Paul Mattick. 1968

Arms and Capital

Source: Kurasje Archive;
First Published: Paul Mattick, Review Article: Arms and Capital, International Socialism (1st series), No.34, Autumn 1968;
Transcribed: by Andy Blunden, for 2003.

Because government interventions in the economy ensured, for almost two decades, the growth of production and trade, it fostered the illusion that a way had been found to break capitalism’s susceptibility to crisis and depression. The fiscal and monetary means employed were seen as degrees of ‘planning,’ assuring full employment and social stability. However, in view of America’s persistent economic stagnation and the levelling-off of the West European expansion, a new disillusionment has set in. it cannot very well be maintained that the increasing difficulties of the capitalist system are planned’ difficulties. Whereas the left-Keynesians merely respond to this situation with the demand for more extensive government interventions, the proper Keynesians advocate a ‘reversal’ of Keynesian policies, that is, deflationary measures and a change of emphasis from the public to the private sector of the economy. Kidron’s book[1] enters this discussion, although from an entirely different angle. He holds ‘that Marx’s attempt to grasp the workings of the system is neither laughable nor holy. Allowance made for its primitiveness, it can be used to effect.’

It is from a more ‘up-to-date-Marxism,’ then, tat Kidron approaches recent Western capitalist development and speculates about its further prospects. He points first to the obvious, namely, that Western capitalism ‘cannot be understood except in terms of the world system, and particularly in terms of its competitive relations with state-capitalism,’ and then proceeds to explain that the recent upswing was caused not so much by the ‘planning’ activities of government and big business as by the arms economy. While acknowledging capitalist successes, he is certain that they are of a temporary nature.

Having been asked to comment on Kidron’s book, I find myself in the curious position of agreeing with most of his findings and the conclusions drawn from them, without, however, sharing the arguments which support his position. While agreeing with Kidron tat neither ‘planning’ nor the arms economy offer solutions to the inherent contradictions of capital production, and that, consequently, the class struggle between labour and capital will continue to determine social development, I disagree wit some of the theoretical arguments brought forth to sustain these common convictions. The disagreements are based on my making less allowance for the ‘primitiveness’ of Marx’s theory.

It seems to me, to begin with, that Kidron gives more credit to the apologists of capitalist ‘planning’ than is necessary. Although he does not share their excessive and unwarranted enthusiasms, he agrees, that, in combination wit government planning, ‘systematic business planning is both very important and very recent.’ Business has always been ‘planned,’ however, and governments have always served the individually ‘planned’ business society. It is precisely this ‘planning’ of individual businesses which explains the general capitalist anarchy. All that can be noted in this respect is that individual businesses are now larger and more concentrated and that, consequently, their integration with government is more direct than it used to be. But the contradiction between business rationality and social irrationality remains and excludes what could be designated as ‘planning.’

In Kidron’s view, capitalist ‘planning’ changes to some extent the character of the capitalist system. ‘Final users,’ he writes, ‘are sometimes so large, and the products they require so complex and costly, that many of these have ceased to be commodities in any real sense and become utilities, or in Marx’s terminology, where the distinction is clear because it is crucial to his analysis, they have changed from values to use-values.’ But all that Kidron says here is that an increasing part of production has become waste-production and does not enter the capitalist circulation and profit-realisation process. There was always waste-production, of course, that is, commodities which found no buyers on the market. Although these commodities had potential use-values, they could not turn into such because they failed to take on the presuppositional form of exchange-value. This is a capitalist difficulty, which has now taken on gigantic proportions, but it cannot be regarded as an aspect of ‘planning.’

It is not ‘planning,’ however, which explains high employment and social stability for Kidron. Neither does he find the explanation in technical innovations and the expansion of trade because, in his view, both ‘cannot claim an exegenous independent existence.’ More important than all these factors is the increase of employment through the transformation of the capitalist into an arms economy. The latter, too, he says, is of a contradictory nature, because ‘in so far as capital is taxed to sustain expenditures on arms it is deprived of resources that might otherwise go towards further investment; in so far as expenditure in arms is expenditure on a fast-wasting end-product it constitutes a net addition to the market for “end” goods.’

This is not so, however, and the contradictions of the arms economy must be looked for elsewhere. Arms production (and all that goes with it) does not appear as ‘end’ goods on the market. Governments either tax or borrow private resources and induce private entrepreneurs to produce armaments. Their production costs and profits, though paid by the government, are paid out of their own contributions to the government by way of taxes or loans - the latter merely implying deferred taxation. Looked upon from the point of view of society as a whole, not from that of the individual arms producer, the arms economy removes through its growth an increasing part of ‘end’ goods from the market and thereby diminishes productive (profitable) investments. Instead of the accumulation of capital there is the accumulation of the national debt.

The absence of non-profitable arms production would not by itself, of course, increase the rate of investment of profit- producing capital on which the real capitalist prosperity depends. The fact is, however, that a declining rate of capital expansion forces governments to supplement production for the market with waste-production in order to secure high employment and social stability. But this is a capitalist expense, indicating the prevalence of hidden crisis conditions, which can only, apparently, and only for a time, be overcome by an extension of the credit mechanism by way of government borrowings, which finds its own limitations in the relatively declining profit- producing sector of the economy.

Kbidron assumes that arms production does not affect the rate of profit because it falls into the category of luxury production. Quoting P. Sraffa, he suggests that because luxury goods are neither instruments of production nor articles of subsistence ... and thus have no part in the determination of the system, the price relations for products of production and consumption remain unaffected and thus also the rate of profit by whatever occurs in the sphere of luxury production. Arms production, Kidron writes, ‘is the key, and seemingly permanent, offset to the “tendency of the rate of profit to fall.”’

From a Marxian point of view, however, it is the tendency of the rate of profit to fall which is the key to the extension and the limitations of the arms economy. In a way, it is of course true that luxury goods do not affect the rate of profit, for they constitute part of the profits realised on the market. The profits falling to capital can be either fully consumed (including luxury goods), or can be partly reinvested into additional capital. When there is no reinvestment - everything else remaining the same - the organic composition of capital will not rise and the rate of profit will not fall. A non-accumulating capital, however, is a capitalism in crisis, for it is only through the expansion of capital that the market demand suffices for the realisation of profits made in production. Simple reproduction, where all surplus-value is directly consumed by the capitalists, is not capitalist production. Although possible as an exception, as a permanent condition it would signal the end of capital production, i.e., the enlargement of the total capital over the initially- given capital in each production cycle. When all profits not consumed by the capitalists would go into arms production, capital would cease to accumulate and the system of production would cease being capitalist production. It is for this reason that arms production finds its limits in the rate of accumulation, while the latter finds its own limits in the rate of profit.

To secure adequate profit rates requires a rapid increase of relative surplus-value through technical developments which must, at the same time, increase the total value of capital and its organic composition. While production grows in the arms economy, the production of profit relative to total production declines more rapidly than before, which demands a still faster increase of relative surplus-value. As long as the productivity of labour can be sufficiently increased so as to maintain the required rate of profit and arms production, the latter is indeed the cause of high employment and social stability. But the process is self-defeating. To cope with the expense of arms production, the exploitability of labour must steadily be raised. This means a higher organic composition of capital and a decline in the exploitable labour force relative to the growing capital. To maintain a state of high employment indefinitely, arms production must increase faster than total production. But this implies the slow deterioration of private capital expansion which can only be halted by halting the extension of the arms economy.

Kidron, too, finds the arms economy vulnerable but for reasons other than those that follow from Marx’s analysis of capital accumulation. He looks for its present strength and possible future weakness in competition, particularly, in the competitive increase of arms production. While competition can explain many things, according to Marx, it is itself in need of explanation. This is found in the value analysis of capital production. But Kidron does not penetrate to this basic level of investigation.

Arms production is seen by Kidron as a ‘stabiliser.’ It has a ‘domino effect,’ for once started in one country, he says, ‘it proliferates inexorably through the system, compelling the other major economies to enter a competitive arms race, and so putting them into the stabiliser’s sphere of operations.’ Under these conditions, and for other reasons which will be ignored here, high employment and stability become everywhere dependent on arms production. The general response to this necessity, Kidron writes, ‘constitutes a system whose elements are both interdependent and independent of each other, held together by mutual compulsion - in short, a traditional capitalist system.’ Although Kidron states that no arms budget ‘was ever adopted anywhere as a means of securing an international environment conducive to stability,’ in his opinion it has this effect nonetheless.

Yet, Kidron continues, arms production yields not only stability but also instability. ‘The arms budget’s flexibility as a stabiliser within each national economy,’ he writes, ‘is set at risk by its mediation between economies.’ Although until now, in his view, ‘the weight of the arms economy has been on the side of stability, charging and recharging the more immediate causes of high employment and well-being,’ this situation is liable to change. Because a nation’s arms increase invites retaliatory measures by other nations, the ensuing arms escalation may overshoot the point where stability is secured. Also the need to compete ‘in destructive potential as well as in more traditional forms,’ may induce a destabilising reduction of arms production. Because national production resources are limited, the arms race leads to uneven growth for different nations, thereby producing a constantly changing international balance of military and economic power which accelerates the world’s increasing instability. Moreover, the growing specialisation of military technology deprives it of some of its stabiising features. Ceilings are set on arms production in favour of recessional policies and the capitalist advantages stemming therefrom. Kidron already notices a ‘declining trend in western arms expenditures - as a proportion of government spending,’ a drop which implies the return of instability.

According to Kidron, it is competition - general, as well as with regard to arms production - which, while at first bringing forth some kind of national and international stability, destroys it at a later stage of development. The old crisis mechanism as ‘equilibrium mechanism’ has been superseded, by way of arms production, by a new ‘equilibrium mechanism’ which is also a crisis mechanism. And this is, of course, true but cannot be deduced from the mere fact of capital competition, which only externalises the immanent, but hidden, contradictions of capital production.

Having in this manner dealt with recent experiences, Kidron turns to the problems set by them. He notices, first, steady rises in prices. Although they rose for different reasons at different times, their explanation, he says, ‘needs to take in more than simple pressure of demand.’ He thinks that the additional factors ‘are basically institutional,’ because big firms control their own prices. Beyond that, workers, with or without the connivance of big business, were able to raise their wages and often ‘well beyond productivity increases in the economy as a whole.’ This has been possible, in part, because in the dynamic sectors of the economy ‘ever-smaller bodies of workers are able to wield ever-larger influence as wage pace-makers.’ High wages and high profits thus go hand-in-hand and make for higher prices. If this were so, there would be no problem. Capitalistically, however, higher prices make sense only when they alter the distribution of income between labour and capital. Prices rise not because wages are high, but in order to lower them.

Although Kidron credits the arms economy with economic stability, he does not see clearly its close connection with the rise of prices. The fact, however, that taxes do not affect profits should indicate that the costs of arms production are in part offset by way of price increases and in this manner distributed over the whole of society. The rise of prices must exceed the rise of wages, for if this were not the case, profits would diminish and, to that extent, arms production. The increase of the latter requires constantly increasing prices despite the increasing productivity of labour, which may maintain and even enlarge profits and wages. Yet, no matter what the wages are, they must be a decreasing quantity to total social production.

This may be done by either inflationary or deflationary methods. But if arms production is to rise, it can come about only by inflationary methods. The deflationary method and the reduction of arms production, noted by Kidron, fall together. Still, prices continue to rise in order to secure the threatened profitability of capital. This is not, as Kidron assumes, because national and international institutional rigidities prevent the ‘equilibrium mechanism’ of expansion and contraction to run its course, but because the profitability of capital is now threatened by an expansion as well as by a contraction of production. While increased arms production endangers capital accumulation, its reduction does not necessarily yield a rate of accumulation sufficient to secure social stability. In either case, the only way open to cope with the dilemma is to reduce wages. Where this cannot be accomplished by way of the market and price relations by monetary and fiscal means, bourgeois governments will try to accomplish it by way of wage controls.

Kidron does not think that wages control indicates the ‘immanent working out of class bias in terms of economic policy.’ The transition to wage control, he says, was in many countries ‘forced by a particularly determined wage offensive,’ while in others ‘it came after labour refused to take the strain of the balance of payments.’ He notices, however, that such working- class assertions are limited because of the ‘asymmetry of class power.’ Once events force some sort of planning structure into being, he writes, ‘labour rather than capital is cast as the strain-bearing member.’ Trade unions can be pressured to accept wage controls by the ‘threat of severe unemployment - not as a product of blind circumstances but as a consequence of policy.’ In other words, if ‘planning’ can produce high employment, it can also produce unemployment, even though it was resorted to, in the first place, in order to reach full employment by way of arms production, which now, in turn, makes room for ‘planned depression’ to teach the workers to respect the profitability of capital. All the ‘planning,’ then, and the arms economy as well, did not alter the capitalist necessity of first regulating the relation between profit and wages before ‘regulating’ anything at all.

But here, according to Kidron, capitalism is bound to fail. Because ‘planning’ has ‘come increasingly to depend on wages policy,’ it is ‘flawed from the start.’ Wage policies cannot work because they presuppose ‘a consensus about the distribution of income,’ and that ‘consent remains as elusive as ever.’ Price policies, incorporating both profits and wages, ‘presuppose a class-less society.’ Short of such, income policy merely implies wage control. And while unions and political parties may consent to wage control and labour regulation, the workers themselves might not.

While mass-labour organisations shift their emphasis ‘from confronting society on behalf of their members to confronting their members on behalf of society,’ their probable failure may be surmised from the growth of semi-autonomous workplace organisations and their increasing engagement in direct workers’ action. They may develop into new independent forms of organisation, while the traditional ones are integrated into the capitalist system, and their activities within the increasing social and economic instability may well take on revolutionary connotations. While largely disagreeing with Kidron’s analysis of modern capitalism, I fully share his prognostications with regard to working-class activities.


1. Michael Kidron, Western Capitalism Since the War, Weidenfeld & Nicolson, 36s.