Moving money does not generate surplus value

Stay as money, face death as capital

How can capital extricate itself from crisis? Hillel Ticktin argues that it has no solution

This is the 10th year since the financial crisis that began in the United States with a banking crisis in relation to mortgages in June-July 2006.

The crisis reached a point where it erupted politically in Greece and it became clear that there was no middle way between the left and the right - and that applies not just in Greece, but in Britain and around the world. There is no middle way in deciding how to deal with the crisis. For the first time you can really see the beginning of a crack in the capitalist system. The political consequences are beginning to show and the bourgeoisie is well aware of it, as could be seen by the particular course of action taken in Greece last year.

In other words, the attitude of the Germans in relation to Athens was not related to some misapprehension as to what was going on, or an attempt to be vindictive. Angela Merkel and co were acting in the interests of the German state and in the interests of the wider capitalist class in taking the hard line they did. Having been in Greece just prior to the imposed settlement, it was clear to me that Syriza was going to split. It was also clear that the working class as a whole was very angry. We can expect the situation to intensify - perhaps not immediately, but over time.

Of course, it is fairly obvious to the right that they have to keep things under control. Many leftwing commentators pointed out that the attitude of the right was not based on economics, but was consciously political. If they conceded they would have to concede everywhere - in Spain and elsewhere in southern Europe in the first instance. The right upheld a political position in order to hold the fort, but they were not quite as stupid as they appeared to be.

The question is, where does the bourgeoisie draw the line? Is it possible to draw a different line? Is it possible for them to concede at some level? Is there a liberal bourgeoisie that wants to concede and believes in a more humane capitalism that could be maintained for a longer period? I have been arguing for some time that the bourgeoisie is divided. However, practically all conservative parties around the world take the same line. They all go for austerity - there are no liberal bourgeois governments. For instance, I do not think that Barack Obama has been objectively liberal, whatever his personal views are. In terms of the actual policy undertaken in the United States, it is the same as is being pursued in Britain and everywhere else.

Could they have taken a different line? Is there a middle way for the bourgeoisie at the present time? I do not think so. There is a liberal section of the bourgeoisie, but it is not able to act, it seems, and exert much influence. There are those who put forward arguments on inequality, but that debate is not going anywhere.

Historical function

Is there an alternative? The crisis itself expresses the fact that there is not. We cannot look at crisis simply in terms of the immediate period from 2006 to the present. The capitalist system has been in crisis from 1870 at least. You can argue about the date, but I am taking the Leninist line here and I think Lenin was absolutely correct. Basically what we are talking about is the point at which capitalism ceases to be competitive in the classic sense and when the capitalist class can no longer control its production in order to maintain profits. In other words, its historical function to raise productivity, which Marx goes into detail about, has effectively come to an end.

Looking at it in an objective way, in 1870 capitalism’s reason for existence came under threat. What that meant was the capitalist class had a problem as to where it was going to invest. The question today is exactly the same. The Financial Times is full of examples of this problem. A few months ago, it published an article revealing that around 40% of Japanese firms had huge holdings in cash: in other words, they are not investing. Japan has been in a depression since 1989 and its government is implementing what amounts to a massive Keynesian programme of state expenditure. Japan is an extreme example, but the same is true of practically any developed capitalist country.

I have cited this a hundred times over, but the International Monetary Fund has pointed out that there is something like $76 trillion being held by financial firms, such as private equity in different forms, waiting to be invested. There is - and I am surprised this is not cited more in the press - something like $28 trillion that is held in the bank of New York Mellon alone. The amount of money that cannot be profitably invested keeps going up. When you put your money in a bank like that, not only do you not gain interest: you pay bank charges. It is a crazy situation when such enormous sums of money are being held and not being invested - a situation that has lasted almost a decade.

In other words, there is a very large proportion of surplus value that is not going into investment. And money that is not invested is not capital: it is not being used to generate more surplus value. The same situation occurred in the great depression. The point I am making is that you can refer back to 1870 and the difficulties under conditions of monopoly (in the Marxist sense of a relatively small number of firms which are able to plan their output). But anybody who studies bourgeois economics will know that today monopoly is not discussed: it does not exist in the textbooks. They have decided, without actually declaring it, that one can describe capitalism as simply competitive, whether there are six firms or a hundred firms in a particular market - what matters is the interaction between these firms.

Some Marxists have taken up this viewpoint too, arguing that Hilferding and Lenin were wrong on monopoly capitalism. This view is more common in the United States. For example, Anwar Shaikh, professor at the New School, makes it clear that he rejects the Leninist viewpoint. Another person who takes this view is Charlie Post, also a member of the American left. If you look at the work of Robert Brenner, although he does not go the whole way, he accepts it to at least some degree. This is quite an important point because of what it means if they are right.

However, it seems to me they are wrong. The question is whether firms - from 1870 onwards - could plan their output at some kind of level and restrict it in order to make the maximum profit. I do not think there is any doubt that they can. And if they can then they will have a surplus which they cannot invest. There will be a level of output which they cannot exceed. Under these conditions - and they are general conditions within capitalism - the solution that was previously adopted can no longer be applied.

Twofold solution

The solution adopted to stabilise capitalism was twofold. I say ‘stabilise’ because, as you will remember, the so-called long depression occurred at roughly the same time - in 1873. The first part of the solution was the turn towards imperialism - which still, of course, exists, but in a more attenuated form than it did then, as profits now are lower in relation to the amount invested. Imperialism exists and finance capital invests around the world and gets relatively high returns, but it does not exist on the same level as in the 1870s.

The second way in which the surplus was absorbed was through war, from World War I onwards. It seems reasonable to state that capitalism needs war. If you look at its history it seems to be the case. It serves wonderfully for absorbing investment. The problem today, however, is that neither of these solutions are tenable any more.

It is true that there are leftwing groups like the Socialist Equality Party in America which keep going on about the war that is about to come. I do not see where this approaching world war is coming from: the idea that the US is going to fight Germany or France is absurd. By the same measure, we do not really expect, despite the nonsense talked about it, the United States to go to war with China. War is effectively ruled out. We no longer even have a cold war, although some are trying to drum one up in relation to Vladimir Putin. But, after all, Russia and the US are on the same side.

So we do not have war and we do not have imperialism in the old way. Obviously we have independent countries (semi-independent in reality), and capitalists do not get the same rate of return as they once did. Nonetheless money is still coming in, and investors in the third world are getting money coming into the imperialist centre. What this means at present, however, is simply a build-up of money - at this point reinvestment in the periphery is not taking place. After the crisis in 2008 a lot of money went out there, on the basis that the rate of interest in the third world is often higher than in the core countries. Consequently it was possible to get relatively high profits simply by putting money into the third world, either in the stock exchange, in particular shares or simply through interest. That has now stopped: it is not possible to do it in the same way and the result is that there has been a rapid deceleration of the third world. The crisis has really hit peripheral countries and effectively it is intensifying. The obvious examples are Brazil, which is often in the headlines, and South Africa, which is in dire straits.

So the general crisis of capitalism has returned with some force.


There is a problem with the Marxist discussion of crisis, of course, in that it tends to concentrate on the immediate mechanisms, the three aspects of crisis. These are underconsumption, disproportionality and the falling rate of profit. In fact there is a more general crisis if we define it in the way that Marx did - as a situation where all the contradictions of capitalism show themselves.

In other words, it is a situation where the contradictions cannot actually be resolved. A contradiction involves an interpenetration of two opposites that come together and allow for an entity to function and propel it. In fact they are its mechanism and form of advance. When they cannot interpenetrate, and come into conflict, the system begins to collapse. That is the nature of crisis that is described by Marx in Capital. It is clearly the case today in the case of investment. It cannot happen because firms cannot make use of it and there is a build-up of money, as opposed to capital. The process by which money becomes capital - in order to exploit workers and produce surplus value, which turns into money again and so on - is not occurring. Today that interaction is not happening.

We can talk about the problem beginning in the 1870s, and the way it was solved through imperialism and war. We can talk of the period after 1917 when effectively the system was able to function very largely due to the existence of social democracy and Stalinism. You cannot take the politics out of political economy: it was through the sell-out of social democracy that capitalism could go on functioning - this was obviously true from 1945 onwards, when the military-Keynesian strategy was adopted.

The essential point is that today that has all broken down. Effectively there is no more social democracy. Around 25 years ago I made this point in a speech and someone retorted: ‘Yeah, it is finished, but remember what Rosa Luxemburg said in 1918 about the stinking corpse of social democracy’. In other words the left has been talking about the end of social democracy since 1918. However, I think it is true that it is finished, I cannot see it having any real meaning today.

As I have said, there is no middle way. It is not just a question of underconsumption, disproportionality and the declining rate of profit. It is an actual crisis of capitalism itself, which is long-lasting - although obviously it will not lead to capitalism coming to an end like a balloon that bursts: it has to be overthrown. But, if social democracy does betray - which it has - and the revolution itself is destroyed by Stalinism, capitalism will not be overthrown. We have had a century when it has been necessary to overthrow capitalism, when it has been demanding its own overthrow, but the political ability to do it has been lacking.

What one has therefore is a continuous crisis and it has to be looked at in those terms, as well as in the more detailed terms of the particular form the crisis takes. If you just look at it in the particular form you end up with a stilted understanding of what is happening.

Falling rate of profit

I will briefly make a point here on the question of the falling rate of profit, since it has become an orthodoxy in certain circles of Marxism. There is no question that if you uphold the labour theory of value, which any Marxist must do, there has to be a falling rate of profit over time. However, it is not automatic and it is based on a simple point that there is a rising organic composition of capital.

The problem is that the organic composition of capital may not rise and it can be offset. In Capital Marx says there are six ways in which it can be offset. In fact the argument against it is much stronger than this. You cannot simply say the rate of profit declines: you must give the details of how the organic composition of capital is rising and is not being offset. You would expect under normal circumstances that there would be ways in which it would be.

There is no question that ultimately the organic composition of capital will rise over one or two hundred years, to a point at which there is no surplus value. And it is true that at times the rate of profit will fall as part of the process of accumulation. But the issue is not whether it falls, but whether the tendency is offset. Since that is precisely described in Capital, you cannot cite Marx as a supporter of the theory of crisis resulting from a falling rate of profit - he does not support such a theory. I recently read the Ernest Untermann (1909) translation of Capital and in certain points it is just wrong. What is particularly wrong is the reference to the ‘law of the tendency of the falling rate of profit’. But Marx never used that expression. It is in Untermann’s English translation, but not in the original German. There is a heading about the “law of the tendency”, but that was not put in by Marx.

The simple, dogmatic acceptance of this theory is comparable to the method used in bourgeois economics. There is a real problem with taking a viewpoint like that and simply running at it in a straight line. As I have said, it is true that in any accumulative process the rate of profit will fall, but that tendency is always offset, or at least offset for a time. It has to be, otherwise when we consider that Marx was talking about it 145 years ago, shouldn’t the rate of profit in the US now be lower? The problem for a Marxist in looking at it in this ‘straight line’ way is that it detracts from the whole argument in terms of the class struggle - and the interrelationship between political economy and the class struggle. You are meant to conclude that the system is simply coming to an end and to put it like that is a dogmatic fallacy.

I am not arguing that this view - and it did become the orthodoxy within Marxism from the 1970s onwards - is not a Marxist argument, but I think it is fallacious. The idea that the falling rate of profit is effectively the only main cause of crisis at all times is simply wrong and it destroys the whole theoretical basis of Marxism. Obviously the people making the argument are Marxist, but I am simply giving the alternative argument. The crisis is not based on the falling rate of profit in and of itself.

The question, of course, is whether it is the falling rate of profit that has caused the present crisis, and it is very hard to build a case to support such an argument. You can collate statistics, as people have done, but where do those statistics come from? The capitalist class is talking about a rate of profit of something like 12%. In the United States half of the companies in the stock exchange get a substantial amount of their profits from overseas, from imperialism, so it is necessary to take that into account. Apart from that, much of those profits are hidden, which means there is no way of accurately establishing the actual rate - and it is quite clear that capital is not behaving as if there is a profit crisis. On the contrary, it seems to have made too much profit! The capitalist class currently operates on the basis that it has too much money. In other words, if you uphold a theory of the falling rate of profit, you need a separate theory to explain the curious behaviour of the capitalist class. I am not arguing that at some point the falling rate of profit might not actually make itself felt: it might, but it is clear that at present this is not the problem.


What we have at the present time is the same basic problem that has existed since the 1870s - the inability to raise productivity to a sufficient degree. So how can this be dealt with? Only by doing what they did in the 19th century and lowering wages, in order to produce a period of boom when there are superprofits (that would be followed by a crisis, of course, but the working class would be under control). It is obvious that the ruling class has wanted to do this all along - returning to conditions of commodity fetishism and the reserve army of labour. However, what is clear is that it cannot be done. Austerity cannot work. The idea that they could abolish welfare benefits to that extent is fantastic. Nonetheless, that is where they are going. Why is this?

There is an ideology within the Conservative Party of the small state. In other words, having a proportion of the population which, despite being effectively on the bread line, is declared to be running small businesses - in Britain the figure for this is about six million people. This categorisation is ideological, but clearly there is no real difference between such people and unemployed or semi-employed workers. Obviously people in that position will tend to move to the left, because there is no solution within capitalism.

It is becoming clearer to the capitalist class itself that austerity is not a long-term strategy. The classic form of capitalism cannot be reimposed. That is why the IMF is now saying that there must be investment in infrastructure. It is why Lawrence Summers, an economist formerly closely tied to the US administration, came out with the line that investment costs nothing, since it is paid for by the return that accumulates. That argument is powerful and it shows there is a realisation that the state cannot continue shrinking indefinitely, which reduces the potential for investment.

Modern capitalism does not work in the way described in textbooks, whereby individual capitalists decide to invest and there are wonderful results. In order to invest, big capital has to be sure that it will get a return over 10-20 years. It must be confident of being able to maintain its current level of profits, or at least something near it. The capitalist class has never really been assured of this since the 1870s, and that applies particularly to the period since the 1970s. So in effect we are in a crisis that has been going on since the 1870s - a situation that was reinforced in the 1970s, when the capitalist class pulled the plug on investment and went for finance capital. But this turn to finance capital obviously has a limit: the amount of money cannot be expanded indefinitely in the expectation that value will be generated out of thin air. From the point of view of the law of value it is technically impossible, but even those who do not support the Marxist view would agree that finance capital on its own is useless. Finance capital has reached its limits and this is a symptom of an overall crisis within capitalism.

Let me repeat: there is no middle way for capitalism. There is talk about state investment, but the ruling class is worried about putting it into practice. They are confused and stuck in a rut - this is an important feature of the crisis at the present time. They can keep on with austerity, but this approach is breaking down, as we saw in Greece. They can see that the economy cannot continue like this and that the working class is not going to accept it. They have to change, but they cannot change, so they simply continue with the old forms.

In other words, a characteristic of the current stage is this prevailing confusion rather than any even semi-rationalised ideology to support the current approach. But a second characteristic is seen in the fact that the working class is beginning to act, and the capitalist class has no real answer. So, on one level, the position today looks very difficult for the working class - but, on another level, it is looking very hopeful, because for the first time since the rise of Stalinism, since the 1930s, we are beginning to see a possible breakthrough.