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Review: The Failure of Capitalist Production by Andrew Kliman - Part Three

15 April 2012

This artucle first appeared on A Critique of Crisis Theory blog. 

The evolution of the rate of surplus value

Kliman’s discussion of the evolution of the rate of surplus value over the last 40 years is, in my opinion, the weakest part of his book. Most Marxists—and non-Marxists, including the great bulk of U.S. workers—would agree that the portion of income going to the rich—the capitalist class—has risen considerably in the U.S. since the early 1970s. This widespread popular belief is clearly reflected in the rise of the Occupy movement.

Kliman strongly disagrees with this. Using U.S. government statistics, he attempts to demonstrate that the share of the U.S. national income going to the workers has risen at the expense of the share going to the capitalists. Or in Marxist terms, the rate of surplus value has actually fallen. A falling rate of surplus value, even if the organic composition of capital remains unchanged, implies a fall in the rate of profit. If a fall in the rate of surplus value is accompanied by a rise in the organic composition of capital, the result will be a marked fall in the general rate of profit.

Which is right: the general popular perception and the view of the Occupy movement that American capitalism and world capitalism is growing more exploitative, or Kliman’s contrary view?

Kliman quotes John Bellamy Foster and Fred Magdoff—leaders of the Monthly Review school: “…wages of private non-agricultural workers in the United States (in 1982 dollars) peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24 (equivalent to the real hourly wage rate in 1967), despite the enormous growth in productivity and profits over the past few decades.” (p. 155)

These figures would seem to clinch the case for a considerable rise in the rate of surplus value in the decades preceding the “Great Recession.” It would seem that on the eve of the Great Recession in 2006, a typical U.S. worker got less in use value terms for each hour of labor power she sold to the capitalists than her mother earned for similar work 34 years earlier. Furthermore, the productivity of human labor has hardly stood still over the last 34 years. This means that the commodities that a worker consumed in 2006 embodied a considerably smaller amount of human labor value than was the case in 1972.

This is true for two reasons. First, the worker in 2006 received less use value  for every hour of labor power she sold to the capitalists. (1) Second, each unit of use value she did receive in exchange for her sold labor power represented less embodied abstract human labor—value—than it did in 1972.

This would mean that there has been a marked growth in what Marx called relative surplus value when if the total work day remains unchanged workers will be working a smaller amount of time for themselves and a greater amount of time for the capitalists. This can be the case even if the standard of living of the workers actually increases, if the increased number or quantity of commodities  the workers get to consume in exchange for their sold labor power represents a smaller quantity of value.

Kliman disagrees. He thinks that if anything the rate of surplus value, at least in the U.S., has fallen over the last 40 years. In attempting to prove this, he quotes economist Martin Feldstein as an authority. Feldstein wrote that it is a “measurement mistake” to “focus on wages rather than total compensation.” Feldstein complains that this has “led some analysts to conclude that the rise in labor income has not kept up with the growth in productivity.” (p. 153)

Kliman doesn’t inform his readers that Martin Feldstein is an extremely reactionary economist who has dedicated his life to defending and prettifying U.S. capitalism, though he does mention that he was the head of the National Bureau for Economic Research. (2)

Marxists, beginning with Marx, have often quoted bourgeois economists when these economists’ research exposes some of the truths about capitalism and its exploitation of the workers. When the hired apologists for capitalism are obliged to admit a portion of the truth about the exploitative nature of capitalism, it is especially telling. The more reactionary the particular apologetic economist is the better.

But for a Marxist to quote reactionary economists when they use statistical data in a way that actually strengthens their apologetic views of capitalism is rather unusual, to say the least. While we can’t prove that American capitalism has grown more exploitative simply because Feldstein (3) claims it hasn’t, Kliman’s conclusion is strongly in line with Feldstein’s natural ideological bias.

Even if it were true that “non-wage compensation”—such as health insurance, for example—has increased so much since 1972 that real income—hourly wages plus non-wage compensation—has risen for each hour of labor power that U.S. workers sold to the capitalists between 1972 and 2006, it would still remain to be shown that  U.S. workers are receiving more value for each hour of labor they perform. Remember, as long as the productivity of labor is growing it is quite possible for the standard of living of workers to rise while they are more exploited than ever. This is what Marx’s concept of relative surplus value is all about.

Casting further doubt on Kliman’s claim that the rate of surplus value of U.S. workers did not rise in the decades preceding the Great Recession is the fact that the last 40 years have seen a tremendous weakening of the U.S. union movement. “Union membership as of 2010 in the private sector,” states Wikipedia, “has fallen under 7%—levels not seen since 1932?—that is, since the days of Herbert Hoover when union membership was greatly depressed during the super-crisis phase of the Great Depression.

It would indeed be remarkable if the rate of surplus value extracted from American workers had actually declined despite this huge weakening of the union movement, combined with the increase in real unemployment, only partially reflected in the official jobless numbers, that has occurred since the postwar economic prosperity ended 40 years ago.

Even if we were to accept Kliman’s attempt to demonstrate a fall in the rate of surplus value in the United States since 1972, his problems wouldn’t end there. Kliman leaves out, as he himself acknowledges—pleading lack of reliable statistics—the effects of the shift of capitalist production from the United States and other imperialist countries, where wages are relatively high, to countries like China, India, Bangladesh and so on, where wages are dramatically lower. Unlike 1972, the bulk of the profits coined by U.S.-based corporations is increasingly produced by extremely low-paid workers, mostly in Asia but also in Latin America, the Caribbean and Africa.

When this is taken into account, it is hard to draw any other conclusion than that on a global basis—and this is what counts for determining the average rate of profit, especially in today’s globalized world—the rate of surplus value has risen dramatically.

Why does a radical socialist economist like Andrew Kliman attempt to prove the opposite, relying on U.S. government statistics—hardly an unbiased source—and the reactionary Martin Feldstein to make his case? The reason is not that Kliman is pro-capitalist, nor does he have any real desire to prettify either U.S. capitalism or world capitalism. Quite the contrary. He is bitterly opposed to the entire system of capitalist exploitation.

The problem lies, rather, in his one-sided crisis theory. Kliman believes that economic crises are caused by a rate of profit too low to sustain capitalist expanded reproduction.

In his “Failure of Capitalist Production,” Kliman is attempting to demonstrate the need to overturn capitalism, in direct opposition to the Monthly Review school, which holds that the capitalist system is reformable. In this blog, I myself have strongly criticized the Monthly Review school for what I believe to be its false underconsumptionist crisis—or stagnation—theories and the illusions about the reformability of capitalism that such theories lead to.

In contrast to Kliman, the members of the Monthly Review school blame capitalist stagnation and the Great Recession on the underconsumption that is the result of the increasingly exploitative character of present-day capitalism. The Monthly Review writers hold that if only “the 1 percent” learn to exploit the working class in a more moderate way, both the working class and the capitalist class would be better off. They hold that a lower rate of surplus value would be more than compensated for by the increased possibilities for realizing the surplus value that would still be produced. In this way, the interests of “labor and capital” would be partially reconciled and class antagonisms softened.

In complete opposition to the Monthly Review school, Kliman’s theory of crises requires a fall, or at least very little rise, in the rate of surplus value in order to explain the reduced rate of growth of the world capitalist economy since the early 1970s, as well as the Great Recession. In contrast, supporters of the Monthly Review school feel quite comfortable with a rising rate of surplus value, since it bolsters their theory that the Great Recession and sluggish economic recovery were caused by “underconsumption.”

If the rate of surplus value has indeed risen over the last 40 years, this doesn’t mean that the Monthly Review school—or other versions—of the underconsumptionist theory of capitalist crises and stagnation are necessarily correct. But it does contradict Kliman’s crisis theory.

Kliman, Jefferies and the Great Recession

Kliman’s theory of crisis has much in common with that of Bill Jefferies. Jefferies, is a British Marxist in the Trotskyist tradition, who is a member of the editorial board of Permanent Revolution magazine. Both Kliman and Jefferies see the fall in the value rate of profit as the basic cause of capitalist crises. Both believe that if the rate of surplus value rises sufficiently to prevent a fall in the value rate of profit, severe economic crises will not occur. Where Jefferies differs from Kliman is that Jefferies accepts that the rate of surplus value has indeed risen sharply since the 1970s leading to a rise, not a fall, in the rate of profit.

When the world credit markets first froze up in August 2007 causing a sharp but initially brief drop in share prices on Wall Street, a debate broke out on whether the credit freeze-up heralded a major economic downturn in the global capitalist economy. Marxists as a rule have a natural bias towards predicting crises in the capitalist economy, while bourgeois economists have a bias toward predicting capitalist prosperity. (4)

Bill Jefferies, rather uniquely on the left, went out on a limb and predicted that there would not be a major economic downturn. Pointing to the restoration of capitalism in the Soviet Union and Eastern Europe and the vast growth of capitalism in China, combined with the huge setbacks suffered by the trade unions and labor-based political parties in the imperialist countries themselves, Jefferies drew the conclusion that, taken globally, there indeed had been a considerable rise in the rate of surplus value and therefore the rate of profit. (5)

Therefore, despite the storm clouds that were gathering in the global financial markets beginning in July-August 2007, Jefferies predicted that there would not be a world recession. According to Jefferies, only a major recovery in the world workers’ movement that would lead once again to a fall in the rate of surplus value and a renewed decline in the rate of profit could cause economic crises on the scale of those of the 1970s to recur.

We now know with the advantage of 20/20 hindsight that Jefferies was wrong. The credit freeze-up in August 2007 did indeed herald the beginning of the biggest global economic downturn not just since the 1970s but since the 1930s. In addition, the recovery that followed has so far turned out to be a mere shadow of the recoveries that followed the 1929-33 super-crisis itself and the 1937-38 “Roosevelt recession.”

Even if we assume for the sake of argument that a powerful and sustained capitalist economic expansion sets in beginning in 2012, this would not change the fact that the 2007-09 slump combined with the very slow start of the recovery—and now renewed recession throughout much of Europe—amounts to the most serious period of crisis and depression in the global capitalist economy since the Depression of the 1930s.

The truth is that the Great Recession represents a problem for the whole school of thought to which Kliman belongs. Kliman’s school of crisis theory blames capitalist crises on a fall in the value rate of profit brought about by a “too low” rate of surplus value combined with a “too high” organic composition of capital.

The situation today is quite unlike the 1970s. Back then it could be plausibly argued that the rate of surplus value, and even more the rate of profit, had fallen considerably, because the 1970s crises had been preceded by a historic rise in both the hourly wages and the social wage of the productive workers—who were still largely located in the imperialist countries of the United States, Western Europe and Japan. Despite Kliman’s best efforts, it is hard to make the same case for the Great Recession.

In a post on this blog, I explained that in his very mistake Jefferies was showing that there was something missing in the theory that capitalist crises, depressions and stagnations are caused by an insufficient production of surplus value and a too low value rate of profit. What is missing in both Kliman’s and Jefferies’ theory is the whole problem of the realization of surplus value once it has been produced in the form of yet-to-be sold commodities.

The law of the tendency of the rate of profit to fall and the cyclical crises of overproduction

Kliman quotes Marx: “When Adam Smith explains the fall in the rate of profit [as stemming] from a superabundance of capital…he is speaking of a permanent [Marx's emphasis] effect and this is wrong. As against this, the transitory superabundance of capital, overproduction, and crises are something different. Permanent crises do not exist.” (p. 26) Kliman should ponder the meaning of this quote.

Marx is making a sharp distinction between changes in the rate of profit brought about by changes in the organic composition of capital that are permanent changes and the sharp but temporary falls in the rate of profit that occur during crises of overproduction.

Like most modern Marxists who take a serious interest in economics, including supporters of the Monthly Review school, Kliman is troubled by Marx’s description of cyclical capitalist economic crises as crises of the generalized overproduction of commodities. Both Kliman as well as the various Monthly Review writers talk about the “overaccumulation” of capital. But unlike Marx and Engels, our modern Marxists avoid describing capitalist cyclical economic crises as crises of the overproduction of commodities.

Kliman does distinguish between what he sees as the basic cause of crises—a value rate of profit that is too low to sustain capitalist expanded reproduction—and the immediate cause of crises—which Kliman sees as disturbances in the credit mechanism. But Kliman doesn’t understand that credit problems are actually mere reflections of overproduction.

I believe Kliman’s difficulties—and the Monthly Reviews school’s as well—with Marx’s concept of crises caused by a general overproduction of commodities stems from the concept of “non-commodity” money, which Kliman unfortunately remains a prisoner of. (6)

Last month, I indicated that Kliman might be rethinking his belief that “non-commodity” money is possible. However, in a comment to this blog, Kliman makes clear that he still very much believes that non-commodity money is not only possible in theory but that it indeed forms the basis of the current capitalist monetary system.

Marx explained very early in “Capital”—in Chapter 3 of Volume 1—that a general overproduction of commodities is possible, because as simple commodity production develops, a special commodity differentiates out from other commodities. The peculiar use value of that commodity is to serve as the universal equivalent that measures in terms of its own use value the values of all other commodities.

James Mill, Say and Ricardo claimed that a general overproduction of commodities was impossible because commodities are purchased by means of other commodities. A relative overproduction of some commodities is possible, they conceded, but must be accompanied by a relative underproduction of other commodities. However, as Marx explained in Chapter 3, Volume 1 of “Capital,” it is quite possible to have a general overproduction of all commodities relative to the special commodity that serves as the universal measure of value—money.

If “non-commodity fiat money” can replace commodity money as the measure of the value of commodities—as opposed to merely representing the money commodity in circulation—it is a relatively trivial matter to overcome any “underproduction” of money by simply having the monetary authority create more money through its printing presses or its electronic equivalent. If the capitalists hoard the “newly printed money,” then all that is necessary to overcome the crisis is to have the central government borrow the newly printed money and spend it itself until “full employment” returns.

In a nutshell, this view of both Keynes and Michal Kalecki (1899-1970) is a theory that Monthly Review continues to defend, most recently in an article by economist Michael Perelman that appears in the current—April 2012—issue.

Kliman doesn’t challenge this view—nor can he as long as he continues to hold that “non-commodity money” can act as the measure of value of commodities independent of a money commodity. This is why he has such difficulty with the view that cyclical capitalist crises are crises of the general overproduction of commodities. Indeed, the word “overproduction” appears in Kliman’s book only when he is quoting Marx.

As a result, Kliman cannot grasp the fact that it is quite possible during a crisis of overproduction for the value rate of profit to be high while the market rate of profit temporarily collapses because of the inability of the capitalists to realize in money form the huge amounts of surplus value that they have appropriated from their workers. Kliman, like Jefferies, is forced to put all the “burden” of explaining the periodic crises that afflict capitalist production on a fall in the value rate of profit. (7)

Last month, I explained that the rate of profit must be measured in terms of the use value of the money commodity—for example, metric tons of gold bullion. I should make some additional observations regarding another error that is commonly made by present-day Marxists, including Kliman.

When calculating the average rate of profit, it is not a matter of simply making a mathematical average of the individual rates of profit made by the various industrial and commercial capitalists in a given year. We also must take into account a series of both good and bad years. The shortest discrete interval in which we can actually define the average rate of profit is therefore one industrial cycle. In order to statistically demonstrate the historical declining rate of profit—at least since capitalism developed to the point where it started to generate industrial cycles—we have to demonstrate that the rate of profit has declined across successive industrial cycles.

In contrast to Marx and Engles, Kliman and other members of the not enough surplus value school of crisis theory see the rate of profit falling within industrial cycles.

“The destruction of capital value through crises is a recurrent phenomenon,” Kliman writes. And, “If capital value has been destroyed on a massive scale, the peak rate of profit in the boom that follows is likely to be higher than the previous peak [emphasis Kliman's].” He concludes: “The [law of the tendential rate of profit to fall] “therefore does not and cannot predict that the rate of profit will actually display a falling trend throughout the history of capitalism. And despite a common belief to the contrary, there seems to be no evidence that Marx predicted such a secular fall.” (p. 25)

As evidence, Kilman produces the quote from Marx criticizing Adam Smith that I reproduced above. Smith believed that as society grew richer and capital more plentiful, the growing abundance of capital would cause the rate of profit to fall. Ricardo criticized Smith on exactly this point. Why would an increase in the quantity of capital cause the rate of profit to fall?

Marx agreed with Ricardo on this point. A mere increase in the quantity of capital—leaving aside transient crises of overproduction—all things remaining equal, will have no effect on the rate of profit. The only change brought about by an increase in the quantity of capital will be an increase in the mass of profit. Marx, therefore, made his distinction between the temporary fall in the rate of profit during a crisis of overproduction and a permanent fall in the rate of profit caused by a rise in the organic of capital. Kliman seems to have completely missed Marx’s point.

Rosa Luxemburg in her “Anti-Critique,” written from a prison cell in Berlin during World War I in defense of her “Accumulation of Capital,” claimed that the fall in the rate of profit was harmless to capitalism. She remarked that capitalism wouldn’t collapse from the falling rate of profit “until the sun burns out,” because the fall in the rate of profit is compensated for by a rise in the mass of profit.

Luxemburg is generally grouped with the “underconsumptionists,” because she attempted to prove that in a system of pure capitalist production, surplus value could not be realized. However, unlike Keynes, Kalecki or the Monthly Review school, Luxemburg did not think that the deeply rooted problem of overproduction could be overcome by having the “monetary authority” print more money and then having the government borrow and spend the newly printed money. With few exceptions, Marxists, including most famously Lenin, indicated that they disagreed with Luxembourg’s view that it would be impossible to realize surplus value within a pure capitalist system where simple commodity production had completely disappeared.

Rosa Luxemburg, however, did have the merit of raising the question of how value and surplus value are actually realized, even if she did not answer the question correctly. Post-Luxemburg Marxists, to the extent that they have dealt with the question at all, either essentially agree with Keynes and Kalecki that while realization is indeed a problem it can be solved through the printing and borrowing of additional “non-commodity fiat money”—Monthly Review—or they have tended to assume that realization problems are merely a by-product of a too-low rate of profit. The latter is the view we find in Henry Grossman, Paul Mattick, Bill Jefferies as well as Andrew Kliman.

Was Luxemburg of the “Anti-Critique” correct in claiming that a fall in the rate of profit was harmless to capitalism if it is compensated for by a rise in the mass of profit? Marx most certainly did not share this view.

Kliman quotes Marx: “…in view of the fact that the rate at which the total capital is valorized [its value augmented—SW], i.e. the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is its sole purpose), a fall in this rate slows down the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises….” (p. 21)

Let’s examine this more closely.

First, the lower the rate of profit on a given quantity of capital, the higher the mass of profit must be if its owner and his family is to enjoy a “decent” standard of living from the profit that is yielded by the capital. For example, if I have a capital of $10,000 in 2012 U.S. dollars and I make a 100 percent rate of profit per year, my yearly income will be $10,000, not nearly enough to live on.

Therefore, I cannot function as a capitalist with a mere $10,000 of “capital” if the rate of profit is “only” 100 percent per year. But suppose I have a capital of $100 million with only a 1 percent rate of profit. In that case, I will have an annual income of $1 million. Even though a million dollars doesn’t go as far as it used to, I can scrape by quite nicely on that amount and thus function as a capitalist. This is why Luxemburg of the “Anti-Critique” believed the tendency of the rate of profit to fall was harmless to capitalism. This was not Marx’s view.

First, we have to consider the question of the rate of interest. According to Marx’s theory of surplus value and profit, profit is divided into two parts: interest and the profit of enterprise. The rate of interest must be lower than the rate of profit, since if it were otherwise the very incentive to produce surplus value—for the capitalist to act as an industrial rather than a money capitalist—is destroyed. While the rate of interest might equal or even exceed the rate of profit briefly during a crisis, this cannot be a stable situation.

Suppose the rate of profit was only 1 percent, an extremely low rate. However, if I have a capital of $100 million, I can still realize an income of $1 million and live quite nicely. So where is the problem? If the rate of a 10-year government bond is 1 percent—at the time of writing (April 2012) this interest rate is hovering around 2 percent, which is considered extremely low—I will very likely invest my capital in Treasury bonds and thus produce no surplus value. The rate of interest would have to fall well below 1 percent before I would even consider making a productive (of surplus value) investment.

In addition, Marx pointed out that the lower the rate of profit is the more difficult it is for capitalism to develop new industries. New industries are pioneered not by big capitalists but rather by small would-be capitalists who have little capital to lose. A young Steve Jobs with only a few thousand dollars in “capital” is far more likely to take big risks than his present-day billionaire heirs are likely to take. Why is this so?

Suppose I have only a few thousand dollars in “capital” and I lose it all. I have not lost much. I was little more than a proletarian before, and so I remain. But if I have a $100 million net worth, and risk all my capital in a new and untried industry and lose it all, I have exchanged a guaranteed life of leisure for the life of a proletarian who must sell his or her labor power in order to live.

Therefore, the more the rate of profit falls the less likely it will be that new industries will be developed. Indeed, nowadays would-be capitalists with ideas of creating new industries are forced to go hat in hand to “venture capitalists” and beg for backing. If the “venture capitalists” do not give a thumbs up—which is usually the case—that is the end of it.

The falling rate of profit and overproduction

As we have seen, the lower the rate of profit the larger the individual capitals must be if they are to remain viable. Larger capitals mean the increasing concentration of the means of production in the hands of very large capitalists—whether very rich individual capitalists or, later, large corporations. This concentration of capital implies the development of very powerful means of production and employment of huge concentrations of workers who are capable of increasing production rapidly.

But this very ability to increase production rapidly implies the development of overproduction. The tendency that in embryo exists within the simple commodity relationship of production for production to expand faster than the market now for the first time can show itself concretely. There are “too many” large individual capitalists, and later on too many giant corporations, and some of the large capitalists including corporate giants must be eliminated in order for the market to clear.

The concentration of capital that enables large capital to compensate for a fall in the rate of profit through an increase in the mass of profit leads at a certain level of development to periodic crises of overproduction. The result is a fall in the number of independent capitals. Growing concentration of capital combined with periodic crises of overproduction leads to monopoly. A weakness of the Monthly Review school is that while they correctly put great emphasis on monopoly, they don’t really explore why monopoly develops out of competition in the first place.

Bank capital and ‘too big to fail’

Perhaps nowhere in recent years has the centralization of capital been more dramatic than in the sphere of bank capital. The centralization of bank capital is actually made necessary by the ability of capitalist industry to expand production faster than the market can expand.

The more capitalism develops, the more capitalist society has to economize on “hard cash,” which in the final analysis comes down to the quantity of monetary gold in existence, in order to keep capitalist production and exchange going. Inevitably, cash transactions increasingly give way to credit transactions. The maintenance of the huge and today highly computerized credit system that is increasingly based on relatively tiny amounts of hard cash requires the development of large banks that grow not only in absolute size but relative to the total economy.

When banking was still decentralized, as was the case during the 19th century, the failure of an individual bank had little consequence for the general economy, even if its depositors lost their life savings. But when banking becomes centralized into a few mega-banks, the failure of even a single such bank is enough to bring into question the whole system of credit and credit money. And if this credit money were to suddenly evaporate, society would be paralyzed.

The cashless society heralds the coming of socialism

Today, people in the rich capitalist countries increasingly carry little cash around. Instead, they rely on debit and credit cards—and now smart phones—to purchase groceries or even such trivial items as morning coffee. In the past, such purchases were generally made with state-issued token money in the form of fractional coins made of base metals and later, as inflation progressed, in paper money as well.

This tendency to replace state-issued token money cash with credit money created by for-profit commercial banks is sometimes called the “cashless society.” The further development of the “cashless” society and its spread to countries that now have a lower level of capitalist development is inevitable over the coming years.

What would happen, however, if the commercial banks were faced with an old-fashioned run and were unable to convert their deposit liabilities into cash. Suddenly all those retailers who happily accept credit cards—or smart phone payments—would start to demand old-fashioned cash—your phone wouldn’t do. Sales would collapse and people would find it hard to buy groceries needed to stay alive, let alone other types of commodities.

During the 19th and into the early 20th century, virtually all retail transactions were settled in the form of token coins made out of base metals—not actual “folding money.” Today, in contrast, in the wealthy capitalist countries “quasi-cashless societies” exist where even the most trivial transactions are settled in for-profit commercial bank-issued credit money.

When a bank collapse threatens, such as in 2008, for example, the central banks have little choice but to engage in “quantitative easing” on a huge scale, which leads to the devaluation of currency and undermines the very foundations of credit with consequences that we have been exploring in this blog.

Therefore, today’s “cashless society” is actually indicating that the whole system of “commodity-money” relations is approaching its end.

Forward to socialism or backwards to healthy decentralized capitalism?

Eventually, no matter how severe, every crisis runs its course—there are “no permanent crises.” In the wake of the crisis, complaints abound that the centralization of banking has gone too far. Reformers come forward with schemes to break up the mega-banks, which so abused their authority during the preceding boom. The post-crisis economy is awash in cash and not so dependent on credit, which enables some of these reforms to actually be put into effect. Capitalism seems once again to be on a “sound footing.”

But then the next boom arrives, and once again industrial capitalists—represented by even more gigantic corporate monopolies than before—are able to once again expand production faster than the markets for the commodities they produce can expand. The gap between the ability of the industrial corporations to increase production and the ability of the market to expand is once again bridged with credit. In order to keep the growing bubble from bursting, credit-restricting regulations that were imposed during the last major crisis must first be relaxed and then abandoned.

Once again, the banks must be given free reign to leverage an ever relatively tinier amount of hard cash into a vast system of credit that is more artificially inflated than before. Ponzi schemes and other forms of swindling abound. Then, inevitably, the whole artificial system of payments and credit bursts, and the state is forced to bail out the banks in an even more shameless way than it did during the preceding major crisis.

The problem is not merely technical, resulting from a lack of regulations. Still less is it located in the “greedy” character of individual bankers. It reflects the increasing incompatibility between society’s ever more powerful and ever more centralized forces of production and the growing fetter of capitalist social relations of production, expressed in legal language as capitalist property forms.

“One capitalist always kills many,” Marx wrote in Volume I of “Capital”. “Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the cooperative form of the labor process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labor into instruments of labor only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labor, the entanglement of all peoples in the net of the world market, and with this, the international character of the capitalistic regime. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (Chapter 32, “Historical Tendency of Capitalist Accumulation”)

All kinds of “progressives” and “reformists” endlessly search for ways to reverse this process before it is too late and the “knell of capitalist private property sounds.” The call is everywhere to break up corrupt monopolist banks such as the Bank of America (8); restore the New Deal-era Glass-Steagall law, which separated commercial from investment banking; have the Federal Reserve issue even more “fiat money” while having the federal government borrow and spend the newly created fiat money to make possible the restoration of “full employment.” And finally, we hear that the 1 percent must learn to exploit the working class in a more “moderate way.”

These types of “progressives” are looking backward to the healthier past of capitalism based on free competition and not forward to a socialist society.

Kliman rejects the arguments of the reformists, often echoed by the Keynesian-Marxists. He senses that in order to answer their arguments, which divert the struggle of the working class away from socialism toward an idealized capitalist past, it is necessary to return to Marx. This is what makes his book an important contribution.

However, Kliman is still using only a part of Marx’s law of value. He doesn’t yet understand why value must have an independent value form that renders “non-commodity money” as a measure of value impossible and makes inevitable a situation where “one capitalist” must “kill many” other capitalists. To his credit, he realizes that surplus value must be produced and cannot arise in circulation by the “profits of alienation.” But he doesn’t seem to understand that once surplus value is produced its realization in terms of the use value of the money commodity is far from guaranteed. He doesn’t understand why there must be a money commodity at all.

His work, though extremely important because it provides a critique of the Keynesian-Marxist Monthly Review school, is therefore incomplete as it stands. Hopefully, Kliman will overcome these weaknesses and in his future work continue to make important contributions to the struggle to revive and promote unfalsified Marxism for many years to come.

A special note

My extended review of Kliman’s “Failure of Capitalist Production” has drawn the attention of some of the most prominent left-wing writers on economics today, including Doug Heywood of the Left Business Observer and Andrew Kliman himself. This has opened up a rare opportunity for a serious dialogue among the rival tendencies in Marxist economics that are contending with one another today. I therefore intend to devote next month’s post to discussing the replies to this review so far and other replies that might be made over the next month.


1 Units of use value and real income are not very precise concepts. For example, in 1972 home computers, laptops, smart phones and tablet computers, along with the World Wide Web these devices are used to access, were unknown. Now, they are commonplace and are for many absolute necessities. However, the social substance of abstract human labor in which both the necessary value—the value that the workers receive in exchange for selling a given quantity of labor power to the capitalists—and the surplus value—the value workers must produce for the capitalists for free—does not change throughout the life span of the capitalist mode of production.

2 This is the same organization that issues highly questionable calls about the peaks and troughs of economic cycles in the U.S. economy.

3 As a marginalist, Feldstein would deny that the workers are exploited no matter what share of the national income goes to “labor” versus “investors.” According to marginalist theory, all factors of production such as “labor” and “capital” earn exactly the value they produce in a “free market economy.” However, capitalism certainly looks like a fairer system if the more it develops the greater the share of the national income going to labor as opposed to capital—investors—because capital grows less scarce relative to labor as society grows richer.

4 An extreme example of what is called “crisis mongering” is the bizarre case of the 89-year-old American amateur economist Lyndon LaRouche. LaRouche is sometimes given credit, especially outside the United States, for correctly predicting the financial meltdown of 2008.

LaRouche was for many years a member of the U.S. Socialist Workers Party, then the main U.S. Trotskyist organization. Starting in the 1960s, while still a member of the SWP, LaRouche began to predict a near-term collapse of the world capitalist economy. He left the SWP in the mid-1960s and several years later formed an initially left-wing organization of his own. Over the years, LaRouche shifted from the far left wing of the U.S. political spectrum to its far right wing.

But despite the radical change in his political positions, one thing remained unchanged. He continued to predict in virtually every issue of his newspaper—whose name changed as his political stance evolved from Marxist to far right—the imminent collapse of the world economy. An economic prediction of imminent economic collapse that is made on a weekly basis for more than 40 years is, in fact, completely worthless.

Compared to LaRouche’s “success” in correctly predicting the “Great Recession,” Bill Jefferies’ mistake in predicting that there would be no serious economic downturn, based on a serious if flawed theory of capitalist crisis, was actually far more fruitful.

5 Kliman is a supporter of the theory that the Soviet Union and its Eastern European allies, along with the Peoples Republic of China before the Deng Xiaoping reforms, were “state capitalist” societies. He therefore does not see the re-introduction of private capitalist ownership in the former Soviet Union during the 1990s or the similar re-introduction of large-scale private capitalist ownership in Eastern Europe or the flourishing of large-scale private capitalist ownership in China, operating on a scale that dwarfs the stunted capitalism in pre-1949 China, as representing a setback for the working class. At most, he would see a shift back toward private capitalism from an equally exploitative state capitalism.

Bill Jefferies until a few years ago also held to a variant of the theory of “state capitalism.” But in recent years, he has broken with this theory and now considers what he sees as the restoration of capitalism in the former Soviet Union, Eastern Europe and China as representing a huge setback to the global working class. These setbacks expressed themselves, Jefferies now believes, in a sharp rise in the rate of surplus value and consequent rise in the rate of profit.

While this blog is for very well-thought-out reasons narrowly focused on the question of capitalist crisis and therefore not the place to discuss the nature and fate of the Russian Revolution or the Yugoslav, Albanian, Cuban, Vietnamese and Chinese revolutions, I believes that Jefferies’ current views are more in line with reality than either his former “state capitalist” views or the “state capitalist” views still held by Andrew Kliman.

6 Since Paul Sweeney declined to discuss Marx’s theory of money in “The Theory of Capitalist Development,” published in 1942, which forms the “pre-history” of the Monthly Review school, that school has generally avoided the whole question of  Marx’s theory of money. This, though unfortunate, is understandable, because if the Monthly Review school did deal with the money question, they would either have to reject Marx’s theory of money, and thus at least partially reject the Marxist theory of value, or abandon their attempts to synthesize Keynes and Marx along with the reformist implications of their hybrid “Keynesian-Marxist” views.

7 I say value rate of profit because there is no doubt that crises are characterized by a sharp fall in the rate of profit. Indeed, during the super-crisis of 1929-33, profits largely disappeared altogether for a few years.

8 Many “progressives” looking back more towards an idealized capitalist past than a socialist future are urging small savers that belong to the 99 percent to put their money in small community banks as opposed to corrupt mega-banks like the Bank of America. They forget that the Bank of America actually started out as a community bank in San Jose, California—then a small agricultural town—providing banking services to poor, mostly Italian immigrants, who in those days experienced racist discrimination and were denied banking services by other commercial banks of the time.

However, the evolution of the Bank of America into the corrupt monster that it is today was no accident, nor did it simply reflect ill will on the part of its owners. Rather, it reflects the objective laws of capitalist production that Marx analyzed in “Capital” and that we are exploring in this blog. If another community bank in the future develops into a mega-bank, it will inevitably turn out just as badly as the Bank of America.


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