This is an extended and more developed version of a text I originally posted on the ICC forum as part of a discussion on theories of decadence.
Introduction
“At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution.” (Preface, 1859)
For Marx, the law of the tendency for the rate of profit to fall (FroP) is proof that capital is a historically transient mode of production. The fact that the more capital develops the productivity of labour the more the rate of profit falls shows that, contrary to what the bourgeois economists believed, it could not be the finally discovered form of production; instead the very development of the productive forces by capital at a certain point becomes a barrier for capital itself and “When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter”. This is why he described the FroP in the Grundrisse as “in every respect the most important law of modern political economy.”
For Marx the FRoP is only a tendency because there are various forces that counteract it, so that its effects are manifested only in the long term and in his more developed works he does not give it such a central role, emphasising more how capitalism’s contradictions interact with each other to drive it towards its historic crisis, and how these contradictions result themselves ultimately in the development of the class struggle leading to capitalism’s inevitable overthrow.
For supporters of what is sometimes called the “Grossman-Mattick” theory, however, the FRoP is the main contradiction of capitalism and the explanation for both capitalism’s entry into its epoch of decadence and the two world wars of the 20th century. For the Internationalist Communist Tendency, for example:
“The tendency of the rate of profit to fall is the most important law of capitalism and its main contradiction. Capitalist accumulation, i.e. the development of the productive forces, requires growth in the mass of profit, but by thus increasing the organic composition of capital, the rate of profit is inevitably doomed to fall. When the fall becomes actual rather than merely tendential, the real trouble begins – it is the structural crisis of the capitalist cycle. The first two of these structural crises in the epoch of imperialism led to the two World Wars”
Since the re-emergence of the revolutionary movement in the 1970s there has been a seemingly endless debate and often heated polemics about the causes of capitalism’s historic crisis, usually between partisans of the FRoP and Rosa Luxemburg’s theory of “saturated markets”. Rather than taking sides in this debate, this text addresses a specific question: can the law of the tendency for the rate of profit to fall explain capitalism’s entry into decadence and the two world wars of the 20th century?
First we need to briefly examine the two main theories which form the basis of the Grossman-Mattick theory.
Grossman: the law of the tendency for the rate of profit to fall will lead inevitably to capitalist breakdown
In contrast to Marx, who did not try to predict which of capitalism’s contradictions would finally precipitate its epoch of decay, Henryk Grossman (Law of Accumulation and Breakdown, 1929) set out to demonstrate that the law of the tendency for the rate of profit to fall must lead at a certain point to the breakdown of capitalism.
Based on Marx’s hypothetical models of capitalist reproduction, Grossman argued that at a certain point the system must break down because all the surplus value produced is needed to expand production and there is none left for consumption by the capitalists. In other words, it is the fall in the mass of profit that is the real problem for capital rather than the rate itself. In reality breakdown is averted by counter-tendencies which have the effect of restoring the valorisation of capital. For Grossman, capital’s periodic crises are the means by which the breakdown tendency is temporarily interrupted. But at a certain point these counter-tendencies must cease to operate, in which case the breakdown tendency reasserts itself in its absolute form as capitalism’s final crisis.
Figure 1 (from Law of Accumulation and Breakdown)
In Grossman’s abstract model, the breakdown point (Z in Fig. 1) is the point at which capital’s inevitable crisis of accumulation is reached. This opens up a period of sharpened struggle between the two classes over the dwindling amount of surplus value. The capitalist class can only avert the collapse of accumulation by systematically depressing wages and increasing exploitation and for Grossman it is this capitalist offensive against the working class that finally demonstrates capitalism has become a fetter on the development of the productive forces.(1)
So far this is a purely abstract model of why capitalism must inevitably collapse and it is necessary to test it against empirical reality to see to what extent the various counter-tendencies modify the breakdown tendency. This inevitably means dealing with the rise of imperialism in the late 19th century and for Grossman this is a symptom of the growing crisis of capitalist accumulation, an attempt to restore the valorisation of capital at any cost and to weaken or eliminate the breakdown tendency. But instead of taking this argument to its logical conclusion by showing that imperialism is a sign of capitalism’s approaching epoch of decay, he instead reverts to the argument that wars in capitalism have the specific function of devalorising capital and restoring accumulation, ie. that they are a counter-tendency to capitalist breakdown. Grossman cites the historical examples of the costs to Britain of suppressing the Indian uprising of 1857 and fighting the Crimean War, equating these with the destruction of around 35% of the wealth of humanity in the First World War, arguing that the latter created new scope for accumulation: “From the Marxist theory of accumulation it follows that war and the destruction of capital values bound up with it weaken the breakdown and necessarily provide a new impetus to the accumulation of capital” (Law).
Leaving aside the question of the economic function of wars, can Grossman’s theory provide an explanation for decadence? Specifically, is capital’s “final crisis” in his abstract model of the system’s inevitable breakdown the same as the definitive fettering of the development of the productive forces by the existing relations of production, as Marx described it?
In Grossman’s model, the final crisis is the point at which capital’s inevitable crisis of accumulation is reached; from then on accumulation can only be maintained if wages are depressed for a prolonged period. But if the capitalist class is successful in doing this it leaves open the possibility that breakdown can be averted and accumulation can continue; the final crisis is thus transformed into a temporary crisis. Furthermore, as a model of capitalist decadence it appears to exclude the possibility of any future rise in wages let alone a rise in the rate of profit, so we are led to conclude that Grossman’s abstract model of capitalist breakdown does not appear to be able to explain capitalist decadence in the terms set out by Marx.
Based on his mechanistic vision of the class struggle Grossman actually concluded that the capitalist offensive against the working class after 1921 was the demonstration that capitalism had finally entered its decadent phase. But while this offensive was in part about suppressing wages and conditions in response to the economic crisis it was above all a political counter-offensive against the post-war revolutionary wave of struggles, which was itself a response of the working class to WW1 and the entry of capitalism into decadence.
Mattick: wars in decadent capitalism restore profitability
Grossman’s theory appeared at a moment when capitalism indeed appeared to be on the eve of its final breakdown; his prediction that the USA was fast approaching an economic crisis appeared prescient and his theory was a major influence on the ex-KAPD member Paul Mattick, who adapted it to the German left communist position of the “permanent” or “death crisis” of capitalism.
1929 of course proved not to be capitalism’s final crisis after all and Mattick’s views subsequently evolved in response to developments in capitalism after WW2, becoming increasingly critical of any idea that capitalism could breakdown for economic reasons alone. Mattick eventually rejected the idea that it was already decadent but in Marx and Keynes (1969) he defended the position that despite the appearance of growth in the post-war period, capitalism had become a regressive and destructive system of production. In a section dealing with the growth of state capitalism and imperialism he revives Grossman’s theory that wars are a counter-tendency to capital’s crisis of profitability and attempts to reconcile this with the position that capitalism had entered its decadent phase with WW1 by asserting that, while in the 19th century capitalism’s inherent crisis of accumulation could being overcome by means of periodic crises, by the turn of the century these were no longer enough to destroy sufficient capital to restore profitability: “The business-cycle as an instrument of accumulation had apparently come to an end; or rather, the business-cycle became a “cycle” of world wars”.
For Mattick, capitalism’s entry into decadence was therefore the result of a crisis of profitability and the two world wars of the 20th century had the same function as the periodic economic crises in the 19th century: to restore profitability and expand production: “Despite the losses of some nations, the gains of others are large enough to initiate a new period of capital expansion soon to excel, in terms of world production, the pre-war level of economic activity” (Chapter 13).
This argument is cited by the Communist Workers’ Organisation, the British ICT affiliate, in support of its theory of the FRoP:
“We argue that world wars have become essential for capitalism's survival since the start of the 20th century and that they have replaced decennial crises of the 19th century. The life cycle of capitalism has accordingly become one of crisis followed by world war followed by reconstruction, crisis, etc.”
What is the empirical evidence for the falling rate of profit as an explanation for decadence?
If this argument is correct – that capitalism’s entry into decadence is the result of a crisis of profitability and that the world wars have the economic function of restoring profitability and enabling the expansion of production – then we would expect to find empirical evidence to support it in the evolution of the rate of profit since the 19th century; that is, broadly we would expect to see:
· a decline in profit rates leading up to WW1 as evidence that periodic crises and competition were no longer enough to avert capital’s growing crisis of profitability
· a recovery of profit rates after WW1 as a result of the massive destruction of capital
· a further decline in profit rates in the 1930s demanding an even greater destruction of capital
· a corresponding recovery of profit rates after the unprecedented destruction of WW2.
Measuring the fall in the rate of profit is problematic because of course capitalist economic statistics do not directly relate to Marxist categories but a number of serious attempts have been made to produce a Marxist rate of profit and so we will attempt to sidestep this problem by using the same data as supporters of the theory.
Figure 2 is exactly the same graph, based on the work of Esteban Maito, used by the CWO to support its argument about the role of the FRoP in explaining decadence.
(The core capitalist countries are UK, USA, Germany, Japan, Netherlands and Sweden.)
The graph clearly shows the long-term downward trend in the rate of profit since the 1860s, confirming Marx’s view that the FRoP is proof of capitalism’s historical transience. But if we focus on the question of whether the FRoP can explain decadence we must note that:
· after a sharp fall in in the second half of the 19th century, marked by the effects of the economic crisis of 1873-77, there was a stabilisation of profit rates in the two decades before WW1
· there was a drop in profit rates after WW1
· the recovery of profit rates after the crisis of the 1930s reached its high point in WW2, after which the rate dropped back to the previous trend line
· a sharp decline in profit rates from 1970 to 1982 was followed by a limited recovery in the 1980s.
In summary, this historical data for profit rates in the core capitalist countries does not appear to demonstrate a correlation between the FRoP and the entry of capitalism into decadence in 1914 or to strongly support the idea that the economic function of wars in decadent capitalism is to restore profitability. Specifically:
- there is no evidence that would support the assertion that the existing counter-tendencies to the FroP were no longer effective by 1914, thus necessitating world wars to restore profitability
- there is no evidence that the destruction of around 35% of humanity’s wealth in WW1 led to a restoration of profitability
- while the data suggests that the unprecedented destruction of WW2 may have provided capitalism with a temporary reprieve from the historic decline in the RoP there is no evidence that it could have been the cause of the spectacular growth seen in the ensuing post-war boom
- despite the long term historic downward trend, profit rates were able to rise in the 1980s.
Conclusions
Of course there may be all sorts of reasons why the data we have used does not appear to support the arguments of Mattick and the ICT and we would need to consider a far more extensive data set, with a greater degree of granularity, in order to be able to conclusively prove or disprove them.
It’s worth pointing out that Maito himself does not try to use the FRoP to explain capitalist decadence or the economic role of wars. Like other academic supporters of the FRoP analysis (Andrew Kliman, etc), he does not appear to defend the position of the Communist Left that capitalism is decadent but is interested primarily in demonstrating Marx’s theory that the FRoP proves capitalism’s historical transience on the basis that it is the most important contradiction of capitalism.
In other words, it is really only for political supporters of the Communist Left that the specific problem arises of how to reconcile an emphasis on the FRoP as the main contradiction of capitalism with the Marxist position on capitalist decadence; and the fact that this is indeed a problem is what we appear to have found demonstrated both in the theories of Grossman and Mattick and in the basic empirical evidence on the evolution of the FRoP since the 19th century. To be absolutely clear, since, based on Marx’s analysis of capitalism’s inherent contradictions, the FRoP must play a role in the entry of the system into its epoch of decay, we are led to conclude that the problem specifically lies with mono-causal theories which attempt to prove that the FRoP is the only significant factor involved.
Finally, on the role of wars in decadence; for Marx, decadence was characterised by the violent destruction of capital and imperialist warfare is absolutely organic to capitalism in its phase of decay but the empirical evidence we have looked at here suggests that the destruction of war in decadence, far from being a mechanism for restoring profitability, at best only provides a temporary respite for a system definitively fettered by its own social relations and at worst only demonstrates the catastrophic consequences of its continued survival for humanity. But to prove this conclusively far more research would be necessary.
Mark Hayes
March 2020
(1) “This new, constant offensive of capital against the working class, undertaken with the greatest pressure, is in fact therefore a symptomatic demonstration that capitalism has outlived itself; that it is only through the deterioration of the living conditions of the working class that it can maintain itself; that it has therefore fulfilled its historic mission of developing the productive forces; from being a spur to development it is now becoming an impediment…” (excerpt from part one of the chapter on “The Breakdown Tendency and the Class Struggle” in Law of Accumulation and Breakdown, translated by Kenneth Lapides, “‘Henryk Grossmann on Marx’s Wage Theory and the “Increasing Misery”, Controversy”, History of Political Economy 26:2 (1994), Dukes University Press, p.262-3.