“History,” said the late Henry Ford, “is bunk.” A lot of people agree with him. After all, what does it matter to anyone today whether Alfred burned the cakes or James Watt got the idea of the steam engine by watching a kettle boil over? These stories are probably fairy tales, like a lot of other things taught in schools. But whether they are true or not makes not a pennyworth of difference to any of the problems we have to live with.
Leave aside fairy tale history and look at some of the questions serious historians have tried to answer. For example, why and how did Britain become the first industrialised country? Or what made it possible for the Russian Communist Party to take power?
Interesting problems for students but do the answers really make any difference to us? What is done is done and can’t be altered. Karl Marx argued that the past does matter because you can’t understand what exists today unless you have some idea of how things came to be the way they are. More important still, if working people are conscious of what is happening, and that means knowing something of what has happened, they can decisively affect the outcome.
The employing class and its politicians and intellectuals have some sort of picture of the world, of how it changes, of what is possible for them, of history in short. They make their decisions, in part at least, in the light of that knowledge. We need our own picture, our own knowledge, our own theory. Marxism is, among other things, a theory of history for working people. But why a theory of history. Can’t the facts speak for themselves?
Actually facts never speak for themselves. As a well-known modern historian put it “the facts speak only when the historian calls on them. It is he who decides which facts to give the floor and in what order ... The historian is necessarily selective. The belief in a hard core of historical facts existing objectively and independently of the interpretation of the historian is a preposterous fallacy ...” There are countless millions of facts. Which facts are important depends on what kind of theory you have and this in turn depends on what you are interested in, on what you are trying to do.
Marx was interested, first and foremost, in social change. His “materialist conception of history” is essentially a guide to the present in the light of the past. Its basic ideas are simple though their application and development is often complex. “The history of all hitherto existing society,” he wrote, “is the history of class struggles. Freeman and slave, patrician and plebian, baron and serf, guildmaster and journeyman, in one word, oppressor and oppressed, standing constantly in opposition to each other, carried on an uninterrupted warfare, now open, now concealed; a warfare which always ended either in a revolutionary transformation of the whole of society or in the common ruin of the contending classes ...
“Modern capitalist society, springing from the wreck of feudal society, has not abolished class antagonisms. It has only substituted new classes, new conditions of oppression, new forms of warfare, for the old.” Classes rather than great men’ are the important thing. Of course classes are made up of individual people and some individuals are much more important than others. But “bad King John” or “good” George Washington are, from a marxist point of view, more important for the class interests they. represented than for their personal virtues or vices.
That immediately brings up another point. If the struggle between classes is the real motor of history then “good” and “bad” are relative terms. What is good for one class may be bad for another. The great French revolution at the end of the 18th century was a good thing from the point of view of the middle classes who were the people who got most out of it. It was a very bad thing for the aristocracy who lost their privileges, lands and, in some cases, their heads.
There can, in fact, be no impartial history. Everyone is part of some society and of some class in that society. The historian who claims to be impartial is a fraud. Either he is deceiving himself or his readers. Does this mean that any view of the world is as good as any other? The point is that ideas about society are always connected, sometimes directly but more usually indirectly, with some class interest or other.
But why should we believe that our interests, say, are ethically better than those of the capitalist class? Part of the answer, in Marx’s words, is that “the working class movement is the conscious movement of the immense majority in the interest of the immense majority.”
There is a still more basic reason. The kind of society that exists in a particular place at a particular time depends on the way that men are able to earn their living.
Stone axes and wooden spears go with a tribal society based on hunting and without class divisions. Every subsequent technical advance – the wooden plough, water-driven machinery, the steam engine – has had social consequences. “Assume particular stages of development in production, commerce and consumption,” wrote Marx, “and you will have a corresponding organisation of the family, of orders or of classes, in a word, a corresponding civil society ... particular political conditions.”
All forms of society before capitalism had this in common. The technical level, or, to put it another way, the productivity of labour, was too low to allow everyone a decent standard of life. The existence of oppressed and exploiting classes was unavoidable. Capitalism has changed all that. The development of techniques of production under capitalism has been so great as to make possible, for the first time in human history, a society free from a desperate struggle for bare existence. It has made it possible but at the same time has built barriers to prevent it coming about.
In fighting to overthrow capitalism we know that we are not fighting merely for our own interests or even for the interests of the great majority. We are fighting for the only way forward for the whole human race.
Capitalism is the most revolutionary social system that has ever existed. Change, continuous and ever more rapid change, is built into its structure. “The capitalist class cannot exist,” wrote Karl Marx, “without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society.”
Two hundred years ago, the English peasants – and the majority of working people were then peasants – lived and worked in ways not too different from those of their Saxon ancestors.
Of course there had been many changes. If Wat Tyler and the other leaders of the great peasants’ revolt of 1381 had been resurrected in 1750 they would have seen many things that would have astonished them. Yet they would have had no difficulty in understanding the way of life of the mass of the people.
The peasants still worked iii the open fields with the same tools and the same methods that had been used from time immemorial. They still went hungry and cold every winter and celebrated the coming of spring with an enthusiasm unimaginable to us today.
The “big houses”, the magnificent homes of the gentry and the higher clergy, with their hordes of servants, still dominated the land as they had done for a thousand years.
In 1750 Britain stood on the eve of the greatest change in human life since the invention of agriculture. Industrial capitalism, after centuries of gradual advance, was about to make its great leap forward. And the change was not to be a once and for all affair. Once the process got under way it was to transform the world and to go on transforming it. First of all capitalism created a world market. Long-distance trade can be traced back to the stone age but its effects on most societies were marginal.
With capitalist production they became central. The first breakthrough to industrialisation in Britain could not have taken place without what a conservative historian politely called the “appropriation of extra-European resources and labour”. War, looting and slavery played an important part in this process of “primitive accumulation” – the initial gathering together of resources to turn into capital – but trade, unequal and semi-monopolistic trade, was the central feature.
The economic historian E.J. Hobsbawm has summarised this development. “Behind our Industrial Revolution there lies this concentration on the colonial and ‘underdeveloped’ markets overseas, the successful battle to deny them to anyone else. We defeated them in the East: in 1766 we already outsold even the Dutch in the China trade. We defeated them in the West: by the early 1780s more than half of all slaves exported from Africa made profits for British slavers. And we did so for the benefit of British goods ... Our industrial economy grew out of our commerce, and especially our commerce with the underdeveloped world.”
The political basis for the series of wars of aggression that made possible the birth of British capitalism had been laid earlier. The English revolution of the 17th century had created a political system and a ruling class that could, at the same time, ruthlessly oppress the people of Britain and fight other ruling classes for world supremacy. But the effects of the first phase of British imperialsms were quite different from those of previous conquerors.
Genghis Khan and his kind had created great empires but little social change. The British expansion of the 18th and 19th centuries was quite different. It was the bearer of revolutionary social change.
In some countries the outcome of earlier class struggles made it possible for capitalist classes to gain control and to imitate and improve on the British model. France, Belgium, Germany, after more or less violent political changes, became developed capitalist countries. So, after a civil war, did the USA and later on, Japan.
Other countries, where the previous struggles had left potential or actual capitalist classes too weak to seize power, became colonial or semi-colonial areas. But they, too, were transformed out of all recognition. Their social systems did not stand still. They were thrown back. Their economies became more impoverished more “underdeveloped” than they had been in pre-capitalist times.
“The West” industrialised, they were de-industrialised. In 1810 nearly 40 per cent of the people of India lived in towns in which hand production of textiles and metal goods was carried on. By 1900 only just over 10 per cent lived in towns and this in spite of the rapid growth of some big cities.
Once established the world market dominated, and continues today to dominate, economic life everywhere. Purely “national” solutions to economic and social problems are out of date. The basis of internationalism is the fact that decisions taken in Frankfurt, New York or Osaka affect vitally what happens in Birmingham and vice-versa.
The second revolutionary effect of capitalism was an unprecedented increase in the productivity of labour. Over a century ago Marx could write “the capitalist class during its rule of scarce 100 years had created more massive and more colossal productive forces than have all preceding generations put together.”
Since that time the growth in the productivity of labour and in techniques of production that has been produced by capitalist competition has made the productive forces of Marx’s day look tiny. Of course increasing output under capitalism will not solve our problems. In fact it can, in some circumstances make them worse.
The point remains that the material basis for a world society based on free co-operation has been created by capitalism. If the present productive equipment, without allowing for any increase, was rationally organised to produce for need and not for profit, it would be possible to abolish. poverty everywhere in the world.
The third revolutionary consequenceof capitalism has been the creation of the human basis of socialism, the modern working class. The central theme of Marx’s thought is that this class is unique in history both for what it is and for what it can become.
“A development of the productive forces is the absolute practical premise of communism because without it want is generalised, and that means that all the old crap must revive again.” By “all the old crap” Marx meant classes, inequality, class struggles and war.
On a world scale this problem has been solved. The material basis for socialism exists but as a result of the course of capitalist development it is very unevenly distributed. For example, in the USA output per man-hour, averaged for all sectors of the economy, rose from 37 units in 1870 to 100 units in. 1913 (taken as base line), to 208 units in 1938 and to nearly 400 units in 1963.
On the. other hand in most of the “under-developed” countries overall productivity remains very low. It has been kept low by the competitive power of the developed capitalist countries and by the transfer of resources from the “underdeveloped” to the “developed” by imperialism.
A Chinese economist published a book in 1950 giving these figures. “In the USA there was an average of about 600 times more industrial capital per head (of the population) than in China, or more than 900 times if manufacturing capital alone were considered.” Even making every allowance for industrial development since 1950 it is clear that the basis for a classless society in in isolated China does not exist.
The same argument applies to the rest of the “Third World”, that is to two-thirds of mankind. What does exist is the possibility of an international socialism and this requires the growth of an international revolutionary movement.
Such a movement must be based on the industrial working classes. This is not a question of dogma. It is fundamental to the marxist analysis of society and follows from the actual life situation of the modern workers as compared to that of all previous exploited classes.
While it is the case that the low level of the productivity of labour was the basic reason for inequality and exploitation in pre-capitalist societies there was also another reason. In pre-industrialised societies the working people, whether slaves, serfs or “free” peasants, normally worked in fairly small groups isolated from similar groups widely scattered over the countryside. This made it very difficult for them to think in collective terms and still more difficult for them to act as a class.
As Marx, writing of the French peasantry, noted: “Insofar as millions of families live under economic conditions of existence that divide their mode of life ... from that of other classes, and put them in hostile contrast to the latter, they form a class. Insofar as there is merely a local interconnection among these small peasants, and the identity of their interests, begets no unity, no national union,and no political organisation, they do not form a class. They are consequently incapable of enforcing their class interests ... They cannot represent themselves, they must be represented.”
Slaves, serfs, peasants could and often did revolt, burn the big houses and kill lords, priests and lawyers. What they could not do, except for short periods in exceptional circumstances, was to impose their rule, as a class, on society. Either the old rulers regained control or others took their place. For the cultivators had sooner or later to disperse to their plots or starve. Professional rulers arose to “represent” them.
It is the concentration of the modern working class into large units in cities and the enormous development of means of communication that makes possible trade union and political organisation. They make it possible for the working class, the great majority, to impose its collective will on society. There is no possible substitute. Socialism means a society based on voluntary cooperation between working people. It can neither be established in the absence of modern working class nor imposed on one from above.
Marx took as his model of working class rule the Paris Commune of 1871. His description of its working is still, in essentials, the outline of a “workers’ state”, though the rise of large scale industry has made workers councils based on productive units more important than area organisation. “The Commune was formed of municipal councillors chosen by universal suffrage ... responsible and recallable at short terms. The majority of its members were naturally working men ... The Commune was to be a working, not a parliamentary body, executive and legislative at the same time ... the police was at once stripped of its political attributes and turned into the responsible and at all times recallable agent of the Commune.
“So were the officials of all other branches of the administration. From the members of the Commune downwards, the public service had to be done at workmens’ wages. The vested interests and allowances of the high dignitaries disappeared along with the high dignitaries themselves ...Like the rest of public servants, magistrates and judges were to be elective, responsible and recallable ... The first decree of the Commune was the abolition of the standing army and the substitution for it of the armed people.”
Such a revolutionary and democratic regime, solidly based on the working class, is the essential instrument for the transition to socialism. To establish it, of course, the capitalist state machine must be eliminated because workers’ power is incompatible with any kind of bureaucratic and repressive hierarchy.
George Bernard Shaw once said, “I don’t need a theory of value to tell me that the poor are exploited”. He thought that marxist economic theory was an unnecessary piece of armchair theorising. It is a common point of view and is often connected with the idea that marxist economics is very complicated, boring and hard to understand. Actually the key ideas are easy enough to grasp once you understand what they are intended to be used for. Every theory has a purpose.
Marx’s purpose in analysing capitalism was first to show how working people were exploited and second to discover what he called the “economic law of motion” of the system.
The first point becomes clear when you consider other systems of exploitation. The serf of the middle ages worked part of the time on his own plot of land and also worked two, three or four days a week on his lord’s land. He was not paid for this, so it was obvious that part of the fruits of his labour went to the lord. He was exploited.
Now the modern worker is paid for all the hours he puts in. He may be underpaid by current standards but he does not, apparently, have to put in a certain amount of time each week without pay. How can he be exploited in the scientific sense of having to work for nothing for the benefit of an exploiting class?
Marx’s labour theory of value explains how. First of all capitalism is a system of commodity production. This means simply that goods are produced for sale. What then decides the relative prices of, say, TV sets and motor cars? Clearly it has something to do with the fact that it costs more to make a motor car than to make a TV set. Why does it cost more? Marx’s answer is that, “the value of a commodity is determined by the quantity of socially-necessary labour-time required for its production.” To put it crudely, the car costs more because more work has to be put in to make it.
This idea did not originate with Marx. As a modern economist put it, “the labour theory is one of the most powerful truisms in classical economics ... and it apparently would have been still current – with refinements, to be sure – among orthodox economists if Marx and some of his forerunners had not put it to such effective use as the touchstone of working-class ideology.”
Marx himself introduced a number of refinements. For example, “socially necessary” labour time means man-hours put in using the current techniques of production. It would cost a lot more labour-time to make cars by the methods prevailing in 1900 than by those of today. But such cars, if produced today, would not have a correspondingly high value. They would have to be sold at current prices.
Of course different producers at any one time are using equipment that is a little more or a little less advanced than the average. It is the overall average that is taken as the standard. It is also the case that the cost of the materials that go in to the making of the car is greater than the cost of those that go in to the TV set. But these materials are also commodities and their value is determined in the same way.
The value of the end product includes the value of all those items that have gone into its production. It is determined by the total number of man-hours needed, on the average, for the whole process of producing the end product and everything that went into it, including the necessary transport.
What has all this to do with exploitation? The crux of the matter is this: the capitalist gains revenue by selling commodities at prices which, as a first approximation, are assumed to be close to their values.
The worker does not, generally speaking, have material commodities to sell. He does have something to sell though: he has his ability to work, his labour power. Wages are the price of labour power and since labour power is also a commodity, bought and sold like any other, it has its value. “The value of labour power is determined by the value of the necessaries required to produce, develop, maintain and perpetuate the labourer ... Wages so determined are, the wage minimum.”
Marx was well aware that wages were not necessarily held at bare subsistence level. “Besides this mere physical element (i.e., what is necessary to keep the worker and his. family alive and able to reproduce, DH), the value of labour-power is, in every country, determined by a traditional standard of life. It is not mere physical life, but it is the satisfaction of certain wants springing from the social conditions in which people are placed and reared.” In short the actual level of real wages depends, in part, on the outcome of the class struggle. There is a floor below which they cannot fall for long – bare subsistence – but above this they can be pushed steadily upwards.
However, Marx believed that there were mechanisms in the system to check and throw back increases in real wages. These will be examined later. Meanwhile, it is worth noting that real wages in Britain have risen very greatly in the last century but that relative wages – the share of wages in the total national income – have remained constant, at around 42 per cent, since 1870.
The difference between the value of the commodities produced and the value of the labour power used in their production – and with a high productivity of labour it is a very big difference indeed – is called surplus value.
The surplus value belongs to the owners of the means of production. It is the source of their income.
To sum up: provided that commodities, including labour power, sell at prices close to their values, then the owners of the means of production will receive, after allowing for payment of raw materials, semi-finished goods, depreciation and wages, an income, surplus value, that actually represents the unpaid labour of their workers.
This is the source of exploitation under capitalism and it is the best paid workers who will be the most exploited because they are the most productive. Having established this, Marx went on to consider the effects of changes in the productivity of labour and in the distribution of its product on the working of the system.
“Modern capitalist society with its relations of production, lull of exchange and of property, a society which has conjured up such gigantic means of production and exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells ... It is enough to mention the commercial crises that by their periodic returns put the existence of the entire capitalist society on its trial, each time more threateningly.” Or do they?
At times the capitalist system has looked very much like Marx’s picture. At other times, and notably in the last 25 years, it has looked very different. It follows that either Marx’s analysis of capitalism is wrong in some important respects or, as will be argued here, that the system does in fact have the tendency to increasingly severe crises but that this tendency has been modified by the action of certain other factors.
Marx believed that there were two basic reasons making economic crises inevitable under capitalism. First a periodic tendency to produce more goods than could be sold – “overproduction” – second a tendency for the rate of profit to decline.
Imagine a capitalist society in which there is no accumulation of capital. Each year the same quantity and value of goods is produced. The techniques of production do not change because inventions are not put to use. All the goods produced are sold at their values. Marx called this system “simple reproduction”. The total incomes goes, in the first instance, to the capitalists. They have to purchase, from one another, raw materials to replace those used in production and have to replace the wear and tear on buildings and machinery (fixed capital). Then they have to pay wages. All the rest of the income represents surplus value. It is the property of the capitalists and provided that they spend all of it on consumer goods there can never be any question of overproduction.
Now imagine, still under simple reproduction, that some of the capitalists do not spend all their income. This will immediately precipitate a crisis of “overproduction”. These capitalists, having sold goods, no longer make the full equivalent purchases. The result is a slump in demand and a and a fall in the rate of profit. Such a system never did or could exist. Yet it illustrates one of the central problems of capitalism. There is no overall plan of production and yet somehow or other, there has to be an “invisible hand” which directs production and consumption in such a way as to preserve an exact balance.
With the simple reproduction scheme this is not too difficult. But this scheme ignores the central driving force of the capitalist system – the accumulation of capital. “Accumulate, accumulate,” wrote Marx, “this is Moses and the prophets.” The capitalist, individual or corporate, has no choice in the matter. Competition compels each firm to attempt to expand by re-investing a major part of the surplus value available to it.
Surplus value is converted into capital. Some of it is used to pay additional wages (variable capital), much of it is used to obtain additional machinery and buildings (fixed capital). Also it will be necessary to buy extra raw materials and pay for extra depreciation. Marx lumped together all these expenditures except wages under the heading of constant capital. Accumulation means a rapid growth of the constant capital employed in production.
This has a number of consequences, one of which is especially important. Capital accumulation must, other things being equal, drive up the demand for labour power. The effect of this is summarised by the economist, P.M. Sweezy: “Now when the demand for any commodity increases, its price also increases: and this entails a deviation of price from value. We know that in the case of an ordinary commodity, say cotton cloth, this will set certain forces in motion to bring the price back into conformity with its value: cotton cloth manufacturers will make abnormally high profits, capitalists from outside will be induced to enter the industry, the supply of cotton cloth will be expanded, price will fall until it is once again equal to value and profits are normal.
“Having stated the general principle in this way we are at once impressed by a striking fact: labour power is no ordinary commodity. There are no capitalists who can turn to producing labour power in case its price goes up; in fact there is no ‘labour power industry’ at all in the sense that there is a cotton cloth industry ... In capitalism generally, the equilibrating mechanism of supply and demand is lacking in the case of labour power.” Unless some offsetting factors can be found, real wages must rise rapidly as capital accumulation proceeds, and, as they rise, surplus value will be eroded until finally nothing is left of it.
Various offsetting factors have been important in practice. Immigration of labour on a massive scale has existed at most times in the history of capitalism. Millions and tens of millions of working men and women have been drawn from “underdeveloped” areas into the capitalist heartlands.
But most important is the substitution of “dead labour” for living labour, the raising of the productivity of labour by the use of more and more fixed capital per man. This increase in what Marx called the “organic composition of capital” is forced on the capitalists by the need to offset the rise in the demand for labour power in the course of accumulation. It has another important result. The rate of profit – the ratio of surplus value to total capital (constant plus variable capital) – must tend to decline as more and more constant capital is employed unless there is always a more than proportionate rise in the productivity of labour.
The reasons for Marx’s belief that periodic and increasingly severe economic crises are inevitable under capitalism can now be considered. The driving force of the system can be summed up as a compulsion to accumulate capital.
Competition between capitalist concerns forces each firm to attempt to expand its share of production by converting surplus value into capital. This process of capital accumulation tends to increase the demand for labour and so to push up wages. To minimise wage costs more sophisticated and expensive capital equipment is introduced with the aim of increasing the productivity of each worker and hence the amount of surplus value extracted. An unwanted consequence of this increase in the amount of fixed capital per worker or “rise in the organic composition of capital” is a downward pressure on the rate of profit.
The immediate cause of slumps is not this long-term tendency but short run fluctuations in the rate of profit. Of course every actual slump has particular causes of its own but certain general causes are always present.
In the course of a boom the demand for labour rises, output increases and so does capital accumulation and hence the demand for additional machinery and equipment. Unemployment falls and as it shrinks so does the most important check on rising wages. Earnings are pushed up and so the rate of profit tends to be diminished. “But as soon as this diminution touches the point at which the surplus value that nourishes capital is no longer supplied in normal quantity, a reaction sets in: a smaller part of revenue is capitalised, accumulation lags, and the movement of rise in wages receives a check.” (Marx).
The result is a recession, which is first felt in the heavy industries making “capital goods” – “Department I” as Marx calls them. The loss of earnings of workers in this department due to lay-offs, reduced overtime and so on causes a fall in demand for the commodities that working people buy and so spreads the recession to the sector of industry making these goods. Marx calls this sector “Department II”. The effect is cumulative and the depression worsens. Whether or not wage rates are cut- and typically they are – actual earnings and hence demand falls progressively.
Unemployment rises until the wage gains of the boom have been cancelled out and the rate of profit starts to rise again. A new boom is then in the making. This is a very much simplified picture which leaves out a number of features of importance, notably price fluctuations in the boom-slump cycle. Nevertheless it represents the essence of Marx’s crisis theory. Before comparing it with the actual history of capitalist development, three points have to be considered.
The first is that though the crisis appears as a crisis of “overproduction”, of falling demand, it is not demand as such that is deficient. It is purchasing power. As Marx wrote: “The final cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit.”
This fact is the basis of various reformist schemes that seek, in one way or another, to prevent or alleviate slumps by giving away purchasing power to workers. The possibilities and limitations of these will be examined later.
The second point is why crises should tend to get worse This is where the long term tendency for the rate of profit to decline is important. To the extent that it is realised, it lowers the profits “ceiling”, and so the “space” between that “ceiling” and the “floor” created by working class resistance. Thus, in the absence of offsetting factors, crises should become ever more frequent and more severe. This is the basic reason why Marx believed that wages could not increase indefinitely in a capitalist society.
Finally there is the fact that there is a sector of production, called by Marx “Department III”, that makes neither “wage goods” for sale to workers nor “capital goods” for accumulation. It includes both “luxury goods” for sale to the rich and, more important, various goods for the state which are, strictly speaking, not commodities in Marx’s sense at all, since they are not produced for a market.
This sector is relatively unaffected by the factors making for boom and slump in Departments I and II. Its size is of great importance in modifying the boom-slump cycle. How does the theory measure up to reality? The liberal economist Lord Beveridge concluded: “Fluctuations of industrial activity in Britain in periods of an average length not very different from those of the modern trade cycle can be traced over the whole time for which data of construction industries are available, i.e. from 1785”.
The average length of the cycle, on Beveridge figures, is around 10 years. Clearly the boom-slump cycle is built into capitalism. When the severity of the crisis is considered this picture is modified. There was a general but uneven tendency for crises to become more severe until the 1880s. Thereafter slumps became milder until after the first world war. The slumps of 1921, 1929 and 1938 were much more severe than those of the 19th century, though that of 1938 was interrupted by the second world war.
Finally, since 1945 there have been a number of mild recessions, none of which deserve the name of slump. These facts have to be explained before it is possible to reach a reasoned conclusion on the claim that the post-war economic expansion proves that capitalism has been drastically modified and is now slump free.
Three main features of the system that have not yet been examined have a bearing of the issue. They are the growth of monopoly and state monopoly capitalism, the export of capital and the expansion of Department III production.
Two of these have had, at various times, a medium run stabilising influence on capitalist economies. None of them can permanently stave off the system’s inherent tendency to crisis.
Robert Owen, in his earlier years, was a typical big capitalist of the first half of the 19th century. He was a self-made man, son of a small shopkeeper. Starting as a shop assistant he became manager in a Manchester cotton spinning mill, then a partner in the business and then, after only seven years, owner of the largest spinning mill in the world, New Lanark. The New Lanark Company was first a partnership and then a one man business. Big as it was it produced only a small fraction of the total output of cotton yarn. Owen had no control over the prices he paid for yaw materials and machinery, nor over the prices he could charge for his products.
Impersonal market forces ensured that prices kept close to values. No one capitalist could seriously affect them. Competition ruled supreme and capitalists like Owen obeyed the dictates of the “invisible hand” or went bankrupt. This world of tens of thousands of competing enterprises was the world of the economic theorists of all schools, classical, marxian and neo-classical. In fact the very idea of an economic law depends on the assumption that capitalists as well as workers are compelled to act in certain ways by forces over which they have no control.
The United States Steel Corporation is a typical capitalist of today. It is not a self-made man. It is not a man at all but a vast complex organisation. The men who control its policies are wealthy but they do not own more than a tiny fraction of the enterprise they control. The vast majority of the “owners” – the stockholders – have about as much influence on company policy as you or I.
Nor are actual controllers of US Steel in the same position as Owen in respect to price policy. J.K. Galbraith summarises the situation as follows: “The executives of the US Steel Corporation, the longtime price leaders in the steel industry, do have authority to raise and lower the prices they charge for their own steel. When they exercise that power the rest of the industry normally follows. The same executives make decisions on where to build new plants and how much plant to build, what to pay in dividends and, subject to a periodic trial of strength with the union, what wages to pay. They have latitude on all these matters; they are not the automatons of market forces ... As with steel so with the great core of American industry.” And European industry too.
A comparatively small number of giant firms, many of them multi-national, dominate production and these giant firms do more tan simply respond to the market. They can, and do, seriously influence it.
Now Marx, unlike the orthodox economists foresaw the inevitability of competitive capitalism developing into international monopoly capitalism. “One capitalist always kills many”, he wrote. “Hand in hand with this centralisation, or this expropriation of many capitalists by few, develops ... the entanglement of all people in the net of the world market and the international character of the capitalist regime.”
The fact remains that Marx’s economic analysis assumes effective competition between capitalists. Take that away and the whole structure collapses. This point was first made by the German Social-Democrat “revisionist” Edward Bernstein. Bernstein drew attention to the simultaneous growth of giant firms and cartels and the increasingly mild character of the depressions in the late 19th and early 20th centuries.
He looked forward to the growth of an increasingly “organised capitalism” on a world scale which by planning and control of markets could eliminate the system’s instability. He also pointed to the increasingly close connections between the big firms and the state. The “night watchman” state of the mid-19th century was giving way to a state that was heavily involved in supporting and regulatory activities in the economy, a development particularly marked in his native Germany.
The same facts were noted by Lenin. “This transformation of competition into monopoly,” he wrote in 1916, “is one of the most important phenomena of modern capitalist economy ... For Europe, the time when the new capitalism definitely superseded the old can be established with fair precision: it was the beginning of the 20th century.” A year later he was writing of “the process of transformation of monopoly capitalism into state monopoly capitalism”, of the state “becoming merged more and more with the all powerful capitalist combines.”
Lenin drew the opposite conclusion from Bernstein. Monopoly and state monopoly capitalism, he argued, are not more but less stable than competitive capitalism. Economic crisis and wars – which Bernstein thought “organised capitalism” would abolish – will become more frequent and severe. There is no doubt that the history of the first half of the 20th century proved Bernstein wrong and Lenin right. Whatever else it did, the growth of monopoly did not ultimately stabilise the system. The reason is clear. In Lenin’s words “monopoly, which has grown out of free competition, does not abolish the latter.” Though the giant firm is no longer a puppet of the market it is engaged in a constant struggle with other giant firms to amass more and more surplus value to expand its capital.
The penalty for failure is no longer bankruptcy – big firms rarely go bankrupt – it is takeover. The controllers of the big combines have great power but not the power to opt out of this struggle. Competition is reproduced on a higher level and because of this Marx’s analysis is still relevant. Why then did the growth of monopoly coincide with a lessening of slumps? Lenin’s explanation, the export of capital, has now to be examined.
In 1870 most of Africa was still ruled by Africans. By 1914 the continent had been almost completely carved up by the European powers. Only the US puppet state of Liberia and the precariously independent Kingdom of Ethiopia survived. In Asia the remaining independent states were either conquered like Burma or effectively partitioned into “spheres of influence” by the great powers as in the case of China. Such nominal “independence” as remained to states like Iran or Turkey was due entirely to the conflicts between their would be conquerors. So too with Oceania and South America. The powers of Europe and North America ruled almost the whole world. These were the peak years of imperialism in ideology as well as in fact, the years of Kipling’s “white man’s burden”, of Taft’s “manifest destiny”, of Rhodes’ “I would annex the planets it I could.”
They were also the years in which European and US capitalism was undergoing profound structural changes. “Laissez-faire” capitalism was giving way to monopoly capitalism. In Germany by 1914 “less than one-hundredth of the total enterprises utilise more than three-fourths of the steam and electric power ... small enterprises, representing 91 per cent of the total, utilise only 7 per cent of the steam and electric power.”
In the USA, “John Moody in 1904 cited 318 trusts, most of them formed after 1898, as evidence that control of business and capital was rapidly concentrating into fewer and fewer hands.” Similarly, though in varying degrees, with every capitalist society, Marx’s prediction that “one capitalist always kills many” was coming true with a vengeance.
That these facts were connected with one another was the essential argument of Lenin’s theory of imperialism. “Under modern capitalism, when monopolies prevail, the export of capital has become the typical feature.” In order to safeguard the investments of their ruling classes the governments of the imperialist powers were forced to impose direct foreign rule over the “backward” countries. Other factors driving them in the same direction were the struggles for control of raw materials and for markets protected against competitors. But monopoly and the export of capital were the key features.
The evidence for Lenin’s case was impressive and at the time it was written it undoubtedly had a large measure of truth. Take the case of Britain. The pioneer investigator of British imperialism, J.A. Hobson, showed that “British foreign and colonial investments increased from 1883 to 1893 at the rate of 74 per cent per annum. In 1899 the profits on these investments totalled between £90 and £100 millions sterling; in 1909 they had risen to £140 millions and in 1915 to about £200 millions, that is to about a quarter of the income of the upper and middle classes, since total incomes subject to tax were about £900 million.”
The same tendency was, in varying degrees, present in all the imperialist countries. The relative stability of late Victorian and Edwardian capitalism rested upon this export of capital. A way had been found of alleviating the inherent instability of the system – for a time and at a terrible price.
In purely economic terms the problem for the capitalist class is that accumulation of capital, which is forced on each capitalist concern by its competitors, drives up the demand for labour power and hence its price – wages. This in turn eats into the surplus ’value and the resulting erosion of the rate of profit checks accumulation and precipitates recession. Unless, of course, the connection between accumulation and the rising demand for labour power can be broken. This is exactly what the export of capital to “backward” areas helped to achieve from about 1880 onwards.
The Indian jute mill workers, the African miners, the Chinese cotton spinners could be and were paid even less than the “historically determined price” of their labour power. With the disruption by capitalism of the traditional precapitalist economies, a great mass of pauperised labour was available in the colonial and semi-colonial world. Hence the “super-profits” of imperialism. And if “the natives are restless”, the whole force of the imperialist power is available to prevent them obtaining even the most elementary democratic rights.
No socialist agitator ever expressed the essence of imperialist politics better than the US Major-General Smedley D Butler: “I spent 33 years and four months in active service as a member of our country’s most agile military force – the Marine Corps ... And during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street, and for the bankers. In short I was a racketeer for capitalism ... Thus I helped to make Mexico safe for American oil interests in 1914. I helped to make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in ... I helped to purify Nicaragua for the international banking house of Brown Brothers in 1909-12. I bought light to the Dominican Republic for American sugar interests in 1916. I helped to make Honduras ‘right’ for the American fruit companies in 1903. In China in 1927, I helped to see to it that Standard Oil went its way unmolested.”
The price of imperialism was paid by the super-exploited workers and peasants of the colonial world. It was also paid, contrary to Lenin’s view, by the workers of the developed capitalist countries. Again, taking Britain as the example, real wages rose irregularly but considerably until the middle 1890s. From 1896 to 1900 they were fairly steady. Thereafter they began to fall. “Between 1899 and 1913 real wages actually declined, by about 10 per cent.” The export of capital was taking its toll.
A far greater price was required. In 1914 the rivalries and conflicts of the great robber powers exploded into the greatest organised slaughter the world had yet seen. Tens of millions of working men fought for their masters. Millions died. The high noon of capitalism was over, the “century of wars and revolution” had begun.
“By 1968 the free world’s economy will be dominated by some 300 large companies, responsible for most of the industrial output ... It is possible that 200 out of the 300 mentioned ... will be American ... Already the rise in the USA share of international companies is overwhelming. Before the war foreign investments of companies engaged in international business was 15,000 million dollars. Now it is 100,000 million dollars and is still rising. The total book value of the foreign investments of USA companies in overseas affiliates amounts to about 60 per cent of the total.” This is not an extract from an updated version of New Data for Lenin’s Imperialism. It is quoted from a speech made in Jerusalem in 1969 by Mr Peter Parker, Chairman of Booker’s, one of the household names of British colonial enterprise.
Imperialism is still with us. It still blights the lives of the majority of the world’s people. It is still responsible for numerous “dirty wars”, of which Vietnam is only the biggest, bloodiest and best known. From the Congo in 1960 to Muscat and Oman in 1970, the imperialist powers still intervene in the interests of the international profiteers. All that has changed, at first sight, is the ideology. We have progressed from the “white man’s burden” to “defence of the free world”.
And yet there have been real changes since Lenin’s day. One of the key points in Lenin’s theory was the overwhelming importance of the export of capital from the “developed” capitalist countries to the “third world”. Another was the corruption of the “labour aristocracy” in the west by the crumbs from the “superprofits” of imperialism. This, in Lenin’s view, was the real basis of the Labour and Social Democratic leaderships’ abandonment of socialism and the class struggle. Later theorists have carried this idea further and argued that not just a labour aristocracy but the entire working class of the “developed” countries have been “bought off” by imperialism.
“The developed countries succeeded in exporting their internal problems and transferring the conflict between rich and poor from the national to the international stage,” writes Kwame Nkrumah. “When Africa becomes economically free and politically united, the monopolists will come face to face with the working class in their own countries, and a new struggle will arise within which the liquidation and collapse of imperialism will be complete.”
In fact neither the export of capital nor the “superprofits” of imperialism play the role they once did. The export of capital from “advanced” to “backward” areas, a major stabilising influence on capitalism in the late 19th and early 20th centuries, is now relatively unimportant. Certainly it is far too small to account for the profound modification of the boom-slump cycle that has been so marked in the last 20 years.
In the case of Britain, the largest capital exporter in 1914, the significance of capital exports has declined enormously: latterly they have been running at slightly over 2 per cent of gross national product compared with 8 per cent in the period before World War I, they now absorb less than 10 per cent of savings compared with some 50 per cent before, and returns on foreign investments have been running slightly over 2 per cent of national income compared with 4 per cent in the 1880s, 7 per cent in 1907 and 10 per cent in 1914.
“Between 1895 and 1913, 61 per cent of all new capital issues were on overseas account, by 1938 they were down to 30 per cent and more recently accounted for no more than 20 per cent of the total.” True the decline in British overseas investment has gone hand in hand with an increase in that of the USA. In 1914 the UK had 50 per cent of all foreign investment arid the USA 6 per cent. In 1960 the proportions were: UK, 24 per cent, USA, 59 per cent. In spite of this the total flow of capital exports from Europe and the USA to the “third world” is relatively small. In fact, if the oil industry is excluded, it is arguable that there has been no net capital export at all for long periods in the recent past.
Nor is this picture much modified if “aid” is taken into account. “Such ‘aid’ is estimated on the annual average to have amounted to 6,000 million dollars between 1960 and 1962. But the sums taken out of the aided countries by donors in a sample year 1961 are estimated at 5,000 million dollars in profits.” Export of capital plays a vital role in modern capitalism but it is, overwhelmingly, export from one developed country to another. Its economic significance is thus entirely different.
It cannot be a major factor in permitting the growth of capital accumulation whilst offsetting the rising demand for labour power. It cannot account for the “corruption”, either of “labour aristocracies” or of whole working classes by the crumbs of “superprofits”. These parts of Lenin’s theory had relevance in 1920. They have very little today.
The inherent instability of capitalism is not mainly offset by capital exports today and has not been so offset since World War I. The great slump of 1929-1932 is proof enough of that. To understand the great expansion of capitalist production since World War II it is necessary to examine the expansion of that part of the total output which consists neither of “wage goods” nor of “capital goods”.
Last updated on 18.10.2002