Permanent crisis?

posted 30 Aug 2011, 11:29 by heiko khoo

By Mick Brooks       

There has been a debate in recent years within the IMT as to the cause of capitalist crisis. On one side were those who stressed Marx’s tendential fall in the rate of profit as the underlying cause of crisis. The leadership adopted what we shall call an underconsumptionist position. To some this debate may have seemed a little academic. Its importance is revealed by a recently posted comment on on the world economy by Rob Sewell entitled ‘Another day, another crisis.’       


Sewell begins by trawling through the Financial Times for alarmist quotes. Long ago Bing Crosby sang a song. ”You gotta accentuate the positive, eliminate the negative”. Sewell adopts the opposite approach. The economic situation is indeed grievous but he steadfastly ignores any quote that indicates that the end of the capitalist world is not yet nigh (still a majority view at the FT). This is the method he has used in economic ‘perspectives’ for thirty years past. It is not the scientific method of Marxism. Still, a clock that has stopped is still right twice a day.


Sewell asserts that, “the bourgeois economists” (which bourgeois economists?) “declared the crisis over in the summer of 2009”. Now this is strange, since he later declares inaccurately that, “the mass of profit slumped in 2009.” He then uses his selective quotes from the FT to rubbish this anonymous prediction of recovery. He concludes that the crisis “has got far worse” (than in 2008, when financial meltdown was widely expected) and that the fiscal contraction in the USA, “could be enough to drag the economy into a double-dip recession”.


The reader is led by the whole thrust of the article to believe that this is probable. But there is always a get-out in such predictions by Rob Sewell. This is not the method of Marxism. It is the method of Old Moore’s Almanac. The gullible reader finds that ‘fortune may favour you today’, goes out and bets £50 on a horse and loses the lot. He then remonstrates with the author of the Almanac, who replies, ‘we only said fortune may favour you.’ Sewell’s equivalent to that is that this “could be enough to drag the economy into a double-dip recession”.


Predictions get even wilder when Sewell foresees what will happen after the break-up of the Euro, (which after all hasn’t happened yet – though it is very insecure). He compares this to the collapse of the rouble area after 1993, which, “resulted in hyper-inflation and a collapse in living standards. Other parallels can be made with Germany in 1923.” The position of the Euro is indeed critical and its break-up would be a calamity for the entire world economy, but why this would take the form of hyper-inflation (In Germany? In Holland? In Finland?) is unexplained. Likewise the assertion that we face “decades of austerity” shows a degree of foresight verging on the divine.


Sewell then goes on to explain that Marx, “explained the contradiction of a system based upon the drive for profit”. He then adduces the usual quote used by the IMT leadership that, “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses, in the face of the drive of capitalist production to develop the productive forces as if only the absolute consumption of society set a limit to them.” The idea is that the workers can’t buy back the commodities they produce.


Unusually, Sewell actually gives a citation, so the reader can check. (It’s the Penguin edition of Capital Volume III, by the way.) This quote is a mere aside in one of three chapters on ‘Money Capital and Real Capital’. Marx did not have the opportunity to edit this volume of Capital in his lifetime. Volume III was compiled by Engels from Marx’s notebooks.


More to the point, this is the only quote ever used in Socialist Appeal on crisis theory. We wonder why Marx bothered to write anything else on the subject, and he actually wrote quite a lot. This quote is the classic foundation statement of the underconsumptionist school of Marxism. The trouble with the theory is that the workers can never buy back the commodities that they produce, either in slump or boom. It is an essential condition of capitalism that the workers produce surplus value. “The poverty and restricted consumption of the masses” cannot therefore explain the onset of crisis.

Here is Engels’ view. "But unfortunately the underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes. Even in those periods of history when the situation of the masses was particularly favourable, as for example in England in the fifteenth century, they underconsumed. They were very far from having their own annual total product at their disposal to be consumed by them. Therefore, while underconsumptionism has been a constant feature in history for thousands of years, the general shrinkage of the market which breaks out in crises as a result of a surplus of production is a phenomenon only of the last fifty years;" (Anti-Duhring pp.395-6).


What actually happened to the consumption of the masses during the course of the Great Recession? It fell in absolute terms on account of the fall in production. But it actually increased as a percentage of GDP because investment fell more. This is the normal course of a capitalist recession, which is characterised above all by an investment slump on account of the fall in profits.


Robert Higgs, of the Independent Institute in California says that US consumer spending as a share of GDP actually increased during the Great Recession, going up from 69.2% in the fourth quarter of 2007 to 71% in the second quarter of 2009.  In contrast, private domestic US investment peaked in the first quarter of 2006 when $2.3trn (in 2005 dollars) were spent by firms, worth 17.5% of GDP; it troughed in the second quarter of 2009, having collapsed by 36% to $1.45trn, 11.3% of US GDP.


Sewell goes on to deal with nameless people on the left who, “have tried to explain the crisis exclusively by reference to profitability.” In other words these people are taking his earlier assertion that capitalism is “based on the drive for profit” seriously. Tsk, tsk! He seems to be taking aim at Karl Marx in particular as the guilty one, for it was he who declared, “This law, and it is the most important law of political economy, is that the rate of profit has a tendency to fall with the progress of capitalist production” (Marx Engels Collected Works Volume 33, p.104).


He goes on to assert that these unnamed people, “attempt to equate the level of profits as an indication of the health of capitalism, but this is very simplistic.” Indeed it is, and we know of no Marxist theorist who does this. Certainly Marx didn’t. But profits matter in a society where production is for profit. Profits tend to rise in an upswing and fall as capitalism enters recession. The rate of profit is the ultimate determinant of the boom-slump cycle. Is that so hard to understand?


Sewell points to an ‘enigma’ that profits have since recovered, in 2010 according to his view. He goes on: “However to conclude that US capitalism is relatively healthy is fundamentally wrong, as can be seen from the sluggish growth, continuing high unemployment and declining productivity”. The enigma is one that exists only in Sewell’s mind.


Sewell’s critique of those who see the rate of profit as critical is a parody of Marx’s position. Marx discusses the tendential fall in the rate of profit in Chapters 13-15 of Volume III of Capital and deals with its effect as an underlying cause of crisis in a dialectical way. In particular he deals with the destruction of capital that takes place in a slump, that is required to prepare the conditions for a new upturn. These chapters are central in understanding the cause of capitalist crisis today.


Sewell’s discussion of the “level of profits” is very frustrating. Is he referring to the mass of profits or the rate? Which country’s profits is he using as his guide? What are his sources?  He must be using secret measures of profitability, as nobody else in the world comes to the same conclusion as he does. We have to ask - is he just making it up?


He asserts that, “The mass of profits slumped in 2009 after the collapse of world trade.” He says this to ‘prove’ that profits collapsed after the recession and because of the recession, in particular after the collapse in world trade. Therefore in his view the fall in profits was not the cause of the recession. This is intended to buttress his underconsumptionist theory of the crisis. This is bunkum.


We shall quote the profit figures (mass of profits) of the USA from the Bureau of Economic Analysis. These are the official figures and America has the best economics statistics in the world. Unlike Sewell’s assertions, anyone can check the figures on the BEA website. Just Google in BEA and you’re there.

The BEA has pre-tax and post-tax profits and other technical details, and makes small revisions to the statistics as new information comes in, but the broad picture is very clear. The figures below are for pre-tax corporate profits. Of course these figures are not drawn up from a Marxist point of view, but all other profit statistics we have seen show the same trends and turning points as those of the BEA.


The US Bureau of Economic Analysis shows that in the 3rd quarter of 2006 the mass of pre tax profits peaked at $1,865bn (the rate of profit was already falling before that). By the 4th quarter of 2008 it bottomed out at $868bn. This fall in profits is five quarters before the onset of the Great Recession in August-September 2007and six quarters before US GDP peaked. It is also six quarters before world trade figures peaked, so the idea that the collapse in world trade caused the fall in profits is completely off the wall.


This represents a fall of more than one half in the mass of US corporate profits. The collapse in profits that the BEA records from 2006 would have caused a recession in any case, with or without a banking crisis. A halving in the mass of profits is catastrophic for capitalism and explains on its own the severity of the Great Recession. This shows that the fall in the rate and mass of profit was the underlying cause of the crisis.


What happened in 2009? Contrary to Sewell’s assertion profits began to recover. In the first quarter they were $1,209bn and by the fourth quarter they were up to $1,723bn. The idea that they fell in consequence of the crisis is therefore false. Sewell can only defend the IMT’s crisis theory by systematically misrepresenting the facts. If he cannot interpret the past correctly, what chance is there of providing a correct perspective for the future?

Finally, there is the statement that “capitalism has reached its limits”. We have heard this before. The official leaders of the Fourth International, Cannon, Healy and the rest of them, all asserted after the Second World War that a post-War boom was utterly impossible because “capitalism has reached its limits”. Who opposed this view? Ted Grant.


The logic of the position that capitalism has reached its limits is that we are approaching a final crisis of capitalism. This was part of the ‘theory’ of the German Communist Party in the third period (1929-33) which caused them to refuse any attempt at a united front with the Social Democrats, disarmed them and led directly to the victory of Hitler. Of course Sewell’s ultra-left economic perspectives will have no such disastrous consequences, since the IMT is a much less important force than the German Communist Party.


He is in effect offering a perspective of permanent crisis, with “decades of austerity”. This prediction is unexplained and frankly mad. Any upturn would disorientate IMT supporters. Though the economic perspectives for the years ahead are gloomy, capitalism will never just collapse. It must be overthrown. There can be therefore no final crisis of capitalism, (as Sewell is suggesting without actually saying) and eventually capitalism will go through an upturn unless there is a workers’ revolution.


Older comrades will recall the Socialist Labour League, later the Workers’ Revolutionary Party, led by Gerry Healy which came out with ultra-left economic perspectives that were constantly falsified. It was a parody of third period Stalinism. Naturally the SLL/WRP had a huge turnover of membership as a result. It is distressing to hear Grant’s supposed heirs coming out with what increasingly sounds like a Healyite rant, and an innumerate one at that.

I have great respect for many rank and file supporters of the IMT. The world economy is indeed in great difficulty, and that should open up opportunities for revolutionaries. I shall return to an analysis of world economic perspectives in a forthcoming book. But the IMT membership deserves better than this.