16.12.1999

Capitalism and its decline

Many in the workers’ movement now accept what are erroneously called market values. So is capitalism set to dominate the 21st century? Did Marxism get it wrong about the decadence or decline of capitalism? Hillel Ticktin addressed the CPGB’s Communist University earlier this year on these and other questions.

It is always surprising to me that the question of capitalist crisis is an issue at all. I had always assumed that within Marxism the decline of capitalism was something which was generally accepted.

However, there is today a considerable argument about it. It seems to be a very strong viewpoint held in sections of the left that capitalism is not in decline. And of course one can understand it at a purely empirical level, because it is quite clear that the forces of production continue to develop. They are not going backwards at the present time. They have advanced very considerably since the 1930s, when Marxists were talking about absolute decline.

However, if you read Lenin, Trotsky or the classical Marxists, there is no question that they argue that capitalism was in decline. An excellent example of Marx’s view can be found in the preface to Capital, where he talks of the growth, development and death of capitalism. His is a dialectical method: every phenomenon must ­experience a beginning, its maturity, decline and end.

The comparison has always been with organic entities. Today we have a much better understanding of particle physics and astronomy - we do not have to stick to an organic analogy. Marxists have historically used this organic analogy, taking examples of living entities that come into being, mature and decline. But it is now quite clear to us that this is true of any entity, including the cosmos itself. It came into being, and it will ultimately decline too. So it does not matter what entity you are talking about: a star, a plant or a human being - the same thing is true. It should therefore be obvious that there will have to be a theory of decline of social entities as well - including of capitalism, unless Marxism is to be exceptional as a science.

If one proceeds from there, one would have to argue that capitalism will not be eternal and must therefore come to an end. That cannot happen accidentally, in its maturity. Therefore the question is, why have Marxists often totally ignored this? I think the answer to that is that many are not Marxists at all. That is to say, they do not understand the dialectical method. One starts from the concept of contradiction, of polar opposites interpenetrating and being superseded.

The historical argument then has to be that there was an initial period of capitalism, which is bound up with its transition away from feudalism. The differences between transition and decline are themselves complex, and I have never seen anybody try to make the distinction. The amount of Marxist history, as opposed to an empirical history, that has been written is very little. There is not very much one can turn to when talking about it. Historically one it talking about a transition period from feudalism, an embryonic period, a mature period and then a declining period of capitalism.

One question one could ask is why has the period of decline lasted so long? And if this is a period like any other period, does it not also have a coming into being, a mature and declining phase? In other words, capitalism has its laws. And its various periods, including the declining period, also have their laws.

I think one has to make a distinction between decline and terminal crisis. Capitalism patently is not coming to an end right now. It might expire in 10 years time, but it certainly is not going to expire tomorrow. The point is that a decline can potentially last a long time. But a terminal crisis is something quite different. That will occur when capitalism is actually at the point of being overthrown. And of course no Marxist believes that capitalism will automatically be overthrown. The conditions may be ready, but the capitalist class itself must be overthrown; the working class must take power. So it is possible for all the conditions to be there - and I think they were there in 1917 - but for capitalism to survive, because the capitalist class is sufficiently strong.

In other words one has to make a distinction between the objective and subjective elements. Capitalism itself cannot be overthrown until the subjective aspect is fully integrated with the objective aspect - until the two are identical, as it were. That can only come into being when the working class is fully conscious of itself as a class. But that is not enough. The working class has to actually win a physical battle. Now, I am an optimist, but in principle one could imagine a whole series of defeats, and in a sense that is the epoch we are actually living in. An epoch in which the Russian Revolution, having succeeded, was actually defeated, and in which there have been a series of working class attempts to overthrow the capitalist class which have been thrown back. One could imagine, for instance, that the ruling class is sufficiently ruthless, as in the case of the Nazis, that they physically wipe out large sections of the left, or of the working class itself. Of course, we see certain aspects of that existing today. One must therefore not make the identity between the overthrow of capitalism and the decline of capitalism. The overthrow of capitalism will only take place in the period of decline, but the decline can last a long time.

We have to look at the decline of capitalism not simply empirically, but theoretically too. Its decline can be absolute or relative. In the 1930s there was an absolute decline, when the forces of production were thrown back. Absolute decline became decay - the decay of social relations, the physical decay of the forces of production. There was a massive decline in the rate of growth, and in some places it was negative. If we look at the last 70 or 80 years, we see the way forces of production are being destroyed, we see the way agriculture is being held back, both in the European Union and in the United States. Sections of agriculture have been taken out completely, even though in large parts of the world people are starving. There has been an absolute decline in that particular aspect.

But, it is said, the forces of production have clearly developed, particularly over the last 30 to 60 years. However, that really should not be the major issue. When I talk about decline I am referring to the social relations of capitalism itself: that must mean the law of value. Capitalism above all, is the law of value. Capitalism after all is the expansion of capital: capital is itself the development of self-expanding value. So we are talking about the relative decline of capital, the decline of value.

Value itself is being superseded as the controlling aspect of capitalism. If you think about it, this is a fairly obvious point. The prime contradiction within capitalism, according to Marx, is the contradiction between the socialisation of production on the one side, and the ever fewer number of capitalists, or controllers of capital, on the other. What is meant by the socialisation of production? The increasing integration of the forces of production in a greater complexity of the division of labour. Once you say that, you realise that the role of the law of value must be contracting - that is the automatic consequence of the socialisation of production. The greater and greater complexity and the greater and greater integration of the division of labour is a precondition for the coming into being of socialism itself. Production must be increasingly organised. It is not possible to run a society or an economy on the basis of the law of value or the simple market. This is fairly obvious, and it is a point Marx makes quite quickly in Capital, where he points out that in the factory itself value does not operate. Within the factory, what you actually have is a form of planning.

Today factories are much more complex, firms are very much bigger, there is greater integration between one firm and another, and the level of competition in real terms is very much lower. Consequently, the interrelationships between the different aspects of capital are much closer. Relationships are less based on value; more based on direct contact, organisation, administration. That does not mean to say that value does not exist. But the role of value is being reduced, squeezed out, supplemented. That will necessarily lead to the increasing malfunctioning of capitalism, which is above all an operation of value. If value is unable to operate, one has to ask, what is it that is actually operating? So unless one is going to argue - it seems crazy, but some do - that the more organised the society, the more capitalist it is, one has therefore to say that capitalism is becoming, as it were, less capitalist.

It is a fairly obvious point. It must be true that, as one enters a period leading up to socialism, there will appear various forms that will permit the coming into being of socialism, in a very much easier and direct form.

There have been those who have argued that the coming into being of socialism is very different from the coming into being of capitalism. There could be specific forms of capitalism already within feudalism - capitalism could already exist. In the case of socialism, quite obviously you cannot have the forms by which the majority can rule, or the forms by which the working class could abolish itself. Nonetheless there are forms coming into existence which are proto-forms of the future society, that presage its existence. This is not an argument for the prefiguring of socialism, which seems to me to be nonsense. These forms are not themselves socialist, but are proto-socialist - let us call it that. Not in the sense that they are on the left - they may often be anti-working class - but in the sense that they contradict the essence of capitalism itself.

Concretely, I am talking about the growth of monopoly in giant firms, which play a relatively crucial role in the economy. The growth of needs-based sectors such as health, education and arms production; the increasing role of government in the economy - whether through nationalisation or through direct instruments of control, such as over price and profits, borrowing, money supply. All these forms of control stand in direct conflict with the form of value itself. Giant firms permanently control the market. Prices are arbitrarily set by them, not by the market.

Some of my opponents state that there is no growth of monopoly, or even that there is no monopoly. Well, again, how does one define monopoly? The Marxist definition simply relates to a situation where the price is controlled, not necessarily by one firm, in which value cannot operate as one would expect. It is closer to what orthodox economics would term an ‘oligopoly’. In other words, a number of firms agree - either directly or indirectly, whether through cartels or simply by various understandings - to set the price, to set the amount of goods they are going to sell. In fact they go much further than that.

At various times there is talk of the European Union breaking up a chemical cartel, a plastics cartel or a pharmaceuticals cartel. But in fact to a considerable degree there is no way of breaking them up. For example Dow Chemicals has taken over Union Carbide, making it the second biggest chemical firm: there is really only Dupont and Dow Chemicals now. The situation with computers, where Intel virtually controls the market, is very similar, with just a few small competitors.

Within modern capitalism the firms which control the market tend to exist for a very long period of time. Phillips was founded over 130 years ago (by Marx’s nephew, a history that they do not always shout about). It is a major monopoly, and not just in Holland. It is no longer the case that monopolies come into being and then go out of existence. In 1847 Marx talked of monopoly being replaced by competition, which again leads to monopoly, and so on. Today that occurs at a lower level, but the market is by and large controlled by giant firms which are not going to go out of existence. Nobody believes that Dupont - which after all was founded in 1807, and is still controlled by the Dupont family - is going to go out of existence. These giant firms are more than just monopolies: they exercise permanent control, which prevents the simple operation of the market.

Since an aspect of the socialisation which I mentioned was nationalisation and the important role of the state, one could point to privatisation. And one could also argue that the state sector - education and health, for example - are using the market. Well, the answer is, they are not. In a certain sense they are more controlled by the state than they were before. The idea that Margaret Thatcher attempted to ‘reintroduce the market’ is just nonsense. She certainly was not going to break up the large firms. There was no way she could. I think her role was something quite different.

Electricity, gas, water - they all have a regulator, who plays an important role, exercising a greater or lesser degree of control, depending on the industry. The regulator determines prices, in order to arrive at a particular rate of profit, which is not decided by the market, but by him. This has to be so, because obviously there is no real competition, which has been the case in the United States for decades. There is a form of control where consumers or consumer organisations go to court and the whole issue is fought out there. Nobody argues that the court is equal to market. But the utilities are controlled in that particular way in the United States, and in the case of Britain it is not very different. So, although the market was in theoretical terms introduced, in reality that is not the case. We are talking about a form of control other than value.

The Economist and other journals have made it quite clear that privatisation did not take place in order to expand the market: it took place for straightforward political reasons - in order to control the working class. Of course, it has had a degree of success in doing so. Obviously if you break up the coal mines, if you break up the railways, it becomes more difficult to unionise workers. It becomes easier for the state to control them. But the essential point is, whatever was actually done with privatisation, the market continued to decline.

In fact arms production is determined in the same way - by the needs of the state. If we look at the way the market has supposedly been introduced into health and education what we see is in reality just a muddle. There cannot be real competition within education or health; workers cannot be controlled by turning teachers or healthworkers into a proletariat, as they would be under the market. It simply does not work. Whatever the intentions, the result has been poorer quality education, poorer quality healthcare, and almost certainly something which is more expensive than it was before. One could not say that anything which could be remotely called a market was introduced, let alone the law of value. There are various forms of organisational control, with formal comparisons to the market. But an analogy with the market is not the market.

As a result of the decline in the law of value, in this period there is a very large gap developing between price and value. A watch, for example, almost certainly costs only a few pence to produce. But it will be sold for perhaps £20 - ie, many times its value, many times its cost - simply because the degree of control over the price, and therefore over the market, is so great. What has also happened over this period is the growth and great cheapening of the force of production, and of the goods that are produced.

If prices were reduced to the level of their value, or rather the price of production, prices, and profits themselves, would go right down. Now one of the aspects of the socialisation of production is a rise in the organic composition of capital and an automatic decline in the rate of profit. That has not happened, primarily because producers have been able to keep prices up as against value, allowing them to make a very considerable profit. We are actually living in a period in which capitalism is becoming increasingly organised, but also increasingly arbitrary.

This gap between price and value implies a very high rate of surplus value. It does not automatically follow from that that there is a high rate of profit, which depends on the organic composition of capital invested. Part of surplus value is diverted into the state sector, into arms production, via taxation. Enormous sums are invested in various aspects of circulatory and decaying capital too: for instance, advertising. From the point of view of Marxism that is unproductive: as a matter of fact it is waste.

This is quite a complex issue, but one can say that this kind of gap cannot be sustained forever. We are now living in a period in which almost certainly there is going to be a massive crisis. The guardians of capitalism in the United States are doing their best to try to avoid it, but it is quite clear that in certain respects it is already taking place - most of the world now is in some kind of crisis, outside of the United States and maybe parts of Europe. The point is that this gap between price and value must close at some point. Clearly there is enormous overproduction throughout the world - whether in terms of car production, chemical production, computers or whatever. There is also an enormous gap between what could be produced and what is being produced. At some point it is going to explode. We are in a situation which hangs by a thread. It can be held off for a long time, but the gap between price and value must inevitably show itself in that kind of crisis.

There is an enormous surplus of capital. The United States has something like $1.66 trillion of assets in pension funds, which have to be invested. Where are they going to be invested? In the period before the Asian crisis they went to various parts of the world. $100 billion was actually withdrawn from Asia when the crisis took place there. This applied to a number of countries which were considered increasingly risky. In terms of the funds which are actually held this was not a very great amount. Nonetheless these funds must be invested somewhere.

What has held the crisis back up until now? Primarily the cold war. So long as there was Stalinism, it was possible for the United States to discipline the working class. The anti-communist ideology allowed the working class to be disciplined, allowed the unions to be controlled, allowed wages to be held down, for a long period of time. They have gone up in real terms, but in relation to total surplus value they were held down.

Much of the cold war propaganda was true. Not all of it of course - not the anti-socialism. But there was indeed terror in Eastern Europe and in Russia. There was no question about the role of the labour camps. The working class was controlled in these countries. There is no doubt the standard of living was much lower than in the United States. It might not have made any difference if it was untrue, but, however much we may be opposed to US ideology, the fact is that the ideology that was put forward rang true - the United States of course had substantial immigration from the Ukraine, Poland and so on. And that produced a degree of acceptance in the working class and permitted the kind of discipline that we saw in the United States for a long period of time. It was not the only reason, but the cold war certainly was crucial. World War II and fascism, as well as the McCarthyite period, were also factors.

Although the cold war was primary in holding back the crisis, the arms sector, which today accounts for $250 billion, was also important. Arms production raised profits directly through the state sector, which under capitalism is inefficient, because it is corrupt. The state would necessarily pay a lot more for arms production than if it had been purely in the private sector. And, unlike expenditure on health and education or raising wages, arms production does not strengthen the working class. It is the ideal way to waste money - much better than just digging holes and filling them up again. Arms production constantly created its own demand. The forces of production require continuous improvements. Better arms, better bombs, better means of delivery.

Arms production raised the rate of profit; it prevented a disproportion between department one and department two: between heavy industry and consumer production. Many people - like the Socialist Workers Party in this country - see the ever expanding arms sector purely in technical terms. The SWP theory is so stupid, it is hardly worth a mention. But I am doing so in order to make the distinction between its theory and what I am saying.

The Soviet Union itself acted as a stimulus for demand. It needed wheat and so propped up the Canadian, United States and Argentinean agricultural industry. It needed machine tools on an increasing scale, which played quite an important part in relation to Germany.

The point then is that the cold war in its historical context is what allowed capitalism to continue in a period of decline. The very fact of the cold war was an indication of the decline of capitalism - the destruction of the world had to be threatened. It is a barbaric system that can only be maintained in this way.

Now that the cold war is no longer there, the gap between price and value cannot be maintained. The different aspects of crisis which have been held at bay all through this period can no longer be maintained either. That is why there is an enormous surplus of capital today which has no outlet. It has led to peculiar forms of investment, such as the hedge funds. Last year, in order to prevent a crisis from breaking out it was necessary for the US government to bail out the long-term management hedge funds - which owed $1.3 trillion, but had assets of only $600 billion. Hedge funds represent the gambling of huge sums of capital, looking for outlets. It has become increasingly more difficult for governments to control, as Greenspan managed to in this particular instance. It was impossible to supply $700 billion. $5 billion turned out to be enough and the banks agreed not to foreclose.

Such action has stopped the present crisis from breaking out in its full force. It is quite clear that in spite of the nonsense talked about private enterprise and the market, the authorities are always prepared to step in. The idea that ‘you can’t buck the market’ is just rubbish, and takes someone as stupid as Thatcher to propose. The market is always bucked; the market today never runs by itself. There are always a small number of people who are in control. But for how long will this be able to continue?

Some time ago I met a stockbroker who argued that crisis would break out, and that the government would not be able to control it, and I argued against that, rather paradoxically. But I now think that it is probably true that the surplus capital is so huge that governments will not be able to stop the crisis at a certain point. It will simply roll over them.

The development of capitalism to the point of finance capital is itself a very clear aspect of direct decline. Money is taken out of production and put into circulation, as a result of which the productive sector is starved. The unproductive sector grows; the productive sector declines. If one actually has the viewpoint, which apparently quite a few finance capitalists do have, that money makes money, then the logic would be that nothing at all would be invested in production and capitalism would effectively die. It would be like the behaviour of a parasite which did not understand the nature of its host.

However, the growth of finance capital represents not only a movement from the productive to the unproductive. It also represents the dominance of abstract capitalism - ie, abstracted from production, but able to organise the economy as a whole. That is a new phase of capitalism. The different aspects of monopoly, nationalisation and so forth are bound together by a finance capitalist class. However, finance capital, which itself is the final form, or the form of decline of capitalism, is itself in decline.

In the 1860s and 1870s, when finance capital began to develop in Britain, money was taken out of production and exported elsewhere, or put into the insurance industry, for example. That was done by big capital, by capitalists whose names were known. That is no longer the case. Today decisions as to where money is to be invested - which sectors, which parts of the world - is made primarily in the United States by something like 20 investment managers. These pension funds, the insurance companies and so on, hold shares on the stock exchange.

It appears that these investment managers meet every six months, possibly now more often, and agree - very broadly obviously - how they are going to invest. They are part of the capitalist class in the sense that they are rich and have some number of shares. But it is the fund managers, not the actual owners, who are responsible for accumulation today. Finance capital has therefore evolved to an even more degenerate stage. To a certain extent what is being used as capital are the pensions and savings of the working class. This is a very contradictory form of capitalism. It is not spontaneous capitalism in any sense. The capitalist class is standing at one remove. Marx made the point that joint stock companies make the capitalist otiose. Now of course this has been vastly extended.

At the present time, there are rising share prices, rising apparent values, yet a relatively low rate of growth within production. It is a major problem. France and Germany have redirected or at least maintained investment in industry. Even in the case of Britain, it is clear that the capitalist class is worried about the small size of its industrial sector. In order to survive it has to invest its unproductive capital. Capital understands that to the extent its industrial sector shrinks its finance capital is automatically reduced. Pension funds cannot grow if there are fewer workers. This cycle is necessary, but the capitalist class is in insufficient control for that despite a higher degree of organisation.

When finance capital is in control, as it is in the United States and Britain, the nature of industrial capital also changes. Although it is in antagonism and direct conflict with finance capital, nonetheless it is managed in accordance with finance capitalist norms - in other words in a short-termist way. It is governed by the laws of finance capital, which is of course first and foremost directed towards making profit as quickly as possible, irrespective of the manner it is made. So industrial capital in Britain is of an inferior kind, as compared to the long-termism in Germany. It is not an accident that German capital has been superior to British capital: it is not governed in the same way by finance capital. For example German banks are prepared to invest for 20 years - unlike in Britain, where a return is demanded within two years. The banks are prepared not only to lend for a longer period, but to buy shares in the company, the result of which is that the Deutsche Bank virtually owns Germany.

This logically means that industrial firms will transform themselves, as Ford and Volkswagen are doing in Brazil. The headquarters and the marketing operations are maintained, and not the assembly lines, which are taken over by others. British Airways was talking the same way a year ago - concentrating on its marketing and finance operations.

Keynes talked about a return to industrial capital, and finance capital being put on the back burner. There is no question that that actually happened. Between 1940 and 1973, the standard of living for the working class rose three times in Britain. It was unprecedented within the whole history of capitalism. Nobody holds that capitalism acts in the interests of the working class. The capitalist class, realising that it could be overthrown, had to mount a retreat. It had to make concessions to the working class. However, from 1973 onwards finance capital has undoubtedly returned as the dominant form.

I have argued up to now - implicitly, if not explicitly - that the theory of decline put forward by Marx, Lenin and Trotsky is correct. But I am putting forward a more general theory of decline. The capitalist class, because it realised that it could be overthrown in this period, as it was overthrown in 1917, preferred to accept the cold war and a period of growth. And that did indeed maintain capitalism. But there was a limit to it and that limit has been reached. We are returning, as it were, to a previous period, not just of relative decline, but a period in which one has to raise the possibility of absolute decline. Clearly in much of the third world the standard of living has been dropping for some time. But the same may well become true in the first world.

In conclusion it can be demonstrated that capitalism is in decline in two ways. First, empirically: the gap between potential and actual productive forces is enormous and growing. Capitalism is not fulfilling its own function, as it were, of raising production. There are so many ways in which capitalism holds it back. Could not socialism vastly increase production, compared with the present day? I think the answer is obvious.

Secondly, in terms of the social relations of production. They have departed significantly from classical capitalism: that is to say, the expansion of value. There is an increasing role for decadent sectors such as finance capital, which pull money out of value, and sectors which are not actually governed by value, but which are governed by management, organisation, etc. It is still capitalism - the capitalist class is there - but this is hardly a more mature form.