Capital's inherent contradictions

I think it’s fair to say since the 1970s debates on explanations for capital’s historic crisis have been pretty much polarised been supporters of the ‘saturation of markets’ versus the falling rate of profit (FRoP) or Luxemburg v Grossman/Mattick.

Through discussions, especially with Link, I’ve recently come to accept that Luxemburg’s theory of capital’s need for non-capitalist buyers is wrong because it is incompatible with Marx’s analysis of capital’s contradictions, and looking back at your lengthy critique of Luxemburg written in 1976 (!) I can see that many of your criticisms were perfectly correct. But, apart from her lasting contribution as a revolutionary, I do still believe she was trying to address a real problem identified by Marx.

Looking at Chapter 15 in Capital Vol 3, which as you well know is on the workings of the FRoP, Marx also talks about the problem for capital of realising the surplus value produced - the famous ‘second act’ of the capitalist production process. Briefly, the fundamental problem for capital is that its only motive and purpose is its own self-expansion, the production of an ever-expanding mass of surplus value; but for accumulation to take place the mass of commodities produced must be sold and the largest possible portion of profit reconverted into capital, and here capital faces barriers due to its own relations of production, which restrict society’s capacity to consume while at the same time generating an ever-growing mass of commodities…

For Marx, capital can only attempt to resolve the inherent contradiction between the conditions for the production of surplus value and its realisation by continually extending the market. However, the growth of productivity continually threatens to outstrip the capacity of the available market, re-creating the same problem in conditions of expanded production; the more capital develops, the more it comes into conflict with its inherent limits on consumption. In other words, periodically, and at a higher and higher level, “Too many commodities are produced to permit of a realisation and conversion into new capital of the value and surplus-value contained in them under the conditions of distribution and consumption peculiar to capitalist production.” (Ch 15).

If this is right I can only conclude that the circulation or consumption of commodities, far from being a secondary question as is sometimes argued by supporters of the FRoP, is not only integral to the ability of capital to accumulate, but also the source of inherent contradictions as a result of the capital-wage labour relationship itself: the more capital develops, driven by the falling rate of profit, the more it comes into conflict with the inherent limits on society’s capacity to consume. And the inescapable problem for capital appears to be that if there are no set limits to the expansion of the internal market, there are definite geographic limits to the expansion of the external market.

Of course whether the problem of realisation or the falling rate of profit is the key factor in explaining the entry of capital into its historic crisis – or whether as is more likely it is an interplay of these and other factors – will probably still be being debated well after capitalism’s revolutionary overthrow… But, to avoid false arguments, is it possible to agree that capital’s problem of realisation, and therefore of finding markets for its ever-growing mass of commodities, is an inherent contradiction of the mode of production and at least potentially a decisive factor?

I would be very interested in comrades’ views.

MH

My critique of Luxemburg, plus a contribution from Link, can be found here

Forum: 

Marky - Just spotted this. Cannot open the link to you and Link which it would be good to read before replying.

Yes I seem to have problems getting links to work; here'a another go:

Mine: markhayes9.wixsite.com Link's:

markhayes9.wixsite.com

...

Also your 1976 text for reference: leftcom.org

Thanks for your comment and sorry not to reply earlier. The links in your second post worked but then the links from your blog back to our articles didn't. We actually addressed this directly in one of our replies to C McL (who was then charged with taking up the cudgels with us by the ICC - we see today he now denies that capitalism is decadent).

"Market gluts and over-production are an obvious feature or, as Marx says in Theories of Surplus Value Volume II, “phenomenon” of capitalist society, and set it apart from all other previous societies. In Capital, Marx sought to explain how this society capable of creating vast quantities of cheap commodities was suddenly thrown back on itself, and despite the self-evident poverty all around, was, in certain crisis conditions, incapable of maintaining, let alone extending, its market. We believe he found these in his analysis of the operation of the law of value, and it is this which determines the cycle of expansion and contraction of both the market and the forces of production. This is totally different from the wretched Say (and other capitalist apologists like McCullough, the editor of Adam Smith’s works) who tried to deny that there were crises and that there was overproduction under capitalism. The question is not whether these take place (as they self-evidently do, we can move on from red herrings like James Mill, McCullough and Say, etc.), but to explain how they come about." This is in our article from 2007 on The Dynamic of Capitalism. The law of the tendency of the rate of profit to fall is not just an explanation of periodic crises but also explains the drive of capitalism and its tendency to constant expansion. As Marx wrote in Chapter 15 "On the other hand, the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process. It breeds over-production, speculation, crises, and surplus-capital alongside surplus-population." The question is why is capitalism capable of expanding the market at one point only for it to be thrown back into crisis in another. What is the mechanism which produces both these conditions? It has to lie in the way the law of value operates. Marx seems clear that it is the fall in the rate of profit which determines the process of both expansion and contraction and after a lengthy analysis in which he shows that the mass of capital can keep on growing whilst the rate of profit is falling until at a certain point a collision occurs because "The real barrier of capitalist production is capital itself." Even when Marx says that in the last resort the cause of all real crisis is the poverty and restricted consumption of the masses he goes on in the next page to say this is not because too many commodities are produced to satisfy human wants but indeed people are living at a low level - its just that capitalism won't provide for them at a cost which they can afford (as capitalism is driving down their wages as the rate of profit falls). In short it is the "antagonistic social relations" which drive this overproduction but these rest firmly on the question of producing valorisable capital. I don't really get your distinction between external and internal for our time since the geographic limits to the external market have not changed in a hundred years i.e. the world is totally capitalist (or as near as makes no difference) so we come back to the same question - why is it that capital can expand at one time and then collapses into periodic crisis at another. This produces among other things "overproduction" but this is a phenomenon not the cause which is hidden from view and harder to grasp.

Thanks for the clarification of your position. I have read your response to CMcL but wanted to be clear what your current views are. I'll consider carefully what you have said and respond in due course...

MH

As MH says we have been having questioning everything and our discussions about the errors in Luxemburg’s theory of accumulation and moved on to issues of overproduction and rate of profit.

I find the argument is often presented that overproduction is about being purely market related and purely related to the working class’s ability to purchase. This seems to me to be quite clearly an insufficient argument, its impossible by definition and so of no help at all in understanding capital’s problems. Overproduction must relate to both production of constant capital as well as variable and as constant capital grows faster and larger and so it seems to me then that the focus of overproduction must be about the amount of constant capital in existence.

I think I remember you criticising Grossman but I cant remember why but having looked at some of his writing again I discovered he says much the same in that he focusses on over-accumulation as the problem for capital. This seems to make a lot of sense to me and over-accumulation of capital seems a close relation of FROP in that its the same thing or a product of the same process of accumulating capital. He says correctly I think that the a specific figure for the RoP is not what generates crises and sees an interaction between this and the mass of surplus value produced as being a factor in producing such crises. As you yourself paraphrased - A high rate of profit may generate a small mass of surplus value whereas a low rate of profit can generate a high mass of profit.

This does seem to describe well how capital has progressed over the periods of ascendancy and obsolesence and it does integrate the issues of production and circulation as MH is suggesting.

MH and I came to the same conclusion some time ago that neither decadence or obsolescence were based on economic criteria but rather on political/social/historical factors. So neither the actual rate of profit nor the proportion of pre cap markets could be a determining factor in the onset of crisis (I being kind there, pre cap markets have nothing to do with it anyway). This suggests that other factors must come into play to interact with TROPF to provoke outright crisis and as you add and ’... but these rest firmly on the question of producing valorisable capital’ relates it to circulation issues.

We would all agree that contradictions of capitalist relations of production are key. As C says: "The real barrier of capitalist production is capital itself’

And this is where I think C’s comments on causal and phenomenonal factors are useful way to approach things but im not sure you are saying this but that sounds to me like an interpretation would be that capital or capitals relations of production is the source and that the TROPF is peripheral alongside overproduction?

Anyway i suppose i am asking here for a wider explanation of cause and phenomenon?

I have a separate but related point to raise if you don’t mind. What role does waste production play in all this in the past century? It a burden on the wc generated by sv that in not capitalised yet it has increased enormously. Its not possible to quantify and does not impact on say rate of exploitation and rate of profit, yet it keeps an awful lots of wheels turning in social terms. In these terms it sounds like the market must absorb overproduction if capital is to stay healthy so I wonder what impact the capacity to absorb waste production can have. As a peripheral factor, how do you see it impacting on crises?

Link I am not really sure who your questions are directed towards. All I can say is that all arguments about the falling rate of profit, the organic composition of capital and the cycles of accumulation have to be understood in terms of the system as a whole. Thus you can find that waste production will keep the wheels turning for some capitalists (at best recycling the surplus value created elsewhere). Arms production is a classic example. Its product cannot re-enter the reproduction process either as Dept I or Dept II but it undeniably makes a profit for those companies and states who sell arms to other states. It is certainly not " a province of accumulation".

In response to Cleishbotham's first reply to me:

Yes, the ICC article by CMcL accused you of defending the same position as those bourgeois political economists like Say and Ricardo who saw the production and realisation of capital as identical and therefore denied the possibility of overproduction. But you clearly accept the existence of overproduction as a phenomenon; the question for you is how does this phenomenon come about?

You argue that it is Marx’s analysis of the law of value that determines the cycle of expansion and contraction of both the market and the forces of production. It is therefore the rate of profit that results in periodic crises and it is these periodic crises that produce the phenomenon of overproduction.

I would argue that for Marx there appears to be something more fundamental at work here than the periodic appearance of a glut of commodities on the market that the working class cannot afford to buy: a tendency of capital towards overproduction which is the result of inherent limits on capitalist society’s ability to consume; the workers, after all, must by definition produce more than they can themselves consume, otherwise there would be no profit, while the capitalists cannot simply consume the total mass of commodities themselves: “The consuming power is furthermore restricted by the tendency to accumulate, the greed for an expansion of capital and a production of surplus value on an enlarged scale. This is a law of capitalist production imposed by incessant revolutions in the methods of production themselves…” (Capital 3 Ch 15, my emphasis)

So the available market must always tend to be outstripped by the needs of accumulation. This is why "The real barrier of capitalist production is capital itself". The market must be continually extended; but this only results in the further growth of capitalist production so the problem of realising surplus value is simply recreated at a higher and higher level.

I don't really get your distinction between external and internal for our time since the geographic limits to the external market have not changed in a hundred years i.e. the world is totally capitalist (or as near as makes no difference) so we come back to the same question.”

That was actually my point; capital reached the geographical limits to the extension of the external market about a century ago, which logically must precipitate some kind of crisis of the system for the reasons described above. The history of the last 100 years surely demonstrates the result: chronic overproduction and increasing destruction of capital. For me this points to the problem of realisation as at least a potential cause of capital's historic crisis.

My intention in raising this was not to go over (very) old ground again but I do think the problem of realisation in the past has tended to be conflated with a defence of Luxemburg’s theory, which has had the effect of disguising the extent to which it is based on Marx’s analysis of capital’s contradictions, distinct (albeit intimately connected to) the falling rate of profit.

I have read this a few times but honestly I really do not understand the last paragraph.

At least the rest of it is clear then? ;-) You mean the very last para? I was simply referring to the fact that this debate has always tended to be posed as Luxemburg v Grossman/Mattick, in which the defenders of Luxemburg's theory tend to argue she was simply taking up Marx's analysis of the problem of realisation (as in the case of the ICC article you refer to). I don't think this is the case. It is therefore possible to agree that Luxemburg's theory of capital's need for external buyers is wrong - but at the same time I believe it is necessary to recognise that capital's problem of realising surplus value, as analysed by Marx, is indeed an inherent contradiction due to the capital-wage labour relationship.

The problem is one of valorisation (verwertung) which implies not just that things are sold but are sold with added value, "Realisation" as a translation does not carry this connotation so clearly (see the Penguin Classics Volume 1 of Capital). The question though that the pure overproductionists cannot answer is why at one point in time is it possible for valorisation to carry on so happily and then at another the process starts to slow down. This can only be because as accumulation proceeds the organic composition of capital rises and thus the rate of profit falls. This can lead to new investment by some capitalists who can then sell above value but such new investment only increases the ration of dead to living labour and restricts the possibility of increasing the rate of profit further down the line. And the tendency for profit rates to equalise across the economy leads eventually to a general slowdown. Trying to claw back surplus value via wage cuts and producing more commodities in an attempt to sell each with a greater value component are the twin roots of overproduction - but only a value analysis can explain how it comes about. I have nothing to add to the paraphrase of Chapter 15 of Capital Volume 3 above.

As an aside there is some controversy about the geographical question of the absorption of the entire planet into the world market. Marx and Engels thought it had occured in about 1850 but Bukharin later argued that a "world economy" only formed in the late 19C (his explanation for imperialism). Pannekoek in later life came round to the theories of Luxemburg but concluded in the 1940s that there were still huge areas outside the capitalist world market (he cited China and India) so considered that capitalism could happily expand for some time yet.

The question though that the pure overproductionists cannot answer is why at one point in time is it possible for valorisation to carry on so happily and then at another the process starts to slow down. This can only be because as accumulation proceeds the organic composition of capital rises and thus the rate of profit falls.”

I’m not sure who the “pure overproductionists” are and in any case I think we agree it is not the periodic appearance of overproduction per se that is the issue here but what this reveals about the deeper contradictions of the system as a whole and its historical trajectory.

For you, following Marx, the contraction and expansion of the market is determined by the law of the tendency for the rate of profit to fall, which is the explanation for capital’s historic crisis. For me, following Marx (hopefully!), although I don't in any way dismiss the role of the FRoP, the fundamental contradiction of capital is that it produces without regard for the market, which is inherently restricted due to the capitalist-wage labour relationship, and it is the resulting tendency towards overproduction that precipitates its historic crisis.

The main arguments are hopefully clear enough by now so I’ll leave it there.

Except I’m not entirely clear what your view is on the ‘status’ of this question. You have previously described Luxemburg’s theory as outside of Marxism but does this extend to the problem for capital of realising surplus value, ie. of markets?

To put it another way, is the debate we've been having here one essentially between different interpretations of Marx’s analysis of capital’s contradictions within the Communist Left? Could you be a member of the CWO, for example, and defend a different analysis to the FRoP?

MH

Overproductionism (and its twin underconsumptionism) are both epiphenomena. Capitalism's distinctness as a mode of production is precisely that, a mode of production. If the problem was simply markets Capital would have been as slim a volume as the History of Swiss Naval Victories. Or as Marx said in the introduction "if things and their essence were the same what need would there be for science?". The secret to to the special crises of capitalism lies in its unique mode of production. The market is not unique to capitalism (although its role is mightily enhanced by the dynamism of such a productive system). And when we look at value relations under capitalism we are well aware that the law of the tendency of the rate of profit is "the most important law" for explaining not just capitalism's periodic crises but also capitalism's extraordinary dynamism. The markets expand and contract according to the ability to invest but the propensity to invest only comes from the recognition that it is worth it ie, the rate of profit makes it worthwhile. This explains the cycles that capitalism operates in, explains the historical process of the centralisation and concentration of capital which in turn explain the tendency to monopoly which leads to the operation of the state to keep the system going as well as the transfer of rivalry from that of the firm to that of the nation-state. This is the science. The other "interpretations" don't even get close to that.

Look at the fate of those who have tried to deny the analysis of value relations as the basis of capitalism's complex story. The ICC originally argued that 1914 was the end of all expansion (the first version of their Decadence of Capital pamphlet wove elaborate statistics to try to prove this). For them the crisis which opened at the end of the 60s (which was more political than economic initially but then merged with the economic crisis after 1971) was the final crisis. This led to the perspective which they maintained until c 1990 that the way to revolution was open. Collapse of that perspective led to the post-modernist adoption that all was chaos and decomposition (the only germ of truth in that is that the 4 decade long crisis is deepening as it approaches its 5th decade). Unclear whether the class war is over or what. Unclear whether we are still trying to create the conditions for a new international. Those that have split have ended up in even worse places (like C McL) because they still refuse to accept value analysis.

The reference to Rosa Luxemburg putting herself outside Marxism was simply to say she was telling lies when she reinterpreted Marx's discussion of the "outlying fields of production" as really meaning "the outlying fields of consumption". I don't think it was intended to mean that Luxemburg had abandoned Marxism in every sense and whatever errors she made (as we all do) she was a defender of the working class to the end of her days. That is the class line.

But theory is important. Our whole framework as an ICT rests on our understanding of how capitalism functions. It was the basis for our formation and it has served us well. We predicted the bursting of the speculative bubble in 2007 because of it. Our Platform is underpinned by it. Difficult then to see how anyone rejecting our analysis of how capitalism functions (and fails to function) could be comfortable in the ICT.

“Capitalism's distinctness as a mode of production is precisely that, a mode of production. If the problem was simply markets Capital would have been as slim a volume as the History of Swiss Naval Victories.”

Well we know that Marx never completed his projected volume on the role of the world market but he certainly saw the establishment of the world market as one of the three “cardinal facts” of capitalist production and unless we think Engels did a particularly bad editing job on Capital Volume Three we also know he said quite a lot of things about the importance of markets for capital, even in his chapter on the workings of the falling rate of profit.

In any case, no one ever said the problem was “simply” markets and I’ve been very careful throughout to emphasise that the problem of realising surplus value is intimately connected to the falling rate of profit which helps to drive capital’s inherent tendency towards overproduction.

“Capitalism's distinctness as a mode of production” is surely that it is not production to satisfy human needs but production for capital as an end in itself, which creates the unique problem, as you say above, of valorisation, “which implies not just that things are sold but are sold with added value.”

Very true. In order for valorisation to take place surplus value must not only be extracted from the worker; the resulting total mass of commodities must be sold. “Capitalism’s distinctness as a mode of production” is therefore that it is entirely dependent on markets in order to achieve its only purpose of valorisation. The specific problem for capital is that production and the market are independent of one another and the latter is restricted by society’s ability to consume.

Markets therefore are not only a vital necessity for valorisation to take place but they are inherently problematical for this distinct mode of production. To talk of valorisation without addressing the problem of markets is surely to address only one stage of the total process that Marx describes. We need to see it as a totality.

We don't talk of the problem of valorisation without talking about markets but you still have to explain why the markets expand happily at one time and then suddenly cannot. That is the totality of the question and it is underpinned by the law of value.

I didn’t try to pursue this debate at the time, partly because there seemed no particular urgency to clarify what is obviously a long-standing theoretical question, but also because there were clearly some frustrations on both sides that our positions were not really being understood, and I think it’s worth recognising that such frustrations have been a real factor, and continue to be a factor, in discussions between comrades who still share the same basic political positions.

That said, I also think fior me this exchange did succeed in moving the debate forward and finding some common ground, which was in a recognition that the process of valorisation must be viewed as a totality: as you say above, “The problem is one of valorisation (verwertung) which implies not just that things are sold but are sold with added value.” While you still insist that it is the fall in the rate of profit that explains why overproduction occurs at one time and not another, you do also appear to affirm that the problem of valorisation includes the problem of markets.

Is this a fair summary?

If so, while there are still clearly real differences here I think this moves us away from the problem I identified at the start of the thread: that since the 1970s debates on explanations for capital’s historic crisis have tended to be polarised between supporters of the ‘saturation of markets’ versus the falling rate of profit (FRoP) or Luxemburg v Grossman/Mattick.

So I’ll leave it there, except I must pick you up on your accusation above that Rosa Luxemburg was “telling lies when she reinterpreted Marx’s discussion of the “outlying fields of production” as really meaning “the outlying fields of consumption”.

Did you really mean to accuse Rosa Luxemburg – someone you recognise as “a defender of the working class to the end of her days” – of telling deliberate falsehoods in order to deceive people about what Marx actually wrote? Or was this just a bit of polemical excess? Personally I think Luxemburg was mistaken but I don't think she was deliberately trying to deceive people. Can I make a plea that we all avoid this kind of accusation unless we are prepared to back it up with evidence? It just gets in the way of comradely debate within the Communist Left.

MH

I do not see how the debate has moved on at all since we have always agreed with your statement. "While you still insist that it is the fall in the rate of profit that explains why overproduction occurs at one time and not another, you do also appear to affirm that the problem of valorisation includes the problem of markets."

Capital is a market oriented system which depends on it for the sale of its commodities. Marx asked in the preface to Capital Vol 1 that "if things and their essence are the same what need is their for science?" And our question has always been the same. The market is a given, a constant, in the system so why is it that at one time it expands furiously and at another it contracts? As we have said this is a phenomenon which needs explaining and it has to be found in the shift in value relations such as that brought about by the law of the tendency of the rate of profit to fall.

And let's also be clear Rosa Luxemburg did not talk about "saturated markets". She talked about eh absence of the "third buyers" from outside the system. It was a gloss put on it by the ICC. If the third buyers were now gone by 1914 then the condition of the system was one of permanent saturation of markets and a great deal of effort was expended to try to show that this was the case (an effort that was later abandoned). Without an understanding of how the cycle of accumulation operates it is impossible to explain why capitalism expands dramatically at one point and then contracts rapidly at another. The ICC in the past simply denied there were cycles which was one reason why their perspectives constantly insisted on proletarian revolution/upsurge being on the agenda. If the proletariat was only "demystified" of support for leftist reformism then the road to revolution would be open. This took them from a basis in Marxism to some form of idealism.

On Rosa Luxemburg's lie - yes I meant she lied to herself but as she is dead I am sure she took no offence. To a living person it would have been unhelpful but we have no gods however much we value their contribution in other ways.

“I do not see how the debate has moved on at all since we have always agreed with your statement. "While you still insist that it is the fall in the rate of profit that explains why overproduction occurs at one time and not another, you do also appear to affirm that the problem of valorisation includes the problem of markets."

I started this thread in order to better understand your view on the problem identified by Marx of the realisation of surplus value, trying to avoid the whole issue of Luxemburg's theory that has dogged debates in the Communist Left for so long. We appear to agree that without the realisation of surplus value there can be no valorisation, and that markets are a problem for capital.

So your criticism of Luxemburg is quite unnecessary here. You’re quite right, she didn’t talk about "saturated markets", but neither did I. This rather proves my point that the false polarisation between supporters of the ‘saturation of markets’ versus the falling rate of profit (FRoP) has served to obscure the fact that she was trying to address a real problem.

That said, I’m not sure you really do agree with my statement since in the same post you refer to markets as “a given, a constant”, which seems to contradict the idea that they are inherently problematic for capital?

"Without an understanding of how the cycle of accumulation operates it is impossible to explain why capitalism expands dramatically at one point and then contracts rapidly at another”.

Yes and in response I have agreed that the fall in the rate of profit is a key driver. But we clearly don’t agree on the emphasis you put on this. For me, understanding the ‘cycle of accumulation’ does not in itself get us to an understanding of why, in the real social and historical conditions of capitalism, the problem of realising surplus value is a contradiction that helps drive it towards its ‘dissolution’. Marx actually described accumulation as becoming an ever-increasing circle or spiral, which seems to me a more accurate description of its continual attempts in reality to overcome the insoluble contradiction created by its own antagonistic social relations.

A last point:

On Rosa Luxemburg's lie - yes I meant she lied to herself but as she is dead I am sure she took no offence. To a living person it would have been unhelpful but we have no gods however much we value their contribution in other ways.”

This seems a bit disingenuous to be honest. Whether your target is living or dead, I think you should be more careful before accusing someone of lying. That’s all.

That said, I’m not sure you really do agree with my statement since in the same post you refer to markets as “a given, a constant”, which seems to contradict the idea that they are inherently problematic for capital?

This is the nub of the discussion. Markets are not "inherently problematic" but only problematic at certain points - cue: when the value relations have shifted in the course of cycle or the rate of profit is insufficient for the given mass of capital. We then get the contradiction that too many commodities are produced to be valorised (and yet needs remain unsatisfied as the creators of new surplus value have only a restricted power of consumption).

Agreed re the spiral since the cycle of accumulation brings about an ever increasing centralisation and concentration of capital which tends to monopoly, state capitalism and imperialism. It has always underpinned our analysis of why capitalism's decadence begins from the early years of the last century. It also explains why each cycle (including the one we are now living through) has different characteristics.