I strongly believe in Marxist education. One of my main criticisms of the “Marxist-Leninist” left has been its tendency to reduce the ranks to passivity. You have a kind of division of labor with the top leadership of the party deliberating on theoretical and strategic questions and the lower ranks acting on their deliberations. This flies in the face of Marx’s description of the task that faced the movement in his day: the ruthless criticism of the existing order, ruthless in that it will shrink neither from its own discoveries, nor from conflict with the powers that be. And, of course, in order to be able to criticize the existing order, you really need to understand it.
When I proposed an Introduction to Marxism class to the subscribers of Marxmail and the readers of this blog, I had an ulterior motive. While the class was primarily meant to explain some basic concepts such as imperialism, the national question, I wanted to educate myself on “crisis theory”, an area of Marxist economics that I was aware of for a number of years but had never really dug into. It seemed like a particularly good time to attack this subject since the bourgeois press is filled with articles now about whether we are facing “another 1929”.
I especially was looking forward to reading Henryk Grossman, the subject of a biography by Rick Kuhn that is the latest recipient of the Isaac Deutscher prize. Grossman, along with Paul Mattick, has the reputation of being associated with what some might regard as “millenarian” tendencies. They get lampooned in those cartoons with a guy in a long beard carrying a picket sign with the words: “The end is near” as in the example above.
If got the same kind of chuckle from reading “gloom and doom” predictions on the Internet for the past 20 years, even from my good friend the late Mark Jones, who bet left-liberal economist Max Sawicky a case of Lagavulin single-malt scotch in 1987 over whether the Dow-Jones industrial average would go below 3000. Mark died before he could make good on the debt, but here was one of his last words on the topic with his characteristic ability to poke fun at himself:
The sad fact is that is I who owe Max Sawicky a case of Lagavulin. I wrote to him a while ago apologising for my slowness in honouring a bet I lost. The bet was that the Dow would fall to below 3000 within a year; it didn’t. My reasoning was that at its height, the Nikkei, now down around 12k, reached over 40 000, and that the equivalent release of gas from a deflating Wall St bubble would bring the Dow down to 3k. We shall see, altho according to Julien [probably a reference to Jurriaan Bendien] I don’t know anything about the Nikkei anyway.
My secret plan is to send the Lagavulin to Max when the Dow DOES hit 3k, and then honour will have been satisfactorily served all round.
As I began to read Grossman, I wondered what kind of connection could be made with financial crises like the 1987 crash that spurred Mark to make his bet. If you read Grossman’s “Law of the Accumulation and Breakdown of the Capitalist System“, you will note that “overaccumulation” is the primary cause of breakdown. Put in the simplest terms, this means that the capitalist class runs into a brick wall eventually as it replaces workers with machines. Although machines can improve productivity, they eventually cut into the rate of profit since they are not capable of producing surplus value. Since most of the major economic crises of the past 35 years or so have involved financial institutions (Savings and Loans, LTCM and stock market bubbles of one sort or another), what is the relevance of Grossman’s theory? When I posed a question about this on Marxmail, it prompted a couple of perceptive replies from Andrew Pollack and John Imani:
Andrew Pollack wrote:
I haven’t read Grossman, or Kuhn on Grossman (and really want to thanks to Louis’ query and previous ones about him). But, unless I’m misconstruing the question, the organic composition/falling rate of profit has everything to do with crises based on fictitious capital — because capital flows into those nonmanufacturing sectors in the first place (including dot.com) for lack of profitable outlet elsewhere (by coincidence there’s a great quote in the Times yesterday expressing skepticism that the banks being bailed out would do anything with that money that would help the economy). Of course all of that just sets the stage for what happens afterward, and each financial crisis is unique, even if they all share their origins in the crisis in manufacturing. I’m sure I’m putting this way too crudely…
You can read John’s comments here.
As it turned out, Grossman had pretty much the same thing to say in chapter two of his book, titled “The Law of Capitalist Breakdown“. Considering the fact that his book was published in 1929, just before the stock market crash, he was pretty much on the money.
Grossman begins by pretty much describing what has been happening to the American economy for the past 30 years or so. He begins:
As against Bauer I have shown that the very mechanism of accumulation leads to an overaccumulation of capital and thus to crisis. Even a cut in wages can only proceed within definite insuperable limits. Thus accumulation necessarily comes to a standstill or the system collapses. At the moment of crisis capital — in the form of the portions of surplus value previously destined for accumulation — are excluded from the process of production. Absolute overproduction begins as unsold stocks accumulate. Money capital in search of investment can no longer be applied profitably in production and turns to the stock exchange.
Grossman’s observation that “money capital in search of investment can no longer be applied profitably in production and turns to the stock exchange” sounds pretty much like what has been happening, doesn’t it?
And as John Imani pointed out, this was the same point made by Karl Marx in V. 3 of Capital:
At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises.
Grossman continues:
The activity of the stock exchange is insuperably bound up with the movement of interest on the money-market `the price of these securities rises and falls inversely as the rate of interest’ (Marx, 1959, p. 467). As the rate of interest jerks upward at the start of every crisis the price of these securities registers a precipitous fall: `when the money market is tight these securities will fall in price for two reasons: first, because the rate of interest rises, and secondly, because they are thrown on the market in large quantities in order to convert them into cash’ (p. 467).
If this doesn’t sound like it was ripped out of the business pages in the recent period, I don’t know what does. Here’s what the National Post in Canada reported on March 19:
Stock markets in the United States rang up their biggest one-day gains in more than five years yesterday, after the Fed’s deep interest-rate cut and solid results from two top investment banks reassured investors shocked by Bear Stearns’ sudden downfall.
The Fed fulfilled expectations by cutting its benchmark rate to the lowest since February 2005. Stocks rallied, with the S&P and the Nasdaq closing up more than 4%.
As you might have expected, stock prices tumbled a few days later when investors figured out that this measure would not really solve the basic economic problem facing the nation, namely the failure of the underlying economy to expand at normal rates. In other words, Grossman’s focus on the “brick and mortar” aspects of the economy was well-placed, even if the malaise was reflected in the “fictitious capital” realm.
Grossman writes, “The depreciation of securities in times of crisis initiates a massive drive for speculation which is why the end of the crisis, or the phase of depression, goes together with feverish activity on the stock exchange”, an apt description of recent activity on Wall Street and concludes:
This completes the causal chain. Starting from the sphere of production I have shown that the very laws of capitalist accumulation impart to accumulation a cyclical form and this cyclical movement impinges on the sphere of circulation (money market and stock exchange). The former is the independent variable, the latter the dependent variable. Once counteracting tendencies begin to operate and valorisation of productive capital is again restored a further period of accumulation sets in. The rate of profit climbs upwards. As soon as it exceeds the income of fixed interest securities money is again channelled from the stock exchange back into the sphere of production. The rate of interest starts rising and with the gradual fall in the price of securities they are transferred to the `public’ which only looks for a long term investment. But this `long-term’ lasts only down to the next crisis or the next wave of speculative buying. Throughout all this there is a growing centralisation of money wealth which in turn accounts for the increasing power of finance capital.
While Grossman has been depicted–unfairly–as someone who believed that breakdown will automatically usher in socialist revolution, he was really convinced that political action was required more than anything else. His main goal was to drive a stake into the heart of a theory that had been around for more than 30 years on the left, namely that capitalism was a system that had resolved its basic contradictions.
Now in face of deepening economic contradictions that George Soros has described in his most recently published book as a looming “serious recession”, American society will find itself more receptive to radical analyses. Indeed, in an article that appeared in the NY Times on the same day that Soros’s new book was profiled, the newspaper of record admitted in the article’s title: “It’s a Crisis, and Ideas Are Scarce”. It begrudgingly made the point that “the solutions being pushed would not seem unreasonable to an old-fashioned socialist.” Those solutions did not involve expropriating the expropriators but returning to New Deal type regulations.
Speaking as an old-fashioned socialist, an Unrepentant Marxist actually, I would hope that our movement has the audacity to go much further than the New Deal. If this crisis has the effect of opening up the mind’s of working people to alternative ways of producing wealth, then let’s have the courage of our convictions and propose the only solution that makes sense: socialism.