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“You Can’t Change the Mode of Production with a Political Agenda”

by Anne Jaclard, National Secretary, Marxist-Humanist Initiative

Marxist-Humanist Initiative sees as a primary responsibility the theoretical development of “what must be changed in order to transcend capitalism,” and the engagement of workers, women, minorities, Leftists, and others in this work.  We consider this to be vital theoretic preparation for revolution, so people are not first confronted with the question after the fall of capitalism, while it is waiting in the wings to rush back in.

But in this work, we are battling prevailing Left concepts about how to change society from capitalism to socialism, concepts which rely first and foremost on political change: typically, first you change people’s consciousness, then you seize power by overthrowing the state and corporations, then you vote in (or impose) new economic and personal codes of conduct, and proceed to set up methods to distribute resources and goods fairly, to plan what to produce, protect the environment, etc. We get this sort of scenario from everyone from vanguardists to anarchists.

In fact, as the process of achieving a socialist society is commonly discussed, it seems we only need the will to have one, and the political power to enforce our will. In this scenario, it is assumed that politics is in the driver’s seat, able to override all existing economic relations and bad human relations as well. The history of the many failed 20th century revolutions is rarely examined, other than by people with theories of state-capitalism, in terms of the revolutions’ failures to break out of the capitalist mode of production.

I argue that Marx’s philosophy entails a different anticipation of what is crucial to socialism. For Marx, capitalism’s laws drive politics, not the other way around, and those laws must be smashed completely in order to begin to build a new society. Only a change in the mode of production will enable a new society to emerge and to be sustainable. While a break with the operation of law of value will not automatically ensure that all aspects of society will be made anew, it is an essential part of the process. It can create the material and social basis for women, for example, to continue their struggles until their ideas of liberation are fully developed and realized.

Left sees politics as in command

On the Left today, even most Marxist economists have skipped over the issue of what constitutes breaking with capitalism. For example, Fred Moseley responded to the economic crisis by saying last year (in “The US Economic Crisis: Causes and Solutions” on line athttp://www.isreview.org/issues/64/feat-moseley.shtml) that nationalizing the financial sector is “the only way” out of the crisis:  ”…finance should be nationalized and operated by the government in the interest of public policy objectives.” He goes on to predict that once finance is nationalized, it will open the door to “more worker-friendly options,” and concludes, “The nationalization of banks is not socialism, but it could be an important step on the road to socialism. The use of government banks to pursue important public policy objectives, rather than profit maximization, would be a model for the rest of the economy.”

Moseley doesn’t tell us how this would work. Aside from the fact that their current owners would resist nationalization, we must ask:  can banks pursue public policy objectives? While we remain in capitalism, banks depend on investors, and investors want profits, not social engineering. So there is no basis for seeing this as a possible stepping stone to socialism. In fact, such popular approaches to making real change must fail. Thus, advocating them only leads to unrealistic expectations, promoting the idea that through political and social victories, we can incrementally improve capitalism until it can be turned into socialism by voting it in.

This attitude results in a lack of theoretic preparation for the day when the masses can actually abolish capitalism, and thus it dooms future revolutions to failure. I’m not only talking about prevailing “Marxist” views, or anarchist and spontaneist views that rely on the workers divining solutions to economic and social problems on the basis of cooperative labor forms.  I’m especially talking about your average person who wants to see another world, but thinks it can come about, if at all, by voting it in, or doing away with bosses, or paying everyone the same amount, or whatever political, legal, and administrative measures they have been led to believe can accomplish the redistribution of power and wealth and can really make their lives better.

In short, this prevailing view parallels bourgeois thought in looking at social organization as a political issue determined by power and will, and fails to acknowledge the systemic nature of capitalism. Shallow thinking reinforces the 18th century view of revolution as simply the overthrow of the state. Overthrowing states today, when they are only the political superstructure of capital, is still considered by the some small Left parties like the traditional Communist Parties to automatically bring in socialism; usually there is an additional assumption that socialism can be brought in by a different state. Missing is the concept of uprooting one mode of production and developing another.

Let me look briefly at another current theorist who is better than many, Robin Hahnel, whose work with Michael Albert on “participatory economics” (called “Parecon”) is very important but cannot be said to solve all problems of breaking with capitalism by itself. In a November 2008 piece on the zcommunications website, “In Defense of Participatory Economics,” Hahnel addresses the issue: how do we get to the day when Parecon will be voted in by the majority of people? Hahnel has no illusions about the so-called communism of the Soviet Union or China, no overt vanguardism, no programmatic answers. But he rejects Marxism entirely, seeing no internal contradictions nor instability within capitalism that would present opportunities to overthrow it. So he looks only to political-social experiences within capitalism to change our attitudes and lead us to replace it with Parecon. He writes:  “The transition to a participatory economy consists precisely of dispelling myths about capitalism’s supposed virtues, challenging any and all forms of exploitation, rejecting commercial values, and developing efficient democratic and cooperative behavior patterns….”

So we and the workers are to devote all our time to reform campaigns, and none to working out a revolutionary future. With Hahnel, a split persists between immediate activity designed to build solidarity, and the ultimate goal of socialism, in spite of his vision of Parecon. We simply don’t work theoretically on Parecon’s problems and implementation now.  I don’t see how his plan for the immediate future differs from what the vanguardists call the need to change the masses’ consciousness, only Hahnel would accomplish it through having the workers engage in reformist struggles and cooperatives instead of joining “the party.”

Can his plan work on any level? One problem with it is: if everything depends on changing people’s capitalist attitudes of greed, competition, etc., and these attitudes have been created by capitalism, then they can’t be changed from within capitalism. Marx argues the reverse, that social being determines social consciousness, so that working people already have the ability to confront and transcend the reality of their economic/social lives. Our job is not to tell them there is another way to live, but to demonstrate theoretically that non-capitalist society is actually possible to achieve, to theorize how to break with the law of value from which all capitalist laws derive. Only then can the Left contribute to the revolutionary process something more than wishes and false expectations.

Marx’s theory contrasted

Marx made clear that the mode of production engenders human relations in all aspects of society, and society can be revolutionized only by change from within the sphere of production. Politics is not in command; an economic system is. So it seems that as Marxists, we should consider the first steps toward changing the world to be understanding the depth and process of such a system-changing upheaval as would be needed, and exposing simplistic views that are based solely or primarily on politics.

Although it is commonly said that Marx was a theorist of capitalism, not of socialism, the depth of his probing of capitalism and his occasional discussions of socialism show, even if often indirectly, what it would entail to create the opposite of capitalism. Marx battled Proudhonism and similar tendencies in the socialist movement throughout his life. He demonstrated that their proposals for getting rid of capitalism or the defects of capitalism, would not create a viable, sustainable new economic system, but rather would lead to a return to capitalism. He demonstrated over and over that the mode of distribution follows from the mode of production:  distribution cannot act independently nor reverse cause and effect. We have only to look at Marx’s Critique of the Gotha Program, his most explicit description of socialist society, to see him exposing, at every turn, the inadequacy of looking outside the mode of production for the path to socialism. (Andrew will be discussing aspects of the Critique that are generally ignored.)

What is needed in order to abolish the capitalistic system of value production?  Some people imagine that if we decide to “produce for need, not for profit,” we have overcome value production. This is a superficial and inadequate conception of what value production entails and what is needed to end it. The crucial issue is what Raya Dunayevskaya singled out in her critique of the Stalinist revision of “Marxian Economics”: that value production is characterized by “minimum costs and maximum production.” (The Marxist-Humanist Theory of State-Capitalism, p. 87).   Moreover, workers’ control of the planning process is not sufficient by itself to abrogate this law of value. The issue is not who is in control, but what is. As Dunayevskaya wrote in Marxism and Freedom (p. 136):

“… Marx, throughout CAPITAL, insists that either you have the self-activity of the workers, the plan of freely associated labor, or you have the hierarchic structure of relations in the factory and the despotic Plan [of capital].  There is no in-between.

“The only possibility of avoiding capitalist crises is the abrogation of the law of value. That is to say, planning must be done according to the needs of the productive system as a human system. A system where human needs are not governed by the necessity to pay the laborer at minimum and to extract the maximum abstract labor for the purpose of keeping the productive system, as far as possible, within the lawless laws of the world market, dominated by the law of value.”

Otherwise, society remains under the despotic plan of capital - even if workers’ faces rather than corporate managers’ faces serve as the new personifications of capital. A cooperative must still buy its imputs and sell its outputs on the world market, competing with every other producer of the same product. It cannot decide to pay much more nor to greatly change conditions of work to implement more humane ones, without putting itself out of business. As long as capitalism exists, the world market will exist, and thus the law of value will exist.  In other words, what will exist is the need to compete effectively, to produce as much as possible as cheaply as possible.  There cannot be socialism in one country, much less in a single cooperative or network of cooperatives.  Even if the members of a cooperative or network of cooperatives are nominally their own bosses, it follows from the continued existence of the value relation that, as Marx put it in his discussion of the fetishism of the commodity, “the process of production has mastery over [human beings], instead of the opposite.” (Capital, Vol. I, Peguin/Vintage ed.,p. 175)

Today, Marx’s view of what must be changed to have socialism is largely ignored, when he is not being misrepresented outright or said to be advocating Stalinist Russia or social-democratic Sweden.  The pulls of Proudhonism and social democratic redistributionism are so powerful that nearly everyone tends to think capitalism’s horrors arise from unequal distribution rather than from production, which in turn leads them to believe that socialism can arise from redistribution, and politics can do the job.

By failing to grapple theoretically, now, with the difficult challenge of uprooting value production and working out how a non-capitalist mode of production could function, the prevalence of political-based ideas condemns us to repeat the last century’s failed and truncated revolutions-if such inadequate ideas can even to inspire the masses to revolution at all.  I blame the theoretic failures of the Left, and not the masses’ “consciousness,” for the past 20 years of missed opportunities, ever since the end of Soviet-style state-capitalism masquerading as Communism. The non-Stalinist Left failed to present Marx’s concept of socialism as the alternative to capitalism and state-capitalism. Let us not miss the opportunity presented by the current economic crisis and recession to present Marx’s concepts now, and to build on them so as to offer hope for a socialist future.

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“The Transformation of Capitalism into Communism in the Critique of the Gotha Program”

by Andrew Kliman, author of Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency.

The Problem of “Transition”

Identifying ultimate goals seems to be the easiest part of articulating an alternative to capitalism.  The more we move back in time, towards the day after the change in political power and what happens then, the more difficult the problems seem to be.  Many on the Left engaged in, and still engage in, a lot of loose talk and loose thought about “transitional societies.” This has been done partly to whitewash state-capitalist despotism. But it has also been a hand-waving exercise. The wave of the hand distracts you from realizing that you haven’t received a reasoned explanation.  Unfortunately, the problems of the future seem to be so difficult that the tendency to wave them away by invoking the notion of transition still remains strong.

Bertell Ollman and James Lawler and others–it’s a common myth–say that Marx’s Critique of the Gotha Program (CGP) recognized the need for a transitional society that would precede the first, lower phase of communism. They ignore the fact that the CGP states-twice-that the first phase of communist society emerges from capitalist society-one is transformed into the other, directly. There is nothing in between, not in Marx’s statement.

The basis of the myth is Marx’s comment in the CGP that “Between capitalist and communist society lies the period of the revolutionary transformation of the one into the other. There corresponds to this also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat.” There’s no mention here of a transitional society. There is the revolutionary transformation of capitalist society into communist society, and a corresponding political transition period.  But if you conflate “transformation” and “transition,” you turn Marx into a proponent of a transitional society.  This reading of the CGP goes back to Lenin, who conflated the transformation and transition in The State and Revolution, writing that “the transition from capitalist society … to communist society is impossible without a ‘political transition period’ ….”

I have come to suspect that the very idea of “transitional society” is incoherent, and seems to stand in the way of thinking things through clearly.  Hegel’s critique of the idea of gradualness in his bookScience of Logic seems relevant here.

Hegel argues that we like to conceive of change as gradual in order to create a palpable image, “to make it possible almost to watch the disappearing with one’s eyes.”  The change is thus supposedly reduced to the easily understood process of mere quantitative decay, withering away.  Yet this image in fact explains nothing, since what requires explanation is the essential character of the change, which is not gradual quantitative decrease, but the “abstract transition of an existence into a negation of the existence.”  Appeals to gradualness evade the need to explain this by assuming the problem away:  “with the gradual disappearance of something, the non-being[,] or the other which takes its place[,] is likewise assumed to be [already] really there, but not yet observable, … not in the sense of being implicitly or ideally contained in the first something, but really there.”

It seems to me that people such as Ollman and Hillel Ticktin fall prey to this critique.  Instead of theorizing the negation of existing capitalism, they assume that it withers away as a socialist economy takes its place.

The difference between the gradual withering away of the state envisioned by Marx and Engels, and the gradual withering away of capitalism during a transitional society, has to do with the difference between the political and the economic.  Political domination is rooted in class antagonisms. Class antagonisms are in turn rooted in the existence of the division of society into classes.  And the division of society into classes is rooted in the mode of production.  So the withering away of the state is intelligible because it’s based on the revolutionary transformation of the mode of production upon which the existence of the state ultimately rests.  Once the mode of production is transformed, society won’t be divided into classes; so, of course, there won’t be class antagonisms. And that eliminates the need for a state in the proper sense of the term.

So if we eliminate the basis on which the state rests, the capitalist mode or production, the state withers away. But what sense can we make of the notion that capitalism similarly withers away?  Capitalism is a mode of production.  What do we eliminate in order to cause a mode of production to wither away? The very idea of withering away seems unintelligible here.

The logic of capital is “omnivorous,” totalizing.  Capitalism therefore cannot “become” a socialist society; it cannot gradually cease-to-be as the socialist society gradually comes-to-be.  Is it not the case, then, that revolutionary transformation must be understood as something different from transition?

This does not mean that everything has to change all at once; I am not denying that some changes must be gradual.  The issue, again, is that appeals to gradualness are hand-waving evasions of theoretic responsibility, the responsibility we have to explain the principles upon which, and processes by which, capitalism is transformed into its opposite.

Not Another “Labor Money” Scheme: Marx’s Lower Phase of Communism

Marx continually castigated Proudhonist and other proposals for monetary and distributional reform. Yet his Critique of the Gotha Program projects a lower phase of communism whose central feature appears to be yet another “labor money” scheme. Marx seems to be a middle-aged man throwing in the towel after having come up empty.  He seems to be repeating the very proposal–focused on changing commodity relations in the sphere of exchange without changing relations of production–that he had repeatedly denounced when it was made by others. I do not think this is so, however.  They were trying to institute equal exchange in a society dominated by the law of value, while Marx was theorizing a society in which that law has been abolished.

One of Marx’s clearest formulations of why this difference is all-important occurs in his book  Contribution to a Critique of Political Economy. He there discusses John Gray’s proposal: a national bank would accept and store stocks of the country’s commodities and, in return, issue certificates denominated in labor-time. A certificate that you did one day’s labor would entitle you to withdraw from the bank any commodities that took one day of labor to produce.

Gray made this proposal in 1831. Similar labor money proposals persist to this day, of course, and there are some actual “alternative currency schemes” like Ithaca Dollars and Brixton pounds.

If one thinks, as Marx did, that “labour-time is the intrinsic measure of value,” then it would seem that labor is in fact a natural alternative to money, a natural standard of value. As he wrote in his critique of Gray, “[W]hy use another extraneous standard as well?”  Yet for Marx, this was a serious question that demanded an answer. But instead of answering it, Marx said, Gray “assumed that commodities could be directly compared with one another as products of social labour.” This is because he also assumed that “the labour-time contained in commodities is immediately social [or directly social] labour-time.”

If that were indeed the case, Marx replied, “it would indeed be impossible for a specific commodity, such as gold, to confront other commodities as the incarnation of universal labour and exchange-value would not be turned into price; but neither would use-value be turned into exchange-value and the product into a commodity, and thus the very basis of bourgeois production would be abolished.” But that isn’t what Gray had in mind. He had in mind a system in which “goods are … produced as commodities but not exchanged as commodities.”

Marx argues that commodity production without commodity exchange is unviable; if you have commodity production, commodity exchange is unavoidable. “On the basis of commodity production, labour becomes social labour only as a result of the universal alienation of individual kinds of labour.” An hour of one’s work doesn’t directly “count” as an hour, but as more or less than an hour, or perhaps it doesn’t “count” as labor at all, because it isn’t directly social labor. And two commodities that took the same amount of time to produce can and do have different values (not only different prices). The amounts that the different commodities are actually worth, how much “social” labor they represent, is determined in the market.

For instance, if you work for 40 hours to produce a typewriter, tough noogies. There’s no market for it, so your 40 hours of labor are not “social” labor. If a Stakhanovite can dig three times as much coal as you can in an hour, then Russian for tough noogies. His hour of “individual” labor counts as three times as much “social” labor as yours. If you work hard and well, but you’re farming in China or India, where agricultural output per worker is less than 1 percent of the U.S. level-then Cantonese or Hindi for tough noogies.

But why can’t the state-run bank just declare that an actual hour of individual labor will count directly as an hour of social labor? And why can’t all commodities that took the same amount of labor to produce be declared equal? In other words, why can’t every commodity immediately count as money, or substitute for money?  Marx’s answer was simple: “The dogma that a commodity is immediately money or that the particular labour of a private individual contained in it is immediately social labour, does not … become true because a bank believes in it and conducts its operations [accordingly]. On the contrary, bankruptcy would in such a case fulfill the function of practical criticism.”

Marx does not explain what he means by this, but some of the factors that would result in the bankruptcy of the state-run bank are fairly obvious:

1. The more advanced producers would create a black market unless the threat or actuality of state violence prevented them, and so the bank would be continually short of goods, including raw materials and machines. The backward, state-regulated sector would become ever-more backward.

2.  If the black market were thwarted, the more advanced producers would leave the country and take their capital with them, unless they were prevented by violence or its threat.

3.  If forced to remain inside the country, they might well produce as little as possible. They could get away with this, unless compelled to work hard at gunpoint, because the bank would have to recognize that an hour of their now less-productive work is equal to an hour of every else’s.

4.  The system would create a disincentive to work, unless people were compelled to work hard at gunpoint, since the results of an hour’s work would no longer matter.

5.  It would also lead to a serious inefficiencies and a decline in useful production. One reason this would occur is that all products of an hour’s labor would count equally, even if they were not wanted or needed. Another is that the more advanced producers would be less well rewarded and thus invest less in new production.

Marx concludes his critique of Gray by arguing that “labor money is a pseudo-economic term, which denotes the pious wish to get rid of money, and together with money to get rid of exchange-value, and with exchange-value to get rid of commodities, and with commodities to get rid of the bourgeois mode of production.” In other words, to do what those who advocate labor money really want done, one must go “all the way down,” and get rid not only of money, but also get rid of the whole system of value production.

The Critique of the Gotha Program

Let us now turn to the Critique of the Gotha Program.  The Gotha Program called for “fair distribution” and the “equal right” to wealth. Marx repudiated the program, not because he disagreed with these goals, but because it sowed illusions about “what would be required to make [the program] real,” as Raya Dunayevskaya put it.

The core of Marx’s argument is his conception that a society’s notions of right, legal relations, and income distribution depend on and correspond to its mode of production. He comments, “Right can never be higher than the economic structure of society.” And he asks, “Are economic relations regulated by legal conceptions, or do not, on the contrary, legal relations arise out of economic ones?” And he criticizes the Program for not “treating … society … as the basis of the … state,” but instead “treat[ing] the state … as an independent entity.” And responding to the Program’s call for “fair distribution,” Marx replied, “Do not the bourgeoisie assert that the present-day distribution is fair? And is it not, in fact, the only ‘fair’ distribution on the basis of the present-day mode of production?” Don’t we in fact get back what we contribute-to capitalist society, measured in terms of its standards and requirements?

These general considerations should alert us to the fact that what may appear at first to be another labor money scheme rest on a conceptual foundation that’s entirely alien to them.

When Marx turns to the first phase of communist society, he envisions a sweeping revolutionary transformation of the relations of production, from the very start:

First, “individual labor no longer exists in an indirect fashion,” as in capitalist society, “but directly as a component part of total labor.” Thus the individual’s contribution to society is no longer assessed in terms of the number of products she produces or their value. Thus Marx notes, “the labor employed on the products [does not] appear here as the value of these products, as a material quality possessed by them.” What the producer contributes to society is now, as he goes on to say, her “individual quantum of labor”–the actual amount of work she does.

Another consequence of the direct sociality of labor is that “the producers do not exchange their products.” He doesn’t mean that each individual will be self-sufficient, but that you won’t have to pay prices in order to get things, nor sell things or your own ability to work in order to buy things. The reason why there will be no exchange of products is not that it will be outlawed, but that the direct sociality of labor makes it unnecessary. Each individual’s work is a direct contribution to the society’s production. Thus the result of production, the product, is directly social as well. It doesn’t have to be valuable in the market, since there is no longer value.

Because the mode of production determines the mode of distribution, new relations of distribution arise on the basis of these new relations of production.  ”Accordingly, the individual producer receives back from society-after the deductions [for social consumption and investment] have been made-exactly what [he] gives to it … The same amount of labor which [an individual] has given to society in one form, he receives back in another.”  If you work for an hour, you’re entitled to the product of an hour of other people’s work.  There’s an exchange, but it is directly an exchange of labor.  The products don’t exchange.

What makes all this possible?  Marx’s answer is extremely important.  He says that the principle of equality and the actual social practice “are no longer at loggerheads.” In bourgeois society, all people are equal as a matter of principle, and equal values exchange in the market.  But profound inequality is rampant nonetheless. So “principle and practice are … at loggerheads.”

Why isn’t this so in the new society?  It’s not a matter of putting one’s labor money where one’s labor mouth is, being honest and pure, or being selfless instead of selfish. Instead, what’s involved is that the changed social conditions have eliminated the contradiction in existing society that compels principle and practice to be at loggerheads. The contradiction is this:  “the exchange of equivalents in commodity exchange exists only on the average and not in the individual case.”

In the new society, in contrast, “measurement is made with an equal standard, labor.” This implies that the equality of labors holds true in each individual case. This is the all-important difference between what Marx thinks will naturally take place in the first phase of communism and what the labor money schemes try to implement by decree or by agreement.

As Marx continually emphasized, although the law of value appears to be a law of equality, it is actually a law of inequality.  It seems to be a law of equality because, if the same amount of labor is needed to produce two different products, and if exchange takes place in accordance with the law of value, then one unit of the first product will exchange for one unit of the second.

The catch is that, according to the law of value itself, what tends to exchange one-for-one are the products of equal amounts of social labor, but the individual’s labor is not directly social.  It counts as social labor only if it measures up to the average.  Only the average, or socially necessary, amount of labor needed to produce something counts as value-creating; any extra time that was spent to produce it has been wasted.

What the Proudhonists and utopians like Gray failed to recognize was that this is no infringement upon the law of value, but the way the law must operate.  Some workers are more productive, others are less productive.  Some work at more-skilled jobs, others at less-skilled jobs.  And so on.  Capitalism could not function at all efficiently if these unequal hours of labor counted as equal.  More efficient labor must count as more labor, while less efficient labor must count as less labor.  So the law of value, understood as a law of equal exchange, refers only to the abstract average hour of labor. It does not hold in the concrete, individual case.  The labor of all men and women is “equal,” but some is “more equal” than others.

Now in the Critique of the Gotha Program, Marx says that this, precisely this, is what will be different in communist society, from the very start.  No one’s labor-hour will be “more equal” than another’s any longer.  Because of this, and only because of it, there will be a new relation of distribution that corresponds to this new production relation:  remuneration of people according to the actual amount of work they do.

Marx did not spell out what must be changed in order for directly social labor to be a sustainable reality.  But one thing is certain. Just as the dogma that labor is directly social, and therefore equal, “does not become true because a bank believes in it and conducts its operations [accordingly],” it does not become true because the Central Committee of the Party or the federation of workers’ councils believes in it and conducts its operations accordingly. The equality of labors is not something one can impose by fiat, passing a law, or agreeing to count all labor equally.

Again, lasting changes in the political realm must be grounded in changes in the mode of production, not the reverse.  If the economic relations are such that different labors aren’t actually equal, counting them as equal will be a principle at loggerheads with practice.  For instance, if we “declare” that the labor of a surgeon and a nurse’s aide are equal, it is almost inevitable that a black market for surgical services will quickly emerge.  Either that, or “we’ll” have to enforce the equality through military-state power that has no prospect of withering away.

So the issue is not whether we count different labors equally-politics is not in command, despite what Mao said-but whether the social relations are such that different labors actually count equally.  The task is to work out what such social relations are, and what is required to make them real.

This is one of the most fundamental tasks we face today, I believe. It is a task for today, not the future, because the new society will quickly retrogress if labor is not directly social, if different labors aren’t really equal, at the very start. Capitalist relations will quickly be re-established. Either the new society will “go bankrupt,” as it were, by trying to put into practice something that remains only an abstract and unrealizable principle. Or, if there is no attempt to realize the principle immediately, the result will be that inequality, exploitation, and social antagonisms of every sort will increase over time, not diminish. They are the natural results of commodity relations, and they will be the natural results of a failure to get rid of commodity relations.

In other words, you can’t “transition” your way to something wholly different on the basis of good intentions, will, or political power. “Right can never be higher than the economic structure of society and its cultural development conditioned thereby.” “[E]xisting society [... is] the basis of the existing state”; the latter is not “an independent entity that possesses its own intellectual, ethical, and libertarian bases.”

2 Comments on “What must be changed in order to transcend capitalism?”

1. 1dave c said at 11:10 pm on August 22nd, 2010:Just a few thoughts: the focus on the idea of labour-money versus Marx’s ideas in the CGP focused on in Andrew’s piece is a topic I find very interesting. I completely agree that what Marx is proposing is not the same thing as the labour-money schemes he criticized elsewhere. I think the textual evidence in favor of this interpretation is substantial. But explaining the issues involved is not easy.This point in the essay is key: “So the withering away of the state is intelligible because it’s based on the revolutionary transformation of the mode of production upon which the existence of the state ultimately rests.” I think that the state does not wither away if private exchange is not actively abolished. This is saying more than merely the political point that the state becomes unnecessary without class division. We can see a sort of economic connection between the abolition of commodity production and the abolition of the state. I think this comes out in some very interesting passages from the Grundrisse, where Marx criticizes John Gray.Starting out from the assumption of commodity production, and assuming that a central bank issues labor-money, Marx argues that the only way the vicissitudes of the market could be eliminated is if the bank became the “general buyer and seller, but also the general producer,” in other words, the bank would have to impose a despotic plan on an unplanned economy. Gray’s goals can only be achieved in opposition to his premises. Marx also considers the social function of this despotic bank from the point of view of the common ownership of the means of production: “In fact either it would be a despotic ruler of production and trustee of distribution, or it would indeed be nothing more than a board which keeps the books and accounts for a society producing in common.” (http://www.marxists.org/archive/marx/works/1857/grundrisse/ch03.htm) In the first case, with Gray’s premise of private commodity production, a “despotic ruler” becomes necessary, a state-type function, whereas from the perspective of socialized production, a mere board is sufficient. I think Marx’s phrasing should make us think of the Soviet experience. If the workers are not able to socialize production, a separate state authority cannot do it for them except in this illusory and despotic manner.Andrew writes on the transitional society idea: “This reading of the CGP goes back to Lenin, who conflated the transformation and transition in The State and Revolution, writing that “the transition from capitalist society … to communist society is impossible without a ‘political transition period’ ….” I think I see the point here, but actually I think there are clearer ways in which Lenin was mistaken. For example: “Accounting and control-that is mainly what is needed for the ’smooth working’, for the proper functioning, of the first phase of communist society. All citizens are transformed into hired employees of the state, which consists of the armed workers.” (http://www.marxists.org/archive/lenin/works/1917/staterev/ch05.htm) Lenin had undertaken a great uncovering of some of Marx’s ideas, yet he says something so contrary to Marx’s framework here: “It follows that under communism there remains for a time not only bourgeois law, but even the bourgeois state, without the bourgeoisie!” (http://www.marxists.org/archive/lenin/works/1917/staterev/ch05.htm) Why is Lenin justifying something-a bourgeois state (which is really somehow armed workers) hiring workers (themselves!?)-that has no basis in Marx, when he has been so carefully following Marx’s every word? It is almost like he is giving some description of the state power he would help build. I think here we see in very clear form the erroneous conception of the transitional society-Lenin has simply pushed it forward and called it the first phase of communism.I think that in general the emphasis on the law of value as a sort of all-consuming social mechanism is very important. What causes difficulty for many people in seeing the difference between Marx’s proposal and the labour-money schemes, is that they identify any sort of accounting of labor-time in products with the law of value. Granted, Marx does not talk specifically about this in the CGP, but I think it is implicit as society would have to measure how long it takes to make various products. So the law of value is often understood as a sort of measuring of labor, instead of a force operating behind the backs of the producers. Similar to how sometimes any sort of labor vouchers are considered a form of “wage labor.” The social relation is often not understood, the necessary divergence of price from value, etc. But the essay did have some good descriptions of these concepts. In any case, it is good to see these issues discussed.
2. 2MHI said at 10:25 pm on August 23rd, 2010:Dear Readers,There’s an interesting discussion, partly concerning our London talks on transcending capitalism, now taking place in and following an article on The Commune’s website:
   http://thecommune.wordpress.com/2010/08/19/is-marxism-just-too-abstract/#more-5670
   Hope you’ll join in here or there.

   Anne Jaclard

July 28 marked the 95^th anniversary of the start of the first U.S. occupation of Haiti (1915-34).  The date was commemorated by demonstrations in New York City and Latin America as well as in Haiti, where hundreds turned out in spite of the unmitigated hardship resulting from the Jan. 12 earthquake and the danger caused by military occupation. A full analysis of Haiti’s history since 1915 by the Batay Ouvriye Solidarity Network was the subject of a discussion three days later, and it is reproduced below.

In New York, we demonstrated across the street from the United Nations against the current U.S./U.N. occupation of Haiti. MINUSTAH (United Nations Mission for the Stabilization of Haiti) has occupied the country since 2004, and two U.S. military task forces are also there.

Six months after the earthquake that leveled the Haitian capital of Port-au-Prince, more than 1 ½ million Haitians are still homeless. Only a portion have tents, which provide little protection against tropical storms in the hurricane season already underway. Almost no temporary shelters have been built. Millions of people worldwide gave generously in response to appeals for aid. Yet residents of some 1,200 camps of earthquake survivors say that almost nothing of the promised billions in emergency aid is reaching them. MINUSTAH forces are not distributing aid but instead repressing protest demonstrations.

In Port-au-Prince, Batay Ouvriye, a grassroots organization of workers and peasants, demonstrated in front of the Haitian Ministry of Foreign Affairs. Here is part of their account:

“With some 100 people, we functioned in 3 teams: one, in front of the ministry with our signs and demands, another with banners, which stopped the traffic and took over the main road, with agitation. And the last that was distributing our leaflets and posters and spreading our demands. At the last moment, we burned a Brazilian flag which was intertwined with an American one [Brazilian troops make up MINUSTAH].

“The worst occurred almost at the very moment we had ended; an armed civilian clearly recognized as being linked to the government fired gunshots directly from his car, wounding one of these demonstrators, in front of the police, who did not even attempt to arrest him. Just as we have been denouncing for a long time, the Papa/Baby Doc period is resurging! It’s up to us to know what we have to do.

“… a march more specifically organized by Batay Ouvriye was held in Cap-Haitian too. With roughly 150 participants, the march paraded around the whole city with the same message, banners, leaflets and posters. Both in Port-au-Prince and Cap-Haitian, as well as in other areas of the country, the distribution of these materials continued the rest of this week. THE STRUGGLE IS JUST BEGINNING!”

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Back in New York, on July 31, the Batay Ouvriye Solidarity Network held a meeting that centered on the following analysis of Haiti from the first U.S. occupation to the present:

BO Solidarity Network, July 31 2010

For more than 30 years, since the end of the 70’s, each year, without fail, progressives in NY have gathered to mark July 28, 1915, the anniversary of the first US occupation of Haiti, a 19 year occupation that produced more than 15,000 victims, an occupation that radically changed Haiti.

In progressive circles, July 28 is an important date. At first, progressives used this date because the denunciation of the US occupation of Haiti served as a demarcation with reactionary opportunists, even if those who claimed to be opposed to Duvalier. Anti-imperialist positions served as a rallying point for all those who truly wished to support popular struggles, the struggles of the working class, the poor peasantry, the sub-proletariat and the poor petty bourgeois in Haiti.

Anti-imperialist positions were a delineating marker between people’s camp and the camp of the people’s enemies, the camp of the reactionary dominant classes serving the interests of imperialism. The enemies of the people’s camp are the bourgeois class, the big landowners, and the imperialists. Fractions of the bourgeoisie such as the comprador bourgeoisie, involved in import export trade or in assembly sweatshops and the bureaucratic bourgeoisie, which uses its hold on state power and corruption to fund itself, make up the enemies of the people’s camp. Big landowners, involved in feudal domination of small sharecroppers, as part of the system of rural domination, also make up the camp of the people’s enemies.

From the first time that the Batay Ouvriye political tendency marked the July 28 anniversary, we already warned that American imperialism was preparing for another military intervention in Haiti. We already were denouncing how each year the collaboration of the anti-national ruling lackey classes was deepening and consolidating imperialist domination and penetration in Haiti. Unfortunately, our previsions have come true, this current July 28th, we must make clear is the anniversary of the first of 4 imperialist occupations. Those who bear the mark of the blows remember.

THE FIRST OCCUPATION

The first occupation, from 1915 to 1934, lasted 19 years of oppression and repression by the Yankee imperialists. American marines massacred over 15,000 patriots, such as the massacre of peasants in Marchaterre, December 6, 1929, or the assassination of Charlemagne Péralte and Benoit Battraville, both leaders of the Caco insurrection.

From the beginning, the invasion met with popular resistance. Even though just a handful of soldiers, such as Pierre Sully, Edouard François and Joseph Pierre, opposed the landing of the marines, quite soon thereafter, the Caco rebellion took up armed struggle against the Yankees. Even though they lacked weapons (only one out of five had a rifle), the Cacos lead a valiant struggle against the Yankees. More than 11,000 were killed in the Caco rebellion. The lack of a clear political line and treason were the main cause of their eventual failure. Jean Baptiste Conzé, a bourgeois from Grande Rivierre, collaborated with Captain Hanneken to assassinate Péralte, November first 1919. Another traitor led Captain Perkins to assassinate Benoit Battraville on May 19, 1920. After the death of Péralte and Battraville, the Caco rebellion was suppressed.

The first Yankee occupation had carte blanche to establish its domination. The Americans imposed a convention in 1915 and had a new constitution voted in 1918 that gave them all the legal means they needed to run Haiti. Under the occupation, the imperialists expropriated tens of thousands of small peasants. They appropriated more than 266,000 acres of land to establish banana, rubber, sugar, sisal, and mahogany plantations. They reestablished a system of forced labor to build roads for the occupying army. They seized the assets of the National Bank, and they devalued Haitian currency, but mainly, it was their takeover of customs that enabled them to control government finances.

The imperialists set up a Gendarmerie where the Haitian soldiers were under the direct command of American officers. In 1926, there were about a thousand US soldiers in Haiti, mainly in Port-au-Prince and in Cap Haitien. The Gendarmerie was about three thousand strong and it was this Gendarmerie that was the main instrument of US occupation. It was this same Gendarmerie that was left behind after the withdrawal of US troops on August first, 1934. This Gendarmerie eventually became the Haitian Army and it continued to oppress the Haitian masses throughout its existence.

U.S. MARINES LEFT A SYSTEM OF DOMINATION

Therefore, even if the US Marines withdrew in 1934, they left behind a system of domination that continued on and maintained US imperialist neo-colonial domination and reinforced it over the years.

That is why Haiti had a series of dictators succeeding each other until 1957, when Duvalier took over. The 29 year Duvalier dictatorship, even though it was beholden to US imperialism and it served its interests, brought about some structural changes in Haiti. Not only was it more murderous than any other preceding dictatorship, it also enabled the emergence of a bureaucratic bourgeoisie as the uncontested hegemonic fraction in the Haitian power bloc, the ruling class alliance.

The bureaucratic bourgeoisie is a fraction of the bourgeois class that uses its hold on state power to enrich itself through institutionalized corruption and the appropriation of state assets. Sate owned enterprises functioned as privately owned Duvalier family businesses. Moreover, the bureaucratic bourgeoisie used its state power to establish monopolies in various other ventures, eliminating its competition. A Duvalier minister, Cambronne, for example set up business ventures to supply blood and cadavers to US companies. The “hereditary republic,”an oxymoron, set up when Jean Claude succeeded his father as President for Life, is a revealing symptom of the hegemonic nature of this bureaucratic bourgeoisie.

This hegemony led to significant changes in Haiti. Economic degradation accelerated along with the emigration of petty bourgeois intellectuals, and the political changes that should have accompanied changes on the international scene, like the end of the Cold War and the emergence of the neo-liberal doctrine, the Washington Consensus, these changes were partially blocked because of the inflexibility of this dictatorship. This led to the structural crisis behind the February 7, 1986 flight of Jean-Claude Duvalier aboard US military cargo planes. The ensuing power vacuum and crisis of the Haitian State has continued to this day, with a crisis of representation and a crisis of legitimacy that neither the Haitian ruling classes nor US imperialism has been able to resolve.

There a several contradictions involved behind this crisis that has confounded the ruling classes and the imperialists. There are many contradictions within the dominant classes to establish a new hegemonic fraction in the power block: the dissolution of the VSN, the tonton makouts, the dissolution of the Leopard special forces, the dissolution of the Haitian Army, the establishment of new repressive forces, the police, CIMO, the Presidential Guard, the MINUA, the MINUSTAH, elections, coup d’états, the Group 184, the GNB, the invasion led by Guy Philippe… all these represent struggles within the ruling classes to establish a new hegemonic fraction.

EXTREME MISERY AND INEQUALITY PERSIST

On one hand, there is a situation of extreme misery and extreme inequality, 70% unemployment, hunger and starvation, which necessitates a high level of repression to maintain the domination of these vampire-like exploiting classes. And the bourgeois faction that is most able to enact this repression is the bureaucratic bourgeoisie, because it enables dictatorship.

On the other hand, the hegemony of the bureaucratic bourgeoisie impedes the neoliberal agenda, the privatization of state enterprises and the use of elections to hide domination and exploitation, and the use of economic structure to facilitate imperialist penetration. The best candidate representing those interests is the comprador bourgeoisie, the import-export and sweatshop fraction of the bourgeoisie, since it is already a lackey and an associate of imperialist penetration.

Since 1986, there has been a struggle between the bureaucratic and the comprador fractions of the bourgeoisie to seize the hegemony of the power block. Populist opportunist petty bourgeois politicians have intervened in this power struggle, lending themselves as legitimate and representative candidates in elections, while, once in office, they have quickly teamed up with the “gran manjè” [big eaters] and attempted to constitute themselves as the new bureaucratic bourgeoisie. This was the case with Lavalas, and is the case today with Inite, Préval’s party, posing as agents of “continuity” for the imperialist agenda. Over the years, this struggle has led to electoral massacres, September 1987, rigged elections, Mannigat, the 2000 elections, elections with extremely low voter turnout like Préval 1, Aristide 2, other elections with heavy voter turnout that led to the election of populist candidates, Aristide 1 and Préval 2, until the vast majority of the popular realized that they have nothing to gain through elections. Wyclef Jean’s candidacy is the latest effort at populist mobilization and it remains to be seen whether or not it can actually mobilize people to go to the polls.

The second occupation was September 19, 1994, when 24,000 US marines brought back a declawed Aristide to the presidency, after Raoul Cédras, Michel François, Toto Constant, Jodel Chamblain, along with FRAPH, and the “attachés,” under the direction of the US embassy, had completed the massacre of over 5,000 victims of the September 31 1991 coup d’état, after the dismantling and massacre of popular organizations, after a 3 year embargo had further impoverished Haiti. This opened a new chapter in Haiti’s history.

ARISTIDE DID NOT CHANGE CONDITIONS

This is a period that began with Aristide’s Lavalas administration setting a historical precedent paving the way for imperialist “Humanitarian Intervention” into sovereign countries not at war, though the manipulation of the UN Security Council. This precedent has since been used elsewhere and was even condemned by Nelson Mandela who, at the time of the infamous Governor’s Island accords, stated, “the struggle for democracy should not compromise national sovereignty.”

The second occupation led to the systematic weakening of the Haitian State. After the coup, after the dissolution of the repressive forces under US/UN MINUA occupation and tutelage, after the emptying of state coffers, the implementation of neoliberal structural adjustment policies such as privatization of state owned enterprises and the reduction of state services, the reduction of the state budget, the inherited “odious” foreign debt and growing debt toward imperialist financial institutions, where 60% of the State budget originates from foreign funding sources, all these factors have achieved their goal of reducing the Haitian State to a puppet state, an instrument of corruption at the hands of a few “gran manjè” fighting amongst themselves over the remains of rotting garbage. This is a state that has been sidelined while the major funding has been channeled through NGO’s that have taken on the de facto role of managing the country. The economic degradation of Haiti has accelerated because of the sell-out neo-liberal policies. Miami rice, all kinds of “pèpè” (cheap, second hand or damaged foreign imports) have destroyed national production, while drugs, contraband, remittances from the Diaspora, NGO’s and funding from international imperialist financial institutions have become the base of the Haitian economy.

February 29, 2004, the third occupation stated when once again, US military personnel accompanied Aristide into exile aboard a US military cargo plane. This time because of the war in Iraq, US imperialists maneuvered to establish a proxy occupation force through the use of other countries’ UN forces in the MINUSTAH. Right away, a new economic plan was proposed for Haiti, the ICF (Interim Cooperation Framework). The only problem was that it was the same old plan all over again, the same sweatshop plan, with the same lies and promises of billions of dollars in aid.

RESPONSE TO THE JAN. 12 EARTHQUAKE

The day after the January 12, 2010 catastrophic earthquake that killed over 300,000 people and left over a million and a half homeless, the fourth occupation began. The US took over the airport and they deployed about 20,0000 troops in and around Haiti aboard aircraft carriers. This massive deployment was responsible for blocking most of the urgently needed aid that had started pouring in from all over the world and would remain stuck in the airport. Thousands of victims in need of medical care, food and water were left unattended, while on American TV, Obama, as the new kinder, gentler face of US imperialism, was telling the world how the US was saving Haiti.

Do we need soldiers with tanks and machine guns to distribute medical aid, food and water? Obviously, the US military deployment was seeking to achieve its own objectives. Obviously, US imperialism was using the Haitian tragedy to attempt to re-establish itself as the only power capable of responding to such tragedies, trying to restore its tarnished image and taking control of the situation to ensure its interests prevail in all eventualities.

One again, almost right away, US imperialists proposed a new plan to rebuild Haiti, the ICRH (Interim Commission for the Reconstruction of Haiti), which came about as the result of the March 31, 2010 meetings in New York at the UN. The only problem is that once again, it’s the same old plan that has led to disastrous results over more than thirty years. The ICRH plans can be summarized as assembly sweatshops for industrial development, mango cola, Monsanto GMO seeds, chemical fertilizers and insecticides for agricultural development, water privatization and private beach clubs for tourists, to restart the tourist industry. Is there any logic behind this plan?

SWEATSHOPS ARE NO SOLUTION

How can assembly sweatshops constitute a base for a country’s industrial development while the country’s national production is being laid to waste by unrestricted cheap foreign imports? Assembly sweatshops are a disaster in waiting because this is an industry known for its volatility; it is constantly relocating where it can access cheaper, unrestricted labor. Because of this, assembly sweatshops condemn workers forever to the enslavement of starvation wages. Furthermore, assembly industries do not contribute anything to the country’s economy: everything is imported and exported, the profits are repatriated, all the equipment comes in duty-free, no taxes are assessed. The Haitian factory managers are rewarded with crumbs while most of the loot is reaped by multinational companies like Hanes, Nautica, Levi’s, Disney and the like… Even when specific laws are enacted to promote assembly sweatshops, like the HOPE legislation, it’s obvious that the political instability and lack of infrastructure of Haiti will prevent a significant development of sweatshop industries. Even at its peak, when under Jean-Claude Duvalier there were 200,000 sweatshop workers employed, that was precisely when there were the biggest waves of Haitians attempting to flee Haiti because the economic situation was so desperate. Assembly sweatshops do not promote economic development, they only breed misery.

EARTHQUAKE UNMASKED REAL RELATIONS

The January 12 earthquake has unmasked the masquerade of puppets on the political scene in Haiti. It has completely unmasked the absolute incompetence of the Préval government. Its has clearly demonstrated the success of years of policies to weaken the Haitian state, turning it into a beggar state, a state under receivership, an infirmed state where a bunch of career opportunists look for jobs in order to become “gran manjè.”

The January 12 earthquake has also unmasked the incompetence of the MINUSTAH forces, which were completely useless from a security or assistance standpoint. Their incompetence only served to justify the US invasion.

The January 12 earthquake also unmasked the incompetence and inability of US imperialism. Just like we saw the aid blocked in the airport, we can also see the failure of the reconstruction plan. After six months, not even 2% of the rubble has been cleared; it will take over 25 years at this rate just to clear the rubble. Hundreds of thousands are still stuck in refugee tents under the rain and the hot sun, while the tens are rotting, with no end in sight to their predicament. NGOs have taken over the country, each with their own agenda, their own set of all wheel drive vehicles, their own well salaried foreign employees, while the people only receive crumbs.

Now they have come up with a new plan. They must hold elections to ensure the legitimacy and continuity of the imperialist occupation and reconstruction. Who believes in these sham elections? What legitimacy or representation do they provide? How are they going to resolve the state crisis?

Obviously, they have no answer. The imperialists, the international community, the NGOs, the reactionary lackey ruling classes, they all have no solution for this structural crisis. That is why we agree with BO’s declaration that only the popular masses, with the leadership of the working class, can provide a viable alternative, a radical change in country’s situation.

One of our first objectives must be to oust the MINUSTAH. “Si pat gen sitirè, pa ta gen vole.” That’s a Creole saying meaning that there would not be thieves without those who enable their thievery. This goes both ways in the relationship between the Haitian ruling classes and the MINUSTAH forces. These occupation forces are there to ensure continued imperialist and reactionary ruling class domination. We support the call for the ouster of all MINUSTAH forces and the repeal of their mandate, October 15, 2010. We think it’s important for all progressive forces to join in this struggle.

January 12 has brought to the forefront the biggest fault line in Haiti. That is the fault line that separates the exploited popular masses from the classes that dominate and exploit them. The failure of all the imperialist and ruling class agendas has put the popular masses in front of the need for them to take over the future of the country. We agree with BO’s calls for popular uprising all over, the uprising of workers against bourgeois exploitation, the uprising of poor peasants against feudal exploitation, the uprising of the sub-proletariat in demand for decent jobs and living conditions, the uprising of students in demand for a real education for all that can provide for a better future in Haiti, the uprising of all the popular masses to demand the end of foreign imperialist domination.

As soon as this project is on the table, all mystifications and pretenses are cleared away. There only remain two camps: the people’s camp and the camp of the ruling exploiting classes aligned with imperialism.

Down with exploitation! Down with imperialist domination! Long live the people’s camp! Only one solution! Revolution!

Long live the autonomous struggle of the popular masses with the leadership of the working class!

Welcome to With Sober Senses, the new on-line publication of Marxist-Humanist Initiative! It seems that people increasingly think of the internet as a place to obtain information, and themselves as consumers of information. We’re trying to do something different here.

We envision WSS not mainly as a provider of information, but as a space to aid struggles for human freedom through the development of ideas. For that to happen, we need you to become participants, colleagues, not consumers. Ideas develop dialectically––and that means, first and foremost: through dialogue.

MHI is now the world’s only organization dedicated to the task of rebuilding an organization that can renew the philosophy of Marxist-Humanism by concretizing and developing it as a collectivity. What we’re taking responsibility for is what Raya Dunayevskaya called “the organization of Marxist thought.” We certainly don’t think we have a monopoly on Marxist thought, or that it can develop adequately without sustained, broad, global, discussion with many working people, intellectuals, and others.

So whether or not you’re currently a member or Supporter of MHI, please contribute to WSS. Submit articles, comment on articles in the space provided below them, and write to us by clicking the “Contact” tab and typing a message in the “Comments” box.

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The name of this publication reflects our commitment to reason as a force for social change. We don’t think a new, free society will emerge automatically, solely through the unfolding of capitalism’s contradictions, or spontaneously, or by the Left marketing “its message” in more appealing ways, or by inspiring people with a grand narrative or the dream of a socialist pie in the sky. We think it will emerge when the vast majority of the world’s population, which doesn’t benefit from the current system, thinks through and works out, with sober senses, what changes must be made in order to have a free and viable non-capitalist society—one that won’t collapse because it’s unworkable, and one that won’t revert to capitalism or something worse because it’s unworkable.

“Agora,” a beautiful film that has just come to the U.S., brings to life the real meaning of and motivation behind philosophy. Hypatia (played by Rachel Weisz) tells a former student that she, as a philosopher, has to question what she believes, while he, as a Christian, must not. Also, when asked about her religious beliefs, she replies, “I believe in philosophy.” Since, as the film makes clear, philosophy and things like astronomy weren’t separate sciences back then, what Hypatia means is that she believes in the power of rational thought. So do we. The film as a whole is an unflinching and brave defense of reason that warns us about the barbarism into which we might well descend–as the Alexandria of Hypatia’s day descended–if belief is allowed to prevail over the processes of rational thinking.

The first act of changing the future is to face the present with sober senses.

Hypatia as imagined by Raphael

On June 6, we received this e-mail message signed “The International Marxist-Humanist Organisation”:

Dear MHI,

We wish to inform that you are not members of the IMHO. Nobody becomes a member of an organisation just by declaring themselves a member. The IMHO is not a regroupment initiative; nor is it an attempt to rebuild links with people who have proven that they are incapable of behaving in a comradely manner, as seen in the MHI’s recent public attack on us.

While anyone is welcome to attend our July 2 public forum on the centenary of Dunayevskaya’s birth, any effort to force one’s way into our conference the next day without a invitation would be an aggressive infringement on our democratic right to assemble and function as an organization.

—The International Marxist-Humanist Organisation

Needless to say, we were quite dismayed by this message, and responded on June 9:

Dear International Marxist-Humanist Organisation,

You write that we “are incapable of behaving in a comradely manner, as seen in the MHI’s recent public attack on us.” We are quite perplexed by this statement. The only thing we’ve written about IMHO is our public statement of last week, which announces our joining with it. The statement doesn’t attack IMHO, or even criticize it. It highly praises IMHO.

You write, “Nobody becomes a member of an organisation just by declaring themselves a member.” True, but one can join with an effort by being invited to do so and accepting the invitation. That’s what we’ve done.

All who agree with IMHO’s statement of principles have been invited to join with it, and your invitation isn’t accompanied by any other conditions. So, if we were to refrain from joining with IMHO, the impression would be created that we do not agree with these principles. We cannot allow that to happen. We cannot allow the particular groups within IMHO that refuse to cooperate with MHI to monopolize the principles shared by MHI and IMHO.

The unsupported hypothesis that we intend to crash the conference, by force no less!, is baseless and false. Having joined with IMHO, we wish to participate in the normal fashion.

We look forward to an honest discussion of the above issues.

Comradely regards, Marxist-Humanist Initiative

At this time, we have received no direct response to our June 9 e-mail. On June 10, the U.S. Marxist-Humanists published on the homepage of their website a single line “Clarification,” attributed to the “International Marxist-Humanist Organization”: “Despite some recent claims to the contrary, we are not affilitated [sic] with the New York-based Marxist-Humanist Initiative.”

Again, as stated in our June 9 e-mail, those who agree with IMHO’s statement of principles were invited to join with it. If we were to refrain from joining with IMHO, the impression would be created that we do not agree with these principles. Moreover, we cannot allow the particular groups within IMHO that refuse to cooperate with MHI to monopolize the principles shared by MHI and IMHO. And, again, we call for an honest discussion of the issues.

The future of Marxist-Humanism is by no means assured. Forging the broadest unity possible among people and groups that have expressed agreement with some basic Marxist-Humanist principles is therefore urgently important. As part of our continuing effort to achieve this goal, we intend to provide an analysis of, and fuller response to, the latest turn of events in the near future.

Executive Committee of Marxist-Humanist Initiative

What must be changed in order to transcend capitalism?

Joint Forum organized by The Commune and Marxist-Humanist Initiative

Monday 5th July, 7:00
At the Workers Educational Association,
96-100 Clifton St, London EC2.
Five minutes from Old Street or Liverpool Street tube

Speakers and Titles:

Andrew Kliman, “The Transformation of Capitalism into Communism in the Critique of the Gotha Program.” Kliman is author of Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency.

Anne Jaclard, “You Can’t Change the Mode of Production with a Political Agenda.” Jaclard is National Secretary of Marxist-Humanist Initiative and a long-time activist and writer in support of women’s movements and international solidarity movements.

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How exactly must the economic forces and social relations that dominate our lives today be changed so as to establish a real and sustainable alternative? Kliman and Jaclard will argue that Marx was not only a theorist of capitalism, but a theorist of a new society, and that the time has come to develop his theory, instead of repeating abstractions about an imagined future. They will employ Marx’s theory of a future communist society in order to analyze what features of present-day society are specific to capitalism and what must therefore be uprooted and transcended in order to lay the foundation for a world that no longer operates for the sake of producing “value.”

The speakers represent Marxist-Humanist Initiative, a new Marxist-Humanist organization based in the U.S that has made the development of Marx’s theory of communist society central to its tasks. It does not claim to have the answers. Rather, it argues for the need to first specify the right questions and gain theoretical clarity about capitalism and the new society. This work challenges the Left to stop relying on generalities, purely political “solutions,” and wishful thinking, all of which create a theoretical void that gets filled by wasted efforts to reform the current system.

We agree especially with the following IMHO principle: “In the twenty-first century it has become newly urgent to continue Marxist-Humanism as a living body of ideas, instead of reducing it to a set of organizational rules divorced from philosophy….” Overcoming the separation of philosophy and organization is of utmost importance to MHI (see, for instance, our October 8, 2009 statement, “The Self-Thinking Idea Does Not Mean You Thinking: A contribution to our ongoing effort to work out, in theory and practice, how to renew Marxist-Humanism organizationally).

We join with other individuals and groups in IMHO for the purposes it was founded––“to issue political-philosophic statements and perspectives, [and to] engag[e] in common activities”––while maintaining the organizational integrity of Marxist-Humanist Initiative. In fact, we initially proposed such an “umbrella organization” before our organization and US Marxist-Humanists (USMH) were founded. However, those who formed the USMH rejected the idea, and they have had no communication with us about IMHO at all. Nevertheless, we are pleased that our idea is now being acted upon. We expect to attend IMHO’s founding conference and to be full participants from now on.

As we noted in MHI’s founding Principles of April 2009 (http://tiny.cc/ek42p), we hope ultimately to be part of a united international Marxist-Humanist organization that shares our goal––that of rebuilding an organization capable of renewing Marxist-Humanism by concretizing and developing it as a collectivity––but, in the meantime, we wish to work on an ad hoc basis with Marxist-Humanists and others outside our organization on issues of common interest.

The future of Marxist-Humanism is by no means assured. Forging the broadest unity possible among people and groups that have expressed agreement with some basic Marxist-Humanist principles is therefore urgently important. Thus, we join with IMHO on issues of common interest, while at the same time we will of course continue to:

(1) advocate the rebuilding of a Marxist-Humanist organization that can renew the philosophy by concretizing and developing it as a collectivity;

(2) strive for recognition of the integrality of the Marxist-Humanist philosophy of revolution and a Marxist-Humanist organization (which are not distinct matters, since organization is an objective expression and concretization of philosophy);

(3) oppose and expose “straw-man” argumentation and falsifications, and call for honest debate––the only kind of debate that can advance ideas, clarify differences, and hopefully resolve them.

People in the U.S. and abroad who support these goals and activities of Marxist-Humanist Initiative are encouraged to apply to become members and supporters of MHI.

Marxist-Humanist Initiative

June 1, 2010

1. Introduction

Some prominent Marxist and radical economists (e.g., Duménil and Lévy 2004, Husson 2008, Moseley 2008) have argued that “neoliberal” policies and increased exploitation have led to a substantial recovery of profitability since the early 1980s. They therefore dismiss the idea that a persistent fall in profitability is an underlying cause of capitalism’s latest economic crisis. Instead, they typically regard the crisis as an irreducibly financial one–that is, a crisis caused by the “financialization” of capitalism and macroeconomic difficulties resulting from it, as well as by more immediate financial-sector phenomena. This paper will challenge that thesis.

The political implications of this controversy are profound. If the latest economic crisis is an irreducibly financial one, then this implies that:

• We can prevent the recurrence of such crises by doing away with “neoliberalism” and “financialized capitalism.” It is unnecessary to do away with the capitalist system ofproduction- i.e., production driven by the aim of ceaselessly expanding “value,” abstract wealth.
• What the crisis has put on the agenda is the need for financial regulation, activist (”Keynesian”) fiscal and monetary policies, and perhaps nationalization of some or all of the financial sector, rather than a change in the character of the socio-economic system.

If, on the other hand, the crisis is instead a systemic crisis resulting from the underlying tendency for the rate of profit to fall, then such reforms will at best only delay the next crisis. Moreover, while the immense buildup of government debt now taking place in the United States may also delay the day of reckoning by providing temporary artificial stimulus to the economy, it promises to make the next crisis worse when it comes.

This paper will focus on the U.S., because it is the epicenter of the latest global crisis and because data for other countries are not as complete and often not as reliable.[1] It cannot be automatically assumed that the analysis of the U.S. case applies to other countries. But since the U.S. is the epicenter of the crisis–since, in other words, it erupted elsewhere because it first erupted in the U.S. and then spread–I suggest that the relative lack of discussion of other economies does not reduce the adequacy of the paper’s analysis of the long-term economic difficulties underlying the crisis.

My main thesis is that U.S. corporations’ rates of profit declined after the mid-1950s and continued to fall or failed to rebound after the recessions of the mid-1970s and early 1980s; that no new boom followed these recessions because, in contrast to what occurred in the Great Depression and World War II, the amount of capital-value that was destroyed was insufficient to restore profitability and a healthy rate of investment; that the persistent fall in profitability led to sluggish investment, slow economic growth, and a long-term explosion of debt; that the buildup of debt has led to repeated bubbles and the bursting of these bubbles; and that the latest crisis and economic slump are the consequences of the bursting of a gigantic bubble in the housing and stock markets. The continuing fall in, or non-recovery of, the rate of profit is thus a crucial, though indirect, cause of the crisis and slump.

In the next section, I will discuss the destruction of capital-value and I will argue that relative stagnation, the buildup of debt, and related problems that ultimately led to the latest crisis are rooted in the insufficient degree to which capital-value was destroyed in the slumps of the mid-1970s and early 1980s. In section 3, I will document that the rate of profit has fallen and not recovered, and that the rate of capital accumulation fell in response to the fall in the rate of profit. Section 4 will challenge the claim, made by Duménil and Lévy, Husson, and others, that the rate of accumulation instead fell because a “neoliberal” “regime of accumulation” prevailed since the 1980s that encouraged diversion of profits into financial markets and away from productive investment.

Such economists also dismiss the evidence that the rate of profit failed to recover after the slump of the early 1980s, by showing that the current-cost “rate of profit” they favor has indeed rebounded. Section 5 will argue that this contrary evidence is invalid, because the current-cost rate is not a rate of profit in the normal sense of the term. It is not what businesses and investors seek to maximize, it does not regulate their investment decisions, it does not properly measure either their actual or their expected rates of return on investment, it bear no clear relationship to the rates of capital accumulation and economic growth, and it does not properly adjust for inflation.

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2. Insufficient Destruction of Capital-Value and Relative Stagnation Since the 1970s

Karl Marx argued that there is an ever-present tendency in capitalism for labor-saving technical innovation to lower the rate of profit. Yet he also argued that this tendency is interrupted from time to time by “the destruction of capital through crises” (Marx 1989, p. 127, emphasis omitted)–the destruction of physical capital assets and, more importantly, the destruction of the value of capital assets.

In an economic slump (a recession or depression), physical capital is destroyed as machines and buildings lay idle, rust, and deteriorate. More importantly, debts go unpaid, the prices of financial assets such as mortgage loans and mortgage-backed securities fall, and other prices may also fall, so capital-value, the value of the physical capital as well as the nominal value of financial assets, is destroyed. For instance, if you had purchased shares of stock of the companies included in the Dow Jones Industrial Average for $1000 in September of 1929, the same shares of stock would have been worth only $108 by July of 1932.

Yet the destruction of capital isn’t only a main effect of serious economic crises and the slumps they trigger. It is also a main cause of the booms that follow, because it is a crucial factor that helps to restore profitability. Capitalists invest in equipment, hire workers, and produce only in order to make a profit. So if the expected rate of profit–profit as a percentage of the amount of money they’ve invested– isn’t high enough, there won’t be sufficient investment and hiring, so there won’t be a boom. But by restoring profitability, the destruction of capital sets the stage for a new boom.

Imagine, for instance, a business that can generate $3 million in profit annually. If the value of the capital invested in the business is $100 million, the owners’ rate of profit is a mere 3%. Yet if, as a result of the destruction of capital-value, new owners can acquire the business for only $10 million instead of $100 million, their rate of profit–the return they receive on their investment– is a healthy 30%. Since the purpose of engaging in capitalist production is to get as high a return on investment as possible, the destruction of capital is a tremendous spur to a new boom. Notice that this is the case even in the absence of new markets or rising demand that would lead investors to expect greater profit.

Thus the ground for the post-World War II boom was laid by the massive destruction of capital-value that took place during the Great Depression and the war. At the start of the Depression, it seems that the destruction of capital–which was called “liquidationism”–was actually advocated by conservative economists and policymakers, especially Andrew Mellon, President Hoover’s Treasury Secretary. In his memoirs, Hoover (1952, p. 30) wrote,

Mellon … felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He held that even panic [in the financial system] was not altogether a bad thing. He said: “It will purge the rottenness out of the system. … enterprising people will pick up the wrecks from less competent people.”

However, it seems that the amount of capital-value that needed to be destroyed in order to restore healthy rates of capital accumulation and economic growth was substantially more than liquidationists had expected. Policymakers in more recent times, understandably afraid of a repeat of the Great Depression and the radicalization of working people that accompanied it, have therefore not allowed free-market forces to proceed unchecked. During the economic slumps of the mid-1970s and early 1980s, and ever since, they have attempted to retard and prevent the destruction of capital. This has “contained” the problem, while also prolonging it–and exacerbating it, since they have repeatedly prolonged the problem by papering over bad debts with ever-mounting amounts of new debt and debt guarantees.

As a result, the global economy has never fully recovered from the slump of the 1970s, certainly not in the way in which it recovered from the Great Depression and World War II. The worldwide growth rate of per capita GDP fell abruptly and sharply in the mid-1970s and it has not recovered substantially since that time (see Table 1). In the U.S., the growth rate of corporations’ output (net value added) also fell abruptly at the same time, and this caused the growth rate of corporations’ compensation of employees to fall to a similar extent. Neither of these growth rates has recovered, either. Other U.S. indicators tell a similar story. For instance, the share of GDP devoted to federal, state, and local government spending on non-military infrastructure projects began a long-term decline starting in 1969 and never rebounded substantially.

Table 1. Indicators of Incomplete Recovery from Slumps of Mid-1970s and Early 1980s

(click to view)

In order to lessen the effects of this relative stagnation, and perhaps in order to overcome it, policymakers have tried to prop up economic growth and profitability artificially throughout the last three decades. In the U.S., the sluggishness has been papered over especially by an ever-growing mountain of mortgage, consumer, business, and government debt. The increase in indebtedness is both a consequence of the relative stagnation and a factor that masks it and delays its impact. (The tactic is very similar to that of a household that can’t pay its credit-card balance. It gets a second credit card, borrows still more, and uses the borrowed funds to pay the first debt. Then it gets a third credit card, borrows, and uses the borrowed funds to service the second debt. And so on.)

As Figure 1 shows, the total debt of U.S. non-financial sectors was remarkably stable, as a share of GDP, through 1981. Since that time, it has almost doubled, as did federal government debt prior to the latest crisis. It even rose rapidly during the middle of the last decade, a period in which it might have been expected to fall, as housing- and stock-market bubbles temporarily produced rapid economic growth. This suggests that the growth of debt–especially mortgage, consumer, and federal government debt–was a crucial cause of the bubbles and economic expansion.

Figure 1. Outstanding Debt as Percentage of GDP, United States, 1950-2009

(click to view)

It needs to be stressed that the rising debt burden has been produced in part by conscious government policy. This is true now, as the government pursues the “Keynesian” policy of massive borrowing in order to try to emerge from the slump. It was also true during the preceding, supposedly “neoliberal,” era; rising indebtedness, both public and private, was a key strategy used to manage the economy in the face of long-term relative stagnation.

For instance, easy-credit conditions, brought about by Federal Reserve policies and other means, allowed stock prices and home prices to rise. This was especially so in the period following the collapse of the dot-com bubble, the recession of 2001, the September 11 attacks, and the decline in employment that persisted into the middle of 2003. To keep the economy from sinking further, the Fed lowered short-term lending rates. For three full years, starting in October of 2002, the real (i.e., inflation-adjusted) federal funds rate was actually negative: banks borrowed funds, lent them out, and then paid back less than they borrowed, once inflation is taken into account.

As a result, borrowing rose sharply. And, as borrowed funds were spent on homes and shares of stock, their prices rose sharply as well. This allowed consumers and homeowners to borrow even more and save less. Whereas they saved almost 10% of their after-tax income from 1973 through 1984, the saving rate then fell consistently, to a low of 1.4% in 2005. As the prices of their homes and shares of stock increased, and as their retirement funds, based on stock-market prices, increased as well, consumers tended to treat these increases as if they were actual money being saving. So they tended not to save actual money.

Tax cuts financed by government borrowing were another important strategy during the “neoliberal” period. The federal government reduced corporate income taxes in the mid-1980s, which boosted corporations’ after-tax rates of profit relative to pre-tax rates. Since government spending in excess of tax receipts must be financed by borrowing, it is ultimately additional public debt that propped up after-tax rates of profit. More than three-eighths of the $8 trillion increase in U.S. Treasury debt between fiscal years 1974 and 2007 is attributable to reductions in corporate tax rates below their average level during the 1947-1973 period.

In the long run, however, debt cannot be used to “grow the economy” faster than is warranted by the underlying flow of new value (also known as income) generated in production. Efforts to make it grow faster create bubbles, but bubbles burst. Thus, in the period since the crisis of the mid-1970s, there have been recurrent economic upturns that have rested upon debt expansion. For that reason, they have been relatively short-lived and unsustainable. There was the Third World debt crisis of the 1980s, and then the partial collapse of the savings and loan industry in the U.S. at the end of that decade. Japan entered into a long period of stagnation following a very rapid boom. In the mid-1980s, Mexico experienced another debt crisis, and a few years later there was the East Asian currency crisis that spread to Russia and Latin America. The dot-com stock market bubble burst soon thereafter. And, of course, the recent bursting of the bubble in the U.S. housing and stock markets has triggered the most acute global economic crisis, and the longest slump, since the Great Depression.

Unwilling to allow capital to be destroyed to a degree that is sufficient to restore healthy accumulation of capital, policymakers have responded to the latest crisis by once again papering over bad debt with more debt, this time on a massive, unprecedented scale. In the first 19 months following the collapse of Lehman Brothers in mid-September 2008, the total debt of the U.S. Treasury has increased by more than one-third, from $9.6 trillion to $12.9 trillion. The additional borrowing amounts to more than $10,000 per person. According to projections from the Obama administration–which are far more optimistic than those contained in a recent International Monetary Fund working paper (Celasun and Keim 2010)–the Treasury’s debt will rise to $19.7 trillion by the end of fiscal year 2015, which means that it will have doubled in size in just 7 years. The $10.1 trillion increase in the debt is equal to 8.7% of projected GDP throughout the 7-year period (and, to repeat, the administration’s GDP projections are very optimistic).

If these measures succeed, full-scale destruction of capital will continue to be averted. But for the foreseeable future, the U.S. will confront a debt burden that will be difficult to manage, at best, and probably slower economic growth as interest rates rise in response to the growing debt. Moreover, the huge increase in indebtedness suggests that the next debt crisis could be much worse than the latest one, and therefore that the next wave of panic to strike the financial markets will be even more severe and have more serious consequences.

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3. Underlying Causes of the Relative Stagnation

I have argued that relative economic stagnation set the stage for the debt buildup and the latest crisis. But what caused the relative stagnation? The most obvious explanation, and therefore the explanation that is prima facie the most plausible, is this:

(1) the rate of profit fell and, because capital-value was not destroyed to an extent sufficient to restore profitability, the rate of profit failed to rebound significantly following the economic slumps of the mid-1970s and early 1980s;

(2) the persistent fall in the rate of profit produced a persistent fall in the rate of capital accumulation;[2] and

(3) the fall in the rate of accumulation led in turn to sluggish growth of per capita GDP, corporations’ output, and compensation of employees, to rising debt burdens, and so on.

Evidence for the United States suggests that this obvious and plausible explanation is in fact correct. Point (3) is not controversial–those radical and Marxist economists who contend that the latest economic crisis is an irreducibly financial one largely agree with it (see, e.g. Duménil and Lévy 2004, Husson 2008, Stockhammer 2009)–so I will limit myself to discussion of the first two points.

Figure 2 depicts movements in two measures of corporations’ rate of profit. The broader measure of profit, which I will call “property income,” is the share of corporations’ output (net value added) that their workers and other employees do not receive, and it is thus much closer to what Marx meant by “surplus-value” than is before-tax profit, the narrower measure of profit. The latter excludes the property income that corporations use to make interest payments and to pay sales tax and similar taxes.

As Figure 2 indicates, both rates of profit rebounded sharply after the Great Depression, and they remained quite high for more than a decade after the end of World War II. In contrast, no substantial rebound followed the slumps of the mid-1970s and early 1980s.

From the mid-1950s to the slump year of 1982, both rates fell substantially, and more or less continually, although the accelerating inflation of the 1970s temporarily reversed the decline. And in the period following 1982, neither rate has experienced a sustained recovery.

Figure 2. Profits as Percentage of Historical Cost of Fixed Assets, U.S. Corporations, 1929-2008

(click to view)

The property-income-based rate of profit has continued to fall; the only significant exception to the general trend is the sharp but brief rise in profitability produced by the asset-price bubble of the last decade. In contrast, the rate of profit in which before-tax profits appear in the numerator did not decline further, but neither did it rebound in a sustained manner. It recovered significantly, but temporarily, during the dot-com bubble of the 1990s. However, it then fell very sharply, so its level during the trough years of 2001-02 was no higher than its level during the 1982 trough. During the asset bubble of the last decade, it skyrocketed again, but then declined rapidly as the economy sank into recession.

The trajectories of these two rates of profit have differed because corporations’ interest payments have fallen as a share of their property income. Interest payments amounted to 20% of property income in 1982, but they then fell, almost continuously, to 0% in the mid-1990s. And they remained very low, or even negative, during much of the last decade.[3] Since corporations paid out less of their property income as interest, they retained a greater share for themselves as before-tax profits. The ratio of before-tax profits to advanced capital therefore remained roughly constant even as the ratio of property income to advanced capital continued to decline.

The relative constancy of the before-tax rate of profit since the early 1980s is therefore not an indication that “neoliberalism” succeeded in halting the fall in surplus-value per dollar of advanced capital. Since property income is a much better proxy for surplus-value than are before-tax profits, and the property-income-based rate of profit continued to fall, the evidence indicates that the fall in surplus-value per dollar of advanced capital was not halted. Corporations were simply able to keep a larger share of the relatively shrinking pool of surplus-value for themselves as the share that they turned over to their creditors declined.

Figure 3 indicates that point (2) of the obvious and plausible explanation is correct–the persistent fall in profitability led to a persistent fall in the rate of accumulation. U.S. corporations’ before-tax rate of profit fell from 24% in 1978 to 12% in 2001, and their rate of accumulation (net investment, valued at historical cost, as a percentage of the historical cost of their fixed assets) fell from 13% in 1979 to 3% in 2003. Thus the rate of accumulation tracked the rate of profit quite closely, in the sense that both rates fell and in the sense that changes in the rate of accumulation followed changes in the rate of profit.

Figure 3. Before-Tax Profits and Net Investment, as Percentages of Historical Cost of Fixed Assets, U.S. Corporations

(click to view)

However, the radical and Marxist economists who contend that the rate of profit has recovered substantially since the early 1980s do not accept point (1) of the obvious and plausible explanation. They are proponents of the so-called current-cost (or replacement-cost) “rate of profit,” profit as a percentage of the amount of money that businesses would currently need to replace their capital assets. However, what almost everyone else–businesses, investors, Marx–means by “rate of profit” is the historical-cost rate, profit as a percentage of the amount of money actually invested in the past to purchase the capital assets (their historical cost), minus depreciation. Movements in these two rates have differed substantially since the early 1980s. Whereas, as we saw above, one measure of the historical-cost rate of profit continued to decline and the other experienced no sustained recovery, analogous measures of the current-cost “rate of profit” did rebound to some degree, especially the rate based on before-tax profits (see Figure 4).

Figure 4. Profits as Percentage of Current Cost of Fixed Assets, U.S. Corporations, 1947-2008

(click to view)

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4. Was There a Specifically Neoliberal “Regime of Accumulation”?

However, the proponents of the current-cost “rate of profit” are left with a serious problem. Because they do not accept point (1) of the obvious and plausible explanation, they also cannot accept point (2). They then have to try to account, somehow, for the extremely curious fact that nothing else–the rate of accumulation, GDP growth, corporate output, compensation of employees, etc.–rebounded in response to the recovery in the “rate of profit.”

Now the most obvious–and, prima facie, the most plausible–way to account for this curious fact is that the current-cost “rate of profit” is just a theoretical construct, a figment of the physicalist imagination.[4] It is not something that capitalists try to maximize nor is it the rate of profit that regulates their investment behavior. (I will return to this issue in the next section of this paper.) It is then no longer surprising that the rate of accumulation has declined even as the current-cost “rate of profit” has risen.

Instead of embracing this obvious and plausible explanation, proponents of the current-cost “rate of profit” imagine that a distinct “neoliberal” “regime of accumulation” emerged in the early 1980s (Husson 2008, Stockhammer 2009). They argue that the rate of accumulation fell, not because of a lack of profit, but because this new regime of accumulation was one in which profits were diverted away from productive investment and into financial markets. And this is the reason why they contend that the latest crisis of capitalism is an irreducibly financial one, rather than a crisis rooted in underlying profitability problems.

For instance, Duménil and Lévy (2004, p. 65) write,

Why was the restoration of the rate of profit not coupled with a parallel resumption of growth …? The key to this enigma may be found in the monetary and financial mechanisms …. [T]he continuing poor performance of the American and European economies with respect to capital accumulation are actually the effect of the specific dynamics of neoliberalism. One can, therefore, assert that the structural crisis is over and blame neoliberalism for poor accumulation rates.

Similarly, Husson (2008) contends that

[the] decrease of the wage-share has allowed a spectacular recovery of the average rate of profit from the mid 1980s.

But … the rate of accumulation has continued to fluctuate around a level lower than that before the crisis. In other words, the drain on wages has not been used to invest more.

… The growing mass of surplus value which has not been accumulated has [to] mainly be distributed in the form of financial revenues, and that is where the source of the process of financialisation is to be found. The difference between the rate of profit and the rate of investment is a good indicator of the degree of financialisation.

If it were in fact true that, during an entire quarter-century of capitalism, the rate of productive accumulation has failed to respond to substantial rise in the rate of profit, it would be extremely peculiar. As Husson (2008) acknowledges, such a disconnect between the rates of profit and accumulation is “more or less unprecedented in the history of capitalism.”

But it just isn’t true. At least, it isn’t true of the last quarter-century of capitalism in the U.S. As Figure 3 showed, the fall in the rate of accumulation closely tracked the fall in the rate of profit from the late 1970s through the early 2000s. As the gaps between the two rates suggest, the average share of before-tax profits devoted to net investment between 1965 and 1978, 44.2%, and the average share devoted to net investment between 1987 and 2001, 43.5%, were very similar. Moreover, if we consider the whole post-World War II period, the average share of before-tax profits devoted to net investment between 1987 and 2008, 37.4%, was slightly greater than the average share devoted to net investment between 1947 and 1978, 36.4%.

The reason why I find no long-term decline in the fraction of profit devoted to productive investment, while proponents of the current-cost “rate of profit” contend that such a decline has occurred, is not that I consider investment figures in which depreciation is valued at historical cost while they consider figures in which it is valued at current cost. When depreciation is valued at current cost, the average shares of before-tax profits devoted to net investment are again quite similar in the 1965-1978 and 1987-2001 periods, 32.7% and 31.6%, respectively. And, just as before, the average share of before-tax profits devoted to net investment between 1987 and 2008, 26.9%, was slightly greater than the average share devoted to net investment between 1947 and 1978, 25.9%. Thus, as Figure 5 shows, the gaps between the current-cost “rate of profit” and the associated rate of accumulation before and after the early 1980s are similar to one another.

Figure 5. Before-Tax Profits and Net Investment, as Percentages of Current Cost of Fixed Assets, U.S. Corporations

(click to view)

It is true that, if one examines only the period since 1980, as Husson does in a recent critique of my empirical work on the rate of profit, one finds a growing gap between the rates of profit and accumulation (see Husson 2009, Graphique 7A, “Taux de profit et taux d’accumulation: Etats-Unis 1980-2008″). As Figures 3 and 5 show, the gap between the rates of profit and accumulation has indeed risen since the early 1980s. But that is only because the gap that existed at that time was abnormally and unsustainably small. It has nothing to do with any distinctive and unprecedented neoliberal “regime of accumulation.”

What happened is this: The rate of profit fell sharply beginning in 1980, while the decline in the rate of accumulation was at first slower and more modest. Consequently, net investment as a percentage of after-tax profits shot up to an average of 117% between 1980 and 1986. Thus, U.S. corporations were investing 17% more of their after-tax profits than the after-tax profits they actually had! That situation clearly could not persist. So the gap between the rates of profit and accumulation that had existed earlier was gradually restored. But through 2001, at least, there was no long-term widening of the gap (see Kliman 2010, part VI for further discussion).[5]

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5. Why the Current-Cost “Rate of Profit” Isn’t One

In the preceding section of this paper, I rebutted the challenge to point (2) of the obvious and plausible explanation of the relative stagnation and rising indebtedness that set the stage for the latest economic crisis. But what about point (1)? Is it indeed the case that a persistent fall in the rate of profit was an indirect cause of the crisis? After all, the current-cost “rate of profit” has risen, and it is this rate that mainstream Marxist and Sraffian economists have used in order to assess movements in profitability for at least a half-century. It is not merely something that a few of them recently pulled out of the hat in order to justify their claim that the crisis is an irreducibly financial crisis rather than a crisis rooted in profitability problems. Is it really the case that they have all been guilty of an outright error for a half-century or longer?

My answer is an unqualified “yes.” The current-cost rate of profit is simply not a rate of profit in the normal sense of the term.[6]

First of all, the current-cost “rate of profit” is not what businesses and investors seek to maximize. They base their investment decisions on measures of profitability such as net present value (NPV) and internal rates of return (IRR). Whereas the current-cost “rate of profit” values current investment expenditures and future receipts simultaneously, using a single set of prices, NPV and IRR measures use current prices to value current investment expenditures, but use expected future prices to compute future receipts.

Secondly, the current-cost “rate of profit” fails to accurately measure businesses’ and investors’actual rates of return, their profits as a percentage of the original amount invested. Since it uses a single set of prices to current investment expenditures and future receipts, it assumes, in effect, that prices do not change. Thus, if prices rise or fall, the actual rate of return will be higher or lower than the current-cost rate. The discrepancy can be very large even if the change in prices is small.[7]

Thirdly, contrary to what it proponents (e.g., Laibman 1999, p. 223) often claim, the current-cost “rate of profit” fails to accurately measure businesses’ and investors’ expected future rates of return. Imagine a that firm which produces computers invests in new equipment that costs $100,000 at today’s prices, and that the resulting increase in its output of computers, if they are also valued at today’s prices–is $30,000 per annum. The current-cost “rate of profit” on this investment is 30%. But computer prices fall rapidly year after year, so only the most naïve firm would overlook this information and expect a 30% rate of return on its investment instead of something far smaller.

Fourthly, the current-cost “rate of profit” bears no clear relationship to the rate of capital accumulation.[8] Yet this relationship is perhaps the main reason why the rate of profit is of economic importance. It is well known, for instance, that the rate of profit is the maximum rate of accumulation. However, if prices are falling, the current-cost “rate of profit” can exceed the maximum rate of accumulation by a considerable amount (see Kliman 2007, pp. 85-87).

Finally, although Husson (2009) and Duménil (quoted in Kliman 2010a) have recently defended the use of the current-cost rate on the ground that the historical-cost rate of profit is affected by inflation, while the current-cost rate eliminates that effect, the problem is that the current-cost rate adjusts for inflation in an improper manner. What it adjusts for is actually not inflation–a general, economy-wide increase in the price level–but rather increases in the prices of each type of capital asset.

It might make sense to adjust for inflation in this manner if there were no changes in the composition of capital assets over time. In that case, changes in the prices of capital assets acquired in the past would accurately reflect the changes in capital-asset costs that businesses currently face. But when, for instance, businesses were in the process of buying computers instead of replacing their worn-out typewriters, changes in the replacement cost of typewriters became an ever-less meaningful measure of the inflation (or deflation) they experienced. The replacement cost of typewriters became ever-less meaningful even for businesses that continued to use typewriters, because they did not replace the typewriters when they wore out, but bought computers instead. But current-cost measures are, precisely, replacement-cost measures. They measure changes in the cost of replacing the entire current stock of capital assets, which contained a relatively large number of typewriters, not changes in the cost of the capital assets that businesses are actually acquiring currently. The latter contained a relatively large number of computers and relatively few typewriters.

Thus, in order to properly adjust rates of profit so as to remove the effects of inflation, one needs to control for changes in the general price level, not compute the current-cost “rate of profit.” My estimates of inflation-adjusted rates of profit indicate that the movements in such rates since the early 1980s did not diverge substantially from the movements in the unadjusted historical-cost rates of profit that I discussed above. When before-tax profits serve as the numerator of the rate of profit, the inflation-adjusted rate rises only slightly, by about one percentage point, between the trough of 1982 and the trough of the early 2000s. And when property income appears in the numerator, the inflation-adjusted rate of profit continues to decline (see Kliman 2010b, part II, section E, and part V, section D).[9]

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6. Conclusions

My findings disconfirm the claims that the latest economic crisis is rooted in nothing deeper than financial-sector phenomena that are essentially unrelated to movements in profitability. They therefore fail to lend support to the now-fashionable belief that greater state control over the financial sector will suffice to prevent the recurrence of similar crises in the future.

The mainstream “Marxian economics” tradition is founded on the myth, which has been refuted (see, e.g., Kliman 2007), that Marx’s own value theory is internally inconsistent. Yet the use of current-cost “rates of profit,” a direct consequence of the myth of inconsistency, remains pervasive. Hence this myth lies at the root of the implausible claims that the rate of profit has been heading ever-upward while the economy goes down the tubes, and the fashionable theories that take surface financial-sector phenomena to be essential causes of the latest economic crisis. The record needs to be set straight; the alleged proofs of Marx’s inconsistencies and the “Marxian economics” tradition need to be repudiated.

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References

Celasun, Oya, and Keim, Geoffrey. 2010. The U.S. Federal Debt Outlook: Reading the Tea Leaves. IMF Working Paper WP/10/62, Washington, DC: International Monetary Fund.

Duménil, Gérard and Lévy, Dominique. 2004. Capital Resurgent: Roots of the Neoliberal Revolution. Cambridge, MA: Harvard University Press.

Herman, Shelby W. et al. 2003. Fixed Assets and Consumer Durable Goods in the United States, 1925-97. U.S. Department of Commerce, Bureau of Economic Analysis. Washington, DC: U.S. Government Printing Office.

Hoover, Herbert. 1952. The Memoirs of Herbert Hoover, Vol. 3: The Great Depression, 1929-1941. New York: Macmillan.

Husson, Michel. 2008. A Systemic Crisis, Both Global and Long-Lasting, Workers’ Liberty website, www.workersliberty.org/story/2008/07/21/marxists-capitalist-crisis-7-michel-husson-systemic-crisis-both-global-and-long-las.

Husson, Michel. 2009. Les Coûts Historiques d’Andrew Kliman. www.npa2009.org/content/les-coûts-historiques-d’Andrew-Kliman-par-michel-husson-décembre-2009; also at hussonet.free.fr/histokli.pdf.

Kliman, Andrew. 2007. Reclaiming Marx’s “Capital”: A refutation of the myth of inconsistency. Lanham, MD: Lexington Books.

Kliman, Andrew. 2010a. Masters of Words: A reply to Michel Husson on the character of the latest economic crisis. Marxism 21, vol. 7, no. 2, Summer 2010 pp. 39-80.

Kliman, Andrew. 2010b. The Persistent Fall in Profitability Underlying the Current Crisis: New temporalist evidence. New York: Marxist-Humanist Initiative. Available from marxist-humanist-initiative.org.

Laibman, David. 1999. Okishio and His Critics: Historical cost versus replacement cost, Research in Political Economy vol. 17, pp. 207-27.

Marx, Karl. 1989. Karl Marx, Frederick Engels: Collected Works, vol. 32. New York: International Publishers.

Moseley, Fred. 2008. Some Notes on the Crunch and the Crisis, International Socialism no. 119. Available at www.isj.org.uk/index.php4?id=463&issue=119.

Stockhammer, Engelbert. 2009. The Finance-Dominated Accumulation Regime, Income Distribution and the Present Crisis. Department of Economics Working Paper no. 127. Wien, Austria: Vienna University of Economics & Business Administration.

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Notes

1. Almost all of my data come from official U.S. government sources, especially the Bureau of Economic Analysis, www.bea.gov, and the Federal Reserve System, www.federalreserve.org. Detailed discussions of the sources of most of the data I will present, and my estimation procedures, are provided in Kliman (2010a and 2010b). Additional information will be provided upon request; please write to me, care of mhi@marxisthumanistinitiative.org.

2. The rate of accumulation is the growth rate of the capital that is advanced, i.e., net investment (investment minus depreciation) as a percentage of advanced capital. Since the rate of profit is profit as a percentage of advanced capital, the rate of accumulation is equal, by definition, to the rate of profit times the fraction of profit that is invested. The rate of profit is therefore a key determinant of the rate of accumulation. If the fraction of profit used for investment is roughly constant, the rate of accumulation will rise and fall by roughly the same percentage as the rate of profit. It is therefore reasonable to expect the rate of accumulation to track the rate of profit.

3. These interest-payment figures can be negative because they are “net interest” figures, i.e., interest paid minus interest received.

4. The term physicalism refers to any approach according to which “physical quantities” (technology and real wages) are the sole proximate determinants of relative prices, profits, and the rate of profit. The replacement-cost “rate of profit” is a physically determined rate (see Kliman 2007, chap. 7).

5. Owing to the very sharp increase in before-tax profits in the middle of the last decade, net investment as a percentage of before-tax profits fell markedly. The percentage has since risen, although the severe financial crisis and recession have tended to reduce the magnitude of the rise. It is too early to tell whether a long-term change has taken place in the relationship between net investment and before-tax profits.

6. The U.S. government publishes data for capital stocks in terms of current costs, but its concept of “capital stock” was not developed in order to measure profitability. The measures of net investment upon which it is based are intended to be “rough indicators of whether the corresponding capital stocks have been maintained intact” (Herman et al. 2003, p. M-2).

7. In Kliman (2010b, part V, section B), I work out an example in which an investment project has a very long life and the price of the business’ product falls by 2% per year. If the current-cost “rate of profit” is 10%, the actual rate of return is only 7.8%.

8. I am referring here to the actual accumulation of capital, the increase in advanced capital as measured at historical cost, not the increase in the current cost of capital assets. There is indeed a strict relationship between the current-cost “rate of profit” and net investment as a percentage of the current cost of capital assets.

9. The procedures I used to adjust for inflation were criticized by Husson (2009). In Kliman (2010a), I show that an alternative adjustment procedure of the type he recommends yields empirical results that scarcely differ from those I reported originally.

INVITATION

Marxist-Humanist Initiative hereby invites the Industrial Workers of the World (IWW), and any other anarchist or anarchist group, to a debate on Proudhon’s and modern Proudhonist alternatives to capitalism. We are ready and willing to engage in such a debate at any reasonable time and place. Theoretical development of a viable alternative to capitalism is a crucial need, in order to revitalize and help orient struggles for a new society, and a debate on this topic can help further the process of theoretical development.

During a panel we organized at the recent Left Forum conference in New York, “False Alternatives to Capitalism: Proudhonism and Its Progeny,” a supporter of the IWW asked whether any anarchist had been invited to speak on the panel. As we noted at the time, our prior efforts to have anarchists engage with us on this issue were not successful, so we didn’t try yet again. Since, however, the question from the IWW supporter suggests that representatives of the IWW and/or other anarchists may now be willing to engage with us on this issue, we are once again extending an invitation to debate us, at any reasonable time and place.

Executive Committee of Marxist-Humanist Initiative

2 Comments on “MHI Invites Anarchists To Debate”

1. 

   1Lucid said at 5:22 am on May 1st, 2010:Why Proudhon? Why would communists be interested in that old Marx-Proudhon debate, when there are us anarchist communists to contend with? Besides, what’s with Marxists and figureheads?

   Happy May Day, anyways. =/

2. 

   2Lucid said at 5:24 am on May 1st, 2010:*Why would Marxists (communists)…

   Damn typos. =.=

The panel featured Andrew Kliman on the “Roots of the Economic Crisis: The Persistent Fall in Profitability and Debt Financing,” Brendan Cooney on “Value, Crisis, and Marx’s ‘Order of Operations,’” and Anne Jaclard on “Do We Have an Uncoupled Economy?”

View the video here

Special thanks to Brendan Cooney for the recording.