Menu

Search

A Critique of Crisis Theory

From a Marxist perspective

Advertisements

Historical Materialism and the Inevitable End of Capitalism

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

Unlike other animals, who are collectors of their means of subsistence, humans are producers who make
and use tools to modify raw materials provided by nature. (1) Our ape ancestors over millions of years of
both biological and social evolution were gradually humanized as they shifted from merely collecting
foodstuffs and began to modify foodstuffs and other raw materials with the aid of tools.

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

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

In turn, the early class societies themselves were transformed as the instruments of production grew in
power. Eventually, the forces of production grew to a point that they required the capitalist mode of
production with its world market, free competition and wage labor. Unlike the earlier forms of class rule,
capitalist society by its very nature is not local but engulfs the entire globe. It destroys any other form of
human society that stands in its way.
Capitalism didnt arise by accidentor because of a mistake, as the utopian socialists saw itbut
because the forces of production required it. For example, there is no way that a system of large-scale
factory production could have developed within the system of medieval guilds. As human technology
reached the point that large-scale factory production was possible, it was only a matter of time before
the guild system was swept away and replaced by the free competition of capitalism, which provided the
room for large-scale factory production to develop.

According to historical materialism, all the advances and changes within class society reflect in the final
analysis the transformation of the material means of production. The class structure of society, and thus
the class struggle, is in the final analysis determined by the forces of material production.

In his famous preface to his otherwise largely neglected (2) book A Contribution to the Critique of
Political Economy, first published in 1859, Marx explained his materialist theory of history and social
change:

In the social production of their life, men (3) enter into definite relations that are indispensable and
independent of their will, relations of production which correspond to a definite stage of development of
their material productive forces. The sum total of these relations of production constitutes the economic
structure of society, the real foundation, on which rises a legal and political superstructure and to which
correspond definite forms of social consciousness.

The mode of production of material life conditions the social, political and intellectual life process in
general. It is not the consciousness of men that determines their being, but, on the contrary, their social
being that determines their consciousness.

At a certain stage of their development, the material productive forces of society come in conflict with
the existing relations of production, orwhat is but a legal expression for the same thingwith the
property relations within which they have been at work hitherto. From forms of development of the
productive forces these relations turn into their fetters.

Then begins an epoch of social revolution. With the change of the economic foundation the entire
immense superstructure is more or less rapidly transformed. In considering such transformations a
distinction should always be made between the material transformation of the economic conditions of
production, which can be determined with the precision of natural science, and the legal, political,
religious, aesthetic or philosophicin short, ideological forms in which men become conscious of this
conflict and fight it out. Just as our opinion of an individual is not based on what he thinks of himself, so
can we not judge of such a period of transformation by its own consciousness; on the contrary, this
consciousness must be explained rather from the contradictions of material life, from the existing
conflict between the social productive forces and the relations of production.

If capitalism were in full harmony with our modern forces of production, there would be according to
historical materialism no question of replacing capitalism with socialism. Indeed, in an indirect tribute to
the theory of historical materialism developed by Marx and Engels, the various schools of modern
bourgeois marginalist economics go to great pains attempting to not only prove that capitalism is in full
harmony with our modern productive forces but that it is in full harmony with any conceivable future
development of the productive forces.

If our bourgeois marginalist economists are right, there is no chance that capitalism will ever give way to
higher form of human society. All attempts to replace capitalism with socialismno matter how
socialism is conceivedwill never bear any fruit. A century hence, five hundred years from now, a
thousand, even ten thousand years from now, human society will still be based on private property in
the means of production, free markets, including the labor market with its wage labor, commodity
markets, and stock and bond markets.

Human society will forever be divided between workers, who are forced to sell their labor power in order
to live, and capitalists, who purchase this labor power and live off the profits that wage labor produces.
This is what bourgeois ideologues meant when they proclaimed the end of history after the destruction
of the Soviet Union.

There no doubt in my mind that the bourgeois economists are wrong when they claim that there is no
conflict between our modern productive forces and the prevailing capitalist relationships of production.
This is exactly what the periodic capitalist crises show in practice and the crisis theory that I have been
exploring in these posts shows in theory. A correct theory of crisis is particularly important at the present
time in light of the period of extreme political reaction we are still living through. (4)
Every crisis, not least the one that began in August 2007, testifies to the falseness of the bourgeois
economists claim that perfect harmony exists between todays productive forces and the prevailing
relations of production.

This is why bourgeois economists are so concerned to sweep crises under the rug. They attempt to
explain crises away as the result of faulty currency policies, wrong fiscal policies, deregulation, or other
policy errors by the governments and central banks, when they dont simply appeal to unchanging
human nature. From the time of the Currency School of the 19th century through John Maynard Keynes
and Milton Friedman, capitalist economists have proposed various policies claiming that if they were
only followed by the governments and central banks crises would be virtually eliminated.

All attempts to abolish capitalist crisis while preserving capitalism have failed

Over the last 165 years, capitalist governments and central banks have tried policies advocated by
various schools of bourgeois economists in an attempt to abolish crises or at least render them harmless.
(5) From time to time, the governments and capitalist media claim that policies to abolish capitalist
crises without abolishing the capitalist relations of production that breed them have at last been
discovered and put into effect.

This claim was first advanced when the British Bank Act of 1844, inspired by the Currency School, was
made law. It was advanced again after World War II when it was widely claimed that the work of John
Maynard Keynes had solved the crisis problem once and for all. And most recently, the claim that the
crisis problem had been solved for all practical purposes was advanced during the Great Moderation,
when it was explained that the work of Milton Friedman had finally provided the monetary
authorities with the tools to slay the crisis dragon.

But each time, crises have flared up anew sending the bourgeois economists and policy makers back to
the drawing board.

Especially in light of the huge defeats the workers movement has suffered in recent decades, the
inability of capitalism to eliminate or even tame crises deserves our special attention. No matter how
many battles the capitalist class wins in its war against the workers movement, if the developing forces
of production prove increasingly incompatible with the existing relations of production that the ruling
capitalist class benefits from and defends, social revolution continues to loom somewhere in the future.
Capitalist relations of production retard growth of productive forces

Indeed, in the examination of the industrial cycle that I have been carrying out over most of the last year
in these posts, I have shown that under capitalism the productive forces only come close to developing
to the full extent that a given level of science, technology and the available workforce allow during the
boom phase of this cycle. During the rest of the industrial cyclethe phases of crisis, depression and
average prosperitythe development of the forces of production is obviously retarded by the capitalist
social relations of production.

The conflict between the forces of production and the capitalist relations of production is most dramatic
during the crisis phase of the industrial cycle. In this phase, we see the almost universal curtailment of
production, even though there is adequate means of production, labor power, and raw and auxiliary
materials to permit the continued development of expanded reproduction without interruption.

During the depression phase that follows the crisis, many of the existing means of production lie idle,
and investment in new means of production is lowexpanded reproduction is either suspended or at
least sharply curtailed. Existing productive forceswhole factories and many machinescontinue to be
destroyed.

Indeed, whole cities can be devastated as the surplus productive forces are destroyed. In the United
States, we saw this process unfold in such cities as Pittsburgh, Buffalo, Gary and other steel-producing
centers during and in the aftermath of the crisis of the early 1980s, and we are seeing it once again in
the center of U.S. automobile productionDetroit.

During the phase of average prosperity, there is higher utilization of the existing productive forces, but
many of the existing productive forces lie idle and some continue to be physically destroyed even if this
process begins to taper off. As a result, new investmentthough higher than during the depressionis
still limited. During average prosperity, expanded reproduction is still clearly hindered by the capitalist
relations of production.

Even during the boom phase, it is a rare exception for anything like full employment to occur, either the
full employment of factories and factory machinery and other forces of production, or the full
employment of the available labor power. In an intense boom, the full employment of many of these
forces of production occurs, but in weaker booms that are quite common, there remains a considerable
degree of idleness in the existing productive forcesabove all, labor powerthough less so than in the
other phases of the industrial cycle.

The growth of monopoly

In addition to the often violent fluctuations of the industrial cycle, the other sign that modern productive
forces are coming into conflict with the existing relations of production is the growth of monopoly.
Capitalist production based on free competition is bringing about its own negation in practice.

Commodity production requires private property in the means of production and free competition
among the producers of commodities. Capitalism is the highest stage of commodity production, where
labor power itself has become a commodity. If there was no conflict between the productive forces and
capitalism, as our bourgeois marginalist economists insist, then the development of capitalism should
see the continued expansion of free competition. But this has not been true since the last third of the
19th century. (6)

The growth of capitalist monopoly out of capitalist free competition is a sign that the forces of
production are coming into fundamental conflict with the capitalist relations of production. The
increasing centralization of the forces of production in the hands of a smaller and smaller number of
independent capitalscorporationsshows that free competition is breaking down in practice.

Capitalism works best when there are many hundreds if not thousands of small independent firms in
every line of production. As long as these conditions persist, the formation of lasting cartel agreements
at least without the intervention of the governmentare virtually impossible. Even if cartels are formed,
they will quickly break down. This was indeed the situation of industrial capitalism before the crisis of
1873.

Monopolies impair capitalist functioning

If, however, monopoliescartels, trusts and syndicatesdo form and persist for significant periods of
time, the operations of the capitalist economy are significantly impaired. Long-lasting monopolies attack
the most important regulatory mechanism in the capitalist economy: the equalization of the rate of
profit. Or what comes to exactly the same thing, the tendency of market prices to gravitate over
relatively short periods of time toward their prices of production.

Even under free competition, market prices only tend toward equality with their prices of production.
Free competition could not operate without the emergence of temporary super-profits in some sectors
of production and less-than-average profits and even losses in others. However, free competition means
that super-profits are short-lived. As soon as the rate of profit in a given sector of production begins to
rise significantly above the average rate of profit, additional capital, always on the lookout for super-
profits, will flow to the branches that are enjoying the temporary super-profits.

It is exactly in this way that the drive toward the maximization of profit by individual capitalists leads to a
distribution of the productive forces of society that allows capitalist society to reproduce itselfnot
break down.

Persistent monopoly profits mean that the mechanism by which the drive toward the maximization of
profit by the individual capitalists that allows capitalist society to persist is operating in an impaired way.
The greater the degree of monopoly is, and the longer the periods of time the monopolies persist, the
poorer the whole mechanism of the equalization of the rate of profitthrough which capitalist
production is guided by the invisible hand to meet the the material needs of capitalist societywill
function.

If the regulation of the proportions of the various branches of production through the equalization of the
rate of profit breaks down entirelywhich would happen if free competition were completely
destroyedthe continuation of capitalist production becomes impossible. (7)

The rise of monopoly capitalism, therefore, does not mean permanent super-profitsbut rather that the
super-profits last for long periods of time. For example, General Motors made super-profits for decades
it managed to make a profit even at the bottom of the 1929-33 super-crisis. But eventually, not only its
super-profits but all its profits disappeared leading to its collapse earlier this year. (8)

Many other huge corporations that formed the backbone of American monopoly capitalism in the years
preceding the 1979-82 Volcker shock have either disappeared, survive as brand names only, or are
shadows of their former selves.
But before the super-profits that so much of U.S. basic industry was clearly enjoying a century ago could
disappear, we had to pass through two world wars, the Depression, German Nazism and other forms of
fascism, and the post-World War II agreement by the United States to finally open its domestic market to
non-U.S. corporations. It then took 25 more years before the super-profits in U.S. industry finally began
to fade at the end of the 1960s.

In the long run, the equalization of the rate of profit did assert itselfthe super-profits earned by so
much of U.S. industry proved transientbut only at tremendous costs not only in the productive forces
but in human lives. The law of equalization of the rate of profit is still in operationit still is through the
operation of this law that means of production and the social labor of society are distributed among the
various branches of productionbut hardly in the way it operated in the 19th century. (9)

Capitalism now resembles a person with severe circulatory disease who has suffered major heart attacks
and strokes. The person is still alive, the persons basic circulatory system is still functioningbut very far
from the way it functioned in the persons youth.

Bourgeois marginalists swept monopoly under rug

For the same reasons that the marginalist economists play down crises, they also play down and
minimize monopoly where they dont deny it altogether. (10) Just like periodic capitalist crises, the
growth of monopoly points toward an inevitable social revolution lurking in the future.

The link between crises and the growth of monopoly

In fact, there is a close relationship between crises and monopolies. Bourgeois economists who defend
Says Law, whether implicitly or explicitly, hold that the more commodities are produced, the greater the
demand for commodities will be. They hold that supply creates its own demand. They deny that there is
a fundamental tendency for the forces of production to grow faster than the market. If crises occur
anyway, the bourgeois economists blame these crises on false government or central bank policies. Or in
a pinch on unchanging human nature.
But if, as Marx held, the ability of modern capitalist production to increase production is greater than the
ability of the market to grow, the market itself becomes the chief barrier to production. Freeing up the
market will bear fruit in the form of even greater crises, and this will lead to even more powerful
monopolies. The result will be that the tendency of the rate of profit to equalize will be even more
gummed up than before. The law of the equalization of the rate of profit will be able to operate only at
the costs of greater and greater economic, political and even military disasters.

How overproduction breeds monopoly

Suppose that there are 100 competing corporations in a particular sector of production. But lets say 10
corporations fully meet the demands of the market if they are operating at full capacity. That is, if only
10 corporations produce at full capacity while the other 90 are shut down altogether, the commodity
output of 10 of the corporations alone will be sufficient to lower market prices to the prices of
production.

In a situation like this, 90 out of the 100 corporations will sooner or later be driven out of business. As
the number of corporations becomes ever fewer, the point is reached when the few remaining
corporations will reach explicit or implicit agreements to divide up the remaining market, set (monopoly)
prices and limit production.

In addition to all the phenomena of dividing up of the market and curtailed production to ensure
monopoly profits, the suppression of new technological methods over more or less prolonged periods of
time in order to save the value of the existing capital appears. The basic regulatory methods of
capitalism will operate in a very curtailed way.

The periodic crises of overproduction are always followed, and indeed largely resolved, by eliminating a
number of competing capitalists. It is no accident that modern monopoly capitalism began to develop
after the economic crisis of 1873. One capitalist kills another, as Marx said. This is especially true during
crises when it becomes clear that far more commodities have been produced than can be sold at
anything like profitable prices.

But the more the number of capitalist enterprises are reduced, the stronger is the tendency toward
monopoly. The more the centralization of capital progresses, the more the equalization of the rate of
profitthe basic mode of operation of the law of the value of commodities under the capitalist mode of
productionwill be undermined.

There is no doubt that modern productive forces have long been coming into conflict with capitalist
relations of production. This has been true since at least 1825, when the first crisis of generalized
industrial overproduction broke out. Both the periodic outbreak of crises of overproduction and the
growth of monopoly since the crisis of 1873 testify to this.

However, if capitalist relations of production have been acting as fetters on the forces of production for
at least 184 years, this raises another question. Why does the capitalist mode of production still exist? Is
capitalism somehow defying the basic laws of historical materialism that have guided human history and
prehistory since the origin of the human species?

Marx in his preface to the Contribution, however, gives one other condition for the replacement of one
mode of production by a higher mode of production:

No social order ever perishes before all the productive forces for which there is room in it have
developed; and new, higher relations of production never appear before the material conditions of their
existence have matured in the womb of the old society itself. Therefore mankind always sets itself only
such tasks as it can solve; since, looking at the matter more closely, it will always be found that the tasks
itself arises only when the material conditions of its solution already exist or are at least in the process of
formation.

Though the forces of production have been in growing conflict with capitalist relations of production
since 1825, overall the forces of production, both quantitativelythe level of industrial, including
agricultural, productionand qualitativelythe productivity of human laborhave grown manyfold
over the last 184 years. The crises and their aftermath combined with the growth of monopoly that is
closely linked to them have undoubtedly slowed down the growth of the productive forces, but so far
they have not been able to stop their growth. Up to now, capitalism has been a relative, not an absolute,
fetter on the development of societys productive forces.

In the years that followed the Volcker shock and the beginning of the neo-liberal era with its there is
no alternative slogan, the anti-globalization movement raised the defiant slogan a better world is
possible. If we follow the historical materialism of Marx and Engels, we would have to say that a better
world must not only be possible, it must be necessary. If a better world is not necessary, according to the
basic laws of historical materialism, then it is not possible.

Rosa Luxemburgs struggle against revisionism

In her struggle against the revisionist movement that arose in the Social Democracy in the late 1890s,
Rosa Luxemburg made exactly this point. Socialist theory up to now, Luxemburg wrote in Reform and
Revolution, her famous polemic against the revisionists, declared that the point of departure for a
transformation to socialism would be a general and catastrophic crisis. We must distinguish in this
outlook two things: the fundamental idea and its exterior form.

The fundamental idea consists of the affirmation that capitalism, as a result of its own inner
contradictions, moves toward a point when it will be unbalanced, when it will simply become impossible.
There were good reasons for conceiving that juncture in the form of a catastrophic general commercial
crisis. (11) But that is of secondary importance when the fundamental idea is considered.

This shouldnt be interpreted in a mechanical sense. For example, that the capitalist economy is capable
of generating a certain GDP that we will call X. At some time in the futureperhaps next quarter or
perhaps a century from nowthe U.S. Commerce Department (and comparable bodies in other
capitalist countries) will report that in the last quarter the GDP has risen to X. But X is actually the
highest GDP that is compatible with the capitalist system of production. What a happy day! The workers
will seize power and socialism will be proclaimed. (12)

However, the decline and dissolution of the feudal system of economy and its associated guild system
unfolded over a period of centuries. Even today, we cannot calculate the highest level of output that is
theoretically possible in a feudal economy.

For centuries, the evolving economy of Europe combined incipient capitalism, which was gradually
growing, with the persistent feudal and guild relationships handed down from the past. The basic force
that underlay politics during those centuries was the struggle between the gradually expanding capitalist
sector, which demanded the growth of free marketsespecially the labor marketand a reaction, which
defended feudal and guild privileges.
The struggle proceeded under many ideological banners. In England in the 17th century, the forces that
were objectively working for the triumph of capitalism and free competition rallied under the program of
returning the Christian church to the days of the Apostle Paul. (13) In the French Revolution, more then a
century later, it was under the banner of Liberty, Equality, Fraternity.

But underneath these ideological guises lay the question of freeing up the restrictions on the productive
forces that were imposed by feudal land relationships that obstructed the transformation of the
peasantry into a free proletariat, and the restrictions on manufacturing imposed by monopolistic
guilds.

Today the comparable movement is the periodic crises of overproduction and the consequent growth of
capitalist monopoly, on one side, and the attempts to organize economies along socialist lines that were
carried out by the Russian and other revolutions, on the other.

While the first attempts to organize socialist economieswhich had considerable success despite all the
claims to the contrary by the victorious reactionhave been reversed in whole or in part in many
countries, if in the years to come crises of overproduction become more destructive and monopoly
continues to swallow up what remains of free competition, then new attempts to transform capitalist
production into socialist production are inevitable. That is why ideologues and champions of capitalism
have been so alarmed by the latest crisis, which caught most of them by surprise.

Origins of the breakdown controversy within Marxism

Starting in the late 1890s, the view that capitalism is a historically limited system of production came
under increasing challenge from within the international Social Democracy, as the Marxist movement
then called itself. Some of this reflected the conjunctural economic prosperity that set in in the late
1890s, a subject I have already examined in these posts. Doesnt every significant capitalist economic
expansion cause certain Marxists to proclaim that the very foundations of Marxism are being brought
into question?

But it also reflected a far more deeply rooted question in Marxist theory itself.
As volume II of Capital, which was published by Engels in 1885, was gradually absorbed by the
international Marxist movement, Marxs diagrams of expanded capitalist reproduction became known.
(14) In these diagrams, Marx showed that, assuming the correct proportions of production were
maintained, the process of expanded capitalist reproduction could continue indefinitely, maybe forever.
(15)

The pioneer Russian Marxists made great use of the expanded reproduction formulas found in volume II
of Capital against the Russian populists, who had tried to prove mathematically that the development
of capitalism in Russia was impossible. The Russian Marxists were victorious across the board against the
populists, both in theory and practicecapitalism developed rapidly in Russia starting in the 1890s.

But if the diagrams proved among other things that capitalism could develop in the Russian Empire of
the czars, which was just beginning to emerge from feudal relations, didnt it also prove that capitalism
could continue to develop the productive forces without limit? Didnt it prove that capitalism was,
perhaps after all, the final form of human society just as the bourgeois economists had always
maintained? And who had proved it? Not any bourgeois economic apologist for capitalism but Karl Marx
himself!

True, there was the matter of the cyclical crises. But werent these simply the result of temporary
disruptions of the necessary proportions of production? Perhaps in the future the capitalists would learn
how to reduce these periodic disproportions. But even if they didnt, werent the crises simply
temporary disturbances? Didnt Marx himself explain that there were no permanent crises. Why would
such crises halt the overall development of the productive forces? At most, the development of the
productive forces would be temporarily interrupted by them from time to time.

But if capitalism could go on indefinitely, and if Marx and Engels theory of historical materialism was
also correct, there would be no need for, and therefore no possibility of a socialist transformation of
society. Wasnt there a hopeless contradiction between the preface to A Contribution to the Critique of
Political Economy, which presupposed that there was a limit to the development of the productive
forces beyond which capitalism could not go, and volume II of Capital, which demonstrated that on the
contrary there was in fact no such limit?

The pre-1914 international Social Democracy was a broad current that included in addition to
revolutionists such as Luxemburg, Lenin and many others, people who believed the working class should
constitute a party for the reform of but not the revolutionary transformation of capitalist society. Volume
II of Capital gave them an apparently powerful weapon to use against the left wing of the Social
Democratic movement.

This problem was swept under the rug by many Marxists of those daysespecially those who belonged
to the so-called center, which positioned itself between the revolutionists represented by Rosa
Luxemburg on the left and the reformers represented by menthey were all menlike Bernstein on the
right.

The centrists argued that a disastrous breakdown of the capitalist system was not really a precondition
for socialism. Instead, they put their hopes in the growing organization and class consciousness of the
working class. In the days of the classical pre-1914 Social Democracy, this didnt seem as farfetched as it
seems today after decades of political reaction and retreat by the organized workers movement.

Fueled by the post-1896 upswing of the world capitalist economy, socialist candidatesespecially in
Germany but in other countries as wellwere making steady gains in parliamentary elections. (16) In
the years before World I, the German Social Democratic Party emerged as the largest and best-organized
party in Germany with a growing representation in the Reichstag, the German parliament.

As Germany gradually became more democratic, the centrists argued, and the power of the Reichstag
grew relative to that of the monarchy, it would only be a matter of time before a Reichstag with a Social
Democratic majority would create a socialist government that would be able to introduce socialist
measures in Germany.

The rest of the world would be drawn into the rising tide of democracy and socialism. Whatever Marx
had written back in the 19th century when Germany and the world were far less democratic, no
capitalist breakdown would be necessary to ensure the victory of socialism. Socialism would win not
because a better world was necessary but because a better world was possible.

Similar ideas have been expressed by other Marxists over the years, especially during strong prolonged
capitalist economic expansions. Strong economic expansions cause the industrial working class to grow
rapidly in number. This rapid growth in the number of workers employed in large industrial enterprises
creates the conditions necessary for major gains by the trade unions and rising votes for workers parties
in bourgeois elections.
Unfortunately, at least up to now, such promising epochs have always been succeeded by grim periods
of reaction during which the workers movement has been thrown back. In Germany itself, instead of a
transition to socialism led by a Social Democratic Reichstag, August 1914 arrived, followed by the
nightmare of the Third Reich. (17)

The post-World War II economic prosperity that peaked in the late 1960s was also accompanied by an
expansion of the number of workers employed in large industrial enterprises. The end of the sixties,
which turned out to be the peak of a long wave of capitalist prosperity saw powerful strike waves in
virtually all capitalist countrieseven in the United States.

The greatest of these strikesthe general strike of May-June 1968occurred in France. This French
general strike came very close to toppling the reactionary government of General Charles De Gaulle. But
the late 1960s period of economic boom accompanied by numerous and often powerful strikesas well
as the Black liberation and anti-war movements in the United States and the New Left student
movement in many other countrieswas not followed by the triumph of socialism.

Instead, a new era of extreme political reaction set in that saw the liquidation of the planned economies
of the Soviet Union and Eastern Europe and the huge retreat of the trade unions and working-class
political parties throughout the world. The most recent German general election saw the Social
Democratic Partywhich has long since renounced the struggle for socialismgetting the lowest vote
total in its post-World War II history. Today, the possibility that Western-style democracy will transform
the parliaments into tools for the socialist reorganization of society seems further off than ever.

The breakdown controversy therefore refuses to go away. Two Marxists, Rosa Luxemburg and Henryk
Grossmanboth born in Poland of Jewish parentsproposed two different breakdown theories.
Luxemburg grabbed the bull by the horns, so to speak, and criticized Marxs diagrams of expanded
capitalist reproduction.

She proved to her own satisfactionthough not to very many othersthat capitalism would not be able
to fully realize the produced surplus value and carry out expanded reproduction in a purely capitalist
economy. Once the world was purely capitalistin the sense that all independent commodity
production had given way to capitalist relationscapitalism would be rendered mathematically
impossible. And since the world was headed towards just such a situation as simple commodity
production relentlessly retreatedand this process continues todayit would only be only a matter of
time before capitalist expanded reproductionthat is, capitalism itselfwould have to end.

According to Luxemburgs theory, the world market was heading toward a stage of permanent
exhaustionnot just temporary gluts that it experiences at the peak of the industrial cycle. The cyclical
crises were just heralds of the final glut of the market, which would make the further existence of
capitalism economically impossible.

Luxemburg, who was anything but an armchair theorist, assumed that the growing malfunction of the
capitalist economy would drive the working class to make a socialist revolution long before the last
independent commodity producer went bankrupt.

Naturally her theory was rejected by the revisionists and centrists, as would be expected. They wanted
no part of a theory that pointed to the inevitability of revolution and the ultimate futility of reform. But
Luxemburgs theory was also rejected by most of the revolutionists, including Lenin.

Henryk Grossmans breakdown theory

Among those Marxists who rejected Luxemburgs breakdown theory was Henryk Grossman. Grossman,
like the vast majority of Marxists, rejected Luxemburgs criticism of Marxs formulas of expanded
reproduction in volume II of Capital. He saw no limit on capitalism as far the realization of surplus value
was concerned.

But production of surplus value was another matter. Hadnt Marx shown that the more capitalism
developed, the higher the organic composition of capital would rise, and the higher organic composition
of capital became, the more the rate of profit would tend to fall? And isnt profit the driving force of
capitalist production?

Forced to fight against the disastrous tendency of the rate of profit to fall, the capitalists would more and
more have to attack the living standards of the workers. It was this contradiction that would ensure the
breakdown of capitalism and form the material basis for the inevitabilityand, according to historical
materialism, also the possibilityof socialist revolution.
Just like Grossman rejected Luxemburgs theory of the impossibility of fully realizing the surplus value in
a pure capitalist economy with expanded reproduction, Luxemburg dismissed the idea that the
tendency of the rate of profit to fall would play any role in the end of capitalism. She claimed that the fall
in the rate of profit would not lead to the end of capitalism before the sun burned out.

These two breakdown theories mirror the two main theories that explain cyclical crises. One theory sees
the reason for crises as rooted in the inability of the market to expand as fast as the growth of
production. The other sees the cause of crisis as rooted in the ultimate inability of the capitalists to resist
the downward trend in the rate of profit.

Since the rate of profit is the driving force of capitalist production, and since the development of
capitalist production undermines profit, isnt this the material basis for the inevitableand therefore
possibletransformation of capitalism into socialism?

Therefore, though formally separate, the theories of capitalist breakdown and crisis theory are
intertwined in practice. The next post will examine Luxemburgs breakdown theory.

1 Chimpanzees, the apes that are biologically most closely related to humans, have been observed in the
wild to modify sticks and leaves and use them as simple tools. For example, chimpanzees will take
branches and strip off the leaves and side branches and use the modified branches to collect termites,
which are a tasty delicacy for the chimps. But this tool-making is extremely limited and not really
necessary for the chimps survival. For example, while chimpanzees have been observed to use stones as
hammers to break open certain seeds, they have never been observed to deliberately modify stones for
tool use.

Captive chimps and other apes have been taught to make extremely simple stone tools. However, all
attempts to teach them to produce stone tools to the degree of sophistication that our ancestors of 2.5
million years ago were already producingthe earliest known stone toolshave failed. At best, the
proto-production carried out by todays chimpanzees shows how the first steps down the road towards
our dependence as a species on material production could have originated among our own ape
ancestors many millions of years ago.

The difference between chimps and humans is that while chimps have never gone beyond these first
steps, our ancestors gradually became completely dependent on their increasing ability to modify raw
materials through tool use. Its a long road stretching over millions of years of both biological and social
evolution that separates the stripping of leaves off a branch to collect termites from todays state-of-the-
art factories.

2 The neglect of Marxs Contribution to a Critique of Political Economy is unfortunate, in my opinion. In

this book, Marx dealt with the questions of basic value theory and money that are so importantand
all-to-often neglectedin crisis theory. Compared to many parts of Capital, the Contribution is
indeed rather dry. But the failure to really absorb the the questions that Marx dealt with in his
Contribution by the Marxist movement is, in my opinion, behind many of the problems we see in
Marxist crisis theory today.

One example is the widespread acceptance of the conceptpushed by our modern bourgeois
economistsof non-commodity money by the majority of recent Marxists who have given this subject
any thought at all. The concept of non-commodity money has proven to be a huge stumbling block to
understanding the essence of capitalist crises as crises of the generalized overproduction of
commodities.

3 Today we would add women. The importance of women in the history of production was emphasized
by Marxs co-worker Frederick Engels in his epoch-making Origins of Family, Private Property, and the
State.

4 If the workers were seizing power throughout the capitalist world, the whole question of crisis theory
would be rather academic. And if we were already living in a socialist world, the causes and nature of
capitalist crises would belong to the study of ancient history.

5 In 1844, under the influence of the Currency School, the Bank Re-charter Act, also known as the Peel
Act, which strictly limited the issuance of banknotes to the metallic reserves of the Bank of England, was
passed. The authors of this act promised that the new monetary policies mandated for the Bank of
England by the act would prevent a recurrence of the crises of 1825 and 1837. This was the first of many
unsuccessful efforts to abolish periodic crises of overproduction while retaining the capitalist relations of
production, which make them inevitable.

6 Instances of capitalist monopoly were extremely limited before the economic crisis of 1873, but after
that crisis capitalist monopoly began to grow by leaps and bounds. Between 1825 and 1873, it was
mainly the commercial crises, as they were then called, that broke out in 1825, 1837, 1847, 1857 and
1866 that gave testimony that the productive forces of 19th-century capitalism were beginning to come
into conflict with capitalist relations of production. Since 1873, such forms of capitalist monopoly as
cartels, syndicates and trusts give permanent testimony that the conflict between the productive forces
and capitalist relations of production is deepening.

7 The Marxian analysis, Baran and Sweezy wrote in their 1966 Monopoly Capitalism, still rests in the
final analysis on the assumption of a competitive economy. Baran and Sweezy in Monopoly Capital
deny that such a fundamental law of motion of capitalism that Marx discovered and explained in
Capital as the tendency of the rate of profit to fall remained valid under monopoly capitalism. Instead,
Baran and Sweezy replaced Marxs law of the tendency of the rate of profit to fall with their own law of
the tendency of the surplus to rise. They also claimed that at least in the monopoly sector price
competition had virtually ceased. If this were really true, what would keep prices in line with their
underlying labor values? If prices no longer have any tendency to gravitate to their labor valuesor
prices of productionthen what would be left of Marxs most important law of capitalist production
the labor law of the value of commodities?

Indeed, the whole thesis of Monopoly Capital is that entirely different laws of motion govern
monopoly capitalism as opposed to the competitive capitalism that Marx analyzed in the 19th century.
If Baran and Sweezy were correct, why should we even use the term monopoly capitalism? Wouldnt we
be dealing with a whole new mode of production and exploitation unforeseen by Marx and Engels? The
historical materialism of Marx and Engels would still be valid. But the claims of the founders of Marxism
that only socialismor, more properly speaking, communismcould succeed capitalism would have
been falsified in practice. Socialism would once again be a utopia.

8 The government with the help of the media has been covering up the fact that General Motors
collapsed and did not simply go bankrupt last spring. There are many cases where corporations
temporarily go bankrupt and continue to operate while they are reorganized. Essentially, interest
payments on bonds are suspended and perhaps some of the bonded debt is canceled, but the
stockholders equity, though temporarily depreciated, is preserved.
Once the corporation emerges from bankruptcy and returns to profitabilitystarts acting like a normal
capitalist corporationthe stockholders equity starts to grow again and rises to new highs. Many
corporations have experienced such episodes in their history. However, General Motors was liquidated
and a special liquidation corporation to dispose of its remaining assets has been organizedand its
stockholders have been wiped out. The value of GM stock fell to zero. However, in order to hide the full
significance of the end of what had long been the largest industrial capitalist corporation in the world,
and thus the extent of decline of American capitalism as well as the extent of the cyclical crisis that
finally brought is down, the U.S. government organized a new mostly government-owned corporation
also called General Motors.

The Obama administrations hopes that the new corporationmisleadingly also called General
Motorsfreed from the debts of the collapsed General Motors, and paying drastically lower wages
than its failed namesake, combined with the inevitable recovery from the cyclical crisis, will allow the
this entirely new corporation to eventually operate profitably.

Instead of operating it as a government corporation the plan is to sell its stock to private money
capitalists as soon as the money capitalists can be convinced that the new General Motors can operate
at a profit.

If all goes according to plan, the new corporation will again enrich these new private stockholders and
not benefit the U.S. taxpayers, who poured billions into the collapsing old General Motors. Whether in
fact the new General Motors will be able to make a profit remains to be seen.

If it cannot, the U.S. government will either have to operate it as a money-losing SOEstate-owned
enterpriseor close it down.

9 The law of equalization of the rate of profit is the specific mode of operation of the law of the labor
value of commodities under the capitalist mode of production as opposed to simple commodity
production.

10 For example, just like marginalist economists like to assume full employmenteven if full
employment is never experienced in the real capitalist world outside of full- scale warthey like to
assume constant returns to scale. They deny or play down the lower individual cost priceseconomies
of scaleof large enterprises compared to small ones. If large enterprises have lower individual cost
prices than small ones, it wont be long before production is centralized in the hands of a few large
enterprises and a capitalist monopoly will be established. But if there are constant returns to scaleor if
smaller enterprises have actually lower costs, this will create a tendency toward a decentralization of
capital.

Along with Says Law, which supposedly guarantees a market for the increasing output of the rising
number of independent capitalist firms, constant returns to scale is supposed to ensure that capital
remains largely decentralized. Indeed, the bourgeois economists like to counterpose the nimble
corporate startups to large inefficient corporate dinosaurs. The only truth in this is that capitalism
indeed needs widespread small-scale production to persist if it is to remain healthy.

11 In the late 19th century when this was written, the term commercial crisis was still used to refer to
the cyclical crisis of overproduction. However, every cyclical crisis contains the seeds of recovery. Why
would a cyclical crisis, no matter how severe, by itself signify the end of the capitalist mode of
production?

12 The breakdown theory is often criticized for postulating a purely mechanical breakdown of
capitalism and therefore leaving out the subjective revolutionary activity of the working class. Marxist
opponents of the breakdown theory say that they, in contrast, put their faith in the ability of the working
class to organize itself and consciously overthrow capitalism and organize a socialist society in its place.

The claim that a revolutionist of the stature of Rosa Luxemburg believed in the mechanical collapse of
capitalism without any conscious role for the working class hardly merits discussion. And though Henryk
Grossman, the other Marxist who emphasized the importance of a breakdown theory, had a less
illustrative career as a revolutionary leader than Luxemburg had, he too emphasized that ultimately it
was the conscious organized working class that would have to seize power and consciously build a
socialist society.

The only major Marxist economists that I have been referring to in these posts who denied this are Paul
Sweezy and Paul Baran. The answer, Baran and Sweezy wrote in Monopoly Capital, of traditional
Marxist orthodoxythat the industrial proletariat must eventually rise in revolution against its capitalist
oppressorsno longer carries conviction. Interestingly, Baran and Sweezy, unlike Luxemburg and
Grossman, are generally not considered breakdown theorists.
13 They were known as Puritans because they proposed to purify that church of all the corruption and
false teaching that had accumulated since the death of Paul in the first century C.E. In fact, far from
returning to the days of Paul, they were objectively laying the foundation for something radically new,
the rise of the capitalist mode of production based on free wage labornot the slave labor of the days
of the Apostle Pauland the dynamic growth of the forces of production that would make possible. This
is something that neither Paul nor any of his contemporaries could have possibly have imagined.

14 Volume II of Capital was published by Engels in 1885. It is not the easiest going, and lacks the
historical material that lightens up large parts of volume I, or the excitement of the tendency of the rate
of profit to fall in volume III. So it took several decades before its content was widely absorbed by the
international Marxist movement.

15 In the diagrams of expanded reproduction found in volume II of Capital, Marx extended his diagram
for four years. But it is quite easy to program a computer to run these diagrams forward forever. The only
limit is the memory of the computer.

16 Even in the United States, the socialist candidate for president Eugene V. Debs received 913,693 votes
in 1912. In addition to local offices, the socialist party elected several congress people and numerous
mayors and other local officeholders.

17 On August 4, 1914, the Social Democratic Reichstag fraction voted for war credits. This was the
biggest betrayal in the history of the workers movement, at least before Mikhail Gorbachev launched
the perestroika reforms with the support of the Central Committee of the Communist Party of the
Soviet Union, which liquidated the planned economies of the Soviet Union and Eastern Europe.

Advertisements

Share this:

EmailRedditFacebook35

Leave a Reply

Your email address will not be published. Required fields are marked *
Comment

Name *

Email *

Website

Post Comment

Notify me of new comments via email.

charley2u on November 9, 2009 at 4:24 pm

Here I have another question, which has been irritating me for some time: Is the crisis the normal
working of the mode of production, or the interruption of the normal working of the mode of
production.

According to Grossmans model, inherent in capital is the tendency toward breakdown. Which is to say,
normally capital has a trajectory toward the abolition of work. How can this tendency be referred to as a
crisis when it is the normal condition?

According to Marx, the counter-tendency is an impairment or retardation of the primary tendency, a

counter-tendency. This leads me to believe that crisis is provoked by any impediment that momentarily
calls forth increased demand for work.

Grossman is unclear on this point, stating in the same sentence that, Once these counteracting
influences <>, the valorisation of capital is reestablished and the accumulation of capital can resume on
an expanded basis. (my emphasis)

But then he adds, In this case the breakdown tendency is interrupted and manifests itself in the form of
a temporary crisis. Crisis is thus a tendency towards breakdown which has been interrupted and
restrained from realising itself completely.

If the crisis interrupts the primary tendency, how can it operate to reestablish it?
This leaves me confused. In Grossmans reconstruction, is the crisis an interruption of the tendency
toward breakdown (the interruption of of the process which leads to the abolition of work), or is it the
reestablishment of the tendency?

Take World War Two as an example: It resolved the impediment to accumulation imposed by the division
of the world market into national economies. Was the crisis the Great Depression produced by this
division, or the war which resolved it? Or, both?

My thinking on this is that Grossman may have confused things with his language. Impediments that
retard the tendency toward breakdown create the crisis which interrupts the tendency to the abolition
of work. The working out of the crisis is the healing process where by this tendency is reestablished.

Reply

Advertisements

charley2u on November 9, 2009 at 4:27 pm

Sorry,

Inside the should have been the following

Reply

charley2u on November 9, 2009 at 4:27 pm

begin to operate It is deleting what is contained in the

Reply

Advertisements

Abdullahi Idris Abdriss on November 5, 2011 at 1:21 pm

You did very well in ur analysis by exposing d falsehood dat capitalism is crisisfree. So long as gross
inequality side by side devaluation of human lives & increasing misery of d bulk of d world population
are mahntained, so wil capitalism swim permanently in crisis & gradually sounding its death knell.

Reply

Www.Facebook.com on April 21, 2013 at 8:49 pm

What precisely genuinely stimulated u to compose Historical Materialism and the Inevitable End of

Capitalism | A Critique of Crisis Theory? I actuallytruly enjoyed reading the post!

Regards -Kristie

Reply

youtube.com on April 23, 2013 at 5:10 am

Your article, Historical Materialism and the

Inevitable End of Capitalism | A Critique of Crisis Theory

was indeed definitely worth writing a comment on! Merely wanted to say you really did a remarkable
work.

Thanks for your effort ,Marie

Reply

Advertisements

View Full Site

Blog at WordPress.com.

Follow

:)