Law of the Accumulation and Breakdown, Henryk Grossman 1929

1. The Downfall of Capitalism in the Existing Literature

The point at issue

Already prior to Marx certain representatives of political economy had a clear presentiment of the historically ephemeral character of the bourgeois mode of production. Jean C L Simonde de Sismondi was the first to uphold it against David Ricardo. He argued that in the course of time every mode of production becomes ‘intolerable’ and ‘the social order, continually threatened, can only be maintained by force’ (cited Grossman, 1924, pp. 63-4). However, in terms of capitalism, this conclusion was based not on an economic analysis of its mode of production but purely on historical analogies. Therefore Marx was right to say that:

at the bottom of his [Sismondi’s] argument is indeed the inkling that new forms of the appropriation of wealth must correspond to productive forces and the material and social conditions for the production of wealth which have developed within capitalist society; that the bourgeois forms are only transitory and contradictory forms. (1972, p. 56)

A quarter of a century after Sismondi, Richard Jones developed the same insights when he described capitalism ‘as a transitional phase in the development of social production’ (cited Marx, 1972, p. 428). But like Sismondi, Jones gained his insight into the historically transitory character of capitalism through a mainly historical-comparative analysis of successive forms of economy.

The development of the productive power of social labour is the driving force of historical evolution. When the earliest modes of production proved unable to develop the productive forces of society any further, they were bound to disintegrate:

Hence the necessity for the separation, for the rupture, for the antithesis of labour and property (by which property in the conditions of production is to be understood). The most extreme form of this rupture, and the one in which the productive forces of social labour are also most powerfully developed, is capital. (Marx, 1972, p. 423)

Elsewhere Marx writes:

It is one of the civilising aspects of capital that it enforces this surplus-labour in a manner and under conditions which are more advantageous to the development of the productive forces, social relations and the creation of the elements for a new and higher form than under the preceding forms of slavery, serfdom, etc. (1959, p. 819)

At a certain point in its historical development capitalism fails to encourage the expansion of the productive forces any further. From this point on the downfall of capitalism becomes economically inevitable. To provide an exact description of this process and to grasp its causes through a scientific analysis of capitalism was the real task Marx posed for himself in Capital. His scientific advance over Sismondi and Jones consisted precisely in this. But how did Marx carry through this analysis? He says, at a certain stage:

The monopoly of capital becomes a fetter upon the mode of production which has flourished alongside with and under it. Centralisation of the means of production and the socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. (1954, p. 715)

Marx refers to an antagonism between the productive forces and their capitalist shell. What is this, however? There is nothing more erroneous than the prevalent identification of the development of productive forces with the growth of c in relation to v. This simply confuses the capitalist shell in which human productivity obtains a form of appearance with the essence of that productivity itself. The development of productivity has in itself nothing to do with the capitalist valorisation process which, as a process of formation of values, has its roots in abstract human labour. The antagonism that Marx refers to is between the forces of production in their material shape as elements of the labour process - as means of production and labour power - and these same forces in their specifically capitalist shell, in the shape they assume as values c and v in the valorisation-process. In Capital Volume Three Marx attacks:

the confusion and identification of the process of social production with the simple labour-process ... To the extent that the labour-process is simply a process between man and nature, its simple elements remain common to all social forms of development. But each specific historical form of this process further develops its material foundations and its social forms. Whenever a certain stage of its maturity has been reached, the specific historical form is discarded and gives way to a higher one … A conflict then ensues between the material development of production and its social form. (1959, pp. 883-4)

The form of the productive forces peculiar to capitalism, their capitalist shell (c:v) becomes a fetter on the form they share in common with all modes of production (M:L). The solution of this problem forms the specific task of this book.

It is quite characteristic of the intellectual crisis, even decay, of contemporary bourgeois economics that it denies that there is any such problem as accumulation. The apologetic optimism of bourgeois economics has simply extinguished all interest in a deeper understanding and analysis of today’s mechanism of production. Economists like J B Clark (1907) and Alfred Marshall (1890) imagine that the psychological and individual motivations driving capitalists to ‘save’ account for the entire problem of the accumulation of capital. They do not bother to ask if there are objective conditions that determine the scope, the tempo and finally the maximal limits of the accumulation of capital. If accumulation is purely a function of the subjective propensities of individuals and the number of these individuals grows constantly, how do we explain the fact that the tempo of accumulation shows periodically alternating phases of acceleration and slow down? How do we account for the fact that the tempo of accumulation in the advanced capitalist countries is often slower than that in the less developed, although the number of those individuals is obviously greater in the former?

Elsewhere Marshall tries to explain things with the banal observation that the extent of the demand for capital depends on the level of the rate of interest. But Marshall breaks off his analysis where the real problems begin. Prior to the First World War the USA was massively in debt to Europe despite high domestic interest rates. On the other hand, in 1927 the USA exported capital sums totalling 14.5 billion dollars, and this export of capital showed no signs of abating, although the rate of interest at home had already fallen to 3.5 per cent. This also contradicts the analogous view of G Cassel that the ‘low rate of interest that prevails during a depression obviously acts as a powerful stimulus to the expanded production of fixed capital’ (1923, p. 570).

Why, despite the low rate of interest in the USA, did the expansion of production come to a halt in that country, or why was capital exported and not invested at home? If one answers that higher rates of interest prevailed abroad, the problem is only displaced. For why did the rate of interest fall in the USA? Because of an ‘oversupply’ of capital there? Then under what conditions does such an oversupply of capital arise?

This brings us back to the problem that is completely ignored in contemporary economics. In this respect Marx was closer to classical economy in the way he posed the problem. But whereas classical economy presumed the possibilities of an unlimited accumulation of capital, Marx predicted insuperable limits to the development of capitalism and its inevitable economic downfall.

How did Marx conduct this proof? This brings us to the well-known debate regarding the form in which Marx grounded the ‘necessity of socialism’. K Diehl tells us that ‘Marx’s theory of value never formed the fundamental basis of his socialistic principles’ (1898, p. 42). According to him, Marx’s socialism is grounded not in the Marxist law of value, but in his materialist conception of history. As proof of the argument that the labour theory of value contains little that is specifically socialist, Diehl cites the case of Ricardo who likewise saw in labour the most suitable measure of value. For Diehl the moral postulate of a just distribution of income forms the only possible link between socialism and the law of value. However, as there is no such postulate in Marx, Diehl rejects the idea that Marx himself draws any such connection.

This widespread conception is totally false. Under capitalism the entire mechanism of the productive process is ruled by the law of value, and just as its dynamic and tendencies are only comprehensible in terms of this law its final end, the breakdown, is likewise only explicable in terms of it. In fact Marx provided such an explanation.

The idea that capitalism ‘creates its own negation with the inexorability of a natural process’ was already enunciated in Capital Volume One in the section on the historical tendency of capitalist accumulation (1954, pp. 713-15). But Marx did not explicitly state how this negating tendency asserts itself, how it must lead to breakdown of capitalism or through what immediate causes the system meets its economic downfall. If we then turn to the corresponding chapter of Capital Volume Three dealing with the ‘law of the tendency of the rate of profit to fall’, we are immediately disappointed (1959, pp. 207-26). The very causes that affect the process of accumulation also produce the fall in the rate of profit. But is this fall a symptom of the breakdown tendency? How does this tendency work itself out? Methodologically speaking, this is where Marx should have demonstrated the breakdown tendency. Indeed Marx does ask, ‘Now what must be the form of this double-edged law of a decrease in the rate of profit and a simultaneous increase in the absolute mass of profit arising from the same causes?’. We feel now the decisive answer will come. But it does not.

Already in 1872 a Petersburg reviewer of Capital Volume One wrote:

‘The scientific value of such an inquiry lies in the disclosing of the special laws that regulate the origin, existence, development and death of a given social organism and its replacement by another, higher one’ (Marx, 1954, p. 28). Citing these words with the comment that they provide ‘a striking description’ of his own method, Marx says about the dialectical method that

it includes in its comprehension and affirmative recognition of the existing state of things, at the same time also, the recognition of the negation of that state, of its inevitable breaking up; because it regards every historically developed social form as being in fluid movement, and therefore takes into account its transient nature not less than its momentary existence. (p. 29)

In this sense Eduard Bernstein was perfectly right in saying, against social democracy’s views about the end of capitalism: ‘If the triumph of socialism were truly an immanent economic necessity, then it would have to be grounded in a proof of the inevitable economic breakdown of the present order of society’ (Vorwarts, 26 March 1899). However Bernstein himself believed that such a proof was impossible and that socialism could not therefore be deduced from any economic compulsions. In Marx’s theory of the ‘negation of the negation’ Bernstein could see only the ‘pitfalls of the dialectical method of Hegel’, a product ‘of one of the residues of Hegel’s dialectic of contradictions’, a ‘schema of development constructed on Hegelian lines’ (Bernstein, 1899, p. 22). The theory of breakdown was, according to him, a ‘purely speculative anticipation’ of a process that had barely sprouted. This critique was based exclusively on the empirical fact that the material position of certain strata of the working class had improved. For Bernstein this was proof that ‘the actual development had proceeded in a quite different direction’ to that predicted by Marx. As if Marx had ever denied the possibility of such improvements in the position of the working class at specific stages of capitalist development.

How did Karl Kautsky answer Bernstein’s critique? If Kautsky had tried to show that relative wages may fall even while real wages (measured in product terms) rise, and that even in this favourable situation the social misery and dependence on capital of the working class increase, he would have contributed to deepening Marx’s theory. But Kautsky simply rejected the theory of breakdown, arguing that ‘a special theory of breakdown was never proposed by Marx or by Engels’ (1899, p. 42). Kautsky rejected the notion that the Marxist theory of breakdown establishes a tendency for the position of the working class under capitalism ultimately to deteriorate, in the strong sense of an absolute worsening of its situation, an absolute growth of its economic misery.

In fact Kautsky proposed the very opposite idea. According to him Marx and Engels were distinguished from the other currents of socialism by the circumstance that apart from the tendencies that depress the proletariat, they also foresaw, unlike other socialists, positive tendencies that elevate its position. They foresaw ‘not simply an increase in its misery

but also an increase in its training and organisation, its maturity and power’ (p. 46). ‘The notion that the proletariat increases in maturity and power is not only an essential part of Marx’s theory of the breakdown of capitalism, it is its defining part’ (p. 45). Thus Kautsky quietly ignored Bernstein’s argument that for the triumph of socialism to be an immanent economic necessity it would have to be traced to underlying economic causes.

Yet the same Kautsky, who in dealing with Marx’s theory one-sidedly accentuated the tendencies that elevate the working class, would observe some years later that from a certain stage on these positive tendencies come to a standstill, that a retrograde movement gains the upper hand:‘The factors that led to an increase in real wages in the last few decades have already been wiped out’ (1908, p. 54). Kautsky analyses these various factors. He shows that the trade unions have been continuously pushed back on the defensive while the capitalists, united in various associations, have enormously expanded in strength:

All of which means that the period of rising real wages for one stratum of the working class after another has come to an end, and many sections will even face a period of wage cuts. This holds true not only for periods of temporary depression, but even for periods of prosperity. (p. 549)

A year later (1909) Kautsky noted that

It is remarkable that already in the last few years of prosperity, when industry worked continuously and there was a constant complaint of labour-shortage, workers proved unable to increase their real wages, and that they even fell. For various strata of the German working class this has been proved in unofficial studies. In America there is an official acknowledgement of this fact for the entire working class. (1909, p. 87)

Kautsky sees the facts, but his description does not go beyond this purely empirical level. Having rejected Marx’s theory of breakdown, he finds it impossible to account for them in terms of Marxist theory. What deeper causes govern the movements of wages and what their fundamental tendency is he does not explain. Thus in the famous ‘debate on revisionism’ there was no real dispute about the theory of the economic breakdown of capitalism because both Kautsky and Bernstein abandoned Marx’s theory of breakdown; the debate itself revolved around less important issues that were partly terminological.

This remarkable result of the Bernstein-Kautsky debate was not the only consequence of the fateful omissions in the exposition of Capital Volume Three. Right down to today there rules an absolute chaos of conflicting views, quite irrespective of whether the individuals concerned are bourgeois writers or belong to the radical or moderate wing of the workers’ movement. Both the ‘revisionist’ professor M Tugan-Baranovsky and the ‘Marxist’ Rudolf Hilferding rejected the idea of a breakdown of capitalism - of absolute, unsurpassable limits to the accumulation of capital - replacing it with the theory of a possible unlimited development of capitalism. It was a great historical contribution of Rosa Luxemburg that she, in a conscious opposition to the distortions of these ‘neo-harmonists’ adhered to the basic lesson of Capital and sought to reinforce it with the proof that the continued development of capitalism encounters absolute economic limits.

Frankly Luxemburg’s effort failed. According to her exposition, capitalism simply cannot exist without non-capitalist markets. If this line of reasoning were true, the breakdown tendency would have been a constant symptom of capitalism from its very inception, and it would be impossible to explain either periodic crises or the characteristic features of the latest stage of capitalism called ‘imperialism’. Yet Luxemburg herself had the feeling that the breakdown tendency and imperialism only appear at an advanced stage of accumulation and find their sole basis in this stage. ‘There is no doubt that the explanation for the economic roots of imperialism must be deduced from the laws of capital accumulation’ (Luxemburg, 1972, p. 61).

However Luxemburg herself provided no such deduction and even made no attempt in this direction Her own deduction of the necessary downfall of capitalism is not rooted in the immanent laws of the accumulation process, but in the transcendental fact of an absence of non-capitalist markets. Luxemburg shifts the crucial problem of capitalism from the sphere of production to that of circulation. Hence the form in which she conducts her proof of the absolute economic limits to capitalism comes close to the idea that the end of capitalism is a distant prospect because the capitalisation of the non-capitalist countries is the task of centuries. More-over the collapse of the capitalist system is conceived in a mechanical fashion. Once capital rules the entire globe, the impossibility of capitalism will become evident. The result is to anticipate in theory a situation in which capitalism will be automatically destroyed, although we know that there are no absolutely hopeless situations. Luxemburg thus renders the theory of breakdown vulnerable to the charge of a quietist fatalism in which there is no room for the class struggle.

No other attempts were ever made to examine the problem of the ‘catastrophe’ of capitalism, as the neo-harmonists deliberately called it. Some examples will show the fantastic confusion that prevails today on this decisively important aspect of Marx’s theory.

The conception of breakdown in the existing literature

First I shall deal with VG Simkhovitch professor at the University of Columbia, New York, then with the German professors Werner Sombart and A Spiethoff and finally with the Frenchman Georges Sorel. Then I shall deal with the socialists H Cunow, A Braunthal, G Charasoff, Boudin, M Tugan-Baranovsky, Otto Bauer and Rudolf Hilferding.

Simkhovitch rightly disputes the view of Anton Menger that Marx’s socialism is rooted in the moral interpretation of the theory of value. According to him this would simply wipe out the distinction between the early utopian socialism and modern scientific socialism (Simkhovitch, 1913, p. 2). Like Diehl, Simkhovitch argues that the Marxist notion of breakdown is anchored not in the theory of value but in a historically constructed proof. The decisive element is the materialist conception of history expounded in the Communist Manifesto which, Simkhovitch argues, ‘contains no reference at all to any theory of value’ (p. 4). Thus while Bernstein saw in the Marxist theory of breakdown a schema of development constructed on Hegelian lines, derived in a purely speculative manner from Hegel’s dialectic, Simkhovitch sees in it a reflection and generalisation of actual circumstances and tendencies that prevailed empirically at the time of the writing of the Manifesto. Marx’s theory of immiseration was, accordingly, drawn from historical experience.

In Capital, according to Simkhovitch, ‘Marx remained in his theory a typical free trader of the classical variety’ (p. 69). Only this position could allow Marx to establish his theories of immiseration and breakdown. Of course, Marx lived to see the introduction of the ten-hour day and factory legislation. ‘But it was too late; Marx’s theory had acquired a finished shape and formulation. As a theory it was profound, but it bore no relation whatever to the social changes going on before his very eyes’ (p. 70). From the wage fund theory Marx accepted the assumption that the working class could never improve its situation. To support this view he used Andrew Ure’s theory of the impact of machinery on labour (p. 70). ‘Marx constructed his theory of wages and population around these facts. This data tended to suggest that in industrial society technological improvements led to a surplus population, immiseration of the unemployed and low wages’ (p. 71). Through the setting free of workers such improvements would lead to the formation of a reserve army which would in turn keep wages low. Hence Marx, according to Simkhovitch, ‘precluded the possibility of any wage increases that might threaten the continuous expansion of capital’ (p. 73). According to Marx, says Simkhovitch, ‘the progress of accumulation sets free an ever greater mass of workers, the result is an increasing pauperisation of the working class’ (p. 76).

After this description of Marx’s theory, its critique becomes all too easy. Simkhovitch claims to test the theory in the light of data on wages. He concludes that the ‘experience of all the industrial countries without exception shows a continuous and unprecedented improvement in the position of the working classes’ (p. 93). With this reference to empirical facts Simkhovitch imagines he has disposed of the whole of Marx’s system, ‘because its cornerstone is the theory of immiseration’ (p. 82).

Simkhovitch does not notice that he has confused two things which have nothing to do with one another and which, in Marx, stand quite independent of one another. The empirical fact of the displacement of workers through machinery has nothing to do with the Marxist theory of immiseration or with the process by which workers are ‘set free’ due to the general law of capitalist accumulation and its historical tendency. The setting free of workers through machinery which Marx describes in the descriptive portion of his book is an empirical fact. The theory of immiseration and breakdown as expounded in the chapter on accumulation is a theory derived in a deductive manner, on the foundation of the law of value, from the fact of capitalist accumulation. It is a theory that makes no sense apart from the law of value.

The setting free of workers through the introduction of better machinery is a result of the technological relation M:L. It is an expression of technological advance, and as such something characteristic of any mode of production, including the planned economy of socialism. The Marxist theory of immiseration and breakdown, on the other hand, flows from the fact that in the capitalist accumulation process means of production and labour-power are applied in their value forms c and v. These value forms are the primordial source of the absolute necessity for valorisation, with all its consequences: imperfect valorisation, the reserve army, etc:

The fact that the means of production, and the productiveness of labour, increase more rapidly than the productive population, expresses itself... capitalistically in the inverse form that the labouring population always increases more rapidly than the conditions under which capital can employ this increase for its own self-expansion. (Marx, 1954, p. 604)

Sombart’s treatment of the theory of breakdown is characterised by superficiality and an almost incredible ignorance of the facts. According to him, Marx founds the necessity for the proletarian revolution on his theory of crises and his theory of immiseration. He claims that the theory of crises was proposed initially in the Manifesto and not developed by Marx or Engels or by anyone after that. The same is supposed to hold true of the theory of immiseration. It is a striking sign of Sombart’s theoretical illiteracy that in a work of two volumes running into a thousand pages and devoted to the theme of ‘Marxism’, the Marxist theory of accumulation is not mentioned once with the problem of the downfall of capitalism. Sombart’s hopeless empiricism is obvious in the way he tries to finish off Marx’s theory. The two theories in question are described as an expression of the ‘situation’ or the ‘mood’ generated by the ‘circumstances of that time’. This epoch has been relegated to the past, however, and recourse to experience is enough to establish the weakness and untenability of those theories.

Sombart’s claim that after its formulation in i.e. Manifesto, the theory of crises was never developed any further by Marx, can be shown to be baseless by a mere glance at the dozens of important passages in Capital Volumes Two andThree and the pages of the relevant section of Theories of Surplus Value (Part 2, Chapter 17). Later we shall see that the Marxian theory of immiseration was not a formulation based on the ‘circumstances of the time’ but a deduction drawn logically from the Marxian theory of value and accumulation.

A Spiethoff’s great ‘discovery’ in the field of crisis theory is his attempt to explain crises in terms of the overproduction of means of production relative to means of consumption. Spiethoff tries to present Marx’s own theory as an underconsumptionist one; the final breakdown of capitalism is supposed to follow as a consequence of the insufficient consumption of the masses (1919, p. 439). Where Spiethoff finds such a formulation in Marx he does not say. But it enables him to prove Marx’s theory false by recourse to facts. ‘The actual course of development was quite different to the one Marx supposed’ (p. 440). Capitalism does not suffer from restricted consumption, according to him. The sharpest market fluctuations are found in the spheres of industry that produce means of production, not in those that produce the means of consumption.

Elsewhere Spiethoff adds some further elements to his description of Marx’s theory of crises; ‘Marx’s starting point is the falling tendency of the rate of profit’ (1925, p. 65). Whether and what sort of connection there is between this tendency of the rate of profit and crises - the question which is so fundamental to any understanding of the Marxian theory of crises - is quietly ignored. He simply produces a few quotations from Capital and then explains that Marx confused general tendencies pertaining to the final collapse of capitalism with short-term fluctuations. But because Spiethoff himself cannot grasp the logical relationship between these two elements he passes over the real kernel of Marx’s theory of crises and breakdown without the least understanding and interprets the theory as one of disproportionality and underconsumption at the same time.

Whatever Sorel has to say about the theory of breakdown only proves that for him the economic side of Marx’s system remains a closed book. He tries to justify his own lack of comprehension by raising it to the status of a general principle. In other words, one does not really need to understand the Marxian theory of breakdown, for the ‘final catastrophe’ is simply a ‘social myth’ designed to rally the proletarian masses for class struggle. The basis of this entire conception is the view that ‘men of action would lose all sense of initiative if they reasoned things out with the rigour of a critical historian’ (Sorel, 1907, p. 59).

To take yet another version of bourgeois criticism, Thomas G Masaryk (1899) argues that Marx and Engels expected the collapse of bourgeois society in their own lifetime. He ascribes to Marx the argument that the ever-growing concentration of capital would lead to a breakdown. In fact, Masaryk’s view is gratuitous and false. Marx argued only that due to the process of concentration, competitive capitalism is transformed into a monopoly capitalism. The breakdown was derived by him from completely different causes. To refute Marx, Masaryk appeals to the fact that the middle classes have not in fact disappeared and that even the position of the working class has improved. In his conception Marx supposedly derived the necessity of a breakdown from the proletarianisation of the middle classes. There could not be an easier refutation of Marx’s system. But as for theoretical arguments against the theory of accumulation and breakdown Masaryk can think of none. Joseph A Schumpeter repeats the same banal dogmas against Marx. For him Marx was an underconsumptionist - he derived crises from the ‘discrepancy between society’s capacity to produce and its capacity to consume’ (1914, p. 97).

Among Marx’s critics Robert Michels takes special place as he has devoted a whole book (1928) to the question of immiseration and breakdown. In this book Michels proposes to clarify the issues involved once and for all and to show that Marxism has been ‘scientifically overvalued’, a fact which is only explicable, according to him, due to the ‘crass ignorance’ that prevails about Marx’s predecessors and contemporaries. A comparison between Marx and writers of the seventeenth and eighteenth centuries would prove that Marx was hardly original. Most of Marx is to be found not only among the socialists, but even among contemporary liberals and clericalists. Indeed, as early as 1691, John Locke had a certain presentiment of the existence of a reserve army and its tendency to become pauperised (p. 55).

Yet in direct contradiction to the view that Marx simply plagiarised the early theory of pauperisation from writers of the past, Michels expounds the opposite view that Marx’s theory was simply a reflection of the specific relations in which the young industrial countries of Europe found themselves on the outbreak of the February revolution in Paris, 1848 (p. 195). Still, Marx had a lot to recommend him over countless numbers of his predecessors. What the latter often stated only in the form of isolated observations, empirical accidents and even episodes, appeared in Marx in the form of ‘the causal connections and overall plasticity of a system’ (p. 196).

About what sort of ‘causal connections’ or what ‘system’, you find in Michels not even a dying word, as he is thoroughly incapable of any theoretical analysis. Michels obviously believes that independent ideas are quite unnecessary for a writer and are infinitely replaceable by ‘erudition’. He can think only politically and historically. To him knowledge contains no room for theory. Can we wonder that with such an attitude Michels is quite incapable of grasping the simplest elements of theory and fills hundreds of pages in his book, in one massive confusion, with things that have absolutely nothing to do either with Marx or with the Marxist ‘theory of immiseration’? Anyone at all who has ever written about poverty becomes immediately transformed into a ‘predecessor’ of Marx.

Because Michels ignores the specific nature of Marx’s theory of immiseration (its derivation from the specific moments of the capitalist process of reproduction), and because his study concentrates on an amorphous ‘poverty’ (the opposition of rich and poor), he can trace the ‘predecessors of Marx’ back into the seventeenth century and even further back, into antiquity and the bishops of the ancient church. Finally because Michels has no notion of the theory that was worked out by Marx, nowhere mentions the actual moments that lead to a disruption of the capitalist mechanism in the course of accumulation, he sees ‘poverty’ as the sole source of the revolutionary hopes of Marxist socialism. But he knows that Marx himself supported trade union struggles as a means of improving the position of the class and is therefore forced to conclude that ‘there is an indisputable contradiction here’ (p. 127).

Even more strange than the interpretation of the theory of breakdown by the bourgeois economists was its description in the writings of Marxists and socialists.

The oldest representative of the theory that traces the breakdown of capitalism to a lack of non-capitalist market outlets is H Cunow. Marx’s diagnosis of the tendencies of development of capitalism was basically correct Cunow argues, but he misjudged their tempo because he regarded the market outlets of that time as given. Capital’s ability to win new spheres for investment and trade in the final decades of the century had a mitigating impact on the breakdown tendency. The expansion of foreign markets ‘not only created an outlet that could absorb the constantly recurring superabundance of commodities’ but could also, through this mechanism, ‘diminish the tendency towards the outbreak of crises’ (Cunow, 1898, p. 426). Without the conquest of new markets in the 1870s and 1880s, English capitalism would long ago have faced a contradiction between the absorptive capacities of her existing markets and the gigantic growth of her capitalist accumulation.

Cunow criticises Bernstein for mistakenly generalising from a specific stage of development and projecting its special tendencies across all stages without asking whether the conditions would always exist for an extension of the world market to keep pace with the expansion of production (p. 424). Cunow himself ruled this out. Up to the 1870s England enjoyed a monopoly on the world market, after which Germany and the United States emerged as industrial competitors. This in turn was followed by the industrialisation of India, Japan, Australia and Russia, and would soon be followed by that of China (p. 427). To Cunow the breakdown of capitalism was only a matter of time (p.427). Fifteen years later Luxemburg took over this theory word for word and tried to deepen it theoretically.

The theory of breakdown developed by Cunow and later defended by Luxemburg and her followers, such as F Sternberg, is the only one dealt with by A Braunthal. He knows of no other theory of breakdown, and he regards the very conception as fundamentally incompatible with Marx’s system. He accentuates the tendencies towards the concentration and centralisation of capital and the polarisation between the classes, and rejects a theory of breakdown because it is incompatible with Marx’s theory of class struggle.

For any work in the present a theory of breakdown clearly leads to pure passivity ... If one took the theory to its logical conclusion, the proletariat’s present task would consist only of organisational and educational preparation for the revolution. Any activity immediately directed to the present, any class struggle for the present goals would be basically useless. For in that case all objective development leads to a pauperisation of the proletariat, and it makes no sense to put oneself into opposition to such development. (Braunthal, 1927, p. 43)

Nikolai Bukharin likewise fails to provide a serious account of the theory of breakdown and simply ends up with nebulous phrasemongering about ‘contradictions’. Bukharin tears all the threads that tie the breakdown of capitalism to actual tendencies of economic development. His theory of breakdown is the following:

Capitalist society is a ‘unity of contradictions’. The process of movement of capitalist society is a process of the continual reproduction of the capitalist contradictions. The process of expanded reproduction is a process of the expanded reproduction of these contradictions. If this is so, it is clear that these contradictions will blow up the entire capitalist system as a whole. (1972, p. 264)

Satisfied with the results of his analysis, Bukharin then proclaims, ‘We have reached the limit of capitalism’ (p. 264). ‘Even this general ... explanation of the collapse of capitalism postulates a limit which is in a certain sense objective. This limit is given to a certain degree by the tension of capitalist contradictions’ (pp. 264-5). He decrees: ‘It is a fact that imperialism means catastrophe, that we have entered into the period of the collapse of capitalism, no less’ (p. 260).

The exactness of Bukharin analysis is amazing. He obviously believes that pure assertions will do by way of proof. Bukharin calls his ‘contradiction’ phraseology dialectical. The lack of any concrete proof-procedure, the complete inability to conduct a theoretical analysis, is covered up with the term dialectical and this is the ‘solution’ of the problem. Bukharin’s statement that it is a fact that we have entered a period of the breakdown of capitalism may very well be true, but it is precisely a question of explaining this fact causally, of establishing by way of theory, the necessity for a tendency to break down under capitalism. As for what kind of sharpening of ‘contradictions’ we might expect, Bukharin naturally refers us to his book Economics of the Transformation Period, where his hopes about the breakdown of capitalism are shifted on to a ‘second round’ of imperialist wars and the gigantic destruction of productive forces caused by war. Bukharin’s theory of breakdown turns out to be nothing but a reformulation of Russia’s own experiences during the War:

Today we are able to watch the process of capitalist collapse not merely on the basis of abstract constructions and theoretical perspectives. The collapse of capitalism has started. The October Revolution is the most convincing and living expression of that. (1971, p. 266)

As for the causes of this collapse in Russia:

The revolutionisation of the proletariat was doubtless connected to the economic decline, this to the war, the war to the struggle for markets, raw materials and spheres of investment, in short with imperialist politics in general. (p. 267)

So according to Bukharin, the collapse of capitalism flows from the destruction of the economic base. But this latter is not grounded in economic forces, in inexorable economic laws of the capitalist mechanism itself, but in war, in a force that exists outside the economy and which exerts a disintegrating influence on the apparatus of production from the outside. It would be useless to search Bukharin for any other cause of the breakdown of capitalism than the ravages created by war. The breakdown flows from transcendental causes whereas, for Marx, it is an immanent consequence of the very laws that regulate capitalism.

If, like Bukharin, we expect the breakdown of capitalism to flow from a second round of imperialist wars, then it is necessary to point out that wars are not peculiar to the imperialist stage of capitalism. They stem from the very essence of capitalism as such, during all its stages, and have been a constant symptom of capital from its historical inception. Later I shall show that far from being a threat to capitalism, wars are a means of prolonging the existence of the capitalist system as a whole The facts show precisely that after every war capitalism has entered on a period of new upsurge.

In a more profound study than anything offered by Bukharin, G Charasoff correctly underlines the strict connection between Marx’s theory of breakdown at the end of Capital Volume One and the theory of the falling rate of profit: ‘All the propositions of the theory of breakdown are basically intended to be only different expressions of a single fundamental fact - the fall in the rate of profit’ (Charasoff, 1910, p. 3). The fall in the rate of profit is according to Marx only an expression of the fact that with the advance of technology an ever smaller mass of living labour is required to set capital, or dead labour, into motion. With the incessant development of social productivity, the rate of profit must fall and capitalism becomes intrinsically unstable. There is an intensified competition and concentration of capitals,, ‘overproduction becomes inevitable, the reserve army forms with the force of a natural law and the final catastrophe supervenes’ (p. 4).

However Charasoff himself disputes the correctness of this idea, on two grounds. First he disputes the fact of the falling rate of profit (pp. 294-7). This law in his opinion is obviously wrong. Secondly he doubts whether the breakdown as such can be deduced from the tendential fall in the rate of profit (p. 299). Charasoff feels that in Marx the breakdown is connected to the falling rate of profit, but what this connection is he himself cannot show. In this sense he fails to demonstrate the economic necessity of the breakdown from the laws pertaining to the system itself. Therefore he ends up saying that ‘the fall (in the rate of profit) has to be consciously produced’ (p. 316). This alone will enable Marxism to overcome its ‘fatalistic character’ according to which socialism is a product ‘mainly of the external collapse of capitalism and not of the conscious assaults’ of the masses (p. 318). By struggling on its wage demands, the working class consciously reduces the rate of profit and prepares the ground for the generalised crisis.

Boudin likewise accepts the idea that the downfall of capitalism is inevitable. He correctly says that this can only be understood and explained with the help of Marx’s theory of value. ‘According to the theory of Marx’, he writes, ‘the purely economic-mechanical breakdown of capitalism is a result of the inner contradictions of the law of value’ (1909, p. 173). But Boudin offers no proof of this. He simply offers a description of the concentration and centralisation of capital that flows from competition in which the bigger capitalists beat the small, and concludes that if the laws of capital were to operate unhindered, no capitalists would be left to form any sort of social class (p. 172). Boudin does not get past generalities of this kind. It is not surprising, therefore, that he finally falls back on Cunow’s theory of the necessity for non-capitalist markets as a condition of existence of capitalism. The industrialisation of non-capitalist countries is ‘the beginning of the end of capitalism’ (p. 264). Capitalism’s inability to find outlets for its surplus product is the basic cause of periodic disturbances ‘and will finally lead to its breakdown’ (p. 255).

It should be obvious that not only Tugan-Baranovsky but also the socialist neo-harmonists Rudolf Hilferding and Otto Bauer are completely hostile to the idea that capitalism contains unsurpassable economic limits. Tugan-Baraflovsky says that

the absolute limit to any further expansion of production is given in the quantum of productive forces at the disposal of society; capitalism is defined by an incessant but futile striving to reach these limits. Capital can never actually reach them. (Tugan-Baranovsky, 1901, p. 31)

Therefore ‘capitalism can never collapse from purely economic causes, whereas it is doomed for moral reasons’ (Tugan-Baranovsky, 1904, p. 304). Elsewhere he says that there ‘are no grounds for supposing that capitalism will ever meet with a natural death; it has to be destroyed through conscious, human will, destroyed by the class exploited by capital, by the proletariat’ (Tugan-Baranovsky, 1908, p. 90).

Tugan-Baranovsky upholds this idea because he opposes the materialist conception of history and grounds socialism moralistically in the conscious will of the proletariat as something divorced from the objective course of economic development. Yet the same idea is taken over by Bauer, Hilferding and Kautsky, who stand on the terrain of historical materialism. According to Bauer, objective limits are indeed imposed on accumulation by the size of a given population. Within these demographic limits unfettered accumulation occurs. Of course in reality accumulation is accompanied by violent crises, but only because accumulation surpasses the given demographic limits; in relation to the population at the disposal of capital there is either an overaccumulation or an underaccumulation of capital. Yet these periodic crises are only momentary disruptions of the equilibrium of capitalist accumulation.

The periodic occurrence of phases of prosperity, crisis and depression is only the empirical expression of the fact that the mechanism of the capitalist mode of production automatically eliminates over- or underaccumulation, and always adjusts the accumulation of capital to the growth of population. (Bauer, 1913, p. 871)

Thus for Bauer crises are passing phenomena that are automatically overcome by the mechanism of capitalist production. The schematic equilibrium of the reproductive process is also Hilferding’s peculiar obsession; crises are a reality only because production is not regulated. With a proportional distribution of capital in the individual branches of industry, there would never be overproduction. In a case like that capitalism could expand without limits; ‘production can be expanded indefinitely without leading to the overproduction of commodities’ (Hilferding, 1981, p. 241). On the few occasions that Hilferding refers to breakdown, he hastens to add that it will be ‘political and social, not economic; for the idea of a purely economic collapse makes no sense’ (p. 366). When the bourgeois economist Ludwig von Mises argues that the modern organisation of exchange and credit are a threat to the continued existence of capitalism, that ‘the development of the means of circulation must necessarily produce crises under capitalism’ (Mises, 1912, p. 472), Hilferding can only deride this ‘latest representative of the breakdown theory’ (Hilferding, 1912 p. 1027). Far from leading to the breakdown of capitalism, the credit system is to him a means of transferring the entire productive mechanism from the hands of the capitalists into those of the working class:

The socialising function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most important branches of production under its control, it is enough for society, through its conscious executive organ - the state conquered by the working class - to seize finance capital in order to gain immediate control of these branches of production ... Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry. (Hilferding, 1981, pp. 367-8)

This entire conception corresponds to the dream of a banker aspiring for power over industry through credit. It is the putschism of Auguste Blanqui translated into economics.[1]

The breakdown of capitalism was either rejected completely, or grounded in a political voluntarism. No economic proof of the necessary breakdown of capitalism was ever attempted. And yet, as Bernstein realised in 1899, the question is one that is decisive to our whole understanding of Marxism. In the materialist conception of history the social process as a whole is determined by the economic process. It is not the consciousness of mankind that produces social revolutions, but the contradictions of material life, the collisions between the productive forces of society and its social relations:


If one wants to prove that capitalism cannot continue for ever, one has to prove the necessary breakdown of capitalist economy and its inevitable transformation into socialist economy. Once this is established, one has proved the necessary transformation of capitalism into its opposite and one has then brought socialism out of the realm of utopia into that of science. (Tugan-Baranovsky, 1905, p. 209)

I shall show later that Marx provides all the elements necessary for this proof.

How Kautsky finally abandoned Marx’s theory of accumulation and of breakdown

In his latest book (1927) Kautsky abandons his earlier method of distorting Marx under the guise of defending him, in order openly to oppose the basic ideas of Capital. In the chapter called ‘the downfall of capitalism’, he asks, ‘will capitalism end the same way that feudalism did before it?’ That it will is a pure assumption, according to Kautsky, and one which ‘Marx and Engels never completely rid themselves of’ (p. 539). Here we have a good example of Kautsky’s method of distortion. He tries to create the impression that at one time Marx and Engels supported the idea of the economically necessary downfall of capitalism, but tried to rid themselves of it without ever fully succeeding. In fact the idea of the necessary downfall of capitalism is absolutely basic to Marx’s theory of accumulation and crises in both Capital Volumes One and Three.

According to Kautsky, the notion of breakdown contradicts the facts. Like the bourgeois critics of Marx he argues that the Marxian theory of immiseration is an empirical deduction from the conditions prevailing in the 1840s. It was valid in the terms of the frightful ravages caused by capitalism in the working classes of the early nineteenth century. But after 1847, Kautsky continues, England saw the repeal of grain tariffs, the institution of a ten-hour working day and the beginnings of a new epoch of expanding industry and unionism: ‘In industries covered by the Factory Acts the condition of the working class improved significantly’ (p. 541). Political methods likewise contributed to improving the economic position of the workers:

As democracy expanded the proletariat of the large towns increasingly gained control of their administration and, even in the midst of bourgeois society, gained the capacity to improve their conditions of welfare and life to such a degree that their general conditions of health improved perceptibly. (p. 542)

Kautsky concludes that ‘it is no longer possible to maintain that the capitalist mode of production prepares its own downfall through the very laws of its own development’ (p. 541). Kautsky’s argument is based entirely on the fact that the position of the working class improved after the conditions described in the Communist Manifesto. From this fact he draws the conclusion that Marx’s theory of the development of the productive forces under capitalism is untenable, especially the idea, basic to Marx, that from a certain stage onwards capitalism is a fetter on the productive forces. To this Marxist theory Kautsky counterposes the directly opposite conception: ‘If earlier modes of exploitation ultimately led to a destruction of the productive forces, despite short spasms of expansion, industrial capital is defined by its tendency to augment them’ (p. 539).

A few pages later Kautsky says that in ‘Capital Volume One, 1867, Marx spoke an entirely different language’ (p. 541) to that of two decades earlier. In Capital Marx is supposed to have abandoned the theory of pauperisation. Yet the essential aspects of Marx’s theory of immiseration and breakdown were first presented only in Capital. This was possible, despite his acknowledgement that the position of the working class had improved, because he did not derive the inevitable pauperisation of the working class under capitalism from the empirical conditions of England in the 1840s, but by way of a deduction from the very nature of capital or the law of accumulation peculiar to capitalism.

The worsening position of the working class and the growth of the reserve army are certainly not the primary facts from which the breakdown is deduced; rather they are the necessary consequences of the accumulation of capital at a specific stage of capitalism. It is the accumulation of capital that forms the primary cause that leads ultimately to the economic failure of capitalism due to an imperfect valorisation of the accumulated capital. Characteristically Kautsky completely ignores the theory of accumulation and breakdown formulated in the chapter on the general law of capitalist accumulation. This is especially obvious in the way he refutes Luxemburg’s view as:

Yet another hypothesis that attempts to deduce the ineluctable necessity for a final economic breakdown of capitalism from the conditions of its process of circulation - despite, or rather precisely because of its expansion of the productive forces - in direct opposition to Marx who proved the exact opposite in Capital Volume Two. (p. 546)

So in Volume Two Marx is supposed to have proved the possibility of an unfettered development of the productive forces under capitalism. Kautsky finally has to appeal to Bauer’s reproduction scheme, describing it as ‘the most important critique’ (p. 547) of Luxemburg’s theory. Bauer likewise defends the thesis of a possible unlimited accumulation (Bauer, 1913, p. 838).

Tugan-Baranovsky was the first to suppose that Marx’s reproduction schemes at the end of Capital Volume Two are proof that Marx himself was convinced of the possibility of a crisis-free, unlimited development of the productive forces of capitalism. Tugan-Baranovsky admits that Marx never explicitly formulated the thesis of equilibrium that allegedly underlies the reproduction schemes and that these schemes were never developed logically by Marx: ‘The logical deductions that flow from them, which Marx himself totally neglected, are a blatant contradiction with the ideas he professed before constructing the schemes’ (1913, p. 203). Naturally Tugan-Baranovsky has to clarify this astonishing contradiction, and he tries to do this by seeing the system prior to the construction of the schemes as an older, outdated draft of Marx’s theory. Because Marx never reworked this earlier portion his earlier ‘analysis remained incomplete’ (p. 203).

In accepting Bauer’s theory Kautsky rejects the notion of a final limit to capitalist accumulation, and stands on the same ground as Tugan-Baranovsky 25 years earlier.[2]But if Tugan-Baranovsky was at least aware of the contradiction contained in an harmonist interpretation of the reproduction schemes, it is characteristic of Kautsky, Bauer and Hilferding that they are not in the least bothered by it. When the contradiction is apparent they abandon Marx’s theory and stick to their own harmonist interpretations. To Kautsky crises are only temporary disruptions caused by the lack of proportionality between individual branches. But ‘the correct proportionality is always re-established’ (1927, p. 548).

Kautsky is not content simply with abandoning Marx’s theory of the final economic end of capitalism. He becomes an unconditional admirer of capitalism. During the great catastrophe of the War:

capitalism did not collapse. It showed us that its elasticity, its capacity to adjust to new conditions, was much stronger than its vulnerability. It stood the test of war and stands today, from a purely economic point of view, stronger than ever. (p. 559)

Kautsky’s faith in the economic future of capitalism, his optimistic enthusiasm for it, are carried so far that like Bernstein he concludes that capitalism is always capable of surmounting all obstacles; that not only has no one ever produced a theoretical proof of its economically necessary downfall, but that such a proof is impossible. The practical experiences of capitalism ‘more than testify to its capacity to survive and to adjust to the most manifold and even desperate situations’ (p. 559). ‘Three decades ago’, Kautsky says:

I dealt with the problem of crises. Since then capitalism has survived so many crises, has shown its capacity to adapt to so many new, often quite astonishing and extraordinary demands that today it seems to me, from a purely economic point of view, far more capable of survival than it did some decades back. (p. 623)

It is quite sad to watch a thinker of such exceptional merit, towards the closing stages of his active life, rejecting his entire life’s work at a single stroke. The conclusions Kautsky draws constitute an abandonment of scientific socialism. If there is no economic reason why capitalism must necessarily fail, then socialism can replace capitalism on purely extra-economic - political or psychological or moral - grounds. But in that case we abandon the materialist basis of a scientific argument for the necessity of socialism, the deduction of this necessity from the economic movement. Kautsky himself senses this:

The prospects for socialism depend not on the possibility or necessity of a coming collapse or decline of capitalism but on the hopes we must have that the proletariat attains sufficient strength, that the productive forces grow sufficiently to provide abundant means for the welfare of the masses ... finally, that the necessary economic knowledge and consciousness develop in the working class to ensure a fruitful application of these productive forces by the class - these are the preconditions of socialist production. (p. 562)

Kautsky displaces the question from economics to politics, from the sphere of economic laws to the sphere of justice. Once problems of distribution become decisive, socialism retrogresses three-quarters of a century to its historical starting-points, to Pierre Joseph Proudhon and his demand for just distribution. To abandon materialism as our basis is to abandon socialism in favour of reformism.

Once the economic basis for the destruction of capitalism is given up, where is the certainty that the proletariat, having become the decisive class, will define its goal as the destruction of capitalism? Will it not perhaps prefer to reconcile itself with the existing order of society? Why should the working class come out against capitalism when it is not only capable of an unfettered development of the forces of production, but secures for it a constant improvement in its conditions of life and ever increasing protection through social reforms?

Capitalism is doing all that, Kautsky assures us, and yet the working class will realise socialism. According to Kautsky - despite all the developments of the productive forces, despite all the improvements in the position of the working class, despite all advances in social legislation - class antagonisms become progressively sharper, not milder, under capitalism so that the conscious intervention of the proletariat is something inevitable. Kautsky enumerates a series of subsidiary moments that will lead to a sharpening of class antagonisms: ‘Here, and not in the accumulation of capital or the growth of crises, will the fate of socialism be decided’ (p. 563). Kautsky fails to realise that he is simply moving in circles. If the causes of sharper class struggle are economically conditioned, then his own standpoint proves the necessary collapse of capitalism, with only this difference; that the causes given by Marx (growing accumulation and its consequences in insufficient valorisation and crises) are replaced byother causes. Or - and this is the second alternative - these causes are not economically conditioned, in which case the growth of class oppositions are traced to the consciousness of the working class as something pure, something cut loose from the economic movement. In truth this is the ultimate basis on which Kautsky’s socialism is grounded - the realisation of socialism purely voluntaristically, through the conscious will of the workers, without any economic failure of capitalism and despite improvements in the conditions of life of the proletariat.


1. At the Kiel convention of the Social Democratic Party (May 1927) Hilferding explained in his report:

I have always rejected any theory of economic breakdown. In my opinion Marx himself proved the falsehood of all such theories. After the War a theory of this sort was represented mainly by the Bolsheviks who thought we were on the verge of the collapse of the capitalist system. No such collapse followed. There is no reason to regret that. I have always been of the opinion that the downfall of the capitalist system is not something one waits for fatalistically, not something that will flow from the inner laws of this system, but that it must be the conscious act of the will of the working class. Marxism has never been a fatalism but, on the contrary, the most intense activism.

With the same logic Hilferding might have argued that the conscious will of workers who force wages up through strike action proves that there are no economic laws governing the movement of wages.

2. At that time Kautsky had attacked Tugan-Baranovsky, from an underconsumptionist standpoint, in his articles on theories of crisis.