Recovering Marx’s theory of economic crisis

The recession has brought a renewed interest in Marxist explanations of economic crisis. Rick Kuhn’s book is timely in this context. Published last year, it is the product of many years of study into the life and ideas of Polish-German socialist Henryk Grossman.

Kuhn, an Australian socialist who teaches Marxism at the ANU in Canberra, deservedly received the Deutscher Memorial Prize for his effort.
Why the recovery of Marxism? Kuhn is referring to the distortion of Marx’s ideas within the international socialist movement following his death. A number of important socialist leaders in Europe attempted to transform Marxist theory into a justification for gradual, legislative change through broad social democratic parties, turning workers into passive bystanders.
This dilution of Marxism contributed to most of Europe’s socialist parties supporting military efforts during World War I. Yet within four years, the crisis created by the war led to a new direction among socialists, epitomised by the success of the October revolution in Russia and a new belief in Marx’s original idea of working class revolution.The world recession has led to a revival of interest in Marxist explanations of economic crisis
Accompanying this shift was a corresponding “recovery” in Marxist theory. Key to this was Lenin’s argument in 1917 that the capitalist state could not be controlled by working class parties—that it had to be replaced by a new form of workers democracy. If Lenin’s argument amounted to a recovery of Marx’s political theory, Kuhn argues that this was followed by changes in Marxist philosophy, represented by the Hungarian socialist Lukács’s History and Class Consciousness, and in economic theory.
Central to Kuhn’s argument is his belief that Grossman was the key figure in the recovery of Marx’s theory of economics. He makes a powerful case.

Grossman’s audience
Grossman’s work was never published in the former East Germany (where he died in 1950) and was ignored until the late 1960s. Unlike most of his academic peers, Grossman’s interest in radical politics began with an engagement in working class activism. The first third of the book describes his leading role agitating amongst Poland’s Jewish workers before World War I.
But his most important arguments for socialists today come from his later academic work. Grossman followed Lenin and Lukács in recognising the core of Marx’s method, something most socialist intellectuals could not do.
According to Grossman Marx’s three-volume Capital “was far from being only a study of pure capitalism, whose conclusions did not apply to capitalism as it really existed.
“Marx, Grossman explained,     progressively lifted the simplify-ing assumptions he made early in this work in order to grasp fundamental processes, as he introduced complicating factors, step by step, and the analysis came closer and closer to empirical capitalism.”
Grossman’s main intervention was that the heart of Marx’s economic theory was the tendency for the rate of profit to fall and for the system to eventually breakdown.His most influential work was The Law of Accumulation and the Collapse of the Capitalist System published on the eve of the 1929 Wall St crash.
Grossman targetted leading figures within European social democracy like the German SPD’s Hilferding and Austria’s Otto Bauer. Hilferding and Bauer led parties similar to the Labor Party today and believed that state intervention could eliminate economic crisis.
They followed an earlier tradition emptying Marxism of its revolutionary content, epitomised by Eduard Bernstein and Karl Kautsky. Marx himself had argued that the development of capitalism would create larger centres of capitalist industry. This created a centralised working class capable of undermining the system—hence his comment in 1848 that capitalism “creates its own gravediggers”.
Marx’s unfinished theoretical work—the three volumes of Capital—expanded this argument by showing how capitalism was inherently crisis-prone and would eventually create opportunities for workers to overthrow it.
It was not until 1872, after workers took power in Paris for two months, that Marx specified that this could only successfully happen if workers dismantled the state root and branch and replaced it with a new form of participatory democracy based on directly elected, recallable representatives from workplaces and local areas.
Workers’ representatives could not take over the old capitalist state in their interests, since almost all of it was unelected and tied to the economic interests of industrial capital and other elites.
Following Marx’s death, some of his disciples questioned both the tendency for capitalism toward terminal crisis and the need for socialist revolution. An influential thinker in the SPD from the 1890s until World War I, Bernstein argued that capitalist ownership was becoming less centralised.
He believed that workers were becoming accustomed to the system and, as they won reforms through trade union struggle and from parliamentarians delivering on their behalf, revolution was less likely.
Kautsky, who from the death of Engels in 1895 to the Russian revolution, was the biggest authority in Marxism, disliked Bernstein’s ideas but in practice encouraged a belief that socialism would emerge as a natural consequence of the development of capitalism.
In other words, as long as workers were organised in unions and had strong elected representation in parliament, socialism was inevitable.
Lenin recovered the arguments of Marx from 1872 (in State and Revolution), attacking the “reformist” version of Marxism. Over a decade later, Grossman concluded that the revolutionary tradition lacked the economic arguments against the revisionist case.
Grossman’s Law of Accumulation received its share of attention amongst Marxists in the 1930s, but most of the reception was hostile.
This is mainly because, as Kuhn explains, economic theory was gradually evolving to fit the bureaucratic tendencies of the new ruling elite in Russia led by Stalin.
Marxist economics was shifted back to an emphasis, like Kautsky’s, on the forces of production, as if socialism was somehow inevitable. But Grossman’s arguments stirred debate even in this stultifying context.

Systemic breakdown
Grossman wrote that the system must eventually breakdown because the rate of profit across all capitalist industry will decline to a level when “the mass of surplus value is not great enough to sustain that rate of accumulation”.
This point comes from Marx’s argument that capitalists accumulate physical capital much faster than they employ workers or exploit them.
Although only the collective labour of workers can create the real value necessary for profit (“surplus value”), the logic of competition compelled each capitalist to accumulate capital more quickly and in greater quantities. In Capital Volume 3 Marx writes that this leads to a constantly falling average rate of profit, i.e. the more capitalists compete with each other, the more investment they have to plough into production to reap the same profit. According to Grossman’s interpretation, this would eventually lead to system-wide “breakdown”.
Grossman makes clear in later writing that he does not believe the system will collapse of its own accord: “Obviously as Lenin correctly remarks there are no absolutely hopeless situations. In the description I have proposed the breakdown does not necessarily have to work itself out directly. Its absolute realisation may be interrupted by counteracting tendencies.”
There are different ways of interpreting this point. Firstly, Marx identified countervailing factors to the tendency of the falling rate of profit.
Grossman agreed with this and pointed to a wide variety of measures taken by capitalists—cost cutting through cheaper raw materials, plundering poor countries by stealing their natural resources or manipulating international trade, or by increasing the exploitation of workers, decreasing the amount of surplus shared with other capitalists (e.g. interest to banks, rent to landlords), or rationalising production by sacking workers.
Secondly, Grossman argued that these factors might affect the length and depth of the crisis, but they could not indefinitely postpone it.
Here the key role was for revolutionary organisation: “Obviously the idea that capitalism must break down ‘of itself’ or ‘automatically’, which Hilferding and other socialists assert against my book, is far from being my position.
“It can only be overturned through the struggles of the working class. But I wanted to show that the… will to overturn capitalism is not enough… It would also be (in)effective without a revolutionary situation.”
“But for the purpose of the analysis [in the Law of Accumulation], I had to use the process of abstract isolation of individual elements in order to show the essential function of each element.
“Lenin often talks of the revolutionary situation which has to be objectively given, as the precondition for the active, victorious intervention of the proletariat. The purpose of my breakdown theory was not to exclude this active intervention, but rather to show when and under what circumstances such an objectively given revolutionary situation can and does arise.”
By grasping Marx’s method—of moving step-by-step from theoretical abstraction to empirical reality—he concludes: “With the introduction of offsetting mechanisms, capitalism’s tendency to breakdown will take the form of recurring crises, rather than an uninterrupted collapse.”
The only criticism I have of this book is that the author does not attempt to link Grossman’s argument back to the various assessments of the rate of profit in the post-war period by figures like Robert Brenner, Gérard Duménil and Dominique Lévy, Simon Mohun, Anwar Shaikh, etc.
This is surprising given Grossman’s comment that the tendency for the rate of profit to fall is a question that “cannot be abstractly, deductively decided and has to be decided through empirical observation.”
Grossman himself did this by looking at trends in the US economy from 1849 to 1919. A variety of writers, although not always true to all of Marx’s arguments, make similar conclusion for the modern economy.
But this is very minor criticism against a book that contributes to our understanding of Marxist crisis theory and emphasises its close link with revolutionary politics.
By Tom Barnes

Review: Henryk Grossman and the Recovery of Marxism by Rick Kuhn,
University of Illinois Press, 2008

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