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 communism—called hunting and gathering societies by academic anthropologists—to 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 production—particularly the development of animal husbandry and agriculture—that 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 didn’t arise by accident—or because of a mistake, as the utopian socialists saw it—but 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, or—what is but a legal expression for the same thing—with 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 philosophic—in 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 socialism—no matter how socialism is conceived—will 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 today’s 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 don’t 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 cycle—the phases of crisis, depression and average prosperity—the 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 low—expanded reproduction is either suspended or at least sharply curtailed. Existing productive forces—whole factories and many machines—continue 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 production—Detroit.

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 investment—though higher than during the depression—is 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 forces—above all, labor power—though 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 capitals—corporations—shows 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 government—are 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, monopolies—cartels, trusts and syndicates—do 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 itself—not 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 profit—through which capitalist production is guided by “the invisible hand” to meet the the material needs of capitalist society—will function.

If the regulation of the proportions of the various branches of production through the equalization of the rate of profit breaks down entirely—which would happen if “free competition” were completely destroyed—the continuation of capitalist production becomes impossible. (7)

The rise of monopoly capitalism, therefore, does not mean permanent super-profits—but 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 itself—the super-profits earned by so much of U.S. industry proved transient—but 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 operation—it 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 production—but 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 person’s basic circulatory system is still functioning—but very far from the way it functioned in the person’s 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 don’t 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 Say’s 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 let’s 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 profit—the basic mode of operation of the law of the value of commodities under the capitalist mode of production—will 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 quantitatively—the level of industrial, including agricultural, production—and qualitatively—the productivity of human labor—have 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 society’s 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 Luxemburg’s 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 shouldn’t be interpreted in a 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 future—perhaps next quarter or perhaps a century from now—the 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 markets—especially the labor market—and 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 economies—which had considerable success despite all the claims to the contrary by the victorious reaction—have 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. Doesn’t 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, Marx’s 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 practice—capitalism 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, didn’t it also prove that capitalism could continue to develop the productive forces without limit? Didn’t 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 weren’t 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 didn’t, weren’t the crises simply temporary disturbances? Didn’t 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. Wasn’t 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 days—especially 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 men—they were all men—like 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 didn’t 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 candidates—especially in Germany but in other countries as well—were 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 countries—even in the United States.

The greatest of these strikes—the general strike of May-June 1968—occurred 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 strikes—as well as the Black liberation and anti-war movements in the United States and the “New Left” student movement in many other countries—was 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 Party—which has long since renounced the struggle for socialism—getting 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 Grossman—both born in Poland of Jewish parents—proposed two different breakdown theories. Luxemburg grabbed the “bull by the horns,” so to speak, and criticized Marx’s diagrams of expanded capitalist reproduction.

She proved to her own satisfaction—though not to very many others—that 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 capitalist—in the sense that all independent commodity production had given way to capitalist relations—capitalism would be rendered mathematically impossible. And since the world was headed towards just such a situation as simple commodity production relentlessly retreated—and this process continues today—it would only be only a matter of time before capitalist expanded reproduction—that is, capitalism itself—would have to end.

According to Luxemburg’s theory, the world market was heading toward a stage of permanent exhaustion—not 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 Luxemburg’s theory was also rejected by most of the revolutionists, including Lenin.

Henryk Grossman’s breakdown theory

Among those Marxists who rejected Luxemburg’s “breakdown theory” was Henryk Grossman. Grossman, like the vast majority of Marxists, rejected Luxemburg’s criticism of Marx’s 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. Hadn’t 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 isn’t 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 inevitability—and, according to historical materialism, also the possibility—of socialist revolution.

Just like Grossman rejected Luxemburg’s 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, isn’t this the material basis for the inevitable—and therefore possible—transformation 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 Luxemburg’s “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 producing—the earliest known stone tools—have failed. At best, the “proto-production” carried out by today’s 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. It’s 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 today’s state-of-the-art factories.

2 The neglect of Marx’s “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 important—and all-to-often neglected—in 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 concept—pushed by our modern bourgeois economists—of “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 Marx’s 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 Marx’s 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 values—or prices of production—then what would be left of Marx’s 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? Wouldn’t 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 socialism—or, more properly speaking, communism—could 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 profitability—starts acting like a normal capitalist corporation—the 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 organized—and 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 corporation—misleadingly also called “General Motors”—freed 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 SOE—state-owned enterprise—or 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 employment”—even if full employment is never experienced in the real capitalist world outside of full- scale war—they like to assume “constant returns to scale.” They deny or play down the lower individual cost prices—economies of scale—of large enterprises compared to small ones. If large enterprises have lower individual cost prices than small ones, it won’t 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 scale—or if smaller enterprises have actually lower costs, this will create a tendency toward a decentralization of capital.

Along with Say’s 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 orthodoxy—that the industrial proletariat must eventually rise in revolution against its capitalist oppressors—no 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 labor—not the slave labor of the days of the Apostle Paul—and 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.