Capitalist Crisis, Radical Renewal?

An Interview with Leo Panitch, Sam Gindin, and Greg Albo

Sasha Lilley: Liberals and leftists alike argue that the economic crisis was caused by a
lack of state regulation over the banks and financial markets. Consequently, they
conclude that we just need new regulation to keep the financial sector in line. Why don't
you think that's the case?

Leo Panitch: Well, the cause of the crisis was certainly related to competition in the
financial sector. But that competition was to some extent the product of state regulation.
The American financial system is certainly the most regulated financial system in the
world, and probably in history, if you measure it in terms of the number of pieces of
legislation, the number of regulatory agencies, and the massive amounts of regulation to
which finance is subject.

So, yes, there were changes that allowed for more competition in finance, although those
changes were only a matter of closing the barn door after the horse had bolted. It was
already the development of finance that made the old New Deal regulations impossible.
The state then removed those limits and encouraged further competition in finance. So it's
just a misunderstanding of what's really going on. There's a sense that the state didn't do
its job in constraining markets. And there's a confusion about what a capitalist state is. A
capitalist state responds to and sponsors and facilitates markets. The notion that it's
there to restrain markets, to restrain capitalism, that if only it would do that it would
remove the contradictions of competition in capitalism, is simply a cockamamie way of
seeing the world. Although unfortunately it's the way in which it's ideologically presented
to us.

Sasha Lilley: Much of this may appear counter-intuitive since the dominant narrative on
the left is that over the last quarter century the state has retreated and let markets run
unfettered. Could you give us some concrete examples of the ways the state actually
facilitates markets?

Leo Panitch: At the most basic level, you couldn't have contracts. You couldn't have
property without all of the things that the state does in the form of law, in order to
guarantee to one side of a contract, or to one capitalist to another, that their deals can be
validated. So at the most basic level the state is in there.

But more than that, states are oriented to facilitating accumulation on their own terrain.
And some of them, the imperial states like the American, are oriented to facilitating
capital accumulation and the spread of markets to do that around the world. They do that
in a myriad of different ways. People think the New Deal regulations were brought in to
constrain finance. Yet in many ways the Glass-Steagall Act that separated commercial
from investment banking, for instance, was adopted in order to stabilize finance and to
nurture it back to health. Through the whole of the post-war period there was a very close
corporatist relationship between the banking sector and the regulators. The regulators
were oriented to nurturing finance, not only back to health, but to a new stage of
development. And that's what began to happen by the 1960s.

Some of the old constraints that were put on the separation between commercial and
investment banking then began to make less and less sense as finance was now very
powerful and expansive and spreading around the world. And you got some removal of
those. The big example was the 1975 New York Big Bang where New Deal price-
ceilings on what brokers were allowed to charge for buying and selling stocks for people
were broken down. They were mainly broken down because pension funds and other
institutional investors were buying very large blocks of them and they wanted discounts.

Another example is the remove of Glass-Steagall, the separation of commercial and

investment banking, which allowed commercial banks to be involved with derivatives
and acting as brokers and selling insurance and so on. But that had already been broken
down. It was never applied internationally and it had broken down domestically in the
United States since the early 1980s. So it was really changing the legislation after finance
had already expanded in the way it had.

Sasha Lilley: Coupled with the notion that deregulation is the cause of our current
economic woes is a belief that finance is simply a parasite on the real economy. What
you argue, however, is that although part of finance is obviously speculative, finance
actually plays a crucial role for accumulation in general. Can you explain why?

Leo Panitch: Finance is speculative and, yes, it is very much about trying to make
money by trading on money. There isn't the kind of Marxist connection between money
commodities—money in the classic sense of producing a thing, a good. I think that's
where the misconception comes from.

But no production takes place with out the provision of credit. And increasing no
production takes place with out the provision of credit to consumers. And finance has
been crucial to the dynamics of expanded production. Especially in terms of globalization
and financing the means of integrated production right around the world.

So when people for instance speak of derivatives as simply speculation, there certainly is
speculation involved, but you couldn't have somebody, say Wal-Mart, contracting with a
supplier in China to produce something that will be on Wal-Mart shelves in the United
States next winter, unless both parties were able to find financial intermediaries that
would allow them to hedge the difference in the exchange rate between what the dollar
and the renminbi is now and what it will be next winter. Or do the same with what
transportation costs will be at that time. Or do the same with what interest rates will be at
that time. So these derivatives are means of buying insurance in relation to fulfilling a
contract for the delivery of things that are produced.

You simply couldn’t have global production with out the role that finance plays just in
this respect, and I'm not even getting into the role that finance plays in terms of venture
capital, which was very important in terms of the development of information and
technology revolution we just lived through; for the role it plays in terms of the role it
plays in terms of facilitating investment. You could do the same for the kind of role that
finance plays in terms of making indebted consumers into viable consumers. And you see
that through credit cards and many, many other aspects of the role that finance plays. And
that even has to do with the role that finance played in housing, which led to subprime
crisis. People were taking out second mortgages in order to sustain their consumption in
part. Now you can go even further to look at the role that finance plays via channeling
workers savings into pension funds and the role those pension funds play in investing in
stock markets, investing in derivatives, and so on, which has to be traced through how
that links to production.

It's an illusion to imagine that finance is out there in some greedy Gordon Gecko world
and that is “bad capitalism,” rather than what GM does which is somehow “good
capitalism” and why GM was in the tank was because of the Geckos of this world. Not at
all. This is capitalism and both productive capital, in the sense of industrial
corporations or retail firms like Wal-Mart, and the big banks are part of the totality
and we need to understand them in terms of the way they link with one another.

Sasha Lilley: Various Marxist critics have argued that the financialization of the
economy is capital’s means of addressing the underlying stagnation of the “real
economy,” of industry in decline. The argument goes that the current crisis is part of a
long downturn starting in the 1970s and capitalism’s ill-health has been masked by a shift
into profit-making through all sorts of incomprehensible derivatives and forms of
speculation. You three see things quite differently. How so?

Sam Gindin: To elaborate a little more on what Leo was saying: part of the role of
finance—once you see it in terms of capitalism—is to discipline and restructure the
so-called real economy. It's been fundamental to that, imposing discipline on every
factory to be more competitive or finance will go somewhere else, to reallocate capital
across several sectors, venture capital, but much more generally. So finance has been
fundamental to that.

The other way that finance has been absolutely crucial too, is to understanding capitalism
in terms of its imperial dimension. It's been fundamental to capitalism actually
penetrating other countries, imposing certain conditions if they want the finance, putting
the United States in a position where the American state is responsible for managing
capitalism more generally; and for integrating the working class—in addition to them
using credit in the macro sense that it keeps the economy going—the involvement of
workers in the circuits of capitalism in terms of housing and pensions and their assets
rising. It’s also been a socialization of workers.

Now in terms of specifically the question of decline, if you leave aside looking at specific
numbers for a second and just think about what's happened over the last quarter of a
century, it actually looks like one of the most dynamic periods from a capitalist
perspective—not from a worker perspective, but from a capitalist perspective. It's a
period in which you've penetrated China. You've penetrated the former Soviet Union.
You're now penetrating the enormous potential of the Indian market. You've seen a
powerful commodification of things that used to be seen as part the Commons. Part of
what government provides has been privatized as sources of accumulation. You've seen
very radical breakthroughs in technology over this period in terms of that kind of
dynamism.

And when you actually look at the numbers, what you do see is that profits have actually
recovered from the lows that they were. They're not at the peak they were at in the 1960s,
but that was a unique period. And the restructuring of the economy has been very
dramatic across sectors. If you're looking at the American economy, it has restructured
geographically. It has restructured in terms of what sectors are dominant right now. The
importance of business services has become a very fundamental part of the economy,
especially in terms of the American global role. High tech in the U.S. has grown
dramatically. The U.S. has been importing a lot but it has also been exporting a lot.

So I don't think there's been a lot of credibility to the argument of the American economy
having declined. The real problem we have is that all this restructuring has gone on and
workers have basically been pretty passive victims. They've accepted this. They haven't
in any way been acting as a barrier in terms of putting other social goals or social values
on the agenda. And that's allowed capitalism—American capitalism in particular—to
restructure at will. And it's done really well in terms of accumulation.

Sasha Lilley: You mentioned that finance has allowed the U.S. to play a particularly
imperial role. How does the U.S. exercise its imperial hegemony, as you see it?

Sam Gindin: The way we've been trying to think about it is, yes, there's direct
involvement in terms of occupation, there's direct involvement in terms of transforming
so-called failed states when there's no other mechanism of doing this. But the crucial
point about the American empire is that unlike national empires of the past, which
actually carved up the world, this empire is trying to create a global capitalism and is
acting on behalf of global capital and penetrating through capitalist institutions. That's the
important element of this empire's penetration.

If more American investment is going abroad and less is in the U.S., if the U.S. share of
global production is going down, that's often interpreted as a symbol of decline. But in
fact what it is signifying is the spread of capitalism, its penetration into other societies,
transforming social relations in those societies, transforming the states in those societies
so those states actually take on responsibility for supporting global accumulation,
including American accumulation within their own borders. You're creating a global
capitalism within which the American state and American capital have a structural
power. The structural power comes from the fact that the U.S. is still the dominant
country in terms of technology. It's increasing playing a crucial role in terms of what I
raised before—business services, accounting, legal consulting, engineering, and of course
finance. There's more concentration of American power in finance then there is in other
sectors. So it's very important not to see imperialism as being only about territorial
intervention. And it’s very important to understand that this kind of empire grows
through actually spreading production, in a sense sharing production globally in a
particular way.

Sasha Lilley: Clearly, the type of economic regime of the last quarter century is now in
crisis. Is the neo-liberal model, in which the U.S. was in some ways the lead player, now
dead?

Greg Albo: I think it's very hard to claim, given the way that the crisis unfolded, that
neoliberalism is over or dead. Certainly we're entering another phase of it where many of
the contradictions that have been internal to neoliberalism from the beginning have
compounded and are now taking on different form. One could begin, of course, with
financialization and the role of financialization in neoliberalism from the beginning and
financial crises being one of the elements of the developmental model of neoliberalism.
And clearly the way that some of those characteristics of finance had developed in the
last decade, some of the unregulated forms of collateralized debt obligations are mutating
into something quite different and we're likely to see some new regulatory forms in and
around many of those markets. But we're unlikely to see those markets abandoned. We
can see the way that the regulatory reform issue in Congress is going forward that these
aren't radical interventions in overturning the forms of financialization that have been
central to neoliberalism. I think that's one contradiction or problem that has been present
that is still there.

We see the same thing with inequalities. Wage inequalities, income inequalities, the
lowering of transfers to people on welfare, and so on have been another aspect of the
developmental model of neoliberalism. In many ways, that's at a crisis with the rates of
unemployment higher, the rates of people on welfare are higher, and the income
inequalities keep on expanding. There are some pressures from below to address those.
But as a whole, without a larger political movement we can see also the way that the
crisis is unfolding that that is also not fully on the agenda—it's not on the political agenda
to start overturning the income distribution dynamic of neoliberalism. In fact, the way the
austerity packages are moving through the various capitalist states of the world, the
workers and the poor are the key people who are paying for the crisis.

Similarly, we can see some of the tensions in and around the balance of payment issues
and current account differences. There are some tensions that have been always internal
to neoliberalism between the current account surpluses of certain zones of the world and
the current account deficits of other parts of the world, particularly the U.S., and there's
some tension in and around that. There has also been no real route out of it as of yet, with
Europe in problems and not being able to move into a major importing zone and the
countries of East Asia not wanting to reverse themselves either. It's likely the situation of
the current account deficit of the U.S. will be continuing and some of the asymmetries in
the world payment system, those are likely to continue. So in many ways, we're definitely
in another phase of neoliberalism as a result of this crisis. Certainly, its clear that the
political forces in no part of the world have been able to break out of the neoliberal
political policies or the balance of power that has backed neoliberalism, that is, the way
that finance and industry have supported neoliberal policies at the level of the state.
Sasha Lilley: So is this, then, an impasse based on a crisis of ideas on the part of elites?
Or has neoliberalism still not yet run its course as a viable engine of accumulation?

Greg Albo: Neoliberalism is linked to a particular policy framework within capitalism

towards a certain balance between the state and market, but as Leo was pointing out, not
necessarily a withdrawal of the state, but the market playing the leading role in the
determination of where investment is allocated and how incomes are formed. And within
that general framework the ideas of neoliberalism can adapt to a new moment,
particularly if there are no other political forces on the agenda, the ideas will be generated
and something will come up and this model of capitalism will continue.

I think there's a real bankruptcy of ideas among liberals and social democrats. I think
that's where the key flaw is—in the hopes that somehow state power can simply be
reasserted over and finance constrained as a key way that an alternative of reform could
come forward and, alongside that, an expansion of various regulatory structures. I think
modern social democracy has failed not only at the political level, but also fails to
understand many of the dynamics of contemporary capitalism.

I think the problem on the left actually is not a question of ideas as many people often put
forward. I think there are many ideas on the left on how to address the crisis—from
work-time reduction to various ideas about green conversion, the traditional ideas on the
left on expansion of the social sector. There are many, many interesting new ideas about
restructuring the state and planning. The problem really on the left is one of political and
organizational capacities right now. That it is just not present, so the left really isn't on
the political stage as a political force, both at the level of unions and social movements.
Certainly in North America, we're nowhere near having an adequate political force that is
capable of offering an alternative vision, an alternative agenda, especially being inventive
about how new social forces might be organized.

Sasha Lilley: As you are suggesting, there’s clearly more than one route out of the crisis.
How would you envisage a route that would benefit the working class? I was going to ask
what route would not benefit them, but presumably that’s what we're seeing right now.

Greg Albo: Why don't I start with the route that is not benefiting them? Clearly, the route
that is being put forward right now is that of the capitalist class and the existing states
have had a complete sway in setting the agenda. The initial responses that had emerged
with some strike responses, some housing occupations, have largely fallen to the side,
although I'll come back to the Greek case in a second. They've had a quite wide swath to
cut in setting a new agenda and they're doing this with minor reforms around regulatory
structure. Particularly, what they're managing to do is paying for the financial crisis and
offloading so much of the bad debt into the state sector and the state sector's emergency
response in terms of expansion are now focused on what the International Monetary Fund
has called for as a decade of austerity. Meaning that transfers to the poor are to be cut
back. Public sector wages are being cut back in the order of 5-10 percent. Income
transfers are being cut back. Other forms of social programs are being cut back. And this
is being backed around the world by both conservative governments and social
democratic governments. They've had complete opening to set that agenda.

There has been little response. The only response that has occurred has been in the Greek
case so far, which has generated a large number of walkouts and general strikes, days of
action, and in some of the other Mediterranean countries as well. But they haven't been
able to push aside the move by those governments to implement these really draconian
austerity packages. Right now the route out of the crisis is particularly being set by the
capitalist class, in our view within the framework of neoliberalism—although
neoliberalism has taken many forms, maybe we'll want to call it something different—but
it was within that agenda.

It is very difficult to see any social democratic response at the moment emerging, that is,
some alternative reflationary strategy that would have the tax burden shift more onto the
capitalist class through various kinds of crises taxes or taxes on financial speculation of a
major kind; not the small transaction taxes being discussed as basically a backstop for
future financial crises.

So what you're left with is largely the question of whether you can begin engaging the
union movement, the social movements, and radical political parties in a new project of
organization and challenging capitalism. In an initial sense, I think that's a big question
more along the lines of organizing, than per se a reform response to the crisis. It has a lot
to do with new forms of attempting to organizing unions and allowing much participation
of workers in unions. A whole range of issues is involved there.

Within the specific ways there could be policies of reform be put forward now, there's all
kinds of things that could be for it in the context of building such a counter movement:
one could be arguing for campaign around free public transit, as a way to respond to the
crisis in terms of a green alternative that would have the popular resonance among both
ecologists and workers and poor people. Work time reduction should be on the agenda as
another response. It would be relatively easy to begin campaigns for a crisis tax—that is,
a special levy on high-income groups and on the financial sector—and so on. It's easy
enough to come up with a range of programs or reforms that we could struggle for. Many
of our movements are putting forward some of those across North America, particularly
in the major cities where there are a lot of struggles around urban reform and the whole
range of housing issues as a consequence of the crisis. The question is really is building a
renewed left with a much different political capacity.

Sasha Lilley: Sam, what have been the impediments to organizing a robust labor
movement and left under neoliberalism that are obstacles in renewing the left now?

Sam Gindin: One of the problems is that the argument that this is no alternative is
actually a serious one—that if we don't actually get more radical, it’s hard to imagine
alternatives in the middle. One impediment is not wanting to put forth radical demands,
thinking that it’s better to be moderate at this time. In other words lowering our
expectations. I think that's been a mistake.
The other mistake has been to think that we're going to build a movement by always
predicting that capitalism is going to decline or that it will fall apart or break down. We
have to be able articulate the argument that capitalism is bad even when its working well,
that capitalism is now a barrier to human development.

And the third thing I think, which relates very much to what Greg was getting at, is we
have to understand that under neoliberalism it wasn't just a question of the working class
being under attack, but it was also integrated into neoliberalism in certain ways.
Significant sections of the working class actually increased their consumption through
working longer hours and through debt. They're very much more individualized.
Inequality has fragmented the working class.

When we think about all those kinds of things, what we recognize is that the working
class has been shaped and formed and reformed through neoliberalism. And if we're
going to overcome that, we're going to need some kind of organization that actually
builds the working class. There's nothing inherently radical about the working class. It
just has the potential to be radical. There are all kinds of potentials to mobilize around,
from the legitimacy questions you raised, to the volatility in finance that Leo emphasized,
to everything that Greg talked about. So the potential is there but the question is how do
we actually build the working class into a class.

I come back to what Greg said: a critical point is that we recognize that we're fighting
capitalism and we recognize how crucial building our own capacities for analysis, for
understanding, for acting democratically internally—how crucial that question is.

Sasha Lilley: How do we challenge the integration of the working class into capitalism
through credit card and mortgage debt? What kind of politics could address that crucial
dimension of the position of the working class over the last several decades?

Sam Gindin: I think the poor are going to have more trouble getting credit, but the
answer shouldn't be to make it easier for them to get credit. The answer should actually
be to talk about things like public housing. But for the rest of the working class, I think
there's going to be revival of dependency on credit, on pension funds, on trying to survive
by retiring later, which there will be a lot of pressure for.

Sasha Lilley: Presumably that's already happening. Consumption is up again and

presumably that must be consumption based on debt.

Sam Gindin: All of this is going to continue and get stronger. I think the kinds of things
we have to talk about is actually thinking about breaking out of this by raising issues that
may not be on the agenda tomorrow, but if we don't start talking about them now they'll
never be on the agenda.

One of them is to start talking about nationalizing the banks. Another thing is you can
actually look at a specific crisis. If you look what's happened in the auto industry, without
the left putting things on the table what unions end up doing is demanding we save our
company, we become more competitive, which essentially means: let somebody else be
laid off. And the kind of things we have to talk about is to say: the issue isn't about saving
the company; it's about saving our productive capacity which can actually make useful
things. It's saving our communities. The issue isn't to be competitive, it's actually to
make useful things and start thinking about making democratic planning.

And if we link that to the environment for example, if we said that the environment
means that everything is going to be changed about how we produce things, how
infrastructure works, how we communicate, transportation etc., then the question is why
can't we mobilize around plants closing in the auto industry that have the equipment, that
have these great skilled workers, and start thinking about using that in a socially useful
way and converting it? If you had those kinds of structures in place, you would see
workers saying, our company isn't investing or our company is starting to disinvest and
move some place else—let's take it over. Let's insist it is converted to some useful ends
here.

One of the issues we just have to recognize is that there's logic to it. It seems
commonsense in a lot of ways. But it isn't going to emerge through unions. Unions are
still going to be defensive. They still think in a very sectionalist way—in other words,
they represent their members or they represent workers at a particular company. That's
why we have to build something that goes beyond the unions. It has to have its feet in the
unions as well; unions are still important institutions. But unless we can start thinking
about how we build the kind of organization that's really a cultural change and changes
expectations and can actually say, this is what we have to talk about and it involves doing
something immediately, which will raise contradictions because the other side is going to
respond, and then we'll have to think about how we go further. If we can't build those
kinds of spaces—which are psychologically crucial, because it makes people feel like
they are part of something, that if it isn't going to win tomorrow there's actually a way of
fighting back and getting some place—I don't think we can get anywhere. Because people
will just return to saying, I have to survive and the way I can survive is by working more
hours, going into more debt, hoping the stock market recovers, hoping that they fix this
rotten system so that I can benefit from finance, etc.

Sasha Lilley: Why you think work-time reduction is important not simply for people's
wellbeing but politically? And why you think that it is an achievable demand to make at a
time when workers often have very little leverage to shorten their hours at pay that they
can survive on?

Sam Gindin: That's a terrific question. I think if you look at the formation of the trade
union movement, a critical demand was around work-time. I think this is generally true,
but I know it's especially true in Canada. The importance of it was that workers actually
wanted time to read and to do other things. And I think that's of crucial importance of
work-time today. That the workforce has changed. Workers used to be able to be active
by exploiting the partner who would take care of the other chores at home. That's to some
extent foreclosed right now. If people can't find time to be active and to read and to think
and to learn, we can't build a political movement. So politically, reduced work-time I
think is one of the most important demands. If the only reason you're getting reduced
work-time is so that you can get another job, that’s of course is a different thing.

The question of why is it possible: it's only possible by building the kind of movement
that can win it. It's possible technically, as we're living through this incredible period of
productivity growth. Productivity has been phenomenal. Productivity growth in
manufacturing is much higher than it was in the golden 1950s and 1960s. So the technical
potentials are there. The question is how you organize for it. That's one question.

I think a lot of that means you can't just think about winning this in your own workplace.
We don't have that kind of strength. It does mean thinking about how do we actually win
these things by building the class in terms of making it a class demand and thinking of
the class more broadly, to that we're actually mobilizing the community perhaps in terms
of arguing that this about sharing good jobs where that’s the issue. But in terms that this
is a general demand—it shouldn't just be for workers who have collective agreements. It
should be a general demand.

The other thing we have to think about—and is very difficult, but we really have to
address it—is that it also poses the question how much do we want consume and what
kind of consumption and what we think about our living standards. I'm convinced that if
we only think of this in terms of, we want to keep consuming more in the sense of more
of the present structure of consumption but have reduced work-time, that we won't go
anywhere. That won't win. We have to think in terms of wanting a different kind of life,
where we can enjoy life in all kinds of different ways in terms of public consumption and
different forms of consumption. But it can't just be the assumption that we can all just
keep having more as individual consumer and have less work-time and have a different
life.

Greg Albo: It should be actually one of the top things in our demands for addressing
global climate change as well, because it has a lot to do with changing consumption. It's
probably the most equitable way of dealing with climate change issues.

Sasha Lilley: At the start of this crisis, as government stepped into rescue failing banks,
you called for the nationalization of the banks, pointing out that such nationalization had
partially taken place. At this further phase of the crisis, do you think a renewed left
should still champion this demand?

Leo Panitch: Yes and I actually think that the condition of achieving everything that
Sam and Greg were talking about is in fact that. It's not the only condition of it, but it is a
necessary condition of it—necessary in the sense that the decisions about what is
produced and what is invested and how its produced and where its invested need to be
democratic ones. They need to be made in a social, planned way. That can’t happen
unless the portion of the surplus, if I can use that term, that passes through the financial
system and gives us the funds for credit in capitalism is transferred to a public decision-
making process and a planned one, whereby we use the little extent to which the state is
now democratized to begin a process of democratizing the economy—and in that process
also much further democratize what we now know as governments or the state.

What happened with this financial crisis was there was an enormous opportunity to turn
banks into public utilities. Instead we did get the nationalization of some bank—although
to some extent we just got public funds put into banks without even a degree of
repayment or public control. But we didn't get them changed. On the contrary, when
money was put in, governments said we want to be paid back in full, we want the tax-
payer to be treated as though he or she was an investor, so we want the highest return
possible. Which means that you're pushing the banks to be commercially competitive. In
that sense, you could say as someone in the next Socialist Register writes, it wasn't so
much the Treasury that nationalized the banks, it was the Treasury that got privatized by
the banks, insofar as their interest becomes one of getting a high return for the tax-payer
—and then of course giving the banks back to private ownership.

That was a tragedy. It was to be totally expected due to the reasons Sam and Greg talked
about in that we didn't have the kind of political alignment that would conceivably have
led to what I'm describing taking place—banks being turned into public utilities and the
whole process of investment being democratized. But that is what is needed.

It's a lot to take on, but the way we need to link the kinds of demands that Sam and Greg
were pointing to with that very much larger issue of taking the banking system into the
public domain and democratizing it, is to say we can't really have public transit, and free
public transit, unless the state can get hold of at the municipal level at the state, at the
federal level, can get hold of those funds that pass as credit through the banking system
and transform the uses to which that's put. There's absolutely no reason rationally why we
need to think of funding this only through taxation, rather than through the savings that
we all are part of. Right now, pension funds are invested in all kinds of things related to
financing capitalism. Pension funds, workers savings, we could have a universal pension
plan which is directed towards funding government deficits beyond simply the tax
system.

There are all kinds of ways in which we can make people see how these things are linked.
This isn't something out there, nationalizing the banking system. It's something intricately
related to the kinds of reconstruction of production, the conversion of production, that
Sam was pointing to. That people are going to be able to say, we're not just losing this
company, we're losing the enormous resources that these workers have as mechanics, tool
and die makers, accountants, teachers, you have it. What we need to do is be able to do is
turn the savings of our society towards the kinds of production that is socially useful,
rather than is commercially driven, the way it now is.

Sasha Lilley: Leo, you've stated that we're possibly living through the fourth crisis of
capital in a global sense. What were the other crises and how did their resolutions affect
the degree to which capitalism extended itself globally?
Leo Panitch: This arguably is the fourth. The first great crisis of capitalism was from
1873-1896, it's often argued. The second was the Great Depression of the 1930s. The
third was the crisis of Keynesianism and of profits in the 1970s. And we may be entering
the fourth. Each of those crises had different causes and different outcomes. They are not
all caused by the same thing and they don't all lead to the same type of outcome.

The first one produced an orientation toward internationalizing capitalism, but within the
framework of competing capitalist empires. That eventually led to World War One. The
second one actually broke down and stopped capitalism’s internationalizing tendencies
and you got the kind of beggar my neighbor protectionism that led to World War Two.
Out of World War Two, you got the American state in particular becoming the kind of
empire that was determined to get the globalizing tendencies of capitalism back on the
agenda. It succeeded in that. But that led to contradictions by the 1970s, which ushered in
the profit squeeze of the 1970s, partly having to do with the way which workers were
strengthened under the commitment to social welfare and full employment reflecting the
power of democracy that had developed within capitalism in the 20th century. That then
led to, in a sense, workers being too strong for capitalism. And it led to a profit squeeze
and was resolved largely through the defeat of the working class, the defeat of trade
unionism, and the further expansion of capitalist competition at a global level.

This crisis certainly no one could say was caused by workers being too strong. If
anything it was caused by workers being too weak—too weak in the sense that they were
still very much tied into capitalism, as Sam said, they were trying to be consumers by
being indebted consumers. They were trying to look to their retirement by engaging in
speculation, whether through their pensions or expecting that their homes would increase
in value, the main asset that many workers own in a capitalist housing market. So in a
sense, the kinds of contradictions in finance that pertain to the workers’ side of the
equation reflected the weakness of workers, their individuation, their fragmentation, their
incorporation as Sam said into capitalist finance and capitalist completion.

I think that, however, these are very, very contradictory processes and it isn't impossible
—and you see in California the evidence of this—for indebted workers and indebted
students to rise up and begin to realize what that means for them, what that means for
their lives, in terms of having to pay off these debts in a way that keeps them tied in
almost as debt slaves to the system. In California, a campaign by students to have their
student debt forgiven or to allow there to be no penalties for a default on that student debt
would now be a very important element in the kinds of struggles that are taking place in
the educational system. But insofar as that were to be viable, it would have to be
connected to the much larger issues that I was talking about in terms of economic
planning and the taking over of the financial system. And that's a very big political
agenda.

Sasha Lilley: You three have been speaking about the ways that neoliberalism has made
it difficult for workers to organize in their interests, to have the time to engage in radical
politics, or politics at all. Looking at the other side of the equation, what are the
vulnerabilities that this system has that radicals should exploit?
Leo Panitch: There are so many that we could go on talking for weeks and months. The
vulnerabilities are of the kind that produced the great unionization movements and the
social movements and socialist parties that emerged out of the first crisis from 1873-96.
They're the types of contradictions that led people to break with the AFL unions in the
1930s and form the industrial unions that brought in everybody that was in a particular
plant, whether they were highly skilled tool and die makers or whether they were janitors
into the same organization. They're the same type of contradictions that led to the crisis
of the 1970s, being also the moment at which the new social movements were at their
height. So there are all kinds of opportunities. And to be very specific the kinds of
struggles in which students and teachers are engaging in California provide an enormous
opportunity to make connections between the cutbacks that are taking place, the way in
which the public sector in California is being made to bear the cost of what was a crisis
not at all caused by the public sector, that the link should be made between that struggle
and what we've been talking about doesn't seem to me to be too far a stretch.

It doesn't at all seem to me impossible that we should be talking today about taking the
example of the 1930s and the creation of a new type a trade unionism and, to pick up
what Sam was saying, the need for the type of labor organization now, which isn't
confined to a given industry but sees itself as a much broader class organization and sees
the struggle for free public transit as important to the retention of their jobs—but in the
way that would involve the conversion of their workplaces in a massive way. One could
look at the suicides in China that recently led to a wage increase being given by Honda in
their plant there as part of a much broader set of struggles for a working class that has
grown in numbers enormously in this period of neoliberalism.

There has been massive proletarianization around the world. One could look forward, it
seems to me, to enormously heightened level of class struggle of the kind that would be
enervated and encouraged by looking at what's going on in one place and what's going on
in another. It's not impossible that the strikes that are taking place in Greece that Greg
was referring to can have an exemplary effect. We need to do all we can to make them
have an exemplary effect. So, yes, I think there are enormous opportunities. What we
need much more of, as Sam was saying, are the kind of organized political forces which
can intervene in a productive way to encourage that, to sustain it, to give it a broader
focus. As Greg was saying, the old parties, the social democratic parties, the left of the
democratic party, etc, and also those old Marxist formations that either were powerful or
looked like they might be in the 20th century and have now passed into history—we need
to find substitutes and alternatives to them.

The anti-globalization movement was a very, very exciting development from Seattle on
and hopefully people in it will begin to see that we need more than protests at IMF
meetings and more than annual World Social Forums. Those are useful, but we need to
organize out of them. They shouldn't be a substitute for building permanent organizations
that can contest for power. There's been too much of a tendency in the movements of the
last decade to be afraid to do that and to believe that it’s enough to simply protest.
Sasha Lilley: There was a very interesting editorial in the Financial Times by the
historian of the French revolution, Simon Schama, worrying that this year may be the
moment where people go to the streets. He made a parallel with the French revolution
and the lag that often occurs between when people are hit by a crisis and when they
respond. Just looking around us during this summer, perhaps, of our discontent, there is a
crisis unfolding in Europe, which of course looms over the United States and North
America, and in the Gulf of Mexico there is an absolutely horrendous oil spill, which is
hard to fathom except through the lends of the profit motive and private capital’s relation
to the state. Sam, do you think that there are opportunities now, despite the weakness of
institutions of the left and labor, which we might be hopeful about?

Sam Gindin: Yes and not just in terms of what’s happening now. This is going to
continue. There's going to be more volatility. There's going to be more pressure on people
to pay for the exit to this crisis. Insecurity isn't going away. Inequality isn't going away.
People see what's happening in the Gulf, they see the kind of resources the state can
mobilize when it's trying to save the banks and they can contrast it to the state's
intervention in other ways. They're cynical. They're skeptical. I don't think you have to
convince people that capitalism is wonderful. You just have to convince them that there
is something they can do about it.

My sense is that these things explode in unpredictable ways. But then the question is
always how do you sustain it. So the opportunities are there and it's encouraging
whenever you see a struggle someplace that you can learn from or be inspired by. And
then there are local things that are going on. In Toronto we've all been involved in the
creation of something called the Greater Toronto Workers Assembly. It was really an
attempt to say: let's just not have another protest against the crisis; let's actually talk about
the fact that none of the things we do right now in the movements, or in the unions, or on
the left actually match what we're up against. And we need to get together on a class-
based way that actually speaks to capitalism, that's actually rooted in the community, in a
sense of organizing here. We're focusing on a free transit of the class issue. We're
focusing on how does the public sector respond in a time of austerity. And we're arguing
it can't just respond by trying to get higher wages and isolating itself. It has to actually
say: we have to put the level and quality of administration of public services on the
agenda and lead in the transformation of public services or we're going to be killed.
These things evolve and they're hard to do, but they've got people speaking and finding
spaces to address these things. So I'm optimistic, but not in a sense of being ready to
predict that it's about to happen. But the opportunities are there definitely.

Sasha Lilley: I want to end by asking Greg that same question—what do you see as the
opportunities in this moment despite the obstacles that you have laid out?

Greg Albo: I think there are four. One is that the American and NATO single war across
the Middle East is fracturing in many ways, from Palestine to Afghanistan, through some
of the problems in Iraq. So I think some defeats and some even positive movement,
particularly in Palestine, will be very positive for the global social justice movement.
Secondly, I think the continuing momentum and the breakthrough in the Andean
countries as challenges to neoliberalism—not that either Bolivia or Venezuela have
managed to break-through neoliberalism, but they have been combining, developing new
political forces with anti-neoliberal and anti-capitalist political agendas—is helping to
reform the left across the continent of Latin America and it’s a very positive development
globally. I would put alongside those the developments that have occurred in both Nepal
and Thailand. Obviously the Thai case is very ambiguous in some senses, with the
leadership of the Red Shirts, but on the other hand it was an incredibly moving display by
peasants and workers in the city demanding democracy.

As Leo pointed out, the developments in Europe are still unpredictable. They can still
open up from Greece to Portugal with a more radical left putting demands on what is
quite clearly an unworkable solution that has so far been put forward in dealing with the
Greek crisis. The political momentum developing in Europe is quite unpredictable and
could start making some linkages with the fights in France and Britain and Germany as
the austerity packages start moving through those countries. So I think that's very
positive.

I would identify, like Sam, a lot of the developments that are occurring largely in urban
cities in North America, both in Canada and the U.S., which are finding new ways to
connect organizing with unions with migrant rights struggles and with community fight
back initiatives, which I think are forming a different kind of left than we've had for a
long time. It's forming a left that is more open for new political initiatives, is more open
to longer term organization-building, and I think is breaking from the lock that has been
on the left both in Canada and in the U.S. of trying to fight our politics either through the
Democratic Party or the some combination of the Liberal Party and New Democratic
Party in Canada. I think that's very positive for us being able to build a new left in North
America over the next couple or years.
Ernest Mandel, “Marx’s Economic Theory: General
Approach and Influence”
A general appraisal of Marx’s method of economic analysis is called for prior to an
outline of his main economic theories (theses and hypotheses). Marx is distinct from
most important economists of the 19th and 20th centuries in that he does not consider
himself at all an ’economist’ pure and simple.

The idea that ’economic science’ as a special science completely separate from
sociology, history, anthropology etc. cannot exist, underlies most of his economic
analysis. Indeed, historical materialism is an attempt at unifying all social sciences, if
not all sciences about humankind, into a single ’science of society’. For sure, within the
framework of this general ’science of society’, economic phenomena could and should
be submitted to analysis as specific phenomena. So economic theory, economical
science, has a definite autonomy after all; but it is only a partial and relative one.

Probably the best formula for characterizing Marx’s economic theory would be to call it
an endeavor to explain the social economy. This would be true in a double sense. For
Marx, there are no eternal economic laws, valid in every epoch of human prehistory and
history. Each mode of production has its own specific economic laws, which lose their
relevance once the general social framework has fundamentally changed. For Marx
likewise, there are no economic laws separate and apart from specific relations between
human beings, in the primary (but not only, as already summarized) social relations of
production. All attempts to reduce economic problems to purely material, objective
ones, to relations between things, or between things and human beings, would be
considered by Marx as manifestations of mystification, of false consciousness,
expressing itself through the attempted relocation of human relations. Behind relations
between things, economic science should try to discover the specific relations between
human beings which they hide. Real economic science has therefore also a demystifying
function compared to vulgar ’economics’, which takes a certain number of ’things’ for
granted without asking the questions: Are they really only what they appear to be? From
where do they originate? What explains these appearances? What lies behind them?
Where do they lead? How could they (will they) disappear? Problemblindheit, the
refusal to see that facts are generally more problematic than they appear at first sight, is
certainly not a reproach one could address to Marx’s economic thought.

Marx’s economic analysis is therefore characterized by a strong ground current of

historical relativism, with a strong recourse to the genetical and evolutionary method of
thinking (that is why the parallel with Darwin has often been made, sometimes in an
excessive way). The formula ’genetic structuralism’ has also been used in relation to
Marx’s general approach to economic analysis. Be that as it may, one could state that
Marx’s economic theory is essentially geared to the discovery of specific ’laws of
motion’ for successive modes of production. While his theoretical effort has been
mainly centered around the discovery of these laws of motion for capitalist society, his
work contains indications of such laws - different ones, to be sure - for pre-capitalist and
post-capitalist social formations too.

The main link between Marx’s sociology and anthropology on the one hand, and his
economic analysis on the other, lies in the key role of social labor as the basic
anthropological feature underlying all forms of social organization. Social labor can be
organized in quite different forms, thereby giving rise to quite different economic
phenomena (’facts’). Basically different forms of social labor organization lead to
basically different sets of economic institutions and dynamics, following basically
different logics (obeying basically different ’laws of motion’).

All human societies must assure the satisfaction of a certain number of basic needs, in
order to survive and reproduce themselves. This leads to the necessity of establishing
some sort of equilibrium between social recognized needs, i.e. current consumption and
current production. But this abstract banality does not tell us anything about the concrete
way in which social labor is organized in order to achieve that goal.

Society can recognize all individual labor as immediately social labor. Indeed, it does so
in innumerable primitive tribal and village communities, as it does in the contemporary
kibbutz. Directly social labor can be organized in a despotic or in a democratic way,
through custom and superstition as well as through an attempt at applying advanced
science to economic organization; but it will always be immediately recognized social
labor, inasmuch as it is based upon a priori assignment of the producers to their specific
work (again: irrespective of the form this assignation takes, whether it is voluntary or
compulsory, despotic or simply through custom etc.).

But when social decision-taking about work assignation (and resource allocation closely
tied to it) is fragmented into different units operating independently from each other - as
a result of private control (property) of the means of production, in the economic and
not necessarily the juridical sense of the word - then social labor in turn is fragmented
into private labors which are not automatically recognized as socially necessary ones
(whose expenditure is not automatically compensated by society). Then the private
producers have to exchange parts or all of their products in order to satisfy some or all
of their basic needs. Then these products become commodities. The economy becomes a
(partial or generalized) market economy. Only by measuring the results of the sale of his
products can the producer (or owner) ascertain what part of his private labor expenditure
has been recognized (compensated) as social labor, and what part has not.

Even if we operate with such simple analytical tools as ’directly social labor’, ’private
labor’, ’socially recognized social labor’, we have to make quite an effort at abstracting
from immediately apparent phenomena in order to understand their relevance for
economic analysis. This is true for all scientific analysis, in natural as well as in social
sciences. Marx’s economic analysis, as presented in his main books, has not been
extremely popular reading; but then, there are not yet so many scientists in these
circumstances. This has nothing to do with any innate obscurity of the author, but rather
with the nature of scientific analysis as such.
The relatively limited number of readers of Marx’s economic writings (the first English
paperback edition of Das Kapital appeared only in 1974!) is clearly tied to Marx’s
scientific rigor, his effort at a systematic and all-sided analysis of the phenomena of the
capitalist economy.

But while his economic analysis lacked popularity, his political and historical
projections became more and more influential. With the rise of independent working-
class mass parties, an increasing number of these proclaimed themselves as being
guided or influenced by Marx, at least in the epoch of the Second and the Third
Internationals, roughly the half century from 1890 till 1940. Beginning with the Russian
revolution of 1917, a growing number of governments and of states claimed to base
their policies and constitutions on concepts developed by Marx. (Whether this was
legitimate or not is another question.) But the fact itself testifies to Marx’s great
influence on contemporary social and political developments, evolutionary and
revolutionary alike.

Likewise, his diffused influence on social science, including academic economic theory,
goes far beyond general acceptance or even substantial knowledge of his main writings.
Some key ideas of historical materialism and of economic analysis which permeate his
work - e.g. that economic interests to a large extent influence, if not determine, political
struggles; that historic evolution is linked to important changes in material conditions;
that economic crises (’the business cycle’) are unavoidable under conditions of capitalist
market economy - have become near-platitudes. It is sufficient to notice how major
economists and historians strongly denied their validity throughout the 19th century and
at least until the 1920s, to understand how deep has been Marx’s influence on
contemporary social science in general.
Ernest Mandel, “Marx’s Economic Theory: Labor
Theory of Value”
As an economist, Marx is generally situated in the continuity of the great classical
school of Adam Smith and Ricardo. He obviously owes a lot to Ricardo, and conducts a
running dialogue with that master in most of his mature economic writings.

Marx inherited the labor theory of value from the classical school. Here the continuity is
even more pronounced; but there is also a radical break, For Ricardo, labor is essentially
a numeraire, which enables a common computation of labor and capital as basic
elements of production costs. For Marx, labor is value. Value is nothing but that
fragment of the total labor potential existing in a given society in a certain period (e.g. a
year or a month) which is used for the output of a given commodity, at the average
social productivity of labor existing then and there, divided by the total number of these
commodities produced and expressed in hours (or minutes), days, weeks, months of
labor.

Value is therefore essentially a social, objective and historically relative category. It is

social because it is determined by the overall result of the fluctuating efforts of each
individual producer (under capitalism: of each individual firm or factory). It is objective
because it is given, once the production of a given commodity is finished, and is thus
independent from personal (or collective) valuations of customers on the market place;
and it is historically relative because it changes with each important change (progress or
regression) of the average productivity of labor in a given branch of output, including in
agriculture and transportation.

This does not imply that Marx’s concept of value is in any way completely detached
from consumption. It only means that the feedback of consumers’ behavior and wishes
upon value is always mediated through changes in the allocation of labor inputs in
production, labor being seen as subdivided into living labor and dead (dated) labor, i.e.
tools and raw materials. The market emits signals to which the producing units react.
Value changes after these reactions, not before them. Market price changes can of
course occur prior to changes in value. In fact, changes in market prices are among the
key signals which can lead to changes in labor allocation between different branches of
production, i.e. to changes in labor quantities necessary to produce given commodities.
But then, for Marx, values determine prices only basically and in the medium-term
sense of the word. This determination only appears clearly as an explication of medium
and long-term price movements. In the shorter run, prices fluctuate around values as
axes. Marx never intended to negate the operation of market laws, of the law of supply
and demand, in determining these short-term fluctuations.

The ’law of value’ is but Marx’s version of Adam Smith’s ’invisible hand’. In a society
dominated by private labor, private producers and private ownership of productive
inputs, it is this ’law of value’, an objective economic law operating behind the backs of
all people, all ’agents’ involved in production and consumption, which, in the final
analysis, regulates the economy, determines what is produced and how it is produced
(and therefore also what can be consumed). The ’law of value’ regulates the exchange
between commodities, according to the quantities of socially necessary abstract labor
they embody (the quantity of such labor spent in their production). Through regulating
the exchange between commodities, the ’law of value’ also regulates, after some
interval, the distribution of society’s labor potential and of society’s non-living
productive resources between different branches of production. Again, the analogy with
Smith’s ’invisible hand’ is striking.

Marx’s critique of the ’invisible hand’ concept does not dwell essentially on the analysis
of how a market economy actually operates. It would above all insist that this operation
is not eternal, not immanent in ’human nature’, but created by specific historical
circumstances, a product of a special way of social organization, and due to disappear at
some stage of historical evolution as it appeared during a previous stage. And it would
also stress that this ’invisible hand’ leads neither to the maximum of economic growth
nor to the optimum of human wellbeing for the greatest number of individuals, i.e. it
would stress the heavy economic and social price humankind had to pay, and is still
currently paying, for the undeniable progress the market economy produced at a given
stage of historical evolution.

The formula ’quantities of abstract human labor’ refers to labor seen strictly as a
fraction of the total labor potential of a given society at a given time, say a labor
potential of 2 billion hours a year (1 million potential producers, each supposedly
capable of working 2000 hours a year). It therefore implies making an abstraction of the
specific trade or occupation of a given male or female producer, the product of a day’s
work of a weaver not being worth less or more than that of a peasant, a miner, a house-
builder, a milliner or a seamstress. At the basis of that concept of ’abstract human labor’
lies a social condition, a specific set of social relations of production, in which small
independent producers are essentially equal. Without that equality, social division of
labor, and therefore satisfaction of basic consumers’ needs, would be seriously
endangered under that specific organizational set-up of the economy. Such an equality
between small commodity owners and producers is later transformed into an equality
between owners of capital under the capitalist mode of production.

But the concept of the homogeneity of productive human labor, underlying that of
’abstract human labor’ as the essence of value, does not imply a negation of the
difference between skilled and unskilled labor. Again: a negation of that difference
would lead to the breakdown of the necessary division of labor, as would any basic
heterogeneity of labor inputs in different branches of output. It would then not pay to
acquire skills: most of them would disappear. So Marx’s labor theory of value, in an
internally coherent way, leads to the conclusion that one hour of skilled labor represents
more value than one hour of unskilled labor, say represents the equivalent of 1.5 hours
of unskilled labor. The difference would result from the imputation of the labor it costs
to acquire the given skill, While an unskilled laborer would have a labor potential of
120,000 hours during his adult life, a skilled laborer would only have a labor potential
of 80,000 hours, 40,000 being used for acquiring, maintaining and developing his skill.
Only if one hour of skilled labor embodies the same value of 1.5 hours of unskilled
labor, will the equality of all ’economic agents’ be maintained under these
circumstances, i.e. will it ’pay’ economically to acquire a skill.

Marx himself never extensively dwelled on this solution of the so-called reduction
problem. This remains indeed one of the most obscure parts of his general economic
theory. It has led to some, generally rather mild, controversy. Much more heat has been
generated by another facet of Marx’s labor theory of value, the so-called transformation
problem. Indeed, from Böhm-Bawerk writing a century ago till the recent contributions
of Sraffa (1960) and Steedman (1977), the way Marx dealt with the transformation of
values into ’prices of production’ in Capital Vol. III has been considered by many of his
critics as the main problem of his ’system’, as well as being a reason to reject the labor
theory of value out of hand.

The problem arises out of the obvious modification in the functioning of a market
economy when capitalist commodity production substitutes itself for simple commodity
production. In simple commodity production, with generally stable technology and
stable (or easily reproducible) tools, living labor is the only variable of the quantity and
subdivision of social production. The mobility of labor is the only dynamic factor in the
economy. As Engels pointed out in his Addendum to Capital Vol. III (Marx, g, pp,
1034-7), in such an economy, commodities would be exchanged at prices which would
be immediately proportional to values, to the labor inputs they embody.

But under the capitalist mode of production, this is no longer the case. Economic
decision-taking is not in the hands of the direct producers. It is in the hands of the
capitalist entrepreneurs in the wider sense of the word (bankers - distributors of credit -
playing a key role in that decision-taking, besides entrepreneurs in the productive sector
properly speaking). Investment decisions, i.e. decisions for creating, expanding,
reducing or closing enterprises, determine economic life. It is the mobility of capital and
not the mobility of labor which becomes the motive force of the economy. Mobility of
labor becomes essentially an epiphenomenon of the mobility of capital.

Capitalist production is production for profit. Mobility of capital is determined by

existing or expected profit differentials. Capital leaves branches (countries, regions)
with lower profits (or profit expectations) and flows towards branches (countries,
regions) with higher ones. These movements lead to an equalization of the rate of profit
between different branches of production. But approximately equal returns on all
invested capital (at least under conditions of prevailing ’free competition’) coexist with
unequal proportions of inputs of labor in these different branches. So there is a disparity
between the direct value of a commodity and its ’price of production’, that ’price of
production’ being defined by Marx as the sum of production costs (costs of fixed capital
and raw materials plus wages) and the average rate of profit multiplied with the capital
spent in the given production.

The so-called ’transformation problem’ relates to the question of whether a relation can
nevertheless be established between value and these ’prices of production’, what is the
degree of coherence (or incoherence) of the relation with the ’law of value’ (the labor
theory of value in general), and what is the correct quantitative way to express that
relation, if it exists.

We shall leave aside here the last aspect of the problem, to which extensive analysis has
recently been devoted (Mandel and Freeman, 1984). From Marx’s point of view, there is
no incoherence between the formation of ’prices of production’ and the labor theory of
value. Nor is it true that he came upon that alleged difficulty when he started to prepare
Capital Vol.III, i.e. to deal with capitalist competition, as several critics have argued
(see e.g. Joan Robinson, 1942). In fact, his solution of the transformation problem is
already present in the Grundrisse, before he even started to draft Capital Vol. I.

The sum total of value produced in a given country during a given span of time (e.g. one
year) is determined by the sum total of inputs-inputs. Competition and movements of
capital cannot change that quantity. The sum total of values equals the sum total of
’prices of production’. The only effect of capital competition and capital mobility is to
redistribute that given sum - and this through a redistribution of surplus value (see
below) - between different capitals, to the benefit of some and at the expense of others.

Now the redistribution does not occur in a haphazard or arbitrary way. Essentially value
(surplus-value) is transferred from technically less advanced branches to technologically
more advanced branches. And here the concept of ’quantities of socially necessary
labor’ comes into its own, under the conditions of constant revolutions of productive
technology that characterize the capital mode of production. Branches with lower than
average technology (organic composition of capital, see below) can be considered as
wasting socially necessary labor. Part of the labor spent in production in their realm is
therefore not compensated by society. Branches with higher than average technology
(organic composition of capital) can be considered to be economizing social labor; their
labor inputs can therefore be considered as more intensive than average, embodying
more value.

In this way, the transfer of value (surplus-value) between different branches, far from
being in contradiction with the law of value, is precisely the way it operates and should
operate under conditions of ’capitalist equality’, given the pressure of rapid
technological change.

As to the logical inconsistency often supposedly to be found in Marx’s method of

solving the ’transformation problem’ - first advanced by von Bortkiewicz (1907) - it is
based upon a misunderstanding in our opinion. It is alleged that in his ’transformation
schemas’ (or tables) Marx calculates inputs in ’values’ and outputs in ’prices of
production’, thereby omitting the feedback effect of the latter on the former. But that
feedback eject is unrealistic and unnecessary, once one recognizes that inputs are
essentially data.

Movements of capital posterior to the purchase of machinery or raw materials, including

the ups and dawns of prices of finished products produced with these raw materials,
cannot lead to a change in prices and therefore of profits of the said machinery and raw
materials, on sales which have already occurred. What critics present as an
inconsistency between ’values’ and ’prices of production’ is simply a recognition of two
different time-frameworks (cycles) in which the equalization of the rate of profit has
been achieved, a first one for inputs, and a second, later one for outputs.
Ernest Mandel, “Marx’s Economic Theory: Theory
of Surplus Value”
Marx himself considered his theory of surplus-value his most important contribution to
the progress of economic analysis (Marx, letter to Engels of 24 August 1867). It is
through this theory that the wide scope of his sociological and historical thought enables
him simultaneously to place the capitalist mode of production in his historical context,
and to find the root of its inner economic contradictions and its laws of motion in the
specific relations of production on which it is based.

As said before, Marx’s theory of classes is based on the recognition that in each class
society, part of society (the ruling class) appropriates the social surplus product. But that
surplus product can take three essentially different forms (or a combination of them). It
can take the form of straightforward unpaid surplus labor, as in the slave mode of
production, early feudalism or some sectors of the Asiatic mode of production (unpaid
corvée labor for the Empire). It can take the form of goods appropriated by the ruling
class in the form of use-values pure and simple (the products of surplus labor), as under
feudalism when feudal rent is paid in a certain amount of produce (produce rent) or in
its more modern remnants, such as sharecropping. And it can take a money form, like
money-rent in the final phases of feudalism, and capitalist profits. Surplus-value is
essentially just that: the money form of the social surplus product or, what amounts to
the same, the money product of surplus labor. It has therefore a common root with all
other forms of surplus product: unpaid labor.

This means that Marx’s theory of surplus-value is basically a deduction (or residual)
theory of the ruling classes’ income. The whole social product (the net national income)
is produced in the course of the process of production, exactly as the whole crop is
harvested by the peasants. What happens on the market (or through appropriation of the
produce) is a distribution (or redistribution) of what already has been created. The
surplus product, and therefore also its money form, surplus-value, is the residual of that
new (net) social product (income) which remains after the producing classes have
received their compensation (under capitalism: their wages). This ’deduction’ theory of
the ruling classes’ income is thus ipso factor an exploitation theory. Not in the ethical
sense of the word - although Marx and Engels obviously manifested a lot of
understandable moral indignation at the fate of all the exploited throughout history, and
especially at the fate of the modern proletariat - but in the economic one. The income of
the ruling classes can always be reduced in the final analysis to the product of unpaid
labor: that is the heart of Marx’s theory of exploitation.

That is also the reason why Marx attached so much importance to treating surplus-value
as a general category, over and above profits (themselves subdivided into industrial
profits, bank profits, commercial profits etc.), interest and rent, which are all part of the
total surplus product produced by wage labor. It is this general category which explains
both the existence (the common interest) of the ruling class (all those who live off
surplus value), and the origins of the class struggle under capitalism.
Marx likewise laid bare the economic mechanism through which surplus-value
originates. At the basis of that economic mechanism is a huge social upheaval which
started in Western Europe in the 15th century and slowly spread over the rest of the
continent and all other continents (in many so-called underdeveloped countries, it is still
going on to this day).

Through many concomitant economic (including technical), social, political and cultural
transformations, the mass of the direct producers, essentially peasants and
handicraftsmen, are separated from their means of production and cut off from free
access to the land. They are therefore unable to produce their livelihood on their own
account. In order to keep themselves and their families alive, they have to hire out their
arms, their muscles and their brains, to the owners of the means of production (including
land). If and when these owners have enough money capital at their disposal to buy raw
materials and pay wages, they can start to organize production on a capitalist basis,
using wage labor to transform the raw materials which they buy, with the tools they
own, into finished products which they then automatically own too.

The capitalist mode of production thus presupposes that the producers’ labor power has
become a commodity. Like all other commodities, the commodity labor power has an
exchange value and a use value. The exchange value of labor power, like the exchange
value of all other commodities, is the amount of socially necessary labor embodied in it,
i.e. its reproduction costs. This means concretely the value of all the consumer goods
and services necessary for a laborer to work day after day, week after week, month after
month, at approximately the same level of intensity, and for the members of the laboring
classes to remain approximately stable in number and skill (i.e. for a certain number of
working-class children to be fed, kept and schooled, so as to replace their parents when
they are unable to work any more, or die). But the use value of the commodity labor
power is precisely its capacity to create new value, including its potential to create more
value than its own reproduction costs. Surplus-value is but that difference between the
total new value created by the commodity labor power, and its own value, its own
reproduction costs. The whole marxian theory of surplus-value is therefore based upon
that subtle distinction between ’labor power’ and ’labor’ (or value). But there is nothing
’metaphysical’ about this distinction. It is simply an explanation (demystification) of a
process which occurs daily in millions of cases.

The capitalist does not buy the worker’s ’labor’. If he did that there would be obvious
theft, for the worker’s wage is obviously smaller than the total value he adds to that of
the raw materials in the course of the process of production. No: the capitalist buys
’labor power’, and often (not always of course) he buys it at its justum pretium, at its
real value. So he feels unjustly accused when he is said to have caused a ’dishonest’
operation. The worker is victim not of vulgar theft but of a social set-up which
condemns him first to transform his productive capacity into a commodity, then to sell
that labor power on a specific market (the labor market) characterized by institutional
inequality, and finally to content himself with the market price he can get for that
commodity, irrespective of whether the new value he creates during the process of
production exceeds that market price (his wage) by a small amount, a large amount, or
an enormous amount.

The labor power the capitalist has bought ’adds value’ to that of the used-up raw
materials and tools (machinery, buildings etc.). If, and until that point of time, this
added value is inferior or equal to the workers’ wages, surplus-value cannot originate.
But in that case, the capitalist has obviously no interest in hiring wage labor. He only
hires it because that wage labor has the quality (the use value) to add to the raw
materials’ value more than its own value (i.e. its own wages). This ’additional added
value’ (the difference between total ’value added’ and wages) is precisely surplus-value.
Its emergence from the process of production is the precondition for the capitalists’
hiring workers, for the existence of the capitalist mode of production.

The institutional inequality existing on the labor market (masked for liberal economists,
sociologists and moral philosophers alike by juridical equality) arises from the very fact
that the capitalist mode of production is based upon generalized commodity production,
generalized market economy. This implies that a propertyless laborer, who owns no
capital, who has no reserves of larger sums of money but who has to buy his food and
clothes, pay his rent and even elementary public transportation for journeying between
home and workplace, in a continuous way in exchange of money, is under the economic
compulsion to sell the only commodity he possesses, to wit his labor power, also on a
continuous basis. He cannot withdraw from the labor market until the wages go up. He
cannot wait.

But the capitalist, who has money reserves, can temporarily withdraw from the labor
market. He can lay his workers off, can even close or sell his enterprise and wait a
couple of years before starting again in business. The institutional differences makes
price determination of the labor market a game with loaded dice, heavily biased against
the working class. One just has to imagine a social set-up in which each citizen would
be guaranteed an annual minimum income by the community, irrespective of whether he
is employed or not, to understand that ’wage determination’ under these circumstances
would be quite different from what it is under capitalism. In such a set-up the individual
would really have the economic choice whether to sell his labor power to another person
(or a firm) or not. Under capitalism, he has no choice. His is forced by economic
compulsion to go through that sale, practically at any price.

The economic function and importance of trade unions for the wage-earners also clearly
arises from that elementary analysis. For it is precisely the workers’ ’combination’ and
their assembling a collective resistance fund (what was called by the first French unions
caisses de résistance, ’reserve deposits’) which enables them, for example through a
strike, to withdraw the supply of labor power temporarily from the market so as to stop
a downward trend of wages or induce a wage increase. There is nothing ’unjust’ in such
a temporary withdrawal of the supply of labor power, as there are constant withdrawals
of demand for labor power by the capitalists, sometimes on a huge scale never equaled
by strikes. Through the functioning of strong labor unions, the working class tries to
correct, albeit partially and modestly, the institutional inequality on the labor market of
which it is a victim, without ever being able to neutralize it durably or completely.

It cannot neutralize it durably because in the very way in which capitalism functions
there is a powerful built-in corrective in favor of capital: the inevitable emergence of an
industrial reserve army of labor. There are three key sources for that reserve army: the
mass of precapitalist producers and self-employed (independent peasants,
handicraftsmen, trades-people, professional people, small and medium-sized capitalists);
the mass of housewives (and to a lesser extent, children); the mass of the wage-earners
themselves, who potentially can be thrown out of employment.

The first two sources have to be visualized not only in each capitalist country seen
separately but on a world scale, through the operations of international migration. They
are still unlimited to a great extent, although the number of wage-earners the world over
(including agricultural wage laborers) has already passed the one billion mark. As the
third source, while it is obviously not unlimited (if wage labor would disappear
altogether, if all wage laborers would be fired, surplus-value production would
disappear too; that is why ’total robotism’ is impossible under capitalism), its reserves
are enormous, precisely in tandem with the enormous growth of the absolute number of
wage earners.

The fluctuations of the industrial reserve army are determined both by the business
cycle and by long-term trends of capital accumulation. Rapidly increasing capital
accumulation attracts wage labor on a massive scale, including through international
migration. Likewise, deceleration, stagnation or even decline of capital accumulation
inflates the reserve army of labor. There is thus an upper limit to wage increases, when
profits (realized profits and expected profits) are ’excessively’ reduced in the eyes of the
capitalists, which triggers off such decelerated, stagnating or declining capital
accumulation, thereby decreasing employment and wages, till a ’reasonable’ level of
profits is restored.

This process does not correspond to any ’natural economic law’ (or necessity), nor does
it correspond to any ’immanent justice’. It just expresses the inner logic of the capitalist
mode of production, which is geared to profit. Other forms of economic organization
could function, have functioned and are functioning on the basis of other logics, which
do not lead to periodic massive unemployment. On the contrary, a socialist would say -
and Marx certainly thought so - that the capitalist system is an ’unjust’, or better stated
’alienating’, ’inhuman’ social system, precisely because it cannot function without
periodically reducing employment and the satisfaction of elementary needs for tens of
millions of human beings.

Marx’s theory of surplus-value is therefore closely intertwined with a theory of wages

which is far away from Malthus’s, Ricardo’s or the early socialists’ (like Ferdinand
Lassalle’s) ‘iron law of wages’, in which wages tend to fluctuate around the
physiological minimum. That crude theory of ‘absolute pauperization’ of the working
class under capitalism, attributed to Marx by many authors (Popper, 1945, et a1.), is not
Marx’s at all, as many contemporary authors have convincingly demonstrated (see
among others Rosdolsky, 1968). Such an ‘iron law of wages’ is essentially a
demographic one, in which birth rates and the frequency of marriages determine the
fluctuation of employment and unemployment and thereby the level of wages.

The logical and empirical inconsistencies of such a theory are obvious. Let it be
sufficient to point out that while fluctuations in the supply of wage-laborers are
considered essential, fluctuations in the demand for labor power are left out of the
analysis. It is certainly a paradox that the staunch opponent of capitalism, Karl Marx,
pointed out as early as in the middle of the 19th century the potential for wage increases
under capitalism, even though not unlimited in time and space. Marx also stressed the
fact that for each capitalist, wage increases of other capitalists’ workers are considered
increases of potential purchasing power, not increases in costs.

Marx distinguishes two parts in the workers’ wage, two elements of reproduction costs
of the commodity labor power. One is purely physiological, and can be expressed in
calories and energy quanta; this is the bottom below which the wage cannot fall without
destroying slowly rapidly the workers’ labor capacity. The second one is historical-
moral, as Marx calls it, and consists of those additional goods and services which a shift
in the class relationship of forces, such as a victorious class struggle, enables the
working class to incorporate into the average wage, the socially necessary (recognized)
reproduction costs of the commodity labor power (e.g. holidays after the French general
strike of June 1936). This part of the wage is essentially flexible. It will differ from
country to country, continent to continent and from epoch to epoch, according to many
variables. But it has the upper limit indicated above: the ceiling from which profits
threaten to disappear, or to become insufficient in the eyes of the capitalists, who then
go on an ‘investment strike’.

So Marx’s theory of wages is essentially an accumulation-of-capital theory of wages

which sends us back to what Marx considered the first ‘law of motion’ of the capitalist
mode of production: the compulsion for the capitalists to step up constantly the rate of
capital accumulation.
Ernest Mandel, “The Laws of Motion of the
Capitalist Mode of Production”
If Marx’s theory of surplus-value is his most revolutionary contribution to economic
science, his discovery of the basic long-term ‘laws of motion’ (development trends) of
the capitalist mode of production constitutes undoubtedly his most impressive scientific
achievement.

No other 19th-century author has been able to foresee in such a coherent way how
capitalism would function, would develop and would transform the world, as did Karl
Marx. Many of the most distinguished contemporary economists, starting with Wassily
Leontief (1938), and Joseph Schumpeter (1942) have recognized this.

While some of these ‘laws of motion’ have obviously created much controversy, we
shall nevertheless list them in logical orders rather than according to the degree of
consensus they command.

(a) The capitalist’s compulsion to accumulate. Capital appears in the form of

accumulated money, thrown into circulation in order to increase in value. No owner of
money capital will engage in business in order to recuperate exactly the sum initially
invested, and nothing more than that. By definition, the search for profit is at the basis
of all economic operations by owners of capital.

Profit (surplus-value, accretion of value) can originate outside the sphere of production
in a precapitalist society. It represents then essentially a transfer of value (so-called
primitive accumulation of capital); but under the capitalist mode of production, in which
capital has penetrated the sphere of production and dominates it, surplus-value is
currently produced by wage labor. It represents a constant increase in value.

Capital can only appear in the form of many capitals, given its very historical-social
origin in private property (appropriation) of the means of production. ‘Many capitals’
imply unavoidable competition. Competition in a capitalist mode of production is
competition for selling commodities in an anonymous market. While surplus-value is
produced in the process of production, it is realized in the process of circulation, i.e.
through the sale of the commodities. The capitalist wants to sell at maximum profit. In
practice, he will be satisfied if he gets the average profit, which is a percentage really
existing in his consciousness (e.g. Mr. Charles Wilson, the then head of the US
automobile firm General Motors, stated before a Congressional enquiry: we used to fix
the expected sales price of our cars by adding 15% to production costs). But he can
never be sure of this. He cannot even be sure that all the commodities produced will find
a buyer.

Given these uncertainties, he has to strive constantly to get the better of his competitors.
This can only occur through operating with more capital. This means that at least part of
the surplus-value produced will not be unproductively consumed by the capitalists and
their hangers-on through luxury consumption, but will be accumulated, added to the
previously existing capital.

The inner logic of capitalism is therefore not only to ‘work for profit’, but also to ‘work
for capital accumulation’. ‘Accumulate, accumulate; that is Moses and the Prophets’,
states Marx in Capital, Vol. I. Capitalists are compelled to act in that way as a result of
competition. It is competition which basically fuels this terrifying snowball logic: initial
value of capital -> accretion of value (surplus-value) -> accretion of capital -> more
accretion of surplus-value -> more accretion of capital etc. Without competition, the fire
of growth would burn out.

(b) The tendency towards constant technological revolutions. In the capitalist mode of
production, accumulation of capital is in the first place accumulation of productive
capital, or capital invested to produce more and more commodities. Competition is
therefore above all competition between productive capitals, i.e. ‘many capitals’
engaged in mining, manufacturing, transportation, agriculture, telecommunications. The
main weapon in competition between capitalist firms is cutting production costs. More
advanced production techniques and more ‘rational’ labor organization are the main
means to achieve that purpose. The basic trend of capital accumulation in the capitalist
mode of production is therefore a trend towards more and more sophisticated
machinery. Capital growth takes the dual form of higher and higher value of capital and
of constant revolutions in the techniques of production, of constant technological
progress.

(c) The capitalists’ unquenchable thirst for surplus-value extraction. The compulsion
for capital to grow, the irresistible urge for capital accumulation, realizes itself above all
through a constant drive for the increase of the production of surplus-value. Capital
accumulation is nothing but surplus-value capitalization, the transformation of part of
the new surplus-value into additional capital. There is no other source of additional
capital than additional surplus-value produced in the process of production.

Marx distinguishes two different forms of additional surplus-value production. Absolute

surplus-value accretion occurs essentially through the extension of the work day. If the
worker reproduces the equivalent of his wages in 4 hours a day, an extension of the
work day from 10 to 12 hours will increase surplus-value from 6 to 8 hours. Relative
surplus-value accretion occurs through an increase of the productivity of labor in the
wage-goods sector of the economy. Such an increase in productivity implies that the
equivalent of the value of an identical basket of goods and services consumed by the
worker could be produced in 2 hours instead of 4 hours of labor. If the work day
remains stable at 10 hours and real wages remain stable too, surplus-value will then
increase from 6 to 8 hours.

While both processes occur throughout the history of the capitalist mode of production
(viz. the contemporary pressure of employers in favor of overtime!), the first one was
prevalent first, the second one became prevalent since the second half of the 19th
century, first in Britain, France and Belgium, then in the USA and Germany, later in the
other industrialized capitalist countries, and later still in the semi-industrialized ones.
Marx calls this process the real subsumption (subordination) of labor under capital, for it
represents not only an economic but also a physical subordination of the wage-earner
under the machine. This physical subordination can only be realized through social
control. The history of the capitalist mode of production is therefore also the history of
successive forms of - tighter and tighter - control of capital over the workers inside the
factories (Braverman, 1974); and of attempts at realizing that tightening of control in
society as a whole.

The increase in the production of relative surplus-value is the goal for which capitalism
tends to periodically substitute machinery for labor, i.e. to expand the industrial reserve
army of labor. Likewise, it is the main tool for maintaining a modicum of social
equilibrium, for when productivity of labor strongly increases, above all in the wage-
good producing sectors of the economy, real wages and profits (surplus-value) can both
expand simultaneously. What were previously luxury goods can even become mass-
produced wage-goods.

(d) The tendency towards growing concentration and centralization of capital. The
growth of the value of capital means that each successful capitalist firm will be
operating with more and more capital. Marx calls this the tendency towards growing
concentration of capital. But in the competitive process, there are victors and
vanquished. The victors grow. The vanquished go bankrupt or are absorbed by the
victors. This process Marx calls the centralization of capital. It results in a declining
number of firms which survive in each of the key fields of production. Many small and
medium-sized capitalists disappear as independent business men and women. They
become in turn salary earners, employed by successful capitalism firms. Capitalism
itself is the big ‘expropriating’ force, suppressing private property of the means of
production for many, in favor of private property for few.

(e) The tendency for the ‘organic composition of capital’ to increase. Productive capital
has a double form. It appears in the form of constant capital: buildings, machinery, raw
materials, energy, It appears in the form of variable capital: capital spent on wages of
productive workers. Marx calls the part of capital used in buying labor power variable,
because only that part produces additional value. In the process of production, the value
of constant capital is simply maintained (transferred in toto or in part into the value of
the finished product). Variable capital on the contrary is the unique source of ‘added
value’.
Marx postulates that the basic historic trend of capital accumulation is to increase
investment in constant capital at a quicker pace than investment in variable capital; the
relation between the two he calls the ‘organic composition of capital’. This is both a
technical/physical relation (a given production technique implies the use of a given
number of productive wage earners even if not in an absolutely mechanical way) and a
value relation. The trend towards an increase in the ‘organic composition of capital’ is
therefore a historical trend towards basically saving-saving technological progress.
This tendency has often been challenged by critics of Marx. Living in the age of semi-
automation and ‘robotism’, it is hard to understand that challenge. The conceptual
confusion on which this challenge is most based is an operation with the ‘national wage
bill’, i.e. a confusion between wages in general and variable capital, which is only the
wage bill of productive labor. A more correct index would be the part of the labor costs
in total production costs in the manufacturing (and mining) sector. It is hard to deny that
this proportion shows a downward secular trend.

(f) The tendency of the rate of profit to decline. For the workers, the basic relation they
are concerned with is the rate of surplus-value, i.e. the division of ‘value added’
between wages and surplus-value. When this goes up, their exploitation (the unpaid
labor they produce) obviously goes up. For the capitalists, however, this relationship is
not meaningful. They are concerned with the relation between surplus-value and the
totality of capital invested, never mind whether in the form of machinery and raw
materials or in the form of wages. This relation is the rate of profit. It is a function of
two variables, the organic composition of capital and the rate of surplus-value. If the
value of constant capital is represented by c, the value of variable capital (wages of
productive workers) by v and surplus-value by s, the rate of profit will be s/(c + v). This
can be rewritten as [s/v]/[(c+v)/v] with the two variables emerging ((c + v)/v obviously
reflects c/v).

Marx postulates that the increase in the rate of surplus value has definite limits, while
the increase in the organic composition of capital has practically none (automation,
robotism). There will be a basic tendency for the rate of profit to decline.

This is however absolutely true only on a very long-term, i.e. essentially ‘secular’, basis.
In other time-frameworks, the rate of profit can fluctuate under the influence of
countervailing forces. Constant capital can be devalorized, through ‘capital saving’
technical process, and through economic crises (see below). The rate of surplus-value
can be strongly increased in the short or medium terms although each strong increase
makes a further increase more difficult; and capital can flow to countries (e.g. ‘Third
World’ ones) or branches (e.g. service sectors) where the organic composition of capital
is significantly lower than in the previously industrialized ones, thereby raising the
average rate of profit.

Finally, the increase in the mass of surplus-value - especially through the extension of
wage labor in general, i.e. the total number of workers - offsets to a large extent the
depressing effects of moderate declines of the average rate of profit. Capitalism will not
go out of business if the mass of surplus-value produced increases ‘only’ from £10 to 17
billion, while the total mass of capital has moved from £100 to 200 billion; and capital
accumulation will not stop under these circumstances, nor necessarily slow down
significantly. It would be sufficient to have the unproductively consumed part of
surplus-value pass e.g. from £3 to £2 billion, to obtain a rate of capital accumulation of
15/200, i.e. 7.5%, even higher than the previous one of 7/100, in spite of a decline of the
rate of profit from 10 to 8.5%.
(g) The inevitability of class struggle under capitalism. One of the most impressive
projections by Marx was that of the inevitability of elementary class struggle under
capitalism. Irrespective of the social global framework or of their own historical
background, wage-earners will fight everywhere for higher real wages and a shorter
work day. They will form elementary organizations for the collective instead of the
individual sale of the commodity labor power, i.e., trade unions. While at the moment
Marx made that projection there were less than half a million organized workers in at
the most half a dozen countries in the world, today trade unions encompass hundreds of
millions of wage-earners spread around the globe. There is no country, however, remote
it might be, where the introduction of wage labor has not led to the appearance of
worker’s coalitions.

While elementary class struggle and elementary unionization of the working class are
inevitable under capitalism, higher, especially political forms of class struggle, depend
on a multitude of variables which determine the rapidity with which they extend beyond
smaller minorities of each ‘national’ working class and internationally. But there too the
basic secular trend is clear. There were in 1900 innumerably more conscious socialists
than in 1850, fighting not only for better wages but, to use Marx’s words, for the
abolition of wage labor and organizing working class parties for that purpose. There are
today many more than in 1900.

(h) The tendency towards growing social polarization. From two previously
enumerated trends, the trend towards growing centralization of capital and the trend
towards the growth of the mass of surplus-value, flow the trend towards growing social
polarization under capitalism. The proportion of the active population represented by
wage-labor in general, i.e. by the modern proletariat (which extends far beyond
productive workers in and by themselves), increases. The proportion represented by
self-employed (small, medium-sized and big capitalists, as well as independent
peasants, handicraftsmen, trades-people and ‘free professions’ working without wage-
labor) decreases. In fact, in several capitalist countries the first category has already
passed the 90 per cent mark, while in Marx’s time it was below 50 per cent everywhere
but in Britain. In most industrialized (imperialist) countries, it has reached 80-85 per
cent.

This does not mean that the petty entrepreneurs have tended to disappear. 10 or 15-20
per cent out of 30 million people, not to say out of 120 million, still represents a
significant social layer. While many small businesses disappear, especially in times of
economic depression, as a result of severe competition, they also are constantly created,
especially in the interstices between big firms, and in new sectors where they play an
exploratory role. Also, the overall social results of growing proletarization are not
simultaneous with the economic process in and by itself. From the point of view of class
consciousness, culture, political attitude, there can exist significant time-lags between
the transformation of an independent farmer, grocer or doctor into a wage-earner, and
his acceptance of socialism as an overall social solution for his own and society’s ills.
But again, the secular trend is towards growing homogeneity, less and less
heterogeneity, of the mass of the wage-earning class, and not the other way around. It is
sufficient to compare the differences in consumer patterns, attitudes towards
unionization or voting habits between manual workers, bank employees and government
functionaries in say 1900 and today, to note that they have decreased and not increased.

(i) The tendency towards growing objective socialization of labor. Capitalism starts in
the form of private production on a medium-sized scale for a limited number of largely
unknown customers, on an uncontrollably wide market, i.e. under conditions of near
complete fragmentation of social labor and anarchy of the economic process. But as a
result of growing technological progress, tremendously increased concentration of
capital, the conquest of wider and wider markets throughout the world, and the very
nature of the labor organization inside large and even medium-sized capitalist factories,
a powerful process of objective socialization of labor is simultaneously set in motion.
This process constantly extends the sphere of economy in which not blind market laws
but conscious decisions and even large-scale co-operation prevail.

This is true especially inside mammoth firms (inside multinational corporations, such
‘planning’ prevails far beyond the boundaries of nation-states, even the most powerful
ones!) and inside large-scale factories; but it is also increasingly true for buyer/seller
relations, in the first place on an inter-firm basis, between public authorities and firms,
and more often than one thinks between traders and consumers too. In all these
instances, the rule of the law of value becomes more and more remote, indirect and
discontinuous. Planning prevails on a short and even medium-term basis.

Certainly, the economy still remains capitalist. The rule of the law of value imposes
itself brutally through the outburst of economic crises. Wars and social crises are
increasingly added to these economic crises to remind society that, under capitalism,
this growing objective socialization of labor and production is indissolubly linked to
private appropriation, i.e. to the profit motive as motor of economic growth. That
linkage makes the system more and more crisis-ridden; but at the same time the growing
socialization of labor and production creates the objective basis for a general
socialization of the economy, i.e. represents the basis of the coming socialist order
created by capitalism itself, within the framework of its own system.

(j) The inevitability of economic crises under capitalism. This is another of Marx’s
projections which has been strikingly confirmed by history. Marx ascertained that
periodic crises of overproduction were unavoidable under capitalism. In fact, since the
crisis of 1825, the first one occurring on the world market for industrial goods, to use
Marx’s own formula, there have been twenty-one business cycles ending (or beginning,
according to the method of analysis and measurement used) with twenty-one crises of
overproduction. A twenty-second is appearing on the horizon as we are writing.

Capitalist economic crises are always crises of overproduction of commodities

(exchange values), as opposed to pre- and post-capitalist economic crises, which are
essentially crises of underproduction of use-values. Under capitalist crises, expanded
reproduction - economic growth - is brutally interrupted, not because too few
commodities have been produced but, on the contrary, because a mountain of produced
commodities finds no buyers. This unleashes a spiral movement of collapse of firms,
firing of workers, contraction of sales (or orders) for raw materials and machinery, new
redundancies, new contraction of sales of consumer goods etc. Through this contracted
reproduction, prices (gold prices) collapse, production and income is reduced, capital
loses value. At the end of the declining spiral, output (and stocks) has been reduced
more than purchasing power. Then production can pick up again; and as the crisis has
both increased the rate of surplus-value (through a decline of wages and a more
‘rational’ labor organization) and decreased the value of capital, the average rate of
profit increases. This stimulates investment. Employment increases, value production
and national income expand, and we enter a new cycle of economic revival, prosperity,
overheating and the next crisis.

No amount of capitalists’ (essentially large combines’ and monopolies’) ‘self-

regulation’, no amount of government intervention, has been able to suppress this
cyclical movement of capitalist production. Nor can they succeed in achieving that
result. This cyclical movement is inextricably linked to production for profit and private
property (competition), which imply periodic over-shooting (too little or too much
investment and output), precisely because each firm’s attempt at maximizing profit
unavoidably leads to a lower rate of profit for the system as a whole. It is likewise
linked to the separation of value production and value realization.

The only way to avoid crises of overproduction is to eliminate all basic sources of
disequilibrium in the economy, including the disequilibrium between productive
capacity and purchasing power of the ‘final consumers’. This calls for elimination of
generalized commodity production, of private property and of class exploitation, i.e. for
the elimination of capitalism.
Charlie Post, “Exploring the Roots of the Crisis”
ON SEVERAL POINTS there is general agreement among most, if not all, radical and
revolutionary anti-capitalists and socialists regarding the current economic crisis:

1. The crisis is not simply the result of the neoliberal deregulation of the financial
sector. While there has been plenty of greed, ineptitude and just plain stupidity among
corporate executives and government policy makers, the crisis reflects the deeper
dynamics of capitalism as an economic system.
2. The severity of the financial crisis is not primarily the result of simply the result
of the default of approximately 2% to 3% of all mortgage holders in the United States
— approximately 10%-15% of subprime mortgages, which make up less than 25% of all
mortgages. The severity of the financial crisis flows from the fundamental weakness of
profitability and accumulation in the “real economy.” Even if a financial collapse is
avoided — as seems more and more likely — we should expect a very sharp and
prolonged recession in the next eighteen to 36 months.
3. There is no solution to the crisis that will benefit both capitalists and workers.
While some discourse on the left speaks of the health of “the economy,” socialists and
anti-capitalists do not believe that pro-worker policies (moratorium on
foreclosures/evictions, expansion of social spending, etc.) will promote “the economy”
as some abstraction. Any policy that benefits working people will undermine
profitability and accumulation; and any policy that promotes profitability and
accumulation will come out of the hides of working people. Put simply, any pro-
working class reforms will only be won through massive and militant struggle from
below — not through reliance on union bureaucrats, social movement functionaries or
Democratic politicians.
4. This crisis comes at a period when the organizations of working and oppressed
people in the United States are at their weakest state at any point in historical memory.
The weakness of our side of the class war poses the danger a further growth of right-
wing ideas among working people (nativism, racism, homophobia, sexism,
individualism, etc.)— which we can see in the recent strikes of British oil and power
workers against the hiring of foreign workers. The crisis, however, will also provide
opportunities for collective struggle that target capital rather than other working people,
in particular struggles against evictions and foreclosures, for the extension of
unemployment benefits, and against cuts to education and other social services.
5. The crisis also provides the radical left with an opportunity to engage in anti-
capitalist education. The crisis will help create an audience for radical demands like
public ownership and national single-payer health insurance. It will also create
opportunities for radicals and revolutionaries to present our critique of capitalism as an
unstable social system incapable of meeting human need.

This set of agreements is all that radicals and revolutionaries need to agree about to act
together. Anti-capitalists and socialists do not need to have a “single” explanation of the
crisis — one single crisis theory — to play a collective role in struggles against capital
and the state. At the same time, revolutionaries and radicals need to clarify their
thinking about the underlying causes of the crisis — of what leads profits to periodic
declines in profitability and accumulation in the “real economy.”

People we meet in the course of our political activity will be looking for a “big picture”
analysis of the economic mess. Each of us needs to be able to give them some
explanation that goes beyond a general (and correct) “capitalism sucks!” Anti-capitalists
and socialists also need to be able to answer those on the left, in the unions and social
movements who argue that there are “win-win” solutions to the crisis. These folks hold
to one or another explanation — theory — of the crisis which they use to back up their
political arguments.

We need to be able to make arguments to counter claims of a “win-win” solution that

can be won through reliance on union officials, social movement functionaries, and
Democratic politicians. What follow is a very brief outline (with no claim to be
original) of the four main radical and Marxist theories of crisis: profit-squeeze, under-
consumptionism, over-competition, and falling rate of profit as a result of increasing
mechanization/capitalization of capital. After presenting each theory, I will attempt to
evaluate them in terms of their political implications, logical structure, and
factual/empirical validity.

It is important to understand that there is no simple correspondence between a crisis

theory and a political strategy. While both under-consumptionist and profit-squeeze
arguments are associated with reformist/social-democratic politics, revolutionaries have
also embraced these theories. However, each theory of the crisis defines a range of
possible resolutions of the crisis, the concrete program to be fought for, and the social
forces expected to implement that program.

Profit-Squeeze

During the previous long crisis of profitability of the late 1960s through early 1980s, the
notion of a profit-squeeze became the dominant left-wing explanation of the decline of
profitability and accumulation across the capitalist world. Today few would claim that
the increased strength of workers — who have suffered nearly continuous defeats since
the early 1980s — has caused the current crisis. However, in the late 1960s and early
1970s, a number of radical economists argued that the increasing strength of workers,
the result of wildcat strikes and other workplace struggles, caused a sharp and general
fall in profits in the industrial capitalist societies.

Two revolutionary socialists, Glyn and Sutcliff, were the first to argue that rising
workers’ wages in the late 1960s led to a decline (‘squeeze’) in capitalist profitability in
the early 1970s. By the 1980s, three left social-democrats, Bowles, Gordon and
Weiskopf, took up this argument, claiming that the ability of workers to raise wages,
win broad social reforms and block corporate attempts to reorganize the labor process
was the primary cause of the crisis. Workers’ struggles led to a declining rate of growth
of labor productivity, rising costs of maintaining capitalist control over workers in
production, and a rising “social wage” (social welfare payments), all of which squeezed
corporate profits.

Profit-squeeze theories appealed to many anti-capitalists and socialists because they

made class power — the strength of labor — the key determinant of profitability.
However, making class struggle the central determinant of profitability easily led to a
politics of class cooperation.

Gordon, Bowles and Weiskopf were important proponents of workplace “co-

management” and “labor-management cooperation.” Such experiments in “workplace
democracy” would raise productivity, allowing both capitalists’ profits and workers’
living and working conditions to improve simultaneously. Many advocates of the profit
squeeze theory believed that “workplace democracy” could be won by an alliance of
labor officials and liberal Democrats. Unfortunately, such experiments in labor-
management cooperation have been, at best, a cover for the introduction and spread of
lean production in unionized workplaces.

Logically and theoretically, declining profits as a result of either rising wages or

declining worker effort in production are, at best, temporary and sectoral. Capitalists in
a particular industry can respond to rising wages or declining worker effort through
either the introduction of new and more productive machinery; or, if this is not
immediately possible, by diverting new investment into industries where wages are
lower, worker effort more intense and profits are higher. Put simply, neither rising
wages nor declining worker effort can lead to a general and prolonged crisis of
profitability like that of the late 1960s through the early 1980s.

Data also challenge both versions of the “profit squeeze” arguments. The rate of growth
of productivity began to fall in the mid-1960s — well before the upsurge of worker
militancy — as the result of falling capital investment. The fall in capital investment
was a response to falling profit. Put simply, the slowdown of productivity growth was
an effect, not the cause of the onset of the crisis in the mid-1960s.

Under-Consumption

Before the 1970s — and again today — the historically dominant crisis theory on the
social-democratic and liberal left (Communist Party, Monthly Review, Democratic
Party liberals through the 1980s) is one or another variant of under-consumptionism. At
the heart of this theory is the idea that capitalism lacks any internal mechanism to
generate total demand sufficient to buy-back a growing total supply. In its simplest
form, the fact that workers are paid a wage that is less than the value of what they
produce is said to give rise to a gap between demand and supply in a growing system. In
its most sophisticated form, it is the periodic paucity of investment opportunities which
produces periods of inadequate total demand.

Under-consumptionism, like profit-squeeze arguments, appeals to many on the anti-

capitalist left because it places the relationship of class forces —for under-
consumptionism, the relative impoverishment of workers — as the cause of capitalist
crises. Revolutionary socialists like Rosa Luxemburg argued that the inability to find
markets would eventually lead to the collapse of capitalism. However, this theory has
usually been associated with proposals for a “regulated capitalism.”

Under-consumptionist arguments are often used to support capitalist state income

redistribution and investment planning — the “Keynesian” policies which most
capitalist states in the global North pursued between the 1930s and 1970s) — which
provide the incentives to investment that the market itself fails to provide. Such
proposals mar Naomi Klein’s insightful analysis of the role of state repression in
ensuring the conditions of profitable accumulation since the 1970s.

Such “win-win” solution to capitalist crisis can be put in place through the actions of a
coalition of union officials, social movement leaders, and “progressive” Democratic
Party politicians. Put simply, the under-consumption argument generally leads to the
reformist conclusion that capitalist crises can be avoided if the state, as a “neutral
arbiter,” can successfully balance the interests of capital and labor — balance supply
and demand.

Under-consumptionist theories rest on a fundamentally false assumption about

capitalism — that all capitalists produce only consumer goods, and the only “market”
for consumer goods are workers. In reality, however, capitalists produce both consumer
and capital goods — machinery, buildings, raw materials and the like. Workers
employed in the consumer and capital goods sector can earn enough to buy the output of
the consumer good sector, while capitalists in both the consumer and capital goods
sector can spend enough to buy the output of the capital goods sector. So long as
capitalists in both the capital and consumer goods sectors are investing, supply and
demand can be balanced.

Continued investment — capital accumulation — depends upon rising profits. When

profits fall, investment slacks, employment drops, and demand for both consumer and
capital goods drops, and there is “over-production.” Put simply, “overproduction” of
goods is the result, not the cause, of falling profits.

There is considerable evidence to challenge the notion that insufficient demand causes
falling profitability. Most economists recognize that capitalist firms adjust to
fluctuations in demand by adjusting capacity utilization — increasing or reducing the
number of workers through the addition or elimination of work shifts. Shaikh has
developed a statistical method to adjust profit rate data for capacity utilization. The
result is that profits, even when adjusted for capacity utilization — fluctuations in
demand — still fall.

Robert Brenner, a revolutionary socialist and editor of Against the Current, has recently
made a contribution to crisis theory. According to Brenner, increased competition in the
late 1960s and early 1970s — between relatively new capitals in Japan and Western
Germany and the relatively older capitals in the United States — led to a generalized
and prolonged decline of profitability across the industrial capitalist world.

Overcompetition

Brenner’s explanation of the crisis shares a number of assumptions with the falling rate
of profit argument we will discuss below. In both theories, competition forces capitalists
to constantly find new and more efficient methods of production. Newer capitals (like
Japan and West Germany after World War II), with little or no previous fixed capital
investment are in the best position to introduce the latest methods of production. They
are able to lower costs and prices and raise their profits in comparison to older capitals,
who cannot abandon older investments in fixed capital until they are “used up”
economically.

Brenner rejects, however, the idea that an increasing mechanization of production

causes falling profits for all capitals. Instead, he argues that capitalists choose new
techniques in order to simultaneously lower unit cost and raise profits. According to
Brenner, faced with declining prices set by the newer and more efficient capitals, only
older capitals experience lower profits and over-capacity. Falling profits and
overcapacity becomes generalized across the capitalist world economy in periods of
intensified international competition, like the late 1960s and early 1970s, producing a
long-period of economic stagnation.

Brenner claims that whatever recovery of profits have occurred since the early 1970s
have been short-term and anemic because there has not been, in his estimate, a sufficient
devalorization of older, less efficient capitals through massive bankruptcies.

Politically, Brenner draws revolutionary political conclusions from his analysis of the
crisis. Only a massive attack on working class living standards combined with a massive
destruction of older and inefficient capitals can raise profits. There are no “win-win”
solutions to the crisis. As with the falling rate of profit thesis, the notion of a “regulated
capitalism” where the state can prevent crises is utopian.

Logical and factual problems have been identified in Brenner’s theory of over-
competition. Theoretically, Brenner’s argument suffers from similar problems as the
“profit-squeeze” arguments he correctly rejects. Just as rising wages and declining
worker effort must lead capitalists in a given economic sector to replace labor with
capital or divert new investment to arenas with higher profits, so must sharpened and
generalized competition lead older capitalists to adapt the latest techniques of
production, reduce capacity, or shift investment to new branches of production.

Clearly, the realities of capitalist competition through fixed capital investment prevent
capitalists from quickly junking old investments, but over the course of nearly four
decades this was clearly possible.
In addition, Brenner’s notion that capitalists are free to choose techniques that both
lower their unit costs (improve their competitive position) and raise profits on their
investments is problematic. This claim runs counter to the reality of capitalist
competition, which forces each and every capitalist to “choose” the technique that
allows the lowest unit costs, even if it raises the total capital investment and induces a
decline in the overall rate of profit.

Factually, there are a number of problems with Brenner’s theory. First, the sharpening
of international competition in the early 1970s cannot explain the decline of profits in
the United States and other industrialized countries throughout the post-WW II period.
Second, there is no clear indication of a sharp increase in international competition
before total profits begin to stagnate and accumulation stagnated in the United States
during the mid-1960s. In fact, evidence indicates that sharpened international (and
domestic) competition is the result, not the cause of falling investment after the mid-
1960s.

Third, rates of profit declined more quickly in the late 1960s and early 1970s in Japan
— the location of the newer and more efficient capitals — than in the United States, the
location of older and less efficient firms. Finally, there is ample evidence of a secular
recovery in profit rates in the 1980s and 1990s, which Brenner’s account denies. (See
attached Graph “U.S. Corporate Profit Rates, 1948-2007.”)

Mechanization and Falling Rate of Profit

At the center of the theory of the falling rate of profit are the most fundamental
dynamics of capitalism. Capitalist competition forces capitalists to seek out and
introduce new and more advanced methods of production in order to cut per unit costs.
The result is an increasing capitalization of production — what Marx called the “rising
organic composition of capital.” As capitalists replace workers with machines —
replace living with dead labor — the rate of profit falls.

The rate of profit — total profits divided by total capital invested and total wages —
falls in both long periods of capitalist growth and long periods of stagnation. Profit rates
decline during long waves of growth because the capital intensity of production — total
capital divided by total wages — increases. As profit rates decline, the rate of increase
of investment falls as well.

During the long-boom, the rate of increase of total investment falls at a slower rate than
the decline in profit rates. The result is that total profits — the mass of profit —
continue to grow.

Growing total profits translate into positive (although declining) rates of profit on the
newest investments capitalists make. So long as profits on new investments are positive,
capitalists will continue to accumulate. Put simply, a rising mass of profit allows capital
to experience a long wave of expansion with relatively short and shallow recessions,
even though the rate of profit continues to fall.
At some point, however, the falling rate of profit leads to an accelerating fall in the rate
of growth of investment. When the rate of decline in investment growth is greater than
the decline of profit rates, the mass of profit stagnates. When total profits stop growing,
the rate of profit on new investments will become negative and capitalists stop
investing. As a result, the long wave of expansion turns into a long wave of stagnation
with relatively longer and deeper recessions.

Unlike the other theories of capitalist crisis, the falling rate of profit does not view
conjunctural or accidental factors like a mismatch of supply and demand, rising
wages/declining efforts, or increased competition as the cause of falling profits. Instead,
falling profits are the result of the necessary dynamics of capitalism.

While capitalism inevitably generates crises of profitability and accumulation, there is

no automatic collapse of capitalism. Capitalism can recover from long periods of
economic stagnation if there is a sharp increase in the rate of profit. A radical increase in
the profit rate occurs only through a radical increase in the rate of exploitation, a
massive destruction of inefficient capitalists, and a substantive expansion of the
boundaries of the capitalist world economy.

Concretely, this means an employers’ offensive to drive down wages and reorganize
work; capitalist state cuts in social welfare; a wave of bankruptcies, mergers, and
acquisitions; and a geographic expansion of capitalist production. Put simply, the notion
that a “regulated capitalism” in which state policies simultaneously raise working class
living standards and working conditions and capitalist profits is utopian.

A coming together of these factors led to a revival of profitability across the capitalist
world — and especially in the United States — since the early 1980s. The
generalization of lean production through industry and services sharply raised labor
productivity — the rate of exploitation. Waves of bankruptcies and mergers and
acquisitions (the primary source of the growth of the financial sector) led to the junking
of the oldest and least efficient operations.

At the same time, productive capacity was reduced in some industries (steel) and
investment shifted to new branches of production (U.S. Steel’s diversification into oil
exploration). The construction of global production chains expanded the boundaries of
the world economy, allowing the shift of labor-intensive operations to low-wage regions
of the global South.

The consolidation of neoliberal capitalist state economic policies systematically

promoted this restructuring of capital. The deregulation of capital and labor markets,
combined with a fiscal policy that promoted disinflation, ensured that capitalist firms
responded to rising profits with continued investment in new plant and equipment
(especially computer machinery and inventory systems) and a continuous reorganization
of work along the lines of lean production.
The deregulation of capital promoted the growth of transnational production chains,
while the deregulation of labor markets (cuts in social welfare, etc.) increased
competition among workers and contributed to the stagnation or fall of real wages. As
Naomi Klein makes clear, the victory of neoliberalism was not some peaceful and
inevitable process, but required capitalist state repression to “shock and awe” working
people in both the global North and South.

The long wave of expansion that began in the mid-1980s was not — and could not be —
permanent. As profits rose, capitalist accumulation began anew. The resulting
increasing capitalization of production led to declining rates of profit, and eventually a
stagnation in the mass of profits in the past few years. The capitalist world has entered a
long wave of stagnation — lower profits on new investment in the face of overcapacity,
resulting in longer and deeper recessions. It is this new economic context that makes the
current financial meltdown so dangerous for capital.

As we have argued elsewhere, financial crises rooted in increased investment in

“fictitious capital” — claims on future wealth — are a feature of the top of every
business cycle. If the underlying conditions of profitability and accumulation are healthy
for capital, then financial crises are relatively mild and lead to a new cycle of strong
growth. This was the case with the stock market crash of 1987, the savings and loan
crisis of the early 1990s, and the “dot.com bubble” of the early part of this decade.

However, when the underlying conditions of profitability and accumulation are

unhealthy for capital — as they are today — financial crises carry with them much
greater risks. The recent capitalist state bailout of the financial system — including a
partial “nationalization” of the banks — and the Obama “stimulus package” will
probably prevent a total collapse of the financial system and a new 1930s style
depression, but will not prevent a very sharp and prolonged recession.

High and persistent unemployment and sharp declines in output and investment are
likely over the next eighteen to thirty-six months. The economic recovery that follows
will likely be anemic. Continued low profits as a result of over-capitalization will result
in slow growth. At the same time, the infusion of money into the economy through the
bailout and stimulus package will fuel inflation. Put simply, we are likely to see a new
period of stagflation similar to that the capitalist world experienced in the late 1960s and
1970s.

Just as in the early 1980s, there will be no solution to this crisis that will benefit both
capital and labor. The only way out of a prolonged period of stagnant accumulation is a
new wave of bankruptcies/mergers and acquisitions, the deepening of lean production,
and deep cuts in the remnants of social services.
This crisis, like all crises, presents both opportunities for new collective working class
and popular struggles against capital, and also dangers. Failing such successful
struggles, there is a growing danger of different segments of the working class
attempting to defend their declining social position against other sections of the working
class.