Richard D. Wolff, Understanding Capitalism (2024, Democracy at Work), Understanding Socialism (2019, Democracy at Work), Understanding Marxism (2018, Democracy at Work), democracyatwork.info

Richard Wolff, who is an academic Marxist and emeritus professor of economics at the University of Massachusetts, has a large following on YouTube where he presents a weekly programme on the global economic situation. He also appears on other YouTube discussion programmes on current economic and political issues. His recent book Understanding Capitalism, which he describes as a synthesis of these programmes, is also a response to requests from readers of his earlier books, Understanding Marxism and Understanding Socialism. He is the founder of the “Democracy at Work” organisation which publishes his books.

He appears sympathetic to the “Monthly Review School” and acknowledges the influence of key members of this school in Understanding Capitalism. The Understanding series present popular and simplistic treatment of the issues discussed but where theoretical issues are broached Wolff locates the problems of capitalism in the sphere of distribution, and appears to agree with David Harvey, a contributor to his programmes, that the fall in the rate of profit is indeterminate.

Key themes in his YouTube programmes, which are taken up in his books, are what is wrong with capitalism as a system and how to go beyond capitalism to a new production system. He sees the present phase of world history as the decline of capitalism and of the US empire, the latter heralded by the rise of the BRICS. He is very good at pointing out what is wrong with capitalism and these books contain detailed shredding of the myths which the capitalism’s prize fighters are continually ramming down our throats. The books generally contain a good introduction to the issues they deal with and are worth reading for this. It is, however, his solutions for replacing capitalism which we consider are utopian and contradict principles he correctly states in these books. It is these which we will consider in detail below. The summary of his view is that democratisation of workplaces, which he outlines in his book Democracy at Work, and the formation of workplace cooperatives, which he calls “Worker Self-Directed Enterprises” (WSDEs) represent the path to the next stage of human production, and so to the supersession of capitalism. These cooperatives, he explains, are to coexist alongside general capitalist production in a hybrid system of production. However, they are to operate within a common system of distribution which is the capitalist market for exchange of products. This is envisaged as a situation parallel to that in which capitalist sectors existed within feudalism and eventually overthrew it. The WSDEs will exist within capitalism and will, presumably, eventually overthrow capitalism.

Understanding Marxism

In his essay entitled Understanding Marxism Wolff gives a simple, but correct, introduction to key aspects of Marxism. He starts by looking at the production and appropriation of surplus in systems of production. The way the surplus is produced in slave, feudal and capitalist societies differ, however, in all of them the ruling class appropriates the surplus produced by the subject class. In this regard capitalism is no different from slave and feudal production systems. They are all class divided societies in which the subject class is exploited. That slave and feudal production systems have been overthrown simply shows that they were historically limited modes of production, and similarly capitalism is a historically limited system also destined to be overthrown.

The defining relationship of capitalism is that between employer and employee. This, of course, is wage labour. Wolff appears to use employer/employee in the place of capitalist/worker because in modern capitalism the capitalists appoint supervisors, managers, CEOs and so on, meaning that the immediate “boss” is no longer the capitalist, which makes the relation between capital and labour more difficult to understand. In slave society and feudal society, the exploitation of the slave and the serf is obvious. It is clearly visible since the products of the slave’s or the serf’s work are taken from them by force, whereas in capitalism this exploitation is disguised. The managers or CEOs are appointees; they are the agents of capital and enable the production of the surplus which the capitalists appropriate.

Following Marx, Wolff explains how exactly this surplus is produced. Labour power, which is the ability to labour, is a commodity which the worker is forced to sell to the capitalist to survive. The value produced by the worker during the time of work is greater than the value represented by their wages; the difference, which the capitalist appropriates, is surplus value. This can be viewed in terms of the time the worker labours. They work a proportion of the day to produce the value of their wages and the remainder to provide the surplus which goes to the capitalist. This can be viewed as necessary labour, the labour needed to keep the worker and their family alive, and surplus labour, that which the capitalist appropriates. Capitalism is, Wolff points out, the first production system in which the sale of labour power is the primary relationship of production.

Part of the labour performed by the working class produces surplus value, and so is called productive labour. Capitalists, however, need to employ labour to organise production and keep the system operating. Part of the surplus extracted from productive workers is therefore used by the capitalists to employ foremen, managers, accountants, security staff, lawyers, etc. These are unproductive workers. In the US, the common distinction is between blue-collar and white-collar workers (though this doesn’t map out exactly onto the distinction between productive and unproductive labour).

In all exploitative societies the ruling class uses the surplus to maintain its position as the exploiting class. Their delegated representatives dominate economics, politics and culture in an unending effort to justify the existing system and enforce its ideological hold over the exploited class.

Wolff points out that the contradictions within capitalist society produce instability and crises which will lead to its downfall. The one contradiction he points to is that accumulation entails more efficient machinery and so the laying off of workers thereby restricting demand. Wolff does not deal with this adequately. More advanced machinery with fewer workers is the classical way capitalism tries to increase surplus value, which, as we know, generally means an increased amount of profit but at the same time tends to reduce the rate of profit. Because Wolff does not start his explanation with the labour theory of value he does not mention that living labour is the only source of value. Hence replacing workers with machinery necessarily reduces the amount of value workers create per commodity produced. This produces the tendency for the rate of profit to fall. This does not prevent the capitalist from increasing the mass of profit by selling more commodities even though the average rate of profit per commodity has decreased. The tendency for the rate of profit to fall can be slowed down by increasing the rate of exploitation of the workforce, by cheapening the new machinery installed, or also by increasing the rate of turnover of working capital. But these are, as Marx points out, counter tendencies which cannot, in the long term, arrest the tendency for the average rate of profit to fall. This tendency is a result of the changing value relations of constant capital (machinery) as against variable capital (labour) which the labour theory of value helps to explain. Marx himself regarded the falling rate of profit as the most important law for understanding capitalism. In the Grundrisse he expressed this as follows:

This is 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 the law which despite its simplicity has never before been grasped and, even less, consciously articulated.⁽¹⁾

This law is behind capitalism’s continual drive to expand the scale of production, selling more commodities, and the accumulation of capital, which leads to trashing the planet, and at the same time leads inexorably to periodic economic crises. The fall in the rate of profit is the most significant contradiction which the system faces and Wolff’s ignoring it is a serious omission.

Returning to Wolff’s argument, what needs to occur, he thinks, is that producers and appropriators of the surplus product need to become the same people. This, he suggests, will end the class division in society. The construction of the democratic WSDEs is the path to this.

Understanding Capitalism

Wolff’s new book Understanding Capitalism follows from Understanding Marxism and repeats explanations and proposals of the earlier essay. It contains trenchant criticisms of the effects of capitalism on society in general and the working class in particular.

Wolff points again to the instability of capitalism. The system lurches between crisis, recovery and crisis once more, forcing unemployment and immiseration on the working class. Capitalism’s instability has forced governments to intervene to rescue the system whenever a serious crisis engulfs it. Such rescues have taken the form of state capitalism in one form or another. In this, he includes Russia after the revolution of 1917, China after Mao’s victory in 1949, Roosevelt’s New Deal in the US, Fascism in Europe and Japan, and Keynesianism. However, to this must be added the more recent state interventions via credit creation through Quantitative Easing. Capitalism’s crises, he explains, have at their root the system’s production for profit rather than human needs.

A further consequence of this is capitalism’s destruction of the planet’s ecosystem which the production for profit and the consequent need for growth forces the system to relentlessly pursue. Though capitalists recognise that this threatens humanity they are completely unable to change course since that would mean violating a key demand of the system, namely producing profits. This is confirmed at climate conference after climate conference.

The system necessarily produces massive inequality which only becomes greater as the system staggers from crisis to crisis. Wolff quotes figures from Oxfam which show that the 10 richest men together have more than 6 times the wealth of the poorest 3.2 billion people on the planet, which is 40% of the world’s population. Such figures illustrate not simply the immorality of the system but its absurdity.

Wolff explodes the assertions which the intellectual champions of the system are continually propagating to support it. Some examples of this are worth repeating.

• The assertion that capitalism creates wealth. It does this for the bourgeoisie but its long-term result is to create poverty and immiseration for the working class. Wolff notes that for capitalism to survive it must offer the working class the illusion of rising consumption.⁽²⁾ He recognises that capitalism’s periods of expansion have allowed increases in living standards for the working class. An example of this was during the post-Second World War boom in the period up to the 1970s. A further example was provided by China, whose growth Wolff characterises as the most spectacular in capitalism’s history, and which between 2008 and 2018 allowed wages in China to rise by 8% per year.⁽³⁾ In the longer term, however, these periods are exceptions.
• The assertion that capitalism lifts people out of poverty. Capitalists have often opposed measures to eliminate poverty. They opposed laws limiting child labour, the length of the working day, the minimum wage, social security, progressive taxation, etc. Any alleviation of poverty has occurred despite capitalism.
• The assertion that capitalist competition creates innovation. Capitalist competition has led to oligopolies and monopolies which are from definition anti-competitive. The state has had to intervene to restrict monopolies with anti-trust laws. Competitive innovations have been suppressed to ensure profits. This happens through patents, blackmail or violence. Meanwhile, the profit motive spurs on the production of harmful items like fossil fuels, arms, etc.
• The assertion that capitalism allows reforms. Reforms which benefit the working class are usually made under duress, and are frequently taken back or evaded. For example, the repeal of measures of the New Deal in the US. One such is the Glass-Steagall Act of 1933 separating commercial and investment banking. The Act was to prevent the type of banking failures which occurred in the 1930s. Its repeal was to enable banks to increase their profits. The repeal was one of the factors leading to the financial crash of 2008. Another example was the minimum wage reform introduced in the New Deal. This, though not repealed, was held at $7.25 per hour from 2009 for 14 years while consumer prices rose 20%.

Wolff explains how capitalism is a process of theft making work into wage slavery. Even capitalists admit that work under capitalism is awful but claim the compensation for awful work is rising consumption. In fact, in the period from 1820 to 1970 there was, with notable exceptions, an overall rise in US working class consumption. Over the last 40 years consumption hasn’t risen and workers have gone into debt to maintain living standards. In the long term this can only make workers’ situation worse as the debts cannot be repaid. Wolff correctly notes that the issue of system change will only be seriously posed when conditions of life become intolerable but admits that fundamental change is impossible within the boundaries of the system. Yet this is what his system of worker cooperatives attempts to do.

Understanding Socialism

Wolff’s book Understanding Socialism contains what he considers is the solution to the past failures of socialism and how he sees capitalism can be superseded. The desire for a socialist system of production springs from the material failings of capitalism. Wolff sees behind this a moral motivation which he describes as a yearning to have socially meaningful work, education, leisure and development of full human potential. He describes socialism as a tradition with many different streams which are in continual theoretical and physical conflict with capitalism.

The earliest were utopian socialists such as Owen, Fourier, Cabet in the early 19th century. Wolff does not discuss why these utopian attempts to found communist communities failed. Robert Owen, for example, founded cooperative societies which he also saw as transitional to communism. It is extraordinary that Wolff does not undertake an analysis of the failure of these cooperatives to lead to communism, considering that he is proposing something similar 200 years later! However, he notes that their failures led to materialist theories of socialism which came from Marx and Engels. In the 20th century attempts were made to put these into practice. Wolff considers the Russian and Chinese systems as part of the streams of socialism despite their failure to implement socialism. The Russian revolution was the first enduring movement to put socialism into practice but Wolff recognises that it resulted in state capitalism since the most critical relationship of capitalism, that between employees and employers was unchanged. The boss, instead of being a private capitalist, was now a state functionary. The result was a hybrid system of mainly state capitalism with some private capitalism. Though he is clear on this, he still charts the development of the Soviet Union as a development in the struggle for socialism. While Lenin recognised that what Russia had arrived at was state capitalism, Stalin announced in 1936 that the Soviet Union had achieved socialism. This amounted to equating state capitalism with socialism, and claiming that this was a lower stage of communism. This blocked off any debate about what socialism really was. The ideologists of the capitalist class were, of course, delighted with this and have never tired of saying this proved that socialism resulted in poverty, internal conflicts and dictatorship. Even now they warn the working class of the futility of revolution by pronouncing that Russian workers were much better off under the capitalist system before the revolution of 1917. They also tell us that Russian workers are now much better off after what they call the collapse of socialism in 1989. In fact, what collapsed, as Wolff correctly recognises, was state capitalism.

Wolff looks at what he calls the streams of socialism in an academic way. The key dates he identifies in the struggle for socialism are 1917 (the Russian revolution), 1949 (the Chinese revolution), 1989 (the collapse of the Soviet Union) and 2008 (the financial crash). He characterises Russia and China as the two greatest experiments in constructing socialist economies despite the economies being essentially state capitalist but containing private capitalist sectors operating in a hybrid production system. He points out, however, that the US is itself a hybrid system containing a state sector controlling such things as the military and grants to industry as well as federal banking, combined with privately owned corporations who use self-employed accountants, lawyers, architects and artisans operating in a non-employer employee relationship. All these, however, share the same distribution system of market exchange.

The collapse of the Soviet Union in 1989 led capitalism’s ideological champions, who, of course, regard state capitalism as socialism, to conclude that capitalism had finally triumphed over socialism. The conflict between capitalism and socialism was finally over, we were told, and the historical battle had ended in capitalism’s victory. History, it was claimed, had ended. The triumphalism which greeted the collapse of the Soviet Union in 1989 met its nemesis in the financial crash of 2008. This showed capitalism remained riddled with contradictions which lead to historic crises. Consequently, the battle with socialism was not over. This, in turn, rekindled an interest in socialism.

Wolff’s studies have led him to conclude that previous attempts at instigating socialism have made the mistake of starting from the macro-economic level. Instead, Wolff claims, the start must be made from the micro-economic level. Socialism’s future, he argues, lies in democratic worker cooperatives in the factory, store or office with all workers having an equal voice in key business decisions. Workers will hold the purse strings, money will still exist, the cooperatives will relate to the state and pay taxes, etc. He argues the state should fund the cooperatives and lend them capital. To sum up, Wolff’s proposed cooperatives exist within capitalism, need capital and operate with money and exchange on the existing capitalist market. All this clearly represents a reform within capitalism and is proposed despite Wolff’s view that reforms within capitalism were impossible!

These democratic cooperatives, operating on a micro-economic scale will, we are told, lead the transition from capitalism to socialism. An existing cooperative he admires and which points the way future cooperatives could work is Mondragon in Spain. We can only describe all this as profoundly utopian and explain why below.

Workplace Cooperatives Remain Part of Capitalism

According to the Co-operatives UK federation there are over 7,000 registered independent co-ops operating in the UK, the largest being the Co-op group which operates services which include retail stores, bank, insurance, legal, funeral services and so on. Together all the UK ‘cooperatives’ had a turnover of £38.2 billion, or slightly over 1% of the UK GDP in 2019. Workers in these cooperatives work under conditions of wage labour, sometimes these conditions are worse than in equivalent non-cooperative services, and they are exploited in the normal way. They are simply a part of UK capitalism and don’t threaten it in any way. They are, of course, not democratic, as Wolff wants, nor do they abolish class divisions, or, as Wolff would desire, make the producers of surplus and the appropriators one and the same. Perhaps we should look at Mondragon, which Wolff cites as an example of the type of cooperative he envisages, to see if this is essentially different from what we have in the UK.

Mondragon is a federation of cooperatives which was founded in 1956 by a Catholic priest in the Basque country of Spain during the Franco dictatorship. It is the world’s largest cooperative and in 2024 had around 70,000 workers. It advertises itself on the internet as being active in the financial sector, that is banking and insurance, and in industry, retail and knowledge. In the last field it has opened a university. It has spread its tentacles overseas and the income from sectors of the cooperative amount to billions of Euros. In the period from 2002 to 2007 it issued bonds with guaranteed yields. When yields were reduced following the crisis of 2007/8 the investors sued the cooperative in exactly the normal way things happen under capitalism. Sectors which have been particularly successful have left the cooperative and returned to the private capitalist sector presumably to increase profits.

Mondragon admits there is no economic equality within their cooperatives. The wage ratios between workers and managers range from 3:1 to 9:1 with the average being 5:1. While this is less than the US, where the ratio of CEOs’ pay to that of workers is 290:1, it is still far from economic equality at the micro-economic level. There is not, therefore, any democratic joint appropriation of the surplus cooperative workers produce. The cooperative raises capital through the issue of bonds which pay interest which must be extracted from the workers. In short, workers remain exploited under capitalist relations of employer to employee.

From a brief survey of Mondragon, it is clear that this cooperative, which has existed and flourished within capitalism for the best part of 70 years, represents no threat whatsoever to capitalism itself. It is, in fact, a capitalist enterprise producing for profit. If it had represented a threat to the capitalist system, it would have been destroyed decades ago either by market forces, or open violence of the capitalist state.

Where workers have formed cooperatives which don’t fit neatly into the structure of capitalism, such as, for example, in attempts to try and save their factory or workplace from being shut down or bankrupt, these attempts have ended in disaster. Under these circumstances workers are forced to operate within capitalism and sell commodities or services on the capitalist market. What they are doing is taking all the problems of capitalism, which forced their capitalist owners to throw in the towel, onto their own shoulders. In the longer term these problems will engulf them also. This has been the lesson of the cooperatives formed during the collapse of the post-war boom in the 1970s and the relocation of production to areas of cheaper labour power. An example of this is the Meriden motorcycle cooperative, which tried to rescue Triumph motorcycles but eventually collapsed due to the operation of competition and lack of profitability; the very reasons for which the capitalist owners gave up.

Socialism Requires the Overthrow of Capitalism

To establish socialism requires workers to hold power on a global scale; this is a sine qua non for socialism. It means overthrowing capitalist state power. History has, of course, shown time and again that the capitalist class will fight tooth and nail to prevent this. This is something which Wolff completely ignores.

If Wolff had started his explanation of Marxism from the labour theory of value he would have realised that cooperatives do not escape the laws of capitalism. This is because they still produce commodities, which they are forced to exchange in the capitalist market. This was part of the undoing of Robert Owen’s New Lanark philanthropic community.⁽⁴⁾ The value of these commodities on the market is determined by the average socially necessary labour time for their production. This average is the average in the economy as a whole. Cooperative commodities therefore have to compete with equivalent commodities produced in the non-cooperative sector, and the cooperatives are forced to buy raw materials and other products at values similarly determined in the market. Often the cooperative commodities will be sold at less than their value, since the average socially necessary labour time is less than required in the cooperative. This means that cooperative workers are exploited by capitalists in the non-cooperative sector. The cooperatives cannot, therefore, escape the capitalist law of value and their workers remain exploited.

To supersede capitalism, production needs to be socialised on a global scale and directed to the needs of humanity not directed to profit. This requires a world community of producers. Organisation of this needs to be through a system of control in which workers discuss and make decisions. This organisation, we argue, is a system of workers’ councils with direct delegation and recall of delegates. The aim is to construct a world without borders, states or money.

In Understanding Socialism Wolff states that class struggles are always key to transitions between social systems. Yet what he proposes are cooperatives incrementally insinuating themselves into the capitalist matrix, strengthening themselves and finally replacing it in a gradual process. The ruling capitalist class would never permit such a process to take place. To overthrow capitalism requires a direct assault by the working class and this requires a working class which understands what it is doing and what the socialist programme is. This is a political issue, which Wolff does not mention, but which cannot be avoided. To understand the socialist programme the working class needs to understand the lessons of its past struggles, one of which is the futility of trying to build up enclaves of communist production within capitalism. It also needs to understand the direction future struggles must take. For this it needs to have a political programme and a political party fighting for this programme.

Notes:

(1) K. Marx, Grundrisse, p. 748, Penguin edition

(2) See Understanding Capitalism, p.153

(3) See Understanding Socialism, Chapter 4

(4) Robert Owen operated the New Lanark cotton mills from 1800 to 1825. 2500 people worked at New Lanark. Owen, who said society represented nothing but wrongs, tried to improve the lives of the workers at the mills. He reduced working hours to 10.5 per day (other mills were working 13 or 14 hours a day), paid wages during crises when the mills shut down, introduced a crèche for workers’ children, and a school for educating them and also provided education for adult workers. He regarded private property, religion and marriage in its contemporary form as the three great ills of society and wanted to go beyond the philanthropy of New Lanark. He tried to set up a communist community in America through which he lost his fortune. On his return to England, he set up cooperative societies for retail trade and production which he saw as a transitional measure to communism, as Wolff does. He is regarded as the father of the UK cooperative movement. He also started labour bazaars for exchange of products of labour through the medium of labour notes whose unit was a single hour of labour. (See F. Engels Socialism: Utopian and Scientific)