Crisis and Breakdown

 

“Either the socialist transformation is, as was admitted up to now, the consequence of the internal contradictions of capitalism, and with the growth of capitalism will develop its inner contradictions, resulting inevitably, at some point, in its collapse, (in that case the “means of adaptation” are ineffective and the theory of collapse is correct); or the “means of adaptation” will really stop the collapse of the capitalist system and thereby enable capitalism to maintain itself by suppressing its own contradictions. In that case socialism ceases to be an historic necessity. It then becomes anything you want to call it, but it is no longer the result of the material development of society."

Rosa Luxemburg

By Doug Enaa GreeneAugust 10, 2017 — Links International Journal of Socialist Renewal — “It is easier to imagine the end of the world than to imagine the end of capitalism,” the Marxist literary critic Fredric Jameson once remarked. Capitalism does many terrible things to multitudes of people. Everyday, workers go to alienating and exploitative jobs with no purpose, save to get by, while their labor enriches the ruling class – whose sole interest is endless accumulation and profit. Throughout the world, there are billions in abject poverty. Capitalism reproduces and reinforces systems of oppression such as patriarchy, nationalism, and racism. Yet many left-wing parties and theorists argue that capitalism is here to stay. They do not see crisis and breakdown as inherent to capitalism, but that the system's contradictions can be tamed by increasing the purchasing power of workers or better regulation. In other words, none of their solutions consider ending capitalism, so the working class should just accept the system as permanent. Others argue that while capitalism is unjust and exploitative, they don't believe it has material limits, so they resort to moralistic appeals to overthrow it. Contrary to both positions, Marx argued that “within bourgeois society... there arise relations of circulation as well as of production which are so many mines to explode it.”[1] Capitalism contains within itself the seeds of its own downfall, and to claim otherwise “would be quixotic.”[2] According to Marx, capitalism is a historical and transitory system – it contains both a beginning and an end. The cause of capitalist crisis and breakdown is the law of the tendency of the rate of profit to fall.[3] The tendency of the rate of profit to fall is the underlying (although not the proximate) cause of crises, and leads the system to breakdown. Despite capitalism's internal contradictions leading to breakdown, there are countertendencies that allow it to recover from a crisis and restore profit. The breakdown theory does not mean that capitalism will collapse on its own, but reveals the objective conditions under which revolutionary action can, and will, arise to replace bourgeois society. The final breakdown of capitalism will be the socialist revolution led by the working class: “History is the judge—its executioner, the proletarian.”[4]

I. Capitalism

A. Competition and Expansion

The guiding end and aim of capitalism is the system's intrinsic drive to accumulate profits as quickly as possible. Marx lyrically describes this religion of capital as follows:

Accumulate, accumulate! That is Moses and the prophets! 'Industry furnishes the material which saving accumulates.'Therefore save, save, i.e. reconvert the greatest possible portion of surplus value or surplus product into capital! Accumulation for the sake of accumulation, production for the sake of production: this was the formula in which classical economics expressed the historical mission of the bourgeoisie in the period of its domination. Not for one instant did it deceive itself over the nature of wealth's birth-pangs.[5]

capital drives beyond national barriers and prejudices as much as beyond nature worship, as well as all traditional, confined, complacent, encrusted satisfactions of present needs, and reproductions of old ways of life. It is destructive towards all of this, and constantly revolutionizes it, tearing down all the barriers which hem in the development of the forces of production, the expansion of needs, the all-sided development of production, and the exploitation and exchange of natural and mental forces.[6]

The development of capitalist production makes it necessary constantly to increase the amount of capital laid out in a given industrial undertaking, the competition subordinates every capitalist to the immanent laws of capitalist production, as external coercive laws. It compels him to keep extending his capital so as to preserve it, and he can only extend it by means of progressive accumulation.[7]

whose use value possesses the peculiar property of being a source of value, whose actual consumption is therefore itself an objectification of labor, hence a creation of value. The possessor of money does find such a special commodity on the market: the capacity for labor, in other words labor power.[10]

The use value which the worker has to offer to the capitalist, which he has to offer to others in general, is not materialized in a product, does not exist apart from him at all, thus exists not really, but only in potentiality, as his capacity. It becomes a reality only when it has been solicited by capital, is set in motion, since activity without object is nothing, or, at the most, mental activity, which is not the question at issue here. As soon as it has obtained motion from capital, this use value exists as the worker’s specific, productive activity; it is his vitality itself, directed toward a specific purpose and hence expressing itself in a specific form.[11]

We see then that, leaving aside certain extremely elastic restrictions, the nature of commodity exchange itself imposes no limit to the working day, no limit to surplus labor. The capitalist maintains his rights as a purchaser when he tries to make the working day as long as possible, and, where possible, to make two working days out of one. On the other hand, the peculiar nature of the commodity sold implies a limit to its consumption by the purchaser, and the worker maintains his right as a seller when he wishes to reduce the working day to a particular normal length. There is here therefore an antinomy, of right against right, both equally bearing the seal of the law of exchange. Between equal rights, force decides. Hence, in the history of capitalist production, the establishment of a norm for the working day presents itself as a struggle over the limits of that day, a struggle between collective capital, i.e. the class of capitalists, and collective labor, i.e. the working class.[13]

Every individual capital is a larger or smaller concentration of means of production, with a corresponding command over a larger or smaller army of workers. Every accumulation becomes the means of new accumulation. With the increasing mass of wealth which functions as capital, accumulation increases the concentration of that wealth in the hands of individual capitalists, and thereby widens the basis of production on a large scale and extends the specifically capitalist methods of production.[15]

This fragmentation of the total social capital into many individual capitals, or the repulsion of its fractions from each other, is counteracted by their attraction. The attraction of capitals no longer means the simple concentration of the means of production and the command over labor, which is identical with accumulation. It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the first one in this respect, that it only presupposes a change in the distribution of already available and already functioning capital. Its field of action is therefore not limited by the absolute growth of social wealth, or in other words by the absolute limits of accumulation. Capital grows to a huge mass in a single hand in one place, because it has been lost by many in another place. This is centralization proper, as distinct from accumulation and concentration.[16]

You are horrified at our intending to do away with private property. But in your existing society, private property is already done away with for nine-tenths of the population; its existence for the few is solely due to its non-existence in the hands of those nine-tenths. You reproach us, therefore, with intending to do away with a form of property, the necessary condition for whose existence is the non-existence of any property for the immense majority of society.[17]

the progress of accumulation increases the material amenable to centralization, i.e. the individual capitals, while the expansion of capitalist production creates, on the one hand, the social need, and on the other hand, the technical means, for those immense industrial undertakings which require a previous centralization of capital for their accomplishment. Today, therefore, the force of attraction which draws together individual capitals, and the tendency to centralization, are both stronger than ever before.[19]

The centralization of money capital can be accompanied by a decentralization in the organization of productive activity. A distinction thus arises between financial and industrial forms of organization at the same time as specific kinds of relations spring up to bind them together... The proliferation of credit devices and financial stratagems therefore appears vital to the preservation of capitalism and from this standpoint is indeed as much an effect as a cause of accumulation.[22]

In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists compete among themselves; competitors become monopolists. If the monopolists restrict their mutual competition by means of partial associations, competition increases among the workers; and the more the mass of the proletarians grows as against the monopolists of one nation, the more desperate competition becomes between the monopolists of different nations. The synthesis is such that monopoly can only maintain itself by continually entering into the struggle of competition.[23]

play in the general course of capitalist development the role of pioneers of technical change. They possess that role in a double sense. They initiate new methods of production in well-established branches of industry; they are instrumental in the creation of new branches of production not yet exploited by the big capitalist. It is false to imagine that the history of the middle-size capitalist establishments proceeds rectilinearly in the direction of their progressive disappearance. The course of this development is on the contrary purely dialectical and moves constantly among contradictions.[24]

The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labor. This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself, that as it advances the general average rate of surplus value must be expressed in a falling general rate of profit.[26]

Thus economists like Ricardo, who take the capitalist mode of production as an absolute, feel here that this mode of production creates a barrier for itself and seek the source of this barrier not in production but rather in nature (in the theory of rent). The important thing in their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth but actually comes into conflict at a certain stage with the latter’s further development.[27]

in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated.[28]

The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given it to be gone, and to give room to a higher state of social production.[30]

The true barrier to capitalist production is capital itself It is that capital and its self-valorization appear as the starting and finishing point, as the motive and purpose of production; production is production only for capital, and not the reverse, i.e. the means of production are not simply means for a steadily expanding pattern of life for the society of the producers.[32]

provoke counter effects that inhibit this fall, delay it and in part even paralyze it. These do not annul the law, but they weaken its effect. If this were not the case, it would not be the fall in the general rate of profit that was incomprehensible, but rather the relative slowness of this fall. The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods.[33]

In other words, the same development that raises the mass of constant capital in comparison with variable reduces the value of its elements, as a result of the higher productivity of labor, and hence prevents the value of the constant capital, even though this grows steadily, from growing in the same degree as its material volume, i.e. the material volume of the means of production that are set in motion by the same amount of labor power. In certain cases, the mass of the constant capital elements may increase while their total value remains the same or even falls.[37]

In so far as foreign trade cheapens on the one hand the elements of constant capital and on the other the necessary means of subsistence into which variable capital is converted, it acts to raise the rate of profit by raising the rate of surplus value and reducing the value of constant capital.[39]

In the examples cited above the gain of the more advanced capitalist countries consists in a transfer of profit from the less developed countries. It is irrelevant whether the latter are capitalist or non-capitalist. It is not a question of the realization of surplus value but of additional surplus value which is obtained through competition on the world market through unequal exchange, or exchange of non-equivalents.[40]

although invested in large productive enterprises, simply yield an interest, great or small, after all costs are deducted – so called ‘dividends’....These do not therefore enter into the equalization of the general rate of profit, since they yield a profit rate less than the average. If they did go in, the average rate would fall much lower. From a theoretical point of view, it is possible to include them, and we should then obtain a profit rate lower than that which apparently exists and is really decisive for the capitalists, since it is precisely in these undertakings that the proportion of constant capital to variable is at its greatest.[41]

Marx's analysis is neither systematic nor exhaustive. Like so much else in Volume III it was left in an unfinished state, and it is safe to conclude that if he had lived to prepare the manuscript for the press himself, he would have introduced extensive expansions and revisions at various points.[42]

coincides directly with appearances....The conditions of capitalism conceived in its pure form (which we have analyzed so far) and those of the system in its empirical manifestations (which we have to analyze now) are by no means identical. This is because a theoretical deduction involves working with simplifications; many real factors pertaining to the world of appearances are consciously excluded from the analysis."[44]

Bauer’s scheme represents precisely this kind of planned, organized production in which the managers know all they need to about demand and have the power to adapt production to demand. In spite of this a tendency towards breakdown emerges, valorization declines absolutely and a reserve army forms. This only shows that the problem is not whether there is a surplus of commodities or not. In fact we have assumed a state of equilibrium where, by definition, there can be no unsaleable residue of commodities. Yet still the system must break down. The real problem lies in the valorization of capital; there is not enough surplus value to continue accumulation at the postulated rate. Hence the catastrophe.[47]

As a consequence of this fundamentally dual structure, capitalist production is characterized by insoluble conflicts. Irremediable systemic convulsions necessarily arise from this dual character, from the immanent contradiction between value and use value, between profitability and productivity, between limited possibilities for valorization and the unlimited development of the productive forces. This necessarily leads to overaccumulation and insufficient valorization, therefore to breakdown, to a final catastrophe for the entire system.[49]

Even if Marx did not actually leave us a concise description of the law of breakdown in any specific passage he did specify all the elements required for such a description. It is possible to develop the law as a natural consequence of the capitalist accumulation process on the basis of the law of value, so much so that its lucidity will dispose of the need for any further proofs.[54]

If crises are recurrent and if they have all different causes, these different causes can explain the different crises, but not their recurrence. If they are recurrent, they must have a common cause that manifests itself recurrently as different causes of different crises. There is no way around the “monocausality” of crises.[55]

If we can show that due to various counteracting tendencies the unfettered operation of the breakdown tendency is repeatedly constrained and interrupted... then the breakdown tendency will not work itself out completely and is, therefore, no longer describable in terms of an uninterrupted straight line... Instead it will break up into a series of fragmented lines... all tending to the same final point. In this way the breakdown tendency, as the fundamental tendency of capitalism, splits up into a series of apparently independent cycles that are only the form of its constant, periodic reassertion. Marx’s theory of breakdown is thus the necessary basis and presupposition of his theory of crisis, because according to Marx crises are only the form in which the breakdown tendency is temporarily interrupted and restrained from realizing itself completely. In this sense every crisis is a passing deviation from the trend of capitalism.[57]

connection is obvious. However, while Marxists have written extensively on the political revolution, they have neglected to deal theoretically with the economic aspect of the question and have failed to appreciate the true content of Marx's theory of breakdown. My sole concern here is to fill in this gap in the Marxist tradition.[62]

The meaning of a Marxist theory of breakdown is that the revolutionary action of the proletariat receives its strongest impulse only when the existing system is objectively shaken. This, at the same time, creates the conditions for successfully overcoming the resistance of the ruling classes.[63]

A steadily increasing proportion of capital in industry ceases to belong to the industrialists who employ it. They obtain the use of it only through the medium of the banks that, in relation to them, represent the owners of the capital. On the other hand, the bank is forced to sink an increasing share of its funds in industry. Thus, to an ever-greater degree the banker is being transformed into an industrial capitalist. This bank capital, i.e., capital in money form, which is thus actually transformed into industrial capital, I call ‘finance capital’ …Finance capital is capital controlled by banks and employed by industrialists.[64]

As a member of the board of directors, the large shareholder first of all receives a share of the profit in the form of bonuses; then he also has the opportunity to influence the conduct of the enterprise, and to use his inside knowledge of its affairs for speculation in shares, or for other business transactions. A circle of people emerges who, thanks to their own capital resources or to the concentrated power of outside capital which they represent (in the case of bank directors), become members of the boards of directors of numerous corporations. As a member of the board of directors, the large shareholder first of all receives a share of the profit in the form of bonuses; then he also has the opportunity to influence the conduct of the enterprise, and to use his inside knowledge of its affairs for speculation in shares, or for other business transactions. A circle of people emerges who, thanks to their own capital resources or to the concentrated power of outside capital which they represent (in the case of bank directors), become members of the boards of directors of numerous corporations...[65]

Finance capital signifies the unification of capital. The previously separate spheres of industrial, commercial and bank capital are now brought under the common direction of high finance, in which the masters of industry and of the banks are united in a close personal association. The basis of this association is the elimination of free competition among individual capitalists by the large monopolistic combines. This naturally involves at the same time a change in the relation of the capitalist class to state power.[66]

But the intensity of competition arouses a desire to eliminate it altogether. The simplest way of achieving this is to incorporate parts of the world market into the national market, through a colonial policy which involves the annexation of foreign territories. Thus, while free trade was indifferent to colonies, protectionism leads directly to a more active colonial policy, and to conflicts of interest between different states.[67]

Capitalist interest imperatively dictates these steps. The international division of labor, the difference in natural and social conditions, are an economic prius which cannot be destroyed, even by the World War. This being so, there exist definite value relations and, as their consequence, conditions for the realization of a maximum of profit in international transactions. Not economic self-sufficiency, but an intensification of international relations, accompanied by a simultaneous "national" consolidation and ripening of new conflicts on the basis of world competition—such is the road of future evolution.[69]

The more free competition is replaced by monopoly organization on the domestic market, the more competition sharpens in the world market. If a river’s flow is artificially blocked with a dam on one side of the stream, it presses on with even less restraint on the side that is still open. Whether accumulation of capital within the capitalist mechanism occurs on the basis of competition amongst individual entrepreneurs or a series of cartelized, capitalist production associations struggling against each other is irrelevant for the emergence of the tendency to break down or crisis.[72]

is created by the fact that a number of backward countries have already been drawn into world capitalist intercourse; main railways have either been or are being built there, the elementary conditions for industrial development have been created, etc. The necessity of exporting capital arises from the fact that in a few countries capitalism has become ‘over-ripe’ and (owing to the backward stage of agriculture and the impoverished state of the masses) capital cannot find a field for ‘profitable’ investment.[76]

The export of capital thus corresponds to a fundamental law of the development of capital: the increase in its organic composition, the tendency of the average rate of profit to fall, resisted on the one hand by alliances between capitalists in the metropolitan countries, and compensated, on the other, by the investing in the colonial countries the average organic composition of capital was lower, and above all, the rate of surplus value was much higher.[80]

The crisis creates situations which are dangerous in the short run, since the various strata of the population are not all capable of orienting themselves equally swiftly, or of reorganizing with the same rhythm. The traditional ruling class, which has numerous trained cadres, changes men and programs and, with greater speed than is achieved by the subordinate classes, reabsorbs the control that was slipping from its grasp. Perhaps it may make sacrifices, and expose itself to an uncertain future by demagogic promises ; but it retains power, reinforces it for the time being, and uses it to crush its adversary and disperse his leading cadres, who cannot be very numerous or highly trained.[84]

This is a mistake. There is no such thing as an absolutely hopeless situation. The bourgeoisie are behaving like barefaced plunderers who have lost their heads; they are committing folly after folly, thus aggravating the situation and hastening their doom. All that is true. But nobody can “prove” that it is absolutely impossible for them to pacify a minority of the exploited with some petty concessions, and suppress some movement or uprising of some section of the oppressed and exploited. To try to “prove” in advance that there is “absolutely” no way out of the situation would be sheer pedantry, or playing with concepts and catchwords. Practice alone can serve as real “proof” in this and similar questions. All over the world, the bourgeois system is experiencing a tremendous revolutionary crisis. The revolutionary parties must now “prove” in practice that they have sufficient understanding and organization, contact with the exploited masses, and determination and skill to utilize this crisis for a successful, a victorious revolution.[85]

It may be ruled out that immediate economic crises of themselves produce fundamental historical events; they can simply create a terrain more favorable to the dissemination of certain modes of thought, and certain ways of posing and resolving questions involving the entire subsequent development of national life.[86]

the necessity of crises as well as the necessity of new placements of small and middle-sized capitals. And that is why the constant reappearance of small capital seems to him to be the sign of the cessation of capitalist development though, it is, in fact, a symptom of normal capitalist development.[95]

The position of revisionism was even worse as regards the theory of crises and the theory of collapse. Only for a very short time could people, and then only the most short-sighted, think of refashioning the foundations of Marx’s theory under the influence of a few years of industrial boom and prosperity. Realities very soon made it clear to the revisionists that crises were not a thing of the past: prosperity was followed by a crisis. The forms, the sequence, the picture of particular crises changed, but crises remained an inevitable component of the capitalist system. While uniting production, the cartels and trusts at the same time, and in a way that was obvious to all, aggravated the anarchy of production, the insecurity of existence of the proletariat and the oppression of capital, thereby intensifying class antagonisms to an unprecedented degree. That capitalism is heading for a break-down—in the sense both of individual political and economic crises and of the complete collapse of the entire capitalist system—has been made particularly clear, and on a particularly large scale, precisely by the new giant trusts.[97]

The struggle of the working class over everyday demands is thus bound up with its struggle over the final goal. The final goal for which the working class fights is not an ideal brought into the workers’ movement “from outside” by speculative means, whose realization, independent of the struggles of the present, is reserved for the distant future. It is, on the contrary, as the law of capitalism’s breakdown presented here shows, a result of immediate everyday struggles and its realization can be accelerated by these struggles.[99]

Appendix: Rosa Luxemburg

primarily production by innumerable private producers without any planned regulation. The only social link between these producers is the act of exchange. In taking account of social requirement reproduction has no clue to go on other than the experiences of the preceding labor period. These experiences remain private, not integrated into a social form. They do not always refer positively and directly to the needs of society.[101]