A Marxist Guide to Capitalist Crises
“A Marxist Guide to Capitalist Crises,” an eBook created from the key posts on the Critique of Crisis Theory blog, is currently in production. We’ll be sharing the completed chapters between our regular postings.
Chapter 36: Otto BaChapter 37: Can the World Market Ever Become Exhausted?
Around the turn of the 20th century, the belief that the world market was headed for eventual exhaustion was widely accepted among the left wing of the Social Democracy, especially in the German-speaking world. But the refutations of Rosa Luxemburg’s “Accumulation of Capital” and her “Anti-Critique,” based on Marx’s Volume II models of capitalist reproduction, pretty much discredited the idea that the world market could ever face a situation of permanent exhaustion.
Cyclical crises were viewed by the “orthodox” Social Democratic theorists as being caused by temporary disproportions among the various branches of production or between the growth in the demand for labor power and the growth of the working population, that is, the supply of labor power. In the long run, the limits of the market were seen as identical to the limits of production.
Yet no less a Marxist than Frederick Engels himself shared the idea that the world market would become exhausted. Engels believed this not only in the days of his youth but at the very end of his life. In Chapter 31, Volume III of “Capital,” Marx used British export data to demonstrate that each successive peak in the industrial cycle exceeded its predecessor.
Engels included in brackets this interesting note, which I will quote in full:
“Of course, this holds true of England only in the time of its actual industrial monopoly; but it applies in general to the whole complex of countries with modern large-scale industries, as long as the world market is still expanding [emphasis added -SW].”
So in 1894 — the year before he died — Engels could still imagine a time when the world market would no longer be expanding. Significantly, Engels’s remarks above appear in Volume III of “Capital,” nine years after Engels brought out Volume II, which includes Marx’s famous models of simple and expanded reproduction.
Therefore, Engels, who was thoroughly versed in Marx’s theories and mathematical models of simple and expanded reproduction, apparently didn’t draw the conclusion that so many other Marxists drew from them. That conclusion was that as long as the correct proportions were maintained between the various branches of production and the growth in the working-class population was adequate to meet the demands of the labor market for more and more labor power, the market would only be limited by the ability of capitalist industries to produce still more commodities.
Do the limits of surplus-value production determine the limits of the market?
Gold functions not as the ultimate constraint on the expansion of monetarily effective demand within capitalist expanded reproduction.
As we saw in the previous chapter, Henryk Grossman saw no limit to the ability of the market to expand as long as enough surplus value was produced. According to Grossman and his follower Paul Mattick, the problem of realizing the value of commodities — including the surplus value they contain — is not a problem as long as a sufficient amount of surplus value can be squeezed out of the working class. Only when the limits of surplus value production are reached — both within each industrial cycle and the final historical limit, set by the maximum size the surplus value-producing working class can ultimately reach — the market will become permanently “overstocked.”
If, according to this view, the surplus value production is not adequate, businesses will cut back on their own spending. Instead of throwing money that passes through their pockets back into circulation, the capitalists will hoard – accumulate – the money. At that point, commodities will start to pile up unsold in warehouses, but this will be a secondary reaction to the real problem, an insufficient production of surplus value. As long as the rate of surplus value is increased sufficiently, the problem of finding markets for all the commodities that are being produced will take care of itself.
But couldn’t the ever-growing exploitation — cyclical fluctuations aside — of the working class that is necessary for capitalism’s survival — as Grossman so brilliantly demonstrated by extending Bauer’s diagram to the 36th year — so limit the ability of the working class to consume that the market would become exhausted? This idea goes back to the Swiss economist Sismondi (see Chapter 1), the contemporary of Ricardo, who can be considered the father of crisis theory. The idea that crises are caused by the inability of the workers to buy back the commodities they produce is called underconsumption.
The problem with the idea of “underconsumption,” whether as a theory of cyclical crises or as forming the ultimate limit to capitalist production, is that besides playing down the “unproductive consumption” of the capitalists and their hangers-on including the state and its dependents, it ignores the productive consumption that the capitalists are obliged to undertake on an increasing scale as capitalism develops. Capitalist production is not production for human needs. It is production for profit.
Indeed, we saw in the previous chapter Bauer’s diagram of expanded reproduction, where he abstracted the rising rate of surplus value, that the entire consumption of the capitalists ends up as productive consumption by the 35th year. The capitalists consume so many means of production and so much labor power — which they use to produce still more surplus value — that they and any of their hangers-on, including the state, have no surplus value left over for personal consumption. The only people who can still engage in personal consumption are the productive (of surplus value) workers. This is truly a situation of getting a job — one where you produce surplus value — or starve.
Since a situation where the personal consumption of the ruling capitalist class has fallen to zero is nonsense, in the real world, the capitalists must increase the rate of surplus value in the course of capitalist development precisely because they must increase their productive consumption of surplus value while leaving something—quite a lot in reality —for their own and their hangers-on’s personal consumption.
Inevitable cyclical crises
So, whether we are dealing with Marxists of the Bauer type or the followers of Grossman and Mattick, we are sliding into Say’s Law. Bauer, Grossman, and Mattick all forget that commodities must be purchased or paid for not with (non-money) commodities but with money. They assume that because the value is created in production, the money to realize it automatically exists.
In examining cyclical crises, we saw how not only can there be a shortage of monetarily effective demand — this becomes theoretically possible as soon as a separate money commodity emerges — but there must be shortages of monetarily effective demand periodically once the process of capitalist expanded reproduction has developed to a certain point.
Capitalist cyclical crises began to appear once the productive forces had developed to the point that periodic, sudden, rapid increases in production became possible. Such sudden increases in production mean that the capitalists are forced by
the pressure of competition to throw their previously idle hoards of money onto the market. This leads to a speedy rise in monetarily effective demand after a more or less extended period of relative stagnation. There is a sudden market expansion as previously hoarded money is thrown into circulation by the capitalists. Demand then rises even faster than production can be increased, causing prices measured in terms of money material to rise above the actual values, and the prices of production of commodities.
Once the prices of commodities have risen above the values of commodities, the production of money material becomes relatively and absolutely less profitable. The longer this situation continues, the more the production of money material will decline as capital is withdrawn from the industry that produces money material and flows into more profitable branches of production.
A crisis does not break out at this point. Idle hoards of money are drawn into circulation, increasing the velocity of circulation. Banks create more and more loans — and more bank-created credit money — on a narrower and narrower cash reserve. Clearing agreements — especially among banks — mean that cash is only necessary to make the payments that don’t offset one another.
The development of the credit system, clearing agreements, and so on makes it possible to expand the market far beyond what would be possible on a cash basis alone. However, the expansion of credit inevitably reaches a limit. At the end of the day, one piece of money cannot pay two debts at the same time.
Interest rates rise well before this ultimate limit is reached, the profit of enterprise, the sole factor motivating continued capitalist production, declines as more and more of the profit takes the form of interest. The credit system cannot free itself from its cash basis. And cash bases ultimately come down to a gold basis. As the credit system expands relative to its cash and ultimately gold bases, the point will be reached where it cannot be stretched any further. Once this point in the industrial cycle is reached, a crisis of the generalized overproduction of commodities breaks out.
What determines the level of production of money material?
Therefore, the growth in the market is governed in the final analysis by the level of production of money material. No development of the credit system can change this fact. If, by chance, the production of money material grew faster than the level of commodity production, this would sooner or later lead to a powerful economic boom. This boom would inevitably raise the prices of commodities. Higher commodity prices result in a rise in the quantity of money needed to circulate them. At some point, the prices of commodities will rise above the values of commodities, rendering the production of money material increasingly unprofitable. The production of money material will then begin to lag behind the production of commodities.
It will then be only a matter of time before the inflation of the credit system reaches the maximum extent possible and, with it, the whole system of “over-trading” that conceals the overproduction of commodities relative to money material. At that point, credit will vanish, and overproduction will come out into the open as unsold commodities piling up in warehouses.
As Marx put it in Capital, the crisis does not break out until the artificial system of settling payments has “fully developed.” (1)
This is why, though the essence of crises is the generalized relative overproduction of commodities, each crisis appears to begin in the sphere of credit — or sometimes before that in the sphere of currency exchange rates, either with other currencies or with gold.
Since the crisis appears to begin in the sphere of currency or credit, bourgeois economists always attempt to find the “cure” for crises through reforms in the currency and credit systems. This continues today, though the bourgeois economists, after more than 170 years of such reforms, are beginning to run out of ideas!
Overproduction is temporary
However, the generalized overproduction of commodities — the exhaustion of the market — in a cyclical crisis is only temporary. Indeed, a cyclical crisis is nothing but a sudden and forcible halt of the (relative) overproduction – boom – and its replacement by a period of underproduction– depression.
With the outbreak of the crisis, prices measured in terms of money material fall, and the purchasing power of the existing mass of money material expands. In addition, the lower prices of commodities, assuming that the values of both money and commodities remain unchanged, make the production of money material both relatively and absolutely increasingly profitable. The production of money material starts to rise once again.
At first, this increasing production of money piles up in the form of idle bank reserves. The banks are awash in cash, interest rates are low, while stagnation in trade and production reigns. It looks as though stagnation will last forever. But in reality, the material basis for the next “sudden expansion of the market” that will initiate a new vigorous cycle of capitalist expanded reproduction is being laid. This potential sudden expansion of the market becomes an actual sudden expansion once the overproduced commodities and the vast surplus means of producing commodities are either sold off, written down, or physically destroyed by their capitalist owners.
Therefore, the growing mass of money material — gold — forms the material basis of the expansion of the market that Marx indicated was a necessary condition if capitalist production is to continue.
Concrete economic history indicates that money material must be produced in ever greater quantities if the market is to expand at a rate sufficient to prevent a long-term rise in unemployment. At least since 1850, when annual statistical estimates of gold production began, whenever the production of money material — gold — has entered into a period of protracted decline, the capitalist economy has invariably fallen into a period of serious crisis of mass unemployment.
We saw this during the late 19th-century Long Depression and up to the time of this writing, most strongly in the years preceding the super-crisis of 1929-33. It happened again during the decline in gold production in the 1970s, followed by the double-digit unemployment of the early 1980s. And we saw it yet again in the years preceding the Great Recession of 2007-09.
On the “supply side,” capitalism must increase the production of the mass of surplus value embodied in an ever-growing — temporary crises of overproduction excepted — mass of commodities. On the “demand side,” it must increase the much smaller but ever-growing mountain of money material — which also must contain surplus value — that serves as money.
It is often said that capitalism’s thirst for surplus value is unquenchable, which is true, but with this qualification: It is capitalism’s thirst for profit — surplus value realized in money form — that is unquenchable. Capitalism has no interest whatsoever in producing surplus value that cannot be realized in money form — profit. Therefore, the “mountains” of commodities and money — though the money mountain is much lower than the (non-money) commodity mountain — must both grow without limit if capitalist production is to continue.
The two main functions of cyclical crises
In the capitalist system, the cyclical crises of overproduction have not one but two basic functions. The first is to periodically replenish the industrial reserve army of the unemployed and underemployed and the broader surplus population. If the reserve industrial army is too small, the industrial capitalists will not be able to achieve the rising rate of surplus value that is necessary for the survival of the system. If there were no crises, the balance of forces would favor the sellers over the buyers of the surplus value-producing commodity labor power – the workers. Grossman and Mattick well understood this aspect of cyclical crises.
The other major purpose of cyclical crises under capitalist production is to periodically depress the prices of commodities below the values of commodities so that the production of money material is, in the long run, sufficient to ensure that the value and surplus value contained in the growing mass of commodities that capitalism must produce can be realized in the form of money.
The need to realize, not simply produce, surplus value was stressed correctly by Rosa Luxemburg. Where Luxemburg went wrong was that she didn’t understand how surplus value is realized under capitalist production. Luxemburg was led down the wrong path of assuming that the commodities produced by non-capitalist third persons were necessary to realize the ever-growing mass of surplus value in the form of monetary profit.
But the mistake made by Henryk Grossman and Paul Mattick was more basic than Luxemburg’s. They completely overlooked the problem of realizing surplus value, assuming wrongly that if the problem of producing surplus value was solved, the problem of realizing surplus value would automatically be solved as well.
It is important to emphasize that the periodic crises of overproduction became inevitable once capitalism developed its ability to increase production suddenly. It was not because the world was/is running out of gold. Even if we assumed that the quantity of gold in the Earth’s crust is infinite — an obvious material impossibility — periodic capitalist crises of the generalized overproduction of commodities would still be inevitable.
Gold production in the early 21st century
The bourgeois publication National Geographic features an article, “The Real Price of Gold,” by Brook Larmer. Larmer refers to “the Spanish, whose lust for gold … spurred the conquest of the New World.” That was, of course, the period Marx called, with his devastating irony, “the rosy dawn of the era of capitalist production.”
That was in the 16th century. But what about the role of gold production in the ultra-modern capitalism of the 21st century? “Gold is not vital to human existence; it has, in fact, relatively few practical uses,” Larmer writes. Except, of course, for its function as money material — a very “practical use” for vampire-like capitalism, which uses dead labor for the sole purpose of extracting an ever-greater mass of unpaid living labor that must then be realized in money — gold — form.
“Humankind’s feverish attachment to gold,” Larmer complains, “shouldn’t have survived the modern world.” Larmer is, of course, correct here. But he does not explain why “humankind’s feverish attachment to gold” has survived. This is what we have to understand.
The survival of the lust for gold is an inevitable result of the survival of the capitalist mode of production, where highly socialized global labor must be treated as a collection of private individual labors because the product of today’s globalized, socialized labor is appropriated privately by a class of capitalist exploiters.
While our modern bourgeois economists, as well as well-meaning observers like Larmer, can deplore the “irrational” lust for gold, only Marxist economic science can explain it, as well as prescribe the medicine that can cure the gold lust disease, the medicine being a world socialist revolution.
“Every country in the world … has done away with the gold standard,” Larmer observes, “which John Maynard Keynes famously derided as a ‘barbarous relic.’
“But,” Larmer laments, “gold’s luster not only endures … it grows stronger.”
Larmer documents that the modern gold industry is an environmental disaster as well as a devourer of human lives, including the lives of children. Not much has changed since the 16th century in this regard.
“For all its allure, gold’s human and environmental toll has never been so steep,” Larmer reports. “Gold mining … generates more waste per ounce than any other metal,” he explains. “These gashes in the Earth, are so massive they can be seen from space.”
The gold mining industry, Larmer shows, is one of the worst abusers of child labor in the world. Like the god Moloch of ancient times, the gold industry is destroying both the natural environment and the lives of children.
Larmer’s observations about gold’s environmental and human costs captured one dimension of the problem. But an even more fundamental constraint has emerged – a geological one.
But how long can capitalism keep on squeezing ever more of the stuff out of the earth to make sure that the capitalists can continue to realize in the form of profit the increasing mass of surplus value that it must squeeze out of the workers of the world? Even Mother Earth has its limits.
These figures do not by themselves establish the arrival of “peak gold,” but they are consistent with a long-term tendency toward rising difficulty in expanding the production of money material.
In 2025, even with gold prices reaching a record $4,500 per ounce, major mining houses reported that production was falling. Mark Bristow, CEO of Barrick, reported a near 16 percent year-over-year output drop, attributing it to the geological necessity of processing lower-grade ore. Newmont similarly reported a 15 percent decline, confirming that the industry has hit a “geological wall” where even historic financial incentives cannot conjure a new supply, with the earth being pushed beyond its limits.
This supply constraint is rooted in a collapse of discovery. S&P Global Market Intelligence analysis revealed that zero major new gold deposits were discovered in the 2023–2024 period, continuing a decade-long drought. As the industry is forced to rely on depleting reserves from decades-old finds, analysts note that “the elephants—the massive, high-grade deposits that drove past cycles—are gone,” leaving miners to squeeze the last, harder-to-reach ounces from existing pits.
Peak gold?
We have all heard of peak oil. Peak gold would imply a situation where no changes in prices — that is, no fall in commodity prices measured in terms of gold — would be able to increase the production of gold. One of the ways that capitalism has, up to now, been able to pull itself out of successive crises — gold production — would break down. Falling commodity prices in terms of gold have, in the past, led to increased gold production — paving the way for sometimes decades-long periods of declining unemployment. After peak gold, this mechanism would no longer operate.
The period that followed the first severe cyclical economic crisis of the new century was not yet peak gold. Gold production peaked in 1912 at 705 metric tons, in 1940 at 1,310, in 1970 at 1,480, in 2001 at 2,600, and finally reached a plateau of roughly 3,650 metric tons in 2018—a level it has failed to exceed through 2025. But what would happen if peak gold arrives one day?
Like oil, gold is a non-renewable resource. The dust and rocks that consolidated to form Earth 4.6 billion years ago contained only so much gold. Most of the gold, like other “heavy metals,” sank to Earth’s core, where no foreseeable technology can reach it. Convective forces gradually cycle gold from Earth’s interior regions to the crust, but this process is prolonged, working over geological eons, much like oil is gradually produced from dead plants over tens of millions of years.
But why should gold be exhausted before other natural resources? There is one factor tied to gold’s role as money material that does work in this direction. Leaving aside money material, primary commodities function as either raw materials or auxiliary materials. In this role, they almost always have substitutes. As a given primary commodity grows scarcer, its value will rise since the same quantity of labor will produce a smaller quantity of that commodity.
This forced the industrial capitalists to shift to other commodities that could be produced with smaller quantities of labor — in plain language, produced more cheaply. However, gold as money material has no substitutes. Its growing scarcity tends to increase its value relative to other commodities, if not indeed absolutely. But unlike the case of commodities that function primarily as raw or auxiliary materials, this only increases its desirability as a means of accumulation — hoarding.
Capitalists look to outer space for profit
The Monthly Review school and many other observers — some Marxist and some not — have increasingly stressed the “planetary limits” of production. They argue that the exhaustion of Earth’s resources imposes an absolute barrier to capitalist accumulation.
However, just as in the 15th century, when stressing the limits to economic growth set by the continents then known to Europeans would have been too narrow given the development of ocean-going ships, the concept of “planetary limits” may prove too narrow in the face of space exploration.
Perhaps the further development of space exploration will also make the concept of “planetary limits” too narrow as well.
Nowadays, the claim is often made that, because of the “planetary limits” to production, a society of abundance — described by Marx and Lenin as the higher stage of communism, where people work according to their abilities and receive according to their needs — is impossible. But perhaps we are thinking too small. The wealth and energy available in the solar system should eventually be at the disposal of our descendants, who may find the idea of planetary limits rather quaint.
However, the current drive into space is not motivated by such lofty goals. It is driven by the laws of capital accumulation. As the quality of ore on Earth declines, the organic composition of capital in the extractive industries rises, putting downward pressure on the rate of profit. Capital is therefore compelled to seek new sources of cheap raw materials to counteract this fall.
The opening years of the 21st century have seen the first attempts by ambitious capitalists to exploit space for profit. For example, the U.S. National Aeronautics and Space Administration, an agency of the federal government, is farming out the task of launching satellites into space to private for-profit companies. More ambitious capitalists are forming companies to mine asteroids that are believed to be rich in raw materials, particularly precious metals, including gold.
The theory is that since asteroids have limited mass and thus gravity, heavy metals do not sink to their centers as they do in larger bodies such as Earth or large planetary satellites such as Earth’s moon.
During the 15th century, the European world suffered an acute shortage of money material — silver and gold — as the old mines that had supplied Europe were exhausted. Governments and private entrepreneurs sponsored expeditions to search for new gold and silver mines. They found them in the — previously unknown to Europeans — continents dubbed by the Europeans the “New World.”
Could the history of the 15th century repeat itself? Could the discovery of gold mines located in asteroids make possible a vast new expansion of the quantity of money material, thus making possible the growth of markets for centuries to come?
Here, we are interested only in the question of money material. However, as we saw above from the viewpoint of the ultimate fate of humanity and its communist future, the question of non-money material is of far greater importance. Indeed, under socialist production, neither gold nor any other product will function as money material. But our current interest is with the far narrower problem of how long specifically capitalist production lasts.
It remains to be seen exactly how much gold is available in asteroids. But the big problem is, of course, transportation costs. The cost of transportation counts as part of the value of a commodity. For the foreseeable future, this means that unless the gold in Earth’s crust becomes almost totally depleted, the individual value of gold mined from asteroids, once the transportation costs are taken into account, will be much greater than the individual value of the gold mined from the traditional source.
While it is always risky to make predictions about the evolution of science and technology, it is a pretty good bet that the profitable mining of asteroids for gold is decades in the future — if it ever becomes possible at all during what is left of the lifetime of the capitalist mode of production.
Asteroid mining, even if it were to become technically feasible, would function only as a long-term counter-tendency, not as a realistic means of resolving capitalism’s growing realization problems.
So what would be the effects of “peak gold,” assuming it one day arrives? We have seen what has happened when gold production has experienced temporary declines. Declining gold production has been accompanied or followed by “long waves” of capitalist economic stagnation — severely impaired expanded reproduction, or in the case of the 1930s Great Depression, the complete suspension of expanded capitalist reproduction for some 15 years — first by the Depression and then by World War II, whose coming was certainly accelerated by the Depression.
For example, Hitler almost certainly would not have come to power in the absence of the super-crisis of 1929-32, which hit Germany with such devastating force. In every case up to now, capitalism has not gotten out of such periods of retarded expanded reproduction and soaring unemployment without a very considerable rise in gold production.
After peak gold, gold production would decline, no matter how much commodity prices measured in terms of gold declined. At most, declining commodity prices measured in terms of gold could only periodically slow the decline in gold production. Just like after “peak oil,” no increase in oil prices could increase oil production.
Peak gold would not mean that there would be a permanent crisis of overproduction. After peak gold, the prices of commodities in terms of gold would fall to a much greater extent than before peak gold. This would increase the purchasing power of the existing global gold hoard. And even with declining gold production, the total supply of gold on the world market would continue to increase, though at a slowing rate. The world market would still be able to expand, but at a much slower rate than before peak gold.
Capitalism, therefore, would not “break down” completely. But we would expect the industrial cycles following “peak gold” to be quite different from those we have experienced. For one thing, we know from economic history that periods of temporarily declining gold production have seen a strong rise in unemployment. After peak gold, the tendency for unemployment to rise would also be permanent. It would only be a matter of time before the unemployment situation would become intolerable.
Even if peak gold never arrives, a situation where the value of gold is rising long-term relative to most other commodities is sufficient to imply worsening crises and a permanent tendency toward higher unemployment. Periods of falling commodity prices measured in gold associated with periods of crises and stagnation would lengthen relative to periods of rising commodity prices (in terms of gold), associated with periods of prosperity.
Deeper and deeper crises with ever greater falls in the prices (in terms of gold) of commodities would be necessary before gold production would rise to record levels again. So, even without peak gold, there would be an increasing gap between the ability of the industrial capitalists to produce and their ability to sell commodities at prices that realize the surplus value contained in their commodities.
The consequences would be much the same, though in the latter case, the outcome would unfold over a somewhat longer period than in an actual “peak gold” scenario.
We have already seen that the ability of capitalism to increase production faster than it can expand the world market inevitably leads to the increasing centralization of capital. It is the centralization of capital — the falling of the mass of social capital into ever fewer hands — that, more than any other purely economic factor, works toward the transition to a higher mode of production — socialism. Therefore, any factor that increases the gap between the ability to produce and the ability to sell will tend to hasten the inevitable demise of capitalist production.
Could gold be replaced as a money commodity?
But aren’t we overlooking something? Can’t any commodity, in principle, serve as the universal equivalent? Why wouldn’t capitalism simply find a new universal equivalent — money commodity —that would allow the expansion of the market to resume?
Things aren’t so simple. Gold didn’t become the money commodity because some international monetary conference — like the one held in Bretton Woods, N.H., in 1944 — decided that gold would make a nice money commodity. Gold emerged as the money commodity through a process of “natural selection” over thousands of years. But aren’t there many commodities that have been used as money commodities that are no longer used as money material? Why couldn’t the same thing happen to gold? In theory, there is nothing to prevent gold from sharing the same fate.
Commodities that have served as money commodities and later lost that role have done so because of a dramatic decline in their value, not a dramatic rise. This destroyed their function as a means of accumulation or hoarding because of their rapid devaluation. The most recent example is silver, which functioned as a money commodity alongside gold for thousands of years. If “peak gold” should occur sometime in the future — gold’s value would not decline. Instead, it would start to rise dramatically, and there would be no way to lower its value — or prevent it from continuing to rise.
The same would be true, though to a lesser extent, if deteriorating natural conditions of production caused the value of gold to rise relative to most other commodities, even if total gold production continues to rise.
As a means of hoarding, gold’s function would not be impaired after “peak gold.” Quite the contrary. The higher its value rose — whether absolutely or relative to most other commodities — the less a drop in its value in the future would seem likely — the greater its use value as a means of hoarding exchange value – a means of accumulation – would become. The capitalists — just as would happen if they ran out of labor power in a “Grossman-type” of breakdown — would increasingly act like the misers of old, seeking to maximize their accumulation of gold rather than like capitalists proper who carry out the circuit M — C…P…C’ — M’.
The tendency for at least a relative exhaustion of gold exists because, as the money commodity — though not in respect to its other use values — gold has no substitutes if it becomes relatively more expensive. But there are also counter tendencies that range from the invention of new mining and refining technologies to the eventual development of asteroid mining. Thus, possible technological advances and new sources make its future supply uncertain.
If gold depletion drives up the absolute or at least the relative (to other commodities) value of gold, the decline of capitalism will accelerate. Crises will worsen more rapidly than otherwise would be the case, unemployment will rise, the inequality of the distribution of income will grow at a faster rate, and the labor union struggle, as long as it remains on a reformist basis, will become more difficult, and the growth in the centralization of capital will accelerate. If gold exhaustion does not occur, capitalism will still be doomed, as we will see in the next chapter, but its demise could — depending on the course of the class struggle between the capitalists and the workers — unfold over a somewhat longer period. Or maybe it wouldn’t.
Gold is actually a chemical element on the periodic table. It is possible to produce gold from mercury by bombarding it with neutrons. This leads to a nuclear reaction that transforms some of the mercury into gold. So far, the costs of producing gold this way far exceed the cost of producing gold from mining and refining it. To put things into more precise language, the individual value of a certain weight of gold bullion produced by transforming mercury into gold greatly exceeds the individual value of the same weight of gold produced through mining it and refining it. With today’s technology, it would be completely impossible to produce gold profitability in this way.
However, in theory, if the gold mines of the solar system were to become sufficiently depleted at some point, the future production of gold from mercury would become profitable. It seems unlikely that capitalism will survive into this distant future. Theoretically, if capitalism survived to the point that the large-scale production of gold bullion from mercury became profitable, the rise in the total quantity of gold bullion available to serve as money capital in the world, measured in terms of some unit of weight, would rise in annual percentage terms very slowly compared with the rate of growth of gold today. In theory, the growth of the market would continue, but at a very slow rate. It seems dubious that capitalism could continue under those conditions because it would support only a very slow rate of growth of the market.
It might seem that another commodity replaces gold as the money commodity. That would happen if gold dropped drastically in value, that is, if it became possible to produce a given quantity of gold with drastically less human labor. If gold began to drop sharply in value relative to other commodities, it could no longer serve as a means of the accumulation of human labor.
However, if gold rose sharply in value relative to other commodities, it would make a better and better means of accumulating wealth. Before the rise of the capitalist mode of production, there were many examples of commerce declining whenever there was a local exhaustion of gold and silver mines. Nowhere did we see gold and silver simply replaced by another commodity.
To sum up, the complete exhaustion of the ability of the market to grow will never occur in practice under capitalism. There seems, however, to be good reasons to believe that the ability of the capitalists to increase production relative to the ability of the market to grow will continue to widen over time.
The problem of overproduction, including the growth of idle real capital –overproduction of the means of production – will continue to become more acute. It will take increasingly devastating crises and long periods of lingering depression and stagnation, accompanied by mass unemployment, to keep the overproduction in check. Historians of the future may well conclude that this was the root cause of the working-class revolutions that finally ended capitalism.
But there is even a more fundamental factor that is working to end the rule of capital over production. That will be the subject of the last chapter.
(1) Capital, Volume 1, Chapter Three: Money, Or the Circulation of Commodities. https://www.marxists.org/archive/marx/works/1867-c1/ch03.htm
uer’s Critique of Rosa Luxemburg’s ‘Accumulation of Capital’
In examining cyclical crises, we saw how not only can there be a shortage of monetarily effective demand — this becomes theoretically possible as soon as a separate money commodity emerges — but there must be shortages of monetarily effective demand periodically once the process of capitalist expanded reproduction has developed to a certain point.
Capitalist cyclical crises began to appear once the productive forces had developed to the point that periodic, sudden, rapid increases in production became possible. Such sudden increases in production mean that the capitalists are forced by
the pressure of competition to throw their previously idle hoards of money onto the market. This leads to a speedy rise in monetarily effective demand after a more or less extended period of relative stagnation. There is a sudden market expansion as previously hoarded money is thrown into circulation by the capitalists. Demand then rises even faster than production can be increased, causing prices measured in terms of money material to rise above the actual values, and the prices of production of commodities.
Once the prices of commodities have risen above the values of commodities, the production of money material becomes relatively and absolutely less profitable. The longer this situation continues, the more the production of money material will decline as capital is withdrawn from the industry that produces money material and flows into more profitable branches of production.
A crisis does not break out at this point. Idle hoards of money are drawn into circulation, increasing the velocity of circulation. Banks create more and more loans — and more bank-created credit money — on a narrower and narrower cash reserve. Clearing agreements — especially among banks — mean that cash is only necessary to make the payments that don’t offset one another.
The development of the credit system, clearing agreements, and so on makes it possible to expand the market far beyond what would be possible on a cash basis alone. However, the expansion of credit inevitably reaches a limit. At the end of the day, one piece of money cannot pay two debts at the same time.
Interest rates rise well before this ultimate limit is reached, the profit of enterprise, the sole factor motivating continued capitalist production, declines as more and more of the profit takes the form of interest. The credit system cannot free itself from its cash basis. And cash bases ultimately come down to a gold basis. As the credit system expands relative to its cash and ultimately gold bases, the point will be reached where it cannot be stretched any further. Once this point in the industrial cycle is reached, a crisis of the generalized overproduction of commodities breaks out.
What determines the level of production of money material?
Therefore, the growth in the market is governed in the final analysis by the level of production of money material. No development of the credit system can change this fact. If, by chance, the production of money material grew faster than the level of commodity production, this would sooner or later lead to a powerful economic boom. This boom would inevitably raise the prices of commodities. Higher commodity prices result in a rise in the quantity of money needed to circulate them. At some point, the prices of commodities will rise above the values of commodities, rendering the production of money material increasingly unprofitable. The production of money material will then begin to lag behind the production of commodities.
It will then be only a matter of time before the inflation of the credit system reaches the maximum extent possible and, with it, the whole system of “over-trading” that conceals the overproduction of commodities relative to money material. At that point, credit will vanish, and overproduction will come out into the open as unsold commodities piling up in warehouses.
This is why, though the essence of crises is the generalized relative overproduction of commodities, each crisis appears to begin in the sphere of credit — or sometimes before that in the sphere of currency exchange rates, either with other currencies or with gold.
Since the crisis appears to begin in the sphere of currency or credit, bourgeois economists always attempt to find the “cure” for crises through reforms in the currency and credit systems. This continues today, though the bourgeois economists, after more than 170 years of such reforms, are beginning to run out of ideas!
Overproduction is temporary
However, the generalized overproduction of commodities — the exhaustion of the market — in a cyclical crisis is only temporary. Indeed, a cyclical crisis is nothing but a sudden and forcible halt of the (relative) overproduction – boom – and its replacement by a period of underproduction– depression.
With the outbreak of the crisis, prices measured in terms of money material fall, and the purchasing power of the existing mass of money material expands. In addition, the lower prices of commodities, assuming that the values of both money and commodities remain unchanged, make the production of money material both relatively and absolutely increasingly profitable. The production of money material starts to rise once again.
At first, this increasing production of money piles up in the form of idle bank reserves. The banks are awash in cash, interest rates are low, while stagnation in trade and production reigns. It looks as though stagnation will last forever. But in reality, the material basis for the next “sudden expansion of the market” that will initiate a new vigorous cycle of capitalist expanded reproduction is being laid. This potential sudden expansion of the market becomes an actual sudden expansion once the overproduced commodities and the vast surplus means of producing commodities are either sold off, written down, or physically destroyed by their capitalist owners.
Therefore, the growing mass of money material — gold — forms the material basis of the expansion of the market that Marx indicated was a necessary condition if capitalist production is to continue.
Concrete economic history indicates that money material must be produced in ever greater quantities if the market is to expand at a rate sufficient to prevent a long-term rise in unemployment. At least since 1850, when annual statistical estimates of gold production began, whenever the production of money material — gold — has entered into a period of protracted decline, the capitalist economy has invariably fallen into a period of serious crisis of mass unemployment.
We saw this during the late 19th-century Long Depression and up to the time of this writing, most strongly in the years preceding the super-crisis of 1929-33. It happened again during the decline in gold production in the 1970s, followed by the double-digit unemployment of the early 1980s. And we saw it yet again in the years preceding the Great Recession of 2007-09.
On the “supply side,” capitalism must increase the production of the mass of surplus value embodied in an ever-growing — temporary crises of overproduction excepted — mass of commodities. On the “demand side,” it must increase the much smaller but ever-growing mountain of money material — which also must contain surplus value — that serves as money.
It is often said that capitalism’s thirst for surplus value is unquenchable, which is true, but with this qualification: It is capitalism’s thirst for profit — surplus value realized in money form — that is unquenchable. Capitalism has no interest whatsoever in producing surplus value that cannot be realized in money form — profit. Therefore, the “mountains” of commodities and money — though the money mountain is much lower than the (non-money) commodity mountain — must both grow without limit if capitalist production is to continue.
The two main functions of cyclical crises
In the capitalist system, the cyclical crises of overproduction have not one but two basic functions. The first is to periodically replenish the industrial reserve army of the unemployed and underemployed and the broader surplus population. If the reserve industrial army is too small, the industrial capitalists will not be able to achieve the rising rate of surplus value that is necessary for the survival of the system. If there were no crises, the balance of forces would favor the sellers over the buyers of the surplus value-producing commodity labor power – the workers. Grossman and Mattick well understood this aspect of cyclical crises.
The other major purpose of cyclical crises under capitalist production is to periodically depress the prices of commodities below the values of commodities so that the production of money material is, in the long run, sufficient to ensure that the value and surplus value contained in the growing mass of commodities that capitalism must produce can be realized in the form of money.
The need to realize, not simply produce, surplus value was stressed correctly by Rosa Luxemburg. Where Luxemburg went wrong was that she didn’t understand how surplus value is realized under capitalist production. Luxemburg was led down the wrong path of assuming that the commodities produced by non-capitalist third persons were necessary to realize the ever-growing mass of surplus value in the form of monetary profit.
But the mistake made by Henryk Grossman and Paul Mattick was more basic than Luxemburg’s. They completely overlooked the problem of realizing surplus value, assuming wrongly that if the problem of producing surplus value was solved, the problem of realizing surplus value would automatically be solved as well.
It is important to emphasize that the periodic crises of overproduction became inevitable once capitalism developed its ability to increase production suddenly. It was not because the world was/is running out of gold. Even if we assumed that the quantity of gold in the Earth’s crust is infinite — an obvious material impossibility — periodic capitalist crises of the generalized overproduction of commodities would still be inevitable.
Gold production in the early 21st century
The bourgeois publication National Geographic features an article, “The Real Price of Gold,” by Brook Larmer. Larmer refers to “the Spanish, whose lust for gold … spurred the conquest of the New World.” That was, of course, the period Marx called, with his devastating irony, “the rosy dawn of the era of capitalist production.”
That was in the 16th century. But what about the role of gold production in the ultra-modern capitalism of the 21st century? “Gold is not vital to human existence; it has, in fact, relatively few practical uses,” Larmer writes. Except, of course, for its function as money material — a very “practical use” for vampire-like capitalism, which uses dead labor for the sole purpose of extracting an ever-greater mass of unpaid living labor that must then be realized in money — gold — form.
“Humankind’s feverish attachment to gold,” Larmer complains, “shouldn’t have survived the modern world.” Larmer is, of course, correct here. But he does not explain why “humankind’s feverish attachment to gold” has survived. This is what we have to understand.
The survival of the lust for gold is an inevitable result of the survival of the capitalist mode of production, where highly socialized global labor must be treated as a collection of private individual labors because the product of today’s globalized, socialized labor is appropriated privately by a class of capitalist exploiters.
While our modern bourgeois economists, as well as well-meaning observers like Larmer, can deplore the “irrational” lust for gold, only Marxist economic science can explain it, as well as prescribe the medicine that can cure the gold lust disease, the medicine being a world socialist revolution.
“Every country in the world … has done away with the gold standard,” Larmer observes, “which John Maynard Keynes famously derided as a ‘barbarous relic.’
“But,” Larmer laments, “gold’s luster not only endures … it grows stronger.”
Larmer documents that the modern gold industry is an environmental disaster as well as a devourer of human lives, including the lives of children. Not much has changed since the 16th century in this regard.
“For all its allure, gold’s human and environmental toll has never been so steep,” Larmer reports. “Gold mining … generates more waste per ounce than any other metal,” he explains. “These gashes in the Earth, are so massive they can be seen from space.”
The gold mining industry, Larmer shows, is one of the worst abusers of child labor in the world. Like the god Moloch of ancient times, the gold industry is destroying both the natural environment and the lives of children.
Larmer’s observations about gold’s environmental and human costs captured one dimension of the problem. But an even more fundamental constraint has emerged – a geological one.
But how long can capitalism keep on squeezing ever more of the stuff out of the earth to make sure that the capitalists can continue to realize in the form of profit the increasing mass of surplus value that it must squeeze out of the workers of the world? Even Mother Earth has its limits.
These figures do not by themselves establish the arrival of “peak gold,” but they are consistent with a long-term tendency toward rising difficulty in expanding the production of money material.
In 2025, even with gold prices reaching a record $4,500 per ounce, major mining houses reported that production was falling. Mark Bristow, CEO of Barrick, reported a near 16 percent year-over-year output drop, attributing it to the geological necessity of processing lower-grade ore. Newmont similarly reported a 15 percent decline, confirming that the industry has hit a “geological wall” where even historic financial incentives cannot conjure a new supply, with the earth being pushed beyond its limits.
This supply constraint is rooted in a collapse of discovery. S&P Global Market Intelligence analysis revealed that zero major new gold deposits were discovered in the 2023–2024 period, continuing a decade-long drought. As the industry is forced to rely on depleting reserves from decades-old finds, analysts note that “the elephants—the massive, high-grade deposits that drove past cycles—are gone,” leaving miners to squeeze the last, harder-to-reach ounces from existing pits.
Peak gold?
We have all heard of peak oil. Peak gold would imply a situation where no changes in prices — that is, no fall in commodity prices measured in terms of gold — would be able to increase the production of gold. One of the ways that capitalism has, up to now, been able to pull itself out of successive crises — gold production — would break down. Falling commodity prices in terms of gold have, in the past, led to increased gold production — paving the way for sometimes decades-long periods of declining unemployment. After peak gold, this mechanism would no longer operate.
The period that followed the first severe cyclical economic crisis of the new century was not yet peak gold. Gold production peaked in 1912 at 705 metric tons, in 1940 at 1,310, in 1970 at 1,480, in 2001 at 2,600, and finally reached a plateau of roughly 3,650 metric tons in 2018—a level it has failed to exceed through 2025. But what would happen if peak gold arrives one day?
Like oil, gold is a non-renewable resource. The dust and rocks that consolidated to form Earth 4.6 billion years ago contained only so much gold. Most of the gold, like other “heavy metals,” sank to Earth’s core, where no foreseeable technology can reach it. Convective forces gradually cycle gold from Earth’s interior regions to the crust, but this process is prolonged, working over geological eons, much like oil is gradually produced from dead plants over tens of millions of years.
But why should gold be exhausted before other natural resources? There is one factor tied to gold’s role as money material that does work in this direction. Leaving aside money material, primary commodities function as either raw materials or auxiliary materials. In this role, they almost always have substitutes. As a given primary commodity grows scarcer, its value will rise since the same quantity of labor will produce a smaller quantity of that commodity.
This forced the industrial capitalists to shift to other commodities that could be produced with smaller quantities of labor — in plain language, produced more cheaply. However, gold as money material has no substitutes. Its growing scarcity tends to increase its value relative to other commodities, if not indeed absolutely. But unlike the case of commodities that function primarily as raw or auxiliary materials, this only increases its desirability as a means of accumulation — hoarding.
Capitalists look to outer space for profit
The Monthly Review school and many other observers — some Marxist and some not — have increasingly stressed the “planetary limits” of production. They argue that the exhaustion of Earth’s resources imposes an absolute barrier to capitalist accumulation.
However, just as in the 15th century, when stressing the limits to economic growth set by the continents then known to Europeans would have been too narrow given the development of ocean-going ships, the concept of “planetary limits” may prove too narrow in the face of space exploration.
Perhaps the further development of space exploration will also make the concept of “planetary limits” too narrow as well.
Nowadays, the claim is often made that, because of the “planetary limits” to production, a society of abundance — described by Marx and Lenin as the higher stage of communism, where people work according to their abilities and receive according to their needs — is impossible. But perhaps we are thinking too small. The wealth and energy available in the solar system should eventually be at the disposal of our descendants, who may find the idea of planetary limits rather quaint.
However, the current drive into space is not motivated by such lofty goals. It is driven by the laws of capital accumulation. As the quality of ore on Earth declines, the organic composition of capital in the extractive industries rises, putting downward pressure on the rate of profit. Capital is therefore compelled to seek new sources of cheap raw materials to counteract this fall.
The opening years of the 21st century have seen the first attempts by ambitious capitalists to exploit space for profit. For example, the U.S. National Aeronautics and Space Administration, an agency of the federal government, is farming out the task of launching satellites into space to private for-profit companies. More ambitious capitalists are forming companies to mine asteroids that are believed to be rich in raw materials, particularly precious metals, including gold.
The theory is that since asteroids have limited mass and thus gravity, heavy metals do not sink to their centers as they do in larger bodies such as Earth or large planetary satellites such as Earth’s moon.
During the 15th century, the European world suffered an acute shortage of money material — silver and gold — as the old mines that had supplied Europe were exhausted. Governments and private entrepreneurs sponsored expeditions to search for new gold and silver mines. They found them in the — previously unknown to Europeans — continents dubbed by the Europeans the “New World.”
Could the history of the 15th century repeat itself? Could the discovery of gold mines located in asteroids make possible a vast new expansion of the quantity of money material, thus making possible the growth of markets for centuries to come?
Here, we are interested only in the question of money material. However, as we saw above from the viewpoint of the ultimate fate of humanity and its communist future, the question of non-money material is of far greater importance. Indeed, under socialist production, neither gold nor any other product will function as money material. But our current interest is with the far narrower problem of how long specifically capitalist production lasts.
It remains to be seen exactly how much gold is available in asteroids. But the big problem is, of course, transportation costs. The cost of transportation counts as part of the value of a commodity. For the foreseeable future, this means that unless the gold in Earth’s crust becomes almost totally depleted, the individual value of gold mined from asteroids, once the transportation costs are taken into account, will be much greater than the individual value of the gold mined from the traditional source.
While it is always risky to make predictions about the evolution of science and technology, it is a pretty good bet that the profitable mining of asteroids for gold is decades in the future — if it ever becomes possible at all during what is left of the lifetime of the capitalist mode of production.
Asteroid mining, even if it were to become technically feasible, would function only as a long-term counter-tendency, not as a realistic means of resolving capitalism’s growing realization problems.
So what would be the effects of “peak gold,” assuming it one day arrives? We have seen what has happened when gold production has experienced temporary declines. Declining gold production has been accompanied or followed by “long waves” of capitalist economic stagnation — severely impaired expanded reproduction, or in the case of the 1930s Great Depression, the complete suspension of expanded capitalist reproduction for some 15 years — first by the Depression and then by World War II, whose coming was certainly accelerated by the Depression.
For example, Hitler almost certainly would not have come to power in the absence of the super-crisis of 1929-32, which hit Germany with such devastating force. In every case up to now, capitalism has not gotten out of such periods of retarded expanded reproduction and soaring unemployment without a very considerable rise in gold production.
After peak gold, gold production would decline, no matter how much commodity prices measured in terms of gold declined. At most, declining commodity prices measured in terms of gold could only periodically slow the decline in gold production. Just like after “peak oil,” no increase in oil prices could increase oil production.
Peak gold would not mean that there would be a permanent crisis of overproduction. After peak gold, the prices of commodities in terms of gold would fall to a much greater extent than before peak gold. This would increase the purchasing power of the existing global gold hoard. And even with declining gold production, the total supply of gold on the world market would continue to increase, though at a slowing rate. The world market would still be able to expand, but at a much slower rate than before peak gold.
Capitalism, therefore, would not “break down” completely. But we would expect the industrial cycles following “peak gold” to be quite different from those we have experienced. For one thing, we know from economic history that periods of temporarily declining gold production have seen a strong rise in unemployment. After peak gold, the tendency for unemployment to rise would also be permanent. It would only be a matter of time before the unemployment situation would become intolerable.
Even if peak gold never arrives, a situation where the value of gold is rising long-term relative to most other commodities is sufficient to imply worsening crises and a permanent tendency toward higher unemployment. Periods of falling commodity prices measured in gold associated with periods of crises and stagnation would lengthen relative to periods of rising commodity prices (in terms of gold), associated with periods of prosperity.
Deeper and deeper crises with ever greater falls in the prices (in terms of gold) of commodities would be necessary before gold production would rise to record levels again. So, even without peak gold, there would be an increasing gap between the ability of the industrial capitalists to produce and their ability to sell commodities at prices that realize the surplus value contained in their commodities.
The consequences would be much the same, though in the latter case, the outcome would unfold over a somewhat longer period than in an actual “peak gold” scenario.
We have already seen that the ability of capitalism to increase production faster than it can expand the world market inevitably leads to the increasing centralization of capital. It is the centralization of capital — the falling of the mass of social capital into ever fewer hands — that, more than any other purely economic factor, works toward the transition to a higher mode of production — socialism. Therefore, any factor that increases the gap between the ability to produce and the ability to sell will tend to hasten the inevitable demise of capitalist production.
Could gold be replaced as a money commodity?
But aren’t we overlooking something? Can’t any commodity, in principle, serve as the universal equivalent? Why wouldn’t capitalism simply find a new universal equivalent — money commodity —that would allow the expansion of the market to resume?
Things aren’t so simple. Gold didn’t become the money commodity because some international monetary conference — like the one held in Bretton Woods, N.H., in 1944 — decided that gold would make a nice money commodity. Gold emerged as the money commodity through a process of “natural selection” over thousands of years. But aren’t there many commodities that have been used as money commodities that are no longer used as money material? Why couldn’t the same thing happen to gold? In theory, there is nothing to prevent gold from sharing the same fate.
Commodities that have served as money commodities and later lost that role have done so because of a dramatic decline in their value, not a dramatic rise. This destroyed their function as a means of accumulation or hoarding because of their rapid devaluation. The most recent example is silver, which functioned as a money commodity alongside gold for thousands of years. If “peak gold” should occur sometime in the future — gold’s value would not decline. Instead, it would start to rise dramatically, and there would be no way to lower its value — or prevent it from continuing to rise.
The same would be true, though to a lesser extent, if deteriorating natural conditions of production caused the value of gold to rise relative to most other commodities, even if total gold production continues to rise.
As a means of hoarding, gold’s function would not be impaired after “peak gold.” Quite the contrary. The higher its value rose — whether absolutely or relative to most other commodities — the less a drop in its value in the future would seem likely — the greater its use value as a means of hoarding exchange value – a means of accumulation – would become. The capitalists — just as would happen if they ran out of labor power in a “Grossman-type” of breakdown — would increasingly act like the misers of old, seeking to maximize their accumulation of gold rather than like capitalists proper who carry out the circuit M — C…P…C’ — M’.
The tendency for at least a relative exhaustion of gold exists because, as the money commodity — though not in respect to its other use values — gold has no substitutes if it becomes relatively more expensive. But there are also counter tendencies that range from the invention of new mining and refining technologies to the eventual development of asteroid mining. Thus, possible technological advances and new sources make its future supply uncertain.
If gold depletion drives up the absolute or at least the relative (to other commodities) value of gold, the decline of capitalism will accelerate. Crises will worsen more rapidly than otherwise would be the case, unemployment will rise, the inequality of the distribution of income will grow at a faster rate, and the labor union struggle, as long as it remains on a reformist basis, will become more difficult, and the growth in the centralization of capital will accelerate. If gold exhaustion does not occur, capitalism will still be doomed, as we will see in the next chapter, but its demise could — depending on the course of the class struggle between the capitalists and the workers — unfold over a somewhat longer period. Or maybe it wouldn’t.
Gold is actually a chemical element on the periodic table. It is possible to produce gold from mercury by bombarding it with neutrons. This leads to a nuclear reaction that transforms some of the mercury into gold. So far, the costs of producing gold this way far exceed the cost of producing gold from mining and refining it. To put things into more precise language, the individual value of a certain weight of gold bullion produced by transforming mercury into gold greatly exceeds the individual value of the same weight of gold produced through mining it and refining it. With today’s technology, it would be completely impossible to produce gold profitability in this way.
However, in theory, if the gold mines of the solar system were to become sufficiently depleted at some point, the future production of gold from mercury would become profitable. It seems unlikely that capitalism will survive into this distant future. Theoretically, if capitalism survived to the point that the large-scale production of gold bullion from mercury became profitable, the rise in the total quantity of gold bullion available to serve as money capital in the world, measured in terms of some unit of weight, would rise in annual percentage terms very slowly compared with the rate of growth of gold today. In theory, the growth of the market would continue, but at a very slow rate. It seems dubious that capitalism could continue under those conditions because it would support only a very slow rate of growth of the market.
It might seem that another commodity replaces gold as the money commodity. That would happen if gold dropped drastically in value, that is, if it became possible to produce a given quantity of gold with drastically less human labor. If gold began to drop sharply in value relative to other commodities, it could no longer serve as a means of the accumulation of human labor.
However, if gold rose sharply in value relative to other commodities, it would make a better and better means of accumulating wealth. Before the rise of the capitalist mode of production, there were many examples of commerce declining whenever there was a local exhaustion of gold and silver mines. Nowhere did we see gold and silver simply replaced by another commodity.
To sum up, the complete exhaustion of the ability of the market to grow will never occur in practice under capitalism. There seems, however, to be good reasons to believe that the ability of the capitalists to increase production relative to the ability of the market to grow will continue to widen over time.
The problem of overproduction, including the growth of idle real capital –overproduction of the means of production – will continue to become more acute. It will take increasingly devastating crises and long periods of lingering depression and stagnation, accompanied by mass unemployment, to keep the overproduction in check. Historians of the future may well conclude that this was the root cause of the working-class revolutions that finally ended capitalism.
But there is even a more fundamental factor that is working to end the rule of capital over production. That will be the subject of the last chapter.
(1) Capital, Volume 1, Chapter Three: Money, Or the Circulation of Commodities. https://www.marxists.org/archive/marx/works/1867-c1/ch03.htm
Of all the Social Democrats who criticized Rosa Luxemburg’s “Accumulation of Capital,” the most important contribution was Otto Bauer’s. Bauer was a leader of the Austrian Social Democratic Party and became the party’s top leader in 1918.
To refute the breakdown theory that Rosa Luxemburg presented in her “Accumulation of Capital,” Bauer developed a diagram of expanded capitalist reproduction that, unlike Marx’s, included a rising organic composition of capital, an unchanged rate of surplus value, and, consequently, a falling rate of profit.
Bauer set himself the task of proving that even in the face of a falling rate of profit, expanded reproduction could not only proceed smoothly, but it could do so at an accelerating pace. Given Bauer’s assumptions, an accelerating rate of accumulation — a rising rate of economic growth — is necessary if full employment is to be maintained in the face of the rising organic composition of capital assumed in Bauer’s diagram.
Since Bauer assumed growth in the working population of 5 percent a year and assumed wages remained unchanged in value terms, variable capital also had to grow at 5 percent. Therefore, Bauer assumed that the rate of growth of the social capital as a whole — constant plus variable capital — had to accelerate steadily.
Bauer’s diagram of expanded reproduction did illustrate some of the fundamental laws of motion of the capitalist system that Marx’s diagram did not. Unlike Marx’s diagram, Bauer’s diagram included the rising organic composition of capital, a falling rate of profit, and the faster development of Department I — which produces the means of production — relative to Department II — which produces the means of personal consumption.
Bauer’s diagram, therefore, illustrated the basic laws of motion of the capitalist system that Marx developed only in Volume III of “Capital” and, therefore, according to Marx’s method of presentation, was not taken up in Volume II. Bauer’s diagram of expanded capitalist reproduction illustrates the quantitative growth of the productive forces and their qualitative growth.
Bauer’s economic harmonies
To construct his model of harmonious growth, Bauer established a specific set of baseline assumptions intended to mirror the conditions of a developing capitalist economy:
- Constant Capital Accumulation: Grows at a rate of 10 percent per year.
- Variable Capital Accumulation: Grows at a rate of 5 percent per year.
- Population Growth: The working population grows at 5 percent per year.
- Rate of Surplus Value: Remains unchanged at 100 percent.
Because Bauer assumed the working population grows at 5 percent annually, a corresponding 5 percent accumulation rate for variable capital was strictly necessary to maintain full employment.
As Henryk Grossman explained in “The Law of Accumulation and Breakdown of the Capitalist System,” his 1929 critique of Bauer: “We can see that after ten years the original capital expands from a value of 300,000 to 681,243, or by 227 percent, despite a continuous fall in the rate of profit.”
He continued: “In the second decade, the rate of expansion of capital amounts to 236 percent, although the rate of profit falls even further from 24.7 to 16.4 percent. Finally in the third decade the accumulation of capital proceeds still faster, with a decennial increase of 243 percent, when the rate of profit is even lower. So Bauer’s scheme is a case of a declining rate of profit coupled with accelerated accumulation.”
Grossman explained that Bauer assumed “a productive mechanism in which constant capital amounts to 200,000 and variable capital to 100,000.”
He continued: “The other assumptions are that: 120,000 of this constant capital is apportioned to Department I (means of production) and 80,000 to Department II (means of consumption); that the variable capital is equally divided between both spheres; that the constant capital expands by 10 percent a year and the variable capital by 5 percent; that the rate of surplus value is 100 percent and that in any given year the rate of accumulation is equal in the two departments.”
But how can the rate of capitalist expanded reproduction — capital accumulation — be maintained and indeed increased sufficiently to maintain full employment in the face of growing “automation,” while the rate of profit is progressively declining? Shouldn’t the rate of accumulation fall with the rate of profit? And if it does, won’t the rate of the accumulation of variable capital fall below the rate of growth of the working population? And won’t this lead to rising unemployment — not full employment?
Like Marx, Bauer brought his diagrams forward only four years. During those four years, Bauer’s calculations show that if the capitalists consume a smaller percentage of the total surplus value unproductively — spending relatively less on items of personal consumption, they cannot only maintain a rate of accumulation sufficient to maintain full employment but they get to consume as a class — not necessarily as individuals, that will depend on the growth of the population of capitalists — more items of personal consumption in terms of value. Since labor productivity is rising rapidly, this will translate into a still greater quantity of use values consumed by the capitalists.
As for the workers’ standard of living, the rate of surplus value is held at 100 percent throughout the four years that Bauer extends his diagram. In terms of value, the wages of the workers remain constant. But in terms of use values, a steady rise in real wages is implied. In other words, the workers get to consume an unchanging amount of value every year, but with a higher productivity of labor, the same amount of value means a rise in the real wages of the workers. In Bauer’s diagram, just like the capitalist economic journalists and economists like to explain, the workers’ real wages rise as labor productivity rises. The faster the productivity of labor grows, the faster the growth in real wages will be.
So, despite the fall in the rate of profit, the standards of living of both the capitalists and the workers keep rising. The only difference implied between the growth of the living standards of the two classes is that while the living standard of the workers increases in proportion to labor productivity, the living standard of the individual capitalist will grow at a somewhat slower rate, assuming the population of the capitalists grows at the same rate as the workers. The difference between the living standards of the workers and those of the capitalists will, therefore, gradually narrow over time.
Therefore, Bauer’s model implies that class antagonisms should gradually soften as capitalism develops. This is the same conclusion that the bourgeois marginalist economists, including Keynes, arrived at. The difference is that Bauer drew these conclusions on the basis not of marginalism but Marx’s critique of classical political economy!
Henryk Grossman described Bauer as a “neo-harmonist,” since both capitalists and workers benefit from capitalist development, with the workers benefiting even more than the capitalists in terms of the growth in the standard of living.
Rosa Luxemburg’s reaction to Bauer’s diagram
“If capitalist production can act limitlessly as its own consumer, i.e. production and market are identical,” Luxemburg explained in her “Anti-Critique,” “it becomes totally impossible to explain the periodic appearance of crises.”
She continued: “This would mean rejecting Marx and finally ending up with the man whom Marx ridiculed so thoroughly — the ‘wretched man’ Say, who in 1803 propounded the dogma: It is absurd to say that too much of all commodities can be produced, there can only be partial crises, but no general ones: if for this reason a country has too much of one kind of product, that only proves that it has produced too little of some other kind.”
Luxemburg is right here. The spirit of Say’s Law does indeed completely saturate Bauer’s diagram. Of course, Bauer might have claimed that his diagram abstracts crises and that the whole problem of crises must be examined at a lower level of abstraction. This is no doubt what Marx would have said about his own diagram of expanded reproduction, which, unlike Bauer’s abstracts, shows both the rising organic composition of capital and the falling rate of profit.
However, Bauer implicitly accepted Say’s Law in a much more fundamental way. By constructing a model where accumulation adjusts seamlessly to population growth, Bauer assumes that supply creates its own demand, ignoring the realization problem entirely.
“Capitalist accumulation” in Bauer’s diagram, Rosa Luxemburg claimed, “becomes objectively limitless once capitalist production has built a sufficient market for itself. As production will still grow, i.e. the productive forces will develop without limit [emphasis added -SW], even when all mankind is divided into capitalists and proletarians, as there is no end to the economic development of capitalism, the one specifically Marxist foundation crumbles.”
Luxemburg continued, “According to Marx, the rebellion of the workers, the class struggle, is only the ideological reflection of the objective historical necessity of socialism, resulting from the objective impossibility of capitalism at a certain economic stage [emphasis added -SW].”
Luxemburg appealed here to basic principles of historical materialism against Bauer. If capitalism in no way limits the development of the forces of production — and this is indeed what Bauer’s diagram of expanded reproduction appears to demonstrate — then the capitalist mode of production is, in Marxist terms, an absolute mode of production. It will last as long as human society lasts. If we accept these conclusions, any idea of a society beyond capitalism, any idea of socialism, is a utopia.
Remember, in Bauer, there is neither an absolute nor a relative impoverishment of the workers. If Bauer’s diagram presents an accurate picture of real-life capitalism — and we assume that the basic principles of historical materialism of Marx and Engels are also true — we can expect an endless and fruitful struggle for reforms as capitalist development proceeds, but hardly a socialist revolution. As Bernstein put it, the movement is everything and the goal nothing. (1)
Or as Samuel Gompers, the founder of the American Federation of Labor, put it even more crudely, the slogan of the workers’ movement is reduced to “More!” — ever higher real wages that buy ever more use values. (2)
The only task left to the organized workers’ movement — both party and labor union — will be to ensure the surplus value rate does not rise above 100 percent. And considering capitalism’s powerful tendency toward “full employment” that Bauer’s diagrams seem to demonstrate, this task should be well within the power of the labor unions.
Bauer’s diagrams seemed to present a picture of complete capitalist harmony — both between the classes as well as between the growing forces of production and the capitalist relations of production — that rivaled the harmonies of bourgeois marginalism. This is why Henryk Grossman described Bauer’s model as “neo-harmonist.”
Bauer on cyclical crises
But even Bauer could not deny that cyclical crises occur. What was Bauer’s theory of cyclical crises? His theory fit right in with his overall picture of capitalist harmony. According to Bauer, the accumulation rate adjusts itself to population growth through the movements of the industrial cycle.
Therefore, the tendency towards full employment in Bauer is built right into his model, just like it is built into the foundations of the marginalist model, though the model allows cyclical deviations from full employment.
Bauer wrote in his Accumulation of Capital:
“Like underaccumulation, overaccumulation is also generated again and again by the mechanism of the capitalist mode of production itself. There exists in the capitalist mode of production a tendency for the adjustment of capital accumulation to the growth of population. This adjustment has occurred as soon as variable capital grows at the same rate as the work force, but constant capital grows faster, to an extent required by the development of productivity. In a socialist society, the social organs responsible for the control of production would ensure, consciously and according to a plan, that the growth of population is provided for. This adjustment must also occur in capitalist society, but here it can take place only by means of great crises, with unemployment, wage reductions, and increasing exploitation on the one hand, and unemployment of capital, destruction of values, and a declining rate of profit on the other.
“The tendency for accumulation to adjust to population growth also dominates international relations. Each year, countries with continuous overaccumulation invest a large and growing part of their accumulated surplus value overseas. Examples: France and England. Countries with continuous underaccumulation attract capital from abroad and send labour overseas. Examples: the agrarian countries of Eastern Europe. The expansion of productive capital within a country itself is always restricted by the available workforce. In the long run, variable capital can grow no faster than the population, while constant capital always grows faster than variable to a degree determined by the stage of development of the forces of production. Thus, one can appreciate the anxiety of the capitalists over the declining birth rate: decelerating population growth narrows the limits to the growth of their capital.
“Viewing the capitalist world economy as a whole, the tendency for accumulation to adjust to population growth is apparent in the industrial cycle. Prosperity is overaccumulation, which destroys itself in the crisis. The ensuing depression is a time of underaccumulation which also brings itself to an end, inasmuch as the depression itself produces the conditions for renewed prosperity. The periodic alternation of prosperity, crisis, and depression is the empirical expression of the fact that the mechanism of the capitalist mode of production automatically generates overaccumulation and underaccumulation, with the accumulation of capital adjusting again and again to the growth of population.”
If Bauer is correct, cyclical crises don’t break out because the market is glutted — commodities cannot find buyers — but rather because the capitalist system periodically demands more of the commodity labor power — the commodity that alone produces surplus value — than is available on the labor market. This and not the need to sell the commodities — find markets for them — at a profit, as Engels put it in “Socialism Utopian and Scientific” — is the barrier that capitalism periodically runs into.
According to Bauer’s theory, during the boom, the process of expanded reproduction develops with a vigor greater than can be sustained in the long run by the given rate of growth of the working population. Every industrial cycle ends with what Marx called in Volume III of “Capital” an absolute overproduction of capital, not a relative overproduction of commodities.
During the cyclical crisis, reproduction falls below the level that the growth in population will allow over the long run. This “compensates” for the boom when expanded reproduction proceeds temporarily faster than the population growth will allow over the long run. Averaging out the faster-than-sustainable growth of the “boom” — determined by the rate of growth of the working population — with the slower-than-sustainable growth of the depression, you get exactly the rate of economic growth that the growth of the population will allow over each industrial cycle.
If the rate of growth of the working population accelerates, capitalist economic growth will duly accommodate it, and enough extra jobs will always be created to maintain full employment in the long run. If the rate of growth of the working population slows down, so will the rate of economic growth. But in all cases, the rate of economic growth under capitalism will always be — leaving aside short-term cyclical deviations — adequate to maintain “full employment.” Milton Friedman himself couldn’t have provided a prettier picture of capitalist harmony.
The difference between absolute and relative overproduction
What did Marx mean when he referred to the relative overproduction of commodities in cyclical crises, as opposed to absolute overproduction in a hypothetical situation he examined in volume III of “Capital”? In a relative overproduction, the production of commodities does not exceed the need for material use values of the total population. On the contrary, Marx emphasized, in terms of the needs of the great mass of the population, that there is always underproduction under capitalism, never overproduction. The result is mass poverty as basic human needs go unmet.
If, during a crisis of overproduction, capitalism were overthrown and replaced by socialist production, it would immediately become apparent that there is a shortage of material use values, not an overproduction of them. Indeed, the planned economies of the Soviet Union and its allies were plagued not by crises of overproduction but by a chronic “goods famine,” a shortage of material use values.
But, according to Bauer, in contrast to Marx and Engels, a cyclical crisis develops not because there is a relative overproduction of commodities but when the demand for the commodity labor power exceeds the supply. In plain language, a cyclical crisis erupts because of a labor shortage. The industrial capitalists cannot find additional labor power to increase production further.
Let’s imagine an economy plagued by just such a labor shortage — which is, therefore, on the eve of a cyclical crisis if we follow Bauer’s theory. Let’s assume, as a thought experiment, that a socialist revolution occurs and capitalist production is replaced by socialist production. Would the labor shortage disappear? Assuming the forces of production remain unchanged — which would have to be the case in the “short run,” as Keynes would say — the answer will be no. In Marx, during a cyclical crisis, capitalism runs into a barrier peculiar to the capitalist mode of production but not production in general: the relative overproduction of commodities.
In Bauer, in contrast, during a cyclical crisis, capitalism runs into a barrier that would be a barrier to any economy, especially a socialist economy that aims to satisfy the material needs of all members of society.
In contrast to Bauer, Rosa Luxemburg understood correctly that capitalism has a built-in tendency toward the relative — not absolute — overproduction of commodities and, therefore, toward the relative overproduction — not absolute overproduction— of (real) capital. Luxemburg’s mistake was that she couldn’t explain why a relative overproduction must appear periodically once capitalism has developed to a certain point. She was led down the wrong path when she tried to explain capitalism’s tendency toward relative overproduction of both (real) capital and commodities by an inherent inability to fully realize the entire surplus value in a pure capitalist economy consisting only of capitalists and workers.
Grossman on the contradictions of Bauer’s diagram
In the following paragraphs, I only examine Grossman’s theories in his 1929 work “Law of the Accumulation and Breakdown” and not in any of his other works. In his diagram of expanded capitalist reproduction, Marx only extended his model for four years. In reality, Marx only needed to extend his diagram to the second year. Marx’s model runs forever, quantitatively increasing while remaining qualitatively unchanging. This is a basic mathematical attribute of Marx’s diagrams of expanded capitalist reproduction that arises from Marx’s basic assumptions and abstractions when he designed his diagrams.
But is this the case with Bauer’s diagram? Not at all. Bauer perhaps thought it was since he brought his model forward for only four years, like Marx. But four years aren’t forever. How long could Bauer’s model run if we used the assumptions Bauer used when he designed the model? It fell to Henryk Grossman to do the math. He demonstrated that by the 36th year, Bauer’s model breaks down mathematically! This is true even if, with Bauer, we tactically accept Say’s Law — as Grossman indeed did.
Because of his basic assumptions, Bauer’s model has very different mathematical attributes than Marx’s model of expanded capitalist reproduction. Bauer had the rate of profit decline steadily, though the absolute mass of profit rose. The capitalists, therefore, have to invest more and more of their profits productively to maintain the accumulation rate necessary to maintain full employment. In other words, they must consume relatively an ever lower percentage of the surplus value in the form of items of personal consumption.
The core problem Grossman exposed is this: The cost of the new machines required to employ the growing population eventually exceeds the total profit produced by that population.
The capitalists can never invest — consume productively — more than 100 percent of the total surplus value. If the rate of profit is 30 percent, the rate of accumulation cannot be higher than 30 percent, even if the capitalists “live on air” and capitalize their entire surplus value.
If the rate of profit falls to 20 percent, the maximum accumulation rate can be at most 20 percent. If the rate of profit falls to 10 percent, then the maximum possible rate of accumulation falls to 10 percent — assuming the capitalists direct none of the surplus value to personal consumption. In reality — even thrifty capitalists have to eat now and then, after all — the consumption rate must be less than 10 percent.
Therefore, the rate of investment and, thus, full employment can be maintained in the face of a fall in the overall rate of profit only for a limited time. Eventually, the fall in the rate of profit must lead to a fall in the rate of investment and, assuming an unchanged rate of population growth, the appearance of unemployment. The harmonies of Bauer’s diagram come to an end or, to use Grossman’s favored expression, result in a “breakdown.”
Using Bauer’s assumptions, Grossman showed that by the 36th year, the rate of profit fell to 8.7 percent. There is simply not enough total surplus value — profit — even if the personal consumption of the capitalists has fallen to below zero — if that were possible — to maintain full employment without increasing the rate of surplus value.
Indeed, in terms of value — hours of abstract human labor — capitalist consumption cannot increase after the 20th year. It might continue to increase in terms of use values for some time beyond that due to the rise in labor productivity. But eventually, to maintain full employment, it must drop to zero in terms of hours of abstract human labor.
And no matter how much the productivity of labor increases — unless the productive forces grow to such an extent that no labor is needed at all (but then how are we going to produce surplus value, which is the only aim of the system?) zero hours of abstract human labor translate into zero material use values. By year 35, the capitalists must learn how to live on air to maintain Bauer’s harmonies. After that, even if the capitalists have learned how to live on air, it will be impossible to maintain full employment and keep the rate of surplus value at “only” 100 percent.
Either unemployment keeps growing progressively, or the rate of surplus value must rise. This will be all the more so if we assume that the capitalists must spend some of their profits on personal consumption if they are to live!
Some common objections to Grossman’s demonstration
Naturally, Grossman’s model of capitalist “breakdown” — actually Bauer’s model extended to the year 36 — brought a wave of objections, just like Luxemburg’s earlier work had. One objection was that Grossman made completely unrealistic assumptions about the rise in the organic composition of capital. For example, Grossman has the constant capital grow twice as fast as the variable capital to have the model “break down” as early as year 36. But in the real world, constant capital doesn’t grow at anywhere near that rate. But the figures are Bauer’s, not Grossman’s. This criticism should be addressed to Bauer, not Grossman.
Another objection is that Grossman has the capitalists starve to death beginning in the 35th year! The absolute impoverishment of the capitalist class — not the working class — causes capitalism to collapse. Logically, then, it should be the capitalist class that rises in revolution against capitalism, not the working class, which is doing quite well up to this point.
But again, the fault for this lies with Bauer, not Grossman — he is only following the logic of Bauer’s diagram. Grossman has simply carried out Bauer’s assumption that the difference in consumption levels between capitalists and workers narrows as capitalism develops to its logical mathematical limit. In the end, if we follow Bauer’s assumptions, the workers get to consume all the items of personal consumption produced, and the capitalists get to consume none.
What Grossman demonstrated was that in Bauer’s “neo-harmonist” model, it is the capitalists who will suffer absolute impoverishment and eventually will face starvation and death. Presumably, then, it will be the capitalists who will turn against the capitalist system, who end up consuming none of the means of personal consumption that are produced. The natural political conclusion is that it will be the capitalists who will support a transition toward socialism.
If Bauer’s model reflected even remotely capitalist reality, the way to socialism lies not through class struggle but through class collaboration. The actual class-collaborationist practice of Bauer’s Austrian Social Democratic Party was indeed in accord with his economic model. Unfortunately for Bauer and his Social Democrats, the Austrian capitalist class failed to grasp the conclusions that flow from Bauer’s “neo-harmonist” model.
In the real world, the capitalist class will never allow itself to starve to death. Long before the capitalists starve, they will reduce the level of accumulation and use the resulting unemployment to raise the rate of surplus value far above 100 percent. Unlike Bauer, Marx believed that the rate of surplus value would rise over time and that no action of the trade unions could prevent it.
This was one law of motion discovered by Marx that Bauer did not build into his model. The result was the absurdities that Grossman unearthed simply by extending Bauer’s model to the 36th year.
Nor is there any need to assume “full employment” in analyzing the laws of the capitalist system unless we are trying to picture capitalism as a system of harmony in the manner of the vulgar bourgeois economists. Bauer and the bourgeois economists notwithstanding, under capitalism, unemployment is an absolute necessity, even if the extent of unemployment fluctuates with the successive phases of the industrial cycle.
What Grossman proved was that, unwittingly, Bauer built a model that is not harmonious at all. Economists and “vulgar socialists” like Otto Bauer may lie — or perhaps deceive themselves — but mathematics does not. Once Grossman brought out its real implications, Bauer’s model is powerful enough that even though its creator designed it to show harmony, it proved the exact opposite.
Did Grossman prove that capitalism must collapse at a certain point?
But does Grossman demonstrate that capitalism will become economically impossible at a certain point? Did Grossman — or more properly Bauer — build a mathematical model of the final breakdown of capitalist production beyond which its continued existence becomes mathematically impossible? Didn’t Grossman simply demonstrate the absurdities of Bauer’s “neo-harmonist” claims? After all, didn’t Grossman show that even accepting Bauer’s claims, capitalism tends not toward full employment but towards a rise in the unemployed and must, in the long run, increase the rate of surplus value if it is to survive?
But is this a final breakdown of capitalism? Doesn’t unemployment — the reserve industrial army — and a rising rate of surplus value — with some fluctuations — mark the entire history of capitalism?
Before we examine this question, I want to mention some genuine weaknesses in Grossman’s 1929 “Law of the Accumulation and Breakdown.”
Grossman’s mistakes in method
While Rosa Luxemburg made the mistake of claiming it would be impossible, even in theory, to fully realize the surplus value needed for expanded reproduction in a pure capitalist economy, Grossman made the bigger mistake of not seeing the realization of surplus value and value in general as any problem at all for capitalist production as long as a sufficient mass of surplus value is produced.
In his analysis of cyclical crises, Grossman assumed that commodities sell at their values. Grossman said that this was Marx’s method in analyzing the production of surplus value and simple and expanded reproduction in volume II of “Capital.” Though he greatly emphasizes Marx’s method, Grossman makes grave methodical errors. He doesn’t seem to have understood Marx’s method.
Marx showed that to explain surplus value — the most important task in all of economic science — it was necessary to strip capitalism naked by assuming that all commodities sell at their values. The transformation of values into prices of production completely obscures this. Once the transformation of values into prices of production occurs, the fact that surplus value is created by the living labor of the workers alone is completely obscured. It appears that both constant and variable capital produce surplus value equally. This was the starting point of the reaction against Ricardo’s theory of labor value and the vulgar economics that followed.
Bringing in market prices that fluctuate around production prices would only further obscure the real origins of surplus value. To analyze market prices, it is necessary to analyze supply and demand as well as competition. None of this does anything to clarify the origins or the nature of surplus value; it only further obscures it. In analyzing the origins of surplus value, it is necessary to assume that supply and demand — the competition between the capitalists and between the capitalists and workers, and the competition between the workers themselves — cancel themselves out. The only way to proceed is to assume that all prices are direct prices.
Reproduction, both simple and expanded, can also best be analyzed by sticking to the assumption that prices equal values or direct prices. Bringing in production prices, let alone market prices, only confuses the essence of reproduction, whether simple or expanded. Again, it is better to examine capitalism without its “clothes” of market prices fluctuating around prices of production.
That is why Marx put his analysis of simple and expanded reproduction in volume II of “Capital,” where he maintained his assumption that prices equal direct prices, and not in volume III, where he analyzed the rise in the organic composition of capital, the tendency of the rate of profit to fall, and the transformation of values — or direct prices — into prices of production.
But things are different with crises of the generalized overproduction of commodities. These periodic capitalist crises are characterized precisely by the fact that supply exceeds demand for the vast majority of commodities at the same time. How does such a situation arise, and why is the periodic recurrence not only possible but inevitable? Any realistic and complete crisis theory must deal with and explain these things. If we abstract supply and demand — the competition between buyers and sellers of commodities — we would abstract the subject of our study. This is an improper use of the method of abstraction — what Marx called a violent abstraction.
Grossman’s wrong theory of cyclical crises
Grossman’s theory of cyclical crises was derived from his — or rather Bauer’s — diagram of expanded reproduction. As the organic composition of capital rises and the rate of profit declines, the point must be reached where not enough surplus value is produced to prevent a substantial rise in unemployment. Long before the capitalists were forced to live on air, investment declined because insufficient surplus value was being produced.
As capitalist investment declines, the demand for the commodities Department I produces drops. This causes the appearance of overproduction in Department I, which then reacts on Department II as the personal consumption of both the capitalists and workers in Department I is cut back. In Grossman, a crisis of the insufficient production of surplus value is the cause of overproduction, not the relative overproduction of commodities.
According to Grossman, because the production of surplus value is too low to maintain expanded capitalist reproduction, the capitalists are forced to attack the workers’ living standards. The way out of the crisis is either the overthrow of the capitalist system, which has “broken down,” relative to its Bauerian harmonies, by the workers — and of course, this is what Grossman himself desired — or the capitalists succeed in increasing the rate of surplus value sufficiently and capitalist expanded reproduction starts up again.
According to Grossman’s theory of crisis, once the rate of surplus value is increased sufficiently, the crisis ends, though a new crisis and “breakdown” — again relative to Bauerian harmonies — is inevitable as the rise in the organic composition of capital and the fall in the rate of profit resume.
The periodic relative overproduction of commodities, which to Marx and Engels was the cause of the periodic capitalist crises, is not the cause of the crisis in Grossman any more than it was the cause for Bauer. Rather, for Grossman, it is the inevitable breakdown of the “Bauerian equilibrium” rooted in the rising organic composition of capital that is the cause of the periodic cyclical crises of capitalism.
Political dangers in Grossman’s theory
If Grossman’s theory of cyclical crises is correct, it would mean that capitalist crises can be shortened or even avoided if only the workers are willing to put up with a greater degree of exploitation. Since cyclical crises, according to Grossman, are caused only by an insufficient production of surplus value, the solution of the crisis — assuming capitalism is to be retained — is for the workers to practice “wage restraint,” which allows profits to rise once again, leading to economic recovery. This is exactly the conclusion that the marginalists draw.
If Grossman’s theory were to be widely accepted in the workers’ movement, this would play into the hands of the bosses and their hired-gun economists, who, on the occasion of every crisis, tell the workers they have to accept massive wage cuts if the crisis is to be overcome and “full employment” restored. In the name of restoring “full employment,” the bourgeois economists explain to the workers — but never to the bosses — that they must tighten their belts and sacrifice. But this is nonsense if the essence of cyclical capitalist crises is the relative generalized overproduction of commodities. No “sacrifice” on the part of the workers can avoid or even shorten these inevitable periodic capitalist crises.
No matter how successful the capitalists are in increasing the rate of surplus value, the overproduced commodities — both in the form of commodity capital (inventories) but also in the form of fixed capital — must be either sold off at prices that are more or less below their values, or, in the case of fixed capital, written down or destroyed altogether. This is the process that must occur, as Engels points out in “Socialism Utopian and Scientific,” before recovery can begin.
Grossman’s real breakdown theory
Now I will return to whether there is a real breakdown theory at all in Grossman. Or is there simply a theory — a largely incorrect one at that — of periodic capitalist crises? DidGrossman believe that capitalism, even with its periodic crises caused by the rising organic composition of capital and falling rate of profit, could continue forever, or at least until the “sun burns out,” as Luxemburg put it?
The answer is no. Or rather, it is yes only if we assume that the population can increase without limit forever. This assumption is incompatible with materialism or the laws of physics, not to speak of the laws of biology.
In volume III of “Capital,” Marx gives an illustration of a hypothetical economic crisis based on the absolute overproduction of capital. Here, many Marxists, including Grossman, have made what I believe is the mistake of assuming that Marx was illustrating a more or less typical cyclical crisis. I don’t believe that this was Marx’s intention.
For one thing, the examination of cyclical crises according to Marx’s plan lay beyond “Capital” in a book — which Marx unfortunately never got to write — that would deal with competition, the world market, and world trade and crises.
In Marx’s hypothetical crisis in Volume III, the cause of the crisis is an absolute overproduction of capital, not a relative overproduction of commodities. Marx’s capitalists have gotten into quite a jam because they have temporarily run out of labor power. As a result, no investment increase can increase surplus value production. Indeed, the competition among the capitalists for the existing labor power only reduces the rate of surplus value and, therefore, actually reduces the production of surplus value further.
The absolute contraction of profits — not only the fall in the rate of profit — causes production to collapse and unemployment to soar! We have the paradoxical situation of mass unemployment caused by a labor shortage. Without an increase in population, any attempt by the capitalists to resume expanded capitalist reproduction will simply cause the crisis to erupt anew.
The only way Marx’s capitalists get out of the jam they find themselves in is through the continued population growth that Marx, in Volume III of “Capital,” is kind enough to provide.
But what would happen if the total population and the “proletarianization” of the population reached the maximum extent possible? If we make these assumptions, our capitalists will have no way out.
Once the maximum number of workers that can be employed is employed, a further rise in surplus value is only possible through the rise in the rate of exploitation — the rate of surplus value. But wouldn’t the economic crisis caused by the absolute overproduction of capital enable the capitalists to increase the rate of surplus value and squeeze more surplus value out of the existing workers?
For the sake of argument, let’s assume this is true. But now, there will be an absolute mathematical limit beyond which the mass of surplus value can never rise.
The workday cannot be extended beyond 24 hours, nor can the amount of surplus value produced by each worker in a 24-hour day ever exceed 24 hours. Even if the workers lived on air and worked 24/7, the amount of surplus value will reach an absolute mathematical limit beyond which it cannot be increased.
The real limits of surplus value production will be considerably less because the human organism needs some rest first. About 17 or 18 hours per day seems to be the physiological limit for the expansion of the workday, and of course, wages cannot be reduced to zero. Just as Grossman’s — or rather Bauer’s — capitalists cannot live on air, neither can the workers. And here — completely unrealistically — I am leaving out any resistance of the workers to the capitalists’ attempts to increase the exploitation rate to the absolute mathematical limit.
So, at some point, in light of the limits that the material world places on the growth of the human population and consequently on the production of surplus value, capitalist production must break down — not just temporarily but for good. It is a historically limited process that had a beginning and must sooner or later come to an end.
A capitalist limit to production
It is important to realize that we, or rather Marx in Volume III of “Capital,” described a capitalist limit, not an absolute limit to production. A socialist economy might well be able to continue to increase production beyond the point where the total number of workers has stopped growing by introducing more machines and taking other measures to increase labor productivity.
But this would not do the capitalists any good. The growing mass of material use values in capitalist production is only a by-product. The real purpose of capitalist production is to increase the mass of surplus value — unpaid labor.
Capitalist production aims to reduce to a minimum the paid labor that is necessary to produce a commodity, but increase as much as possible the unpaid labor — the surplus value — that the commodities labor produces contain. Under socialist production, the aim is to reduce to a minimum the amount of the total labor that is used to produce the product.
Therefore, once it is no longer possible to increase the mass of surplus value any further — which is inevitable at some point thanks to the restraints of the material world we live in — capitalism must come to an end. This is no temporary cyclical crisis; capitalism breaks down for good.
Grossman’s breakdown theory — which is fully valid despite his mistakes in his theory of cyclical crises — is, therefore, quite enough to establish the historically limited nature of the capitalist mode of production. It can only exist during the period — which extends over a certain number of centuries — when it is possible to increase the mass of surplus value rapidly. A necessary, if not sufficient, condition for this is a rapidly increasing population.
Once the population is — for whatever reason — no longer growing, the days of capitalism are numbered.
Grossman wrote in 1929, “Today bourgeois writers, in both France and Germany are concerned about whether the future accumulation of capital will find adequate reserves of labour power at its disposal. The modern bourgeois economist is characterized by his dread of underpopulation.”
Grossman correctly sees that “underpopulation” — relative to the need of capitalism to expand the total mass of surplus value to the point of infinity — must, in our material world, lead to the permanent breakdown of capitalism sooner or later.
But — remember, Grossman was writing in 1929 — was capitalism anywhere near this limit beyond which capitalism does indeed become simply impossible?
Grossman tried to argue in 1929 that capitalism was approaching the limit of its ability to increase the mass of the surplus value that it was wringing out of the workers, beyond which it became impossible. But here, his arguments sound more than a little forced.
Grossman wrote, “It might be argued, that the threat [of “underpopulation” -SW] is not too serious because there are still hundreds of millions of people in the enormous continents of Asia and Africa who could satisfy capital’s insatiable appetite for labour.”
Clearly, Grossman feels uneasy here. The breakdown of capitalism is inevitable, but perhaps not for quite some time. “But the point,” Grossman goes on, “is not whether there are large masses of people in this or that part of the world, but whether they are available where capitalism needs them.”
But even if they weren’t, capital is quite capable of going where the workers are. By the end of the 20th century, capital was indeed penetrating deep into the heart of the Asian continent, where the great mass of the remaining actual and potential producers of surplus value is to be found.
Since Grossman wrote, the population of Asia has grown enormously, and Grossman’s plea that the potential workers are not “where capitalism needs them” is quite unconvincing. If the workers that capital needs to produce more surplus value “are not where capital needs them,” capital will either bring them to where it needs them — immigration — or it will go to them.
In practice, the limits of capitalism in Grossman might not be that much different than the absolute limit of capitalism that Rosa Luxemburg unsuccessfully sought to establish in her own work. Capitalism will be at the point of becoming economically impossible around the time that capital has fully conquered all of the world’s production and has consequently drawn the entire global working population into capitalist production.
A secondary criticism that was made of Luxemburg can, therefore, be made of Grossman as well. Considering the great number of peasants in the world’s population — more so in Luxemburg’s and Grossman’s time than is the case in the early 21st century when this is being written — who have not yet been drawn into capitalist production, the end of capitalism is still some distance into the future — even from an early 21st-century perspective.
Historically, proletarians have always been recruited primarily from the peasantry, who are used to a low standard of living and well adapted to hard physical labor. Once the mass of peasants or small farmers has been exhausted, it becomes much more difficult to increase the size of the surplus value-producing working class.
Even in the early 21st century, there are still more than a billion peasants who are potential surplus value producers in China and India, and there are considerable possibilities for increasing the number of surplus value producers on the African continent. But what will happen when these peasants have been fully separated from their means of production — assuming, of course, that capitalist production continues to expand in these two countries and in Africa, where the process is still in an early stage?
Rosa Luxemburg pointed out in the “Anti-Critique” some 100 years ago, that once a country has become largely capitalist as opposed to pre-capitalist peasant, the rate of population growth always slows down. Women are less and less inclined to function as the baby-creating machines they are obliged to be in peasant societies. This is especially true in this age of birth control. Indeed, a strong case can be made that the ancient slave economy of the Roman Empire ultimately came to an end because it was impossible to keep increasing the quantity of slaves. Could capitalism share a similar fate?
We can see that a breakdown theory based on the impossibility of an endless growth in population need not rely on the population theories of Malthus. According to Malthus, any increase in the means of subsistence will mean a corresponding increase in the human population since people could hardly expect to restrain their sexual instincts. Two thousand years of Christian preaching against “sexual immorality” had scant results in this regard! Today, this argument seems quaint when the seeking of sexual pleasure has been almost entirely separated from human reproduction.
Indeed, the population of virtually all the imperialist countries except for the United States is declining. The only reason the population is still increasing in the United States is the high level of immigration. If we discount the growth due to immigration, the population is declining in the United States as well. It may well be that the size of the human population will be limited by quite different factors than the maximum human population that Earth — and the rest of the solar system — can physically maintain.
Nowadays, the force pushing in the direction of turning our beautiful planet into an overpopulated nightmare is not sexual desire but capitalism itself. If capitalism eventually comes to an end because it proves unable to increase the number of its wage slaves beyond a certain limit — thereby setting an ultimate limit to the amount of surplus value that can be produced — it would not be the first mode of production to perish because of its inability to increase the size of its working class.
As I explained above, Grossman saw some of the contradictions of capitalist production — such as the problems of producing surplus value — while he denied others — such as the problem of realizing value and surplus value. Therefore, Grossman saw only half the picture. Despite that, he did demonstrate that capitalism cannot last forever.
But what happens if we analyze the prospects of a capitalist “breakdown” — the material basis for a socialist revolution — in light of all and not simply some of the capitalist contradictions? If we have to wait until capitalism has finally reached the limit pointed to by Grossman — the maximum mass of surplus value beyond which any further increase is impossible — perhaps about a century from now — the chances of a socialist revolution in the lifetime of even the young people of the early 21st century would be slim.
And if capitalism does succeed in turning the earth into the overpopulated hell of dystopian science fiction stories, the environment of the earth might be so damaged that it would be impossible to establish a socialist society. In that case, the modern class struggle between the capitalists and the wage workers would end in the “mutual ruin of both contending classes.” Modern society would be ruined, and our species might face extinction.
The greatest political danger in Grossman’s ‘breakdown’ theory
This is perhaps the greatest political danger of Grossman’s breakdown theory, based entirely on the problems of producing surplus value. Grossman’s “breakdown” theory might lead to “putting off” the socialist revolution to a relatively distant future when there might be both the necessity and, thus, the possibility of a socialist revolution much sooner.
Notes
(1) Evolutionary Socialism, Eduard Bernstein, 1899. https://www.marxists.org/reference/archive/bernstein/works/1899/evsoc/ch04-conc.htm (back)
((2) At the 1893 World’s Columbian Exposition, Samuel Gompers declared, “We want ‘more.’” (back)
A Critique of Crisis Theory 