The chief task of Marxist political economy theory for the present time is that of extending Marxist theory to understand the period since the 1920s.

There has been a considerable amount of academic or semi-academic work on basic Marxist concepts since the 60s. Some of it has added to our understanding through the refining and development of concepts, but some of it is little more than scholasticism. Refusal to grasp the real degradation of Marxism in the hands of those who supported the concept of socialism in one country has also prevented the emergence of a vital political economic theory of our times.

We cannot pretend that there is a Marxist theory which is adequate to the times. It has to be developed. What follows is a sketch of aspects of contemporary political economy highlighting the urgency of the task to form a Marxist party. Any Marxist has to deal with a series of questions, which have been formulated, but only partially answered, by Marxists in the post-war period.

How do we understand our present epoch? Is it, as Trotsky put it, an epoch of transition brought about by the betrayal of the social democrats? Is capitalism in decline, as Lenin formulated it? Is the imperialist stage the last stage of capitalism? How do we analyse the rise and fall of Stalinism? What role did Stalinism play in the stabilisation of capitalism? How do we explain the relative stability of capitalism until now? How do we understand the nature of the transition to socialism itself? Is the present downturn a major turning point or one more economic cycle in the history of capitalism?

Historically, genuine Marxists have produced very different answers to these questions and there is no reason why the CMP should adopt a single set of such answers. Nonetheless, there has to be sufficient common ground to allow the formation of a coherent party. The common ground may be less in the analysis and more in the prescription for what is to be done, but it has to exist.

One of the defining differences among people on the left has been their attitude to an analysis of the USSR. While it is our view that the CMP can encompass different schools of thought on this question, it cannot accept anyone who sees Stalinism in any sense as a positive phenomenon. The CMP starts from an acceptance of the October revolution as a turning point in the history of humanity, as the first successful proletarian revolution, and it regards Stalinism as a counterrevolution, only possible because of the absence of a revolution in the developed countries, most particularly Germany.

We cannot understand the political economic history of the period without incorporating an analysis of the role of Stalinism in corrupting Marxism, undermining and preventing the left from taking power outside the USSR. It played a crucial role in maintaining the stability of capitalism, together with social democracy. The objective nature of Stalinism in stabilising capitalism through the cold war and the collaborative and apologetic role of the communist parties was not just under-theorised: it was wholly omitted in practically all Marxist political economic analyses.

Social democracy has played itself out as a political force by moving to the right in accepting the dominant role of finance capital and its policy of so-called neoliberalism. Its historical legacy, the welfare state, is being progressively dismantled. Since Stalinism is dead or dying, the cold war is over and social democracy is effectively finished, the logic of this position leads to the view that capitalism in the 21st century is potentially more unstable than at any time since the 30s and hence the urgency of the task of forming a Marxist party.

At the present time, this separates us out from the pessimists who mourn the death of Stalinism and social democracy and argue that we are in a period of retreat. In what follows we present a possible interpretation of the political economy of contemporary capitalism. We must emphasise that members do not have to subscribe to every aspect of its analysis.

Equilibrium and crises

Marx analyses the reproduction of capital in its equilibrating and contradictory forms. In this respect, he shows that capitalism undergoes periodic crises, which threaten the system itself. The left has talked of crises ad nauseam, making the term so broad that it has little meaning. We will confine the word ‘crisis’ to a period when the stability of the system is threatened.

It can be unstable either because the working class threatens to take power or because the system itself is in decline and is beginning to disintegrate in the absence of the supersession of capitalism. From this point of view, the regular economic cycles are not necessarily crises. It is our view that the relative stability that capitalism enjoyed in the post-war period is at an end.

Capitalism itself has used three economic forms to ensure its continued equilibrium, once it entered its declining phase. Lenin and Luxemburg argued that imperialism was just such a form. Imperialism involved two aspects, which allowed capitalism a longer period of life. The first was the extraction of tribute from the conquered countries. The fact that the tribute took the form of super-profits taken from the colonies does not alter the fact that it was forcibly extracted from them in order to raise the rate of profit in the metropolitan countries. The complex interrelation of the colonies and neo-colonies, or underdeveloped countries, in providing cheap raw materials, markets and opportunities for investment for the imperial countries is the second aspect of imperialism. This has continued to the present, even though direct colonial rule is rare today, and though the massive rate of exploitation of the late 19th-early 20th century is not what it was. Finance capital is an integral part of imperialism.

The second economic form employed by capitalism was the use of war and the increasing role of military industry. Concessions to sections of the working class were the third, which ran in parallel with imperialism and war. This involved the introduction of elements of what became the welfare state after 1945.

These forms were imposed on capitalism in order to ensure its survival and had their own limits. It has become customary in the present epoch to talk of capitalism always having a survival strategy, as if such strategies were always benevolent and always present. Eduard Bernstein began this fashion with his incorrect interpretation of German capitalism in the light of his superficial understanding of Marxism.

In reality, the global catastrophes of imperialism and continuous wars, including two disastrous world wars, are an integral part of the political and economic history of modern capitalism. They are not accidents or particular political strategies, as Kautsky preferred to call imperialism, but essential to the everyday operation of a declining capitalism. Modern capitalism cannot subsist in internal equilibrium without war. To the extent that it does function with less war, it goes into downturns or crises.

The welfare state of the post-World War II period is built on the bones of the millions who died in the imperialist invasions of their countries, the bones of those who died early of superexploitation in the colonies and on the back of those who fought in the two world wars. One estimate speaks of around 200 aggressive incursions into the territories of other nations by the United States, in the post-World War II period. The cold war has played a special role in this regard.

Long wave theory

Trotsky’s long wave theory also provides a framework with which to understand the political economic history of the last 200 years. The essence of his argument is that the waves are politically determined, in that the capitalist class will only invest long term when the barriers to accumulation come down. When, therefore, the working class has suffered a long-term defeat, and wages are low and the provision of work conditions relatively cheap, capital expands over time. This may coincide, as Mandel argues, with particular bouts of innovation, so prolonging the period of the boom.

Each wave, however, is specific to its time. From this point of view, the period from 1940 marks a new wave, with an upsurge beginning with the war. The point of inflection comes with the actions of the working class in 1968 and later, resulting in a shift away from industrial growth to finance capital. In other words, accumulation declines and gives way to finance capital, which operates to raise the rate of profit and shift the distribution of income away from labour to capital. During the upswing of the long wave, the economy booms and cycles are short-lived and limited in depth. The opposite is the case with the downturn.

A number of people have raised the Kondratiev cycles as an alternative to the long wave theory. Whether they are right or wrong, the cycles are not Marxist, but technical. They do not relate to the class nature of the society, surplus value or the organic composition of capital. While Marx himself refers to the time taken for investment in producer goods to come to fruition, he does not stop at that point.

There is another objection to the Kondratiev cycles. They remain unproven, most particularly because the long length of the cycle and the relatively short time in which they are supposed to have operated make proof difficult. In other words, the wave itself is 45-60 years and its operation can be traced back perhaps 200 years plus or minus.

It should be noted that Kondratiev got his impetus to study the long wave from the 1921 Trotsky speech to the Comintern. While it might be said that the Trotsky long wave is subject to the same critique as Kondratiev, certainly in terms of definitive proof, nonetheless, its dependence on concrete political events and their effects makes it much more useful.

Even if we do not posit such long waves, various theorists have pointed out the particular role of wars, revolutions, imperialism, etc. One can, therefore, use the long wave as an adjunct to such theorisation, which in the end is the same thing as accepting the long wave. Which version - that of Trotsky, Mandel or someone else - is adopted depends on the theorist. In the case of the wave theory, there is no reason to assume either the automaticity of such waves or even their permanence. The crucial point is that they interrelate class struggle with the movement of the categories.

Value theory

The basis of Marxist political economy rests on the labour theory of value. Value is produced by the abstract labourer in the process of his concrete work, for the purpose of producing use values for the consumer. His abstract labour is translated into quantity of socially necessary labour time and hence to exchange value.

There has been an enormous amount of energy spent on re-interpreting the labour theory of value, proving it empirically and refining the concept of abstract labour itself. While the academic work so performed has its uses, it is not accidental that much of the writing is closer to scholasticism than to Marxism. Remarkably, analysis of the contemporary scene based on Marxist categories is very limited, often dogmatic and sometimes little more than mumbo-jumbo.

Marxism argues that competition is the method of enforcement of the law of value, but it is not in itself a law and it is not in itself a source of value. For that reason, competition has to be regarded as a second-order concept. There can be no question that new and more efficient competitors can decrease market share for the original firms and cause a decline in their profits, but overall surplus value will not alter as a result, unless there are other changes. Hence, theorists who put particular stress on more or less competition in reducing or raising profits may perform a useful empirical service, but their argument is superficial.

We cannot regard exact calculations of the rate of profit as politically important, particularly as it is virtually impossible for value to be calculated on the basis of company reporting. Whereas large shifts from capital to labour and vice versa may be visible over time, changes in the rate of profit at particular times, calculated on a value basis, are hard to prove. Furthermore, it is not clear what effect a marginal decline in the rate of profit may have on accumulation. In fact, it is not at all clear that even a considerable decline necessarily leads to lower levels of investment, provided that the rate of return remains positive.

Unfortunately, some theorists have relied exclusively on a simplistic rendering of the falling rate of profit/rising organic composition viewpoint. Taken to the extreme, as has been done, it leads to an ‘economistic’ explanation of all economic development under capitalism, so avoiding a real socio-economic history or, in Hegelian terms, an interpenetration of the subjective and objective.

Forms of contemporary capital

Finance capital is abstract capital: that is, capital which has established itself as independent of its origins and location. It can accumulate, therefore, independently of the location of the extraction of surplus value. It is financial capital which has come to dominate the process of accumulation and therefore impose its imperatives, rather than those of productive capital. In its nature, it demands profits to be extracted as quickly as possible, regardless of the long-term results. It is, therefore, predatory and destructive of productive capital.

While financial capital, as part of the process of circulation, is a necessary component of the process of accumulation, its needs are controlled and balanced by the productive sector. Finance capital removes this balance, so creating the illusion that money creates money and that an economy can exist on the basis of finance alone.

Finance capital can be regarded as a deliberate ploy by the capitalist class to avoid the class struggle in the metropolitan countries. In the United Kingdom, which was the most advanced capitalist country in the world at the time, the capitalist class withdrew capital from industry in order to export it both to the developed and underdeveloped countries before World War I. In so doing, it avoided depleting the reserve army of labour in the UK and incorporated the working class in its imperial adventures. It raised its rate of profit from the time when Marx was talking of the problem of the falling rate of profit.

One of its characteristic features is its short-termist nature. It is itself necessarily unproductive and hence must obtain value from the productive sector, whether it be products or services. Hence, its short-termist abstraction of value from the productive sector deforms or stunts that sector, in whatever country it might operate. It can even destroy the sector.

However, it has historically offset its parasitism with investment in productive capital in other countries. The investment in the third world was accompanied by direct robbery and the use of the imperial state apparatus to enforce its will. In effect, the workers and peasants paid for the depredations of finance capital, while the working class paid for the state subsidy involved in the process of conquest and administration of the colonies, in so far as the money did not come from the inhabitants of the colony itself. Its investments in the first world did assist directly the industrial development of those countries, even though finance capital extracted a price for it so doing.

We may regard the period down to World War I as the first period of finance capital - its heyday, exploded by the Russian Revolution and World War I. The two major finance capitalist powers, France and the UK, lost heavily in this process, leaving the way open for the United States to become the dominant finance capitalist power, particularly after World War II.

‘Historic compromise’

It is generally accepted that the capitalist class agreed at the end of World War II to adopt a concessionary strategy of growth and full employment in the developed countries. It is usually known as the Bretton Woods agreements. This was combined with a welfare state, whose dimensions differed according to the particular country.

This was a deliberate concession predicated in the first instance on the defeat of fascism, which was itself an inchoate and irrational response to a capitalism under threat of disintegration or overthrow. Capitalist instability can also be contained, for a time, through repression and the period during the two world wars saw wave after wave of repression in the developed countries, most particularly in central and eastern Europe.

While the post-war period may be regarded as a period when the capitalist class had to concede, in reality it was also a period when such concessions could be made without any danger to capitalism itself, unlike the period after the Russian Revolution. The Nazis had destroyed the most powerful working class in the world and Stalinism had destroyed the impetus of the Russian Revolution. Furthermore, Stalinism prevented the working class from taking revolutionary action, most particularly in Europe. The immediate danger from the world working class was contained, but the underlying threat of the Russian Revolution remained. It had become built into the epoch itself, in spite of Stalinism.

The resulting concessions made in the post-war period were spectacularly successful and provided a period of social democratic calm in western Europe. The standard of living of the workers in western Europe and the United States rose very considerably until the late 60s and early 70s. By 1968, the conditions which made the concessions viable had begun to evaporate. The working class was no longer disciplined by the history of the great depression, fascism and the world war. Stalinism was declining fast in its ability to control the working class and social democracy could no longer deliver what was required. Above all, a capitalism without a reserve army of labour cannot control the class. Still less can it do so when much of the economy is nationalised and politicised, so breaking commodity fetishism.

Workers were demanding control and greater democracy in the workplace, as well as higher wages. It became clear that the capitalist class could only revert to its former form to maintain control. It returned to finance capital. Some argue that there was a downturn in the rate of profit through wage rises and others argue that a rise in the organic composition of capital was responsible. The capitalist class clearly needed to change the terms of its relations with the working class, whatever the immediate reason.

Throughout, the major condition for the growth strategy was the cold war and the series of secondary hot wars that erupted - Korea and Vietnam were the two biggest. Wars permitted the west to invest heavily in the military sector and so create demand, particularly for the producer goods sector. It raised the rate of profit, in large part through the exaggerated prices charged to the state, and it increased overall demand for goods, including consumer goods. Taxation and the issue of government debt provided the funding, and it was generally supported by the public, who took the view that the USSR was a menace to the ‘free world’.

Stalinism, therefore, stabilised capitalism in three ways: firstly by providing the cold war with which capitalism could accumulate beyond its previous limits; secondly by controlling the working class through its communist parties; and thirdly through its responsibility for the creation of the anti-communist ideology, given the monstrosity of its operations.

Finance capital and its limits

The re-introduction of finance capital, in the 70s, was planned in its outlines though not in detail and it evolved over time, with privatisation, elevation of market-type controls over the public sector, outsourcing government activities, a massive extension of credit, both personal and corporate, and the imposition of IMF/World Bank market conditions on all loans to the third world.

The short-termist nature of finance capital led to the elevation of ever-higher returns on capital as a crucial criterion of success. This led to ever higher share prices, based on ostensibly rising profits. In this period, the rich got richer and the poor poorer, some relatively and others absolutely. Income differentials have grown to levels not seen since the pre-war period. Asset prices rose spectacularly given the wall of outstanding money looking for investment opportunities.

In reality, profits were often specially driven up, using creative accounting, through a number of well known and well tried methods. This helped the shift of income away from the working class and the growth of real returns to the capitalist class. In this period, the upper managers in large corporations came into their own, receiving salaries so enormous, running into millions and in a few cases hundreds of millions, that it is clear they had been enfranchised by the capitalist class itself as an entity worthy of equal rewards. The division between ownership and control appears, at one level, to have been resolved, in that the managers are also part of the capitalist class in their own right.

The levels of unemployment rose equally spectacularly. In the third world, the numbers are so great that there can be more unemployed than employed. In the first world, the figures are obscured by the terms used. In the UK, there is a proclaimed difference between the employed and the economically inactive. It is clear that the latter figure is the one comparable with those down to 1970 and we can talk of 15% to 20% de facto unemployment.

As the trade union leaders can no longer get economic concessions, they are bereft of a function and have lost members on a considerable scale. Trade unions have to return to their origins, when they were political, in order to achieve real gains. Today they arrange bargains with the Labour Party of a limited kind, expressing the real need to act politically, but their demands are so limited, they must be regarded as impotent.

In the present historical period from the late 1970s to the present, finance capital has reached the limit of its historical development, in that it has become cannibalistic. It has turned in on itself and begun to devour its own creations. Hedge funds and private equity represent sections of big capital that cannot invest in industry, because there is no opportunity to do so and get an acceptable rate of return in a short time. The return to finance capital in the 70s led once again to a lower industrial rate of growth in return for an export of capital, most particularly to China. Attempts to export capital to other parts of the world were not always successful and did lead to very large finance capitalist losses, as in the banking crisis over South America in the early eighties, or for that matter in relation to Argentina. Similarly, there was a financial crisis in East Asia in 1997. This led to an attempt to return capital to productive industry, most particularly with the dot-com boom, and indeed the whole period after the crisis of 1989-93. However, finance capital determined the form and result of the boom. Short-termism was all.

As a result, firms attempted to artificially raise their share prices by distorting their profits by various forms of ‘creative accounting’. Workers were paid in shares and the resulting income not counted in costs; money was taken out of the pension funds on a very large scale in order to boost the share price of the firm’s shares already held in the pension fund, creating an apparently rising surplus in the pension fund; losses were put into secret offshore accounts; firms bought up competitors’ output on a mutual basis, so creating an illusion of increasing output. As a result, the boom of the 1990s was in large part an artificial upturn, which could only have a spectacular end, as it did first with the Long Term Capital Management Fund going under and then the downturn starting in March 2000, with the dot-com crash.

US in decline but still dominates

Finance capital only turned to China in a very big way during and after this period. For some time, the actual profits so obtained were meagre. However, the reserve army in the developed countries increased and wages were held down, at the same time as goods imported from China were very cheap. That meant that the standard of living could remain static with declining money wages or even go up. The flows of profits from China are dwarfed by the enormous investments in US government bonds by the Chinese state. Just as the Japanese earlier invested in US bonds and property and lost a considerable amount of the value of those investments as the dollar declined in relation to the yen, so the Chinese are today losing out. In effect, taxation in the United States is reduced as a result, so allowing corporations and the rich to benefit, given the relatively regressive nature of modern taxation.

There are those who talk of a shift in power away from the west to the east, from the United States to China and India. There is no evidence of this seismic shift. If there were one, it would be a shift from the US capitalist class to the Chinese Communist Party or to the capitalist class of China and that of India. In fact, the Chinese economy is highly dependent on its ability to export its goods to the US and Europe, and this in turn is dependent on the absence of barriers for that export. Furthermore, it should be noted that the Chinese Communist Party is not that stable, in that there were some 80,000 protests, marches, etc in 2007 against various government-controlled policies.

Given the strategic role of the US in the area, both in regard to Taiwan and to other states, one might surmise that the US could destabilise China if it so wanted. It could do so by supporting various minority groups, whether of an ethnic or an ideological kind, as it appears to be doing in Iran. It could mount an international campaign for free speech and support various indigenous movements, as it has done in the past in eastern Europe. In fact, although there are clear elements of these aspects to be seen, they are limited - more of a warning than a threat. In other words, China today is heavily dependent on the west both economically and strategically.

The production of goods in China should be looked on as yet another example of exploitation by the capitalist class of the west. Goods are made in China under strict supervision, with workers being super-exploited, working up to 13 hours per day, for a pittance in pay. The goods are exported to the west for low prices, allowing the resulting lower wages of western workers to raise profits. As indicated, taxation is lower because of the investment of Chinese foreign currency in US government bonds.

The success of Japan, South Korea, Taiwan, Singapore and Malaysia had more to do with the cold war than with some superior ability to absorb capitalism. It should be noted that these countries had occupying troops for crucial periods, who ensured that the working class was controlled and so could be super-exploited to make high profits. At the same time, the United States allowed these countries to have access to its market, although the same countries maintained tariffs against US industry.

China does not have the same conditions. Although the Communist Party controls the country with a military/secret police presence, it remains vulnerable to internal discontent and has to make concessions from time to time. As a Stalinist-ruled country, it still has its legacy of low productivity in the state sector and a more general tendency to lower productivity where the state plays a role in industry. Furthermore, it has joined the World Trade Organisation, under which it is bound to a series of rules of international trade, so making it more difficult to protect its industry. There is, therefore, a limit to the success of Chinese capitalism, a limit that is likely to show itself under the current downturn.

Historic turning point

In short, capitalism was stabilised by Stalinism, social democracy and the cold war. All three have gone. Finance capital has taken over the strain, but is itself short-termist and has reached its natural terminus, with a huge agglomeration of capital unable to find an outlet. The result was a downturn in March 2000, which was only lifted with the war in Iraq, leading to war spending practically doubling. The boom which then erupted took on wholly unexpected forms, in that the US balance of payments grew to unsustainable levels, resulting in the decline in the value of the dollar and in trust in the dollar.

US capitalism, which was already in decline as the hegemonic capitalist power, reached a turning point. Asset prices went through the roof, among them houses; derivatives reached the gigantic figure of $596 trillion; and commodity prices took off. The wealthy could not invest in industry, so they put their money into any available asset that looked like increasing in price over time, including various forms of gambling on price changes.

At some point, the asset price inflation had to come to an end. Eventually commodity prices will also fall. At the same time, there is a limit to war, when people do not want to fight and the war is regarded as illegitimate. Industry then finds itself in trouble, both with the absence of war funding and with the decline in asset values. Demand for goods retreats, as workers’ wages are static or decline and more are unemployed.

We are now living in an historic turning point. The present downturn is a result of the end of the period of post-war stability. It is already comparable to the 1929 depression in its potential magnitude, had the government not intervened. It still has a long way to go.

Marxists have long talked of the contradictions of capitalism showing themselves. In the past, they refused to look at the reality of the forces stabilising capitalism. Today they must not be so traumatised by their past failures that they cannot see what is staring them in the face.