LF: At the end of the first decade of the 21st century, the world entered into a major economic crisis. What were the reasons for this crisis which has effected the deterioration of living conditions of millions of working class in the world?
MR: In Capital, Karl Marx makes a distinction between “recurrent crises” of capitalism, which is related to business-cycle fluctuations known as “recession”, to the one which is called “major crisis”. From the late 19th century to present day, four such major crises can be distinguished: the crisis of the 1890s, the Great Depression of 1930s, the crisis of the 1970s, and the current crisis 2007-8.
Amongst the Marxist economists there are two interpretations of the causes of these major crises. Some believe that all four were caused by “the tendency of the rate of profit to fall” (such as Michael Roberts, “The Great Recession”, and William Thompson, “World Economic Perspectives”); while others (such as David Harvey, “Enigma of Capital”, “The New Imperialism” and “A Brief History of Neoliberalism”; and Gérard Duménil and Dominique Lévy “The crisis of neoliberalism”) argue that the first and third ones, can be imputed to phases of decline of the profit rate, but neither the Great Depression 1930s nor the current crisis is related to it directly. They argue that in these two latter instances the profit rate was entering into phases of limited recovery. The common point between these two crises was that they occurred during periods of “financial hegemony” (power of financiers) of neoliberalism, that is, phases in which the domination of capitalist classes, supported by its financial institutions, was unchallenged.
LF: Which interpretation in your opinion is more correct?
MR: I believe that the fundamental analysis of Karl Marx on the “tendency of the rate of profit to fall”, in the final analysis, is still valid. I do not agree with Gérard Duménil and Dominique Lévy, when they present three classes in society: the capitalists; the “popular class” made up of wage workers and lower-level salaried employees and what they call the “managerial class”, especially when they reduce the class struggle between the capitalist and proletariat class, to the important role of “managerial class” who can create crises and shift the balance of class forces by aligning with one of the other classes (capitalist or working class). I also do not agree with David Harvey’s analysis that class struggle between the two main classes (bourgeoisie and proletariat) is no longer relevant in resolving the crisis of capitalism, and it is the struggle of “dispossessed” (other oppressed layers) in the centre of the fight against capitalism because of the shift of crisis from moment of “the Process of Production” to “Accumulation by dispossession”. In spite of this, I still think, there is room to consider that in specific moments in circulation of capital, one of these moments as suggested by David Harvey, can trigger the crisis of capitalism, but does not change the nature of class struggle and does not deny the “tendency of the rate of profit to fall” which may follow as the result of crisis in other moments (this is in accordance with Karl Marx’s view, Capital, Volume 3, chapter 13). In order to show this, let us look at briefly the circulation of capital in capitalist mode of production as explained by Karl Marx (some points based on David Harvey’s “Enigma of Capital”).
Marx argues in Capital volume 1, that capital is a process (in motion) of circulation and not a static “thing”. To put it simply, capital is fundamentally about putting money into “circulation” to make more money. The primary form of capital circulation in Marx’s view was that of “production of capital”. Capital begins with money which is used to buy “labour power” and “means of production” which are then brought together in a labour process, under a given technological and organisational form, that results in a new commodity to be sold on the market for the initial money plus a profit. (Of course there are various other ways to make money. For example financiers lend money in return for interest, merchants buy cheap in order to sell dear and rentiers buy up land, resources, etc. which they release to others in return for rent and make money).
The next stage of the circulation is that a part of the profit, has to be capitalised and launched into circulation to seek even more profit, by purchasing more “labour power” and “means of production”. This is based on “coercive law of competition” (Capital, Vol.1, Ch. 24). That is, “production” for the sake of “production” in search of more money in competition with other capitalists. Therefore capital is committed to a “compounding rate of growth”. This circulation will go on, on and on (the “concentration of capital” according to Marx).
LF: Could you explain in more detail these ‘moments’ in circulation?
MR: Generally there are five moments in circulation of capital: 1- Initial Money (capitalist somehow finds and brings the money to market); 2- Labour Power (capitalist purchases labour power by employing the workers); 3- Means of Production (Capitalist buys tools and machinery etc.); 4- Process of Production (at this stage capitalist makes a commodity which can be sold more than its original cost of its production with a given technology- the surplus value from labour power is extracted); 5- Process of reinvestment (The Capitalist with this expanded money has to find a market to re-invest and re-start the circulation- “compounding rate of growth”). This process of circulation goes on, on and on in capitalist mode of production. The “compounding rate of growth” would only stop when there is a major crisis in one of the moments. The rate of growth required for on a world scale to sustain capitalism is an average of 3 % a year.
LF: Where does crisis occur then?
MR: Crisis can be triggered in any moment in this circulation, where the capitalist encounters an obstacle in the circulation process. But it must be made clear that crisis in other moments, to Production moment (rate of profit to fall), is only the effect of triggering the crisis in the Production moment, and on its own is not the cause of crisis. Let us briefly take each moment separately and see what are the causes of the crisis in each moment and how capitalists overcome it.
Moment 1: The Process of Accumulation of Initial Money.
This “money” originally comes from robbery, fraud and violently disposing the resources of other nations (Marx calls this “Primitive Accumulation”- Capital Vol. 1, Ch. 25). At this stage the capitalist has to enter the circulation with substantial money. There is a barrier to entry to this circulation as not anyone with small sum of money can enter it. Capital accumulation presumes that adequate amounts of money can be brought together in the right place at the right time and in the right quantities in order to launch that money into circulation as capital. Marx, treated this problem of the initial capital, in terms of “primitive accumulation” (the robbery of monies from the rest of the world). Eventually this accumulation to enter circulation will prove an inadequate capital, because the association of many capitals (eventually achieved through the corporate form, stock markets, etc.) is required to undertake large scale projects such as railways, canals and even large scale industrial undertakings. That means the “state power” and “financial system” has to be involved to assemble small-scale savings and surpluses and to redistribute the monies so to be assembled across a range of potentially profitable projects.
The trajectory of Marx’s argument to the present day is shown by the creation of a modern mortgage finance system such as in the United States which dates back to the 1930s (when a third of the unemployment was attributable to depression in the construction trades) and this laid the basis for the post-war suburban boom that played such a crucial role in preventing the US sliding back into depression.
Moment 2: The Process of Purchasing Labour Power
a) Labour Market.
Free circulation of capital can encounter a problem when labour is scarce or too well-organized. Wages rise at the expense of profits (“profit squeeze” crisis). The long history of class struggle over wage rates, conditions of contract (length of the working day, the working week and the working life) along with struggles over levels of social provision (the social wage) is proof to the importance of this potential limit to capital accumulation. This constriction was very marked in the core regions of capitalism in the late 1960s and early 1970s. This was the primary blockage that had to be overcome.
b) Labour ‘Shop Floor’
The labour process is where profit originates and capital is produced. What happens on the factory shop floor, in the fields or on the construction sites is therefore crucial. The discipline and cooperation of the worker is here essential to accumulation. Indiscipline and lack of cooperation on the part of labour is a perpetual threat that needs to be overcome either by co-optation and persuasion (the creation of quality circles, the mobilization of company loyalties and pride in work) or by coercion (threats of job loss or in some instances physical violence). The shop stewards’ movements, the factory councils and all manner of other forms of shop-floor organisation empower labour while the capitalists have to negotiate or fight their way to achieve a modicum of labour discipline. Capital here uses differences of gender, ethnicity, race and even religion to great effect to divide and rule in the workplace if it possibly can. While such differences have obviously played a crucial role in the labour market as well, it is here at the point of production where they become all-important.
Towards the end of the 1960s and well into the 1970s the problem of labour discipline loomed large in the core regions of capitalism. Off-shoring proved helpful to capital as did the availability of immigrants and “undocumented workers”. As in labour markets, the power balance within the labour process shifted markedly towards capital and much of the shop-floor resistance crumbled from 1980 onwards.
Moment 3: The Process of Purchasing the Means of Production.
At this moment, several technical issues arise around access to adequate means of production. But beneath this lies the possibility of “natural” limits to raw material supplies and to the capacity of the environment to absorb waste. The history of capitalism is filled with many phases when “nature” is held to be an ultimate limit to growth. This history is a very good example of how capital, when it encounters limits, exhibits considerable ingenuity in turning them into barriers that can be transcended or overcome (by technological changes, opening up new resource regions and the like). Because capital has successfully done this in the past does not necessarily mean, of course, that it is destined to do so indefinitely. Nor does it imply that past episodes of supposed natural limits were negotiated smoothly and without crises.
But, in exactly the same way that financiers have sometimes gained too much power and produced a general crisis by pursuing their narrow interests, so landlords and rentiers can do the same thing, as happened when the oil cartel, OPEC, added fuel to the crisis of the 1970s or when speculators drove up the price of oil and other raw materials such as food grains in the summer of 2008.
Moment 4: Process of Production and Contradiction of Capital
At this moment, classically speaking, the profit has to be made by capitalist by extracting “surplus value” from “labour power” purchased as commodity which is paid below its value. Here the major contradiction of capital occurs. The growth rates of capital, output, and employment gradually fall, labour productivity and the composition of capital rise, the share of wages in total income is constant or diminishing, and the profit rate declines. Marx talks about “historical tendencies”, (‘historical’ refers to a very long-term time frame; ‘tendency’ means that though accumulation in capitalism tends to follow such trajectories, the trajectory does not necessarily prevail due to the action of what Marx labels counteracting factors). It is in this framework that Marx defines the “tendential” fall in the rate of profit. This ‘law’ expresses sophisticated insights into the historical dynamics of capitalist economic growth (Marx in Vol.1 of Capital talks about “law” but in Vol. 3 speaks of only “tendency” and not “law”).
The simplistic explanation is that, in order that the capitalist can increase profit (surplus value), in a given industry and given time, he has to either increase the number of hours worked (duration of labour force) to the extent that more commodities are produced in given time (absolute surplus value). Or, reduce the value of the labour force with technology by renovation or introduction of new machinery, so that the workers in given time can produce more commodities (relative surplus value). Each of these steps create problem for the capitalists. They cannot allow labour to work 24 hours a day (without killing them through exhaustion and fatigue), they must provide time for workers to eat and sleep and have holidays etc. (basic means of subsistent has to be made available). On the other hand, the improvement in technology (increase of composition of capital), to the limit that all production is done by robots, will at the last analysis, take the workers out of the process of production, which would mean the elimination of labour force, which is the source of creating profit for capitalists (surplus value). This is dilemma for capitalists, and the source of the contradiction in the circulation of capital in moment of process of Production.
This issue, is one of the major disputed points in contemporary Marxist economics. Unlike David Harvey and Gérard Duménil and Dominique Lévy, who do not consider recent crisis based on “rate of profit to fall” theory, some Marxist economists argue that in 2008 the credit crunch was the trigger for the crisis, the underlying cause was movements in the rate of profit (tendency for the rate of profit to fall, analysed by Marx). They add that “the tendency does not work itself in a straightforward decline, but in rises in the rate of profit that produce an economic upturn and falls that presage the coming of recession. The rate of profit revived after the 2000-01 crash and rose till 2005 or 2006, when it collapsed again” (William Thompson).
In regard to the trajectory of this theory to today’s capitalist crisis, they argue that more and more capitalists will opt to speculate instead of investing. Since speculation does not produce surplus value, this speculative flurry will make the situation worse for the capitalist system as a whole. That is what has happened in the recent boom, but the recent boom has been supported by a gigantic bubble, mainly in house prices. This bubble only occurred in a few advanced capitalist countries, most notably the USA. But the recession began in America with the bursting of the bubble and was transmitted to the rest of the world through the US banking system. America showed by its devastating effect on the world economy that it remained a hegemonic power within world capitalism. This was despite fashionable talk at the beginning of the recession that countries such as China could decouple from the gravitational pull of the US economy.
On the other hand, David Harvey argues that, the cause of recent crisis has not been the result of “the rate of profit to fall” as the capital has not been involved in production as much as in accumulation of capital.
“How labour power and means of production are brought together depends upon the technological and organisational forms available to capitalists in a given time and place. The history of capitalism has been deeply affected by the ways in which productivity gains are achieved. New organisational forms such as subcontracting, the use of optimal scheduling have been just as important as new machines, robotisation and automation in achieving increases in productivity and in disciplining labour on the shop floor.”
Moment 5: Process of Reinvestment and Effective Demand
For capitalists, moving from “Money” to “Commodity” is much easier than moving from “Commodity” to more “Money”. At this moment, the new commodity produced has to be sold for the original money plus a profit. Someone, somewhere, must need, want or desire the product and have enough money to pay for it. Capitalism exhibits an astonishing history of the production of new needs, wants and desires, in part through the production of new lifestyles, but also an incessant barrage of advertisements and other subliminal means to manipulate the human psyche for commercial reasons. Not all such attempts are successful (history is littered with new products that never found a market) but in a world where the consumer accounts for more than two-thirds of the driving force for capital accumulation, at least in the core regions of capital accumulation, then the human limits to wants, needs and desires constitutes a potential barrier to which capital must perpetually attend in the search for compound growth.
This crisis is called by some as “under-consumption” crisis. Or by Keynesians a “lack of effective demand”. Keynes’ theory was to create jobs for the consumers by state interventions and regularisation of economy and fiscal policies, so that the problem of “demand” would be resolved by masses of workers, and capitalism can continue in existence without crisis.
LF: How is ‘Capital Circulation’ viewed as a whole by Marxists?
MR: According to David Harvey, in opposition to those who see the cause of present crisis explained by the “rate of profit to fall” theory, when capital circulation viewed as a whole, one can see a series of potential blockage points to the circulation of capital, any one of which has the potentiality to be the source of a crisis. He argues that there is no point in trying to cram all of this fluidity and complexity into some unitary theory of, say, a falling rate of profit. In fact profit rates can fall because of the inability to overcome any one of the blockages identified here. It is the task of historical materialist analysis to wrestle with the question as to where the primary blockages are this time around. But solutions at one point have implications for what happens elsewhere. The labour problem (both in the market and on the shop floor) that was central in the late 1960s in the core regions, could not be overcome except by opening up the coercive laws of competition across a global space. This required a revolution in the architecture of the world’s financial system which increased the likelihood of “irrational exuberance” within the financial system. The consequent wage repression depressed effective demand which could be overcome only by resort to the credit system.
Although I tend to agree with the analysis of David Harvey in indicating the shift of capital involvement from production to speculation based on the credit system to achieve accumulation, nevertheless the process which triggered the crisis in 2008 affected production directly and cannot be seen as a phenomenon outside of it. This line of thought naturally will lead David Harvey to wrong political conclusions, by ignoring the central antagonistic contradiction between “Capital” and “Labour”. His “class struggle” of the “dispossessed” (non-proletariat) can only be materialised, as Marx indicated, within the contradiction of Labour and Capital. By taking this turn away from the class struggle of two antagonistic forces in capitalist society. David Harvey also ignores totally the question of bourgeoisie state and necessity of revolution to establish the “revolutionary dictatorship of proletariat” (as proposed by Karl Marx) to implement the regulation of the economy. He also ignores the concept of “socialist consciousness” which is fundamental in changing the capitalist order to a socialist one (this will be dealt with in other article).
Karl Marx, sums it up clearly:
“The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline as compared to the mass of materialised labour set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labour, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must constantly fall.’ – Karl Marx, Capital Volume 3, chapter 13 (my emphasis).
What happened in 2008 crisis is fall of rate of profit “temporarily for other reasons” than in the moment of production. Therefore the class struggle between two main antagonist classes is decisive and remains important until the total termination of capitalist world order.
LF: In the light of above points, what is the definition of “neoliberalism”, “globalization” and “imperialism”?
MR: Globalization is a historical processes, typical of capitalism in general. Neoliberalism refers to a phase of capitalism. “Neoliberal globalization” means “imperialism in the neoliberal era”. Lenin contributed on explaining and updating the meaning of imperialism in his influential pamphlet Imperialism, the Highest Stage of Capitalism in 1916, during the carnage of the First World War. Sometimes, imperialism is defined very broadly to mean the domination of weaker states by stronger ones. But empire building, colonialism and military competition have existed ever since states have existed. By contrast, Lenin’s definition of imperialism was historically specific. For Lenin, imperialism was distinct because it represented–and was the product of–a new stage in the development of capitalism.
But “imperialism” has changed in form since Lenin’s time. Marxist economist Ernest Mandel, developed/updated the understanding of imperialism explaining that ‘late-stage’ capitalism will be dominated by the machinations – or perhaps better, fluidities – of financial capital. In his work “Late Capitalism”, Mandel argues for three periods in the development of capitalism. First is market capitalism, which occurred from 1700 to 1850 and is characterized largely by the growth of industrial capital in domestic markets. Second is monopoly capitalism, which lasted until approximately 1960, and is characterized by the imperialistic development of international markets as well as the exploitation of colonial territories. Third, is late capitalism, which displays such features as the multinational corporation, globalized markets and labour, mass consumption, and the space of liquid multinational flows of capital.
In the tradition of the classical Marxists, Mandel tried to characterize the nature of the modern epoch as a whole, with reference to the main “laws of motion” of capitalism specified by Marx, in order to show how the same forces which boosted profitability after the world war must ultimately turn into their dialectical opposites, and cause its decline. Mandel’s aim was to explain the unexpected revival of capitalism after World War II, and a long economic boom which showed the fastest economic growth ever seen in human history.
I believe this analysis is the best presented by the Marxist economists after Lenin’s famous pamphlet.
LF: What is the position of Revolutionary Marxists today, in the light of above explanations?
MR: The recent crisis of capitalism, leads us to revival of Marxism. The revolutionary Marxists, of course, have their vision and perspective of the future and what they wish to achieve. In order to construct this vision there are three interlinked studies and understanding to be achieved. Firstly, the understanding of Capitalism and its crisis (the roots of crisis, trajectory to present, and political conclusions). Secondly, the understanding the future society, that is the “transition from capitalism to socialism”. (the concept of socialism and the role of the state). Thirdly and most importantly, the organisational methods of surmounting and transcending from capitalism to socialism (the concept of revolutionary organisation and its intervention in mass institutions).
The first and second points is characterised by the development of Marxist theories – by returning to Marx (we are witnessing this trend on an international scale). The third point is characterised by construction of “revived avant-garde tendencies” (fundamentally different to traditional so called “Marxist”, “Leninist”, “Trotskyist” organisations which formed the caricature of revolutionary organisation in the past) by returning to the positive and negative experiences of the Russian Revolution (this process is not obvious to many activists and is counter posed by “neo-utopian socialists”). These three elements form a unity.
31 March 2011