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 38: From Surplus Value Producers to Associated Producers of the World
Many books on Marxist economic theory end with the author describing what a future socialist – or communist – society will look like. Inevitably, these portraits of the future society reflect the author’s personal views and often contain bourgeois prejudices. We are all, Marxists included, products of the society we were born in and live in. This means that our ability to transcend the bourgeois society we were born and raised in, and our imagination, is not unlimited. The present author does not claim to be an exception.
Therefore, the temptation to offer any descriptions of a future society will be resisted. Instead, we will review the basic laws of historical materialism and then look at what the author has learned during his research for this book.
This research has lasted decades and has been carried out in libraries — and, more recently, surfing the Internet — and at least as importantly in work situations, street demonstrations, and picket lines.
We will provide a final review of the basic economic laws progressively undermining capitalism, with a special emphasis on the periodic crises of overproduction — the main subject of this book — and the role they are playing in preparing the way for the inevitable transformation of capitalist society into communist society.
Historical materialism holds that changes in the basic organization of human society — from the communism of the clan-tribal societies of pre-history; the early class societies of Sumeria, Egypt, India, and China, the societies of the Incas, Aztecs, and Mayans of the pre-Columbian “New World;” the ancient slave societies of classical Greece and Rome; the feudal serf-based economies of medieval Europe; and finally the capitalist societies of our day — are ultimately determined by the nature and degree of development of the forces of production. All these societies represent definite stages in the history of production.
In the course of development, both quantitative and qualitative, of the productive forces, a point is reached that brings them into conflict with the prevailing organization of society. An era of social and political crises leading to revolutions ensues. Ultimately, the old relations of production — property forms in legal language — and the political organization that goes with them prove incompatible with the new forces of production that developed within the old society.
Once the era of social and political revolution begins, it brings the relations of production, or property forms, into alignment with the new productive forces. A whole new political, cultural, and ideological superstructure develops on the basis of new productive forces.
In its time, each successive socioeconomic organization of society sees itself as eternal. The way things are is viewed as the only way things can ever be. Today, bourgeois historians never fail to express amazement that none of the great minds and moral leaders of the ancient Mediterranean world — not Plato or Aristotle, not St. Paul, or any other Old or New Testament author, for that matter — ever denounced slavery as an institution.
How could people of antiquity have been so blind as not to see the great moral evil that was slavery? And how superior the often shallow bourgeois writers and moralists of the present day feel themselves to be compared to their predecessors of ancient times. Unlike the political, ideological, and moral leaders of antiquity, they have the vision and courage to denounce the evils of chattel slavery!
In reality, on an individual basis, none of our modern-day moralists is in the slightest way either personally or morally superior to the philosophers and moralists of the old slave societies, whether of the ancient Mediterranean or the far more recent slave society of the southern United States. If they had been born into one of those societies instead of modern bourgeois society, they too would have supported slavery — unless they had been born a slave. And perhaps even to the enslaved people themselves, slavery as an institution was seen as inevitable, even if individual enslaved people hoped to personally escape their servile condition.
What the political, ideological, and moral leaders of the present capitalist society stubbornly refuse to see is that this society, based on wage slavery, is simply a modified version of a slave society. As in the classical slave society of the ancient world — and the slavery of the pre-Civil War U.S. South based on kidnapped Africans — some work for others who themselves do not have to work.
The thinkers of the ancient world did not make a great distinction between slave labor and wage labor, since both were correctly seen as situations where one person worked for another person. The leaders of the modern slave society of the U.S. South, as they were approaching their downfall, developed a critique of wage labor that sounded almost socialist. Through the Democratic Party, they posed as champions of the white workers of the U.S. North. The disastrous consequences of this situation still disfigure U.S. politics in the 21st century.
Today, chattel slavery is illegal in virtually all countries of the world. True, there are cases where undocumented people are captured and forced to work for others. And there is the notorious international sex trade, which is a form of chattel slavery. But unlike in the past, these “relations of production” have no legal sanction — that is, they are not recognized as a “property right.” Indeed, from time to time, we read in the press about how people are caught holding other people illegally as prisoners and forcing the prisoners to perform labor. The slaves are then liberated by the police, while the “slave owners” are arrested and punished, even if not severely as they should be.
The only form of outright bondage that is legally recognized by states and their legal systems today applies to people convicted of crimes and sentenced to prison, where they are often forced to perform labor for the state or private capitalists. But even in these cases, the prisoners are not legally the private property of other persons and cannot be bought and sold as private property. In addition, unless they are sentenced to life in prison or face the death penalty, their period of bondage eventually ends.
In contrast, under a chattel slave society, whether that of the classical world or the pre-Civil War South, the workers themselves were the private property of the slaveowners. Like other privately owned means of production, the enslaved people were commodities and recognized as such under the law. They could be bought and sold and lent out at interest to other persons. But in today’s society, there is no legal recognition of private property in human beings.
The leaders and ideologists of present-day society are proud of the fact that, unlike slaves or serfs of old, today’s wage workers voluntarily sell their ability to work, or labor power, to other persons that we call capitalists. No person not convicted of a crime is forced to work for another person. However, people are strongly “encouraged” to voluntarily work for others in exchange for a sum of money called wages. Because this labor is “voluntary”, ideologists claim that present-day society has nothing in common with slavery — or serfdom — of past societies.
The catch is that only some people have to sell their labor power to other people under the threat of starvation or at least extreme poverty. Other people escape the need for work by obtaining ownership not of workers themselves but of capital. Capital is obtained by guile, luck (such as winning the lottery), or, far more often, through the right of inheritance.
Many, though not all, owners of capital do choose to work. But in the case of the owners of capital, their work is voluntary. They only perform the kind of work they desire to perform. The owners of enslaved people and serfs in feudal times enjoyed the same privilege.
Capital appears to be a thing or a collection of things — the means of production and stocks of commodities — and is so described by economists. But in reality, capital is a social relationship of production. And if you own capital, in the final analysis, people who do not own capital have no realistic alternative but to work for you. This is the essence of present-day society.
Marxists believe that the current system of wage-labor — like chattel slavery of antiquity, the African slavery of the old U.S. South, which lasted until 1865, or the serfdom of the European Middle Ages, which as a legally recognized form of property lasted down to 1861 in the Russian Empire — is simply a passing phase in the history of production. In the future, people will wonder why so many men and women of great culture and intelligence of our time failed to see that wage labor is simply a modified form of slavery and failed to condemn it. Why was it only condemned by an often persecuted minority called variously “Marxists,” “Socialists,” “Reds,” or “Communists.”
The leaders and defenders of capitalism, like the leaders of societies based on chattel slavery and serfdom before them, insist that society cannot be organized in any other way except the way it is now. A whole “science” called political economy or economics — especially the branch of economics based on the marginalist theory of value — has grown up that proves that no society can be organized in any way but capitalism, proven “scientifically.”
These alleged truths are “proven” using the tools of higher mathematics, just
like the theories of the natural sciences are. These “scientists” find that only through free markets can a distribution of the means of production — labor, capital, land (nature), and their products — be achieved that corresponds to the actual needs of the people and the demands of morality.
And it so happens that there cannot be free markets without private ownership of the means of production. The private ownership of the means of production includes the private ownership of the worker’s ability to work, which the workers are then free to sell to other persons.
We have seen, however, that neoclassical marginalism is based on false assumptions, and even its alleged mathematical elegance breaks down under close examination. There is, however, another tradition of economic science — developed originally and then abandoned by the bourgeoisie itself — called classical economics.
Unlike their marginalist successors, the founders of the classical tradition realized that the exchange of commodities involves the exchange of the products of human labor, the “labor theory of value.” This tradition was further developed, though this time as a critique of the original science from the viewpoint not of the bourgeoisie but of the working class, by the 19th-century German revolutionary Karl Marx and his followers.
We have used the tools of this economic science not simply to repeat Marx’s findings but to focus on the nature of the periodic crises of overproduction. We have found that these crises provide empirical proof that Marx was right not only about crises but also about the nature of value, money and surplus value. Therefore, every successive and post-crisis period of stagnation provides an empirical refutation of marginalism — whether of the neoclassical or Austrian variety.
In the 20th century, another school of economics arose based on marginalism but was willing to depart from it when necessary. Its most famous proponent was the British economist John Maynard Keynes. But some of this school’s adherents on the left would consider the far less well-known Polish-born economist Michal Kalecki, who developed ideas similar to Keynes but independently of him, as its more profound thinker.
Therefore, in addition to classical political economy, marginalism, neoclassical, Austrian, and Marxist, what we might call the Keynes-Kalecki school exists. In politics, Keynes advocated reform of capitalist society — liberal in the New Deal sense of the term — while Kalecki was a moderate socialist.
The politics of both Keynes and Kalecki were in accord with their economic ideas.
Both men saw what they called the “rentier” — money capitalist — as the enemy of “full employment” policies. The reason, according to Keynes and Kalecki, that money capitalists are naturally reactionary is that “full employment” policies imply inflation, which erodes fixed-interest income.
Kalecki, politically more radical than Keynes, hoped to build an alliance of industrial capitalists, working-class parties, and progressive sections of the middle class that would overcome the opposition to full-employment policies of the ”rentiers.” Kalecki, however, noted the opposition of the industrial capitalists — not just “rentiers” — to full employment policies but couldn’t explain it on economic grounds. He was forced to resort to non-economic explanations in his “Theory of Economic Dynamics” that are not very convincing in the present author’s opinion.
Today, in university economics departments, students are taught traditional marginalism under the “microeconomics” rubric and a version of the Keynes-Kalecki school called “macroeconomics.” Unlike classical marginalism, the school of Keynes and Kalecki acknowledges the possibility of generalized crises of overproduction — though they tend to avoid that term. But unlike Marx, the Keynes-Kalecki school treats crises as a technical problem that can be remedied by the correct governmental and central bank policies, at least in principle.
Some Marxists, especially the Monthly Review school, believe that the Keynes-Kalecki school — especially Kalecki — is compatible with Marxism. We believe this is not the case.
In class terms, the various schools of marginalism represent the interests of the capitalist class as a whole — not just “rentiers” or money capitalists — and Marxism represents the interests of the working class. The Keynes-Kalecki school represents the interests of the middle class — or petty bourgeoisie — who waver between the two main classes of modern society. This middle-class school of economics attempts to reconcile the irreconcilable by creating governments committed to “full employment” policies within capitalist society.
Our position, in contrast to the followers of Keynes and Kalecki, is that crises are not mere technical maladjustments or even the result of the political ill will of the capitalist class, as Kalecki held. Rather, they result from deep-seated fundamental economic contradictions that cannot be overcome within capitalism. These contradictions doom the current system to be only a passing phase in the history of production.
Under capitalism, which of necessity is a global system, labor becomes ever more socialized, but appropriation remains private. This ever-growing contradiction has doomed all attempts of 20th- and 21st-century macroeconomics to abolish crises while retaining capitalism.
The contradictions of capitalist production also explain why the efforts of well-meaning supporters of the Keynes-Kalecki school to convince capitalist governments to follow “full employment” policies have gone nowhere. Periods of greatly reduced unemployment under capitalism are either associated with a war economy, which by nature cannot be permanent, or geographical discoveries of major gold deposits, which temporarily reduced unemployment in the middle and again at the end of the 19th century and the beginning of the 20th century.
After World War II, unemployment was reduced for a few decades due to the natural cyclical rebound from the Great Depression. In every case, these reductions in unemployment were temporary and could be sustained for at most a few decades.
Let’s review the economic forces that work to undermine the capitalist relations of production as the productive forces continue to develop. First, there is the famous tendency of the rate of profit to fall. Many Marxists see this tendency as the crucial factor that dooms the capitalist system to perish in the long run.
Capitalism is, above all, a system of production for profit and only profit. But Marx showed that with the growth of labor productivity — is expressed under capitalism by a tendency of the organic composition of capital to rise. As a result, the rate of profit tends to fall.
A major contradiction of capitalism is that although it is a system of production for profit, its very development tends to undermine the rate of profit — the driving force of the entire system. Under capitalism, where there is no profit, there is no production — at least not for very long. And where there is no production, there is no human society. Today, we are seeing a new technical revolution, which is raising the question of how much longer capitalism can last.
Artificial intelligence
The term artificial intelligence was coined in the mid-1950s and was first used at the 1956 Dartmouth Conference.
In 1950, British mathematician and computer pioneer Alan Turing proposed a test to show whether or not a computer system was intelligent. Assume that we have a computer and a person in a room. In another room, we have another person who engages in a discussion with both the computer and the person in the first room. According to Turing, if our second person is unable to distinguish between the computer and the human being, we’d say the computer system is intelligent. He believed this would happen by the end of the 20th century.
The most famous early version of a computer program that could carry on a conversation was written by computer scientist Joseph Weizenbaum (1923-2008). In 1966, he published a comparatively simple program called ELIZA, which could chat with the user. ELIZA did not truly pass the Turing test, although it did fool some users who wanted to be fooled. The program applied pattern-matching rules to the user’s statements to generate its replies. Programs like ELIZA are now called chatbots.
Today, in the 2020s, advanced chatbots such as ChatGPT and newer systems developed in China, like DeepSeek, can, in some settings and for some users, appear to pass informal versions of the Turing test by sustaining conversations that many people find indistinguishable from those with a human. These systems can simulate a conversation with a human across a wide range of topics.
Today’s chatbots use large language models, or LLMs — computer systems trained on vast amounts of text. Although their responses can seem human, these systems do not actually understand what they produce. They work by identifying statistical patterns in language and predicting the most likely next word in a sequence. How meaningful these advances are, and where their limits lie, are subjects of ongoing debate as this is written in early 2026.
Some people see today’s chatbots as closer to polished search engines than anything truly intelligent. They can be useful, but they sometimes come up with completely false answers. Or, as it is said by computer scientists, they “hallucinate.” For serious research, it’s still important to use search engines and databases that point you to original sources, so you can see where information comes from and judge for yourself its reliability. Chatbots can help along the way, but they shouldn’t be treated as authorities or used on their own. While these tools may improve over time, their capacity to produce false information and their lack of sourcing means they can’t yet be trusted as final sources of information.
Others argue that perhaps as early as the coming decade, machines built on ever‑more‑powerful neural networks could surpass human intelligence, develop their own goals, and make their own decisions about what to learn and do. Some claim these systems could become effectively conscious and might decide to displace or even exterminate humans. This is leading them to call for slowing or pausing work on the most powerful AI systems. These authorities warn that if profit‑driven capitalist corporations ignore such dangers, they will be creating technological “Frankenstein” monsters that turn on their creators.
Some scientists called post‑humanists claim that it is an almost inevitable stage of “progress” that once intelligent life arises on a planet, it will eventually create machine intelligences that supersede and replace biological intelligence. In this view, intelligent biological life is only a transitional phase between purely biological evolution and a fully developed, non‑biological intelligence that has shed the limits of organic bodies and become embodied in machines.
Post‑humanist writers extend this logic to extraterrestrial life, arguing that if intelligent civilizations exist beyond Earth, they are more likely to be machine intelligences originally created by a now vanished biological species than biological organisms themselves. In this view, the original biological intelligence vanishes like scaffolding removed once a building is complete, leaving only the “higher” non‑biological intelligence in place. For many other people, the prospect that humanity could become a disposable phase in such a process is an appalling idea.
A more optimistic viewpoint holds that we may eventually be able to convert our minds into something like computer programs and “download” ourselves into machines that allow our mental lives to continue with greatly enhanced abilities. In this scenario, our minds would persist if not forever — that belongs only to the sphere of religion — but for eons, long after Earth and even the wider universe can no longer support biological life.
These science‑fiction‑like speculations are certainly fascinating, but I am hardly qualified to offer a meaningful judgment on them, and pursuing them further would take us far beyond the subject matter of this book.
Leaving them aside, from an economic point of view, the key issue is not chatbots as such, but computer‑simulated artificial neural nets embodied in machines that can learn to perform tasks that have up to now resisted mechanization. This development makes it possible for machines to carry out such tasks without assuming that the AI is acting “for its own reasons” or has somehow achieved consciousness.
The material basis of communist society
To understand what Marx saw as the limits of capital, it helps to look at a passage where he reflects directly on machinery and technology. The following excerpt comes from the Grundrisse, a set of working notes Marx wrote during the global economic crisis of 1857–58. His interest in economics was stimulated by the crisis. Although these notebooks were never published in his lifetime, they contain some of his most far-reaching ideas. Marx later developed many of them in Capital, but here he pushes further, asking why capitalism itself is not final to organize production. In this passage, Marx argues that while machines are central to modern production, capitalism is not the natural or permanent system under which machines must operate.
Marx wrote:
“Machinery does not lose its use value as soon as it ceases to be capital. While machinery is the most appropriate form of the use value of fixed capital, it does not at all follow that therefore subsumption under the social relation of capital is the most appropriate and ultimate social relation of production for the application of machinery.”
In other words, as long as capitalism exists, machinery will be subordinate to the social relation of production that we call capital. But machines are not in themselves capital.
“To the degree that labour time — the mere quantity of labour — is posited by capital as the sole determinant element, to that degree does direct labour and its quantity disappear as the determinant principle of production — of the creation of use values — and is reduced both quantitatively, to a smaller proportion, and qualitatively, as an, of course, indispensable but subordinate moment, compared to general scientific labour, technological application of natural sciences, on one side, and to the general productive force arising from social combination in total production on the other side — a combination that appears as a natural fruit of social labour (although it is a historical product). Capital thus works towards its own dissolution as the form dominating production.”
Marx is saying that, looking at things in terms of use value, as the role of fixed capital, scientific labor represented by natural science and technology that is rooted in natural science, the role of direct value-producing labor in the production of use value in production declines. It becomes less and less rational to measure the value of products in terms of direct labor. Capital, however, uses the tremendous growth in the productivity of direct labor for the sole purpose of increasing the ratio of unpaid labor to paid labor.
The rate of surplus value, the ratio of unpaid labor to paid labor, rises, which is the main way that capital uses to reduce the tendency of the rate of profit to fall. From the viewpoint of the working class, what is called for is to increase the ratio of the producers’ free time relative to the ever-shrinking time that must still be spent in direct labor. It is only free time that allows the all-around development of the individual producer as a human being. A future communist society cannot be built on any other foundation.
Karl Marx was a 19th-century revolutionary who devoted most of his adult life to supporting the struggle of the working class against capitalism. Elon Musk, in contrast, is the richest capitalist in the history of capitalism, and politically is as far to the right as it is possible to get, so his opinions on AI are especially interesting.
On November 20, the online edition of the capitalist business magazine Fortune published an interesting article by Sasha Rogelberg, musing about Musk’s view of the near future. Rogelberg writes, “In Musk’s automated, job-voluntary future, money won’t be an issue, he said. Musk takes a page from Iain M. Banks’ Culture series of science fiction novels, in that the self-proclaimed socialist author conjures a post-scarcity world filled with super-intelligent AI beings and no traditional jobs. … ‘In those books, money doesn’t exist. It’s kind of interesting,’ Musk said. ‘And my guess is, if you go out long enough — assuming there’s a continued improvement in AI and robotics, that seems likely — money will stop being relevant.’” Here, Musk not only quotes a socialist author but also agrees that the further development of science and technology in the form of AI works in the direction of dissolving capitalist relations of production.
Rogelberg writes about Viva Technology 2024, where “Musk suggested ‘universal high income’ would sustain a world without necessary work, though he did not offer details on how this system would function. His reasoning rhymes with that of OpenAI CEO Sam Altman, who has advocated for universal basic income, or regular payments given unconditionally to individuals, usually by the government”.
So both Musk and Altman envision a society where every person receives an income that meets their basic needs, and money plays no role. Whatever such a society is, it is not a capitalist one. “The” Rogelberg writes “Tesla CEO said at the U.S.- Saudi Investment Forum in Washington, D.C., on Wednesday that in the next 10 to 20 years, work will be optional, likening the decision to have a job to the more laborious upkeep of a vegetable garden.”
If we believe Musk and Altman, AI will transform the mode of production so that people will work not because they are compelled by material necessity (by the way, here Musk admits that work is not a free choice in a capitalist system of free wage labor, as bourgeois economists like Milton Friedman, author of the book “Free to Choose” claim).
Unlike the economists, businessmen like Musk and Altman are not interested in engaging in empty ideological talk about “freedom” but are looking at things with brutal reality. If AI continues to develop as Musk expects, instead of people deciding to work, they’ll follow their true desire to work, like people today who choose to plant a few vegetables in their backyards, not because they need the vegetables, but because they like raising food with their own labor.
Human societies organized in clans and tribes many thousands of years ago were forms of original communism, with common ownership and no class hierarchy. But they rested on very low levels of material productivity and lacked the scientific and technical knowledge that later civilizations based on class societies would develop.
The class societies that succeeded the original communist forms enabled a small minority to free itself from direct labor, living instead from the surplus product produced by others, while the majority was compelled to work harder and for longer hours under far worse conditions than their ancestors did in clan‑tribal communist communities. The class societies centralized literacy, scientific, and technical knowledge in the hands of the ruling class, even as the vast majority of the people remained excluded from this growing knowledge and culture and were subjected to harsher material conditions imposed by class rule.
Under capitalism, society has remained divided into classes, but there has been a productivity growth in human labor that, driven by competition among the capitalists, has far exceeded anything seen in any previous age. Marx in the Communist Manifesto says,
“The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.”
Capitalism went from deepening the division of labor to the introduction of steam, then integrating electrical power run machinery directly into production. Now it seems we’re entering a new period in the history of production: the transformation of the mode of production, as machinery gains the power to learn and do tasks that have so far resisted mechanization.
Not so long ago, factory, mining, and agricultural workers driven out of production were told they should learn skills like computer programming. Now, computer programmers are being in turn are being replaced by AI programs that can code, causing programming jobs to vanish like so many other jobs before. Today, computer programming is going the way of weaving, along with other layers of white-collar work.
Capital is only interested in the production and appropriation of surplus value (unpaid labor). The development of productive forces is merely a side effect as far as the capitalists are concerned. As this process unfolds, it becomes ever more irrational to measure the value of products by the ever-shrinking quantities of human labor necessary to produce them, while forcing the remaining workers to perform an ever greater amount of unpaid labor producing still more surplus value.
The capitalists are interested in using machines that can learn to create new opportunities to pit this even more powerful machinery- the machines can now learn — against workers. Either produce more unpaid labor for us, the capitalists will say, or we’ll replace you with our intelligent machines that can do everything you do — except produce surplus value. Without the production of surplus value, there can be no profit, and no capitalist production.
Once we reach this point in the history of production, the contradictions of capitalism reach absolute levels. As long as workers had to work long hours in factories, mines, and farms, there couldn’t be a communist society where the full development of the capacity of one person requires the full development of the capacities of all.
Once machines “learn” to do all the drudge work that must be done, humans, all humans, will be able to at last be free to fully develop their full capacities. Not only will capital vanish from production, but the “enslaving division of labor” will also be overcome. Then, communism, the higher stage of communism, will become not only possible but, as even Elon Musk is obliged to at least partially acknowledge, the only way to organize production.
Three basic laws of the capitalist system involving the evolution of the rate and mass of profit
As long as capitalist production has not been overcome, the ever-shrinking role of direct value-producing labor relative to science and technology in the production of the use values is expressed through the tendency of the rate of profit to fall.
Let’s examine three basic laws of motion of the capitalist mode of production discovered by Marx that involve an evolution of the mass and rate of profit. (1) The tendency of the rate of surplus value to rise.
If it is to resist the tendency of the rate of profit to fall, capitalist production has to increase the amount of unpaid as opposed to paid labor performed by the working class. The more the productivity of labor increases, the more the ratio of unpaid labor to paid labor can rise without reducing the standard of living of the working class below the level that would prevent it from being able to reproduce itself. Indeed, as labor productivity develops, the living standard of the working class can rise even as the rate of exploitation, the ratio of unpaid to paid labor, increases.(1) The rise of the organic composition of capital
The competition between the various industrial capitalists, and more importantly between the sellers of labor power — the workers — and the buyers of labor power — the capitalists — means that the capitalists will introduce machines to replace workers whenever the rate of surplus value threatens to fall. The competition between the industrial capitalists and the workers turns into a competition between workers and machines.
Under capitalism, the development of science and technology that leads to ever more powerful machines strengthens the capitalists’ position over the workers within the labor market. But at the same time, the unprecedented growth in the productivity of labor creates the material preconditions for a higher mode of production. This is one of the most important consequences of the labor union struggle against the increasing rate of capitalist exploitation.
However, the replacement of living labor by dead labor means that the ratio of constant to variable capital grows. Since only living labor — variable capital — produces surplus value, the rate of profit tends to decline despite the rise in the rate of surplus value.
3) The growth in the total amount of profit
Although the rate of profit tends to decline, the mass of profits grows progressively with the development of capitalist production. This is reflected outside of crises in the rising trend of stock market prices.
To maintain the growth in the mass of profit in the face of a decline in the rate of profit, capital must first exploit the existing workers more intensely. This is made possible by the rising productivity of labor and by transforming ever more people, both in absolute numbers and as a percentage of the population, into surplus-value producers.
However, even leaving aside the inevitable resistance of the workers, since no worker can work more than 24/7, the surplus value that a given number of workers can create is limited not only by biological but also by mathematical laws. The laws of mathematics prevent workers from working more than 24 hours a day. Therefore, if capitalism is to wring enough surplus value out of the working class to keep the system going in the long run, the size of the population must grow relentlessly over time.
Over the last few centuries, the exploding human population has nothing to do with the alleged Malthusian law that claims that the human population rises in lockstep with the growth in the means of subsistence. This “law,” Malthus and his followers claimed, dooms the great mass of the population to a miserable subsistence living, no matter how much the productive forces of humanity develop. In reality, the “population explosion” of the last few centuries reflects the need for capitalist production (outside of temporary cyclical fluctuations) to exploit an ever-growing number of workers.
Effects of a fall in the rate of profit on capitalist production
As already indicated, while the rate of profit tends to fall as capitalism develops, the mass of profits grows progressively. Rosa Luxemburg claimed in her “Anti-Critique” that the rise in the mass of profit rendered the fall in the rate of profit harmless to capitalism so that capitalism would not collapse due to the fall in the rate of profit “before the sun burned out.” We believe that Luxemburg was mistaken on this key question. Why is this so?(1) A falling rate of profit leads to the centralization of capital.
How does a rise in the total profit compensate for a fall in the rate of profit?
For example, in 2014 U.S. dollars, if a capital in the form of an ongoing business is $1,000,000, a rate of profit of 10 percent yields an income of only $100,000 to its owner, a barely adequate income for even the smallest of capitalists. If our individual capitalist has to capitalize half the profit — plow it back into the business — an income of $100,000 will leave $50,000 for personal consumption, about what a skilled union worker might earn in an imperialist country.
On the other hand, a mere 10 percent rate of profit on a capital of $100 million yields a “comfortable” $10 million annual income. Even if half of this income has to be capitalized, it leaves $5 million left over to meet the annual personal consumption needs of the capitalist and their family. Limiting your consumption to “only” $5 million a year is no great hardship.
The same is true of the capital owned by money capitalists, insomuch as the fall in the rate of profit is reflected in a fall in the rate of interest. Remember, interest is just a portion of the profit, and the interest rate cannot, in the long run, exceed the rate of profit. A low rate of profit, therefore, will mean an even lower rate of interest.
The lower the interest rate, the greater the capital’s size if the money capitalist owner is to have a large enough interest income to live at a standard of living that is adequate for “a gentleman and gentlewoman.” And since the late 19th century, stock corporations have come to dominate capitalist production. The result is a powerful tendency to gradually convert the individual members of the capitalist class into money capitalists who have to settle for the lower average rate of interest as opposed to the average rate of profit. However, owners of corporate stocks get to participate in the higher mass of profits through rising stock market prices that can be realized when the stocks are sold.
2) Capital can only exist in the form of many capitals.
Capital consists of commodities. Commodity production requires private ownership of the means of production, where each private owner works for their private account. Each commodity producer finds itself under pressure — competition — from other commodity producers. Indeed, as Marx pointed out, under a system of commodity production, the producers recognize no higher authority than the mutual competition that rages among themselves. (1)
Capital, like money, as Marx pointed out, is a form of the commodity relationship of production. (2) It can, therefore, exist only in the form of many capitals that exert constant pressure — competition — on each other. The many capitals find themselves in a war of “all against all.” Each individual capital must expand or die. Huge numbers of capitals die, but a few expand to immense size.
A falling rate of profit increases the intensity of competition. Each capital must strive to become big quickly if it is to be able to compensate its owner(s) for the lower rate of profit by increasing the total mass of profit. But the growth of the individual capitals means eventually developing gigantic businesses that centralize the productive forces in the hands of a few giant joint stock corporations. The point is reached where a few or even one capital can produce so many commodities that it can satisfy the entire market demand.
At this point, competition begins to devour itself and gives birth to capitalist monopoly. Capitalist monopoly is the first stage of the transition from capitalism based on free competition among many capitals to socialist — or communist — production based on centralized planned production managed by the associated producers according to a common plan.
3) A low rate of profit undermines innovation.
A low rate of profit is an obstacle to capitalist innovation. As a rule, innovative technologies are pioneered by small capitalists. However, a low rate of profit makes small capitalist enterprises increasingly nonviable. If small, innovative “startups” can survive at all, it is because the rate of profit in a new, fast-developing industry is well above the average rate of profit.
We see this in places like California’s Silicon Valley. The vast majority of these startups never become profitable at all and soon go bankrupt. But once in a while, startups win the support of existing large capitalists and grow into huge monopolies — Apple Computer, Intel, and Cisco are examples — which find themselves in a position to make super-profits — that is, profits above the average rate of profit. In addition, perhaps one or two large existing monopolies will enter the field.
The process of formation of monopoly, which in the past took decades or even centuries, now often takes place within a few years of the birth of a new industry. The lower the rate of profit, the shorter the stay of small capitalists in new branches of industry, as Rosa Luxemburg pointed out as long ago as 1898 in “The Industrial Development of Poland,” and therefore, the quicker new branches of production become centralized in a handful of companies or even a single capitalist corporation.
Interest, the profit of enterprise, and the tendency of the rate of profit to fall
Very large capitals can generate huge profit incomes for their capitalist owners, even if the rate of profit is very low. However, this doesn’t mean that a low rate of profit is harmless to the capitalist system. The rate of profit — realized surplus value minus rent — is itself divided into two fractions: interest and the profit of enterprise.
As we have seen throughout this work, only the profit of enterprise provides an incentive for the capitalists to produce surplus value. If the rate of profit is no higher than the rate of interest — or not significantly higher than the rate of interest — capitalists will have little or no incentive to act as industrial capitalists. They will instead transform themselves into money capitalists. This is true not only of individual capitalists but also of large corporate monopolies.
The whole “financialization phenomenon” that arose near the end of the 20th century, triggered by the period of extremely high interest rates that followed the 1968-1982 stagflation crisis, illustrates this point. This episode is a real-life illustration of what happens when the rate of profit is not substantially higher than the rate of interest. If such a situation were to persist, the capitalist system would progressively disintegrate.
As we saw in the years after 1980, however, interest rates did gradually fall back to levels that were well below the rate of profit, though huge amounts of means of production had to be destroyed and consequently jobs lost to achieve this necessary fall in the rate of interest. To calculate the total cost of the post-stagflation high rate of interest relative to the rate of profit, in addition to the jobs and means of production that were destroyed, we also should include the jobs and means of production that were not created.
But the situation would be far more serious for capitalism if it were not a matter of an extraordinarily high rate of interest but rather an extremely low rate of profit.
If the rate of profit is 100 percent, it is possible to have a vast range of interest rates and still have a positive profit of enterprise. For example, at a rate of profit of 100 percent, the rate of interest could be 95, 50, 5, 1, or even 0.25 percent. But if the rate of profit falls to 5 percent, the highest sustainable general rate of interest must be below 5 percent. If the rate of profit falls to 1 percent, the rate of interest would have to fall below 1 percent.
This would be the feared permanent “liquidity trap” of the Keynesian economists. At a 1 percent rate of profit, the rate of interest would have to be lower than 1 percent to have any incentive to produce surplus value at all, and even then, the profit of enterprise would always be below 1 percent.
Therefore, a very low rate of profit kills the incentive to produce surplus value, no matter how large the mass of profit. At very low rates of profit, even a slight rise in the rate of interest threatens to wipe out the profit of enterprise entirely. The system would have to produce tremendous quantities of money material — gold — just to keep the interest rate below the profit rate.
There are two ways a low rate of profit undermines the capitalist system. The lower the rate of profit, the stronger the trend toward an increased centralization of capital will be, and the lower the rate of interest must be to ensure a positive profit of enterprise. Therefore, contrary to Rosa Luxemburg’s belief, no increase in the mass of profit can make the fall in the rate of profit harmless to capital.
The depletion of raw materials and the rate of profit
Marx was fond of quoting Sir William Petty — the founder of classical English political economy, where Petty wrote that the — “land is the mother of wealth, while labor is its father.” (See “Capital,” Chapter 1, Commodities)
Capitalist production, as it develops, assaults not only labor — the working class — but also the “land” — that is, nature itself. In “Dialectics of Nature,” Frederick Engels wrote, “Let us not flatter ourselves overmuch on account of our human conquest over nature. For each such conquest takes its revenge on us.”
Marx was far from the first or even the last economist who believed that the tendency of the rate of profit was downward. However, Marx was the first economist to show that the tendency of the rate of profit to fall is rooted in the rising organic composition of capital. While the main cause of this rise is the growing role of machinery, the value of raw and auxiliary materials also plays an important role in determining the organic composition of capital. Like fixed capital, raw and auxiliary materials form part of the constant capital. The more that mines, oil wells, natural gas fields, and so on are depleted — all other things remaining equal — the higher the value of these commodities and all other things remaining equal, the higher the organic composition.
Even if the supplies of these raw materials are not exhausted, any rise in their values increases the organic composition and, all other things remaining equal will lower the rate of profit — with all the consequences that I explored above.
For example, while concerns about “peak oil” have faded somewhat in mainstream discourse due to developments in shale extraction and renewable energy, the underlying economic dynamic remains. Whether energy comes from conventional oil, heavy oil deposits like those in Venezuela, shale, or renewables requiring massive infrastructure investment, the value of a given unit of energy affects the organic composition of capital since energy in one form or another is an “auxiliary material” in every branch of production. A rise in the value of energy means, all other things remaining equal, a higher organic composition and a lower rate of profit. This is why the struggle for cheap sources of raw materials and energy remains so important for the capitalists, regardless of the particular energy sources in play at any given moment.
The increasing difficulty in realizing value and surplus value
As we have seen through both theoretical and empirical arguments, the market grows in the long run by producing ever-greater amounts of money material — gold. As we saw in the last chapter, the modern gold industry involves a particularly vicious assault on both the mother of wealth — nature — and its father — the workers. Today, the Earth bears huge scars visible from space, which testify to the growing difficulties in realizing the ever-greater amounts of value and surplus value that must be produced if capitalist production is to continue.
Even if “peak gold” turns out to be far distant, the gold mining companies will be forced to find new gold in increasingly inaccessible places — perhaps the ocean bottoms as well as ever-deeper shafts within the Earth and maybe eventually beyond the Earth in asteroids. The fact that there are no substitutes for gold, insofar as it represents money material, forms a material basis for the increasing difficulty in realizing the ever-greater mass of value and surplus value if capitalist production is to continue.
Besides doing enormous damage to the natural environment and risking the lives of large numbers of workers, this will tend to increase the value of gold relative to the value of other commodities. As gold rises in value relative to most other commodities, the prices of these commodities expressed in the use value of gold will tend to decline.
Capitalism reacts to the growing difficulty in realizing the value and surplus value of commodities — in plain language, finding markets for the growing mass of commodities produced — by increasing the centralization of the bank-centered credit system. Over time, the power of finance capital increases, though with cyclical fluctuations, as we have seen.
The development of the bank-centered credit system makes it possible for the capitalist economy to function on ever smaller amounts of “hard cash.” The result is that the capitalist system becomes more and more unstable. When the inflated credit system finally topples over, and it must topple over periodically, if only because one piece of money cannot settle two payments simultaneously —economic crises grow more intense and prolonged.
Any slowdown in the growth of the market means more intense competition among the various capitals that make up capitalist production. Competition becomes a zero-sum game if the market size is fixed and doesn’t grow at all. The gain of one capitalist is offset by a loss for another. But in a rapidly expanding market, even if a particular capitalist loses market share, that capitalist might still gain absolutely in terms of rising sales. This softens competition among the capitalists.
Just as falling rates of profit brought on by a rising organic composition of capital, an overproduction crisis and its aftermath intensify competition. The more intense the competition, the greater the tendency towards capitalist monopoly. It is no accident that the modern capitalist monopolies first appeared on a large scale in the wake of the economic crisis of 1873, a period not coincidentally marked by falling gold production.
Environmental crises, crises of overproduction, and the centralization of capital linked
Here, we also discover a direct tie between the environmental crisis, the increasing strain on the Earth’s ability to tolerate the ever-greater assault of capitalist production on the mother of all wealth—nature—and the world market’s ability to keep expanding.
Though it is not apparent at first glance, the growing environmental crisis is linked to the tendency of the rate of profit to fall — the discovery of cheap new sources of raw materials lowers the organic composition of capital and, therefore, counteracts the tendency of the rate of profit to fall — but also through the tendency of crises of overproduction to grow more intense as the world’s gold mines are depleted.
Capitalist production must strive to squeeze ever more of the yellow metal out of increasingly depleted gold mines — no matter the cost to the environment and the workers — if the world market is to keep on growing so that capital can realize the ever-greater mass of surplus value that it must squeeze out of the workers if a collapse of capitalist production is to be staved off. Capital’s assaults on the twin sources of wealth, land and the workers, therefore, intensify.
Why the ‘stationary state’ is impossible for the capitalist system
John Stuart Mill, who was well aware of the falling tendency of the rate of profit, hoped that capitalism would evolve into a “stationary state.” John Maynard Keynes, who was also well aware of the tendency of the rate of profit to fall, expressed similar hopes. Essentially, both these bourgeois economists hoped that “reproduction on an expanded scale,” to use Marxist language, was just a passing phase of capitalism and that it would eventually be succeeded by a mere “simple reproduction” that would allow the population to be stabilized.
But the very nature of capitalism precludes this. Marx insisted that capitalism could only exist in the form of expanded capitalist reproduction. But why is this?
If expanded reproduction of capital becomes impossible or at least is greatly impaired either because no more or very little additional surplus value can be produced and/or not enough additional surplus value can be realized in money form, competition between the various capitals that make up the capitalist system of production will intensify to such an extent that competition will devour itself completely.
Or, more simply, the tendency towards an ever-greater centralization will overwhelm those counter-tendencies toward the decentralization of capital that, as Marx put it (“Capital” Vol. III Part III, The Law of the Tendency of the Rate of Profit to Fall), prevent a quick collapse of capitalist production.
The breakdown theory in Engels
First, let’s look at how Frederick Engels explained the inevitable “breakdown” of capitalist production in his “Socialism: Utopian and Scientific.”
“We have seen,” Engels explains, “that the ever-increasing perfectibility of modern machinery is, by the anarchy of social production, turned into a compulsory law that forces the individual industrial capitalist always to improve his machinery, always to increase its productive force. The bare possibility of extending the field of production is transformed for him into a similarly compulsory law. The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance.”
But Engels then points out that the industrial capitalists meet resistance as they attempt to expand production “qualitatively and quantitatively” without limit. And what is it?
Engels goes on: “Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically [emphasis added -SW]. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. Capitalist production has begotten another ‘vicious circle.’”
But it is not just a circular — or cyclical — movement; it is a spiral movement.
“As a matter of fact,” Engels explains, “since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange … are thrown out of joint about once every 10 years. Commerce is at a stand-still, the markets are glutted, products accumulate, as multitudinous as they are unsalable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution.”
“In these crises,” Engels continues, “the contradiction between socialized production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange.”
“This rebellion of the productive forces,” Engels explains, “as they grow more and more powerful, against their quality as capital, this stronger and stronger command that their social character shall be recognized, forces the capital class itself to treat them more and more as social productive forces, so far as this is possible under capitalist conditions. The period of industrial high pressure, with its unbounded inflation of credit, not less than the crash itself, by the collapse of great capitalist establishments tends to bring about that form of the socialization of great masses of the means of production which we meet with in the different kinds of joint-stock companies. Many of these means of production and of distribution are, from the outset, so colossal that, like the railways, they exclude all other forms of capitalistic expansion. At a further stage of evolution, this form also becomes insufficient. The producers on a large scale in a particular branch of an industry in a particular country unite in a ‘Trust,’ a union for the purpose of regulating production. They determine the total amount to be produced, parcel it out among themselves, and thus enforce the selling price fixed beforehand. But trusts of this kind, as soon as business becomes bad, are generally liable to break up, and on this very account compel a yet greater concentration of association.”
“In any case … the official representative of capitalist society — the state — will ultimately have to undertake the direction of production,” according to Engels. “This necessity for conversion into State property is felt first in the great institutions for intercourse and communication — the post office, the telegraphs, the railways.”
But things don’t stop there — remember, the above was written in 1877. For example, during the crisis of 2007-2009, the Obama administration was forced against its will to take over what had been the General Motors Corporation, which was not so long before the biggest industrial corporation in the world. However, this kind of “state ownership” is not socialism and is progressive only to the extent that it prevents further destruction of the productive forces.
“But, the transformation — either into joint-stock companies and trusts, or into State-ownership — does not do away with the capitalistic nature of the productive forces,” Engels wrote. “In the joint-stock companies and trusts, this is obvious. And the modern State, again, is only the organization that bourgeois society takes on in order to support the external conditions of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists. The modern state, no matter what its form, is essentially a capitalist machine — the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over. State-ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.”
The more industrial production, including mining and agriculture, is centralized in the hands of a few gigantic stock corporations and even state enterprises, not only is the free market that is the only regulation mechanism proper for capitalist production undermined, but the easier it is for the working class once it is organized as the state power to seize control of the means of production and exchange.
The breakdown theory in Marx
In Volume I of “Capital,” Marx wrote: “As soon as this process of transformation has sufficiently decomposed the old society from top to bottom, as soon as the laborers are turned into proletarians, their means of labor into capital, as soon as the capitalist mode of production stands on its own feet, then the further socialization of labor and further transformation of the land and other means of production into socially exploited and, therefore, common means of production, as well as the further expropriation of private proprietors, takes a new form.”
And what is this new form?
“That which is now to be expropriated,” Marx explains, “is no longer the laborer working for himself, but the capitalist exploiting many laborers. This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the centralization of capital [emphasis added -SW]. One capitalist always kills many.
“Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labor-process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labor into instruments of labor only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labor, the entanglement of all peoples in the net of the world-market, and with this, the international character of the capitalistic regime.”
Today, the capitalist media talks about “globalization” as something new. But Marx was talking about globalization in the 1860s and even earlier in the “Communist Manifesto,” which he wrote with Engels in the winter of 1847-1848:
“Along with the constantly diminishing number of the magnates of capital who usurp and monopolize all advantages of this process of transformation,” Marx continues in “Communist Manifesto,” “grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. Thus integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.”
In this work, we have explored exactly how the economic laws of capitalism discovered by the classical political economists and Marx work in practice, with special emphasis on how they produce and reproduce the periodic crises of the generalized overproduction of commodities. Each crisis gives a new impulse to the centralization of capital and the further socialization of labor.
What is true of the crisis is also true of the reckless inflation of credit and its associated over-trading, which pushes production far beyond its capitalist limits and precedes each successive crisis. Credit and the stock market system that is linked to the credit system make possible the creation of gigantic enterprises that achieve a massive socialization of labor far beyond what would be possible if individual capitalists owned enterprises. This growing socialization of labor increasingly unfolds on an international basis. As a result, it becomes as meaningless to ask what country a given commodity is made in as to ask the name of the individual worker who produced it.
We have seen how the credit system grows out of the capitalists’ need to artificially extend the market as the productive forces they are forced to create by the pressure of competition expand far beyond the limits set by the ability of the market to grow. The development of the credit system, far from being “a means of adoption” of the capitalist system, as Eduard Bernstein thought, pushes the contradictions of capitalist production to the point where they explode in the form of a crisis of the generalized relative overproduction of commodities.
Just as within an individual industrial cycle, where the inability of the market to keep up with the rising level of commodity production causes the boom to collapse well before “full employment” is achieved, the increasing socialization of labor and centralization of capital will force the working class under pain of its own destruction to organize itself as the state power and finally overthrow the rule of capital long before it reaches the ultimate limits set by the maximum amount of surplus value that can ever be produced and realized — given the limits set by our material world.
In the end, capitalism will collapse because the workers of brawn and brain will, at last, be given no alternative but to cease being surplus-value producers and instead organize themselves as the “associated producers of the world” and take charge of their own collective destiny.
Notes
((1) Capital, Volume I, Chapter 12 (back)
(2) Capital, Volume I, Chapter 3: Money, or the Circulation of Commodities (back)
A Critique of Crisis Theory 