David Yaffe - The Marxian Theory of Crisis, Capital and the State

5. The state and the theory of crisis

(a) Introduction

State expenditure, and some claim military and space expenditure have been decisive, has played a significant role in maintaining social and political stability since the Second World War. The question, therefore, of the nature and limits of this expenditure is crucial for Marxist theory. What follows is an attempt to explain the role and nature of state expenditure, including arms-expenditure, in relation to Marx's theory of crisis. This explanation is only an outline and a framework in which further discussion may take place. In particular there is no discussion here about the efficacy of state intervention in the national economy today with the growth of international monetary markets and international firms.[110]

We shall argue that the nature of the government's expenditure is quite critical in this discussion. In so far as it is 'unproductive' expenditure then for it to be maintained or extended necessitates continual increases in the productivity of labour in both the private and state sector. Only by understanding this, does it become clear why the process of concentration and centralisation of capital has continued at an accelerated rate. The sharpening competition on the world market is a further expression of the need to enlarge markets and to maintain and increase one's share of the surplus-value produced world-wide. This has naturally given an impetus to the 'merger' movement.[111]

The 'rationalisations', including productivity deals, the Industrial Relations Act and other attempts to make capital more 'productive' is the reflection of this process in Britain.[112]

Towards the turn of the century the business cycle mechanism was no longer sufficient to bring the restructuring of capital through crisis and competition towards a greater profitability. As Paul Mattick puts it,

'The business-cycle as an instrument of accumulation has apparently come to an end; or rather, the business-cycle became a 'cycle' of world-wars. Although this situation may be explained politically it is also a consequence of the capitalist accumulation process'[113].

And it was seen,

'that only under conditions of large-scale warfare in which half of the Gross National Product served the needs of war, was there a full use of productive resources'[114].

The Keynesian anti-slump suggestions must be seen in this context. The period of wars had already brought the state to intervene massively in the economy. The basic argument of the Keynesians was that the -government intervention in the economy was needed to increase effective demand and compensate for the decline in the rate of private capital formation. This was necessary to prevent large-scale unemployment and consequent social unrest.

The Second World War, as all wars, led to a further redistribution of economic power and to a concentration and centralisation of capital in the hands of the most dominant economic powers. In this sense war takes over the 'role' of the crisis in allowing for the restructuring of capital and the ensuing increased productivity of labour. It, thereby, improves the conditions for further accumulation by an enormous destruction of existing capital. State intervention was essential to `reorganise' capitalist production after the war; a process that could not have been carried out by private capital alone. But it was the fact of the enormous destruction of capital that laid the basis of the post-war boom.[115] As the basis for expansion existed, the State needed only to give impetus to this process by deficit budgeting, credit expansion and redistribution of essential resources in the interests of the most productive capitals.

At this stage we must examine the nature of government expenditure and understand its relation to private capital formation. The point about state expenditures is that they are financed and paid for out of taxes. If the state finances its expenditures through deficit-spending, to this extent 'future' taxes, which presuppose the future profitability of capital, are assumed. In either case, present or 'future' surplus-value is appropriated from private capital by the state, in the form of taxes or loans, to pay for these expenditures. This represents a decline in accumulation and a decline in the rate of growth of the productivity of labour. This is so because the state-induced production is 'unproductive' from the point of view of capitalism as a whole. Although state expenditure 'realises' surplus-value, the products bought by the state do not function, in general, as capital, and therefore do not produce additional surplus-value.[116] The finished products that the state buys are acquired with already produced surplus-value. The individual private capitalist producing for the state quite clearly gets the average rate of profit and 'surplus-value' is produced by his exploited workers. But from the standpoint of society, of total social capital, 'unproductive' state-expenditure constitutes a 'drain' of capital. So the profit acquired by the individual capitalist producing for the state comes to him only out of a redistribution of the already produced surplus-value. We shall now examine theories of the role of state expenditure on arms production and by criticising these theories clarify this point.

(b) Theories of the role of armaments production in the economy.

Theories of the role of armaments in the economy were first developed as modified versions of the underconsumptionist position. The theories that we shall briefly discuss are those put forward by theorists who claim to be Marxist. In this respect, it is sometimes difficult to decide what exactly constitutes the core of their theories. It will be the aim of this section to show that even though such theories sometimes acknowledge, more or less seriously, Marx's theory of the falling rate of profit, they show no real understanding of Marx's position. And where they are not explicitly underconsumptionist, they, if consistently developed, are no more than a modified version of the Keynesian theory of effective demand.

'The first ideas about the role of armaments in the economy were concerned with theories of imperialism. In the case of Rosa Luxemburg, militarism fitted into a theory of imperialism, but also had another function.

'In addition, militarism has yet another important function. From the purely economic point of view, it is a pre-eminent means for the realisation of surplus value; it is in itself a province of accumulation' [117]

Luxemburg's position is very confused; she sees armaments production as financed out of taxes which fall entirely on wages and as robbing the non-capitalist strata of their purchasing power[118]. So that arms production can be regarded

'as a kind of 'forced saving' imposed on the workers. These savings are extra to the saving out of surplus (-value). They are invested in armaments, and that ends the story'[119].

In that case they cannot be a pre-eminent means for the realisation of surplus-value over and above what the national capitalist market can absorb, as here, extra surplus-value is created by increasing the rate of exploitation. That is, from the standpoint of the capitalist class as a whole, the lowering of wages. Joan Robinson recognised this inconsistency and suggests a more consistent position.

'The analysis which best fits Rosa Luxemburg's own argument, and the facts, is that armaments provide an outlet for the investment of surplus (over and above any contribution there may be from forced saving out of wages), which unlike other kinds of investment creates no further problem by increasing productive capacity. (Not to mention the huge new investment opportunities created by reconstruction after the capitalist nations have turned their weapons against each other)' [120]

This position outlined by Joan Robinson is the one that is central to the various versions of the Permanent Arms Economy.[121] In this case the aim of the theory has changed somewhat, and is rather to explain the stability of capitalism in the post-war years. It is this problem of stability that gives significance to Keynesian bias that Joan Robinson gives to Rosa Luxemburg's position.

The 'permanent war economy' according to Cliff, stabilises the overproducing capitalism because, 'the new State demand for arms, army clothing, barracks etc,' together with 'the increasing purchasing power of the people' who indirectly receive employment by arms expenditure provides 'greater openings for capital investment' [122] The 'permanent war economy' as 'internal' market has replaced the necessary 'external' markets of Rosa Luxemburg. 'The "Third" buyer-not worker nor capitalist consumer-need not necessarily be the non-capitalist producer but the non-producing state' [123] But this is clearly incorrect. The important difference is that the export of capital or goods helps to produce additional surplus value in non-capitalist lands either through the process of direct investment (production) or unequal exchange and this is returned to the advanced capitalist countries.[124] This would only be true of armaments production, if the arms were sold elsewhere.[125] That is, there are buyers with the ability to pay, with the equivalent exchange. Otherwise all the points Marx makes against Malthus (see above) hold here.

So far we have indicated the underconsumptionist and Keynesian bias in this position.[126] Before we go on to explain the mechanism of the arms-economy, it is first necessary to say something about the latest, and most well known, version of this theory. In a book called Western Capitalism Since the War and in various essays, Michael Kidron develops a more elaborate view of the 'permanent arms economy'. There are a number of confused positions held together in this theory, and, in general, the underconsumptionist aspect is pushed into the background. Kidron tries more than all the other theorists to relate his position to the 'Mandan theory of the falling rate of profit'. So that, before this theory is discussed fully, it will be necessary to explain in a general way the stabilising functions of armaments production as it is described by all these theorists, and to show how Kidron attempts to relate this to the theory of 'the falling rate of profit'.

The `underconsumptionist' and 'lack of effective demand' arguments for the interference of the State in the economy are quite usual. What is important to the arms-economy theorists is why armaments production, and only such production, can really explain the stability of the post-war years. Arms expenditure as opposed to other 'public' expenditure is more effective in stabilising the economy and preventing slump for the following reasons. It does not compete with private interests in the same field, and yet industries are involved which are generally most affected by slumps. They decrease the productive capacity of capitalism and thereby slow down the growth of social capital. That, while not adding to the national productive capital, the capitalist class considers them an important power instrument in the defence of its wealth and even a weapon for enlarging prospective markets. In this sense they force other countries into the same expenditure. Other points made are that 'spin off' from military research has not been negligible and that industries which produce armaments benefit because their risks are minimised by government guarantees and a large part of research and development costs are taken over by the government [127]. Kidron adds that the result of such expenditure has been `high employment and, as a direct consequence of that, rates of growth amongst the highest ever' [128]. How he reconciles this with the fact that arms expenditure decreases the productive capacity of capitalism will be discussed below.

In all these arguments, shorn of technicalities, what is crucial to the analysis is that arms production while decreasing productive capacity `mops up unemployment' and offers outlets for investment and in so doing stabilises the economy. Now there seem to be two positions held by these theorists. The first sees the problem as one of over-production of commodities and armaments production as contributing to the 'realisation' of surplus-value while not exacerbating the problem further by increasing productive potential. That is, if further productive investment took place the additional surplus-value being 'realised' through accumulation of capital, the problem would become worse, since it would only enlarge the divergence between production and consumption (or `effective' demand). Armaments production does not do this as it constitutes a 'drain' of productive capital. Kidron sometimes seems to hold to this argument for example when he says that

'too much productive expenditure on the part of the state would both upset the balance between individual capitals and accentuate the systems bias towards over-production' [129]

But at other times another argument dominates, and this is most clear in his more recent essay in World Crisis where he says;

'Since arms are waste (or a 'luxury) in the strict sense that they are neither wage goods nor investment goads and therefore cannot constitute inputs into the system, they have no direct part in determining it and their production has no direct effect on profit rates over all. But since their production is a leak of high capital intensity it tends to offset the system's inbuilt bias towards declining rates of profit' [130].

The declining rate of profit argument here is explicitly related to Marx's own position [131]), but in his book this argument is formulated in Keynesian terminology. In discussing state expenditure Kidron says,

'For one thing too much productive expenditure by the state is ruled out. Seen from the individual capitalist corner, such expenditure would be a straight invasion of his preserve by an immensely more powerful and materially resourceful competitor; as such it needs to be fought off. Seen from that of the system, it would lead to such a rapid build-up of the capital-labour (value) ratio, to use one mode of expression, or to such a low marginal productivity of capital, to use another, and to such a low average rate of profit as a consequence, that the-smallest rise in real wages would precipitate bankruptcy and slump' [132]

We have shown earlier that the Keynesian and Marxian terms have little in common in their explanation of the falling rate of profit. Because they see the question mechanically-if we can slow down the rise in the organic composition by not investing productively, then the fall of the rate of profit will be slowed down-the armament theorists have forgotten a crucial link with the accumulation process. If insufficient productive investment takes place then the mass of profits will not rise sufficiently and the latent tendency of the rate of profit to fall will become an actual fall because of a stagnating private capital accumulation. Further this possibility is only accentuated by the fact that surplus-value is being drained off unproductively. So that, from the point of view of total social capital, more capital must be advanced to produce a smaller mass of surplus-value. It is because they have failed to understand the basic nature of capitalist production as production of surplus-value on an expanding scale that allows them to argue in this way.

That Kidron further has not understood the Marxian theory of accumulation and therefore the consequent tendency of the rate of profit to fall can be seen in his argument, crucial to his position, that armaments production do not affect the rate of profit. It is crucial because it is the only way he can reconcile high rates of growth with an increase of unproductive expenditure. We shall show that this conclusion is false and that all that is left of Kidron's theory is a more-or less modified version of the Keynesian theory of 'effective demand' with the concomitant separation of the problems of consumption and production. The central argument here is that 'arms-production' can be regarded as a 'luxury good', in the sense that they are not used as either instruments of production or means of subsistence, and that such goods do not directly affect the rate of profit. The 'proof' of this rests upon the results of a version of the 'transformation of values into prices' for simple reproduction, the attempt to reconcile the positions of Volumes I and III of Capital. This transformation is the work of the neo-Ricardian Ladislaus von Bortkiewicz [133], and is reported and agreed to in Sweezy's Theory of Capitalist Development [134]. For this 'transformation', society's production is divided into three departments, Department I being that of the production goods industries, Department II, that of workers' consumption goods industries, and Department III, that of capitalist consumption goods, including 'luxury goods'. The transformation is carried out assuming simple reproduction.

As a result of this 'transformation' an equation for the rate of profit is obtained and it is seen, mathematically, not to involve variables expressing the organic composition of capital in Department III. Sweezy, therefore, concludes and Kidron agrees, that changes in the organic composition in Department III do not affect the average rate of profit [135]. This result is also asserted in Piero Sraffa's Production of Commodities by Means of Commodities where he also states that luxury products 'have no part in the determination of the system'. We shall deal with Sraffa's position later but first we must show the complete inadequacy of the von Bortkiewicz transformation. solution, and the failure to grasp the relation of value and price in. the Marxian system.

A price of production for Marx is a modified value. It is the cost price of a commodity, the quantity of paid labour contained in it [136] plus a share of the unpaid labour, of the annual average profit, on the total capital invested in its production. [137]

'When a capitalist sells his commodities at their price of production, therefore, he recovers money in proportion to the value of the capital consumed in their production and secures profit in proportion to his advanced capital as the aliquot part in the total capital. His cost prices are specific. But the profit added to them is independent of his particular sphere of production' [138]

That we are only concerned with modified values is made even clearer in this passage:

'In Books I and II we dealt only with the value of commodities. On the other hand, the cost-price has now been singled out as a part of this value, and, on the other, the price of production of commodities has been developed as its converted form' [139]

It is because prices of production are only modified value's that they clearly are consistent with the value analysis and that for any transformation of values into prices:

'The sum of profits in all spheres of production must equal the sum of the surplus-values, and the sum of the prices of production of the total social product equal the sum of its value' [140]

It follows that any attempt to transform values into prices that breaks the above condition is fundamentally misconceived. Von Bortkiewicz's solution has total surplus-value equal to total profit because of the numeraire he has chosen, but total value does not equal total price. [141] Other solutions have total value equal to total price but not total surplus Value equal to total profit.[142] For both these conditions to hold simple reproduction must break-down. The fundamental error lies in the attempt to change c and v into prices of production. It is the value that is transferred to the product. This is why Marx speaks about 'value of the capital consumed in production'. Any other interpretation leads one to see price and not value as determining and it is not surprising that von Bortkiewicz became attracted to the subjectivist marginalist theories and the mathematical method that bring 'the cost of production theory into harmony with the law of supply and demand'[143].

Marx was basically correct in the method he chose to outline his problem. But his problem was quite different to that imputed to him. He wanted to show how accumulation could take place under the conditions where commodities exchange at their price of production and where the capitals invested receive the average rate of profit. It is not a problem of simple reproduction, under conditions of general equilibrium, but of accumulation where different industries have different organic compositions of capital. Through the exchange process, i.e. by commodities exchanging at prices of production, each capital will receive the average rate of profit as surplus-value is transferred from the departments with low organic composition to those with high organic composition.[144]

Besides the basic error of von Bortkiewicz in transforming values into prices, even on his own assumptions his conclusions about luxury goods and the rate of profit are untenable. Simple reproduction presupposes a dependence and constancy of all the variables. Changes in the organic composition of capital exclude simple reproduction. Simple reproduction occurs on the assumption of non-changing organic compositions of capital and a given rate of surplus-value. As we have shown, the accumulation process includes both changes in the organic composition of capital and the rate of exploitation. Therefore, the conclusions derived from a mathematical formula for simple reproduction (such as those above) have no bearing on the theory of accumulation and the falling rate of profit. In so far as 'luxury goods' production uses up surplus-value, then it affects the rate of profit on total capital. As Marx puts it,

'Since the profit in this (luxury production) enters into the equalisation process of the general profit rate just as much as that in any other sphere, increased productivity in the luxury industry would bring about a fall in the general profit rate'. [145]

Therefore increases in the organic composition of capital for luxury production would affect the general rate of profit as in other sectors. This is so in spite of the character of 'luxury good' production as `unproductive' in the capitalist sense.[145a]

The case of Sraffa can be dealt with in a similar way. He begins his book by saying 'The investigation is concerned exclusively with such properties of an economic system as do not depend on changes in the scale of production or in the proportions of "factors" [146]. Therefore if we draw conclusions from this model we should recognise this important point. Each equilibrium situation is merely a 'snap shot' of the process at such points when the system is in equilibrium. If we wish to look at the movement itself, i.e. accumulation, Sraffa does not help. His numeraire, the standard commodity, will change as accumulation proceeds and since the amount of surplus-value hived off into luxury goods production (Sraffa's non-basics) will affect the accumulation process, it will affect indirectly the numeraire.

Sraffa's labour-time inputs have little in common with Marx's socially necessary labour time. This Ricardian system ignores the use-value/exchange-value quality of the commodity and reduces exchange-value to mere labour-time inputs. Value becomes its measure. Profits become a residue determined externally and the rate of profit the independent variable[147]. For Marx accumulation is the independent variable and if insufficient surplus-value goes towards new investment, stagnation and overproduction (of capital) will result. Therefore investments in the luxury goods industry do affect the rate of profit.[148]

'Increased productivity in the luxury industries . . . has no influence on the rate of surplus-value nor, consequently, on the rate of profit insofar as this is determined by the rate of surplus-value. Nevertheless, it can influence the rate of profit insofar as it affects either the amount of surplus-value or the ratio of variable capital to constant capital and to the total capital' [149]

and also :

'Apart from the absolute lengthening of the working-day, increased productivity in the luxury industry can affect only the number of (workers employed). The inevitable consequence, therefore, is a reduction in the amount of surplus-value 1 and hence in the rate of profit, even if no increase in constant capital takes place. If the constant capital increases, however, a reduced amount of surplus-value is calculated on an increased total capital' [150].

The foundation of Kidron's second argument is wrong and hence it can only be regarded as another version of the theory of effective demand. We have criticised that point of view earlier on and, therefore, must reject the basic arms economy theses.[151]

(c) State expenditure-conclusions

What we tried to show in the last section is how unproductive expenditure cannot play the role attributed to it by many Marxist theorists. Our analysis suggests, as we have indicated earlier, that far from decreasing productive capacity per se, unproductive government expenditure makes it all the more necessary to increase the productivity of labour in order to finance both the growing state sector as well as maintaining a growing profitable private sector.

To the extent that state expenditure is productive it competes with the private sector, but normally this is not the case and cannot be the case under capitalist production. Nationalisations in Western economies have usually taken place because the products were not able to be produced profitably by the private sector and yet such products are vital to the private sector.[152] Price policies are chosen to subsidise big users of nationalised industry products (marginal cost pricing) and in this sense they represent a subsidy to these users out of taxation. But this taxation is financed out of surplus-value and these policies can only be successful in so far as resources are redistributed in the direction of the more efficient industries from the less efficient. A significant factor in the growth of the gross National Debt in Britain has been the capital needs of nationalised industries, and the investment programmes planned suggest this process will continue. It is not surprising that some of the highest productivity industries in Britain are in the nationalised sector[153] and some of the fiercest conflicts with the working-class have been here as well.[154]

The substitution of government-induced demand has in Europe and America been an inflationary process. It has required, particularly in the U.S., deficit financing and monetary policies that make this possible together with an enormous expansion of credit facilities. In Britain the process has been more complicated but the large increase in taxation and growth of government expenditure, a high percentage of which is 'unproductive', has had its inflationary repercussions.[155]

'A mild degree of inflation is probably helpful to capitalist growth; it reduces the money value of accumulated debt, it wipes out some part of the gains to workers from wage increases and it encourages business confidence' [156]

Inflationary policies replace the traditional deflationary policies as soon as the effects of deflation, and increased number of unemployed, threatened the social and political stability of the capitalist states. As Mattick puts it,

'Inflation became the preferred, if not unavoidable, way to react to depressions and to maintain levels of economic activity consistent with social stability' [157]

Inflation is only the money expression of the increasing state-induced production, the form in which this appears on the private market.

We have therefore the following mechanism. A declining rate of private capital formation means that governments must supplement production for the market with 'waste' production if they are to avoid high unemployment and social instability. But this is a capitalist expense indicating a latent tendency to crisis. This can only be avoided temporarily, it would seem, by an extension of the credit mechanism and through government borrowings together with increased taxation.

If all new capital went into 'waste' production, then capital accumulation would cease. But,

'A non-accumulating capital is a capitalism in crisis, for it is only through the extension of capital that market demand suffices for the realisation of profits made in production' [158]

It is clear therefore, that there are limitations to 'unproductive' expenditure and other government-induced demand in a capitalist economy. If production grows faster in the 'non-productive' sector of the economy than in the 'private' sector, the production of profit, or surplus-value, relative to total production, declines more rapidly than before. More surplus-value must be produced from a smaller base of productive labourers in order that the tendency of the rate of profit to fall is checked. As long as the productivity of labour can be sufficiently increased so as to maintain the rate of profit and finance the non-productive sector, government-induced expenditure will indeed be the 'cause' of high employment and social stability. But this process is self-defeating : to cope with the expense of the non-productive sector,

'the exploitability of labour must be steadily raised. This means a higher organic composition of capital and a decline in the exploitable labour force relative to the growing capital. To maintain a state of high employment indefinitely, (the non-productive sector), must increase faster than total production. But this implies a slow deterioration of private capital expansion which can only be halted by halting the extension of the (non-productive sector)' [159].

The increasing concentration and centralisation of capital is, therefore, essential for increasing the social productivity of labour. Government-induced production helps in this respect because the sheer size of the `state's orders' leads to a restructuring of capital in private industry. The enormous extension of credit facilities is necessary to finance the very large investment now needed to bring about the necessary and competitive increases in the productivity of labour. This extension of credit is based on expected future profitability. This has led to recurring liquidity problems, now affecting large corporations, and in Britain, nationalised industries. But this investment must continue on an ever-increasing scale if the mass of surplus-value to finance both the private and state sectors of the economy is to be forthcoming. If it is not, or if state-induced expenditure grows too rapidly and the necessary restructuring of capital is not achieved, then we can expect the latent crisis conditions to take the form of an actual crisis. [160]

The limitations of the government-induced expenditure do not lie in 'political' and technical considerations, but in the contradictions of capitalist production itself. The mixed-economy has not fundamentally changed the contradictions of the traditional capitalist system. They express themselves only in a new form that continually the government will be 'forced' to intervene in the economy to 'save' the private economy, and yet the problems will continually get worse because of the contradictory nature of this intervention.

The situation now seems that both a contraction and extension of the government sector will lead to difficulties; a contraction to high unemployment ; and an extension to increasing inflation. Either way stagnation and inflation are becoming a general feature of most Western economies.

It is only with such a theoretical framework that we can begin to understand the dilemma and seemingly contradictory policies of governments, whether conservative or social democratic, in facing what is only a new expression of the inner contradictions of capitalism. Stagnation, inflation, rising unemployment, incomes policy, productivity-deals, cuts in welfare expenditure, in other words, the offensive against the working-class, is capitalism's only political and economic answer. The imperative is to increase the rate of exploitation. Only by showing this can we demonstrate how the class struggle must turn eventually into a political struggle against the system of production itself.


[110] See Robin Murray, 'Capital and the Nation State', New Left Review, 67, and Bill Warren 'How International is Capital', New Left Review 68 for the beginnings of a discussion. What is clear is that the Labour Government's room for manoeuvre (1964-70) were severely limited once they had accepted the constraints imposed by international capital.

[111] The largest 100 manufacturing enterprises in Britain produced 15% of net output, by 1970 this had risen to 50%. The share of small companies in manufacturing output shrank steadily from 42% in 1924 to 32% in 1951, and more rapidly to 25% in 1968. Gerald Newbould found that the main reasons for takeover bids were generally 'desires to move fast towards increased control of the market and the necessity to take defensive action to preserve existing market and industrial positions'. In Management and Merger Activity, 1970. All Cited in Frances Cairncross, 'Sizing up the Merger Boom', Business Observer, 19th November,1972.See also Bob Rowthorn, 'Imperialism: Unity or Rivalry' New Left Review, 69, Sept/Oct 1971 for a discussion on how the fight to control and increase the share of markets reflects itself in the investment policies of large corporations overseas.

[112] It is not generally recognised that the main emphasis on moves by the government is to 'control' the labour force, to have a more disciplined labour force so that new technology, and more important, new methods of organisation of labour can be introduced. If the productivity of labour can rise sufficiently then quite clearly large firms are prepared to pay big increases to get their reorganisation through, e.g. recently at British Leyland. After all the 'novelty' of so called 'scientific' management was that it makes 'high wages and low labour costs ... not only compatible, but ... in the majority of cases, mutually conditional' (F. W. Taylor, Shop Management, 1903, pp. 21/22). Cited in Alfred Sohn-Rethel, 'The Dual Economics of Transition', Bulletin of the Conference of Socialist Economists, 2:2 Autumn 1972 p. 43. Those who see these measures as primarily an attack on real wages miss the crucial point: the necessity to increase the social productivity of labour if sufficient mass of profits are to be produced to prevent the rate of profit falling.

[113] Mattick Marx and Keynes p135.

[114] Ibid p139.

[115] It is also my contention that while after the first World-War the revolutionary impact of the Russian Revolution on the working-class in Western European countries did not allow capitalism to really begin successfully a new phase of expansion, after the second World-War in spite of the war itself, conditions were very different. Stalinism and Fascism had their effect on the working-class movement and so it was much easier after the war to 'reorganise' capitalism towards great profitability without the enormous opposition of the working-class seen in the 1920s. The post-war boom certainly was helped by these conditions. The introduction of science and new technology into industry etc. could proceed more smoothly.

[116] The case of nationalised industries will be dealt with later.

[117] Rosa Luxemburg op cit. p454.

[118] Ibid p446.

[119] Joan Robinson, Intro to The Accumulation of Capital, ibid, p27.

[120] Ibid p27-8 (our emphasis)

[121] In particular T. Cliff 'Perspectives of the Permanent War Economy' op cit, pp. 34-40. M. Kidron Western Capitalism Since the War, Penguin 1970. T. N. Vance, The Permanent War Economy. Independent Socialist Press, Berkeley, California.

[122] T Cliff, op cit p38. Here the analysis fall back on the Keynesian multiplier effect.

[123] T. Cliff, Rosa Luxemburg, Socialist Review Publication, 1968 (second ed) p90 note. A similar argument arising out of Rosa Luxemburg's theory is put by T. Kowalik, a Polish economist, when he says 'She made her- abstract thesis on the impossibility of the existence of capitalism without the pre-capitalist environment more specific by her analysis of the role of the armament sector in the process of total accumulation. It follows from this analysis that capitalism can create its own internal market which plays in accumulation the same function as an external market'. 'Rosa Luxemburg's Theory of Accumulation and Imperialism' in Problems of Economic Dynamics and Planning: Essays in honour of M. Kalecki. Pergamon Press, 1966, p. 219.

[124] This was the fundamental error in Rosa Luxemburg's theory of non-capitalist markets; she could not even explain her own historical results. See my review article, 'Imperialism and the Accumulation of Capital' op. cit., p. 71, for a fuller discussion.

[125] On a world-wide scale this point does not hold, i.e. for 'world' capital.

[126] T.N. Vance's position is clearly underconsumptionist; for instance he says 'War outlays in fact have become the modern substitute for pyramids' op cit p10. See also p9, p16 for similar points.

[127] See T. Cliff Socialist Review op cit, p38-9 and M Kidron op cit p49 and p50-4. Baran and Sweezy make similar points in Monopoly Capital op cit p207-8.

[128] M Kidron op cit p49.

[129] Ibid p55. This comes directly after a position that could be understood very differently. It is not clear what Kidron means by overproduction.

[130] M Kidron 'Capitalism: The Latest Stage' World Crisis (ed: Harris and Palmer) Weidenfield-Nicholson 1971, p211.

[131] Ibid p208.

[132] Western Capitalism Since the War, p54-5.

[133] Ladislaus von Bortkiewicz, 'On the Correction of Marx's Fundamental Theoretical Construction in the Third Volume of Capital', Appendix, Sweezy edition, Karl Marx and the Close of his System, by E von Boehm-Bawerk, etc. New York, 1949, p199ff.

[134] Sweezy, op cit, p115ff

[135] Kidron op cit, p55.

[136] Capital Volume III, p163

[137] Ibid p 156.

[138] Ibid p 157 - my emphasis.

[139] Ibid p 161.

[140] Ibid p 170.

[141] Von Bortkiewicz op cit p205. That von Bortkiewicz has understood the theoretical consequence of this, unlike many Marxists, can be seen from his theoretical paper 'Value and Price in the Marxian System' International Economic Papers, 2 1952, especially his conclusion 'we are driven to reject Marx's derivation of price and profit from value and surplus-value.'

[142] See J. Winternitz, Economic Journal, 1948, p. 276 ff. R. Meek has also attempted to solve this problem and, at least, recognises that the choice of the numeraire is crucial. See his Economics and Ideology and Other Essays. Chapman and Hall, 1967, p. 144 ff.

[143] Von Bortkiewicz op cit p54.

[144] This is why this point is the basis of the theory of unequal exchange. See C. Palloix, 'The Question of Unequal Exchange' Bulletin of the Conference of Socialist Economists. Volume 2:1 Spring 1972.

[145] Theories of Surplus-Value Part III p350.

[145a] {This assertion (unproductiveness of luxury production) is corrected in Paul Bullock and David Yaffe, 'Inflation, the Crisis and the the Post-War Boom' Revolutionary Communist 3/4, November 1979, section II.d.iii 'Luxury production and the rate of profit', pp20-21.}

[146] Sraffa op cit preface V.

[147] Ibid p33.

[148] This is precisely what distinguishes Marx's position from that of Ricardo.

[149] Theories of Surplus-Value, Volume III, p349.

[150] Ibid p351.

[151] The facts do not seem to point to a direct relation between arms spending and employment. For the US:

'The Sixties began with a high rate of unemployment and ... this rate fell from 6-7 % in 1961 to 4.5% in 1965, or well in advance of the spurt in defence spending.' From 1945-48 when defence spending dropped over $80,000m unemployment remained under 4% and was 3.8% in 1948. See article in Times Business News, Tuesday April 4th 1972.

[152] In the case of France certain of the nationalisations were political e.g. Renault, and this argument does not apply.

[153] See article in the Times, Friday, October 29, 1971, p. 21.

[154] Some of the largest reductions in the labour force in any industries have taken place over the last 10 to 15 years.

[155] Taxes as a percentage of GNP (including social security contributions) as % of GNP are given for a number of countries. They are approximate

1960 1970
% %
Sweden 32 46
Britain 31 44
France 38 41
Germany 38 40
Canada 38 36
US 30 33
Italy 30 32
Japan 20 21

(taken from The Economist, 18th-22nd September, 1972)

In Britain Social Security has increased from 12.1% of public expenditure in 1951 to 18.1% in 1969. Social Trends No 1, 1970 Central Statistical Office, p46.

[156] Michael Barratt-Brown After Imperialism, Merlin Press, 1970, p308

[157] P Mattick op cit p183

[158] P Mattick, International Socialism, 34, p34.

[159] Ibid.

[160] For a discussion of the problem of liquidity see Monthly Review Volume 22 No 4, Sept 1970. Also Robin Murray, UCS - Anatomy of a Bankruptcy, Spokesman Books, 1971. For a discussion of the public sector's rising claim on resources in Britain see the report in the Times 17th Feb 1971,p21. It shows that while total public expenditure, including transfer payments, is planned to rise in real terms, during this period by 2 1/2%, expenditure as resources will rise considerably faster - by about 3 1/2% a year at least. This implies that the share of public sector resource purchase in the national income will tend to rise throughout the whole period (1974-5). The rising budget deficit in the US is another important trend. Inflation has to be understood finally as an international phenomenon.