Letters

Underconsumed

The article by Paul Demarty, ‘Rudeness and revolution’ is disingenuous (Weekly Worker July 4). He has neglected to tell us that the CPGB and, specifically, their in-house Marxist economic theoretician, Hillel Ticktin, have almost exactly the same line on the tendency of the falling rate of profit (TFRP) as Peter Taaffe of the Socialist Party/Committee for a Workers’ International (and the Alliance for Workers’ Liberty) and it is this he wishes to defend.

In fact, Bruce Wallace deals with Ticktin and underconsumption generally in his blog piece, ‘Focus on prominent underconsumptionists: Hillel Ticktin’ (http://tinyurl.com/ticktin). If you look at the comments on the blog, you will see that, in discussing the video of last year’s Communist University, he says: “Then, in response to a challenge on the rate of profit from the floor, he describes believers in Marx’s theory of crisis as being members of a cult! Clearly even in the CPGB there must be some members who can’t swallow Hillel’s nonsense.” Unfortunately, the CPGB has no such critical members. That challenge (for the second year) was made by yours truly and the cult referred to is obviously Socialist Fight.

Paul attempts to denigrate the theory of the falling rate of profit. Let us first of all set out the proposition according to Marx:

“The progressive tendency of the general rate of profit to fall is, therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus value must express itself in a falling general rate of profit. Since the mass of the employed living labour is continually on the decline, as compared to the mass of materialised labour set in motion by it - ie, to the productively consumed means of production - it follows that the portion of living labour, unpaid and congealed in surplus value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus value to the value of the invested total capital forms the rate of profit, this rate must constantly fall” (Capital Vol 3, chapter 13).

TFRP is the central plank of Marx’s revolutionary economic theories. He formed his theory in opposition to the closely related theories of the so-called ‘iron law of wages’ and underconsumptionism, and sharply counterposed TFRP to them. He did not have several theories of capitalist crisis, he had one: TFRP. Marx attacked the ‘iron law of wages’ in two lectures to the International Working Men’s Association in 1865. As the Irish Workers Group say in Connolly: a Marxist analysis, “The argument was that the ‘iron law’ meant the absolute immiseration of the working class, which led to a lack of demand for commodities and hence a crisis pushing prices below the value of commodities, finally squeezing profits.”

This is closely allied to underconsumptionism. Of course, it has an immediate reformist implication: there is a Keynesian solution to the crisis of capitalism. All we need to do is raise wages and pump more money into the economy and the crisis will be solved. Hillel is forever telling us that there is plenty money available, but the capitalists just won’t invest. So implicitly all we have to do is force them to do so or get the government to do so on their behalf. Because this is the case, it is impossible that imperialism will embark on World War III, he confidently assures us in a logical reformist extension.

It is this reformist conclusion that Bruce Wallace has correctly identified in the line of both the CWI and the CPGB. The notion that they won’t invest because the rate of profit is too low is beyond them both.

Ludicrously, Paul tells us: “The idea that the falling rate of profit interpretation has a total monopoly on orthodoxy, and that underconsumptionism necessarily equals reformism, dates not from the 1860s, but the 1970s, and emerges wholly out of post-New Left trends in Marxist economics.”

Well, we already have Marx putting that ‘interpretation’ on it in 1865. Now scroll on 10 years and he is at it again in the Critique of the Gotha programme:

“It is well known that nothing of the ‘iron law of wages’ is Lassalle’s except the word ‘iron’ borrowed from Goethe’s ‘great, eternal iron laws’. The word ‘iron’ is a label by which the true believers recognise one another. But if I take the law with Lassalle’s stamp on it, and consequently in his sense, then I must also take it with his substantiation for it. And what is that? As Lange already showed, shortly after Lassalle’s death, it is the Malthusian theory of population (preached by Lange himself). But if this theory is correct, then again I cannot abolish the law, even if I abolish wage labour a hundred times over, because the law then governs not only the system of wage labour, but every social system. Basing themselves directly on this, the economists have been proving for 50 years and more that socialism cannot abolish poverty, which has its basis in nature, but can only make it general, distribute it simultaneously over the whole surface of society!”

Marx spends 50 pages in volume 3 of Capital explaining this tendency and the countervailing factors, which partially and temporarily offset this “single most important law of political economy”. Lenin cites the falling rate of profit in the imperialist countries as the reason for the development of monopolies and foreign investments a little before the 1970s. Trotsky’s theory of uneven but combined development explained that the rate of profit had to be taken globally in the epoch of imperialism. It is impossible to judge by national statistics, which might prove that the rates of profits are rising in individual countries. This was the crass error of Bill Jefferies, whose misjudgement of the nature of the 2007-8 crises was so famously wrong because he relied on national statistics.

The point about TFRP is that it is a revolutionary theory: capitalism is in crisis because it has these fatal structural flaws; private ownership of the means of production and a system of production for individual profit which has this inescapable tendency to fall and halt production through lack of investment. Only a rationally planned socialised economy based on production for need will overcome the ever recurring crises of capitalism. War on a global scale is the only thing that will temporarily solve this crisis for the capitalists; a much smaller group of monopoly capitalists will now have their profits rates restored before they fall again and the next conflagration is prepared.

That is the history of the 20th century. The same iron laws apply to the 21st.

Underconsumed
Underconsumed

Causes of crisis

Paul Demarty is right in what he says in relation to the role of the rate of profit and crises. In Value, price and profit, Marx says that, unlike the value of labour-power, there is no minimum for the rate of profit. In Capital, volume 3, he writes:

“The average rate of interest appears in every country over fairly long periods as a constant magnitude, because the general rate of profit varies only at longer intervals - in spite of constant variations in specific rates of profit, in which a change in one sphere is offset by an opposite change in another. And its relative constancy is revealed precisely in this more or less constant nature of the average, or common, rate of interest” (www.marxists.org/archive/marx/works/1894-c3/ch22.htm).

On that basis, how on earth can a rate of profit which has no minimum, and which varies only at longer intervals in any sense be considered to be the cause of crises, particularly those associated with the short-run business cycle? It isn’t, and Paul is right that Marx sets out various causes of crises, and different types of crises, differentiating between overproduction of commodities, over-accumulation of productive capital, as well as between these economic crises and purely financial crises emanating within the circuit of money.

But, even in relation to the falling rate of profit, there are numerous misunderstandings. Marx himself, of course, set out a series of countervailing tendencies that those who mechanically refer to the falling rate invariably ignore or dismiss. Some of these countervailing tendencies are themselves inextricably linked to the causes of the falling rate itself. For example, the falling rate results from the rising organic composition of capital. But, Marx points out that the other side of this is that productivity rises, so that both the value of labour-power falls, increasing the rate of surplus value, and the cost of constant capital falls, so that part of the denominator of the rate of profit (s/c+v) falls, so that the rate rises.

Secondly, the assumption is that the organic composition of capital within the economy as a whole rises. That would be the case if existing capitals became ever larger, but that simply does not happen. Marx, in volume 1, sets out that alongside the concentration and centralisation of capital also goes a process of its fragmentation. Parts of that capital are split off to form new businesses, new capital are created from outside and so on. Not only is there no reason why these new capitals should have the same high organic composition of existing capitals, but in general they will not!

A new business in a new industry will tend to have a low organic composition. A lot of its capital will be employed on high value, complex labour involved in research and development of the product, etc, whilst production runs will be small, and mostly involving low levels of capitalisation. If we look at the modern economy, it is dominated by such enterprises. The most valuable company is Apple - a company that did not exist 30 years ago, and most of whose capital goes into the employment of high-value complex labour to develop and design new products, new software and so on. But Microsoft is perhaps even more an example of such a company. The new firms in the industries of biotechnology, gene technology and nanotechnology could also be cited.

It is perhaps no wonder then that, although there have been these theories that try to explain a non-existent global crisis of capitalism on the basis of a falling rate of profit, in fact even in the US the rate of profit has been rising over the last 30 years, whilst the global rate of profit has been rising even more.

But Marx himself made a huge mistake in relation to the falling rate of profit, as I have pointed out elsewhere. He argues that there is a limit to the countervailing tendencies, because there is a limit to how much relative surplus value can be extracted during a single day. His argument is basically that 24 workers producing just one hour of surplus value create more surplus value than one worker even producing 23 hours of surplus value. His argument relies on there being only 24 hours in a day.

But this is wrong, according to his own theory. It is true that there are only 24 hours of concrete labour in a day, but the amount of abstract labour in a day is essentially limitless. Any particular concrete labour is a multiple of simple, abstract labour. Exactly what that multiple is, Marx says, can only be determined in the marketplace by what consumers are prepared to pay for its product.

On that basis, an hour of David Beckham’s labour might be the equivalent of 1,000 hours of simple abstract labour. In that case, there are 24,000 hours of abstract labour in a Beckham day. Consequently, one Beckham working just a two-hour day could produce far more surplus value than 100 workers doing an eight-hour day.

Consequently, if the same capitalist development that results in a higher organic composition of capital also results in a shift away from unskilled labour to skilled, complex labour, it is quite likely that what we will see is not a tendency for the rate of profit to fall, but for it to rise.

Causes of crisis
Causes of crisis

I started it

I read with interest Paul Demarty’s article about the debate within the CWI concerning the tendency for the rate of profit to fall as the main cause of capitalist crisis. This debate was started after my letter and a reply by Peter Taaffe was featured in the April 2012 edition of Socialism Today (www.socialismtoday.org/157/profits.html).

A key statistic in understanding this debate is that there is more than £800 billion sitting idle in the bank accounts of the top 200 FTSE companies. At the same time, the controversy over the rate of profit was one of the reasons why Marxist economic expert Mick Brooks and City analyst Bob McKee left Socialist Appeal.

These two economists each wrote their own books on the subject. Capitalist crisis: theory and practice by Mick Brooks, and The great recession: profit cycles, economic crisis - a Marxist view by Bob McKee (pen name Michael Roberts). In reply to these books, Rob Sewell, editor of Socialist Appeal, had three articles featured in the International Marxist Tendency’s In Defence of Marxism quarterly theoretical magazine. In these three articles, Rob Sewell argues that capitalist crisis is caused by overproduction, not the tendency for the rate of profit to fall.

The question is this: is the £800 billion cash pile due to overproduction in the form of overcapacity, or is it due a falling or low rate of profit? Some might answer that Marx would argue that in 2013 we have an over-accumulation of capital, which needs to be destroyed before the rate of profit can increase. This destruction of capital occurred during World War II, but for the time being, a third world war is ruled out, although ‘minor wars’ are still possible.

So an alternative method is needed, similar to what Thatcher did to British industry during the early 1980s, but this time centred on the Brics, with China being a prime candidate for factory closures and destruction of capital.

I started it
I started it

Lunatic asylum

Hillel Ticktin belongs to the school of pre-energy economics in which we find Marxists and all mainstream bourgeois economists, whether they are Keynesians or advocates of the free market (‘Unforeseen consequences’, July 4). Pre-energy economists, including Marx, did not take into consideration the role of non-renewable energy in the development of modern society. Although still the best critique of capital, Marx excludes the role non-renewable energy played in the development of capitalism.

Ticktin continues with this tradition, which leads him and Nobel prize winner Paul Krugman to misunderstand the true nature of the present crisis of capitalism. Both Krugman and Ticktin believe it is possible for capitalism to get out of this global economic slowdown by spending. This is what Krugman argues in End this depression now and his updated The return of depression economics. The main difference between Krugman and Ticktin is that the latter concludes that leaving the depression would strengthen the working class and weaken the ruling class.

In his article, ‘From finance capital to austerity muddle’ (June 14), Ticktin claims that, although “it is possible to get out of the present downturn, that will not happen, because ultimately this would be suicide on the part of the capitalist class”. No doubt professor Krugman is oblivious to professor Ticktin’s theory that economic recovery poses a great threat to capitalism. This lunatic asylum shared by Ticktin and Krugman stems from the fact that they regard the present crisis as essentially a crisis of finance. The only way economic recovery poses a threat to capitalism is that, if it were possible, it would be hugely inflationary because of the restrictions on oil production resulting from its global peak.

The real nature of this crisis escapes them, and is rooted in the fact that the global oil industry is entering the historical period of peak oil production. Expensive energy with oil trading at over $100 per barrel has led to a slowdown in the world economy. From here on out, economic recovery leads to recession, as it places pressure on oil prices in a situation where supply is struggling to grow. With the peaking of global production, circa 2005-08, there is no way back to the boom years for capitalism. The historic transition from cheap energy to expensive energy has put the brakes on economic growth.

Lunatic asylum
Lunatic asylum

United party

I am honoured, and absolutely delighted, to have been chosen as Rugby Trade Unionist and Socialist Coalition prospective parliamentary candidate for the next general election after an exhaustive selection process. Rugby Tusc asked for nominations from supportive local trade unions - the RMT railway workers union and the firefighters union, the FBU - as well as all our own members. I was nominated and subsequently selected at a meeting in mid-June, a decision that was endorsed by the Tusc national steering committee last week. That is why we are now able to announce the decision publicly.

When I think that Rugby Tusc was only set up in March 2011, as a result of a decision of Rugby Against the Cuts to promote anti-cuts candidates across Rugby, then I find it hard to believe we have a local branch capable of standing candidates in every part of the town, as we did in the council elections this May, but can also now, at a relatively early stage, commit to standing in the general election as well. Quite an achievement!

Rugby Tusc has, in reality, become the active mouthpiece of the local anti-cuts movement. But Tusc is more than just a leader in the fight to oppose the horrendous cuts to public spending we have to endure. We have been actively campaigning on a number of issues, including local NHS cuts, library closures, youth unemployment, attacks on private and public sector pensions, welfare cuts, and in support of same-sex marriage. We have also been actively involved in specifically local issues, including campaigns to save the Lampworks recording studio and to prevent the Sheaf and Sickle pub from being turned into a private dwelling.

It is because we are active that I feel so proud to have been selected to stand for parliament. Tusc is establishing itself as the main opposition locally to the vicious attacks that the working class increasingly faces from the Tory-Lib Dem government - with little or no opposition from Labour. I will work to build on this and help to create a real alternative to all the establishment parties by 2015.

Tusc is determinedly and boldly socialist, and our policies reflect that. Standing in the general election gives us a further opportunity to build a socialist alternative to the other parties - a new Left Party committed to equality, workers’ and consumers’ control of public services and industry, that opposes capitalism, greed, racism and discrimination in all its forms.

We will work with other progressive forces to help build that new party of the left - including the recently formed Left Unity project, which aims to achieve the same thing, and now has a group in Rugby. I am involved with both Tusc and Left Unity, and I will work to help bring the two closer together. There is an urgent need for a new socialist party, and I see my role as trying to help create that by building a strong local movement for socialism.

United party
United party

Principled

I very much enjoyed reading Peter Manson’s article, ‘Government communists turn to witch-hunting’ (Weekly Worker July 4).

I would like to suggest, however, that he looks at the website African Workers Organiser of the International Socialist Organisation (Zimbabwe). Although its main document is dated 2010, I feel that much of it is still relevant.

The ISO was originally part of the Socialist Workers Party’s International Socialist Tendency, but they broke with the SWP in a very principled way. They are now affiliated to the FLTI (International Leninist Trotskyist Faction). This organisation is based in Argentina and is closely allied to the Japan Revolutionary Communist League.

There is one thing I would like to make clear. In the ISO document you will find an item stating that the South African organisation, the Workers International Vanguard League, are also affiliated to the FLTI. I should tell you that some months ago the WIVL left the FLTI. I am very pleased that they did, as they were a nasty group of sectarians.

Principled
Principled