The following article was originally published in Socialist Voice No. 19 (Summer 1983)

Karl Marx and the World Crisis

The specter of economic collapse is haunting the world. Bankers, bosses, politicians and economists talk about it but none of them know what to do. Karl Marx has now been dead for 100 years; yet his ideas, and in particular his analysis of the capitalist crisis, are alive, while those of our contemporary defenders of bourgeois rule have only a zombie-like existence.

For some bourgeois spokesmen, defending their ideology is primarily a matter of public relations and “confidence.” Since the beginning of the new year. President Reagan has been happily proclaiming the coming end of the economic “recession.” His professional huckster’s optimism has been echoed by many others: right-wing economist Milton Friedman predicted that “1983 will be a year of rapid and vigorous economic growth” (Newsweek, February 7). Nevertheless, the flood of anxious reports on the state of the world economy has not ceased. The news media are justifiably shaking over the danger to the major capitalist powers posed by threatening economic collapse in several large “Third World” countries; fears of a “debtors’ cartel” surface simultaneously in several journals. One of the most optimistic bourgeois organs, Business Week magazine, illustrated its “Recovery at Last” article with a graph titled “The modest world recovery … will bolster world trade … but will not restore jobs” (February 14). A month later (March 21) it added that capital spending in 1983 will fall by 8.8 percent – hardly a portent of a serious recovery.

A significant sidelight on the bourgeoisie’s controversy has been focused on the economic condition of the West’s chief rival, the USSR. On Christmas day, a CIA report was released crediting the Soviet Union with a comfortable 4.8 percent growth rate for the past three decades. Congressman Henry Reuss, chairman of the Joint Economic Committee that commissioned the report, stressed the liberals’ conclusions: “This important study helps put into perspective for Americans the fact that the USSR, far from being on the verge of collapse, has experienced major growth.” Reuss was clearly disputing Reagan’s frequent assertions that the USSR, because of its lack of “free enterprise,” was economically doomed. A CIA official, releasing a follow-up study, underlined the point: “In fact, we do not consider an economic ‘collapse’ … even a remote possibility” (New York Times, January 9).

Why this sudden concern for Russia’s economic well-being? Reagan bases his hopes for economic recovery on his strategy of reviving the Cold War and restoring America’s world economic dominance. As well, he justifies his enormous military build-up by arguing that forcing the USSR to match the U.S. will break its weakening economy. The CIA report, in stressing Russia’s purported strength, seeks to alter not Reagan’s military strategy itself but its excessive proportions. It reflects the growing sentiment within the U.S. bourgeoisie that Reagan’s arms spending will be ineffective and too costly – trying to smash Russia might bring down the faltering U.S. as well.

All the bourgeois spokesmen, whether pessimists or optimists, agree on one thing: with the correct domestic and international policies, the Western and Eastern bloc economies will be able to emerge from the present crisis without undergoing a new great depression on the order of the 1930’s. But working-class people must be immediately suspicious of such rosy claims. The crisis has brought depression conditions, not just a mere downturn, to whole regions of the U.S., Canada and Europe – not even to speak of the poor countries. Even though Reagan has found a few positive statistics to crow over lately, the fact remains that massive unemployment, prohibitive consumer interest rates and deteriorating public services are still with us and are showing no signs of improvement.

Moreover, very few people believe in the economic wisdom of any of the official or unofficial ideologists of capitalism any more. Bourgeois economists have been at a total loss to account for the prolonged stagnation of the 1970’s – the slow growth rates, declining productivity of industry, unexpectedly accompanied by rampant inflation – that followed the prosperity of the post-World War II boom. Symmetrically, the Stalinist ideological boosters of Soviet “socialism” have been unable to explain the statified economies’ long-term decline in growth rates since World War II that have led to frequent working-class uprisings. The recent CIA reports had to acknowledge this decline while seeking to bury its significance. The decline was reconfirmed by Soviet figures in early 1983. Both industrial output and national income grew by less than 3 percent in 1982, the smallest increases since the world war and well under the targets of Moscow’s central planners – who are supposed to be able to control the USSR’s economy without being buffeted about by the economic storms that plague Western capitalism.

With open variants of bourgeois ideology floundering, it is no accident that pseudo-Marxist theories are becoming popular again. As world capitalism careens toward collapse, obviously tinkering with the external manifestations of its crisis will not suffice. With the class struggle threatening to heat up, a theory that can influence masses becomes necessary. As in the past, the system will attempt to save itself by resting on the appeal of pseudo-Marxist ideology and pseudo-Marxist political forces to masses of workers. Thus the seemingly arcane task of disassociating authentic revolutionary Marxism from its corruptions is critical.

Germany, Britain, France, Scandinavia, Spain – virtually every European country has witnessed a reform “socialist” government in recent years. Every variety of welfarism and statification is supported by both reformist and Stalinist “Marxists.” In the USSR, where “socialism” rules officially, many Stalinist theoreticians in the post-war period have tried to employ the laws of capitalist development discovered by Marx in order to manage their society. The Soviet planners overlook what Marx knew, that these laws lead inexorably to capitalism’s crises and decay. The same oversight is made by the advocates of “alternative economic Strategies” in Western Europe, leftists wishing to bring “Marxist” theory to the aid of their national capitalism. In sharp contrast to Marx, they all stand for the reform of capitalism, not its overthrow.

The only analysis that can come to grips with the world crisis is Marxism. An honest use of Marx’s work would bring out the depressions, fascism and world war that we are facing; reformism cannot deal with it. Western and Eastern social patriots alike have a vested interest in denying any inevitable revolutionary showdown in theory and in fact. They also share a common interest in treating East and West as separate, distinct systems in order to suppress their increasingly visible similarities and their symbiotic roles in the preservation of world capitalism at the expense of the working classes.

Marxist Theory of Crises

The classical epoch of industrial capitalism ended with the First World War, but this is still the period cited by all defenders of capitalism when they refer to the regenerative powers of the “business cycle” and the periodic crises that engender it. We have to review the classical cycle in order to see how the development of capitalism has compelled it to change.

For Marx, capitalist crises are crises of “overproduction”: too many commodities are produced than can be profitably sold, and too much capital has been invested in industry, in the attempt to claim a share of the available profits. This comes about because capitalism, on both the domestic and international scale, is a system of separate and independent ownerships. In prosperous times every capitalist invests as much as he can and steps up production; in particular, the periodic booms stimulate the production of “fixed capital,” the buildings and machinery which are not used up in one cycle of production and therefore do not have to be immediately replaced. When times are good, all resources are strained to bring new fixed capital into production; but once this capital starts producing, a flood of commodities is brought onto the market, and the crisis ensues. Unemployment, which falls during the boom, rises again; the high rate of profit that stimulated the boom declines, first when the low level of unemployment strengthens the bargaining power of workers, and further when the crisis forces production to slacken off.

The crisis eventually takes its toll: masses of workers are thrown out of their jobs, as a result wages are forced back down toward subsistence or below, and the weakest, smallest and least modem plants go under. But the effects of the slump enable profitability to revive: labor can be hired at low wages, factories, equipment and materials can be bought by the surviving capitalists at bargain prices. So the slump is followed by a new recovery period and in turn by a new boom.

Typically, in the course of the boom period, the competition among capitalists stimulates new productive techniques that advance the level of productivity. The temporary shortage of labor during the boom, owing to the low level of unemployment, is the key factor in convincing capitalists to find ways of increasing their use of machinery (“dead labor”) in proportion to living labor. Thus the boom period of the cycle carries out what Marx called the “concentration” of capital: its expansion and technological advance – just as the slump period already described tends to carry out the “centralization” of capital, its unification into fewer hands through takeovers and mergers.

“Overproduction” as the analysis of crises is frequently transformed by reformist theorists into “underconsumption,” the idea that the mass of workers are paid too little to buy back what they produce. This leads to the program of persuading wise managers and concerned capitalists to advance their own self-interest by paying the workers more; the workers will then be able to consume and purchase more, and thereby crises will be forestalled or dampened.

There are insoluble problems with such a theory. First of all, as Marx pointed out, crises arise in the wake of cyclically high wages for labor, not low. As well, much of what is produced and overproduced under capitalism is means of production, not simply commodities meant for working-class consumption: even the best-paid workers do not buy manufacturing equipment. Thirdly, the masses’ underconsumption – in the sense of their inability to afford the full range of commodities needed for a comfortable standard of living – is a constant of life under capitalism through both boom and bust. If underconsumption were the cause of crises, then crisis would not be cyclical but permanent.

Overproduction demonstrates the necessary contradictions of a system that has the potential to produce real abundance, yet under which that very potential causes a breakdown every time it builds up. In the classical epoch of industrial capitalism the cycle reflected the system’s initially progressive role. The class struggle compelled the capitalists to advance productivity, accumulate more and more means of production and therefore to produce useful commodities more cheaply. For the first time in history, scarcity – with all its endemic misery, starvation, wars and pestilence – was no longer an inescapable part of human life.

The Epoch of Capitalist Decay

The history of the capitalist cycles changed around the turn of the century. It was Vladimir Lenin, leader of the Russian Bolshevik party, who observed during the First World War that the imperialist policies being carried out by all the major capitalist countries were signs of a new stage of capitalism: its epoch of decay. For Lenin, the modern capitalist epoch is one of reaction, counterrevolution and world wars. At the same time it also makes possible the proletarian revolution and the transition to socialism. The contradictions of capitalism have matured to their fullest.

The imperialist stage, the new epoch, is chiefly characterized by the straitjacketing of free competition by monopoly: that is, by the domination of most spheres of industry by a few giant companies powerful enough to keep out all smaller, weaker competitors. It is the qualitative extension of the tendencies of concentration and centralization.

The hegemonic power of giant capitalists within each country is mirrored by the international hegemony of a handful of states. The result, both domestically and internationally, is that the surplus-value produced by workers everywhere is siphoned away from the weaker capitalists and disproportionately into the pockets of the dominant big capitalists in the imperialist countries. The result is that further economic growth in the non-monopoly industries and in the non-imperialist countries is severely hampered – as we can see in the present day, when none of the ex-colonial countries has been able to rise to the level of the economically advanced, despite the long boom of the post-World War II years. Brazil and Mexico, touted by many bourgeois ideologists as the beacons of capitalist progress in the “Third World,” now have proved to be the leading victims of a calamitous policy of debt expansion that is slashing the living standards of millions of workers and peasants in countries facing drastic austerity programs.

Lenin actually expected that the uneven growth characteristic of the epoch of capitalist decay would work out differently: he predicted expansion in the backward countries through the export of capital and, concomitantly, industrial decay in the imperialist countries. While both of these trends have occurred, the predominant tendency has been the opposite: “the rich got richer and the poor got poorer.” Growth is still concentrated in the advanced economies. Lenin’s erroneous prediction is to be found in his popularly written pamphlet Imperialism, the Highest Stage of Capitalism, and he does not make clear what the theoretical basis for it was. Nevertheless, his insight into the phenomena of monopoly and imperialism as signposts of capitalism’s epoch of decay was profound. In this, he was following the logic of Marx himself, who foresaw the decay and breakdown of capitalism decades before it came about. For example:

As soon as (capital) begins to sense itself and become conscious of itself as a barrier to development, it seeks refuge in forms which, by restricting free competition, seem to make the rule of capital more perfect, but are the same time the heralds of its dissolution and of the dissolution of the mode of production resting on it. (Grundrisse, page 651)

The Marx-Lenin understanding of the new epoch was that capitalism was beginning to transform itself into its opposite; it was laying the basis for the “invading socialist society.” The deepening concentration and centralization of capital made the system appear stronger. But in actuality the displacement of individual, competitive entrepreneurs in favor of national and international blocks of capital pointed to capitalism’s doom. Society-wide economic organization is a condition of socialism and working-class rule; by keeping industry out of the hands of the proletariat capitalism sought to prolong its own existence and use the new forms against the workers. On a world scale, the internationalization of economic life threatened capitalism’s national bases. And imperialism had a similar response: rule by the dominant nations over an international economy.

The Marxist-Leninist assessment of the epoch of imperialist decay was confirmed by World War I and its aftermath: The war’s immense slaughter and destruction opened up a period of social revolutions beginning in Russia and spreading to central Europe. The system defended itself by relying on the Social Democracy, the reformist parties who held their grip on sectors of the working class by means of benefits paid for out of the superprofits imperialism extracted from the colonial countries. Reformism rested on key layers of workers who felt that they had an interest in defending capitalism. It was not long, however, before the world capitalist economy collapsed in the Great Depression of the 1930’s.

In line with the new epoch, the Depression; among other things, totally altered the behavior of the business cycle. At its depths in the early 1930’s, U.S. unemployment reached 25 percent, and the average rate of profit in industry dipped below zero. There were ups and downs within the overall depression of the decade, but the normal processes of capitalist recovery never took hold: too little surplus-value was available for new investment. Not even the government “pump priming” of Franklin Roosevelt’s New Deal cured the crisis.

The Falling Rate of Profit

The chronic disease that produced such severe symptoms as world war and the Great Depression had already been analyzed by Marx. He called it the tendency of the rate of profit to fall. Bourgeois economists had previously observed this law, but Marx discovered the reasons for it. Its underlying cause is the growing concentration of capital, the need to step up productivity, that compels capital to produce with an increasing preponderance of “dead labor” (machinery, buildings, raw material) over living labor. Since surplus-value is extracted only out of the labor of current workers, (machinery in production only transfers to new commodities value that has been previously produced), the rate of profit as a proportion of capital invested necessarily declines.

Recent bourgeois economists as well as many professed Marxists have disputed this law of Marx’s. History, on the other hand, has verified it. Significant evidence is provided by statistics on capital accumulation: since new investment must come out of profits, a tendency for the profit rate to fall will naturally bring about a falling rate of growth. And while exact, reliable information on capitalist profits is impossible to find (the capitalists conceal it from the workers, from the government tax agents and from each other through innumerable maneuvers, “legal” and illegal), scholars have been able to come up with aggregate figures on accumulation for given countries. Consider the figures in the table taken from the book Capital in the American Economy, by Simon Kuznets, pages 64-65. He observes that the percentage rate of growth in capital stock for the U.S., per decade, was 60.8 in the 1869-89 period, 59.4 in 1889-1909, 43.3 in 1909-29, and 29.6 in 1929-55.

Cyclical Crises Linked to Profit Fall

The long-term decline in growth rates is striking, especially considering that the figures for the two most recent of Kuznets’ periods include the years of build-up to world wars. When Kuznets in separate calculations excludes military industries, the decline is even sharper.

The long-term fall in the rate of profit arising from the concentration of capital is not the same thing as the short-term profit fluctuations dependent on the business cycle: the latter reflect month-to-month shifts in working-class strength, largely according to the level of unemployment. But the cyclical crises and the law of the falling rate of profit are closely linked. The long-term fall is carried out, ratchet-like, by the periodic crises: overproduction forces more backward capitalists to devalue their commodities as new, cheaper production techniques are introduced. At the same time, the value of obsolescent invested capital is also forced down. At the depths of the crisis, surviving capitalists can buy up cheap equipment from those who go under, and thus the rate of profit on new investment turns up again. But the strongest capitalists, because of their near-monopoly power and their influence over the state, manage to survive even when their productivity is backward. Their overvaluation of obsolescent capital amounts to “fictitious capitalization,” a phenomenon also investigated by Marx; the build-up of fictitious capital perpetuates the falling rate of profit tendency.

The falling rate of profit tendency lies behind capitalism’s epoch of decay: it necessitates the disproportionate appropriation of surplus-value by the dominant capitalists. It made monopoly at home and imperialism abroad inexorable. The decline in profitability also prolonged and deepened the cyclical slumps, thus creating the Great Depression as a characteristic “downturn” of the epoch of decay. This interrelation of several strands of Marx’s theory of the development of capitalism is what makes possible a comprehensive explanation of modern-day crises.

Post-World War II Boom

Only when the U.S. entered the Second World War did its economy get back on its feet after the Great Depression. The government’s astronomical war budget, financed through debt, restored employment and profits. The American victory in the war made good the U.S. debt, but other capitalist powers, even those on the winning side, were crushed economically by the war.

The post-war boom began in the U.S. and spread to the other imperialist countries. As we explained in Socialist Voice No. 17 (“On the Road to Capitalist Crash”), this unprecedentedly long depression-free period was a unique occurrence. It resulted from the cataclysmic world-wide defeat suffered by the working class as a result of fascism, war and the crushing of the post-war revolutionary upheavals through the agency of Stalinist Russia (whose workers’ state had been destroyed on the eve of the war) and the Stalinized Communist Parties, with the aid of the reformists. As well, the hegemonic economic and military power of the U.S. ruling class made possible a greater concentration of resources than ever before; control over surplus-value was centralized on an international scale. Together these factors brought together sufficient amounts of surplus-value extracted from workers to re-establish the profitability of capitalist economy.

Governmental intervention policies from the 1930’s continued after the war with the effect of dampening the business cycle. There were subsidies to industry through the arms budget and other state spending and policies like unemployment insurance to prevent working class incomes from sinking as low as before the war. But all that these Keynesian measures accomplished was to sustain the prosperity bubble once it got started; they could not create it. Only the capitalist victory in the class struggle over the workers, together with the restructuring of capital through the war, managed to do that.

The boom built up a massive balloon of fictitious capital, the various capitalist claims to a share in surplus value based on waste production, overvaluation and speculation rather than productive investment. In the classical business cycles, such balloons were periodically burst by cyclical crises; in contrast, the post-war balloon has been continually inflated. The danger of a cataclysmic collapse should a severe crisis occur only encourages capitalist governments to try desperately to keep postponing the crisis – and thereby making its consequences even greater.

Ideology of the Boom

The post-war boom produced a powerful impression among people. In the imperialist countries it appeared that capitalism had solved its economic problems once and for all; so the bourgeoisie argued through its news media, schools, churches and every ideological pulpit. Professional economists were in the vanguard of the campaign to thrust memories of the 1930’s depression into the past. Indeed, the depression did seem to have been forgotten. Even today, when the slide into the next great depression is already underway, the ideologists insist that proper governmental policies will reverse it. But today the prescriptions are far from unanimous. Keynesianism is discredited, having produced in the 1970’s not stability but “stagflation.” The trickle-down conceptions of Ronald Reagan and Milton Friedman proved themselves worthless in a much shorter time. At present, no successful capitalist solutions are available, but all the pro-capitalist theorists guarantee that they exist.

The situation is little better among professed Marxists. During the 1950’s and 1960’s, many abandoned Marxism because its assertion of inevitable capitalist crises seemed unreal. Indeed, such a period of uninterrupted prosperity during the epoch of capitalist decay had never been foreseen by either Marx or Lenin. Prophetically enough, Trotsky in the 1920’s had referred to such a possibility:

If we grant – and let us grant it for the moment – that the working class fails to rise in revolutionary struggle, but allows the bourgeoisie the opportunity to rule the world’s destiny for a long number of years, say, two or three decades, then assuredly some sort of new equilibrium will be established. Europe will be thrown violently into reverse gear. Millions of European workers will die from unemployment and malnutrition. The United States will be compelled to reorient itself on the world market, reconvert its industry, and suffer curtailment for a considerable period. Afterwards, after a new world division of labor is thus established in agony for 15 or 20 or 25 years, a new epoch of capitalist upswing might perhaps ensue. (“Report on the World Economic Crisis” at the Third World Congress of the Communist International, June 1921).

But even Trotsky, noting that a prolonged boom could result from a major proletarian defeat, did not elaborate upon this conception. The post-war prosperity, unforeseen and seemingly permanent, provided the excuse as well as the material incentives for the deserters of Marxism. After all, the failure of Marx and the Marxists to understand the potential of capitalism was an error of no small significance, they claimed.

No doubt Marxists have made errors. But it is always necessary and productive to examine why they were made. Was something indeed wrong with the fundamental theory?

To our mind, no. The heart of Marxism is its partisan allegiance to the proletarian class struggle. With all the great Marxists this has been coupled to a revolutionary optimism, a profound belief in the capacity of the working class to change the world. Marxism is science with a purpose. As a theory of action, it cannot rest upon objectivist indifference or cynicism, which in the last analysis becomes a self-fulfilling prophecy. Thus Marxist predictions, while they may have an alternative character (“socialism or barbarism”), tend to be based on the presumption of proletarian struggle and victory rather than their opposite. Thus Marx made his ringing proclamation of the death knell of capitalism, knowing full well that this depended not only on economic laws but above all on the proletariat’s political deeds.

Lenin’s erroneous predictions during World War I on the future of imperialism were due in all likelihood to his revolutionary optimism. Unwilling to accept as final the degree to which the Western proletariat could be bought off by their rulers and the reformists, he imagined that capitalism would prefer to turn its new investments toward the colonies where a massive and dangerous proletariat had not yet been created. Likewise Trotsky on the eve of World War II couldn’t calculate the consequences of the Stalinist counterrevolution in the USSR that meant the restoration of capitalism; he had to operate on the assumption that the workers’ revolution would intervene.

But when the workers have suffered historic defeats, the Marxist method can still be applied. Marxists can explain both the era of prosperity and its impermanence, unlike the deserters from (and the fraudulent defenders of) Marxism who interpreted the post-war boom as denying the epoch of capitalist decay. The latter assessed capitalism as if it were again ascendant; as if there were progressive as well as reactionary wings of capital, capitalists who could be aligned within order to further radical struggles. No wonder reformist and nationalist ideologies flourished. In “the real world,” capitalism seemed to have eradicated its “final” crisis and tempered its periodic ones.

With “official” Stalinist and reformist theories this was explicit. In the advanced countries the continued existence of capitalism was the first postulate of every political program. The popular front and the “mixed economy” were accepted as obviously beneficial, with socialism relegated to the bye and bye. Likewise, in the rebelling “Third World” a whole stage of progressive capitalism and multi-class fronts was posed before the socialist revolution could be deemed timely.

Other professed Marxists went along with the political conclusions of this “progressive capitalism” approach. But not being committed to parties which had to maintain a working-class facade, they could be even more openly cynical and could question the proletarian basis of Marxism itself. Whether it was said openly or not, these people believed that capitalism had become so progressive fundamentally that its basic material problems had been solved – leaving only its cultural immiseration to be dealt with.

For example, at the height of the boom the predominant theory masquerading as up-to-date Marxism was presented in the book Monopoly Capital by Paul Baran and Paul Sweezy. They argued that in the (supposedly non-competitive) monopoly stage of capitalism, the problem was no longer insufficient profits but “the tendency of surplus to rise; hence economic crises are replaced by long-term stagnation, on the one hand, and social crises (“emptiness, degradation, … moral bankruptcy”) on the other. For this reason among others “the answer of traditional Marxian orthodoxy – that the industrial proletariat must eventually rise in revolution against its capitalist oppressors – no longer carries conviction.” Baran and Sweezy denied that capitalism generated crises so profound that capital could resolve them only through unrelenting attacks on the working class and thereby abandoned all hope of proletarian revolution.

Even today when the crisis is upon us, the memory of the post-war boom remains powerful. Radical theorists like the open defenders of capitalism, still think of the world in terms of 19th-century cycles. Take for example the recent book What’s Wrong with the U.S. Economy?, written by radical economists associated with the left-talking wing of the trade union bureaucracy. The authors lay the blame for the crisis of the 1970’s on a corporate power grab:

1) Corporations developed and abused too much supervisory control in production. 2) Corporations erected and nearly strangled us with a top-heavy corporate bureaucracy. 3) Less and less subject to market or popular discipline, corporations generated spreading waste of resources and products. 4) Underneath all these problems, problems emerged as more and more people found it necessary to rebel against corporate domination in the domestic and world economy.

The suggestion is that the capitalists took advantage of the prosperous conditions of the post-war boom in order to assert their power – and thereby brought the boom to an end. It follows that if corporate power could be imposed so quickly it can just as easily be reversed, through a political struggle for “workplace democracy,” “community enterprises,” “democratic planning” and “democratic capital controls.” These “principles for pulling ourselves out of the economic crisis” are based on the assumption that devastating crises are still reversible even under capitalism. Socialism would be better able to avoid “these recurring headaches,” but serious problems can be escaped more easily simply by democratizing capitalism.

The idea that the working class is to play not a revolutionary role but one of goosing the capitalists into running a better, more democratic society is an old one. It was originated by Eduard Bernstein, the pre-World War I Social Democrat whose “revisionist Marxism” reasoned that capitalist development was making the system evolve in a socialist direction. Workers’ cooperatives and the like were useful to keep things democratic in the meantime. Bernsteinian revisionism was based on an accommodation to the superficial material realities of the day; the catastrophes of the interwar period proved it disastrously wrong. Today such theories must also rely on a blindness of historical hindsight.

Such reformists squirm in various ways to find new schemes for restoring the old prosperity. In France, Francois Mitterrand’s popular front regime started off two-years ago with a “bold” policy of nationalizations aimed at bolstering French capitalism during the world recession. But this program and its few sops to the workers bogged down and have now been replaced with an austerity policy (as we foresaw from the start: see Socialist Voice No. 14, page 15). Mitterrand’s nationalization policies are typical of today’s reformism, and its failure was inevitable. So is the “socialist” austerity policy: it too will be vastly insufficient to overcome the crisis conditions.

For the world crisis that emerged in the early 1970’s and is now intensifying is not simply another cyclical downturn. It represents the re-emergence of the conditions of epochal decay that were suppressed by the post-World War II boom; it foreshadows the onset of a new Great Depression. In this deepest crisis since the 1930’s, the major capitalist states are trying their best to prevent big firms from going under: government bailouts, insurance schemes, guarantees of unrecoverable bank loans and nationalization are techniques that have been used. But these only inflate the crisis balloon more. In a world as unstable as this one – with imperialist rivalries, nationalist uprisings and powerful working classes increasingly frustrated at living under crisis conditions – the balloon cannot float much longer.

The Crisis of Stalinism

It is not only the West that is on the brink. The collapse of Poland’s economy, both before and after the flourishing of the Solidarity movement, should have signalled even the most abject apologists for Soviet-style “socialism” that the Stalinist countries were not immune from the world crisis. Other Stalinist states have had crises and years of negative growth before, but not like Poland’s. A leading Polish economist wrote in a Warsaw newspaper recently that “this is one of the biggest catastrophes in world economic history” (cited in the New York Times, March 24, 1983).

Our analysis that the Stalinist states are statified capitalist economies has been presented in detail before (see Socialist Voice No. 2). At first we could only point out that the crisis of Stalinism was inevitable; now the facts to prove it are overwhelming. The apologists who believed that crises were impossible in the “post-capitalist” societies have been proved wrong.

But that does not prevent them from insisting that Stalinism’s crisis has nothing to do with capitalism. Thus the pseudo-Trotskyist Ernest Mandel insists that Poland “in any case has been hit by a crisis of underproduction and not overproduction” (Intercontinental Press, June 28, 1982). Aside from the fact that for Marxists underproduction crises are characteristic of pre-capitalist, pre-industrial societies (and that “post-capitalist” economies, where “labor power is no longer a commodity,” should not be hit by production crises at all), such a statement is based on a contradictory, superficial assessment. Mandel makes similar yet even more absurd arguments in a new article on “China: the Economic Crisis” (in the 1982 Socialist Register) ; the title itself is a refutation of Mandel’s decades-long world view. While he claims that China is progressive because of the fact “that labor power is no longer a commodity, that there is no longer a labor market in China, that workers have job security and a guaranteed minimum wage,” Mandel also speaks of “the enormous extent of rural unemployment and urban unemployment” and “the rise of youth unemployment” (apparently he means job security for employed workers only), the ten percent of Chinese peasants “who do not eat enough to still their hunger,” and inflation rates of 15 to 20 percent (so much for guaranteed minimum wages). Then in a postscript he adds, “As a result of retrenchment, thousands of factories have been idled or shut down” so that urban unemployment doubled from early 1980 to late 1981; what’s more, “the threat of dismissal now hangs over the heads of 100 million wage-earners in China.” But of course this has nothing in common with capitalism and its overproduction crises!

Under Stalinism, the capitalist tendency toward periodic overproduction exists but takes on a somewhat different form. The “centrally planned” economies still represent separate capitals – both within each country, and especially across national borders. For example, each small Eastern European country demands its own steelworks. In the 1970’s Poland built the huge Huta Katowice complex, designed to produce more steel than Poland could possible export or use itself – at a time when there was already tremendous idle capacity in the steel industry of its hoped-for markets, the United States and Western Europe.

In traditional capitalism, market forces – either through falling sales or advance surveys – would pressure against such construction during slumps. But with Stalinism the construction continues, following the directives (hardly scientific plans) of the central administration. No ministry or section of the bureaucracy will cancel its plans alone for fear of getting behind in the competitive race. Under these conditions, the crisis finally occurs when a shortage of materials or capital for construction compels whole projects to be shut down or left partially completed and therefore largely useless. The underlying cause of overproduction crises is the same in the Stalinist form of statified capitalism. But Stalinism has sacrificed some of capitalism’s economic flexibility, notably the ability to close down unprofitable operations at will. It thereby delays the onset of crises and so makes them all the more devastating when they ultimately occur.

In the West, the crisis of overproduction makes itself visible as an excess of commodities (both for consumers and for industry) which fail to be sold. In the East there is hardly an excess of consumer goods; that is because Stalinist priorities inevitably downgrade consumer production, carrying out the Marxist law of the subordination of consumer goods to production goods in capitalism to its limit. But this represents no “crisis” of underproduction: under Stalinism, consumer goods are permanently underproduced. On the other hand, in the Stalinist crisis industrial inventories increase much faster than usable output; and the abandoned and partially completed projects that dot the landscape – despite decades of bureaucratic recriminations and exhortations to plan better – are testimony to the law of overproduction.

The Marxist falling rate of profit tendency also has its effect under Stalinist capitalism, although since this system has existed only for just over four decades the century-long growth figures that we have for the United States are not available. We cited Russia’s economic decline six years ago (Socialist Voice No. 4, page 22). Now the CIA report on the Soviet economy provides new evidence. For example, its measurement of annual rates of growth in the gross national product (GNP), calculated for each five-year-plan period, show a decline from 5.5 percent in 1951-55 and 5.9 percent in 1956-60, to 5.0 percent in 1961-65, 5.2 percent in 1966-70, 3.7 percent in 1971-75 and 2.7 percent in 1976-80. Likewise, the CIA’s calculation of Soviet industrial production shows a decline from an annual growth rate of 9.4 percent in the 1951-59 period to 6.3 percent in 1960-75 and 3.4 percent in 1975-80. (The USSR’s official rates for the same periods are larger but declining in parallel: 12.0 percent, 8.2 percent and 4.4 percent.)

As we argued for the U.S., declining growth rates reflect declining profit rates, since accumulation is based on investment of profits. For the USSR this connection is even more striking, since the CIA also indicates that investment rates in the USSR have sharply increased: from 14 percent of GNP in 1950 to 33 percent of GNP in 1980. That is, increasing investment produces decreasing growth, a sure sign that the rate of return on investment – the rate of profit – has been falling over the 30-year period.

The falling rate of profit tendency has helped bring the Stalinist economies from their peaks at the hour of their triumphant counterrevolutions over the proletariat in the 1930’s and 1940’s, down to the morass of capitalist decay. As with traditional capitalism, this tendency exacerbates the conditions that generate crises.

A number of leftist commentators have applauded the CIA report for demonstrating the “progressiveness” of Soviet “socialism” despite its obvious difficulties. There is considerable irony in this. Remember the old days during the boom when the Stalinists crowed about how the Russian and satellite economies were growing at a fantastic pace, how soon they would outdistance the U.S., Japan and West Europe, how hours of work were to be qualitatively reduced? Now the sycophants have to search feverishly for something positive to say. Thus the Guardian newspaper (March 23) wrote, “Clearly, the Soviet Union has major problems. It also has major economic strengths, including natural resources that are the envy of the U.S.” – as if mineral wealth is a socialist accomplishment. The Guardian also criticized the CIA for pointing to declining Soviet growth “without mentioning that even in slowing down during the 1970’s it had kept pace with the U.S.” Keeping pace with an economy undergoing depression conditions is no great achievement either. And it is a far cry from the claims of outstripping the reactionary West that used to constitute the Guardian’s “proof” that Russia was socialist.

In a similar vein, the pseudo-Trotskyist Militant (April 1) used the CIA report to proclaim that “The Soviet workers state is a dynamic and progressive society.” Likewise Frontline, a new Stalinist paper descended from the Guardian, concluded that “The fact of the matter is that the Soviet Union today is an economic powerhouse.” That’s what all the bourgeois ideologists say about the U.S. economy when they pray for profits to recover. But workers and socialists who think for themselves know better – and ought to in the case of the USSR as well.

Frontline, in defending Russia’s economic performance, is forced into the argument that “The decline in the rate of GNP is certainly troubling, although a certain leveling off from the spectacular gains of the earlier period was only to be expected.” Of course, Frontline’s progenitors in the 1950’s neither expected nor predicted anything of the kind. In fact, the Stalinists had to say the exact opposite in order to maintain some semblance of a Marxist justification for calling Russia socialist. For beneath all the Stalinists’ concern over the USSR’s growth rates lies the class question: if Russia is a workers’ state (and certainly if it is already socialist!), it must be developing towards a communist society of abundance. Such a transitional state would have to show accelerating rates of productivity, unhampered by the social relations (class barriers) of capitalism. Publishing today in the aftermath of the cynical corrosion of Marxist hopes, Frontline blithely demonstrates that Russia is no kind of transitional state at all without realizing that this is what it is saying.

As we have shown, the virtue of the crisis for a capitalist economy is that it revives profitability and enables expansion to resume. But this requires raising unemployment levels and wiping out weaker enterprises. (No wonder Stalinist planners openly wish they could fire masses of workers!) Stalinism has been deprived of these economic weapons in exchange for central administration. This trade-off enables backward countries to build up their economies slightly, starting from a point where so much basic industrial construction is needed that overproduction is not an immediate problem and huge growth rates can be recorded for a few years. But the trade-off presents a major obstacle to reaching modern levels of productivity for an industrial country operating under the economic laws of capitalism. That is why Stalinism is facing the crisis in its present form: it has been delayed for years, but is seemingly permanent once it occurs. That is, unless the Stalinists could smash the workers again, reduce their standard of living drastically and eliminate all the gains of the Bolshevik revolution which they haven’t yet been strong enough to destroy.

Crisis of Reformism

We have seen that traditional Western capitalism also has crises in a form different from the classical business cycle. It too has become hidebound, weighed down by giant firms whose collapse would be catastrophic for even the strongest countries. The rulers of both East and West are faced with an overwhelming dilemma: their economies need to undergo a full-scale crisis to wipe out capital and smash the working classes, but the size of the collapse required and of the industries affected is so great that this “cure” cannot be risked. Its effects are unpredictable, for one thing, and a revolutionary response by masses of workers is feared. Hence both Eastern and Western rulers are attempting to run business as usual, and the forces building up for a future collapse remain.

For several decades the Stalinist system and its ideology of nationalization as a solution to economic problems served capitalism well. It was a bulwark against revolution in Europe; it channeled the mass upheaval in China into a nationalist dead end; it persuaded the workers and peasants during innumerable colonial revolutions that their interests were the same as the national bourgeoisie’s; it acted as a reformist prop of imperialism in the advanced countries. But that has changed. Its economy no longer works as a model, even when seen through the rosiest glasses. The USSR can no longer bolster the collapsing satellite economies. It can no longer offer to prop up a tiny Nicaragua in its nationalist rebellion against U.S. domination the way it once took Cuba in tow.

Moreover, the original strength of the Stalinists – like the Social Democrats before them – came from the mass proletarian movements whose leadership they usurped. This too has changed. Neither brand of reformism now commands the enthusiasm of masses once the workers go into motion. But this does not mean that their futile reformist programs are harmless. In the twenties and thirties millions of people in desperate economic conditions, finding no way out on the left, turned to fascism and its proclamation of “national socialism.” The same can happen again – all the more so since the “solution” capitalism requires for another upswing is a bout of violent defeats for the working class.

Reformist statification on a “democratic” basis is useless for capital, as Mitterrand’s effort has shown. But if capitalism is to revive it needs further centralization, something now only possible through outright repression of the masses. “Liberalizing” Stalinism no longer provides the cadre to accomplish this for the sake of a promised communist future, and “democratic” reformism needs prosperity to operate. Only a new fascist movement – based on distorted hopes for a radical alternative but channeled through a program of racist and anti-communist violence – can carry out capitalism’s economic program. The reformists and Stalinists who offer the masses no revolutionary solution to the capitalist crisis will share the responsibility if fascist radicalism wins out.

Marx was often mocked both during his own lifetime and after for predicting the collapse of capitalism. Yet his description of the system that advances only through economic crisis has proved remarkably accurate, and his prediction of the epoch of capitalist decay was more than confirmed by the thirty years of unprecedented horrors from World War I to World War II. Those who regard the fundamentals of Marxism as disproven are basing their hopes for capitalism’s future on the ephemeral post-World War II boom – that is, on the unprecedented defeat of the working class that made it possible (as well as on the labor-aristocratic and middle-class perspective of the most insulated imperialist countries). Capitalism in the 1930’s already proved what brutalities it is capable of in times of desperation. One hundred years after Marx’s death, it remains true that the horrors of capitalism’s decay can be prevented only by its overthrow.

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