Paul Mattick

Value Theory and Capital Accumulation


Published: Science & Society, vol. 23, no. 1. Winter 1959. Pp. 27-51.
Transcription/Markup: Micah Muer, 2018.

Notes on Joseph M. Gillman’s The Falling Rate of Profit: Marx’s Law and Its Significance to Twentieth-Century Capitalism (New York, 1958).


The interest shown by readers of SCIENCE & SOCIETY in the article by Jacob Morris on Joseph Gillman’s The Falling Rate of Profit has led the editors to invite the opinions of economists on the questions discussed in Dr. Gillman’s book. Their comments will be published beginning with this issue.—Editors.

Marx’s theory of capital development evolved out of his criticism of the value theory of laissez-faire capitalism. In order to yield regulatory results, the market automatism presupposes a principle on which exchange is based, a principle that explains prices and their changes. A given price may vary in the interplay of supply and demand, but the question of what determines price remains. For the classicists, price was a derivation of value and value was determined by the socially necessary labor-time incorporated in commodities. There was no need to quarrel with this explanation which did not exclude specific cases where price has no relation to labor-time. At any rate, Marx accepted the labor theory of value as the closest approximation to the actual evaluation process which underlies prices.

For Marx, the inherent contradictions of capital production are not of an “economic” character in the bourgeois sense of the term. He is concerned not with the supply and demand relations of the market but with the effect of the social forces of production upon the social relations of production, that is, with the results of the increasing productivity of labor upon the production of value and surplus-value. Celebrated as the product of capital itself, bourgeois theory separates growing productivity from its social implications. For Marx, it is the independent variable that determines all the other variables in the system of economic relationships.

Whatever the regulative power of competition and whatever the force of supply and demand may be, all that matters in the end, and from the point of view of development, is the changing productivity of labor. It transforms society materially and the material changes affect all socio-economic relations. This special importance of labor and its increasing productivity in Marx’s scheme of reasoning led to the discovery of a definite developmental trend in capital accumulation which revealed qualitative changes in the wake of quantitative ones. He could show that the capitalist “equilibrium mechanism” must itself change in the course of capital accumulation and that it is the latter which determines and modifies the market force of supply and demand, since the market laws have to assert themselves within a larger frame of a developing “disequilibrium” between the social forces of production and the capitalist relations of production.

As an explanation of the developmental tendencies of capital production, Marx found the theory of value indispensable and, in fact, the only “rational basis of political economy.” He knew, of course, that the social labor process itself has nothing to do with either value or price but only with the time-consuming physical and mental exertions of the laboring population and that “value” and “price” are fetishistic categories for existing social production relations. It would not do, however, merely to point out that the ruling economic categories were themselves in need of explanation and that the whole “science” of bourgeois economy could only make the perfectly clear requirements of social production and distribution obscure. In order to construct a theory of capital development, it was necessary to agree to the validity of a definite regulatory principle—the value concept—which came nearest to reality by expressing actual necessities and by incorporating the existing equilibrium tendencies of the market mechanism.

From the standpoint of the labor theory of value, the exchange-value of a commodity decreases with the increasing productivity of labor. However, capitalist production is production of exchange-value by way of the production of commodities. Its goal is surplus-value as additional exchange-value. Surplus-value is the difference between the exchange-value of labor power and its actual productive capacity. It is the time relation between the labor necessary to sustain and reproduce workers and the labor that falls to capitalists in the form of surplus-products realized in profits. Viewed capitalistically, a mere increase in productivity is senseless unless it involves an increase in surplus-value. The latter is made possible by an increase in productivity but implies a change in the relation between necessary and surplus-labor. More of the latter falls to the capitalists, less of the former to the workers.

The increase in productivity and surplus-value and the accumulation of capital are all one and the same process. It implies a more rapid growth of capital invested in means of production than that invested in labor power. In Capital, Marx constructs a value-model of capital development comprising the theoretically conceivable entity of “total capital” with its social aggregates of wages, profits and investments. The social reproduction process is here the accumulation of capital, that is, it implies reproduction on a larger scale. Capital invested in labor power Marx called “variable capital” because of its ability to create surplus-value and thus additional capital. Capital invested in means of production he called “constant capital.” The relation between these two parts, both with regard to their technical side and their value side he called the “organic composition of capital.” Accumulation means a rising organic composition of capital, that is, more constant, less variable capital. As profits are calculated on the total invested capital, they must show a tendency to decline as that part of the total which alone yields surplus-value becomes relatively smaller. But the process also implies an increasing ability to extract more surplus-value, thus nullifying the “tendency” of profits to decline, and constituting the reason for the process itself. According to Marx, then, the development of the social productivity of labor in capitalism expresses itself “on the one hand in a tendency to a progressive fall of the rate of profit, and on the other hand in a progressive increase of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profits is accompanied by an absolute increase of both. This twofold effect can express itself only in the growth of the total capital at a ratio more rapid than that expressed by the fall of the rate of profit.”[1]

The “abstract law” that the growing productivity of labor manifests itself in a falling rate of profit simultaneously compensated for by an increasing mass of surplus-value may appear quite meaningless so long as capitalists are able to accumulate. However, the absence of a falling rate of profit in reality does not invalidate a value-scheme of capital development in which the rate of profit shows such a decline. To show this decline, to be sure, it is necessary to assume a capitalist system with a rising organic composition of capital and a static rate of exploitation, or, when a growing rate of surplus-value is considered, to assume a closed system with a given labor force in which the continuous accumulation process, demanding always more surplus-labor, brings the necessary labor towards zero. These are unrealistic conditions. What is real, nevertheless, is the accumulation process and the rising organic composition of capital. And although capitalists are not aware of a tendential fall of the rate of profit, they do suffer periods of declining profitability, and these periods are characterized by a decreasing rate of accumulation. By itself, this fact neither supports nor contradicts Marx’s theory. It merely resembles the value-scheme of development. On the basis of his own assumption, the value-scheme of accumulation only postulates “the possibility of crisis by a mere consideration of the general nature of capital, without regard to the additional and real relations that form the conditions of the real production process.”[2]

In the real world of capital production it cannot be expected that capitalism will collapse because of accumulation, or, what amounts to the same thing, because of the tendential fall of the rate of profit. The end of accumulation could result only when real social conditions exclude a sufficient increase of surplus-value for a further expansion of capital or when the expansion of capital has reached a point where any further capital growth would yield the same, or less, surplus-value than before. As neither of these situations is predictable from the actual conditions of capital production, Rosa Luxemburg was quite right in considering that the idea that capitalism would collapse as a result of the falling rate of profit was too far-fetched. In her opinion “a collapse of capitalism due to the falling rate of profit would take a very long time, probably just as long as the cooling-down of the sun.”[3]

Rosa Luxemburg’s remarks, although true, are quite beside the point. For the “self-liquidation” of capital production—by way of a falling rate of profit as implied in the value-model of capital expansion—was meant to lead toward an understanding of the actual process of capital formation and does not represent the latter only in a more generalized form. Marx, at any rate, never tired of pointing out that no predictions regarding the actual world can be based directly on the value-scheme of capital development. All real crises of capitalism must, in his view, be explained out of the empirically-given condition, “out of the real movement of capitalist production, competition, and credit.”[4]

Marx’s theory of accumulation has no immediate and direct connection with the actual process of capital formation. The distinction between the value-model and reality must always be kept clear. Questions arising in the model cannot be answered with phenomena that appear only in reality, and solutions of problems of the actual world are not found in the value-scheme of development. The abstract value-scheme of capital expansion has its purpose, nevertheless. It indicates that, apart from competition as the driving force of capital development in the market reality, the production and accumulation of surplus-value finds in the twofold character of capital production (use- and exchange-value) a limiting element, to be overcome only by a continuous expansion and extension of capital and the capitalist mode of production. According to Marx, capitalism’s basic contradiction consists in the conflict between the expansion of production and the creation of value. It consists, generally speaking, in the fact “that the capitalist mode of production has a tendency to develop the productive forces absolutely, regardless of the value and of the surplus-value contained in it and regardless of the social conditions under which capitalist production takes place; while it has on the other hand for its aim the preservation of the value of the existing capital and its self-expansion to the highest limit.”[5] An unconditional development of production under the auspices of competition can lead to a situation where the expansion of use-values would no longer correspond to the value-expansion of capital and, for that reason, would temporarily end. It is in this sense that Marx proclaims that “the real barrier to capitalist production is capital itself. It is the fact that capital and its self-expansion appear as the starting and closing point, as the motive aim of production … which steer straight toward an unrestricted extension of production. The means, this unconditional development of the productive forces of society, comes continually into conflict with the limited end, the self-expansion of the existing capitals.”[6]

In Marx’s abstract value-scheme, accumulation leads to a final lack of surplus value when certain limiting conditions of expansion are assumed. Although these assumed conditions will not arise in reality, it is quite clear that for all capitals, all national capitals and for the whole of capitalism there do exist at any particular time definite limits to their profitable expansion. And it is not the market alone, but the whole social situation in all its ramifications which, at times, constitutes a limit to capital expansion. As it is not possible to calculate when the expansion of one or all capitals reaches its limits in actual social conditions, limiting conditions had to be assumed in order to reveal the meaning of the process here involved.

Over-accumulation of capital is always the endpoint of a period of accumulation wherein the extension of production parallels the expansion of capital. When existing conditions of exploitation preclude a further profitable capital expansion, a crisis sets in. This, of course, leads to processes that remove the temporary barrier to further accumulation. But the reorganization of the total capital structure here involved sets new limits within the new conditions characteristic for another period. There is, however, no reason to assume that the conditions of production will always change so as to accommodate the need for capital expansion; the less so, as the conditions of production are the general social conditions of production and the need for capital expansion is a particular need bound to nothing but the exploitative capital-labor relationship.

Marx’s abstract theory of capital development, though incapable of predicting the definite end of capitalism, is significant as an instrument to be set against the persistent illusion that capitalism could actually reach that state of tranquility held out by its apologists as the only hope of the future. It helps explain why all the concrete contradictions encountered in reality cannot be considered accidental or remediable shortcomings. These difficulties, singly and as a developmental pattern, are due to a trend in capital accumulation itself. When capitalism’s inner connections are grasped, Marx wrote, “all theoretical belief in the permanent necessity of existing conditions breaks down before their practical collapse.”[7] The vagueness of his theory was both its weakness and its strength, but above all, it was the only form in which capitalist development could be comprehended.

The Falling Rate of Profit and Its Counter-Tendencies

There are Marxists who have projected Marx’s findings with regard to the value-model of capital expansion into the real world of capital formation. And it must be admitted that Marx, and his editor, did not always distinguish clearly enough between the real world of capitalism and its appearance in value theory. But while, in the case of Marx, this may be considered a literary shortcoming, for some of his disciples the “law of value,” as the economic counterpart to the dialectics, seems to assure the breakdown of capitalism.[8] Marx’s critique of political economy became the ideology of the inevitability of socialism. As such, the theory of breakdown waxed and waned with the capitalist movement from depression to prosperity, from relative stability to the general crisis. While in vogue, however, it was always admitted that the contradictory value production, which turns the drive for profits into their decline, has no counterpart in immediate reality. Capitalism’s basic tendency, it was argued, is offset by counter-tendencies. But as all these counter-tendencies are supposedly over-ruled by the “law of value,” they were thought to exhaust themselves in the course of time and the as yet unnoticeable fall of the rate of profit would become a real decline and destroy the capitalist system.

Gillman’s book raises the question of the falling rate of profit for contemporary capitalism. He points out that this question has hitherto “been argued mainly on theoretical grounds,” which, of course, is the only ground it can be argued on. Gillman, however, attempts to deal with it on “both theoretical and historical-statistical grounds,” and there he finds that “for the years before about World War I the historical statistics seem fully to support these theories of Marx; after that war the series studied appear generally to behave in contradiction to the Marxist expectations.” Gillman wonders whether his procedure and statistics are wrong, or whether Marx was right for the period of competitive capitalism and wrong for the period of monopoly capitalism; particularly “with respect to the countertendencies which became effective as offsets to the falling tendency of the rate of profit in this (monopoly) period.”

Gillman’s re-formulation of Marx’s “law of the falling rate of profit,” is, unfortunately, a misstatement, for he asserts that the rate of profit falls “because the drive toward unlimited capital accumulation tends to delimit the capitalistically-determined consumer market potentials wherein alone profits can be realized (4).”[9] In Marx’s theory, however, the rate of profit falls even on the assumption that there is no realization problem. It is a question of the expansion of production and the expansion of value, not of its realization. The realization of surplus-value is a problem of the concrete market situation, not of abstract value analysis. But here at the very outset, as well as throughout his book, Gillman moves from abstract value analysis into concrete production and distribution relations, and vice versa, unaware that such procedures are not permissible. And thus he does not notice that his distinction between competitive and monopoly capitalism has no bearing on the tendential fall of the rate of profit, as the latter refers to “total capital,” disregards issues of monopoly and competition and assumes validity for all stages of capital development. Finally, and in contrast to those theoreticians who waited for the counter-tendencies to the falling rate of profit to exhaust themselves, Gillman points out that it may be a question of the varying effectiveness of these counter-tendencies which will explain why there was an actual fall of the rate of profit in an earlier period of capital expansion and why this no longer holds true for present-day capitalism.

According to Marx, “the same causes which produce a falling tendency in the rate of profit, also call forth counter-effects, which check and partly paralyze this fall.–[10] Counter-tendencies to the tendential fall of the rate of profit as listed by Marx include the rising intensity of exploitation, the depression of wages below their value, the cheapening of the elements of constant capital, relative over-population, foreign trade and the increase of stock capital.[11] To speak about a “tendential decline of the profit-rate” and of “counter-tendencies” to this decline, means to speak simultaneously in terms of value analysis and concrete reality. This is permissible if one keeps in mind that only the “counter-tendencies” are real phenomena and reveal by their existence the unobservable tendential fall of the profit-rate. Moreover, Marx’s “counter-tendencies” may combat an actual fall of profit-rates—may bolster, or even increase, a given rate of profit, quite independent of the “tendential fall of the rate of profit” associated with the rising organic composition of capital.

The counter-effects listed by Marx have no direct connection with the abstract theory of the falling rate of profit; they merely indicate the disorder and incompleteness which are characteristic of the last volume of Capital, published as it was long after Marx’s death. The rise of exploitation and the cheapening of constant capital are not properly “counter-tendencies” to the tendential fall of the rate of profit. They are distinguishable from the latter only in the sense that the two phases of the cardiac cycle are distinguishable—that is, as the singular movement of capital accumulation. That a rising organic composition of capital should lead to a relative over-population is quite clear, but this relative over-population can hardly serve as a “counter-tendency” to the falling rate of profit. It does so, according to Marx, because it brings forth new employment in industries with low organic capital composition and thus raises the average rate of profit. But the competitive process which brings about the average rate of profit has no place in Marx’s abstract value analysis, dealing as it does, with total capital. For this reason, “foreign trade” must also be excluded, not to speak of “wages below their value” and the “increase of stock capital” in a theory based on the law of value. In reality, of course, new industries with low organic compositions are installed, some workers are paid below their value, and foreign trade is often highly profitable. But these items are meaningful only in connection with the actual movement of capital, not with the general theory of accumulation based on the law of value.

The “counter-tendencies” mentioned by Marx either retard the growing organic composition of capital, increase the rate of surplus-value, or have both effects simultaneously. What, then, becomes of the “law of the falling rate of profit”? Marx gives no answer; neither does Gillman. The latter turns, instead, to the statistical test of the “law.” He notices, of course, that “the available statistics are not in the form exactly suited to the purpose”—an understatement if there ever was one—for “capitalist business firms do not report, nor do official statistical agencies process their statistics to conform to the Marxist categories.” Nor could they, one may add, even if they tried since price-relations are not direct derivations of value-relations. Above all, Gillman points out, “these statistics do not allow us to separate out the factors which affect the production of surplus-value from those which affect its realization, as a full test of the law as Marx formulated it would require.” However, “with this precaution in mind,” he thinks that “they can be made to serve as fair approximations for testing the assumptions which underlie the law (31).”

Since we have no intention of questioning Gillman’s statistical compilations, we will only repeat their results, namely, that for American capitalism and up to 1919, Marx’s “law” found empirical evidence in “a stabilizing tendency of the rate of surplus-value, and a falling rate of profit corresponding inversely with a rising organic composition (59).” Apparently, Marx knew more than he was able to express or was, perhaps, just lucky in assuming an actual fall of the rate of profit in the long run. On the other hand, the declining profit rate, as detected by Gillman’s statistical procedure, may have nothing to do with Marx’s “law of the falling rate of profit” as a consequence of the rising organic composition of capital, but may be a localized peculiarity of American capital development, quite independent of the “general law of capital accumulation.” There is no way of finding out, and thus the evaluation of Gillman’s data remains a matter of interpretation. It depends on various preconceptions with regard to capital formation whether the data are read as “proof” of the validity of Marx’s “law,” or as “proof” of its opposite. For instance, if the “law” ceases to be operative in 1919, one can easily maintain that, after all, only at that time did American capitalism come properly into its own, so that the period prior to this date may be considered as one beset with all the difficulties in the way of an unfolding capitalism, which, in spite of a rapid growth of its organic composition, has not as yet the possibility of fully partaking of its created surplus-value. Because the creation and the division of surplus-value, internally as well as internationally, are two different processes, and because, as Gillman points out, his statistics do not separate the production of surplus-value from its realization, the falling rate of profit—as seen in the returns of American business—provides no clue to the question of whether or not there was a fall of the rate of profit in Marx’s sense.

There are various specific reasons which limited the profitability of American capital under the conditions of the nineteenth-century world-market and the dominance of European capitalism. And, contrary to Gillman, the “counter-tendencies” to a falling rate of profit were more effective at that time than later. For the rapid rise of the organic composition of capital was indicative of a rapid increase of surplus-value by way of both the shortening of the necessary and the lengthening of the surplus-labor time. While it may be said that the counteracting effect of foreign trade on the falling rate of profit was less efficient in an early stage of development than in the stage of American imperialism, all that has been said is that at this earlier time it was correspondingly more efficient for the European economies at the expense of American capital. World capital would come nearest to the concept of “total capital,” to which the falling rate of profit relates itself, yet the unavailable data for world capitalism, if they were available, would be just as irrelevant to the problem of the falling rate of profit as the historical-statistical material presented for American capitalism.

According to Gillman, however, as far as American monopoly-capitalism is concerned, this is a thing of the past. The same statistical procedure that first yielded a rising organic composition and a falling rate of profit also shows that, since 1919, the ratio between constant and variable capital “has tended to remain constant or even fall. The rate of surplus-value, if anything, has tended to rise, in spurts. And the rate of profit, rather than fall, has tended to rise (59).” This supposedly contradicts Marx’s “law,” but rather than say that Marx was wrong with regard to American monopoly-capitalism, Gillman takes the view “that the traditional formula … to demonstrate the operation of the law is not valid under these new conditions … because its terms … are too rigid to encompass and reflect the effects of the new technology and the new forms of business organizations on the production as well as on the realization of surplus-value (60-61).”

The changes which Gillman refers to consist in “the maturation of the institution of monopoly-capitalism; the revolution in the technology of production, which advanced the productivity of labor without requiring comparably large additions of the constant capital; and the increasing cost of doing business—the increasing cost of the realization of surplus-value in its first form, that is, in the form of money capital through the sale of commodities (67).” After World War I, so Gillman relates, industry concentrated “on the elimination of waste; on the standardization of parts, products, and processes; on improving the efficiency of plants and labor, and on the development of by-products (75).” And whereas it can be pointed out that this “rationalization” had been going on all along, according to Gillman, it has now led to a “qualitative change in the nature of constant capital, which was concealed by its traditional quantitative expression (80).” Capital-saving and labor-saving devices raised the rate of surplus-value without increasing the organic composition of capital, thus setting aside the law of the falling rate of profit. But as the new technology “tends to minimize the consumption of raw materials per unit of output and to prolong the life of the fixed capital in terms of product output, it tends also in the long run to minimize the demand for investment capital … and create a new market problem … and intensifies the problem of the realization of surplus-value (81).” In brief, the apparent end of the capitalist dilemma posed by the tendential fall of the rate of profit only intensifies other problems and creates new difficulties unsolvable under conditions of capital production.

“Marxists,” according to Gillman, “have tended to treat the problem of the falling rate of profit chiefly in terms of the rate of creation of surplus-value.” But “from a statistical or factual research point of view,” he says, “it must be asserted that the amount of surplus-value created exists only in so far as it is realized (86).” And as realization of surplus-value “is increasingly impossible without the services of clerks and salesmen and advertising writers, and of government … these ‘unproductive’ services … are essential to the functioning of the system (88).” Whereas by a mere consideration of surplus-value production “the tendencies postulated by the Marxist law of the falling rate of profit appear to be halted or even reversed, by a consideration of the growth of the ‘unproductive’ as against the productive labor the original tendencies are seen to reassert themselves (104).” There is then a falling rate of profit, after all, despite the new technology and the new business organizations; only it relates itself not to the production but to the realization of surplus-value. “Overhead” eats up the profit.

According to Gillman, then, the solution of the problem of the falling rate of profit “would seem to lie in the interaction of the antagonistic forces which govern the creation and realization of surplus-value (108).” Although this is not Marx’s point of view, it is also not true from Gillman’s position, for he does not really refer to the “realization” of surplus-value but merely to its division. When the increasing productivity of labor does not find expression in the accumulation of capital, a crisis results—there is a glut on the commodity market and large-scale unemployment. The surplus-value incorporated in commodities cannot be “realized,” that is, turned into additional capital. But if there is relative capital stagnation and simultaneously no glut on the commodity market and no large-scale unemployment, it is clear that surplus-value, though not realized in additional capital, has been realized in another form—that of “unproductive” consumption. It can be argued that this situation results from capitalism’s inability to raise the rate of accumulation. It can also be argued, as the capitalists generally do, that this division of surplus-value hinders the accumulation of capital, for which reason they are in constant struggle to cut “overhead” and reduce “government spending.” But in either case, and regardless of underlying reasons, this is more a question of the division than of the realization of surplus-value.

To be sure, Gillman is aware of the fact that unproductive expenditures “tend to ease the disposal of consumer goods and the realization of surplus-value as money-capital,” which, then, “tend to lower the rate of the net profit (131).” In other words, the profits of productive capital decline even though the social mass of surplus-value rises and is partly “realized” by way of unproductive consumption and waste-production. The fall of the rate of profit, so to speak, affects not capitalist society but the capitalists. They had no chance under laissez-faire conditions because of rapid capital accumulation which brings the rate of profit down, and they have no chance now, for the decline of the rate of accumulation also brings down the rate of profit. It is, then, not really a question of antagonism between the production and the realization of surplus-value, but of a change of capitalism itself, which, because it can no longer accumulate progressively to private account, changes into a society increasingly less oriented to production of capital and more oriented towards production for consumption. What bourgeois theory had always claimed, and what Marx and the Marxists had always denied, namely, that capitalist production is production for consumption, is now in the process of being factually decided in favor of the former through the evolution of capitalism “as a consumption economy.” Not only has the “law of the falling rate of profit” led to monopoly capitalism and the new technology, but at this monopolistic stage, the “falling rate of profit” indicates the eventual end of capital production. The greater effectiveness of the prevailing counter tendencies to the falling rate of profit, which changed the nature of constant capital qualitatively, proved, in the end, more disastrous to capital than the rise of the organic composition of capital when accompanied by less effective counter-tendencies. On this note, Gillman’s book ends, leaving the problems of “capitalism as a consumption economy” to another, forthcoming work.

Accumulation, Crises and Depressions

We did not bother to check Gillman’s statistical evidence because, while they are wanting in many important respects, we think them quite irrelevant to the problems under discussion. We will assume that both his procedure and the statistics are flawless and that it is a “statistically verifiable fact” that there was a drop in the rate of profit in the course of American capital development up to 1919, and that since that time there has again been such a drop when the “unproductively” realized surplus-value is deducted from the total surplus-value. Against this statistical evidence, however, there stands the no less factual truth that American capitalism did accumulate not only up to 1919 but up to the present, as manifested by its vast productive apparatus. The accumulation process was, of course, interrupted by various crises and depressions. But when these periods of stagnation and decline are left aside by, say, a consideration of the yearly average rate of expansion over the last hundred years, it becomes evident that these hundred years were a period of steady expansion of production and capital.

Although Gillman was not able to find a direct statement by Marx as to why the rate of profit must fall in the long run, he states nevertheless that “the cyclical fall of the rate of profit is in itself a consequence of the maturation of several tendencies which, in dialectical interaction with its long-run tendency to fall, generate the periodic breakdown of capitalist production (6).” This connection between the “long-run” tendency of the rate of profit to fall and periodic crises is also to be found in Marx, even though it does not necessarily follow from his abstract value analysis of capital accumulation, which can only point out that under certain assumed conditions accumulation comes to a halt because of a lack of surplus-value relative to total capital. Such a situation may not arise in reality; yet it may arise by an expansion of production which “outruns” the profit claims associated with it and yields surplus-value, which, however large, is not large enough to assure a further profitable capital expansion. What possible meaning could the “law of the falling rate of profit” have with regard to the actual accumulation process if it did not serve to indicate the possibility of an increasing lack of surplus-value and a consequent disruption of the accumulation process? In Gillman’s view, however, “capitalism is in crisis … because it produces too much surplus-value for its ultimate realization in the progressive accumulation of productive capital (126).”

This, too, of course, is true in a sense, but it does not contradict Marx’s position that it is primarily a question of the production not the realization of surplus-value which accounts for the contradictions of the accumulation process. It is clear that the increasing mass of surplus-value in commodity form must be sold, and that if it cannot be sold it cannot be realized in additional capital. The discrepancy between the creation of surplus-value and its realization appears, as has already been pointed out, as a glut on the commodity market, as an over-production of commodities. Seen from the angle of productive development rather than its results, the over-production of commodities appears as an over-production of capital. But the distinction between them is important. For the over-production of capital (including that of commodities), instead of leading to a curtailment of productivity only accelerates it, thereby indicating that the discrepancy between the production of surplus-value and its realization arises because of a decline in the rate of accumulation. With a sufficient rate of accumulation, there would be no over-production and, in fact, as soon as the expansion process is resumed, the market becomes once more what is considered “normal,” despite the even larger quantities of commodities now offered for sale. What is involved here is not, then, an over-production of commodities either in relation to the absolute consuming power of society, or the relative consuming power in capitalism, but an over-production of commodities in relation to the capitalistically-limited demand under the particular conditions of relative capital stagnation. Of course, the reason for this stagnation may be the impossibility of converting the mass of surplus-value from its commodity-form into a surplus-value-producing capital form. But it may also be the other way around: the conversion cannot take place because of the stagnation of capital. The first possibility springs from the fact that the buying and selling of commodities and the creation of surplus-value are separated logically as well as by time and space. An over-production of commodities may thus only express disproportionalities in the development of the market structure. Marx did not deny that over-production may be caused by such disproportionalities, but more important to him was the consideration of the other possibility, namely, that the over-production of commodities signifies an over-production, or over-accumulation, of capital.

For Marx, the barrier to capitalist production consists in the fact “that the development of the productive power of labor creates in the falling rate of profit a law which turns into an antagonism of this mode of production at a certain point and requires for its defeat periodical crises. In the fact that the expansion or contraction of production is determined by the appropriation of unpaid labor, and by the proportion of this unpaid labor to materialized labor in general, or, to speak the language of the capitalists, is determined by profit and by the proportion of this profit to the employed capital, by a definite rate of profit, instead of being determined by the relations of production to social wants. The capitalist mode of production, for this reason, meets with barriers at a certain scale of production which would be inadequate under different conditions. It comes to a standstill at a point determined by the production and realization of profit, not by the satisfaction of social needs.”[12] This situation, the relative overproduction of capital, involving the over-production of commodities and thus the realization problem, means that accumulation has reached a point where the profits associated with it are no longer large enough to justify further expansion. There is no incentive to invest and because there is no new, or no substantial new, investment of capital, the demand for all commodities declines. The resulting general lack of demand appears as the overproduction of commodities, and this apparent overproduction suggests the realization problem as the cause of crisis.

To be sure, from the angle of market occurrences, there actually exists this realization problem, the overproduction of commodities and the decline of capitalistically-determined consuming power. And there is also the certainty that by increasing the consuming power and thus avoiding the commodity glut, no realization problem could arise and the production process could be resumed; provided, of course, capitalism would not be capitalism. But even under capitalist conditions and after a period of depression, over-production and the realization problem disappear in a new upswing through resumed capital accumulation, of which the accompanying increase of consumption is just a by-product and not its reason. To show the mechanism of relative overproduction of capital, Marx assumed conditions of an absolute overproduction of capital in his value-scheme of capital expansion wherein the rising organic composition of capital destroys the profitability of capital.

Under capitalism there is no way of determining at what particular developmental point capital expansion will conflict with the principle of profitability and thus reduce the rate of accumulation. With a given satisfactory or rising rate of profit, all capitals attempt expansion. And because this expansion goes on without regard to and knowledge of existing, though undeterminable, social limits of exploitation, the increased exploitation implied in the expansion process, whatever it may be, may not suffice to yield a mass of surplus-value indicating a rate of profit on the enlarged total capital equal to a previous rate of profit of a smaller total capital. New investments, oriented to the rate of profit, will fall off or stop altogether and a period of depression will set in. Whether an actual fall of the rate of profit through a relative over-expansion of capital can be regarded as the “cause” of crisis is to be seen not in the crisis itself but in the period of depression, which prepares the way for the resumption of the accumulation process.

During periods of depression attempts are made to bring the production process once again into harmony with the value-expansion process. Just as the crisis lays bare the descrepancy between material and value production and the approach of the crisis is signalized by a slackening rate of investment, overproduction and unemployment, so the way out of the depression is effected by closing the gap between expansion and profitability, by a resulting increase of new investments and a consequent “normalizing” of the commodity and labor market. The periodicity of the crises stems from the ability of capitalism to overcome the relative overproduction of capital through an altering of the conditions of production.

A crisis does not just start but starts in certain industries, even though its cause lies in the total social situation. Like the crisis, the upswing, too, starts in certain industries and cumulatively affects the whole economy. Because capital accumulation is the enlarged reproduction of the means of production, the upswing and decline, although general, are first and foremost noticeable in the manufacture of production goods. The crisis, however, does not picture the real situation. Just as the upswing exaggerates profit expectations, so the crisis exaggerates declining profitability. In either direction the competitive process tends to extremes and hastens both the over-production of capital and the reorganization of the capital structure. The crisis itself is merely the point at which the reversal of business conditions is publicly recognized. A depression may “sneak” into existence by a gradual slowing down of economic activity or it may be initiated by a dramatic “crash” with sudden bank failures and the collapse of the stock market. Whatever the circumstances surrounding the reversal of the economic trend, it is accompanied by an overproduction of commodities. Viewed in retrospect, even the last phases of the boom preceding the crisis are already unprofitable, but recognition of this fact has to await the verdict of the market. Commitments made on the assumption of a continuous upward trend cannot be met. The conversion of capital from commodity to money form becomes increasingly more difficult. The crisis of production is a financial crisis. The need for liquid funds and the attempts to avoid greater losses intensify the fall of securities and commodity prices. Competition becomes generally cut-throat competition and, for some businesses, prices are forced down to the point of ruin. Capital values are rapidly depreciated, fortunes lost, incomes wiped out. Social demand further declines as the number of unemployed grows and the commodity glut is checked only by the still faster decline of production. The crisis extends into all spheres and branches of the economy and, in this general form, reveals the social interdependence of the capitalist mode of production despite private property relations which control its trend.

After a period of panic, however, the capitalist economy reorients itself towards a new stability under changed conditions. Capital values have been destroyed and depleted, profit claims have been considerably reduced and, though the productive apparatus has somewhat deteriorated by neglect and insufficient replacement, the great bulk of constant capital in its physical form has not been altered. The material-technical composition of capital is still largely the same, but its value-composition has been lowered. More use-value in the form of means of production represents now a smaller exchange-value. By counting for less without being less, the relationship between variable and total capital is more favorable as regards profitability. As before, a given quantity of the means of production will require a given quantity of labor, but from the viewpoint of value, the growing discrepancy between variable and constant capital has been arrested or reduced. Nothing has changed with regard to the productivity of labor and the rate of exploitation; yet, the profitability has been improved since the mass of surplus-value can now relate itself to a smaller value of total capital. The destruction of capital values concentrates capital in fewer hands; weaker capital entities sell out to the stronger, often at prices that have no relation to even the reduced value of the means of production or to the commodities that are being transferred. Capital entities able to weather the depression “accumulate” means of production already accumulated by their former owners. What one capitalist loses, another gains. By itself this transfer of property is socially meaningless. But with regard to the future it eases the recovery process. By increasing the productive capacity of the more stable corporations without increasing their value to the same degree, it increases their profitability.

Some kind of “equilibrium” is thus established between the given scale of production and its profitability, which serves as a starting point for an upward business trend. The new “foothold” thus gained is utilized, so to speak, to make some further steps in the direction of security by way of accumulation. Intensified competition and the decline of prices serve as incentives to increase productivity and to gain exceptional profits through the employment of new working techniques and new machinery. Prolonged depression makes possible a lowering of wages and a higher intensity of labor. In brief, the conditions of capital production become more favorable, the demand for capital begins to rise, and the cycle can run its course once more.

Despite intermittent periods of depression, each upswing of capital production reaches a higher point and wider extension than at its previous peak of development. There are fewer capitalist relative to the increased capital but more in absolute numbers. There are fewer workers employed relative to the accumulated capital but more in absolute numbers. Capital develops in a manner that may be described as three steps forward and two steps back. But this type of locomotion does not hinder the general advance, it only slows it up. Disregarding the hectic fluctuations of expansion and contraction, the many upheavals and social struggles that capital development involves, and looking at the whole capitalist development as a continuous and steady process, it appears that the rate of development is quite moderate. To speak, then, of the capitalist crisis or the “business-cycle” is merely to refer to the specific manner in which capital accumulates under competitive market conditions where the interrelations of capitalist production as a whole are left to their self-enforcement by way of crisis. As with any regulative mechanism in capitalism, the relationship between production and profitability must first be regulated (in order to regulate anything at all) and the competitive mechanism must, in the very process of general adjustment first re-establish or maintain a social average rate of profit that allows for the expansion of capital.

Although much more need be said about Marx’s theory of accumulation, which is also a theory of crisis, what has already said is sufficient to show that for Marx the capitalist problem is one of the production of surplus-value which determines the existence of the realization problem and of the various market expressions of the crisis. Gillman may agree with this description of the so-called business-cycle as valid for the pre-monopolistic stage of capital development, even though it would contradict his reformulation of Marx’s “law of the falling rate of profit,” which did not really refer to the contradiction inherent in capital accumulation but to the fact that capitalist production is not production for the satisfaction of human wants. And this, of course, is also true. When Marx states that the ultimate cause of all real crises “remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be the limit,”[13] this obvious discrepancy between production and consumption, though a condition of capitalist existence, does not alter the fact that it is also a contradiction between production and consumption. In Marx’s view, the crisis cannot be abolished by either a reduction of production, an increase of consumption, nor by coordinating both. To co-ordinate both would be equivalent to ending capitalist production itself. Neither capitalist crisis nor capitalist prosperity causes or eliminates under-consumption or overproduction; they merely refer to more or less of both, in which a widening disequilibrium appears at times as an apparent equilibrium.

Gillman may point out that the ”qualitative“ change of constant capital changes the crisis from one of relative and temporary overproduction of capital into one of absolute and permanent overproduction, as signified by a static, or declining, rate of accumulation, and that it is this new situation which does away with the problem of the production of surplus-value and raises the realization problem to first place—to the capitalist problem per se. If this is so, Gillman is not dealing with the type of capitalism Marx dealt with, but with a new type of capitalism, no longer susceptible to Marxian analysis. But why, then, bother with the “falling rate of profit?” If it is true that “the conditions which block the realization of surplus-value continue to drive surplus-value increasingly into channels of unproductive expenditures (110),” then you have increasingly less “accumulation for the sake of accumulation”—which forms the Marxian reason for the crisis—but, in always greater measure, production for consumption and waste. Whatever else it may be, this is not capitalist production in the traditional sense.

But is it really necessary to relate a “qualitative” change of capitalism to a “qualitative” change of constant capital? Even if constant capital is “cheapened” by capital-saving new technology, and even if the mass of surplus value is too large to be absorbed as additional capital in America, why can it not be realized somewhere else? For in the world at large there is no overproduction of capital, no capital-saving new technology and, most of all, no abundance of surplus-value. In reality, then, American capital is unable to realize its surplus-value in additional capital-producing capital not because of the new technology and the new business organizations, but because the expansion of capital finds limits in its national form of development. Without these national limits the realization problem, as related by Gillman, would not exist and crises would once again be expressions of a developing discrepancy between material and value production. Violent attempts are then made to bridge national limitations to capital expansion at the expense of other nations. For the crisis now requires not only rationalization of industry, capital destruction, concentration and centralization, but a general reorganization of the economic and social structures on an international scale.

Capitalism is in crisis not because of an abundance of surplus-value but because it cannot raise the surplus-value short of reorganizing the world capital structure. Economic depression as the “equilibrating” force of capital production is no longer effective enough to create conditions for the resumption of capital accumulation on a progressive scale. The functions of depression are taken over by war and consequently by preparation for war, and, as in ordinary depression, the profitability of capital declines as a precondition for its later rise. It is still the mechanism underlying Marx’s theory of accumulation. But whether it will once more succeed in creating favorable conditions for purposes of capital accumulation is not an “economic” question but a question of social occurrences on a national and international scale. But, then, that was true for any period of crisis and depression, which always contained the possibility of social action aimed at ending all capitalist difficulties by ending the capitalist system.

Moreover, because no “purely economic problems” exist, capitalist crisis conditions are, in part, partial transformations of capitalism, affecting its various social layers in different ways. Capital stagnation, combined with an extraordinary growth of surplus-value within a setting of ever-threatening war, allows some social groups to appropriate, or divert to themselves surplus-value which, under different conditions, would not be at their disposal. The extraordinary appropriation of surplus-value by unproductive layers of society is thus merely another indication of capitalism in crisis. And if this crisis should prove to be “permanent” it will, in time, alter the whole social structure of capitalism.

This is also on Gillman’s mind, “When capitalist investment,” he writes, “must be increasingly geared to the expansion of consumption; when investment can no longer find its raison d'être in the accumulation of capital per se, then capitalism comes to the end of its ‘historical mission’ and must cease to grow as a system of social production (156).” But Gillman’s very modification of Marx’s “law of the falling rate of profit” turns his description of the current capitalist dilemma into a type of Keynesian description in Marxist terms. Like Keynes, Gillman speaks of a “mature” capitalism and Keynes' “liquidity preference” is Gillman’s reduced rate of accumulation. Gillman’s difficulties in the “realization” of surplus-value appear in Keynes as large-scale unemployment leading to government actions that increase non-productive consumption. Although Keynes favored both an increased incentive to invest and an increased propensity to consume, in his view even the latter by itself provides the possibility of an escape from the conditions of unemployment by a partial break with the principle of profitability. However, what Keynes did not bother to say Gillman says, namely, that this process, if continued for long, must lead to the eventual destruction of private capital. Of course, Gillman connects the “threat of conversion of capitalism into a consumption economy,” with a constant capitalist “struggle to escape crucifixion on the cross of a consumption economy,” and with “social, economic, political and moral conflicts, national and international, which these and related conditions generate in time (159).” But from his position, pressure in the direction of the “consumption economy” must continue to exert itself so that it is just a question of time when the “accumulation for the sake of accumulation” comes to an end.

That the continuous increase of the so-called “public sector” over the private sector of the economy will lead eventually to a form of state capitalism is to be expected. But the latter is not a “consumption economy.” To be sure, “consumption economy” does not mean an increase in the consuming power of the laboring population, although, according to Gillman, this is true to some extent. It means “unproductive consumption” due to the growth of non-productive layers of society and “consumption” by way of waste production, such as armaments. The underlying assumption that there is too much surplus-value for the expansion of productive capital allows, however, for another assumption, namely, that capitalist society can overcome its crisis by an accommodation to this new situation through government-directed distribution of surplus-value. This was indeed the argument of those Keynesians who pointed out that full employment, made possible by war and destruction, was equally possible under conditions of peace by channelling production into directions that increased the consuming power of society and its general welfare. However unrealistic these assumptions are in a “mixed economy” still dominated by private capital, they do stem from the notion that capitalism finds itself in crisis because of an abundance of surplus-value. Gillman does not share the naiveté of the Keynesians. Yet, on the basis of his theory, the solution to the socio-economic problems of today seems to lie in completing the deprivatization of capital as the sole necessary medium for transforming the prevailing social production process into one in which not the accumulation of capital but the consumption requirements of society becomes the determining factor.

The trend to government control of the economy is, however, only another phase of the centralization and concentration process of capital accumulation from laissez-faire capitalism to monopoly capitalism, and thence to state capitalism. And as the national character of state-capitalism continues competitive production on an international scale, production in the state capitalist system is geared not to consumption but to international power struggles in various attempts to overcome national limits to the expansion of diverse national capitalisms. Moreover, by retaining the class relationship of controllers and controlled, state capitalism, to make itself possible, requires a continuation of proletarian conditions of existence for the working population. Production and distribution will consequently not be geared to social consumption but to the reproduction of the existing, though modified, class relationship. In other words, the ending of “production for the sake of production” in “planned state capitalism” does not involve the end of exploitative surplus-value production. After all, “accumulation for the sake of accumulation” is only production for the capitalist class under fetishistic conditions of capital production. Getting rid of the fetishistic aspects of capital production still leaves production intact for capitalists, even though these “capitalists” are no longer private owners of capital resources but organized plunderers of surplus-value by virtue of political control over the means of production.

[1]. Capital, Vol. III, p. 261.

[2]. Marx, Theorien über den Mehrwert (Stuttgart, 1905), Vol. II, p. 264.

[3]. Die Akkumulation des Kapitals, oder was die Epigonen aus der Marx'schen Theorie gemacht haben (Leipzig, 1921), p. 38.

[4]. Theorien über den Mehrwert (Stuttgart, 1905), Vol. I, p. 286.

[5]. Capital, Vol. III, p. 292.

[6]. Ibid., p. 293.

[7]. Letter to Kugelmann (Moscow, 1934), p. 74.

[8]. For instance: Henryk Grossmann, Das Akkumulations- und Zusammenbruchsgesetz des Kapitalistischen Systems (Leipzig, 1929).

[9]. Numbers in parentheses refer to Gillman's book.

[10]. Capital, Vol. III, p. 280.

[11]. Ibid., pp. 272-82.

[12]. Capital, Vol. III, p. 303.

[13]. Capital, Vol. III, p. 568.