproduction of capital, through changes in the conditions of production which increase the mass of surplus-value and restore an adequate rate of exploitation relative to existing capital.[83]

Whether the crisis will be successful in restructuring capital to a greater profitability clearly is not merely a narrow ‘economic’ question. Nothing is more clear in the crisis than the wasteful and destructive side of capitalism. Its ‘civilising’ tendencies are seen to be bought at an enormous expense. The struggle between capital and labour, the class-struggle in the widest sense, becomes a struggle about the system itself. The outcome of the struggle cannot be predicted, and in this sense ‘no crisis is the final crisis’ for capitalism. The ‘crisis’ is the most poignant expression of the ‘disease’ of the contradictions of capitalist production but it is also the ‘cure’ ‘the forcibly established unity of elements that have become independent’.[84]

4. Incorrect versions of the theory of crisis

a) The possibility of crisis confused with its cause

There are many possibilities for disturbances and crisis-prone developments in the circulation process of commodities and capital. Marx discusses the circulation process of capital in Volume II of Capital, and many Marxists have assumed that the cause of crisis lies in the circulation process. In developing the general theory of accumulation and crisis Marx assumes that all commodities are sold at their value and that there are no disturbances in the process of circulation. Nevertheless the system is driven towards crises due to the overproduction of capital.

In his critique of Ricardo’s theory of accumulation he drops the assumptions that there are no difficulties in the circulation process. He indicates the ever-present possibility of crises occasioned by the fact that the capitalist economy is not one of barter, the exchange of products against products, but one of monetary exchangeAnd, money is not merely a medium of exchange, but is a store of value (abstract general social labour) in its function as a means of payment.

Marx pointed to two crucial features of the exchange of commodities that contain within it the possibility of crisis. They are the separation of sale and purchase and the fact that money is used as a means of payment to bridge the separation. The commodity actually exists as a use-value and nominally exists, in its price, as an exchange-value. So it is that in the metamorphosis of the commodity the possibility of crisis exists. To realise its price, it must be sold. The possible difficulty of converting the commodity into money (C-M), of selling it, arises from the fact that the commodity must be turned into money, but the money need not be immediately turned into a commodity (M-C). Sale and purchase can be separated. No one can sell unless someone else purchases but no one need purchase because he has just sold. (Money can be hoarded.)

We now consider money as a means of payment. If a particular commodity cannot be sold for some reason or other in a particular time, the producer of that commodity might not be able to pay his debts, etc. This can mean that a whole network of mutual obligations and debts cannot be met, and therefore, the possibility of crisis exists. These are what Marx calls the formal possibilities of crisis. The first form is possible without the latter, that is to say, crises are possible without credit and without money serving as a means of payment. But the second form is not possible without the first, i.e. the separation of purchase and sale.[85] What is important for our discussion is what Marx said about these formal possibilities of crisis and how we are to regard them.

‘The general possibility of crisis is the formal metamorphosis of capital itself, the separation, in time and space, of purchase and sale. But this is never the cause of the crisis. For it is nothing but the most general form of crisis, i.e. the crisis itself in its most generalised expression. But it cannot be said that the abstract form of crisis is the cause of crisis. If one asks what its cause is one wants to know why its abstract form, the form of its possibility, turns from possibility into actuality.

... The general conditions of crises ... must be explicable from the general conditions of capitalist production.’[86]

There are all sorts of factors that can precipitate the crisis and which appear to be their cause. Marx gave many examples such as crop failures, inadequate depreciation reserves for fixed capital replacement, changes in the turnover period of capital, changes in the channels of trade, etc. But all these factors which may precipitate a crisis and in so doing give its unique historical features are not its general cause which has to be sought in the conditions of capitalist production itself.[87]

An uninterrupted circulation process for an individual capital depends on the effectiveness of the process of capital circulation as a whole and the latter functions only under the conditions that satisfy the reproduction and self-expansion requirements of total capital. It is not possible to separate the circulation process from the capitalist production process as a whole. This is precisely the fault of the two main distorted versions of the Marxian crisis theory, namely, the disproportionality thesis and the underconsumptionist thesis. The general features of these two positions will now be discussed.

(b) The disproportionality thesis

In discussing the reproduction schemas in Volume II of Capital Marx spoke of the fact that capitalist production in which money plays not only a role as a means of a circulation, but also as money capital in the normal course of reproduction on either a simple or extended scale, engenders

‘conditions which change into so many conditions of abnormal movements, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production’.[88]

The disproportionality thesis rests upon an untenable interpretation of the reproduction schemas in the second volume of Capital. In these schemas Marx shows the necessary relationships that must hold between the two principal departments (that of means of production industries and means of consumption industries) if the process of simple and extended reproduction is to continue undisturbed. He attempts to show that the exchange relations between the two departments must be in accordance with regard to both their value and use-value side, if the equilibrium conditions of the reproduction of total social capital are to be maintained. He did not say that they could be maintained but indicated the conditions that would be necessary, in order to give a fuller understanding of the processes involved. In this sense, as Rosdolsky has put it, ‘the reproduction schemas of the second volume can be regarded as a (provisional) solution to the so-called realisation problem’.[89]

What Marx shows is that if certain conditions of proportionality in the exchange between the two departments are observed no over-production of commodities would occur and reproduction on either a simple or extended scale could carry on undisturbed. That is to say, the general cause of the capitalist crisis cannot lie in the circulation process. Neither the possibility of overproduction nor the impossibility of overproduction follows from the schemas themselves. That, in reality, there are many disturbances of equilibrium, is taken as given by Marx as we have already indicated. But these disturbances while they may appear to precipitate a crisis are not its cause. To show their cause we have to show how the possibility of crisis, how these disturbances and disproportions are turned into an actual crisis, how they become generalised for the total production process itself.

The reproduction schemas abstract from decisive elements of the capitalist production process. They are the increase in the organic composition of capital with the accompanying increase in technical progress and production of relative surplus-value. The normal progress of capitalist production will continually disturb the ‘equilibrium’ of proportional exchanges, and therefore, the relations between production and consumption that are indicated in the reproduction schemas analysis. What must be remembered is that these schemas are only a particular stage, represent a certain level of abstraction, in the development of Marx’s theory. The production process and the circulation process, the problem of production and realisation, have to be seen within the total process of capitalist production as a whole and that means in conjunction with those contradictory tendencies of development that we have analysed earlier.

Various interpretations of the reproduction schemas have played a role in certain political struggles in the working class movement. It is interesting to see how the use (or misuse) of the schemas can have, or have had, enormous political consequences. The Russian Legal Marxists, following the lead of Tugan Baranowski, as in the case of Bulgakov, and also the early Lenin, relied on these schemas in their arguments against the Narodniks. The Narodniks had claimed that due to the underdevelopment of Russia, the lack of ‘internal’ and ‘external’ markets, capitalism would not be able to develop. Against this the Legal Marxists and Lenin had argued that capitalist industrialisation was possible since a relatively faster growth of the means of production industries could be achieved by altering the proportional relationships in the two sectors. But as Rosa Luxemburg remarks:

‘The question was whether capitalism in general and Russian capitalism in particular is capable of development; these Marxists, however, proved this capacity to the extent of even offering theoretical proof that capitalism can go on for ever.’[90]

The Russian Legal Marxists had stressed one aspect of the problem, that accumulation itself extends capitalist markets. They had in their polemic not found it necessary to argue that this development is a contradictory one, a limited possibility for a developed capitalism. But Rosa Luxemburg took her argument much too far – she denied that accumulation is ‘possible’ given the assumptions of Volume I and II of Capital.[91] She had failed to understand the level of abstraction of the models and had had to turn to a theory resting on ‘lack of non-capitalist markets’ to justify what had been a methodologically correct and revolutionary point of view.[92]

The arguments of the Russian Legal Marxists were very attractive to the German and Austro-German Social Democrats. First Hilferding, then Otto Bauer, and finally Kautsky took the reproduction schemas and suitably developed them in order to show that undisturbed accumulation can take place and that the law of the falling rate of profit would be superseded. Crisis could only be due to disproportionalities and these could be avoided by thorough planning. For example the idea of an economic breakdown of capitalism for Hilferding ‘is no rational conception at all’.[93] This is because ‘in capitalist production both reproduction on a simple as well as on an extended scale can proceed undisturbed if only these proportions are maintained’.[94]

The consequences of such views for a discussion of the role of the State in the capitalist economy are clear: a rejection of the revolutionary for the reformist view.

In Otto Bauer’s model we have a rising organic composition of capital, but as Rosa Luxemburg pointed out, a constant rate of surplus-value. Despite this unlikely combination the model breaks down even according to his own assumptions. Henryk Grossman showed this in critique of Otto Bauer's reproduction schemas. Bauer claimed that his schemas showed that undisturbed accumulation was possible but he only worked out the results of his schema for four years. Grossman continued it and showed that after a certain period, the system must break down due to lack of surplus-value.[95] What the theorists of disproportionality crises forget is that Marx shows the necessity of crises, of over-production of capital, assuming proportionality between departments. While disturbances and disproportionalities are a continual feature of the capitalist system of production they are only partial in their effect, and since they are always present, they cannot be the explanation of the crisis cycle. Before we leave this section we should mention the disturbances in the production process caused by the turnover period and renewal of fixed capital. With the progress of capitalist production, the mass of value contained in, and durability of, fixed capital increase. On the other hand, the real life-span of fixed capital is continually shortened by

‘continuous revolution in the means of production, which likewise incessantly gains momentum with the development of the capitalist mode of production. This involves a change in the means of production and the necessity of their constant replacement on account of moral depreciation, long before they expire physically.’[96]

Crises always form the starting point of large new investments and in that sense build a new material basis for the next turnover-cycle. This leads to an expansion that continues until the next downturn due to insufficient productivity in relation to existing capital. Though the life-span of fixed capital certainly influences the cyclical nature of capitalist production its impact clearly depends on the expansion of capitalist production generally and the tendencies that are inherent in that development.

(c) The underconsumptionist thesis

This position is really only an extreme version of the disproportionality thesis. It sees in the necessary disproportion of production and consumption the cause of capital crises. The underconsumptionist theories in their various forms have one central shortcoming in common. That is, they break the crucial connection between the production and circulation process and consider the latter independently and as the limitation of the former. Whether it is the lack of non-capitalist markets (Rosa Luxemburg), or the ‘inherent tendency to expand the capacity to produce consumption goods more rapidly than the demand for consumption goods’ (Paul Sweezy) or the lack of effective demand that dulls the incentive to invest (Joan Robinson and other left-Keynesians), it is the circulation process that finally is a limitation on the process of production. The last two cases either manifest themselves in a crisis (over-production of consumption goods) or in stagnation (idle productive resources are not utilised to produce additional capacity because it is realised that the additional capacity would be redundant relative to the demand for the commodities it could produce).[97]

Marx himself criticised very harshly all underconsumptionist theories known to him (especially Malthus and Chalmers). It is worthwhile examining briefly Marx’s critique of Malthus because it indicates the failing of all underconsumptionist theorists to understand the nature of capitalist production. The problem derives from Malthus’s theory of value. The value of a commodity is equal to the value of wages contained in the commodity plus a profit increment on advances made by the capitalist according to the general rate of profit. The latter is the price for the purchaser as distinct from the price for the producer, and the price of the purchaser is the real value of the commodity. The question is, how is this price to be ‘realised’, who is to pay for it?[98] Mutual exchanges between the capitalist class do not really help and presumably additional accumulation only makes the discrepancy worse. There will be more commodities that need to be sold.[99] Malthus’s solution to this problem was, of course, a growing class of unproductive consumers, ‘buyers who are not sellers’ who enable the capitalist to realise his profit and sell his commodities ‘at their value’:

‘How these “purchasers” come into possession of their means of purchase without giving any equivalent in order to buy back less than an equivalent with the means thus obtained, Mr. Malthus does not explain.’[100]

Later Marx refers to this third class of purchasers as a deus ex machina, as a class which transacted one phase of the circulation of commodities M-C, but not M-C-M, as a class which bought without selling.[101]

Where do their financial resources come from? The critical point is out of surplus-value already produced. They are unproductive consumers and therefore increasing such consumption will detract from accumulation. The effect of increasing such expenditures considerably will, therefore, accentuate the movement towards stagnation and the latent tendency of the rate of profit to fall will become an actual fall. Insufficient surplus-value will be produced to satisfy the profitability requirements of the capital invested.

‘If too large a part of surplus-labour is embodied directly in luxuries, then clearly accumulation and the rate of reproduction will stagnate because too small a part is reconverted into capital.’[102]

For Marx it is the discrepancy between material and value production which leads to difficulties in the accumulation process. The crisis is an overproduction of capital in relation to profitability or, what amounts to the same thing, an under-production of surplus-value in relation to the growing mass of total capital.

‘An overproduction of capital, not of individual commodities, signifies therefore an over accumulation of capital – although the overproduction of capital always includes the overproduction of commodities.’[103]

The over-accumulation of capital is the cause of the over-production of commodities and the latter is not the limitation to the capitalist production process.

The underconsumptionists either view the capitalist system ‘statically’ and confuse effective demand with ‘consumption’ demand (wasteful or otherwise) or they view the system from its ‘material’ side only and we are faced with a ‘potential’ or ‘actual’ over-production of commodities. Now effective demand under capitalism is constituted by the consumption of workers and capitalists (wasteful or otherwise), the replacement of constant capital used up in the production process and by the additional surplus-value invested i.e. additional capital. It is this latter part, central to the accumulation process, that determines the capacity of the capitalist system to expand. This brings us finally back to the ‘theory of the falling rate of profit’ on which the explanation of declining profitability and the consequent halt in the accumulation process rests. As Marx said so clearly in Capital:

‘It must never be forgotten that the production of … surplus value and the reconversion of a portion of it into capital, or accumulation, forms an indispensable part of this production of surplus-value – is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production having for its immediate purpose the consumption of goods or the production of means of enjoyment, for capitalists. This would be overlooking the specific character of capitalist production…’[104]

Joan Robinson’s criticism of Marx in her Essay on Marxian Economics is quite consistent with her Keynesian position. She says in relation to the two famous passages in Volume III of Capital, that on superficial reading attribute to Marx an under-consumptionist position: ‘Thus to clinch [Marx’s] argument it is necessary to show that investment depends upon the rate of profit and that the rate of profit depends, in the last resort, upon consuming power. It is necessary, in short, to supply a theory of the rate of profit based on the principle of effective demand.’ And: ‘The theory of the rate of profit is a red herring across the trail and prevented Marx from running the theory of effective demand down to earth.’[105]

Where Marx differs from Keynes is precisely on the question of the falling rate of profit. It is not the propensity to consume or subjective expectations about future profitability that is crucial for Marx. It is the rate of exploitation and the social productivity of labour that are the key considerations and these in relation to the existing capital stock. While for Keynes the low marginal productivity of capital has its cause in an over-abundance of capital in relation to profit expectations,[106] and therefore to a ‘potential’ over-production of commodities (the capitalist will not invest). For Marx the over-production of capital is only relative to the social productivity of labour and the existing exploitation conditions. It represents an insufficient mass of surplus-value in relation to total capital. So that for Marx the crisis is, and can only be, resolved by expanding profitable production and accumulation, while for Keynes, it can supposedly be remedied by increasing ‘effective demand’ and this allows for government induced-production. That this has certain limitations will be part of our discussion in the next section. All that need be said here is that the increase of ‘effective demand’ and attempts to stimulate the ‘incentive to invest’ can only be successful if they lead to a ‘restructuring of capital’ towards a greater profitability. Whether government-induced expenditure can achieve this depends on the nature of, and effects of that expenditure in relation to the private capitalist sector. We have included the Keynesian ‘effective demand’ theory in our discussions of underconsumptionism because it has in common the belief that ‘consumption’ and therefore the circulation process are limitations on the process of production in spite of the recognition of investment as a central part of ‘effective demand’. What remains in this section is to indicate that those passages in Volume III referring to the underconsumption of the masses in no way can be interpreted as an underconsumptionist theory of crisis.

The basis usually given for a ‘underconsumptionist theory of crisis’ is Marx’s statement that

‘The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit.’[107]

The above passage contains within it no more than a description or a restatement of the capitalist relations of production. Marx called it a tautology to explain the crisis by lack of effective consumption,[108] and this supports our point. The limitation of the consumption of the masses is the precondition of the reproduction and self-expansion of capital. It is only another expression of the ‘value’ character of capitalist-production and is identical therefore with the contradictory basis of capitalist production, between the attempt of capital to expand itself without limit and the limited basis of that expansion, the working population. The following passage makes the point quite clear:

‘Overproduction (of capital) is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital without any consideration for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion of reproduction and accumulation and therefore constant reconversion of revenue into capital, while on the other hand the mass of producers remain tied to the average level of needs and must remain tied to it according to the nature of capitalist production.’[109]

To conclude this section we end with a contribution from Engels that perhaps makes the most incisive and clear attack on the underconsumptionist theory of crises:

‘The underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes… The underconsumption of the masses is a necessary condition of all forms of society based on exploitation, consequently also of the capitalist form; but it is the capitalist form of production which first gives rise to crises. The underconsumption of the masses is therefore also a prerequisite condition for crises, and plays in them a role which has long been recognised. But it tells us just as little why crises exist today as why they did not exist before.’[110]

5. The state and the theory of crisis

a) Introduction

State expenditure – and some claim military and space expenditure have been decisive – has played a significant role in maintaining social and political stability since the Second World War. The question, therefore, of the nature and limits of this expenditure is crucial for Marxist theory. What follows is an attempt to explain the role and nature of state expenditure, including arms-expenditure, in relation to Marx’s theory of crisis. This explanation is only an outline and a framework in which further discussion may take place. In particular there is no discussion here about the efficacy of state intervention in the national economy today with the growth of international monetary markets and international firms.[111]

We shall argue that the nature of the government’s expenditure is quite critical in this discussion. In so far as it is ‘unproductive’ expenditure then for it to be maintained or extended necessitates continual increases in the productivity of labour in both the private and state sector. Only by understanding this does it become clear why the process of concentration and centralisation of capital has continued at an accelerated rate. The sharpening competition on the world market is a further expression of the need to enlarge markets and to maintain and increase one’s share of the surplus-value produced world-wide. This has naturally given an impetus to the ‘merger’ movement.[112]

The ‘rationalisations’, including productivity deals, the Industrial Relations Act and other attempts to make capital more ‘productive’ is the reflection of this process in Britain.[113]

Towards the turn of the century the business cycle mechanism was no longer sufficient to bring the restructuring of capital through crisis and competition towards a greater profitability. As Paul Mattick puts it:

‘The business-cycle as an instrument of accumulation has apparently come to an end; or rather, the business-cycle became a “cycle” of world-wars. Although this situation may be explained politically it is also a consequence of the capitalist accumulation process.’[114]

And it was seen,

‘that only under conditions of large-scale warfare in which half of the Gross National Product served the needs of war, was there a full use of productive resources.’[115]

The Keynesian anti-slump suggestions must be seen in this context. The period of wars had already brought the state to intervene massively in the economy. The basic argument of the Keynesians was that the government intervention in the economy was needed to increase effective demand and compensate for the decline in the rate of private capital formation. This was necessary to prevent large-scale unemployment and consequent social unrest.

The Second World War, as all wars, led to a further redistribution of economic power and to a concentration and centralisation of capital in the hands of the most dominant economic powers. In this sense war takes over the ‘role’ of the crisis in allowing for the restructuring of capital and the ensuing increased productivity of labour. It thereby improves the conditions for further accumulation by an enormous destruction of existing capital. State intervention was essential to ‘reorganise’ capitalist production after the war; a process that could not have been carried out by private capital alone. But it was the fact of the enormous destruction of capital that laid the basis of the post-war boom.[116] As the basis for expansion existed, the State needed only to give impetus to this process by deficit budgeting, credit expansion and redistribution of essential resources in the interests of the most productive capitals.

At this stage we must examine the nature of government expenditure and understand its relation to private capital formation. The point about state expenditures is that they are financed and paid for out of taxes. If the state finances its expenditures through deficit-spending, to this extent ‘future’ taxes, which presuppose the future profitability of capital, are assumed. In either case, present or ‘future’ surplus-value is appropriated from private capital by the state, in the form of taxes or loans, to pay for these expenditures. This represents a decline in accumulation and a decline in the rate of growth of the productivity of labour. This is so because the state-induced production is ‘unproductive’ from the point of view of capitalism as a whole. Although state expenditure ‘realises’ surplus-value, the products bought by the state do not function, in general, as capital, and therefore do not produce additional surplus-value.[117] The finished products that the state buys are acquired with already produced surplus-value. The individual private capitalist producing for the state quite clearly gets the average rate of profit and ‘surplus-value’ is produced by his exploited workers. But from the standpoint of society, of total social capital, ‘unproductive’ state-expenditure constitutes a ‘drain’ of capital. So the profit acquired by the individual capitalist producing for the state comes to him only out of a redistribution of the already produced surplus-value. We shall now examine theories of the role of state expenditure on arms production and by criticising these theories clarify this point.

b) Theories of the role of armaments production in the economy

Theories of the role of armaments in the economy were first developed as modified versions of the underconsumptionist position. The theories that we shall briefly discuss are those put forward by theorists who claim to be Marxist. In this respect, it is sometimes difficult to decide what exactly constitutes the core of their theories. It will be the aim of this section to show that even though such theories sometimes acknowledge, more or less seriously, Marx’s theory of the falling rate of profit, they show no real understanding of Marx’s position. And where they are not explicitly underconsumptionist they, if consistently developed, are no more than a modified version of the Keynesian theory of effective demand.

‘The first ideas about the role of armaments in the economy were concerned with theories of imperialism. In the case of Rosa Luxemburg, militarism fitted into a theory of imperialism, but also had another function.

‘In addition, militarism has yet another important function. From the purely economic point of view, it is a pre-eminent means for the realisation of surplus value; it is in itself a province of accumulation.’[118]

Luxemburg’s position is very confused; she sees armaments production as financed out of taxes which fall entirely on wages and as robbing the non-capitalist strata of their purchasing power.[119] So that arms production can be regarded

‘as a kind of “forced saving” imposed on the workers. These savings are extra to the saving out of surplus[-value]. They are invested in armaments, and that ends the story.’[120]

In that case they cannot be a pre-eminent means for the realisation of surplus-value over and above what the national capitalist market can absorb, as here, extra surplus-value is created by increasing the rate of exploitation. That is, from the standpoint of the capitalist class as a whole, the lowering of wages. Joan Robinson recognised this inconsistency and suggests a more consistent position.

‘The analysis which best fits Rosa Luxemburg’s own argument, and the facts, is that armaments provide an outlet for the investment of surplus (over and above any contribution there may be from forced saving out of wages), which unlike other kinds of investment creates no further problem by increasing productive capacity. (Not to mention the huge new investment opportunities created by reconstruction after the capitalist nations have turned their weapons against each other.)'[121]

This position outlined by Joan Robinson is the one that is central to the various versions of the Permanent Arms Economy.[122] In this case the aim of the theory has changed somewhat, and is rather to explain the stability of capitalism in the post-war years. It is this problem of stability that gives significance to Keynesian bias that Joan Robinson gives to Rosa Luxemburg’s position.

The ‘permanent war economy’ according to Cliff, stabilises the overproducing capitalism because, ‘the new State demand for arms, army clothing, barracks’ etc, together with ‘the increasing purchasing power of the people’ who indirectly receive employment by arms expenditure provides ‘greater openings for capital investment’.[123] The ‘permanent war economy’ as ‘internal’ market has replaced the necessary ‘external’ markets of Rosa Luxemburg. ‘The “Third” buyer – not worker nor capitalist consumer – need not necessarily be the non-capitalist producer but the non-producing state.’[124] But this is clearly incorrect. The important difference is that the export of capital or goods helps to produce additional surplus value in non-capitalist lands either through the process of direct investment (production) or unequal exchange and this is returned to the advanced capitalist countries.[125] This would only be true of armaments production, if the arms were sold elsewhere.[126] That is, there are buyers with the ability to pay, with the equivalent exchange. Otherwise all the points Marx makes against Malthus (see above) hold here.

So far we have indicated the underconsumptionist and Keynesian bias in this position.[127] Before we go on to explain the mechanism of the arms economy, it is first necessary to say something about the latest, and most well-known, version of this theory. In a book called Western Capitalism Since the War and in various essays, Michael Kidron develops a more elaborate view of the ‘permanent arms economy’. There are a number of confused positions held together in this theory, and, in general, the underconsumptionist aspect is pushed into the background. Kidron tries more than all the other theorists to relate his position to the ‘Mandan theory of the falling rate of profit’. So that, before this theory is discussed fully, it will be necessary to explain in a general way the stabilising functions of armaments production as it is described by all these theorists, and to show how Kidron attempts to relate this to the theory of ‘the falling rate of profit’.

The ‘underconsumptionist’ and ‘lack of effective demand’ arguments for the interference of the State in the economy are quite usual. What is important to the arms-economy theorists is why armaments production, and only such production, can really explain the stability of the post-war years. Arms expenditure as opposed to other 'public' expenditure is more effective in stabilising the economy and preventing slump for the following reasons. It does not compete with private interests in the same field, and yet industries are involved which are generally most affected by slumps. They decrease the productive capacity of capitalism and thereby slow down the growth of social capital. That, while not adding to the national productive capital, the capitalist class considers them an important power instrument in the defence of its wealth and even a weapon for enlarging prospective markets. In this sense they force other countries into the same expenditure. Other points made are that 'spin off' from military research has not been negligible and that industries which produce armaments benefit because their risks are minimised by government guarantees and a large part of research and development costs are taken over by the government.[128] Kidron adds that the result of such expenditure has been ‘high employment and, as a direct consequence of that, rates of growth amongst the highest ever’.[129] How he reconciles this with the fact that arms expenditure decreases the productive capacity of capitalism will be discussed below.

In all these arguments, shorn of technicalities, what is crucial to the analysis is that arms production, while decreasing productive capacity, 'mops up unemployment' and offers outlets for investment and in so doing stabilises the economy. Now there seem to be two positions held by these theorists. The first sees the problem as one of over-production of commodities and armaments production as contributing to the 'realisation' of surplus-value while not exacerbating the problem further by increasing productive potential. That is, if further productive investment took place the additional surplus-value being 'realised' through accumulation of capital, the problem would become worse, since it would only enlarge the divergence between production and consumption (or 'effective' demand). Armaments production does not do this as it constitutes a 'drain' of productive capital. Kidron sometimes seems to hold to this argument for example when he says that

'too much productive expenditure on the part of the state would both upset the balance between individual capitals and accentuate the systems bias towards over-production'.[130]

But at other times another argument dominates, and this is most clear in his more recent essay in World Crisis where he says:

'Since arms are waste (or a luxury) in the strict sense that they are neither wage goods nor investment goads and therefore cannot constitute inputs into the system, they have no direct part in determining it and their production has no direct effect on profit rates over all. But since their production is a leak of high capital intensity it tends to offset the system's inbuilt bias towards declining rates of profit.'[131]

The declining rate of profit argument here is explicitly related to Marx's own position,[132] but in his book this argument is formulated in Keynesian terminology. In discussing state expenditure Kidron says:

'For one thing too much productive expenditure by the state is ruled out. Seen from the individual capitalist corner, such expenditure would be a straight invasion of his preserve by an immensely more powerful and materially resourceful competitor; as such it needs to be fought off. Seen from that of the system, it would lead to such a rapid build-up of the capital-labour (value) ratio, to use one mode of expression, or to such a low marginal productivity of capital, to use another, and to such a low average rate of profit as a consequence, that the smallest rise in real wages would precipitate bankruptcy and slump.'[133]

We have shown earlier that the Keynesian and Marxian terms have little in common in their explanation of the falling rate of profit. Because they see the question mechanically – if we can slow down the rise in the organic composition by not investing productively, then the fall of the rate of profit will be slowed down – the armament theorists have forgotten a crucial link with the accumulation process. If insufficient productive investment takes place then the mass of profits will not rise sufficiently and the latent tendency of the rate of profit to fall will become an actual fall because of a stagnating private capital accumulation. Further, this possibility is only accentuated by the fact that surplus-value is being drained off unproductively. So that, from the point of view of total social capital, more capital must be advanced to produce a smaller mass of surplus-value. It is because they have failed to understand the basic nature of capitalist production as production of surplus-value on an expanding scale that allows them to argue in this way.

That Kidron further has not understood the Marxian theory of accumulation and therefore the consequent tendency of the rate of profit to fall can be seen in his argument, crucial to his position, that armaments production do not affect the rate of profit. It is crucial because it is the only way he can reconcile high rates of growth with an increase of unproductive expenditure. We shall show that this conclusion is false and that all that is left of Kidron's theory is a more or less modified version of the Keynesian theory of 'effective demand' with the concomitant separation of the problems of consumption and production. The central argument here is that 'arms production' can be regarded as a 'luxury good', in the sense that they are not used as either instruments of production or means of subsistence, and that such goods do not directly affect the rate of profit. The 'proof' of this rests upon the results of a version of the 'transformation of values into prices' for simple reproduction, the attempt to reconcile the positions of Volumes I and III of Capital. This transformation is the work of the neo-Ricardian Ladislaus von Bortkiewicz,[134] and is reported and agreed to in Sweezy's Theory of Capitalist Development.[135] For this 'transformation', society's production is divided into three departments, Department I being that of the production goods industries, Department II, that of workers' consumption goods industries, and Department III, that of capitalist consumption goods, including 'luxury goods'. The transformation is carried out assuming simple reproduction.

As a result of this 'transformation' an equation for the rate of profit is obtained and it is seen, mathematically, not to involve variables expressing the organic composition of capital in Department III. Sweezy, therefore, concludes and Kidron agrees, that changes in the organic composition in Department III do not affect the average rate of profit.[136] This result is also asserted in Piero Sraffa's Production of Commodities by Means of Commodities where he also states that luxury products 'have no part in the determination of the system'. We shall deal with Sraffa's position later but first we must show the complete inadequacy of the von Bortkiewicz transformation solution, and the failure to grasp the relation of value and price in the Marxian system.

A price of production for Marx is a modified value. It is the cost price of a commodity, the quantity of paid labour contained in it[137] plus a share of the unpaid labour, of the annual average profit, on the total capital invested in its production.[138]

‘When a capitalist sells his commodities at their price of production, therefore, he recovers money in proportion to the value of the capital consumed in their production and secures profit in proportion to his advanced capital as the aliquot part in the total capital. His cost prices are specific. But the profit added to them is independent of his particular sphere of production.’[139]

That we are only concerned with modified values is made even clearer in this passage:

‘In Books I and II we dealt only with the value of commodities. On the other hand, the cost-price has now been singled out as a part of this value, and, on the other, the price of production of commodities has been developed as its converted form.’[140]

It is because prices of production are only modified values that they clearly are consistent with the value analysis and that for any transformation of values into prices:

'The sum of profits in all spheres of production must equal the sum of the surplus-values, and the sum of the prices of production of the total social product equal the sum of its value.'[141]

It follows that any attempt to transform values into prices that breaks the above condition is fundamentally misconceived. Von Bortkiewicz's solution has total surplus-value equal to total profit because of the numeraire he has chosen, but total value does not equal total price.[142] Other solutions have total value equal to total price but not total surplus value equal to total profit.[143] For both these conditions to hold simple reproduction must break down. The fundamental error lies in the attempt to change c and v into prices of production. It is the value that is transferred to the product. This is why Marx speaks about 'value of the capital consumed in production'. Any other interpretation leads one to see price and not value as determining and it is not surprising that von Bortkiewicz became attracted to the subjectivist marginalist theories and the mathematical method that bring 'the cost of production theory into harmony with the law of supply and demand'.[144]

Marx was basically correct in the method he chose to outline his problem. But his problem was quite different to that imputed to him. He wanted to show how accumulation could take place under the conditions where commodities exchange at their price of production and where the capitals invested receive the average rate of profit. It is not a problem of simple reproduction, under conditions of general equilibrium, but of accumulation where different industries have different organic compositions of capital. Through the exchange process, i.e. by commodities exchanging at prices of production, each capital will receive the average rate of profit as surplus-value is transferred from the departments with low organic composition to those with high organic composition.[145]

Besides the basic error of von Bortkiewicz in transforming values into prices, even on his own assumptions his conclusions about luxury goods and the rate of profit are untenable. Simple reproduction presupposes a dependence and constancy of all the variables. Changes in the organic composition of capital exclude simple reproduction. Simple reproduction occurs on the assumption of non-changing organic compositions of capital and a given rate of surplus-value. As we have shown, the accumulation process includes both changes in the organic composition of capital and the rate of exploitation. Therefore, the conclusions derived from a mathematical formula for simple reproduction (such as those above) have no bearing on the theory of accumulation and the falling rate of profit. In so far as 'luxury goods' production uses up surplus-value, then it affects the rate of profit on total capital. As Marx puts it,

'Since the profit in this (luxury production) enters into the equalisation process of the general profit rate just as much as that in any other sphere, increased productivity in the luxury industry would bring about a fall in the general profit rate.'[146]

Therefore, increases in the organic composition of capital for luxury production would affect the general rate of profit as in other sectors. This is so in spite of the character of 'luxury goods' production as 'unproductive' in the capitalist sense.[147]

The case of Sraffa can be dealt with in a similar way. He begins his book by saying: 'The investigation is concerned exclusively with such properties of an economic system as do not depend on changes in the scale of production or in the proportions of "factors".[148] Therefore if we draw conclusions from this model we should recognise this important point. Each equilibrium situation is merely a 'snap shot' of the process at such points when the system is in equilibrium. If we wish to look at the movement itself, i.e. accumulation, Sraffa does not help. His numeraire, the standard commodity, will change as accumulation proceeds and since the amount of surplus-value hived off into luxury goods production (Sraffa's non-basics) will affect the accumulation process, it will affect indirectly the numeraire.

Sraffa's labour-time inputs have little in common with Marx's socially necessary labour time. This Ricardian system ignores the use-value/exchange-value quality of the commodity and reduces exchange-value to mere labour-time inputs. Value becomes its measure. Profits become a residue determined externally and the rate of profit the independent variable.[149] For Marx accumulation is the independent variable and if insufficient surplus-value goes towards new investment, stagnation and overproduction (of capital) will result. Therefore, investments in the luxury goods industry do affect the rate of profit.[150]

'Increased productivity in the luxury industries ... has no influence on the rate of surplus-value nor, consequently, on the rate of profit insofar as this is determined by the rate of surplus-value. Nevertheless, it can influence the rate of profit insofar as it affects either the amount of surplus-value or the ratio of variable capital to constant capital and to the total capital.'[151]

And also :

'Apart from the absolute lengthening of the working-day, increased productivity in the luxury industry can affect only the number of (workers employed). The inevitable consequence, therefore, is a reduction in the amount of surplus-value 1 and hence in the rate of profit, even if no increase in constant capital takes place. If the constant capital increases, however, a reduced amount of surplus-value is calculated on an increased total capital.'[152]

The foundation of Kidron's second argument is wrong and hence it can only be regarded as another version of the theory of effective demand. We have criticised that point of view earlier on and, therefore, must reject the basic arms economy theses.[153]

c) State expenditure – conclusions

What we tried to show in the last section is how unproductive expenditure cannot play the role attributed to it by many Marxist theorists. Our analysis suggests, as we have indicated earlier, that far from decreasing productive capacity per se, unproductive government expenditure makes it all the more necessary to increase the productivity of labour in order to finance both the growing state sector as well as maintaining a growing profitable private sector.

To the extent that state expenditure is productive it competes with the private sector, but normally this is not the case and cannot be the case under capitalist production. Nationalisations in Western economies have usually taken place because the products were not able to be produced profitably by the private sector and yet such products are vital to the private sector.[154] Price policies are chosen to subsidise big users of nationalised industry products (marginal cost pricing) and in this sense they represent a subsidy to these users out of taxation. But this taxation is financed out of surplus-value and these policies can only be successful in so far as resources are redistributed in the direction of the more efficient industries from the less efficient. A significant factor in the growth of the gross National Debt in Britain has been the capital needs of nationalised industries, and the investment programmes planned suggest this process will continue. It is not surprising that some of the highest productivity industries in Britain are in the nationalised sector[155] and some of the fiercest conflicts with the working-class have been here as well.[156]

The substitution of government-induced demand has in Europe and America been an inflationary process. It has required, particularly in the US, deficit financing and monetary policies that make this possible together with an enormous expansion of credit facilities. In Britain the process has been more complicated but the large increase in taxation and growth of government expenditure, a high percentage of which is 'unproductive', has had its inflationary repercussions.[157]

'A mild degree of inflation is probably helpful to capitalist growth; it reduces the money value of accumulated debt, it wipes out some part of the gains to workers from wage increases and it encourages business confidence.'[158]

Inflationary policies replace the traditional deflationary policies as soon as the effects of deflation, and increased number of unemployed, threatened the social and political stability of the capitalist states. As Mattick puts it,

'Inflation became the preferred, if not unavoidable, way to react to depressions and to maintain levels of economic activity consistent with social stability.'[159]

Inflation is only the money expression of the increasing state-induced production, the form in which this appears on the private market.

We have therefore the following mechanism. A declining rate of private capital formation means that governments must supplement production for the market with 'waste' production if they are to avoid high unemployment and social instability. But this is a capitalist expense indicating a latent tendency to crisis. This can only be avoided temporarily, it would seem, by an extension of the credit mechanism and through government borrowings together with increased taxation.

If all new capital went into 'waste' production, then capital accumulation would cease. But,

'a non-accumulating capital is a capitalism in crisis, for it is only through the extension of capital that market demand suffices for the realisation of profits made in production'.[160]

It is clear therefore, that there are limitations to 'unproductive' expenditure and other government-induced demand in a capitalist economy. If production grows faster in the 'non-productive' sector of the economy than in the 'private' sector, the production of profit, or surplus-value, relative to total production, declines more rapidly than before. More surplus-value must be produced from a smaller base of productive labourers in order that the tendency of the rate of profit to fall is checked. As long as the productivity of labour can be sufficiently increased so as to maintain the rate of profit and finance the non-productive sector, government-induced expenditure will indeed be the 'cause' of high employment and social stability. But this process is self-defeating: to cope with the expense of the non-productive sector,

'the exploitability of labour must be steadily raised. This means a higher organic composition of capital and a decline in the exploitable labour force relative to the growing capital. To maintain a state of high employment indefinitely [the non-productive sector] must increase faster than total production. But this implies a slow deterioration of private capital expansion which can only be halted by halting the extension of the [non-productive sector].'[161]

The increasing concentration and centralisation of capital is, therefore, essential for increasing the social productivity of labour. Government-induced production helps in this respect because the sheer size of the 'state's orders' leads to a restructuring of capital in private industry. The enormous extension of credit facilities is necessary to finance the very large investment now needed to bring about the necessary and competitive increases in the productivity of labour. This extension of credit is based on expected future profitability. This has led to recurring liquidity problems, now affecting large corporations, and in Britain, nationalised industries. But this investment must continue on an ever-increasing scale if the mass of surplus-value to finance both the private and state sectors of the economy is to be forthcoming. If it is not, or if state-induced expenditure grows too rapidly and the necessary restructuring of capital is not achieved, then we can expect the latent crisis conditions to take the form of an actual crisis.[162]

The limitations of the government-induced expenditure do not lie in 'political' and technical considerations, but in the contradictions of capitalist production itself. The mixed-economy has not fundamentally changed the contradictions of the traditional capitalist system. They express themselves only in a new form that continually the government will be 'forced' to intervene in the economy to ‘save’ the private economy, and yet the problems will continually get worse because of the contradictory nature of this intervention.

The situation now seems that both a contraction and extension of the government sector will lead to difficulties; a contraction to high unemployment; and an extension to increasing inflation. Either way stagnation and inflation are becoming a general feature of most Western economies.

It is only with such a theoretical framework that we can begin to understand the dilemma and seemingly contradictory policies of governments, whether conservative or social democratic, in facing what is only a new expression of the inner contradictions of capitalism. Stagnation, inflation, rising unemployment, incomes policy, productivity deals, cuts in welfare expenditure, in other words, the offensive against the working-class, is capitalism's only political and economic answer. The imperative is to increase the rate of exploitation. Only by showing this can we demonstrate how the class struggle must turn eventually into a political struggle against the system of production itself.

[1] This article is a development and clarification of the arguments contained in an earlier unpublished paper 'State Expenditure and the Marxian Theory of Crisis' written jointly (in August 1971) with Rudi Schmiede. With his permission I have directly used some of the material in that paper. It has been most helpful in reformulating and developing my arguments, to discuss with Robin Murray, Stephen Parker and other members of the Conference of Socialist Economists in Brighton. Thanks are also due to Roy Tearse for his comments on the earlier paper and, in particular, for allowing me to use some of the material from our joint work on value and price in the Marxian system which we hope to publish at a later date.

[2] Grossman, H. Das Akkumulations und Zusammenbruchsgesetz des Kapitalistischen Systems. Archiv sozialistischer Literatur 8, Verlag Neue Kritik, Frankfurt, 1970, p74.

[3] P.A. Baran The Political Economy of Growth, Monthly Review Press, NY, 1962 and The Longer View: Essays towards a critique of Political Economy, Monthly Review Press N.Y. and London, 1969, pp249-307.

[4] Monthly Review Press, 1966.

[5] One of the most important exceptions has been the work of Paul Mattick especially his book Marx and Keynes the Limits of the Mixed Economy, Merlin Press, 1971. A great deal of the analysis in this paper owes much to Mattick or more generally to the same tradition of political economy that has clearly influenced Mattick. Roman Rosdolsky and Henryk Grossmann are of particular importance but unfortunately nothing of their work, as yet [1972 – SP], has been translated into English.

[6] See Capital Volume I (Moscow Ed., 1961) p.581. In his critique of Ricardo's Theory of Accumulation Marx continually refers to accumulation as reproduction on a larger scale, increase of capital, growth of constant capital, reproduction on an extended basis and formation of additional value. He even indicates how the mere reproduction of capital invested in the machine-building industry requires continuous accumulation in other spheres of production. See Theories of Surplus-Value Part. II (Moscow Ed) p.487, p473, p522, p485 and p480-1.

[7] Capital Volume I, pp. 613-4 also p. 578.

[8] K Marx Introduction to the Critique of Political Economy as an appendix to A Contribution to the Critique of Political Economy, translated by N.I. Stone. Chicago, Charles H. Kerr & Company, 1904, p. 292 ff.

[9] Ibid, p. 293-4.

[10] Capital Volume III (Moscow Ed, 1962) p. 797.

[11] Capital Volume I, p. 154.

[12] Grundrisse der Kritik der Politischen Oekonomie. Dietz Verlag. Berlin 1953, p. 416. A great deal of this analysis follows the arguments of Roman Rosdolsky Zur Entstehungsgeschichte des Marxschen 'Kapital' Band I. Europaische Verlagsanstalt, Frankfurt, 1969, p. 61 ff.

[13] Grundrisse, op. cit., p. 217 (my translation).

[14] Ibid, pp. 317 and 237. Also Roman Rosdolsky, 1969, p. 70.

[15] Grundrisse, op. cit., p. 252

[16] Ibid, p.735.

[17] Ibid, p.353.

[18] Capital Volume I, p. 316.

[19] Grundrisse op. cit. p.450.

[20] Ibid, pp. 544-5. Marx continues 'although (the curbs on free competition) appear to complete the mastery of capital, (they) are at the same time, by curbing free competition the heralds of its dissolution, and of the dissolution of the means of production which are based on it'.

[21] Monopoly Capital, Monthly Review Press. N.Y. and London, 1966, p. 4.

[22] Paul Mattick 'Marxism and "Monopoly Capital"' in Progressive Labour Volume 6 No. 1, July-August 1967.

[23] Capital Volume III, p. 25.

[24] Capital Volume I p509.

[25] Theories of Surplus-Value Part I and Grundrisse p212-3

[26] Ibid p154.

[27] Ibid p387-8

[28] Ibid p153

[29] Ibid p163

[30] Ibid p393. If the schoolmaster worked for a capitalist proprietor and education was a necessary ingredient in the reproduction of labour-power; to that extent, the schoolmaster could be regarded as productive. This presumably covers the case given by Marx in Capital Volume I, p. 509. Sometimes Marx seems to imply that labour is productive if it produces surplus-value for the capitalist only and does not add to total social capital (Theories of Surplus-Value, Part I, p. 393). This might have been what he had in mind in his productive schoolmaster example if we refer to his remarks (quoting Smith) about how little `education' enters into the cost of production of the mass of working men (Theories of Surplus-Value, Part I, p. 163). We reject such a definition and hold clearly to that more consistent with Marx's general analysis that labour is only productive so long as it augments capital (Grundrisse, pp. 212-3).

[31] See article by Elmar Altvater and Freerk Huisken in Sozialistische Politik Nr 8 September 1970. especially pages 82-91. The whole issue of the journal is given over to a discussion of productive and unproductive labour.

[32] Capital Volume III p293-4.

[33] ibid p.294.

[34] Theories of Surplus-Value Part I, p.399. See also Capital Volume III p.283.

[35] This is one weakness in Andrew Glyn and Bob Sutcliffe's book British Capitalism, Workers and the Profits Squeeze. Penguin books, 1972. On page 15, they say, 'The share of profits is the total amount of profits expressed as a proportion of the national income.' In another place (p. 32) they speak of the share of wages as 'total wages in industry expressed as a proportion of the value of industrial output'. But they continue, 'Sometimes the share of wages in the national income is referred to; it is the total of all wages expressed as a proportion of national income. It is the counterpart of the share of profits'. They seem to show little awareness of the central problem of productive and unproductive labour in choosing their data.

[36] For a similar formulation of this result see Rudi Schmiede Zentrale Probleme der Marxschen Akkumulations - und Krisentheorie Soziologische Diplomarbeit. Frankfurt/Main 1972, p. 48. It should be remarked that to clearly separate productive from unproductive labour empirically is not really a possibility. The value of the conceptual separation will be clear in the later analysis.

[37] This important point, overlooked by those who use a Ricardian type model, i.e. see wages inversely proportional to profits, is merely another way of stressing that

‘The rate of accumulation is the independent not the dependent variable; the rate of wages the dependent, not the independent variable.’ (Capital Volume I, p. 620)

Marx again makes this point in relation to the rise and fall of the rate of profit in Theories of Surplus-Value Part III p.312.

‘The rise and fall in the rate of profit insofar as it is determined by the rise or fall of wages resulting from the conditions of demand and supply (in the labour market) . . . has as little to do with the general law of the rise or fall in the profit rate as the rise or fall in the market prices of commodities has to do with the determination of value in general.’

This point could be particularly directed against many of the arguments in the Glyn & Sutcliffe book mentioned earlier.

[38] Theories of Surplus-Value Part III p.312 and p.300.

[39] Capital Volume I p.510.

[40] Theories of Surplus-Value Part III p.300.

[41] Capital Volume I p.524.

[42] The relevance of the class-struggle is important here. One aspect of productivity deal bargaining quite clearly involves the question of compensation for increases in the intensity of work.

[43] Capital Volume I p.612.

[44] Ibid.

[45] Theories of Surplus-Value Part II p415-6.

[46] Theories of Surplus-Value Part III p.364.

[47] Ibid p.366.

[48] Grundrisse p.662.

[49] Ibid p.660-1.

[50] Ibid p.586. See David McLellan Marx's Grundrisse. McMillan & Co. 1971 p134 for English translation. Marx continues: 'On the other hand, in so far as fixed capital is firmly tied to its existence as a particular use-value, it no longer corresponds to the concept of capital which, as a value, can take up or throw off any particular form of use value, and incarnate itself in any of them indifferently. Seen from this aspect of the external relationships of capital, circulating capital appears as the most adequate form of capital as opposed to fixed capital.'

[51] Ibid p.585-7 and McLellan p.133-5.

[52] For a discussion of the relation between the technical composition, the organic composition of capital and the scale of production, see Theories of Surplus-Value Part III, p. 382.

[53] Capital Volume I p.407

[54] Ibid p.392

[55] Grundrisse p662.

[56] Capital Volume I p605

[57] 'Accumulation of capital is therefore increase of the proletariat' Capital Volume I p.614.

[58] Ibid p.644.

[59] Ibid p.639.

[60] Capital Volume III p.47.

[61] Grundrisse p.634.

[62] Capital Volume III p.234. It is quite amazing that critics of Marx such as Joan Robinson can say that Marx's theory rests on the assumption of a constant rate of exploitation. Our analysis of the general law of capital accumulation shows nothing could be further from the truth. And Marx makes the point many times in Volume III of Capital. See Joan Robinson An Essay on Marxian Economics London MacMillan 1963,p38.

[63] P. Sweezy Theory of Capitalist Development 1962, p.103. M. Dobb in his Political Economy and Capitalism (1940) 1968, p.109 expresses a similar view which is repeated by M. Blaug in Economic Theory in Retrospect p.249-51. Heinemann London, 2nd Edition. 1968.

[64] P. Sweezy Theory of Capitalist Development 1962, p.103. M. Dobb in his Political Economy and Capitalism (1940) 1968, p.109 expresses a similar view which is repeated by M. Blaug in Economic Theory in Retrospect p.249-51. Heinemann London, 2nd Edition. 1968.

[65] Ibid.

[66] Grundrisse p.246.

[67] Ibid p.244 See also p.239-47

[68] We can assume a uniformly increasing population i.e. dn/dt =  k (const). 

Instead of (5) we would obtain:

1  .  ds   =    k . e    +    1       .  1  . de
s      dt       (1 + e)s    (1 + e)     e    dt 

As s increases    k . e      → 0  and our result is not significantly altered.
                       (1 + e)s

[69] Capital Volume III p.214 (The translation is taken from the C.H. Kerr ed. Chicago 1909. Volume III p.256).

[70] Theories of Surplus-Value Part II p.542.

[71] Although we cannot discuss the theory of imperialism here it can only be developed in relation to theory of crisis. For a discussion of the relation of accumulation and imperialism see my review article, 'Imperialism and the Accumulation of Capital', Bulletin of the Conference of Socialist Economists 2, 2 August 1972 p. 70 ff. See also Capital Volume III p.232-3.

[72] Capital Volume III p.244 (Translation Kerr ed. P.292. taken from)

[73] P. Mattick Marx and Keynes op. cit. p.68.

[74] See Rudi Schmiede op. cit., p. 165 for a discussion on this point.

[75] P. Mattick op.cit. p.98.

[76] Theories of Surplus-Value Part II p.512.

[77] Capital Volume III p.245 (Kerr ed. P.293)

[78] This is not quite the same as accepting Says Law for the purpose of developing the long-term trend. Says Law is concerned with the equality of an ex-post magnitude 'proceeds' to an ex-ante schedule 'aggregate supply price'. Marx assumes the identity of 'proceeds' and aggregate value and both of these are ex-post magnitudes. See S.H. Mage The Law of the Tendency of the Rate of Profit to Fall Columbia University Ph.D thesis 1963. University Microfilms Ann Arbor Michigan p129ff. For an interesting discussion on Karl Marx and Says Law see Bernice Shoul in J.J. Spengler and W.R Allen (eds) Essays in Economic Thought (Rand McNally, Chicago, 1960) pp. 454-469.

[79] Capital Volume III p.251.

[80] Capital Volume III p248 (Translation Kerr ed. Volume III p.297)

[81] Rudi Schmiede op. cit. p197.

[82] Capital Volume III p233.

[83] Mattick, op cit, p73. The definite crisis-cycle of the last century, as Mattick says, is not directly related to the Marxian theory.

[84] Theories of Surplus-Value, Part II p.513. In this sense as Marx says 'Permanent crises do not exist' ibid, p. 497. That Marx clearly held to such a position can be seen from this passage in the Grundrisse, a great deal of it written by Marx in English.

‘Hence the highest development of productive power with the greatest expansion of existing wealth will coincide with depreciation of capital, degradation of the labourer, and a most straightened exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises in which by momentaneous suspension of labour and annihilation of a great portion of capital, the latter is violently reduced to the point, where it can go on . . . whereby it is enabled (to) fully (employ) its productive powers without committing suicide. Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its (capitals) violent overthrow.’

Grundrisse, p. 636.

[85] Theories of Surplus Value Part II. p513-4.

[86] Ibid p515.

[87] For a similar view see Bernice Shoul op. cit. pp461-3 and Rudi Schmiede op cit, p. 166 ff.

[88] Capital Volume II p 495. See also his point about the disproportion between fixed and circulation capital - 'a favourite argument of the economists in explaining crises'-that must arise on the assumption of normal reproduction. Ibid, p 469.

[89] Rosdolsky, op cit, p. 539

[90] Rosa Luxemburg Accumulation of Capital Routledge and Kegan Paul, 1963, p325.

[91] Rosa Luxemburg Anti-Critique in Imperialism and the Accumulation of Capital, ed K Tarbuck Allen Lane Penguin Press, 1972, p58.

[92] Thus Bukharin praised her for and showed that she had understood fully the importance of the crisis theory for the Marxist case. See N Bukharin Imperialism and the Accumulation of Capital, ibid, p268.

[93] Hilferding Das Finanzkapital 1927, p471, cited in Rosdolsky op cit, p574.

[94] Ibid, p318. See also Rosa Luxemburg's discussion of these positions in her Anti-Critique op cit, pp66ff.

[95] H. Grossmann op cit p99ff.

[96] Marx Capital Volume II p185.

[97] Paul Sweezy Theory of Capitalist Development op cit p 180.

[98] Marx Theories of Surplus-Value Part III p41.

[99] This kind of argument is put by Sweezy op cit pp180-2.. Also Baran and Sweezy Monopoly Capital, op cit, p. 82. Tony Cliff also argues in a similar way in his `underconsumptionist' version of the crisis. `In the final analysis all means of production are potentially means of consumption ... the relative increase in the part directed to accumulation compared with the part directed towards consumption must lead to overproduction. And this is a cumulative process'. See Tony Cliff 'Perspectives of the Permanent War Economy'. This version of the crisis becomes one of multi-causes in his Russia - A Marxist Analysis p163. Similarly Keynes implicitly held to this view. 'New capital-investment can only take place in excess of current capital-disinvestment if future expenditure on consumption is expected to `increase' and 'capital is not self-subsistent entity existing apart from consumption'. The General Theory of Employment Interest and Money, MacMillan & Co. 1964, p105-6. In all these theories overproduction and underconsumption are synonymous and this was emphatically not the case for Marx.

[100] Theories of Surplus-Value, Part III p.22.

[101] Ibid, p49-50.

[102] Ibid p.246.

[103] Capital, Volume III, p246.

[104] Ibid p.238-9 (Translation Kerr ed. P285-6)

[105] Joan Robinson op. cit. p50 and 51.

[106] Keynes op cit p136: 'It is important to understand the dependence of the marginal efficiency of a given stock of capital on changes in expectations because it is chiefly this dependence which renders the marginal efficiency of capital subject to somewhat violent fluctuations which are the explanation of the Trade Cycle'

[107] Capital Volume III. Moscow p.239-40 (Translation Kerr ed. p568)

[108] Capital Volume II, p410-1. See also Capital Volume III p239 where the same point is made.

[109] Theories of Surplus-Value Part II p534-5.

[110] Frederick Engels, Anti Duehring, Moscow 1969,p340-1.

[111] See Robin Murray, 'Capital and the Nation State', New Left Review, 67, and Bill Warren 'How International is Capital', New Left Review 68 for the beginnings of a discussion. What is clear is that the Labour Government's room for manoeuvre (1964-70) were severely limited once they had accepted the constraints imposed by international capital.

[112] The largest 100 manufacturing enterprises in Britain produced 15% of net output, by 1970 this had risen to 50%. The share of small companies in manufacturing output shrank steadily from 42% in 1924 to 32% in 1951, and more rapidly to 25% in 1968. Gerald Newbould found that the main reasons for takeover bids were generally 'desires to move fast towards increased control of the market and the necessity to take defensive action to preserve existing market and industrial positions'. In Management and Merger Activity, 1970. All Cited in Frances Cairncross, 'Sizing up the Merger Boom', Business Observer, 19th November,1972.See also Bob Rowthorn, 'Imperialism: Unity or Rivalry' New Left Review, 69, Sept/Oct 1971 for a discussion on how the fight to control and increase the share of markets reflects itself in the investment policies of large corporations overseas.

[113] It is not generally recognised that the main emphasis on moves by the government is to 'control' the labour force, to have a more disciplined labour force so that new technology, and more important, new methods of organisation of labour can be introduced. If the productivity of labour can rise sufficiently then quite clearly large firms are prepared to pay big increases to get their reorganisation through, e.g. recently at British Leyland. After all the 'novelty' of so called 'scientific' management was that it makes 'high wages and low labour costs ... not only compatible, but ... in the majority of cases, mutually conditional' (F. W. Taylor, Shop Management, 1903, pp. 21/22). Cited in Alfred Sohn-Rethel, 'The Dual Economics of Transition', Bulletin of the Conference of Socialist Economists, 2:2 Autumn 1972 p. 43. Those who see these measures as primarily an attack on real wages miss the crucial point: the necessity to increase the social productivity of labour if sufficient mass of profits are to be produced to prevent the rate of profit falling.

[114] Mattick Marx and Keynes p135.

[115] Ibid p139.

[116] It is also my contention that while after the first World-War the revolutionary impact of the Russian Revolution on the working-class in Western European countries did not allow capitalism to really begin successfully a new phase of expansion, after the second World-War in spite of the war itself, conditions were very different. Stalinism and Fascism had their effect on the working-class movement and so it was much easier after the war to 'reorganise' capitalism towards great profitability without the enormous opposition of the working-class seen in the 1920s. The post-war boom certainly was helped by these conditions. The introduction of science and new technology into industry etc. could proceed more smoothly.

[117] The case of nationalised industries will be dealt with later.

[118] Rosa Luxemburg op cit. p454.

[119] Ibid p446.

[120] Joan Robinson, Intro to The Accumulation of Capital, ibid, p27.

[121] Ibid p27-8 (our emphasis)

[122] In particular T. Cliff 'Perspectives of the Permanent War Economy' op cit, pp. 34-40. M. Kidron Western Capitalism Since the War, Penguin 1970. T. N. Vance, The Permanent War Economy. Independent Socialist Press, Berkeley, California.

[123] T Cliff, op cit p38. Here the analysis fall back on the Keynesian multiplier effect.

[124] T. Cliff, Rosa Luxemburg, Socialist Review Publication, 1968 (second ed) p90 note. A similar argument arising out of Rosa Luxemburg's theory is put by T. Kowalik, a Polish economist, when he says 'She made her- abstract thesis on the impossibility of the existence of capitalism without the pre-capitalist environment more specific by her analysis of the role of the armament sector in the process of total accumulation. It follows from this analysis that capitalism can create its own internal market which plays in accumulation the same function as an external market'. 'Rosa Luxemburg's Theory of Accumulation and Imperialism' in Problems of Economic Dynamics and Planning: Essays in honour of M. Kalecki. Pergamon Press, 1966, p. 219.

[125] This was the fundamental error in Rosa Luxemburg's theory of non-capitalist markets; she could not even explain her own historical results. See my review article, 'Imperialism and the Accumulation of Capital' op. cit., p. 71, for a fuller discussion.

[126] On a world-wide scale this point does not hold, i.e. for 'world' capital.

[127] T.N. Vance's position is clearly underconsumptionist; for instance he says 'War outlays in fact have become the modern substitute for pyramids' op cit p10. See also p9, p16 for similar points.

[128] See T. Cliff Socialist Review op cit, p38-9 and M Kidron op cit p49 and p50-4. Baran and Sweezy make similar points in Monopoly Capital op cit p207-8.

[129] M Kidron op cit p49.

[130] Ibid p55. This comes directly after a position that could be understood very differently. It is not clear what Kidron means by overproduction.

[131] M Kidron 'Capitalism: The Latest Stage' World Crisis (ed: Harris and Palmer) Weidenfield-Nicholson 1971, p211.

[132] Ibid p208.

[133] Western Capitalism Since the War, p54-5.

[134] Ladislaus von Bortkiewicz, 'On the Correction of Marx's Fundamental Theoretical Construction in the Third Volume of Capital', Appendix, Sweezy edition, Karl Marx and the Close of his System, by E von Boehm-Bawerk, etc. New York, 1949, p199ff.

[135] Sweezy, op cit, p115ff

[136] Kidron op cit, p55.

[137] Capital Volume III, p163

[138] Ibid p156.

[139] Ibid p157 - my emphasis.

[140] Ibid p161.

[141] Ibid p170.

[142] Von Bortkiewicz op cit p205. That von Bortkiewicz has understood the theoretical consequence of this, unlike many Marxists, can be seen from his theoretical paper 'Value and Price in the Marxian System' International Economic Papers, 2 1952, especially his conclusion 'we are driven to reject Marx's derivation of price and profit from value and surplus-value.'

[143] See J. Winternitz, Economic Journal, 1948, p. 276 ff. R. Meek has also attempted to solve this problem and, at least, recognises that the choice of the numeraire is crucial. See his Economics and Ideology and Other Essays. Chapman and Hall, 1967, p. 144 ff.

[144] Von Bortkiewicz op cit p54.

[145] This is why this point is the basis of the theory of unequal exchange. See C. Palloix, 'The Question of Unequal Exchange' Bulletin of the Conference of Socialist Economists. Volume 2:1 Spring 1972.

[146] Theories of Surplus-Value Part III p350.

[147] {This assertion (unproductiveness of luxury production) is corrected in Paul Bullock and David Yaffe, 'Inflation, the Crisis and the the Post-War Boom' Revolutionary Communist 3/4, November 1979, section II.d.iii 'Luxury production and the rate of profit', pp20-21.}

[148] Sraffa op cit preface V.

[149] Ibid p33.

[150] This is precisely what distinguishes Marx's position from that of Ricardo.

[151] Theories of Surplus-Value, Volume III, p349.

[152] Ibid p351.

[153] The facts do not seem to point to a direct relation between arms spending and employment. For the US:

'The Sixties began with a high rate of unemployment and ... this rate fell from 6-7 % in 1961 to 4.5% in 1965, or well in advance of the spurt in defence spending.' From 1945-48 when defence spending dropped over $80,000m unemployment remained under 4% and was 3.8% in 1948. See article in Times Business News, Tuesday April 4th 1972.

[154] In the case of France certain of the nationalisations were political e.g. Renault, and this argument does not apply.

[155] See article in the Times, Friday, October 29, 1971, p. 21.

[156] Some of the largest reductions in the labour force in any industries have taken place over the last 10 to 15 years.

[157] Taxes as a percentage of GNP (including social security contributions) as % of GNP are given for a number of countries. They are approximate































(taken from The Economist, 18th-22nd September, 1972)

In Britain Social Security has increased from 12.1% of public expenditure in 1951 to 18.1% in 1969. Social Trends No 1, 1970 Central Statistical Office, p46.

[158] Michael Barratt-Brown After Imperialism, Merlin Press, 1970, p308

[159] P Mattick op cit p183

[160] P Mattick, International Socialism, 34, p34.

[161] Ibid

[162] For a discussion of the problem of liquidity see Monthly Review Volume 22 No 4, Sept 1970. Also Robin Murray, UCS - Anatomy of a Bankruptcy, Spokesman Books, 1971. For a discussion of the public sector's rising claim on resources in Britain see the report in the Times 17th Feb 1971,p21. It shows that while total public expenditure, including transfer payments, is planned to rise in real terms, during this period by 2 1/2%, expenditure as resources will rise considerably faster - by about 3 1/2% a year at least. This implies that the share of public sector resource purchase in the national income will tend to rise throughout the whole period (1974-5). The rising budget deficit in the US is another important trend. Inflation has to be understood finally as an international phenomenon.