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International Socialism, January 1976


John Ure

Marxist Economics

Capitalism Since 1945


From International Socialism, No.85, January 1976, pp.20-24.
Transcribed & marked up by Einde O’Callaghan for ETOL.


This is the fourth and final part of John Ure’s series on Marxian economics. The earlier instalments appeared in IS79, IS80 and IS84

WE NOW turn to consider the most recent phase in the development of worldwide capitalist economy, the period since the Second World War, which has been as remarkable for its relatively steady rate of economic growth, profitability and full employment in the industrial countries as the previous period was for its depressions, crises and mass unemployment. Rising real incomes fuelled capitalist propaganda that the system is the best of all possible worlds, while reinforcing reformist politics of all kinds. While many abandoned the Marxist perspective altogether, others tried to revise it by seeing in the peasantry of the underdeveloped countries the potential for spearheading socialist revolution. Revisions of this nature found their reflection in the industrial countries where students and intellectuals were given the vanguard role. Few Marxists withstood the pressure to abandon the Marxism of Marx and Lenin. Of the few who did, fewer still did more than to defend it dogmatically and therefore defensively and unconvincingly. We attempt to develop the Marxist method of analysis in explanation of post-war capitalism along the lines of Lenin’s approach.

Lenin had defined imperialism as the ‘monopoly stage of capitalism’ and monopoly is still the central feature of capitalism – but even more so than in Lenin’s day. We have seen how the export of capital was provoked by the tendency of the rate of profit at home to fall, for the search therefore of profitable investment overseas, and that the most profitable investment opportunities were to be found in other industrial sectors of the world capitalist economy. In logic this could not prevent a general profits crisis other than to the extent that the exploitation of cheap raw materials overseas lowered home costs, and to the extent that some sectors of industry were growing faster than the decline of other sectors. International rivalry and war were inevitable, and this increasingly involved the State to act as the direct representative of its capital.

Since monopoly is even more the central feature than in Lenin’s day, so equally is the role of the State. The two go hand in hand. And because monopolies dominate world markets, underdeveloped countries which wish to compete for survival can only remotely hope to do so if their capital is increasingly organised by their own States. One begets the other. But what we have to clarify is the mechanism, in operation since World War II, but absent in Lenin’s day, which enabled the system for 30 years to avoid depressions, mass unemployment and international wars between industrial capitalist powers directly. And just as Lenin identified the crucial role of the export of capital, the contradictions it threw up – international capitalist war – and established the political perspective for the socialist struggle, so we must do the same.

Technology and Keynes: Explanations or Just Factors?

ONE explanation for high post-war rates of growth put forward in recent years puts emphasis upon the tremendous increase in the effective rate of exploitation, the result of a veritable technological revolution. Automation, innovation in techniques, products, work and payments schemes; new synthetic raw materials and final products, mergers and amalgamations and rationalisation of plant and businesses and so on are clearly evidence that such a process had indeed taken place. But many of these things were also in evidence in the inter-war years. The difference lies in the scale on which these factors have operated since the 1940s. But why the difference? That is the question being begged by this ‘explanation’.

One answer, put forward by reformists of all kinds in the labour movement, is that the role of the State, which we have already identified as of central importance in modern capitalism, has broadened out to include the conscious economic management of the system. How far that management could or should go is in dispute between Left and Right reformists, but the main proposition is not. The most influential British bourgeois economist of the inter-war and war period, John Maynard Keynes, had argued the case that the crisis of capitalism was caused by underconsumptionism, that money spent by the State, or by anybody the State could induce to spend money, would put cash into people’s pockets which they would spend on goods and services. Manufacturers would invest in production in order to take advantage of this market. This would create employment, which put more money into more people’s pockets. This in turn would stimulate the market further. An upward spiral of economic activity would take place until full employment of people and resources was achieved. At this point the State would ensure that no more money was created until more productive capacity in the economy to produce more goods and services to meet that money was available. This would only become available if consumption levels were held at the stable – the equilibrium – point of full employment. If consumption rose above this level, or more money was created, the result would be inflation – i.e. rising prices. Taxation was seen as the best way to prevent consumption rising too high, although Keynes realised that any full employment economy ran the risk of some inflation. Generally he felt that depression was the greater danger to capitalist confidence, and the most socially and therefore politically dangerous to the system. In his view workers would more readily accept, or be fooled by, a cut in real incomes caused by rising prices than by a reduction in money wages.

In one obvious sense Keynes was right. The State could act, for a long period, to reflate the economy when depressed and deflate it when pressing against the full-employment ceiling. The period of stop-go government policies in the late fifties and early sixties were an example of this; very clumsily done, often causing as much panic as they prevented. But in two key respects Keynes is misleading.

Firstly, while the expenditure of money may well encourage capitalists to invest to take advantage of the market created, we have seen that profits for the system as a whole are generated only through production, not through the circulation – or exchange – of commodities. It is therefore not the initial expenditure of money which revives the flagging economy but the creation of the surplus value resulting from the investment. The expenditure of money is merely a self-fulfilling prophecy, but only if capitalists are prepared to respond to the stimuli. Prime Minister Heath found to his cost between 1970-4 that this was not always so. World uncertainties and rising costs outweighed for the capitalists the attractions of Heath’s mammoth creation of money.

But more important than this point is the problem of the falling rate of profit. As we saw in part two the only way in which profit rates can be kept up is through the continued growth and expansion of the system as a whole – the accumulation of capital on a worldwide scale. The system is international in its monopoly phase, and only through its international expansion can profitability be maintained in all its centres. No amount of Keynesian State encouragement would be sufficient to induce capitalist investors to maintain capitalism at full employment if the rate of profit is falling all the while. And unless expansion is international, the State will be severely restricted in what it can actually do to revive the level of investment in the economy. In other words, Keynesianism – of Left or Right-wing variety – is totally dependent upon the economic activities of all other rival capitalist economies and the strategy of rival States. No State has independence of action. Each has to defend its balance of payments with the rest of the world. Each has to defend its reserves of gold and foreign currencies. Each has to defend the value of its own currency, because this determines what it has to pay for imports, and what value its exports are worth to other countries. Each has to defend its credit-rating within the rest of the world.

Clearly, before 1940 the role of the State was very restricted indeed by fierce international competition and trade wars against a background of depression. There was no room for Keynesian State measures to work, as the failure of the quasi-Keynesian New Deal policies in America showed. The fascist economy of Germany proves the point in reverse. The sacrifice of liberty was not the only sacrifice made under Nazism to achieve fast economic growth – there was a sacrifice of economic solvency also. The reason why the fascists did not mind, and did not have to mind, was that they had every intention of plundering all the wealth of surrounding nations by military force. They simply changed the rules of the game, in accordance with the long-run logic of the system itself, to barbarism.

If there was no room for Keynesian State measures before 1940, the period of stability and growth since cannot, in logic, be placed at the Keynesian door, because if they were the cause of this stability and growth there is no reason in logic why they could not have caused the same before 1940. Keynes thought they could have worked before 1940, but was totally unrealistic about international capitalist rivalry and the ability of the economy to insulate itself from the outside world. But what, then, accounts both for the enhanced role of the State since 1940 and the international synchronisation of high growth rates, full employment and trade co-operation between the different groups of capitalist countries?

Arms Economy

THERE is only one possible candidate: the arms race. Each nation is forced, to a greater or lesser extent, to take part for purposes of national defence. But each nation which is at all engaged in high technology growth industries such as telecommunications, computers, special alloys, electronics of numerous descriptions, aerospace, and so forth must participate also to maintain its position in research and technology development (hence Concorde and the like). The sheer size of the expenditures required on arms necessitates the State playing the central role, while the strategic nature of arms expenditures demands it. Through taxation, to pay for arms, the role of the State effects the distribution of resources within the national economy. By placing lucrative contracts with private industry for aero-engines, radio-control systems, valves, nuts and bolts, rocket fuel, etc. the State comes into direct partnership with private monopoly corporations. Heavy State expenditures on arms in the postwar period were, and had to be, reciprocated by every other industrial State.

This development was not a planned one. The permanent threat of war between the industrial countries after 1945 triggered off a series of political-military strategies by the United States and Russia respectively which involved each in massive expenditures over those areas of the world which were considered vulnerable to the other. In particular this meant for America, the countries of Western Europe, Asia and the Middle East. Economic aid – especially Marshall Aid from 1947 – was a crucial part of this strategy for building front-line defences against Russia and for undermining social unrest and socialists in the West. Politically and ideologically encouraged, under an umbrella of arms expenditures, States throughout the Western industrial capitalist world were able simultaneously to supervise and oversee high rates of private capital investment leading to full employment and rising real incomes.

We can express the role that the arms sector plays in capitalist economy in the same terms that we used in part two: dividing the economy into a number of departments – department one representing capital goods and department two representing wage or consumer goods. If we think of a department three which would consist of goods which act neither as capital – i.e. as means of production – nor as components of wages – i.e. are not or cannot be consumed by human beings – but are in fact pure waste, then arms would be a good example. And since arms are waste in this sense that they act neither as .wage nor capital goods, the output of the arms sector cannot directly or indirectly affect the rate of profit This is because the rate of profit is calculated as revenue divided by total expenditures upon constant (c) and variable (v) capital – i.e. non-wage and wage costs. Since the output of the arms sector, as we have just seen, constitutes neither, it cannot influence the rate of profit in society at large. But what about the input into the arms sector? Both c and v are cost inputs. Clearly, the greater the proportion of constant to variable capital entering into arms production – the higher its organic composition of capital – the greater the proportion of constant to variable capital leaving the productive – the non-waste – sectors of the economy, and thus the lower the resultant overall organic composition of capital of the productive sectors. In other words the growth of the arms sector, which in reality has operated with an increasing organic composition of capital, has leaked constant capital values from the rest of the system thereby dampening down the tendency for the organic composition of capital to increase in that system. Since the organic composition of capital is a prime determinant of the rate of profit, the growth of the arms sector would have countered the tendency for the rate of profit to fall in the economy at large.

However this mechanism is not the only one of significance because we have only been talking about the rate of profit. We have seen that the most important influence upon what happens to the rate of profit is the rate of growth in the economy overall – and today that means the international economy. (Note: that while high growth may mean an increase in the organic composition of capital c:v, it may equally mean an increase in the rate of exploitation s/v.) Now what determines the ability of the system to grow in practice? The reality of modern industrial society run on the basis of profitability and a measurement of efficiency calculated individually for each capital managed separately (which may therefore involve large inefficiencies for society as a whole) is that sheer size becomes more and more the basis not only of survival but also of expansion of the necessary dimensions to keep the system going. The indivisibility of large units of technology, of large capital outlays on modern plant using the most advanced techniques, dictates the necessity of huge concentrations of surplus value in the hands of fewer and fewer industrial giants. The absolute mass of profits increasingly determines the ability of capital to keep going, determines whether capitals fall just inside the minimum size-requirements, are just able to retool, are just able to update physically comparatively new but technically and commercially already antiquated equipment, or whether they fall just outside, are unable to adapt and modernise as competition dictates. Of course the rate of profit may well be the prime inducement to further investment, but the concentrated mass of profits becomes the mechanism for it, and the massive restructuring of industries into fewer and fewer, larger and larger units which arms expenditures and direct State action has induced and encouraged has, to different degrees in different national economies, aided that mechanism. And State action is increasingly designed to persuade capitals, by guaranteeing profits through its ability to tax workers, or by anti-trade union legislation, or whatever, to invest those profits.

In its heyday, it was precisely the high and steady rate of growth achieved by arms and related State expenditures – including social welfare payments and the like – that created the climate in which capitalist enterprise was willing to invest their mass of profits. But is there a contradiction here? If arms and other State expenditures were financed through taxation, did that not leave less remaining for investment by private capital? The answer is yes, and no. Yes, in the sense that had taxation been lower, and less spent on waste, more would have been available for productive investment. No, in the sense that had arms expenditure not taken place, had the whole mechanism ceased to operate, then the mass of profits available for investment would not actually have been invested. We would be back into a nineteen thirties situation again. And had that investment therefore not taken place the mass of profits generated by it would not have been generated, and so subsequent growth rates and therefore a steady mass of profits masked – especially when measured after tax and subsidies – the fall in the rate of profit. (Pre-tax profits, both as a proportion of national income and as rates, have fallen since the 1950s. Post-tax declines began in the 1960s. See Burgess and Webb, Lloyds Bank Review, April 1974.)

The arms economy ‘locked-in’ high and/or steady rates of growth to industrial nations, while condemning most of the underdeveloped world to stagnation and continuing poverty. While liberals hoped that economic growth in the West would spill over into so-called ‘Third World’ nations – they constitute more than two-thirds by land mass and population – in fact what happened was that whenever the exports from those nations – raw materials and food mostly – looked like rising in price, substitutes were developed by the industrial nations themselves. One estimate forecast that the US will be importing only 20 per cent of its raw materials in 1975. (H. Magdoff, The Age of Imperialism) And where substitutionism proves impossible in the short term – e.g. chromium supplies from Rhodesia, Iran, Philippines, etc. – then it is rare indeed for the suppliers to be able to exercise freedom from political and military pressure. Witness US threats against Arab oil suppliers. And where an international monopoly sets up a base in an underdeveloped country, far from aiding its development, it often diverts resources, such as scarce skilled labour, capital in the form of harbours, roads, etc to its own exclusive use. It repatriates profits either back to its own industrial homeland or to a tax-haven. It subverts governments it does not like. Witness ITT in Chile. It administers international prices which suck these countries dry – and then liberal capitalist and state capitalist governments offer aid! The arms economy has intensified the division between rich and poor in the world.

Decline of the Arms Economy

JUST as Lenin identified the contradiction of classical imperialism as one of international capitalist war and revolutionary potential, so we also can identify a contradiction in the arms economy. Its very success in terms of economic recovery and growth since 1945 has re-established powerful separate industrial capitalist States prepared and able to challenge the dominant and leading role of the United States. Japan and Germany are the most clear examples of this process. Both were aided massively by the US after 1945. Both were prevented, for political reasons, from spending heavily on arms. Both received the benefit of the enormous growth in world trade created by the military and economic expansion of the US, and to a much lesser extent Britain and France. Since neither was allowed to waste resources on arms both were able to devote a higher proportion of their economic surplus to re-investment. Both have experienced fabulous rates of growth, enormously strengthened balance of payments, and strong currencies. On a lesser scale this pattern has been repeated elsewhere. Meanwhile the US was spending more on arms than on industrial investment throughout the 1950s, and in relation to private investment Britain still does. Both the US and Britain have experienced relatively poor growth rate performances.

The net effect has been a period of uneven economic development between the capitalist nations themselves. Because of the internal weaknesses of capital structures in countries such as Britain or Italy, or because of the increasing strains of arms expenditures on a country such as America, these nations have been faced with a deterioration of their position in the international economy. The first signs of such weakening internationally is usually speculation against their currencies, and a growing unwillingness to hold such currencies. For example the period has witnessed the most dramatic weakening of the US balance of payments and of the dollar. In 1960 America announced that her gold stocks were insufficient to cover the excess of her imports over her exports of goods. By 1971 she announced that her balance of payments – i.e. including income from ‘invisible’ exports such as dividends and interest from abroad – had gone into the red for the first time. Humiliatingly, the US devalued the dollar. America’s cold was Britain’s influenza – a much more chesty patient to start with. Italy and others caught the bug. Into international monetary affairs, stable for so long and underwritten by the dollar, came instability with bouts of pure anarchy. Speculation and the fantastic growth of Eurodollars – dollars which are ‘recycled’ by European banks in the form of loans, and upon which credit is built up – meant that effectively there was no firm control over international money. Dozens of patch-up operations replaced the ordered growth in world money supply. Trade was equally disrupted as competition became fiercer, as countries tried to protect their balance of payments, their reserves, their currencies.

Thus the essential mechanism of growth and expansion has increasingly faltered over the past 10 years. In desperation both America and Britain have been trying to reduce their waste expenditure, trying to divert more of their resources back into productive investment, in order to protect themselves on world markets. This has produced something quite new in the post-war international economy. Just as the early years of the arms economy produced a synchronisation of growth, in which the occasional recessions of different economies rarely directly coincided, so the reduction of international spending has begun to produce the synchronisation of recessions and depression. And with it, inflation.


WHY THE inflation? A number of basic causes. The increasing supply of international money, the decreasing control over it, is undoubtedly one – this money supply having been fuelled over the years by the US payments deficit, i.e. paying out more dollars to the rest of the world than she was getting back. Also, not all arms and other State expenditures were financed by taxation. Much of it was financed by governments increasing the money supply – or allowing it to increase through the incredible growth in credit cards, hire purchase, bank lending, etc. And the employment of people to produce waste meant that wages were being paid out but no product for sale was being produced. While growth rates were high, these built-in inflationary tendencies were masked, because production itself was higher than it would otherwise have been. But because monopoly is the central feature of industrial organisation, when there is recession, and when demand does fall back, instead of reducing prices they are pushed even higher in order to recoup profits. So for both of these reasons, inflation is likely to get an extra twist when growth slows down or stops. Only outright slump and breakdown is likely to bring about falling prices. Finally, speculation is always a short-term cause of rising profits – be it in land and property, raw materials, sugar or whatever.

The Future ...

MARXISM is not about prophecy, but it is about predicting the range of possible options. Men and women make history, and men and women have free will limited only by their own social organisations and ideas. Thus ultimately all economic questions boil down to social and political ones, and there is no pre-determined road. But there are certain developments which can be discounted, such as the ‘reduce taxes, let the lame ducks go to the wall, and let the little man get on with it’ arguments of Enoch Powell. Any serious move in such a direction would inevitably end up diverted down the road to fascism – its capitalist opposite – because the alternative Would be the total collapse of the system. A monopoly going bust brings down all with it.

This being so the immediate response of a social-democratic government – e.g. Wilson and company – is to appeal to the workers on the basis of a phoney ‘national interest’. ‘Social Contracts’ designed to reduce the real incomes of the majority of the workpeople are the only intelligent responses from those who wish to preserve, in whatever form, capitalism. Marx argued in his day that the wages of workers were normally pretty close to the minimum to meet physical requirements. The mechanism that ensured this was the near-permanent pool of unemployed labour – the ‘reserve army of unemployed’. No such pool has existed for the past thirty years while trade union organisation and workers’ self-confidence has been high. Real earnings and standards of living have risen quite substantially for most workers over that time. Partly the new skills, technical knowledge and general level of health and education required of a modern industrial labour force are reflected in these improved standards. Partly also the higher levels of consumption necessary for the continued growth of the system. (Note: as is evident among the workers and peasants of the under-developed countries, the necessary condition is not always fulfilled thereby hampering capital’s expansion.) But at a time when the revival of national capital and national profits depends upon the squeezing of consumption levels at home these improved standards immediately come under fire. During the relatively mild recessions of the recent past such cutbacks have themselves needed only to be relatively mild. Should world recession re-occur on an increasingly sharp level the cutbacks required to stabilise British capital would be large indeed. The question would then arise by just how much the State and the employers could attempt to cutback on the level of real earnings, on standards of living, without doing damage to future rates of exploitation. The loss of skilled workers resulting from redundancies, the increase in ‘voluntary’ unemployment when wages are low, the increase in absenteeism or in sickness resulting from deteriorating conditions, the long-run effects of health and education cuts on future supplies of the ‘commodity’ labour-power (i.e. workers) would pose lethal problems for the system.

If, however, the system’s inherent tendency to profits crisis is reflected in its growing inability to offer employment to workers, its growing inability to expand its compass of exploitation, as seems the case, then the first (and most vulnerable) areas of cutbacks would be those social services which enable future generations of workers to grow and develop – viz. hospital care, education, housing, social security benefits, etc. If these savings outweighed the extra costs of strengthening national machines of internal ‘security’ (repression) then the choice is obvious. Only the organised strength of the working class would tip the scales.

But it is not a question of minimum physical standards which determine the collective response of workpeople to these strategies and tactics – it is a combination of expectations to which we have all become accustomed, based upon what we see as possible; of awareness of the inequalities of sacrifices and burdens in society; and of the experience of fighting against attacks on living standards and the confidence that comes from that experience. The role of trade union leaderships in hoodwinking rank and file members into believing that sacrifice works in favour of the poorest and weakest, and that struggle against the ‘realities’ of the system is useless, will be capital’s greatest weapon for the immediate future.

... of More Crises

THE RECESSION of 1975 is itself the consequence of the very success of the post-war arms-initiated boom. While the US could orchestrate the expansion of the world economy, national crises of overproduction and falling rates of profit were cushioned by the overall growth of world trade. Often countries such as Britain could take a breathing space. But the changing balance of economic power has produced a competitive edge, honed to razor-sharpness, between the Western economies which has produced once, and will again, an international crisis of overproduction and profitability, a crisis not just in the system but of the system.

A number of factors suggest that the recession will eventually give way to another recovery – however shortlived. Firstly, despite reduced levels of State expenditures on arms, public services and the like, they are still great and thus provide a floor below which economic activity would not be expected to fall – next time the floor may be considerably lower. Secondly, because of the different and uneven conditions that hold in, say, West Germany, Britain and America, pressures will continue to grow upon the stronger economies to reflate, to lead the way back to the international revival of trade. Such action would be in accordance with the ‘rules of the game’ laid down by the strong Anglo-Saxon economies in past, more glorious times. Strong economies with balance of payments surpluses were supposed to reflate, absorb more imports, reduce their trade surpluses, and thereby engineer a general world recovery. Indications of some reluctance by West German and Japanese capitalisms to follow such a course suggest glimpses of total disarray in future crises.

Thirdly, the general deterioration of equipment, machinery of all sorts, the rundown of stocks of consumer goods will eventually stimulate re-investment. Often consumer durable goods (e.g. televisions, refrigerators, record-players) respond first because in a recession or a depression the real incomes of those left in steady employment often rises. Also credit becomes cheaper. During times of inflation the value of ‘debt’ actually falls. Wholesalers and retailers then begin to restock which adds further to the demand and stimulates manufacturing investment. But the key to recovery is the re-investment that is stimulated in the capital goods industries (machine tools, steel, engines) to replace rundown plant and machinery. If this failed to take place capitals would cease to exist.

Further factors such as Arab oil money and North Sea oil investment have undoubtedly helped stabilise the immediate economic position of Britain in particular and may, according to their future volumes and the purposes to which they are put, aid in the temporary strengthening of British capitalism, one of Europe’s weakest links. But factors such as all these, which either explain tendencies towards general recovery or account for the relief of particular parts of the system, in no way suggest any mechanism by which renewed crises of international overproduction and profitability can be avoided. On the contrary, the forecast of the International Socialists during the period of boom that the coming period would be one of increasing and deepening recessions, of weaker booms more and more difficult to sustain, remains a valid perspective in a world of increasing political and social uncertainties – in a world of increasing class conflict.

Now, as at no time since Lenin’s day, the political response to the crisis of capitalism is going to be all important. While monopoly capitalism and the arms economy is international the arena of political consciousness and debate within the industrial capitalist countries tends to remain within the realm of nationalisms. The ‘national interest’ stands in direct opposition to class consciousness and internationalism. It is the ideology ultimately of fascism. One danger is that it is opposed from the wrong direction of sectional nationalisms such as Welsh or Scottish – or British nationalism as displayed by the Communist and Labour Party left against the EEC. Capitalism is international, and it calls for an internationalist response.

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