Capitalism in Crisis

Those who struggle to advance Marxist-Leninist understanding amongst workers in Britain will be familiar enough with the irritation and incomprehension which is routinely displayed when repeated reference is made to “capitalist crisis” as the origin of the social developments being analysed. The NHS in trouble? It’s because of the capitalist crisis. Pensions are up the spout? It’s capitalist crisis, sure enough. War is raging in the Middle East? Yes, it’s that damn capitalist crisis again. The hapless comrade trying to explain what is driving political developments in capitalist society will more often than not earn a derisory shrug for his pains. “You communists just keep repeating the same formula all the time, everything is just crisis, crisis, crisis! Don’t you know another song?”

Yet crisis and capitalism are locked in a dead man’s embrace which only revolution can end, and this really needs to be understood before any advance can be made. Only by making a habit of studying the sometimes dry science of political economy will comrades equip themselves to advance the cause of the working class and communism. Only by making this study ourselves can we undertake the task of patiently explaining to workers the fundamental contradictions within capitalist society, and what steps are required for these contradictions to be resolved through the revolutionary intervention of the proletariat.

Political economy

Political economy is not concerned with capitalist society alone, but with what makes every kind of human society tick. Engels explains the Marxist approach to political economy in the most straightforward terms.

“The materialist conception of history starts from the principle that production and, next to production, the exchange of things produced, is the basis of every social order; that in every society that has appeared in history, the distribution of wealth and with it the division of society into classes or estates are dependent upon what is produced, how it is produced, and how the products are exchanged.” (Engels, Anti-Dühring, Foreign Languages Press, Peking, 1976, p.343)

Under capitalism, “what is produced” are commodities, “how it is produced” is through the exploitation of living labour by capital, and “how the products are exchanged” is on the basis of exchange values determined by the magnitude of the socially necessary labour embodied in those commodities. And ever since mature capitalism became entrenched as the dominant mode of production in the modern industrial world, this system of commodity production relations has been a system of periodic crises.

Overproduction crisis

The essence of each recurring capitalist crisis is simply this: that more commodities are being produced than can be sold on the market. That is why such crises are called crises of overproduction. In Engels’ words:

“… since 1825, when the first general crisis erupted, the whole industrial and commercial world, production and exchange among all civilized peoples and their more or less barbarian appendages, have broken down about once every ten years. Trade comes to a standstill, markets are glutted, products lie around in piles as massive as they are unsaleable, hard cash disappears, credit vanishes, factories are idle, the working masses lack the means of subsistence because they have produced too much of them, bankruptcy follows upon bankruptcy, forced sale upon forced sale. The stagnation lasts for years and both productive forces and products are squandered and destroyed wholesale, until the accumulated masses of commodities are finally run down at a more or less considerable depreciation and until production and exchange gradually begin to move again” (ibid, pp. 355-6).

In his very useful beginner’s course in political economy, A. Leontiev demonstrates the human reality of such a crisis by quoting from an account of the life of United States miners in the Great Depression.

“A miner’s son asked his mother: ‘Why don’t you light the fire? It’s so cold’. ‘Because we have no coal. Your father is out of work, and we have no money to buy coal.’ ‘But why is he out of work, mother?’ ‘Because there’s too much coal.'” (A. Leontiev: Political Economy, Lawrence and Wishart, London, 1936, pp. 180-1)

The children of men made redundant from the Peugeot works at Ryton will find it no easier to understand why the ailing family car cannot be replaced this year. Why can’t we buy a new car? Because dad is out of work. But why is he out of work? Because there are too many cars!

Leontiev puts his finger on this as “the glaring contradiction which becomes evident during every capitalist crisis”, explaining that “It is perfectly clear that during a crisis tremendous masses of people experience desperate need for the bare necessities of life. But they have no money with which TO BUY these commodities” (ibid, p.181).

Simple reproduction

In order to understand why capitalism runs into overproduction crisis, we need first to examine how the process of capitalist reproduction functions in the first place. For any kind of society to go on running, it needs to reproduce itself materially.

In order for society to exist, for the economic system to be preserved, it is necessary that definite quantities of goods be produced not only once, but continuously, over and over again. (ibid, p.164)

As a matter of fact, this process, which in political economy is called reproduction, is found not just in capitalist society, but in all societies. In any society the mass of goods produced is in continual motion. Says Leontiev, “Articles of consumption move from the manufacturer to the consumer. There they disappear: some serve for a comparatively long time in satisfying human needs (as clothing or books, for example), others disappear fairly rapidly (as food). Means of production produced at plants and factories or obtained from the bowels of the earth are also put to use” (ibid, p.164).

If we can imagine a society in which everything that gets consumed simply gets replaced to the same level, in other words a society that is running on the spot, then we would be looking at “simple reproduction”. No society has ever in practice travelled in such a perfect circle, but taking this model as an analytical benchmark helps us to understand what conditions are necessary for social reproduction under real (and much more complicated) historical conditions.

Leontiev starts by explaining how simple reproduction would have to work in a “pure” capitalist economy. Following Marx, he divides the entire mass of all the capitalist enterprises into two huge groups. Group one is enterprises which make means of production, like machines. Group two is enterprises which make articles of consumption, like food. Group one would have to produce exactly the quantity of means of production as are used up by both group one and group two in the course of the year. Group two would have to produce exactly the quantity of consumables that matched the combined income of all the workers and capitalists of both groups, neither more nor less. Leontiev goes on to show that, for everything to balance out, all the surplus value and variable capital of group one would have to be the same as constant capital of the second group. [Variable Capital is capital for purchasing labour power, and Constant Capital is the rest]

With what we know about the anarchy of the market, it is easy to see even from this cursory sketch just how far such a delicately balanced theoretical model is from anything that actually happens under capitalism. And of course, what this model of simple reproduction misses out is the life or death need for capital to expand itself through commodity production. What it misses out is the struggle of capital to squeeze ever more surplus value out of commodity production, the better to extend its exploitation of living labour. In order to grasp this, we need to move on from simple reproduction to extended reproduction.

Extended reproduction

Notes Leontiev, “We must distinguish between simple and extended reproduction. If the same quantity of a product is produced in a society year in and year out – we have simple reproduction. In this case, everything that is produced in a year is consumed. But the development of capitalism implies a rapid growth of production. A greater quantity of all kinds of products is being produced from year to year. We have extended reproduction; reproduction takes place on an extended basis” (ibid, p.165).

But that puts a completely new twist on the would-be symbiosis between group one enterprises (those producing means of production) and group two enterprises (those producing articles of consumption).

“Extended reproduction implies accumulation. In order to expand an enterprise, it must be enlarged or a new one must be built. In any case some new means of production must be added” (ibid, p.175).

This means that the juggling of value between the two groups of enterprises must undergo a further shift, such that the surplus value and variable capital of the first group is, not equal to, but greater than the constant capital of the second group.

Leontiev hits the nail on the head when he notes dryly that “Marxian theory makes clear what conditions are requisite for the realization of commodities under simple and extended capitalist reproduction. But it does not at all assert that these conditions exist”! By looking at the unbroken string of crises running like a red thread from 1825, 1836, 1847, 1857, 1873, 1890, 1900, 1907, all the way through the wars and revolutions of the Twentieth Century and on up to the present moment, we can start to see the full significance of that gap between “what conditions are requisite” and “what conditions exist”.

“The Marxian theory makes clear what conditions are requisite for the realization of commodities under simple and extended capitalist reproduction. But it does not at all assert that these conditions exist. On the contrary, the entire movement of the capitalist system proceeds by means of continuous variations and deviations, by means of a constant infringement of those mutual relations which should exist between the various branches of industry” (ibid, p.177).

The end result is that the “mutual relations which should exist between the various branches of industry” eventually reassert themselves through the inexorable laws of the market, but only through a white knuckle ride alternating boom time expansion with periodic crashes, unemployment and economic stagnation. The necessary conditions for the realization of commodities under capitalist reproduction are periodically re-established after a fashion – but only in the most savage, destructive and mindless way imaginable, as the world’s peoples know all too well.

Social production versus private appropriation

What gets revealed in capitalist crisis is the most fundamental of all the contradictions inherent in the system.

Leontiev explains: “Capitalist reproduction shows up all the contradictions inherent in the capitalist system. In the process of reproduction the basic contradiction of capitalism stands out – the contradiction between the social character of production and the private-capitalist character of appropriation. Capitalist enterprises unite many thousands of workers. The work of each enterprise is vitally necessary to society as a whole. These enterprises employ all the forces of social development, all the forces of technical science, the forces of the united social labour of many hundreds and thousands of people. And they belong to a small handful of capitalists who conduct them for their own gain, chasing after the greatest profits” (ibid, p.177).

When that process of reproduction runs into a brick wall, it is then that the contradiction between social labour and private accumulation is most starkly revealed. As Leontiev explains, the tendency of capitalism to expand the production of commodities to the nth degree and at the same time to push down the spending power of its would-be consumers (the contradiction between production and consumption) “is only one of the forms in which the fundamental contradiction of capitalism is expressed – the contradiction between the social nature of production and private nature of appropriation” (ibid, p. 179).

We can better understand this if we take a step back to the beginnings of capitalist commodity production. In that way we can understand how this fundamental contradiction between social labour and private appropriation first arrived on the scene.

Origins of capitalist commodity production

Commodity production did not start with capitalism. Articles were produced for sale on the market long before capitalism. The medieval peasant, having satisfied the needs of himself and his family, as well as the demands of his feudal lord, might labour to produce a surplus which could then be fielded as commodities on the market. But commodity production remained on the periphery of his economic existence. Even the artisan of the medieval town, who actually set out to produce articles for exchange as commodities, still satisfied many of his own subsistence needs through small-scale agriculture and animal husbandry.

As Engels explains, “Production for the purpose of exchange, the production of commodities, was only just coming into being. Hence, restricted exchange, restricted market, stable mode of production, local isolation from the outside world, and local unity within: the Mark in the countryside, the guild in the town” (Anti-Dühring, p.351.)

Under such circumstances, the laws of commodity production had as yet small scope for operation. Most crucially, the individual producer of commodities continued to own his own means of production (tools etc.) and his own product up till the moment it entered the market as a commodity. Further, whatever profit might be realized through the sale of his product also belonged to the producer.

With the growth of capitalism, all this changed. As large-scale mechanization of the labour process took hold, accompanied by the increasingly complex division of labour, the transformation of nature through labour acquired an increasingly social character, not previously associated with commodity production. The larger, the more complex and the more expensive the means of production became, the more obvious was the need for labour to be performed by an organized collective of workers. But whilst the character of commodity production shifted radically from individual to social, the means of production continued to be privately owned … except that it was now privately owned, not by the producer, but by the capitalist! Entirely in accordance with the laws of commodity production, the private owner of the means of production was also the private appropriator of the product. But where hitherto the private owner of the means of production was himself the producer (e.g. the artisan possessed his own tools), the producer now possessed neither the means of production nor the product of his labours. In this manner, the very same laws of commodity production which had seemed to guarantee to the individual producer the fruits of his labour (accidents of the market permitting) now effected a complete severance between producer and product. Without in any way sinning formally against the laws of commodity production, production relations were in practice turned upside down.

Capitalism had not invented commodity production. It found it growing in the cracks of pre-capitalist society, seized upon it as a system of production relations within which capitalist accumulation could flourish, then transformed the social content ofcommodity production into its opposite. As it came to employ ever more advanced machinery and technique, introducing an ever more complex and detailed division of labour, capitalist commodity production moved into one branch of production after another, closing down every rival form of production which fell short of the ever-higher productivity benchmarks. This did not flout the economic laws appropriate to commodity production. On the contrary, it was only through extended capitalist reproduction that the full historical potential of this mode of production could be accomplished and exhausted. Accomplished, because only at the stage of capitalist commodity production could commodity production come to dominate all social relations. Exhausted, because the struggle to conquer the world of social wealth through accumulation of capital constantly whips capitalism on to the production of ever greater masses of commodities, yet by intensifying the exploitation of living labour in the service of that greater production capitalism impoverishes the very masses upon whose effective demand it relies to realize its commodities, return surplus value and open the door to fresh accumulation.

Dühring’s efforts to distort the Marxist understanding of overproduction crisis

The above quotations from Engels all come from a book he wrote in the late 1870s, usually referred to now as Anti-Dühring. It was a counterblast against the malign influence upon German socialism exercised by a charlatan called Eugen Dühring, who launched a series of attacks on the fundamentals of Marxism. In Part III, chapter 3, Engels deals in summary fashion with his opponent’s attempt to corrupt and dilute Marx’s analysis of the capitalist crisis of overproduction. Eugen Dühring would now be forgotten, had he not been immortalized by Engels, but his shabby arguments can still be found parading around today.

Dühring did not deny the existence of capitalist crises (how could he, after 50 years of them), but he did all he could to pull the revolutionary sting from them. Yes, he said, there are crises where vastly more is produced than can be sold – but you can’t call that an overproduction crisis. No, he said, the root of capitalist crisis is not really overproduction at all, but rather the “lagging behind of popular consumption”.

Obviously, “popular consumption” was indeed “lagging”, but what does that really explain? Engels exposed Dühring’s argument as sophistry. He pointed out that ever since class-divided society began, the labouring masses had under consumed! They had never got within a mile of consuming the totality of the annual product of their labours. That being so, why was Dühring trying to explain the novel phenomenon of the capitalist overproduction crisis by citing the age-old phenomenon of the under consumption of the labouring masses? Why was he pretending to explain a startling new development (the periodic eruption of capitalist crisis across all leading industrial societies) by reference to the one constant factor (the under consumption of the masses) rather than the obvious variable factor (the exponential growth of capitalist commodity production)?

In order to explain capitalist crisis, you had to look at what was new in social development, not what was old as the hills. And what was new was the explosion of large-scale mechanised industry under capitalist control which had occurred in the half century from the 1820s to the 1870s, and the accompanying “general stagnation of the market which breaks out in crises as the result of excessive production” (ibid, pp. 371-2).

None of those subsequent theories which pretend to iron out the problem of capitalist crisis by artificially generating a demand market equal to the task of absorbing whatever the anarchy of production can throw at it (whether through New Deal workfare schemes or boundless consumer credit) succeed in advancing one inch from Dühring’s sad attempt to obscure the real origins of capitalist crisis. Capitalist crisis arises, not primarily from the under consumption of the masses (which has been a constant throughout class-divided history), but rather from the contradictions at the heart of mature capitalism.

In line with his refusal to countenance what was historically specific about this new kind of crisis, Dühring tried to write such crises off as simply “the ordinary interplay of overstrain and reaction”. Again, this view of crisis as being really just a kind of self-regulating mechanism whereby capitalism is able to prolong its reign of exploitation indefinitely, with only the occasional hiccup, continues to be served up as the latest word on the subject by Eugen Dühring’s unwitting heirs.

The reality is very different.

The revolutionary sting in the tail of capitalist crisis

The implications of capitalist crisis are in fact entirely revolutionary, exposing capitalism as a system that will be tested to destruction by the very social forces it unleashes.

This is so because it is ONLY when the social character of production is asserted consciously through proletarian revolution that the mode of production can at last be brought into harmony with the productive forces, resolving the contradiction between social labour and private appropriation.

“The forces operating in society work exactly like the forces of nature – blindly, violently and destructively, so long as we fail to understand them and take them into account”. (ibid, p361).

The bourgeois academics study political economy in order to serve the interests of the exploiting classes, striving to help capitalism weather its crises by intensifying the exploitation of the labouring masses whilst simultaneously rationalizing and prettifying the system. We communists study political economy in order to advance the proletarian revolution, which alone can secure “a socially planned regulation of production in accordance with the needs of the community and of each individual”, in the place of “the anarchy of social production”.

As Engels says, “The capitalist mode of production, in which the product enslaves first the producer and then the appropriator as well, will thus be replaced by the mode of appropriation of the product based on the nature of the modern means of production themselves: on the one hand, direct social appropriation as a means of maintaining and extending production, and on the other direct individual appropriation as a means of existence and enjoyment” (ibid, p 362).

New features of the crisis with the advent of imperialism

Leninism give us a glimpse of how the nature of capitalist crisis has altered with the advent of the highest stage of capitalism, imperialism. The fundamental contradictions which thrust capitalism into crisis have in fact been, not mitigated, but intensified by the onset of imperialism. Before, the roughly ten year cycle was Crisis – Depression – Revival – Boom – Crisis, with the stimulus for revival habitually triggered by the replacement of old machinery with new (“this creates a wave of demand whose vibrations reach the most remote industries”, notes Leontiev, Political Economy, p 187).

But after WWI and the Bolshevik Revolution, noted Leontiev in 1936, capitalism “lives through a decline, it decays while it is still alive”.

From 1918-1921, says Leontiev, there was revolution in Russia and deep economic crisis in capitalism. Whilst this period saw the failure of revolution in the West, it also saw the victorious conclusion of the civil war in the Soviet Union and the establishment of the Comintern.

Then, in the period 1922-1928, capitalism managed to turn the exploitation screws so hard that they achieved a temporary stabilization, though this was also marked by uneven development within the imperialist camp, with Britain competing with Europe for markets whilst US power surged ahead. Meanwhile, on the progressive side, Soviet construction went on at a cracking pace, inspiring anti-colonial struggles in China and India.

Finally, in the period 1929-1935, Leontiev reports that “Capitalism, about ten years after the war, exceeded its pre-war limits. Simultaneously, an exceptional increase in capitalist contradictions resulted both within individual countries and between them” (ibid, p 246).

So, just when it appeared that capitalism was crawling out of the ditch it had dug for modern humanity in 1914-18, capitalism stumbled back into overproduction crisis. How could it find buyers for the restored abundance of commodities when “rationalization” had created an industrial reserve army of ten million? This huge contraction of effective demand at home in turn triggered a sharp struggle for foreign markets, bringing in its tow the “ever growing danger of new imperialist wars”. Meanwhile in Russia, the first five year plan roared ahead, building the solid socialist foundations which would enable the Soviet Union to fight through to victory when those “new imperialist wars” became a reality, which they very soon did!

From all this, we can see some new features of capitalist crisis forming in the epoch of wars and revolutions which began with WWI, which we inhabit to this day, and which we will continue to inhabit until imperialism is overthrown.

– Imperialist crisis are far more profound than their pre-imperialist predecessors. The decline in production in the 1930s “reached proportions unequalled in the history of crises since the beginning of the existence of capitalism”, in some cases halving national production. (ibid, p 256)

– The existence of socialist countries makes capitalist crises worse, both by narrowing the scope of operation for the exploiters and by offering assistance and inspiration to the exploited. Even with the tragic loss of the Soviet Union, imperialism in crisis feels itself threatened by the good example of even the tiny DPRK or Cuba.

– The actions taken by monopolies to stave off crisis in fact deepen it. Says Stalin, “…the monopolist cartels which dominate industry strive to maintain the high prices of goods, and this circumstance makes the crisis particularly painful and hinders the absorption of stocks of commodities (17th Congress Report, cited ibid, p 257).

– Most important of all is the fact that, since 1914, the crisis has never really gone away. Episodic crises (like that which preceded WWI, or like that which we are entering now) henceforth develop amidst the general crisis of capitalism. Revival from crisis is incomplete and uneven, resulting at best in temporary stabilizations which in turn create the preconditions for much aggravated episodic crises in the future. Says Stalin, “capitalism no longer has, nor can have, either in the home states or in the colonial and dependent countries the strength and stability it had before the war and the October Revolution”.

Capitalism in crisis today

Neither the meteoric rise of US capitalism after WWII, bailing out West European capitalism for a spell, nor the long revisionist weakening and final loss of the great Soviet Union, have served to offer anything other than a temporary (if much protracted) stabilization. The general crisis remains in place. Or to put it another way, we live still on the eve of the social revolution. If any still doubt the depth of the next acute phase of the crisis, let them measure the size of the deficits which honeycomb the US economy, or the size of the war budgets passed by Congress and Westminster in assertion of Anglo-American monopoly interests.

Or let them listen to the despairing counsels of a bourgeois commentator who, it seems, can himself no longer quite believe the neo-Keynsian nonsense he regularly tries to palm off on others. Will Hutton’s criticism of the kind of capitalism practised in the USA and Britain, on the grounds of its lack of regulation, its promotion of market speculation and its “short-termism”, has unjustly earned him the reputation in the past of being a robust opponent of “the state we’re in”. The reality is that the destructive features he wishes to ascribe to the “anglo-saxon model” alone are in fact central to all of modern capitalist development and decay, and can no more be tamed out of imperialist society by sensible regulation than can rivers be persuaded by earnest lectures to run up hills. Contrary to petty bourgeois illusions on this score, there can be no retreat to a supposedly gentler, saner capitalism. It is perhaps the painful awareness of these stubborn facts that infects Hutton’s commentary of 17 May 2006 with such gloom.

“One day it will be for real. The capacity of the global economy to live with systematic abuse is not infinite, and the US and China are testing it to destruction. The fall in the dollar over the last few days and the knock-on consequences for the stock markets around the world make everybody feel queasy because those in the know are aware that we can’t go on like this. The US cannot finance $800 billion trade deficits with China and Japan’s savings for ever; one day it will have to stop. The dollar will collapse – or the Americans will slap on tariffs – and the open world system we have known since the war will begin to implode. One day, as I said earlier, it will be real; but it’s probably not now. What we want … is an orderly transition to a lower dollar, lower American trade deficits and higher spending in China. The trouble is that these days nothing happens in an orderly way; there is so much speculation that once the speculators smell a one way bet, it becomes a self fulfilling prophecy. Hedge funds and the tidal wave of speculative capital should be better regulated, but until disaster strikes there will be no appetite to do anything … Globalisation needs to be governed, but that is not on the agenda. So we wait, watch and hope for the best while preparing for the worst” (http://commentisfree. guardian.

The overproduction crisis is global in scope, and this so-called “globalisation” is ungovernable, no matter how many wake-up calls are issued by well-meaning capitalist hacks. This epoch of wars and revolutions will not end itself. It will be ended through the intervention of the toilers of the world.

In the words of Engels: “To accomplish this world-emancipating act is the historical mission of the modern proletariat. To grasp the historical conditions of this act and therefore its very nature, and thus to bring the conditions and character of its own action to the consciousness of the class that is destined to act, the class that is now oppressed – this is the task of scientific socialism, the theoretical expression of the proletarian movement” (Anti-Dühring, p 369).