This is a tricky post to do. I am pretty tentative about what I’m going to say. It’s a bit like talking out loud. But then I suppose that’s what blog posts are. They are fairly quick responses to events or issues. They are not carefully planned academic papers with rigorous theory backed up by well-referenced sources and comprehensive empirical evidence – as all good analysis should be! So bear with me.
The issue is this: is Marx’s causal explanation of capitalist crises just that: a theory of recurrent and even regular crises, of booms and slumps in capitalist accumulation? Or is it more than that (or alternatively), a theory of breakdown, namely an explanation of how capitalism cannot continue indefinitely (even if it has regular crises), but must reach its limits as a system of social organisation, then break down and be replaced by a new system?
This is an issue or debate that some of you who read my blog have raised in various places. So what follows is my attempt to answer that question. I think we can first clarify what we mean by crisis or breakdown by some schematic graphic examples. The Marxist theory of crisis and its laws could described as showing that capitalism proceeds in cycles of boom and slump like this:
Such a path of economic development is hugely wasteful of human life and time, as it involves not just the loss of potential output or use values to society, but also loss of employment and livelihood of hundreds of millions of working people and their families at recurrent intervals. It breeds social inequality and instability, and frequent wars. But unless the working class seizes political power and replaces the capitalist system with another, the graph suggests that capitalism will find a way out. There is no permanent crisis in the sense of total endogenous breakdown.
Now the ‘breakdown theory’ of capitalist crisis would look more like this graphically.
First, the capitalist economy rises as it is still a progressive system in developing the productive forces, but eventually the contradictions of capitalist accumulation become so great that capitalism becomes a fetter on human progress. It no longer reduces labour time or increases use values sufficiently. Capitalism then heads for breakdown and the final confrontation with the working class. It’s socialism or barbarism.
The most well-known proponent of this breakdown interpretation of Marx’s theory is Henryk Grossman (see my book, The Great Recession, for further analysis). Writing in the 1920s onwards, Grossman was the first to point out, in opposition to the dominant Marxist underconsumption theory of crisis propounded by the Stalinist Comintern or Bukharin’s disproportional theory, that crises of capitalism and its final collapse are explained by Marx’s law of the tendency of the rate to fall. But even more important, it was not specifically the fall in the rate of profit that provoked a crisis or slump, but a fall in the mass of profit or surplus value. It was this observation that Grossman reckoned was “decisively important ” in Marx’s theory of crisis.
Moreover, for Grossman, it was crisis and breakdown, as the title of his key book confirms (The law of accumulation and the collapse of the capitalist system (also a theory of crisis). Capital goes into crisis because of lack of sufficient surplus value for accumulation. At a certain point, the drive to accumulate will be blocked by the need to fund workers’ living standards and capitalist consumption. The law of profitability (i.e. a rising organic composition of capital driving down the rate of profit) can be counteracted by various factors: a higher rate of surplus value, a cheapening of the cost of constant capital, a quicker turnover of capital, foreign trade (globalisation), the driving of wages below the value of labour power etc. But none of these counteracting factors will be able to stop ‘the law as such’ eventually operating to drive down profitability and finally the mass of profit. The rate of profit can then only be reestablished by reducing the living standards of the workers that create value and writing off the value of existing ‘dead’ constant capital. When the counteracting factors become inadequate, capitalism heads towards breakdown.
But Grossman did not think capitalism would collapse ‘automatically’, without the intervention of human action. Indeed, the class struggle would come into play as workers and capitalists battled over the declining mass of surplus value. It could come to a choice between socialism and barbarism, but as Grossman’s disciple, Paul Mattick puts it: “in principle, in developed capitalism, any great crisis can become the final crisis. But if it does not, it remains a presupposition for further accumulation. But permanent crisis is just as conceivable in the Marxian system as surmountable crises…. under present day conditions of world capital, a state of persistent economic and political crisis can arise as it just as possible that the crisis will give capital a chance of beginning a new expansion“. (Economic crisis and crisis theory, 1981).
Robert Kurz argues something like this in his extremely profound paper of 1995, The apotheosis of money: the structural limits of capital valorization, casino capitalism and the global financial crisis – a paper that some readers of my blog have brought to my notice. Kurz highlights some key indicators in modern capitalism that tell you that it is in its terminal stage. First, there is the growth of unproductive labour. Most labour is increasingly employed in sectors that do no provide surplus value for accumulation, but in circulating existing capital or preserving the capitalist state. I agree that this is a very telling indicator of the decline in the ‘progressive’ nature of capitalism on the productive forces. I have made a rough estimate of how much employment in the US goes into unproductive activities (i.e. sectors that do not create new surplus value) compared to those that are productive (mainly goods and transport). The result is clear.
Kurz is not convinced that the huge supplies of value-creating labour in the so-called emerging economies can be exploited to compensate for the growing unproductive nature of mature capitalist economies. In that sense, the terms, ‘the last stage of capitalism’ (Lenin) or the ‘collapse’ of capitalism are very relevant.
Another key indicator of the terminal stage of capitalism for Kurz is the huge growth of state credit or debt, which has become a ‘new normal’ condition for capital to accumulate. Fictitious capital in the form of state credit and the abolition of a physical base to money with the ending of the gold standard are big signs. Money is no longer a reliable store of value because value is increasingly difficult to extract from labour. Indeed, financialisation and the pyramid of private credit that eventually collapsed like a house of cards in 2007 suggest the decaying nature of this formerly progressive mode of social production.
Sure, says Kurz, the globalisation of the capitalist mode of production into non-capitalist areas and the development of the world market is an important way in which capitalism can stave off breakdown or collapse. It is a powerful counteracting factor, but yet another indication that capitalism is in its mature phase historically. He doubts that China or Asia can provide a new lease of life for capitalism with exploitation of technology and labour there. But Kurz was writing in 1995 and can we say a decade and half later that China/India/Asia is not providing new capitalist accumulation? Has “the basis of capitalist reproduction” truly reached its absolute limit, as Kurz argues? It’s true that the great expansion of value creation in China and the BRICs did not stop the Great Recession and the ensuing Long Depression we are now in. Don’t those events confirm the view that capitalism is terminally ill?
Kurz recognises that capitalism can revive itself after crises and slumps through the devaluation of capital but he doubts that after even the most destructive process that capitalism can any longer rise from the ashes of a long depression like Phoenix for two reasons. First, it can no longer properly exploit the technical advances to deliver new levels of profitability and second, the productive sector in industry is now too weak and small to do so. So capitalism is ‘a walking corpse’, that cannot start again from the beginning on a new purified terrain. Society is faced with proceeding to socialism or back to pre-capitalist barbarism, because it cannot continue in its current form.
The idea that capitalism can no longer exploit technology successfully is the theme adopted by David Graeber in his insightful piece, Of flying cars and the declining rate of profit in the Baffler, 4 June 2012. Graeber brilliantly argues that capitalism has failed to deliver on the hopes and promises of technological advance in the last 50 years: what happened to robot factories, moon bases, personal jet packs and robots in the home? Leisure time has not increased for the average working household, on the contrary. Blue sky research that does not require or lead to immediate practical applications is disappearing as universities fight to provide business with any small improvement in profit-making rather than innovations that could transform society. Bureaucracy rules: “no population in history has spent nearly so much time engaged in paperwork”. Modern capitalism cannot afford to solve the climate crisis and other environmental nightmares, or find a cure for cancers.
Why has it failed? Because capitalism is a mode of production for profit; and profitability is in secular and terminal decline, in Graeber’s view. Graeber says there are three claims that capitalism makes to justify it as a progressive mode of social organisation: it fosters scientific and technological growth; second, it increases overall prosperity; and third, it creates a more secure and democratic world. But it increasingly fails to deliver on all three: “we can feel especially confident that none of this will happen within the framework of contemporary capitalism or any form of capitalism”.
I have great sympathy with the Kurz-Graeber view, but with reservations on timing. I’m not so sure that emerging capitalism cannot provide a new period of capitalist development if the end of this long depression does not lead to the replacement of the capitalist mode by political action from energised working class movements. Also, it is by no means certain that mature capitalism cannot still develop and exploit new technologies, even if it has failed so far, in areas like robotics, artificial intelligence, 3d printing and nanotechnology. Indeed, some argue that US technology in developing shale oil and gas will shift the balance of economic power in energy back towards North America and the mature capitalist economies and away from the Middle East and Asia.
So which is the right schema? Crisis or breakdown? Well, I don’t think either is the full story. I prefer a schema that looks like this and basically combines both the crisis and breakdown graphics:
So there are continual recurring crises or cycles that spin round the secular trend for capitalist development that spreads over centuries.
Michael Lebowitz makes a telling case for regarding the law of the TRPF in this dual nature, in his old essay of 1976 entitled Marx’s falling rate of profit: a dialectical view. Lebowitz rejects the view that the Marx’s law of profitability is just some slow long-term secular trend, but instead should be seen as showing that capitalism faces a continual barrier, namely the regular renewal of capital itself. By this, Lebowitz means that the law of profitability leads to “the tendency to create a world market as capital strives to conquer the world for its market”. But growth leads to a barrier of insufficient profit which has to be overcome for more growth. The barrier of falling profitability must continually be overcome by crises, but “at a certain stage in its development, it will drive towards its own suspension (abolition).” So there are continual crises, but capitalism is also marching towards breakdown or a terminal stage.
This whole debate on whether Marx’s law of profitability is one of recurrent crises or one of breakdown starts from the premise that the TRPF is the underlying cause and does not involve alternative theories of crisis like underconsumption (overproduction), disproportionality or excessive surplus, or monopoly stagnation. So if the law of TRPF is key, can empirical evidence of what has happened to the rate of profit in the mature capitalist economies or globally help us decide whether capitalism is in terminal decline and heading towards breakdown and collapse from which it cannot escape or is just in yet another crisis or slump or depression from which it will eventually recover?
Let start with the US. What does the long-term historical evidence on the US rate of profit show? Below is a graphic that takes the US rate of profit back to 1869, based on data taken from Dumenil and Levy and updated by me. So it is full of caveats on the measurement issues (which we have debated at length on this blog). The graphic suggests that there has been no particular secular decline in the US rate of profit to support the breakdown theory. It seems that recurring crises that US capitalism recovers from and then renews profitability for a while is a more accurate scenario. But we can see a secular decline since the 1960s. So maybe that was the point when US capitalism entered its ‘terminal stage’.
A recent paper by Robert J Gordon, Is US economic growth over?, NBER August 2012, argues the US is in just such a terminal stage. Indeed, Gordon argues ‘provocatively’ that the rapid technological progress under the capitalist mode of production in the last 250 years is over. The ability of capitalist accumulation to foster economic growth is faltering and real GDP per capita, at least in the US economy, will be slower that in any extended period since the Civil War, when US capitalism first sprung onto the world arena. Gordon argues there are six headwinds that will slow future innovation: an ageing population in the mature economies; rising inequality; an increasing lack of competitive advantage for the mature capitalist economies; poorer education because public investment in education is being destroyed; increasing environmental regulations; and excessive debt. Gordon concludes that US real economic growth could fall to just an average 0.2% a year for the foreseeable future compared 2-3% of the past. Whether those headwinds justify such slower economic growth is open to question.
Gordon suggests that capitalism drove the productive forces (and thus economic growth) upwards from about 1750 to 1950. But now we are in the downward spiral of capitalism that no longer takes the productive forces forward. He exhibits this in a graphic showing UK and US economic growth rates over the period. Capitalism, at least in the mature economies, has had its day.
But can capitalism get a further kick forward from exploiting the hundreds of millions coming into the labour forces of Asia, South America and the Middle East? This would be a classic way of compensating for the falling rate of profit in the mature capitalist economies. In my recent paper for the 2012 AHE/IPPE conference in Paris (a world rate of profit), I captured the work of John Smith in his excellent paper, Imperialism and the law of value, 2011, which showed the massive increase in the global industrial workforce, now well over 600m people. Most important, while the industrial workforce in the mature capitalist economies has shrunk to under 150m, as unproductive labour has risen sharply; in the so-called emerging economies the industrial workforce now stands at 500m, having surpassed the industrial work force in the imperialist countries by the early 1980s. In addition, there is a large reserve army of labour composed of unemployed, underemployed or inactive adults of another 2.3bn people globally that could also be exploited for new value.
And even if the mature capitalist economies are in ‘down mode’ that may not be the case for the world economy. When we look at the situation, we see that, on a yearly average basis, world growth has been by far the greatest since 1980 (see http://www.theoildrum.com/node/9452).
Population growth rate prior to the year 1 C. E. based on McEvedy & Jones, “Atlas of World Population History”, 1978; later population as well as GDP based on Angus Maddison estimates; energy growth estimates are based on estimates by Vaclav Smil in Energy Transitions: History Requirements, and Prospects, adjusted by recent information from BP’s 2012 Statistical Review of World Energy
But that is not to say this potential labour force will ever be properly exploited by the capitalist mode of production., Indeed, in my paper, I show that the world rate of profit (not just the rate of profit in the mature G7 economies) stopped rising in the late 1990s and has not recovered to the level of the golden age for capitalism in the 1960s, despite the massive potential global labour force. It seems that the countervailing factors of foreign investment in the emerging world, combined with new technology, have not been sufficient to keep pushing up the world rate of profit, so far.
In his insightful book, (The rise of China and the demise of the capitalist world economy, 2008), Minqi Li argues that the mature capitalist economies of the UK and the US have experienced a secular decline in the rate of profit from the 19th century on, confirming Marx’s law and suggesting that the ‘progressive’ nature of capitalist accumulation in these economies is over. He reckons that the global warming crisis and the peaking of energy production will make it impossible for capitalism to avoid collapse or breakdown. Like Gordon, and echoing the views of Immanuel Wallerstein, Li predicts that world economic growth will grind to halt by the 2040s as a result. Capitalism cannot survive beyond that and there must a new system of human social organisation or total chaos. “Multiple economic, social, geopolitical and ecological forces are now converging towards the final demise of the existing world system, the capitalist world economy. All have reached their advanced phases and this demise will take place in front of the eyes within the lifetime of many readers”. Socialism or ecological disaster is Minqi Li’s forecast.
I reckon that capitalism will not just collapse of its own accord. Yes, crises or breakdown is endogenous because of the main contradiction within the capitalist mode of production, of accumulation for profit and not need. But also it is possible for capitalism to recover and soldier on ‘endogenously’ when sufficient old capital is destroyed in value (and sometimes physically) to allow a new period of rising profitability. Capitalism can only be replaced by a new system of social organisation through conscious action of human beings, in particular by the majority class of people (the working class globally). Without such conscious action, capitalism can stumble on or society may eventually fall back into barbarism. By barbarism, we mean a drop back in the productivity of labour and living conditions to pre-capitalist times. The Roman republic rose tooth and claw over 500 years based on free peasant farming and land owning estates. Then a predominantly slave-holding Roman empire slid down over 400 years before the European world collapsed into barbarism. The technology of the Romans (derived from the innovations of the Greeks before them) was forgotten and became unused. That could happen again and much quicker in world where things move so much more quickly.