The Economic Role of War in Capitalism's Decadent Phase

Introduction

The role which war plays in the present phase of capitalist society is something which was extensively discussed by left communists in the 1970's. This was the period in which the post-war reconstruction boom collapsed and the post-war economic order agreed at Bretton Woods fell apart. For the re-emerging forces of left communism, understanding the economic consequences of global war was an essential part of understanding the trajectory of contemporary capitalism and, hence, the perspective of revolution. At this time, the forces of left communism were broadly agreed that periods of generalised war, such as the First and Second World Wars, in some way laid the basis for periods of renewed accumulation of capital. The arguments at that time were between those who saw the war as leading to a period of higher profitability by devaluing constant capital, and those who saw war as creating new markets for the realisation of surplus value. Despite these differences, there was broad agreement that the reproduction of capitalism in the period from the start of the 20th century was characterised by a life cycle of crisis followed by world war followed by reconstruction leading to crisis once more. This cycle, which was seen as rooted in the economic contradictions of capitalism, characterised what was called the phase of capitalist decadence or the imperialist period. Wars were thus seen to have a key economic function in capitalism's life cycle, that is to say, in the survival of the system.

With the collapse of the Russian bloc at the end of the 1980's, this understanding has been challenged. Instead of seeing war as serving an economic function for the survival of the capitalist system, it has been argued by some left communist groups, notably the Internationalist Communist Current (ICC), that wars serve no function for capitalism. Instead, wars are characterised as "irrational", without either short or long-term function in capitalist accumulation. These views echo in a confused way the views of the theoreticians of the Second International, such as Kautsky, who saw war as nothing but an obstacle in the path of capitalist accumulation. They represent a loss of the clarity which existed in the early stages of the crisis. It is for this reason that we consider it necessary to return to these issues which we considered had been settled two decades ago.

The roots of capitalism's recurring crises

The capitalist system of production is riddled with contradictions which periodically lead to crises. On the one hand, these crises threaten to explode the system, but, if they are overcome, they lay the basis for a fresh round of accumulation. As in all class societies there is a fundamental conflict of interest between the exploited class, the working class, and the exploiting class, the capitalist class or bourgeoisie. However, unlike previous class societies, the normal operation of the capitalist system necessarily leads to situations of acute crisis which require the devaluation and destruction of wealth before the system can function normally once more. These problems arise from the changes in value relations resulting from the accumulation of capital. To explain why this is the case it is necessary to look briefly at Marx's analysis of capitalist reproduction.

As Marx explained, the capitalist class appropriates the wealth produced by the working class through the system of wage labour. This is possible because the exchange value of labour power, or workers' ability to work, is less than its use value. Labour power exists as a commodity in capitalist society, and when it is consumed by the capitalist class, it generates a surplus in addition to its own value. Labour, therefore, has the ability to produce more value than is required to reproduce it. This can be simply understood in terms of the working day. For a part of the working day, the worker works to produce the value required to maintain himself and his family, this Marx called the "necessary labour", while the rest of the day he works without pay for the capitalist, this portion is called the "surplus labour". The value produced by "surplus labour" Marx called the "surplus value" and it is this which forms the basis of capitalist profit. Marx showed that it is only living labour which has the ability to produce surplus labour and hence surplus value. Capitalist production has as its single objective the production of surplus value or profit.

Marx showed how the capital advanced at the start of a cycle of production could be divided into two sections, constant capital (c), and variable capital. The constant capital represents the capital required for raw materials, machinery, buildings, etc. This section is simply reproduced by the cycle of production. The variable capital represents the wages advanced to the workers. It is this part of the capital which produces the surplus value (s) mentioned above. In any cycle of production, the initial capital is expanded from c + v to c + v + s. The rate of profit can be expressed in terms of these elements of capital as the surplus value divided by the initial capital, or:

Rate of profit = s / (c + v)

Marx showed how there is a tendency for this rate to decrease as the productivity of workers is continually increased by more advanced techniques of production. More advanced techniques require more advanced machinery, which, in turn, displace workers from the productive process. There is thus a tendency for the values in the expression to alter. c tends to increase while v and s tend to decrease. There is therefore a tendency for the rate of profit to fall caused by the increasing social productivity of labour. The fall in the rate of profit leads to competition and pressure to increase productivity of labour and volume of production. This in turn demands continual accumulation of capital. Thus, part of the surplus produced needs to be converted into additional capital with each cycle of production. The expansion of constant capital by investment of surplus value as additional capital, or valorisation as it is generally known, is a process which must take place. As the rate of profit falls, the profit available for valorisation tends to fall in proportion to the constant capital. This produces a tendency for accumulation to grind to a halt which leads to crises. Such crises represent a disruption of the process of capitalist reproduction as a whole. They occur because the relationship between the elements of capital, c, v and s have become incompatible with further capital accumulation leading to a breakdown of reproduction.

The crisis itself, however, serves to re-establish the correct proportions between the elements of capital and allow reproduction to restart. It does this in two principal ways, the devaluation of constant capital and increasing the rate of surplus value or the ratio s/v.

  • The first is achieved through wide scale bankruptcies in which capital values are written off and concentration of existing capital occurs.
  • The second is achieved through unemployment and reduction in wages.

Thus, in the expression for the rate of profit, the numerator (s) is increased while the denominator (c + v) is decreased, and the rate of profit increased. It is on the basis of the increased rate of profit that a new cycle of accumulation can be started.

During the 19th century such crises occurred fairly regularly, approximately every 10 years, but as capital accumulated the period between crises increased and the scale and extent of the crisis required to restore profitability became ever larger. From the start of the 20th century the mass of accumulated capital had become so large that the purely economic crisis was no longer sufficient to restore profit rates. The only means of effecting the required devaluation of constant capital required was generalised war. Paul Mattick expressed this as follows:

Under 19th century conditions it was relatively easy to overcome over accumulation by means of crisis that more or less affected all capital entities on an international scale. But at the turn of the century a point had been reached where the destruction of capital through crisis and competition was no longer sufficient to change the total capital structure towards a greater profitability. The business cycle as an instrument of accumulation had apparently come to an end; or rather, the business cycle became a cycle of world wars. Although this situation may be explained politically it was also a consequence of the capitalist accumulation process...
The resumption of the accumulation process in the wake of a "strictly" economic crisis increases the general scale of production. War, too, results in the revival and increase of economic activity. In either case capital emerges more concentrated and more centralised. And this both in spite and because of the destruction of capital. (1)

The devaluation of capital during war and its outright destruction creates a situation for the surviving capital where the mass of profit available is at the disposal of a much diminished constant capital. Hence, the profitability of the remaining capital is increased. At the same time, the technical development forced by the war leads to a significant rise in labour productivity.

Capital devaluation by world war

It is estimated that during the First World War 35% of the accumulated wealth of mankind was destroyed or squandered in four years. (2) State control of the economy suspended competition and allowed capital to be employed beyond its normal period of replacement. In addition, there was a massive increase in the use of female labour employed at lower wages which continued into the post-war period. It was on the basis of this devaluation of capital and cheapening of labour power that rates of profit were increased and it was on this that the recovery period up to 1929 was based. The period of crisis which opened with the 1929 crash was only overcome by the Second World War. During the Second World War, half of all production was diverted into state consumption for the war. As during the first war the normal laws of capitalism were suspended. Production became production for the state, competition was abolished by government guaranteed contracts and accumulation, or valorisation of existing capital values, became unnecessary. Both in the US and in Europe, capital failed to accumulate for the entire period of the war. The situation in Europe at the end of World War II was as follows:

Throughout Europe railroad lines, marshalling yards and port facilities lay in ruins. Machinery had been worn out through constant use and under maintenance. Mines had been exploited so mercilessly that a super human effort was required to restore them to their pre-war efficiency... Agriculture had suffered from over cropping. (3)

Although the US did not suffer the physical destruction of constant capital by enemy action which occurred throughout Europe, the devaluation of constant capital values by suspension of accumulation was similarly dramatic. The following table which shows the change in organic composition of capital, namely the ratio of constant capital to variable, or c/v, indicates this.

Year Organic composition (c/v)
1930 4.47
1935 4.92
1940 4.09
1945 2.64
1950 3.45
1955 3.64
1960 4.20
Variation of organic composition in the USA (4)

The organic composition of US capital was reduced by 35% during the war and only regained the level of 1940 at the start of the 1960's. This was largely achieved by devaluation of constant capital. However, in addition, the war brought about a devaluation of labour power. This represents a decrease in the necessary labour required to reproduce the working class and an increase in the surplus labour which generates surplus value. This was achieved by massively reduced living standards and restriction of working class consumption via rationing which, in the UK was continued until the mid-1950's. This represents an increase in the rate of exploitation or the ratio surplus labour to necessary labour, or s/v.

The expression for the rate of profit s / (c + v) can be written:

Rate of profit = (s/v) / (c/v + 1)

It can be seen that the economic effect of the war has been to decrease the organic composition, c/v, and thus decrease the denominator, (c/v + 1), while at the same time increasing the rate of exploitation, s/v, hence increasing the numerator. The rate of profit was therefore increased.

It was this increase in the rate of profit in the post-war period which allowed a new phase of accumulation to start. In the US, the years 1949 to 1963 saw an increase of 50% in the amount of capital each unit of labour employed, leading to a 50% increase in labour productivity. In Germany during the same period, a quarter of the total production was accumulated as additional capital and labour productivity increased 6% annually. Other European countries, with the exception of the UK, saw similar recoveries. The general recovery was based on the increased profit rates brought about by the economic effects of the war. We argue that world wars have become essential for capitalism's survival since the start of the 20th century and that they have replaced decennial crises of the 19th century. The life cycle of capitalism has accordingly become one of crisis followed by world war followed by reconstruction, crisis, etc.

The fact that the economic effect of war is to devalue capital and increase profit rates does not, of course, mean that the capitalist class starts world wars with the objective of devaluing global capital. The objectives of global wars are imperialist objectives, namely complete destruction of the capital of the rival nation or bloc of nations. These objectives are made clear in the policies of the victorious powers towards the vanquished. In the case of the First World War, the defeated empires, Austria and Turkey, were split up, and Germany was stripped of her colonies and saddled with crippling reparations which were designed to prevent her emerging as a competitor to the victors. In the case of the Second World War, the defeated nations were occupied militarily and then integrated into the blocs of the victors. The US bloc was then opened to US capital and the dollar made the currency of trade within the bloc. US rivals and allies in the war were stripped of their colonies and brought into a subservient position to the US. Despite the intentions of the belligerents, the effect of the war was a general recovery of the system which lasted until the early 1970's.

A new period of crisis

During the 1970's, the slow decline in profit rates produced the first severe shocks of the post-war period. This resulted in the rupture of the post-war economic management system agreed at Bretton Woods which signalled the return of crisis to the system. The new period of crisis has the same origins as those which preceded it; progressive difficulties in the valorisation of existing capital values caused by the tendency for profit rates to decline. This crisis has been mitigated in various ways all of which are aimed at restoring profit rates by decreasing organic composition of capital and increasing rates of exploitation. Capital has been devalued by privatisation of state assets, by consolidation of existing capital through mergers and writing off capital in regional crises such as the 1997 Asian crisis. At the same time, the structure of capital has been altered by globalisation of production and the value of labour power has been reduced by introducing part-time working, short-term labour contracts, flexibility of labour and so forth, together with integrating cheaper labour power from the peripheral countries into the production process. The social wage in the metropolitan countries which is expressed in such things as education, health and pensions is also being steadily reduced. Accompanying all these measures has been a massive increase in the rates of exploitation through the introduction of new technology.

The failure of the Russian bloc to be able to adjust its capital structure, in the ways described above, without collapsing, has removed the immediate imperialist rival to the US bloc. This has been a further factor in the mitigation of the crisis. Capital in the Russian bloc has been hugely devalued by selling it off at a fraction of its value to the Russian bourgeoisie. With the collapse of the Russian bloc it became, instead of a rival, a theatre for capital investment by the US, EU and Japan and a source of raw materials while offering skilled labour power at a fraction of the wages paid to workers in the metropolitan countries.

The combination of these measures and developments has brought the system the oxygen it has needed to survive for the past three decades. However, these measures have been insufficient. They have extended the period of crisis, they have not solved it. Indications of the reality of the situation can be seen in the fact that profit rates for US capital are today what they were in the early 1970's. The continued attacks on the living standards of the working class in both the metropolitan and peripheral countries and the series of wars being waged for the domination of raw materials, particularly oil, all indicate the crisis is far from solved.

Regional wars

Since the end of the Second World War, regional wars have been waged continuously. These wars have been fought for control of raw materials or strategic regions to control key areas of the world. They have, in essence, been imperialist proxy wars and the motives of the capitalist class in fighting them have been the same motives behind the two World Wars. However, although some of these wars have been tremendously destructive, for example the Korean, Vietnamese and Middle East wars, they have not produced a general devaluation of capital values. The reason for this is their limited scope and consequent failure to suspend global competition of capital and global accumulation. When a single capital, such as the US, in embroiled in Korea accumulation of US capital was reduced; however, Japanese capital found itself in a position to accumulate rapidly. The same occurred in relation to European and Japanese capital during the Vietnam War, when these capitals were able to accumulate and rise to a position of competing with US capital. Similarly, the Afghan war represented a disaster for Russian capital, which saw accumulation slowed down and which was forced to restrict consumption of its working class while its rivals were unaffected. All this is true of the war in Iraq which, at present, represents a drain on US capital but not on that of its rivals. (5) Of course, if the US succeeds in controlling the oil supplies of the Middle East the war will bring massive advantages to the US and disadvantages to its rivals, and it was for this reason that the US chose to go to war. These are simply the calculations of regional war.

Regional wars, however, because of their limited extent, do not represent a solution to capitalism's problems. They do not suspend global competition or capital accumulation, nor do they permit constant capital to be used beyond the period after which it should be replaced. Regional wars are therefore unable to sufficiently devalue constant capital to bring about a solution to capitalism's problems. Although such wars have been permanent for the last 60 years, they have manifestly failed to solve capitalism's problems since capital today finds itself in a position where it faces severe problems of accumulation, and is once more turning to direct attacks on the working class, and launching further wars to disadvantage its rivals.

Has the cycle crisis/global war/reconstruction ended?

As has been explained above the cycle of crisis/war/reconstruction has been recognised as the life cycle of capitalism in the period which opened with the 20th century. The ICC has now decided that the period in which this cycle sustained the capitalist system has ended. At their 16th congress they announced, without any explanation, that:

The cycle of crisis/war/reconstruction is over. (6)

This assertion is, in fact, derived from the earlier assertion that capitalism is in a period of "decomposition and chaos." Since this earlier assertion has never been explained theoretically either, these so-called theories are nothing more than conjecture. As we have previously stated, it is necessary for the ICC to explain in a theoretical way how such a tendency to decomposition is generated in the infrastructure of society. (7) Without such an economic underpinning this assertion cannot be taken seriously. However, instead of explaining the basis of their assertions, the ICC has treated them as proven fact and proceeded to draw out conclusions implicit in them. These conclusions show the ICC moving from the political ground of left communism and of Marxism itself. We wish to briefly consider three conclusions, implicit in the earlier assertion of decomposition and chaos, which have now been explicitly stated. These are that:

  • the cycle of crisis/world war/reconstruction is over;
  • the period of decomposition is causing the working class itself to decompose as a social class and so as a political force (8), it is consequently unable to resist the attacks of capital;
  • capitalism is surviving by "cheating on the law of value". (9)

Capital's death agony?

The ICC recognises that the cycle of crisis/global war/reconstruction was, throughout most of the 20th century, the basis for capitalism's continued survival. They further recognise that within this cycle global war plays a key role in creating the basis for the renewed cycle of accumulation. Since, as the ICC freely admits, capitalism has not solved its problems, they are now arguing that the system is approaching its point of collapse, or, in their words "passing through its death agony." (10) What economic changes have brought this "death agony" about? What are the economic forces which have undermined the economic function of war and changed the present phase of capitalism? It is absolutely not sufficient for the ICC to point to social decomposition or to phenomena in the ideological sphere such as the "rise of irrationality", the "rise of religion" the "cult of death" and so on, in order to explain these changes. In the materialist concept of history the social process as a whole is determined by the economic process. The contradictions of material life determine the ideological life. The ICC is asserting, in the most casual way, that an entire period of capitalism's history has ended and another has opened up. Such a major change could not occur without a fundamental change in the capitalist infrastructure. The ICC must either support its assertions with an analysis from the sphere of production or admit that they are pure conjecture.

Decomposition of the working class?

At the same time as capitalism has entered its death agony, the working class is, according to the ICC, decomposing as a social class and as a political force. The ICC, therefore, see a sharpening of economic problems being accompanied by a lessening of class struggle. Capitalism is consequently heading towards war or towards barbarism. Barbarism, we are now told, could be reached without either war or revolution but through an "insidious process of creeping barbarism." (11) For decades, the ICC has told us that the path ahead was leading to revolution and not towards war. Now we are told the opposite is the case, yet no economic explanation of this change is advanced.

Law of value cheated?

The idea that capitalism is surviving by cheating on the law of value is at root a rejection of the labour theory of value. While the use of credit, deficit financing and so on is a means of postponing the balancing of the books in value terms, but such "cheating" can only be effective in the short term. The ICC believes that by piling up mountains of paper debt, the system can be kept going in a way which is somehow evading the laws which govern capitalism. Stabilising capitalism through the credit system is the dream of Keynes. If the laws of capitalism could be so conveniently evaded, or "cheated", by the bourgeoisie they would not be laws at all and Marx's economic analysis to capitalist society would be wrong.

Marx's critique of capitalism is still valid

The conclusions listed above are astonishing ones to hear from a Marxist organisation since they are contrary to Marx's analysis of capitalist society. The fact that the ICC does not even think it necessary to provide an economic explanation of such major developments as it claims have occurred, indicates a real theoretical decline. In fact, all the ICC's assertions can all be refuted.

The cycle of crisis/world war/reconstruction has not been undermined in any fundamental way by the collapse of the Russian bloc. No economic change sufficient to bring about the claimed "death agony" of capitalism has occurred. On the contrary, as mentioned above, the collapse of the Russian bloc has sustained the system by devaluing capital and opening up fresh regions for capital export and fresh workers to exploit. The general phase of capitalism has not been affected in any fundamental way by this collapse.

Despite its problems, capitalism remains a class divided society based on class exploitation. As long as capitalism exists, the working class will exist. This class cannot be "decomposed" without the total ruin of capitalist society and the bourgeoisie is not about to commit suicide by doing this. As Marx stressed, the working class is continually being reproduced by capitalism. The economic problems of capitalism force the two principal classes into struggles and collisions which become sharper and more vicious as the crisis intensifies. As Marx explained in relation to the crises of the 19th century:

These contradictions... lead to explosions, crises in which momentary suspension of all labour and annihilation of the greater part of the capital, violently lead it back to the point where it is enabled to go on fully employing its reproductive powers without committing suicide. Yet these regularly recurring catastrophes lead to their repetition on a higher scale and finally to its final overthrow. (12)

Although the working class is being reconstituted on a global scale, and a new global division of labour is being created, this does not represent decomposition. The capitalist crisis is forcing the bourgeoisie to extend and deepen the system globally, increasing the numerical size of the working class, and deepening the divisions of society into antagonistic classes on a global scale. As Marx says in the passage quoted above, the measures capitalism takes to resolve its problems simply lead to the reappearance of these problems on a higher scale. This will lead to sharper class struggle. To abandon this view is to abandon the materialist basis for revolution. If the material basis for revolution is abandoned, the basis for revolution must be found in the ideological sphere, in political, psychological or moral causes. But indignation and moral outrage at the crimes and injustices of capitalism is the stuff of liberalism not Marxism. (13)

Any "cheating on the law of value" can only succeed in the short term. If this were possible in the longer term, the law would be incorrect and not really a law governing the capitalist economy at all. However, Marx's critique of capitalist society is not wrong even if the ICC implies it is. Capitalism survives, not by "cheating the law of value" or any other economic witch-doctoring the ICC dreams up, but by exploiting the working class. The more its economic problems intensify the more widespread and vicious this exploitation becomes. It is this which will lead to new waves of class struggle. It is in this that the hope for revolution and a communist society rest.

Conclusion

Capitalism's developments since the crisis of the early 1970's have not undermined the general analysis of capitalism's survival in the decadent period. The measures which have extended the present cycle of accumulation for the past three decades are, as Marx showed, reproducing all the systems problems at a higher level. They have not solved these problems. The suggestion that capitalism entered a new phase following the collapse of the Russian bloc has no material basis and has been asserted in the most superficial way with a complete lack of theoretical rigour. Despite severe economic problems, capitalism is not in a state of collapse or even approaching such a state. It is, however, reproducing its problems on an ever more global scale and thereby laying the basis for future and more widespread struggles.

Capitalism will not, however, simply collapse on its own. A conscious revolutionary intervention by the working class is needed to overthrow the system and create a communist society. Without such an intervention it remains possible for capital to be massively devalued in another global war and a new cycle of accumulation to start.

CP

(1) Paul Mattick Marx and Keynes p135, Merlin edition.

(2) See W.Woytinsky Die Welt im Zahlen, quoted in H Grossman, The law of accumulation and breakdown of the capitalist system.

(3) Clough and Cole, Economic History of Europe, p851.

(4) S Madge "The Law of the falling tendency of the rate of profit", New Left Review 84.

(5) The direct cost of the Iraq war is now $220bn. See costofwar.com .

(6) See International Review 122, "Resolution on the international situation", Thesis 14.

(7) See Revolutionary Perspectives 24, War and the ICC

(8) See International Review 122, "Resolution on the international situation", Thesis 6.

(9) See International Review 107 "Decomposition the final phase of capitalist decadence", Thesis 9.

(10) See International Review 122, "Resolution on the international situation", Thesis 7.

(11) See International Review 122, "Resolution on the international situation", Thesis 6.

(12) Marx Grundrisse p749 (Penguin Ed.). (13) For an example of this, see ICC leaflet on Make Capitalism History, "Only communism can make povery history".

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