David Yaffe and Paul Bullock, 1979

Inflation, the Crisis and the Post-War Boom


(a) Introduction

In an editorial contribution at the end of December 1974, The Economist, the house journal of the British industrial bourgeoisie, somewhat belatedly announced the end of the post-war boom. It told its readers that the greatest boom in history was over, a boom which saw industrial production rise an unprecedented three and a half times between 1948 and 1973. It painted a threatening scenario of heavy unemployment ahead in a world slump which could carry in its wake the disintegration of the 'social structure of democracies'. As heavy unemployment and cuts in living standards became general, individual nations, The Economist argued, would retreat into siege conditions as protectionist measures became widespread. The world economic climate has turned hostile: National capitals must prepare to defend their interests at home and abroad.1

The class instincts of the bourgeoisie dictate this unsentimental and decisive turn. The bourgeoisie is no more able to understand this development than it can explain the duration of the post war boom. But its reflexes have not been impaired. For Britain the programme of the bourgeoisie is brutally plain. It demands large cuts in state expenditure, a wage freeze and a devaluation of sterling (already well underway). It calls for a massive shake out of labour and severe curbs on Trade Union rights.2 In short, it represents a concerted assault on the working class to force down wages below the value of labour power in an attempt to restore the profitability and improve the competitive position of British capital in an increasingly hostile capitalist world market.

The post war boom, with its massive expansion of production and productivity, allowed national capitals to share out world wide profits according to their relative competitive positions, Hence the relative 'peace' between the advanced capitalist nations; 'so long as things go well, competition effects an operating fraternity of the capitalist class'.3 However, now that it is no longer a question of sharing profits but of limiting losses 'competition then becomes a fight of hostile brothers'.4 Each national capital, as well as confronting its own working class, will be forced to limit its losses at the expense of other national capitals. Protectionism, import controls, competitive devaluations all become acceptable measures as each national capital attempts to survive.

The crisis of world capital, therefore, expresses itself at both a state and inter-state level, as a conflict between labour and capital and between capital and capital. Each ruling class will try and gather together the support of sections of its own working class, attempting to split the working class movement in this struggle to survive. Calls for national sacrifice and national unity, appeals to national chauvinism will be used to cover over capital's primary aim: to 'solve' this world crisis, like the last, at the expense of the working class.

In these conditions the reformist traditions of the working class movement, traditions considerably strengthened throughout the post war boom, have flowed spontaneously through to the present. While the ruling class is calling its troops to arm, the working class is being disarmed by the ideological and political unpreparedness of our movement. In Britain, the politics of reform which guided the TUC through the post war boom - a period of gradually rising living standards even for Britain - has not basically changed. While the bourgeoisie attempts to drive home its class interest, placing the burden of the crisis on the working class, the trade union leadership looks for joint solutions, a shared responsibility with the ruling class for 'overcoming the crisis facing the country'. So there are joint talks between the TUC, the government and the CBI. Jack Jones, once regarded as a pillar of the left-wing of the labour movement, becomes the spokesman for this fatal trend.

'The trade union movement must find ways and means to secure a positive response to the Government's efforts in fighting off the effects of the economic crisis.'5

This loyalty to a Labour government intent on massively reducing the living standards of the working class is not only the prerogative of the 'right' and 'centre' of the Labour Party. Wedgwood Benn, for example, at the annual conference of the Institute for Workers' Control, 1975, told the left-wing critics of the Labour government not to work for its destruction.

'We must sustain and maintain that Labour Government...there is too much at stake to risk to lose it.'

According to Benn, the problems that the government had inherited had been 'much bigger than foreseen' in 1973 when the Labour Party manifesto was being drawn up. Under such circumstances to make a principled stand and resign when the government introduces policies completely at odds with its 1974 Election Manifesto is not, it seems, the best thing to do. Rather, Benn argues that it is necessary to influence government policies from within the movement to bring about the implementation of that manifesto 'as far as possible'.6 In this respect he does not differ from Jack Jones, because essentially he sees 'socialism' being brought about through a reformed, more efficient and more equitable capitalism. His programme for Britain makes this very clear when he calls for;

'an unprecedented national programme of investment leading within a decade to the competitive and profitable manufacturing industry we desire, recognising that to do so we must inevitably guide our mixed economy to make this possible.'7

This has to include reforms which take into account 'the role of people and their right to control in various ways the decisions which affect their lives'.8 Together they constitute part of the Utopian and nationalistic programme which is becoming common among sections of the British 'left'. For Benn it is the Labour Government and the much heralded (and maligned) National Enterprise Board which are to be the institutional means to carry through this programme. This is why he, like Jack Jones, is still committed to this Labour Government.

It is precisely at a time when capitalism moves into crisis that it most needs a reformist leadership of the working class. Reformism, as an ideology within the working class movement which sees 'socialism', gradually evolving from a reformed capitalist state, inevitably ties the working class to such bourgeois ideological conceptions as 'national unity' and 'national crisis', while at the same time attempting to reconcile the class conflicts which will inevitably rise in such a context. Programmes for nationalisation, workers' cooperatives, democratic control at the work place and other 'radical' measures spontaneously arise to the surface precisely in periods of threatened unemployment, redundancies and closures of factories. But as such programmes are conceived within the framework of capitalist production - the so-called 'mixed economy' - they eventually constrain the working class to the interests of the ruling class. That is why there is nothing inconsistent in Benn playing a leading role, during a period of growing crisis, in arguing for 'radical' views and at the same time calling on the 'left' to sustain a Labour Government intent upon complying with the interests of the international bankers and the Confederation of British. Industry. The Economist with its characteristic smugness, drives home the essential point.

'Labour's first 500 days of government since February 1974, have achieved one object which should not be undervalued: the education of the general public, left-wing ministers and trade union leaders in the inexorable laws of economics.'9

As long as capitalist relations of production remain unchallenged it will always be the 'inexorable laws of economics' which underlie the rationalisations of those, whether of the 'right' or 'left', who seek solutions to the problems facing the working class as the crisis develops.

(b) The crisis seen as a British crisis

The present crisis is a world capitalist crisis. It presents itself in the empirical form of an accelerating inflation, stagnation and sharpening tensions between nation states. Although there has been a recent slowdown world-wide in the rate of inflation this has been due to an enormous increase in unemployment and a large fall in industrial production. In most industrial countries the working class has suffered significant cuts in living standards. Britain, one of the weaker capitalist countries, has had a slower growth rate and a lower investment rate than any other advanced capitalist country. It now suffers from a much higher rate of inflation. This has led many, including the radical left, to see the cause and solution of the crisis in a British context.

Ex Tory Prime Minister Edward Heath, in a speech in the House of Commons (22.7.75) argued that the reason for recurring crises in the past 30 years is that Britain has an unbalanced economy. The solution, it would seem, is to turn the British economy into one with a reasonable balance of wealth, trade union power, management expertise and so on.10 What is significant, besides the empty rhetoric, is the presentation of the crisis outside of the context of a developing world crisis. So a solution is conceived in the form of a national, British solution. It also implies that it can be solved by better economic management or better government.

If this conception did not also underlie the views of sections of the radical left, it would not be worth remarking on. But it does. While the radical left recognises the existence of a developing world crisis of capitalism it nevertheless concentrates on the particular problems of the British economy and again conceives of a national, British solution to the crisis. So, in a recent pamphlet, Britain's Economic Crisis,11 the end of the great post war capitalist boom is of significance because it 'has starkly revealed the bankruptcy of the advice proffered to the Labour government by the orthodox economists.' It is the acceptance of such policies and those international links with the world economy that they imply which has 'prevented the pursuit of progressive economic policies in Britain'. The current crisis, however, and this is central to the argument, is 'simply a severe manifestation of the deep-rooted structural problems which have plagued the British economy and British society for the last century.'12

This British orientated view of the crisis is common in the Labour movement. So the Tribune Group can call on the government to 'introduce a set of measures which would go some way towards re-establishing "confidence" - not the "confidence" that the City of London wants, but a confidence in the ability of British people to escape from the present crisis without further supplication to those who see no alternative to drag us even deeper into the Western world's economic problems'13. A recent ASTMS discussion paper argues in the same vein.

'In this document we discuss measures to cushion the effect of the world recession in 1975, and argue that Britain can be set on an expansionist course in 1976. Any deepening recession in Britain beyond the end of this year - with the attendant unemployment - would above all represent a victory of Treasury orthodoxy over rational and radical economic thought.'14

It can argue this precisely because it puts down the crisis of British capitalism to a shortfall in productive investment, the build up of property speculation and gross economic mismanagement in a system which, even when working well, has not distributed wealth fairly, nor has been capable of creating it.15

The Communist Party of Great Britain, while also recognising the deepening crisis of the present stage of capitalism, nevertheless puts the low growth of British capitalism, and so the aggravated form of the British crisis, down to 'deliberate government policies'.16 All these views suggest that capitalist Britain could escape these 'inexorable laws of economics' by having a radical government taking progressive measures to protect British capitalism from the effects of the world crisis. In this respect, as we shall see, these positions have both a reactionary and utopian content, in spite of the fact that they are often cloaked under the guise of 'socialist' policies.

All these programmes call for strict controls of imports. So Tribune argues:

'...to protect our industries and facilitate our planning policies through the mechanism of import quotas in relation to specific industries including machine tools, heavy engineering goods, cars, textiles, footwear etc., and/or through import surcharges of 20 to 30 per cent on specific goods.'17

Import controls, according to the ASTMS argument, would give Britain the opportunity of 'escaping from being dragged down in a three or four year world recession'.18

They would, also allow a massive programme of investment to restructure British industry shielded from the damaging effects of uncontrolled trade and capital movements to other capitalist countries. British industry and commerce, we are told, has to be made responsible to Britain over and above obtaining the highest financial return on a world wide basis.19 The document, however, at the same time, can call for an investment policy directed to the growth, export-oriented areas. Such a programme, according to Tribune, would allow Britain to compete on equal terms with its competitors.20

The funds for this industrial investment necessary for overcoming Britain's long-term structural problems, common to all such programmes, are to come from various sources depending on the radical claims of the writers. They include the sale of shares and assets of British companies abroad, and preventing the free movement of capital abroad (CP, BEC), mortgaging a part of British North Sea oil supplies through oil bonds and recycling pension funds (Tribune), cutting down military and other 'wasteful' expenditure (CP, BEC, Tribune) and an efficient use of the National Enterprise Board (ASTMS, Tribune).

What seems a simple solution to increase employment and competitiveness in one country - import controls/export led growth - becomes reactionary when viewed as a whole. Jobs saved in one country become lost in another in a period of growing capitalist crisis. Unemployment is thrown on to workers elsewhere. International trade already falling will fall further still. As one country takes protectionist measures another will retaliate in order to survive. The laws of capitalism cannot be overcome in this 'commensensical' way.

If the commodities produced are not competitive with the exports from other countries, then to bring prices down will require large increases of productivity, which, at the present time, means a growth of unemployment, or a large reduction of costs which, for the capitalist, means much lower wages. Import controls will not prevent the capitalist from eventually forcing wages down and reducing employment in that industry. Import controls and growing international tensions are an indication that capitalism, unable to bring about international co-operation is about to plunge the world into another round of economic and political conflict in which workers of one country are set against workers of another. Neither will the 'national' solution of import controls do anything to develop the productive forces in a planned manner. Rather the resulting stagnation and loss of foreign markets will be used to justify even more massive doses of wage control and government cut-backs - all in the 'national' interest.

All the programmes of the radical left see some progressive way out of Britain's economic crisis though a British, state controlled (-managed) capitalism of varying degrees. Such programmes are reactionary because they try and turn their backs on the historical development of the international division of labour. They do not recognise that the development of the productive forces to the degree achieved today come about precisely because capital is driven beyond national barriers.21 Socialists see this as their starting point and recognise that capitalism is no longer progressive, and this has been the case since before the first imperialist war, because capital has itself become a barrier to the further development of the productive forces on this international basis. The expansion of the post war boom required as a precondition yet another imperialist war, and the massive defeats of the working class movement which were a prelude to that war.

As the crisis develops, capital turns back on itself, inter-imperialist rivalries drive national capitals into retreat behind protectionist barriers and threaten to engulf the working class in yet a new imperialist war. Such 'state-capitalist' programmes serve the interests of the ruling class, as each bourgeoisie calls for 'national unity' and 'national sacrifice' when its own national capital is faced with the need to survive. Internationalism has to be central to any programme of the labour movement in this period of growing capitalist crisis. The anti-EEC chauvinism and calls for protectionism in the programmes above are the greatest barriers to developing a socialist tradition in the British labour movement.

Another feature of these programmes is their utopian, as well as reactionary, character. This can he seen in the programme which seems the most radical, the most 'socialist', that of the Cambridge academics in Britain's Economic Crisis. Their solution like the others, is necessarily of a national British kind. They even attack, by way of introduction, the 'starry-eyed Internationalism' of the Bolsheviks, who 'dreaming of a simultaneous world revolution' awoke to find themselves 'quite unprepared for the real material and political problems facing them'. They utilise the Communist Manifesto to support their reactionary-utopian stand.

'Though not in substance, yet in form, the struggle of the proletariat with the bourgeoisie is at first a national struggle. The proletariat of each country must, of course, first settle matters with its own bourgeoisie'.22

However, the substance is conveniently forgotten and so, indeed, is the settling of matters with their own bourgeoisie. In the context of the Manifesto as a whole this quote means something quite different from how it is interpreted. What Marx is saying is that the proletariat must settle politically with its own bourgeoisie before its economic problems can be resolved. Our Cambridge academics completely reverse this.

What do the practical, technocratic and realistic solutions of our Cambridge academics amount to? First it is necessary to break off those international links with the world economy which have so limited British economic growth. They are for taking international trade out of the hands of market forces, nationalising foreign firms in Britain, reducing substantially the role of the City, ending overseas military expenditure and leaving the EEC. However, in order to reduce the risks of damaging trade boycotts which might (!) follow such policies, our ever so 'realistic' technocrats would compensate foreign capitalists for their UK assets, paying out of the assets of British capitalists abroad. They would also appeal to the European working class for solidarity against such boycotts23. Once this is done a left government could carry out progressive policies based on planning, nationalisation of industry, a higher level of investment and various taxation and other policies to redistribute wealth etc. and create a democratic and egalitarian society. Our 'dreamy-eyed nationalists' seem to have forgotten something. Those 'starry-eyed internationalists' the Bolsheviks first seized state power, smashing the capitalist state and instituting the dictatorship of the proletariat, a necessary condition for carrying out their programme of socialist construction. Such was the hostility of the capitalist class both nationally and internationally that they had to fight a civil war against an enemy supported by five imperialist powers. Further, throughout the Bolsheviks insisted that socialism could not be built without utilising the international division of labour and the up to date achievements of advanced capitalist techniques24. This recognition that the revolution had to be spread was not 'starry-eyed internationalism' but a 'realistic' practical understanding of what was required. In contrast to this, our Cambridge academics managed to almost expropriate the capitalists using 'every stratagem...to divide and out-manoeuvre (their) opponents'25 without destroying the capitalist state. It is not surprising therefore that in their last chapter 'The Economic Potential of a Socialist Britain', they assume 'a victorious working class have taken power'. It is indeed a long jump from a left government carrying out progressive nationalist policies to a Socialist Britain, and one that they clearly are not going to make.

(c) The form of appearance of the crisis confused with its cause. Inflation and the crisis.

It is the way capitalist production appears to both the working class and the capitalist class which is the foundation of the different bourgeois views of inflation. The bourgeoisie remains tied to the 'level of appearances' of capitalist production and this dominates their conception. It is just because the outward appearance and the essence of things do not coincide that it is necessary to delve below the outward manifestations of the crisis to get to its root cause. An understanding which remains at the level of the circulation of commodities, that sees in particular prices, whether domestic prices, wages, monopoly prices, or prices of imported goods the cause or causes of inflation, remains tied to the conceptions of the bourgeoisie.

A recent article in the Midland Bank Review propounds a commonly held view which has become the ideological justification for the assault on working class living standards in Britain today. It boldly stated in November 1974 that 'the problem of imported inflation is being rapidly replaced by wage inflation'26. The Bank of England Quarterly Bulletin also agrees that, whereas much of the rise in prices a year ago could be regarded as imported inflation, a reflection of the world-wide rise in prices, now it is predominantly due to a rise in domestic costs. And, as last summer pay rises (together with the effect of threshold payments) have been exceeding the rise in prices by a substantial margin, we know which domestic costs are to blame27. World-wide costs are outside British control unlike wage-costs which can be reduced. In such a way the programme of wage-cuts is given an ideological prop.

Wage costs however reflect the price of the commodity labour power. If a general rise in the prices of other commodities is taking place, and if real wages are to be maintained, then money wages must necessarily rise. It is precisely the fact that, money wage settlements in Britain are relatively high - compared to other countries - which strengthens the illusion that wage rises are the predominant cause of inflation. When it is pointed out that, in fact, a 33 per cent money wage increase is required to offset a 25 per cent rise in prices given present taxation and national insurance rates, the problem has to shift. For average earnings have risen 28.3% (May) over the last year and average prices by 26.1% (June)28.

An attempt has, therefore, been made to coin the concept of a 'social wage' - that arising from public spending and consumed socially - to deal with the rise in public spending, and this leads to another view of the causes of inflation. It is due to the rapid growth of government spending, especially those parts concerned with social services etc., and the accompanying borrowing and deficit financing associated with such expenditure. Those who hold to this view - and in Britain the borrowing requirement of the public sector has reached 9 per cent of the GNP - call for cuts in public spending and a reduction of the role of the public sector in general. It becomes another justification for cutting the standard of living of the working class. But why has public spending and the so-called 'social wage' risen so fast? A theory of inflation which cannot explain this has explained nothing at all.

The monetarist view of inflation argues that 'excess demand' results in higher prices if and only if it is associated with an increase in the quantity of money-notes in circulation and bank deposits. Without an increase in the stock of money being permitted, the monetarists argue, prices cannot rise. This is then related to the previous view because it becomes difficult to have a stable growth in the money supply unless government expenditure is under control - since the government has the power - which the private sector has not - to expand the money supply to finance its own expenditure. Hence monetarists usually wish to curb the growth of State expenditure and often hold to laissez-faire ideological views29. The State sector becomes regarded as a wealth consuming unproductive sector. So Sir Keith Joseph - a right wing Tory - can ask:

'Yet is there any substitute for the entrepreneur, from the one-man businessman to the tycoon? Someone has to create the wealth. State enterprise has yet to do so. Until now it has lived off the surplus created by the private sector. But as the state sector grows - and a new subsidised private sector with it, designed to perpetuate occupational population patterns inherited from the industrial revolution - the private sector is in danger of collapsing under the burden.'30

While the productive worker has suddenly become a tycoon, the result of the problem is seen as the cause. Everything is reversed in the minds of the bourgeoisie. But it is precisely when private capital accumulation is in danger of collapse that the state sector is forced to grow more rapidly. So that when the crisis is precipitated it appears to the bourgeois mind that a result of capital accumulation - the growth of state expenditure - is the cause of its collapse.

The radical left has fared little better with this problem than the bourgeoisie. Often it accepts, as in the case of the 'radical' neo-Ricardians their explanations of inflation. So Glyn and Sutcliffe see the profits crisis as being caused by high wages squeezing profits and intensified international competition preventing sufficiently high price rises to offset this. Their radical call for workers not to 'moderate their wage demands but to destroy the system which exploits them' was, as we argued elsewhere that it would be, of little avail. Far from being wages causing inflation, it is inflation, as we shall show later, which is a preferable means, and an indirect way, of cutting wages. It is such views as their own which do nothing to undermine the so far successful campaign mounted by the ruling class to make the Trade Unions accept a cut in wages in the 'National Interest'.31

However the rest of the radical left fares little better. So Socialist Worker the paper of the International Socialists, can argue:

'Of course high wages are part of the explanation for high prices. If lorry drivers get high pay increases, their bosses will increase...the haulage rates...But there are plenty of other reasons for price rises.32

How does this fundamentally differ from Jack Jones who is the driving force within the Labour Movement supporting wage cuts?

'Wages are by no means the main cause of inflation, but the present trend for wages to increase faster than prices spells economic danger'.33

It's common sense, isn't it? If wages go up, as 'any cost of production must have an effect on the ultimate price',34 so will prices. This is a modern version of Adam Smith's theory of cost-price, a theory which does no more than express the 'thought of the agent(s) of capitalist production' themselves - it is the standpoint of the individual capitalist.35 This theory ultimately treats profit as cost, and demonstrates itself as the most vulgar apology for capitalist exploitation. Such a position has recently been provided by the IMG. Their newspaper follows the line of thought pursued by the IS and Jack Jones. It is quite wrong, they say,

'...to believe that wages are the sole cost involved in producing goods and that therefore if wages go up so prices must go up by the same amount. There are a whole series of costs other than wages - for example profits,...etc - involved in production.'36

This 'reasoning' obscures the existence of exploitation. Marx had strongly warned against such views,

'The habit of representing surplus value and value of labour power as fractions of the value created - a habit that originates in the capitalist mode of production itself... - conceals the very transaction that characterises capital, namely the exchange of variable capital for living labour power, and the consequent exclusion of the labourer from the product.'37

The IS, the IMG, the Communist Party, Eric Heffer, and Jack Jones - all claiming to represent the working class - speak from the ideological standpoint of representatives of the capitalist class. Their explanations, by rejecting Marxist science, must remain at the level of the surface appearance of capitalist production and show an inability to offer a more profound understanding. Both the bourgeoisie and the 'radical' left are left squabbling over the relative importance of the costs in question - while no real understanding of inflation and the crisis is provided by either. It is necessary to explain why all prices - including that of the commodity labour power - have had a secular tendency to rise. Otherwise one ends up explaining the rise in prices by the rise in prices - which is no explanation at all.

Having accepted that rises in wages partially (marginally) cause rises in prices the left then has to show why cuts in wages - which at least ought to help - will not contribute to easing the crisis. The Communist Party explains why:

'To improve our competitiveness abroad requires maximum capacity working, impossible without a strong growing home market, which can only be maintained and expanded by increased consumption at home through increased wages and benefits'38

This view which sees the crisis as an under-consumptionist crisis is now very widespread on the radical left39. It has been criticised elsewhere40. Politically it gives rise to reformist illusions that the crisis can be resolved through increases of expenditure whether by increasing wages or government spending. It is precisely the Keynesian assumptions underlying such positions which the latest crisis has so thoroughly undermined.

Another widespread view on the left is that inflation is due to the pricing policies of large firms and 'monopolies'. So Socialist Worker can say:

'In the past, prices have gone down as unemployment goes up. This year, prices and unemployment are going up together. Why? Because the huge, international companies are strong enough to keep their prices rising even though demand for their goods is falling.'41

The Communist Party extends this to an international scale seeing as one cause of the rise in prices:

'the rapid development of the multinational companies, which on a world scale had the same effect as national monopolies in raising prices to maintain and increase profit at a higher level than in conditions of more international competition.'42

This suggests that monopolies somehow can avoid the law of value and its expression through the competition of capital world-wide. The evidence for this view is somewhat scarce. Clearly large firms are able to survive where smaller firms go bankrupt but this is primarily due to their higher productivity and not an ability to hold prices higher than smaller firms. There is no evidence to show that small firms are not forced to increase prices as well in their attempt to survive, so it is not really a question of large capital but capital overall43. On the contrary, the evidence available shows that export prices have increased much slower than domestic prices. And since the export industries have a higher concentration of large firms, this at least seriously undermines the Communist Party case.

Price deflator for exports of goods and services (1963-68)44 GDP price deflator
(general price level)
US. 10.7% 14.3%
Japan. 5.9% 23.7%
France. 5.5% 18.1%
West Germany. 1.7% 13.3%
Italy. 2.5% 17.7%
UK. 17.6% 20.7%

While clearly some elements of state subsidies are involved here, these figures give no support to the position that monopolies are a major cause of price rises. Implicit in this view of the Communist Party, is the reactionary standpoint, that matters would improve in a more competitive small firm world. History becomes reversible in the escapist imagination of the petty-bourgeoisie. But it is just the general tendencies of capitalist development, including recurring crises, which have led, since the turn of the century to rapid concentration and centralisation of capital, large increases in the productivity of labour and a secular rise in the general price level. Again results of a process are turned into their cause.

The failure of all the views that we have considered here lies in their inability to locate the crisis at the level of capitalist production and show how the secular rise in prices, including money wages, the massive extension of credit etc., the rising government expenditure are necessary forms of appearance of the contradictions of capitalist production in its latest phase, of a capitalism in decline. We have to establish the mediating links between the outward form of things and their inner source, the fundamental contradictions of the capitalist mode of production. Most of the radical left are keen to stress that there is not one cause of inflation. 'The truth is that inflation, is caused by a number of factors'45 says Eric Heffer and Socialist Worker, as we have indicated above, clearly agrees. The Communist Party argues that 'Inflation cannot be ascribed to anyone cause, unless that single cause is the ever deepening crisis of the present stage of capitalism'. But it is precisely that 'ever deepening crisis of capitalism' that requires some understanding if inflation is to be explained.

Wage-inflation, cost-inflation, imported inflation, or even price-inflation (!) are confused ideological concepts which give support to the standpoint of the bourgeoisie. They do not relate to the production process of capitalism but remain transfixed to its circulation process. It is, therefore, important to break with these concepts and relate the phenomenon of inflation to the production of value and surplus value, to the reproduction and expansion of capital. What has to be explained is the seemingly contradictory appearance of a secular tendency of arise in the general price level, when the increases in productivity, accompanying the accumulation process of capital, should result in a steady fall in the price level. Inflation in this sense began about the turn of the century and accelerated during the postwar boom.46

(d) The crisis as it appears internationally.

The British crisis has to been seen as part of the growing crisis of the world capitalist system. It is important to understand the qualitative change which has taken place in the last few years. It presents itself as a quantitatively higher level of the rate of inflation, a turn down in the growth of the gross national products of the main capitalist countries and a steady, and recently very steep, increase In unemployment.

The rate of inflation was more than double in 1973, and more than three and a half times in 1974, that of the average for the period 1961-1971. The major increases occurred between 1972 and 1973, and 1973 and 1974. Although there has been a slight slowdown in the rate of inflation in the recent period in most countries (excluding Britain) this has been due to the severity of the recession as the unemployment figures indicate below. In the six months ending in May 1975, the rise in OECD consumer prices dropped back to an annual rate of 10 per cent (still 2.7 times the 1961-1971 average) from the 15 per cent rate experienced just before the end of 1974.

Consumer Prices
(Percentage changes at annual rates.)

1972 1973 1974 12 months
to May 1975
UK. 4.6 7.1 9.2 16.0 25.0
Italy. 4.2 5.7 10.8 19.1 19.7
US. 3.1 3.3 6.2 11.0 9.5
W. Germany. 3.0 5.5 6.9 7.0 6.1
Japan. 5.9 4.5 11.7 24.5 14.1
France. 4.3 5.9 7.3 13.7 12.1
Total OECD 3.7 4.7 7.9 13.4 12.0

Growth of real GNP/GDP
(Percentage changes at annual rates.)

1959-60 to 1971-72
UK. (GDP) 3.1 3.5 5.2 -0.2 0.5
Italy. (GDP) 5.5 3.4 6.3 3.4 -2.75
US. 4.1 6.1 5.9 -2.1 -3.75
W. Germany 4.9 3.0 5.3 0.4 -2.0
Japan. 11.0 9.4 9.9 -1.8 1.5
France (GDP) 5.8 5.5 6.5 3.9 1.0
Total OECD 5.4 5.7 6.3 -0.1 -1.5

After the mini-boom of 1972-73, which carried along with it large increases in the rate of inflation including the enormous leap in commodity prices, there has been either stagnation or a reduction in demand and output of the OECD countries. GNP indicators do not show the full depth of the recession. By the first quarter of this year, industrial production had fallen from its last peak by some 20 per cent in Japan, 10-15 per cent in the U.S., Germany, France and Italy, and by 5 per cent in the U.K. Capacity utilisation in manufacturing industry dropped to 68.3% in the U.S. In the 18 months since the second half of 1973, GNP fell by about 7½ per cent in the U.S. (responsible for greater than 40% industrial production in the OECD) and virtually stagnated in the rest of the OECD countries taken together. This has to be compared with typical past rates of increase over 18 months periods of around 6 per cent and 9½ per cent respectively. Perhaps the most significant indicator of the depth of the crisis facing capitalism is the recent rapid growth in unemployment rates.

Unemployment rates.

1971 1972 1973 Average
UK. 2.3 3.0 3.4 2.6 2.5 4.7 July
Italy. 3.4 3.1 3.6 3.5 2.9 5.6 June
US. 4.7 6.0 5.6 4.9 5.6 9.2 May
W. Germany 1.0 0.7 1.1 1.3 2.7 4.7 May
Japan 1.2 1.2 1.4 1.3 1.4 1.7 May
France 1.7 2.1 2.3 2.1 2.3 4.5 June

From these figures it can be seen that the mini-boom, set off by reflationary policies in response to the growing trend of unemployment did not bring the rates of unemployment (excluding Italy) below the average 1962-1972 levels. Because of the rapid acceleration of inflation accompanying the boom, including the rise of commodity prices and oil prices, governments veered back in the direction of deflationary measures and the rate of unemployment after 1973 increased very steeply to a post-war record for many countries. Total unemployment in the OECD area was approaching 15 million in May. But these figures actually understate the true situation since average hours worked have also declined in the last year by 8.6 per cent in the U.S., 2.9 per cent in W. Germany, 2.1 per cent in France, 2.0 per cent in U.K., 3.7 per cent in Japan and 2.2 per cent in Italy. This means that unemployment will continue to increase even if there were to be an upturn in production, as is 'optimistically' forecast for mid-197547.

A final indicator of the growing tendency towards crisis since the early 1960s is the rate of return on capital. Although this ratio is not to be confused with the rate of profit as understood by Marx, it may be regarded as giving some indication of the growing difficulties of maintaining profitability. The figures for the United States and Britain are given below.

Rate of profit48 (less stock appreciation) on capital of non-financial companies in the United States.

Year Before tax After tax
1948-50 16.2% 8.6%
1951-55 14.3% 6.4%
1956-60 12.2% 6.2%
1961-65 14.1% 8.3%
1966-70 12.9% 7.7%
1970 9.1% 5.3%
1971 9.6% 5.7%
1972 9.9% 5.6%
1973 10.5% 5.4%

Rate of profit49 (less stock appreciation) on Net assets of industrial and commercial companies.

Year Pre-tax Post-tax
1950-54 16.5% 6.7%
1955-59 14.7% 7.0%
1960-64 13.0% 7.0%
1965-69 11.7% 5.3%
1970 9.7% 4.1%

It should be noted for Britain that taxation policies have limited the actual fall in the post-tax rate of profit. Burgess and Webb as a result of examining a whole number of calculations for the rate of return on capital in Britain have concluded that:

'All the series indicate that the rate of return on capital has experienced a secular decline, at least throughout the 1960s, whether profitability is measured before or after tax.'50

Similar tendencies have been noted for West Germany. Income of companies divided by the net holdings of these companies declined by about 20% between 1960 and 1968 and by 25% between 1968 and 197351.

The figures we have discussed in this section give a clear indication of the accelerating tendency towards crisis of the world capitalist system. A theory of inflation has to explain why the much higher levels of inflation in the advanced capitalist countries are occurring together with a growing trend towards higher unemployment. Why stagflation? We need to understand why this recession is the first general recession since the Second World War, occurring in all countries at the same time, and what the significance of this is. We need to locate the growing crisis of profitability in this context.

The rest of this article will be concerned to answer these, questions. It will develop a theory of inflation from an understanding of Marx's theory of crisis, and so show the political significance of the end of the post war boom. Finally it will examine the crisis of British capitalism as a concentrated example of the general crisis of world capitalism.

First, we need to cover a great deal of fundamental theoretical ground. The confusion on the British left today, the inability to come to grips with the basic Marxist categories, make this all, the more essential.


First we need to look at the theory of crisis developed by Marx in Capital. Step by step, we must show how the contradictory nature of the capitalist system manifests itself at different stages in the historical development of capital.

(a) Capitalist Production.

What distinguishes Marx from his classical predecessors is that he never loses sight of the fact that the production of surplus value, central to capitalist production, is only an historical form of the production of wealth. The labour-process becomes a process in which surplus-value is produced. Capitalist production is oriented not towards consumption needs, that is the production of use-values, but towards production for profit that is the production of exchange-value and, in particular, surplus-value. It is the dual nature of a commodity under conditions of capitalist production, that is, as a use-value and an exchange-value that contains within it the general possibility of crisis. However, to know the cause of the crisis we need to know how this possibility turns from general possibility into actuality.

Under capitalist conditions of production natural resources are only utilised, the social productivity of labour only developed, labour is only employed, and will only continue to be employed, if it serves the self-expansion of capital, that is the reproduction of existing capital values and the creation of additional value, surplus-value. Capitalist production is not only the production of use-value, but the production of exchange-value, not only exchange-value but surplus-value. To increase surplus-value to a maximum, capital must accumulate and must do so on an ever increasing scale. So long as capitalist relations of production exist, so long as one class, owns the means of production as capital, and another has to sell its labour power to live, so long will the aim and end of production be the accumulation of capital.

It is in analysing the process of capital accumulation that we can understand how this general possibility of crisis is transformed into actuality. Crises, as Marx showed, not only can arise, but, on the basis of capitalist relations of production, must do so. To show this, we must first examine how the elementary contradiction within the commodity finds its further development in the duplication of the commodity into commodity and money.

(b) Value, Money and Price.

(i) The Price Form.

To explain the historical movement of prices we must first understand price. To understand price, however, requires an understanding of the money commodity. This commodity, a thing, is the form in which a social relation appears. The social relation is still further obscured when the thing itself is represented by a symbol, mere paper printed with the money name.

The historical development of money arises out of tile nature of the commodity itself. The commodity is the simplest social form in which the product of labour presents itself in capitalist society. The commodity appears both as a use-value and an exchange-value. But further analysis reveals that it is both a use-value and a value, i.e. the product of individual concrete labour and general abstract labour. This contradictory nature of the commodity develops into the duplication of the commodity into ordinary commodities and the money commodity.

Before the setting aside of a particular commodity as the universal equivalent, i.e. as money, a commodity would express the value of other commodities, whilst other commodities in turn expressed its value. The contradiction here was that individual commodity producers entered into direct social relations through the exchange of the products of their private individual labour. With the growth of commodity production this contradiction between the private and the social character of labour finds its spontaneous resolution in the setting aside of part of society's labour force in order to produce the money commodity - the universal commodity - i.e. a commodity which is the embodiment of directly social labour. Various concrete labours have historically assumed this role but it has ultimately devolved upon the gold producer. The reason is that gold is a fitting materialisation of that which is common to all commodities - homogeneous abstract human labour. We now have, on the one hand, ordinary commodities in which the social character of labour exists only latently, and on the other hand, the money commodity which serves as the direct embodiment of social labour, and therefore can both express and realise the value of all other commodities. Individual commodity producers relate to one another not directly through the products of their individual private labour, but indirectly through the money commodity. This is a necessary development arising with the emergence of commodity production and enables the further development of such production. The inner contradiction of the commodity is resolved, only to be recreated at a higher level. The possibility of crises and generalised overproduction is contained in the splitting of the commodity into ordinary commodity and money - the separation in time of purchase and sale.

The special commodity, the money commodity, gold, is the product of social labour and therefore has a value. The magnitude of its value, as with all other commodities, is the time socially necessary to produce a given quantity of it. The magnitude of the values of commodities with which it is exchanged comes then to be expressed in a quantity of this money commodity - that is, their values are expressed in the weight of a certain quantity of gold.

The money name of the quantity of gold which expresses the exchange value of that commodity for which it is exchanged, is the price of that commodity. Price is the phenomenal form of a social relation expressing the commensurability of commodities founded on their common nature as the products of abstract labour. However, commodities exchange for money only after they have been ideally transformed into prices53. In the establishing of the price of commodities the quantity of the really available money is of no consequence. Commodities are first transformed into money ideally before exchange takes place54.

The money commodity cannot have a price itself since this would make necessary the existence of a second commodity to serve as money - a double measure of values.

The money name can be 'detached' from its social base. For example anything of quality e.g. virgin forest or conscience, which has no value, may be given a price. Thus it acquires the form of a commodity. The price form here conceals a qualitative inconsistency, since it ceases to express value altogether. This aspect of the price form will not be considered here.

(ii) The Quantity of Money.

It is essential to establish, at this level of abstraction, the necessary relation between the quantity of money and the mass of commodities which circulate it. Later when capitalist production is treated as a whole, where credit is taken into account, the quantity of money circulated can be fully explained.

To establish the basic principles here we must examine the simple circulation of commodities, and ignore credit. Assuming for the moment that the value of gold, the money commodity is constant, a general rise in commodity prices can result only from a rise in values. A fall in prices can result only from a fall in values through increases in the productivity of labour. If the value of gold falls, a proportional rise in the price of commodities must result, as more gold is required to express their values. With the movement in value of both commodities and gold, a movement in prices occurs where a discrepancy between shifts in the value of the commodity and its universal equivalent, money, occurs.

A change in the value of the money commodity, given that the value of commodities was constant, would not affect its functions as a standard of price since it is the relative proportions that are important here. They would be unchanged despite a higher or lower value of gold, the gold price of commodities would merely be lower or higher55. A continual decrease in the value of gold would thus mean a higher level of gold prices only, but a general constancy in the relative prices of commodities.56

The amount of money required at any time, given a constant velocity of circulating money, is dependent on the level of commodity prices, the quantity of commodities circulating and the value of the money commodity57. An increased velocity of circulation of money substitutes for its quantity58. This is elementary, yet the level of prices is regularly ascribed to the amount of money circulating at any time, a view stemming from the absurd supposition that commodities are without price, and money without value, when they first enter circulation.59

'This much is clear, that prices are not high or low because so much or so little money circulates, but that much or little money circulates because prices are high or low; and further, that the velocity of the circulating money does not depend on its quantity, but that the quantity of the circulating medium depends on its velocity...'60

The price of commodities varies inversely with the value of money, and the quantity of money varies directly with the price of the commodities, given the constant velocity of circulation of money. This quantity of money does not change as the 'monetarist' would have it, because of its function as a medium of circulation, but because it is the measure of value. It is clear then that the money movements express the circulation of commodities, not, as it appears, that the circulation of commodities results from the movement of money.61

In sum, if we assume a fixed value of gold, and a constant velocity of money circulation, the quantity of money is determined by the sum of the prices to be realised. If the prices are given, the sum of the prices depends on the mass of commodities in circulation; and if the mass of commodities is constant, the quantity of circulating money varies with fluctuations in prices. Now this is true for total capital whether or not prices accurately reflect value in the individual case - since it is quite impossible for total price to express anything other than total value.

The elementary conception of the determination of the quantity of money circulating must now be developed. Historically, the mass of gold and other precious metals was displaced as common currency by paper symbols. Both the acceptability of such symbols, and the necessity of facilitating the expansion of capital on a base other than the restricted mass of precious metal, underlay this development. Paper, which substitutes for gold and silver, as coin, is of course almost valueless. Its utilisation then, relies upon its social recognition which rests today upon its compulsory circulation as inconvertible paper money issued by the State. Such paper money can only arise upon the basis of money as a circulating medium.

'In so far as...(symbols) actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself.'62

It is important however that the issue of paper money does not exceed in amount the gold or silver which would actually circulate if not replaced by symbols of the money commodity. If it did exceed this 'proper limit', it would fall, as Marx says, into general disrepute; whilst still only representing that quantity of gold values which is required by the circulation of commodities. The possibility of inflation is given here in the divorce of paper money and commodity money. But this possibility is not to be confused with the cause. The cause is found in explaining how the possibility becomes actuality63.

If an issue of 'money' in bank notes, rose over and above its 'proper limit', the legal equivalence of bank notes to a fixed weight of gold (of constant value), would be undermined by its lower real equivalence. The paper would represent less value than it declared. Such a depreciation of the paper money would express itself in a rise in paper prices-inflation. The artificial expansion of the supply of paper money, which enables the purchase of commodities before their payment, would lead to the depreciation of the paper money - demonstrating as illusion the power of the State to transform paper into gold by the 'magic of its imprint'.64

What is significant here is that the use of inconvertible paper money results in greater difficulties in the analysis of the workings of the law of value, than when dealing with gold-money .A change in the paper price of commodities, conceals more effectively than a change in gold-prices, its cause. Whether it is a rise in the value of commodities brought about by decreased productivity, a fall in the value of gold or a forced expansion in the paper money supply - all are indistinguishable in the paper price rise. These movements themselves require explanation.

(iii) The Transition from simple price to price of production.

With the transition from simple commodity production to capitalist commodity production, value appears in the phenomenal form of prices of production. Just as the price form of commodities is a form in which social relations are expressed under conditions of simple commodity production, so are prices of production the phenomenal form through which social relations are expressed under capitalist commodity production. Production is carried on under capitalism not merely for exchange but to produce additional value, surplus value. For generalised commodity production, the necessary separation of value and its phenomenal form (price) becomes a condition for the accumulation of capital given a general rate of profit.

Under capitalist production, capitals of the same sizes demand equal rates of profit. Given the rate of exploitation, capitals with differing organic compositions will acquire differing masses of surplus value - hence differing rates of profit. Through its separation from value, the price form entails the possibility of a quantitative incongruity with value for the individual commodity. This allows the various capitals of equal size to set prices which ensure than an average rate of profit is realised. Prices will be above or below the value of the commodities bringing about a redistribution of surplus-value between producers. Whilst this is possible only because the price-form allows a quantitative difference between magnitudes of value and of price, it is necessary since it is only when such prices of production are formed, that capital accumulation can continue. The formation of such prices of production, brings about an average industrial profit for all capitals of the same size. The real limit to this redistribution of surplus-value is the total value produced, which constrains the various movements of individual commodity prices, since total price can only express total value.65

The prices of production are not, however, the 'final prices' of commodities on the market. They are only intermediate links in the formation of final prices. They will be further affected by the operation of Merchant and Banking capital which circulates commodities, and by rent etc. Such 'final prices' are subject to fluctuations brought about by demand conditions for individual commodities in the market. These fluctuations move about the final price, over the long-run. Out of these fluctuations arise the confused ideas about price determinations in the bourgeois mind.

(iv) Credit Money.

Today the chief form of money is that based upon credit. This arises out of the function of money as a means of payment. It is considered here insofar as it affects the quantity of money in circulation.

Payments In the circulation of commodities may be delayed. That is by buying a commodity before paying for it, the buyer resorts to the use of credit. In this case, we assume the vendor becomes the creditor, while the purchaser becomes a debtor. Here the means of payment enter circulation only after the commodity has left it, the seller's price is realised as a legal claim upon money. Money functions as a measure of value and a standard of the price of the commodity bought, which becomes the obligation of the debtor in a contract. Here money is an ideal means of purchase, since the equivalent quantity of money is not thrown into circulation.

We see then that where the mass of payments are delayed - in the case of credit - that is where no money is actually circulated, money acts ideally only as a measure of value, as money of account. In general these debts balance each other out, so in actual payments money is not now a circulating medium, not a transient agent of interchange. Only where payments are made is money an independent form of the existence of exchange-value. This use of the universal equivalent by which price is expressed, means that ideal payments are expanded with the expansion of credit facilities. What is to be remembered here is that the sum of money current during a given period must,

'...given the rapidity of currency of the circulating medium and of the means of payment, (be) equal to the sum of the prices to be realised, plus the sum of the payment falling due, minus the payments that balance each other, minus finally the number of circuits in which the same piece of coin serves in turn as means of circulation and of payment.'66

No longer do the mass of commodities circulating in a given period correspond to the quantity of money current. Money representing commodities long out of circulation continues to be current, and commodities circulate whose equivalent may well not appear until some future date. Indeed debts contracted each day and payments due then are incommensurable quantities. In practice, coin and paper money are relegated to the retail trade, whilst the extension of credit as debt enables the continuation of large commercial transactions.

It is only in the international sphere of exchange that money acquires to the full extent its character as the commodity whose bodily form is also the 'immediate social incarnation of human labour in the abstract'. Here gold remains the medium of international payments, money of the world. As the recognised embodiment of social wealth it enables the transference of wealth between countries directly. Domestically, and to an increased extent internationally, money comes to be expressed with symbols, and so arose the mistaken notions that it is a symbol. The international acceptance of the dollar as a money symbol strengthened this notion, and a rash of 'plans' to do I away with gold, as money of the world, followed. The belief that money is merely a symbol is all the more serious in this paper world of circulation - where real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange and securities.

(c) Productive and Unproductive Labour.67

This distinction is central to Marx's work, and no discussion of the role of State intervention is possible until these categories are clear.

The most general concept of productive labour is quite simple - and applicable to all social modes of human labour. It is merely useful labour, a certain expenditure of which will always be a necessary condition of human existence. To determine such 'productive labour in general'68 we examine production from the labour process alone, from the point of view of - the result, ie whether it is useful or not.69 It is from this point that Marx begins to consider the co-operative character of the labour process,70 from which he then narrows the concept to the particular, capitalist, mode of production. Here the labour power expended is viewed not merely from the standpoint of its result, a useful product, but as a use value produced within a specific social relation. Productive labour for capital does not simply produce, but produces value and surplus value through, the production of commodities. Under capitalism,

'That labourer alone is productive, who produces surplus value for the capitalist, and thus works for the self expansion of capital.'71

Whereas classical political economy defined productive labour in this way it's understanding varied with its differing conceptions of value. It was never able to penetrate beyond an understanding of the formal exchange of capital and labour in the market. The real 'exchange', the consumption or labour power for the purpose of the production of value and surplus value was not grasped, and so productive labour was not properly conceived.

For the definition of productive labour, its particular characteristics are irrelevant. The speciality of the worker is of no significance. The use-value produced 'may be of the most futile kind'72. Productive labour cannot be defined by the returns, either the type or amount, to labour itself73. It is a definition of labour derived not from its individual content or result, but from its particular social form. Thus the morals and merits of any two works have nothing to do with the distinction.74 As we shall see the particular concrete nature of the productive labour does have economic significance as in the case of luxury production, owing to the special part that such products play in the reproduction process. But this significance is of no concern when defining productive labour itself. The labour power of the productive labourer is consumed in the production of value and surplus value - its use-value for capital is the capacity to produce surplus value. Real variable capital is the labour power of the productive labourer in action.

When Marx defined productive labour he was concerned to analyse labour power consumed in the labour-process proper, the regulation and control by mankind of the material reactions between itself and nature. However the production of surplus value can take place in the realm of immaterial commodity production, which does not fall within the labour process proper.75

Unproductive labour is labour that does not produce value and surplus value. Although all productive labour is free wage labour, not all wage labour is productive. Unproductive labour, as wage labour, does not produce the objective conditions of its possible reproduction and expansion - its absorption into the base of capital. The exchange of labour power against revenue distinguishes services. Such labour is not the substance of value, but merely useful labour for the consumer. It follows from this that no surplus value is produced here, that wages do not form part of the variable capital and that therefore socially necessary labour is not worked. The labourer however, will consume the commodities necessary for his reproduction76. Much of such labour today provides 'services' through employment by the State. However, as we have indicated above not all 'services' are provided by unproductive labour; immaterial production may fall within the province of productive labour.

A different case presents itself with labour which

'...produces, trains, develops, maintains or reproduces labour power itself.'77

Labour power is a unique commodity. Where training takes place, the value of the labour power is raised. If this training is carried out capitalistically the trainee will directly absorb both the necessary and surplus labour time performed by the trainer. His labour power thus contains value and surplus value, which presents itself as a higher price to the purchaser of that labour power.

Capitalists however can render themselves independent of labour power that contains surplus value, by changing the process of production. For this reason the state will normally take over this sphere of 'production' and ensure that only necessary labour is performed in it. This labour of training is a part of variable capital but creates no surplus value. As in the case of labour power expended directly on the passive element of productive capital, it is called productive labour of a special kind. Whether or not the increase in the cost of training reduces the rate of profit will depend on whether the rise in productivity resulting from the training is sufficient to offset its costs.

Turning to labour power which maintains rather than trains the productive labourers, we again encounter productive labour of a special type78. In this case however the expenditure of this labour, while increasing variable capital cannot offset the additional cost through rises if productivity. In all instances therefore medical expenditures on the working class will lower the rate of profit. It is only the historical struggle of the working class which has given rise to present levels of state expenditure on health.

Labour expended in 'educating' and 'maintaining' unproductive labour is itself unproductive labour and a large part of the state sector employs this labour. For Harrison and Gough all State workers are productive including the police, their wages like those of productive labourers form a part of variable capital, from which we may conclude that the policing of the workers enters into the historically determined needs of the working class. Brilliant!79

Wage labourers employed in the sphere of circulation are unproductive. Their labour realises rather than produces surplus value, it changes the commodity to money, and is a cost to social capital. It is the cost of realising existing values80 and creates neither value or surplus value. It involves accounting, marketing, correspondence etc., but is often bound up with functions such as transporting and storage which are directly connected with the production process, a connection which is misused by those intent on treating labour power used in the sphere of circulation as productive.

The costs incurred by commercial and banking capital attract surplus-value from productive capital. Capital in the sphere of circulation does this by purchasing commodities from productive capital below their prices of production and selling them at those prices. The exploitation of circulation labour is profitable for commercial capital, but unproductive for total capital, since circulation labour works unpaid labour time for its master but produces neither value or surplus value.

It follows from this that from the standpoint of total social capital, surplus-value is extracted from one category of workers, productive workers. The labour power of service workers and circulation workers, also takes the commodity form, is wage labour, but do not produce value or surplus value. Finally the labour power of those State employees who contribute to the reproduction of the special commodity labour power, of the productive labourers, is included in variable capital but produces no surplus value.

Although unproductive workers are wage labourers, the share of 'wages' and 'profits' in the national income is no indication of the rate of exploitation. It is possible that if unproductive employment is growing at a faster rate than the productive sector, total wages as a share of national income can grow, and the rate of exploitation still rise. This is possible because the wages of unproductive labourers are in reality apart of surplus value.

We are now in a position to examine accumulation.

(d) The General Law of Capital Accumulation and the Theory of Crisis.

(i) The rising organic composition of capital.

Capitalist production has as its aim and driving force the production of the greatest amount of surplus-value. Surplus-value is the difference between the exchange-value of labour-power (representing that part of the working day in which the worker produces the equivalent of his own means of subsistence, necessary labour-time) and its productive capacity (representing the total working day). So that an increase in the productivity of labour, viewed capitalistically, makes no sense unless it increases surplus-value ie, decreases the value of labour - power or the time necessary to sustain and reproduce the workers. In other words, the productivity of labour is constrained by the need to produce value and surplus-value, is bound by the reproduction and self-expansion of capital.

The class struggle cannot prevent the fall in the value of labour-power (as productivity increases)81 , but it can prevent the occurrence that the value falls in the same relation as the productivity increases. That is, ensure a rise in real wages takes place (consumption of use-values) with increases in productivity at the same time as an increase in surplus-value.

While, in exceptional cases, extended reproduction on the same technological scale is possible, in general, accumulation 'revolutionises out and out the technical processes of labour'82. Since continuous accumulation under capitalist production conditions soon comes across the limits of the existing working population, that is since the normal working day has its physical and social limits83, a transition from the production of absolute surplus-value (extension of the working day) to that of relative surplus-value (decreasing the necessary part of the working-day by an increase in the social productivity of labour) takes place. Together with this change, occurs, generally, an increase in the intensity of labour as capitalism tries to obtain more value per unit time (increased expenditure of labour in a given time84) from the same worker. Both increased productivity and greater intensity of labour augment the mass of articles produced in a given time and therefore shorten the part of the working-day necessary to produce the wages of the workers. In so far as increasing intensity of labour requires, as compensation, an equivalent increasing real wage, it has no effect on the rate of exploitation. Otherwise, it will increase it85. The increase of the intensity of labour has also physical and social limits so that the main method open for increasing surplus-value under developed capitalist conditions of production is to increase the productivity of labour, ie through technical change.

Increases in the productivity of labour from the standpoint of material production involve a change in what Marx calls the technical composition of capital.

'This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other'.86

Increases in productivity involving increases in the technical composition of capital are represented under capitalist production by changes in the value composition of capital, ie the ratio of constant capital, or value of means of production, and variable capital or value of labour-power. Between the technical and value composition there is a 'strict correlation'. Marx expresses this relation by saying that:

'The value composition, in so far as it is determined by its technical composition and mirrors the changes of the latter (is called) the organic composition of capital'.87

The importance of grasping the process of accumulation from both its material and value side is crucial for understanding Marx's general theory.

The increase in the mass of means of production per worker (rise in the technical composition) is not merely a technical premise which enters into Marx's argument at a particular stage. It is the expression in general terms of the only way that the productivity of labour can rise under capitalist production, that is, by the extension of the social division of labour. This latter process, accompanied by an increase of the mass and volume of means of production, is also the basis of Marx's, argument that the organic composition of capital in so far as it is determined by the technical composition will rise, although not as fast as the technical composition, due to the increasing productivity of labour.

'With the growth in the proportion of constant to variable capital grows also the productivity of labour, the productive forces brought into being, with which social labour operates. As a result of this increasing productivity of labour, however, a part of the existing constant capital is continuously depreciated in value, for its value depends not on the labour time that it costs originally but on the labour-time with which it can be reproduced and this is continuously diminishing as the productivity of labour grows. Although, therefore, the value of the constant capital does not increase in proportion to its amount, it increases nevertheless because its amount increases even more rapidly than its value falls.'88

Marx regarded it as an incontrovertible fact , as a self-evident or a tautological proposition90, that the organic composition of capital should rise. To show that this was not a mere assertion but follows logically from the concept of capital itself will be the concern of the rest of this section.

The compulsion to employ machinery, under capitalist production and to increase by these means the productivity of labour is expressed in reality by competition and the consequent need to reduce the cost of production. But this is not its explanation, which must be deduced in terms of Marx's method, from the concept of capital itself and its relation to living labour, without reference to other capitals91. The concept of capital is a contradictory one. On the one side we have capital as 'value in process' as value attempting to expand itself without limit and on the other side we have the working population, the limited basis of that expansion.

Capital, therefore, must, on the one hand, try and make itself as independent as possible of that basis in its process of self-expansion; it attempts to reduce the necessary labour-time to a minimum by increasing the productivity of labour. On the other hand it needs to increase the basis of its expansion, that is the labour-power available for exploitation; that means to increase simultaneously the working population. This can be expressed in another way. Given the working-population (in labour-time units, i.e. number of working days multiplied by the time per working day) available to society, then surplus-value can only be increased by increasing the productivity of labour, that is, by a reduction of the (relative) working population. Similarly, assume a given development of the productive forces then surplus-value can only be increased by increasing the available working-population, i.e. by an increase in the (relative) working-population. Marx then argues that:

'the unity of these contradictory tendencies, hence the living contradiction, (comes) only with machinery'92

The dialectical solution to this contradiction (its removal to a higher level) is to increase the scale of production through the replacing of living labour by objectified (dead) labour in the form of machinery.

'...the quantitative extent and the effectiveness (intensity) to which capital is developed as fixed capital, indicate the general degree to which capital is developed as capital, as power over living labour, and to which it has conquered the production process as such. Also, in the sense that it expresses the accumulation of objectified productive forces and likewise of objectified labour'93

What we have tried to show from an examination of the concept of capital is the necessity of increasing the social division of labour, through the application of machinery, and therefore of replacing on an increasing scale living labour by objectified (dead) labour. It follows from this that the technical composition of capital and therefore the organic composition of capital must increase in the process of capitalist production although the latter will not increase as quickly as the former due to increases in the productivity of labour.

This is clearly expressed by Marx when he says:

'However much the use of machinery may increase the surplus-labour at the expense of necessary labour by heightening the productiveness of labour, it is clear that it attains this result, only by diminishing the number of workmen employed by a given amount of capital. It converts what was formerly variable capital, invested in labour-power, into machinery which being constant capital does not produce, surplus-value...'94

The necessity to continually extend and substitute objectified, labour for living labour is clearly expressed in the condition for the introduction of machinery for the purpose of cheapening a product. That is, that less labour must be expended in the production of the machine than the (paid) labour (value of labour-power) that is displaced by the employment of the machinery. The limit to the use of the machinery is given by the difference between the value of the machine and the value of the labour-power replaced by it.95 This latter point can be expressed algebraically as follows:

ct+1 - ct < vt - vt+1 (usual notation).

Clearly if all labour available for exploitation is to be employed in the interest of capital this requires a further extension of the division of labour (material side) and C must likewise increase at a faster rate than V for total social capital (value-side). Likewise if we consider total social capital in periods 't' and 't+ l' and let w be the total value produced in one period of production, then with the usual notation:

Ct + Vt+ St = wt

Ct+1 + Vt+1 + St+1 = wt+1

If the total working-time available to capital for its employment remains constant (V + S = constant) then for accumulation to take place:

wt+1 > wt

so that with or without an increase in the rate of exploitation, if all labour is to be employed:

Ct + 1  >   Ct 
Vt + 1       Vt  

If the working population increased then accumulation would have to be that much faster (greater than the increase in the working population) to satisfy the condition for the introduction of machinery and the expansion requirements of capital. We have, therefore, shown that a necessary condition for capital accumulation given an increasing productivity of labour and the production of relative surplus value, is a rising organic composition of capital.

(ii) The tendency of the rate of profit to fall and the crisis theory.

That it is inherent in capitalist production for capital in the process of its self-expansion to create an ever increasing basis for that expansion, that is, the proletariat96, and at the same time seek to increase the productiveness of social labour, that is set into motion a constantly increasing quantity of means of production with less expenditure of labour-power, leads to the formation of the industrial reserve army.

'The same causes which develop the expansive power of capital, develop also the labour-power at its disposal. The relative mass of the industrial reserve-army increases therefore with the potential energy of wealth'.97

Marx calls this the absolute general law of capitalist accumulation which like all other laws, he says, is modified in its working by many circumstances. This law is the general expression of the contradictory nature of capitalist production, of the increase in the social productivity of labour under the 'power of capital'. The size of the reserve army is relative to the rate of capital accumulation. During periods of stagnation and average prosperity it weighs down on the working population and during periods of rapid expansion, being a reservoir of labour-power, holds bad the 'pretensions' of the labour force98.

The process of capitalist production, of accumulation and the increase of the social productivity of labour has so far been examined through an analysis of its 'invisible and unknown essence'. The appearance of surplus-value and rate of surplus-value in the form of profit and the rate of profit is the next step in the analysis.

'Although the rate of profit thus differs numerically from the rate of surplus-value, while surplus-value and profit are actually the same thing and numerically equal, profit is nevertheless a converted form of surplus-value, a form in which its origin and the secret of its existence are obscured and extinguished. In effect, profit is the form in which surplus-value presents itself to view, and must be initially stripped by analysis to disclose the latter'.99

The general law of capitalist accumulation from the standpoint of capital (and the capitalist) presents itself as a tendency of the rate of profit to fall. This is not a mechanical or algebraic relation but the expression of the contradictory nature of the accumulation process from the standpoint of capital.

The development of the social productivity of labour under capitalism, leads to a decrease of the value of commodities relative to their use-value (they are produced with less expenditure of labour-time) together with an increase of the mass of use-values. Since the value contained in each commodity declines, so must its price. The accompanying rise in the organic composition of capital means that the mass of the means of production grows faster than the mass of labour employed from the material side, and from the value side, constant capital grows faster than variable capital. However, due to the increasing productivity of labour the value-composition rises slower than the technical-composition. If the rate of exploitation, the proportion between surplus and necessary labour-time remained the same, the rise in the organic composition of capital would lead to a falling rate of profit since it is only the variable part of capital that yields surplus-value, while the rate of profit is measured on total investments, i.e. constant and variable capital. This inherent tendency for the rate of profit to fall is called by Marx:

'the most important law of modern political economy and the most essential one for understanding the most difficult relations. It is the most important law from an historical standpoint.'100

The law, however, does not express itself in absolute form. Since the increase in the organic composition of capital represents an increase in productivity, the rate of surplus-value will not remain constant but will be increased because the value of the mass of products constituting the equivalent for the necessary labour-time is cheapened. This is the result of an increase in relative surplus-value.

'The tendency of the rate of profit to fall is bound up with a tendency of the rate of surplus-value to rise, hence with a tendency for the rate of labour exploitation to rise. ...Both the rise in the rate of surplus-value and the fall in the rate of profit are but specific forms through which growing productivity of labour is expressed under capitalism.'101

Nevertheless the tendency, immanent to the accumulation process, for the rate of surplus-value to rise, cannot prevent the fall in the rate of profit,

'the compensation of the reduction in the number of labourers by means of an increase of exploitation has certain insurmountable limits. It may for this reason, check the fall in the rate of profit, but cannot prevent it entirely.'102

Surplus-value is produced by living labour and the physical and social limitations and possibilities involving this labour affect the production of surplus-value.

'Inasmuch as the development of the productive forces reduces the paid proportion of employed labour, it raises the surplus-value, because it raises its rate; but in as much as it reduces the total mass of labour employed by a given capital, it reduces the factor of the number by which the rate of surplus-value is multiplied to obtain its mass. Two labourers, each working 12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours, even if they could live on air and hence did not have to work for themselves at all.'103

Although the argument is unclear as to what is the surplus labour-time of the twenty-four labourers, the point is clear. While the means of production per man employed have no 'finite' limit theoretically the mass of surplus-value produced by a worker has an impassable limit, namely the duration of the working day. Further as capitalism develops it becomes increasingly more difficult to shorten the necessary labour-time by an increase in productivity.

'The larger the surplus-value of capital before the increase of productive force...or, the smaller the fractional part of the working day which forms the equivalent of the worker, which expresses necessary labour, the smaller is the increase in surplus-value which capital obtains from an increase of the productive force. Thus the more developed capital already is, the more terribly must it develop the productive force to expand in only smaller proportion, i.e. to add surplus-value -because its barrier always remains the relation between the fractional part of the day which expresses necessary labour, and the entire working day. It can only move within these boundaries'.104

The smaller the fractional part of the working day falling to necessary labour is already, or the greater the surplus-labour, the less can any increase in productivity augment surplus-value. So that the higher the rate of exploitation (the less time it requires to reproduce the value of labour-power) the greater must be the increase in the rate of exploitation in order to increase the mass of profits sufficiently to check the falling rate of profit.105

The tendency of the rate of profit to fall is an expression of the increasing difficulty in raising the rate of exploitation sufficiently to satisfy the self-expansion requirements of capital as capitalism progresses.

The accumulation process involves arise in the organic composition of capital, arise in the productivity of labour and a relative decrease (absolute increase) in the labour employed. These express themselves in a tendency of the rate of profit to fall, although the mass of profits or surplus-value absolutely increases and the rate of exploitation increases. This means,

'The progress of the process of production and accumulation must therefore, be accompanied by a growth of the mass of available and appropriated surplus-labour and consequently by a growth of the absolute mass of profit appropriated by the social capital...The same laws, then produce for the social capital an increase in the absolute mass of profit and a falling rate of profit.'106

So long as accumulation increases the mass of profits sufficiently to compensate for the falling rate of profit, all is well. This is the case if capital grows at a faster rate than the rate of profit falls. This only expresses the fact that capital of a higher organic composition of capital must grow at a faster rate than that of a lower composition to employ the same, let alone an increased amount of labour power107.

Besides the imminent tendency within the accumulation process, to check the tendency of the rate of profit to fall by an increase in the mass of profits there are other counteracting tendencies that can apply temporarily. These are the increase in the rate of surplus-value by lengthening the working-day or intensification of labour, the pushing down of wages below their value, the cheapening of the elements of constant capital, and foreign trade108. The fall in the rate of profit is, therefore, not linear, but in some periods is only latent coming to the fore more or less strongly in other periods and appearing in the form of a crisis cycle.

(iii) Luxury production and the rate of profit.

Luxury goods are not part of the consumer necessaries i.e. means of subsistence of the working class, nor do they contribute directly or indirectly to the production of consumer necessaries. Increases of productivity in the luxury industries therefore cannot reduce the value of consumer necessaries so cannot produce that form of surplus value which results from the growing productivity of industry as such. Increased productivity in the luxury industry cannot, therefore, effect the rate of profit insofar as it is determined by the rate of surplus value109. Luxury production can only influence the rate of profit insofar as it affects either the amount of surplus value or the ratio of variable capital to constant capital and to the total capital.

A rise in the organic composition of capital in the luxury sector will simply accelerate the tendency of the rate of profit to fall as it cannot increase the rate of exploitation, and so increase relative surplus value to partially counter this fall. Accumulation of capital in the luxury industry increases the mass of surplus value, but it prevents the growing mass of surplus value from rising sufficiently to partially offset the tendency of the rate of profit to fall. A growing proportion of capital in the luxury industry restricts that form of capital which can increase relative surplus value and so partially offset the tendency of the rate of profit to fall.110

The profits of luxury production enter into the equalisation of the general rate of profit just as much as that in any other sphere111. But the nature of the use-value produced has a particular effect in the reproduction process of capital.

(iv) Capital in the sphere of circulation and rate of profit.

Mere circulation costs from the standpoint of capitalist production are unproductive. Although wage-labour is performed and the capitalist investing in this sphere receives a profit, no addition to surplus-value, to total social capital, is made. Such costs, necessary for the realisation of profits reduce the overall rate of profit of industrial capital. The employment of commercial workers, office staff etc. increase the expenses of the industrial capitalist and therefore the mass of capital to be advanced without directly increasing surplus value. If the extra costs are Δc, then the rate of profit will be reduced from s/c to s/c + Δc. The labourer who works in the commercial sphere still performs unpaid labour and his cost to the capitalist is the value of his labour power.

(v) The capitalist crisis.

On this theory capitalism is always driven to a higher and higher productivity of social labour in order to produce sufficient surplus-value for the continuous reproduction and expansion of the growing capital. But this process is a contradictory one.

'The contradiction...consists in this that the capitalist mode of production has a tendency to develop the productive forces absolutely regardless of value and of the surplus-value contained in it and regardless of the social conditions under which capitalist production takes place; while it has on the other hand for its aim the preservation of the value of the existing capital and its self-expansion to the highest limit (that is an ever accelerated growth of this value)'.112

When the expansion of production outruns its profitability, when existing conditions of exploitation preclude a further profitable capital-expansion or what amounts to the same thing, an increase of accumulation does not increase the mass of surplus-value or profits sufficiently, there will be an interruption or stagnation in the accumulation process. This interruption of accumulation or its stagnation constitutes the capitalist crisis. It represents an overproduction of capital with respect to the degree of exploitation. From the point of view of profitability at this stage, existing capital is at the same time too small and too large. It is too large in relation to the existing surplus-value and it is not large enough to overcome the lack of surplus-value. Capital has only been over-produced in relation to profitability. This is not a material overproduction for the world in this respect is under-capitalised. This stresses once again the central contradiction between the commodity as a use-value and as an exchange-value, between production for use and that for profit. There exists besides the Marxian theory of value and accumulation (of which the second is only a more concrete development of the first) no separate theory of crisis. As Mattick has put it:

'Marx's value theory of capital development is at once a general theory of accumulation and a special crisis theory; that is to say neither one nor the other can be dealt with separately'.113

Although the actual crisis has to be explained out of the real movement of capitalist production, credit and competition114, it is the general tendencies of the accumulation process itself and the long-run tendency of the rate of profit to fall that constitutes the basis of that explanation. These tendencies have been analysed through an understanding of the 'inner nature of capital'. The overproduction of capital arises out of the conflict between the increase and development of the productivity of labour from a material standpoint and the narrow basis and aim of that development under capitalist conditions of production, i.e. the self-expansion of capital.

'The real barrier of capitalist production is capital itself It is the fact that capital and its self-expansion appear as the starting and closing point, as the motive and aim of production; that production is merely production for capital, and not vice versa, the means of production mere means for an ever expanding system of the life process for the benefit of the society of producers. The means -unconditional development of the productive forces of society - comes continually into conflict with the limited end, the self-expansion of the existing capital'.115

We have shown the tendency that capitalism has towards over-production and crisis without considering competition. In the discussion so far it has also been assumed that all goods are actually sold at their value and there are no realisation difficulties; that is the tendency towards crisis and overproduction of capital can be deduced independently of such considerations. In order to indicate why the crises take the form of periodically reoccurring explosions' with each cycle tending to be more severe than the last, we need to discuss the role of the crisis in restoring the conditions for a new profitable expansion. It is here that competition becomes a decisive factor in the whole discussion.

With a relatively decreasing mass of surplus-value in relation to the growing mass of constant capital, competition for this declining mass becomes a vital element in the accumulation process. Competition is the result of the struggle for profits and extra-profits accompanying the rise in the productivity of labour. For those first introducing new methods of production can sell their cheaper produced commodities above their price of production, and under their social value (above their individual value). Competition is the force that equilibrates different production prices to a new social average value.

Competition does not create or establish the laws of bourgeois economy, but merely allows them to be realised ('the inner Nature as external necessity'). Competition forces the laws of capital on to individual capitals. So that competition can generalise a fall in the rate of profit for all capitals but that fall has to be conceived prior to competition and regardless of it.

'a fall in the rate of profit connected with accumulation necessarily calls forth a competitive struggle. Compensation of a fall in the rate of profit by a rise in the mass of profit applies only to the total social capital and to the big, firmly placed capitalists. The new additional capital operating independently does not enjoy any such compensating conditions. It must still win them and so it is that a fall in the rate of profit calls forth a competitive struggle amongst capitalists, not vice versa.'116

Competition comes into its own in the crisis situation. The crisis while representing an end to the accumulation process, is nevertheless the precondition for its continuation on a higher level. In the crisis, profitability of capitalist production is restored, in principle, in a number of ways. Assuming no physical destruction of capital takes place (either through lack of use or abandonment or destruction through war), the same quantity of use-value, of means of production, before the crisis represents a smaller exchange-value of means of production after the crisis through devaluation of constant capital. However, neither the rate of surplus-value nor the mass of surplus-value are affected as they relate to the unaltered use-value of capital and hence to its unaltered productive capacity. Hence the rate of profit will increase because the same amount of surplus-value relates to a lower total capital. Clearly, this only holds once the expansionary process has begun again and represents a redistribution of profits (or potential profits) in favour of those capitalists who have managed to buy up capital 'cheaply'. Secondly, with the centralisation and restructuring of capital that takes place in the crisis through competition, only the more productive capitals survive and allow for a higher social productivity of labour with increased markets. It is this mechanism which decreases the value of labour-power and thereby increases the rate of exploitation and mass of surplus-value. The large markets allow for increasing 'economies of scale'.

Thirdly, this restructuring usually includes the abandoning of part of the least profitable and often obsolete constant capital and as such frees the surviving capital (in money or commodity form) for new, more productive investment. Fourthly, due to the relative surplus-population (increase in unemployment) wages, which had a tendency to go above their value in the period of prosperity previous to the crisis are now temporarily pushed below their value. Further through 'rationalisations' in the labour-force new methods and techniques of work, new methods of production can be introduced without the 'frictions' that would have taken place before the 'disciplining' effect of the crisis on the labour-force.

All these factors together playa role in the restoration of profitability of capital and this allows the accumulation process to continue on a new higher level. The crisis therefore, removes the temporary barrier to further accumulation but only to set new limits on a higher level still.

We have explained why competition has only been introduced at this stage. In effect competition takes place throughout the production process reflecting the striving after surplus-value and tending to equalise profit rates establishing prices of production and driving the less efficient capitals out of business. But it is only in the crisis that competition really becomes 'a life and death struggle'.

'Under all circumstances, a portion of the old capital would be compelled to lie fallow, to give up its capacity of capital and stop acting and producing value as such. The competitive struggle would decide what part would have to go into this fallow state. So long as everything goes well, competition effects a practical brotherhood of the capitalist class as we have seen in the case of the average rate of profit, so that each shares in the common loot in proportion to the magnitude of his share of investment. But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and load as much as possible upon the shoulders of some other competitor...competition then transforms itself into a fight of hostile brothers. The antagonism of the interests of the individual capitalists and those of the capitalist class as a whole then makes itself felt as previously the identity of these interests impressed itself practically as competition'.117

The overproduction of capital, and therefore the crisis, was due to the fact that accumulation and the expansion of production had outrun profitability. Given the degree of exploitation any further capital invested would not yield sufficient profits. The crisis mechanism restructures capital and increases the rate of exploitation so that a new expansion becomes possible. In this sense the capitalist crises can be regarded as the strongest counteracting tendency to the long-run tendency of the rate of profit to fall. The tendency towards 'breakdown' and stagnation therefore takes the form of cycles due to the effects of the counter-tendencies of which the actual crisis is an extreme case.

'Otherwise, it would not be the fall of the general rate of profit, but rather its relative slowness, that would be incomprehensible. Thus the law acts as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced'118

The actual periodicity of crises simply stems from the ability of capitalism to overcome the overproduction of capital, through changes in the conditions of production which increase the mass of surplus-value, and restore an adequate rate of exploitation relative to existing capital.119 Whether the crisis will be successful in restructuring capital to a greater profitability clearly is not merely a narrow 'economic' question. Nothing is more clear in the crisis than the wasteful and destructive side of capitalism. Its 'civilising' tendencies are seen to be bought at an enormous expense. The struggle between capital and labour, the class-struggle in the widest sense, becomes a struggle about the system itself. The outcome of the struggle cannot be predicted, and in this sense 'no crisis is the final crisis' for capitalism. The 'crisis' is the most poignant expression of the 'disease' of the contradictions of capitalist production but it is also the 'cure', 'the forcibly established unity of elements that have become independent'.120

(e) Credit and Crisis.

The actual crisis cannot be understood unless we have an appreciation of the role of credit in the reproduction process. Our concern here then is not to give a detailed account of the instruments and institutions of credit, but to seek to show how credit is developed to maintain a steady turnover of capital.

(i) The basis of credit.

We saw earlier that credit enables the purchase of goods before the payment for them. Now credit has become an essential factor in the reproduction process of capital. Despite the continued effort of capitalists to reduce the circulation time, and so extend the period of production, there will always be real delays in converting commodities into money. Such delays grow with the extension of trade. To overcome this period in which he would have to wait for his returns, and so lack the means to continue his business, the capitalist resorts to credit. The consequence of this is that between capitals money generally serves only as a means of payment, so that commodities are not sold for money, but a written promise to pay for them at a certain date. Such promises, credits, are mutual amongst capitalists. Each capitalist ensures the maintenance of his business by selling those promissory notes - bills of exchange - to the banks at a discount. He will circulate money capital, however, only to the extent that net payments have to be made by him in any period, since the credits he gives and the credits he receives, in general, cancel each other out in his accounts.

Bills of exchange - the 'real instrument of the circulation of the mutual advances of producers and merchants' - were then, the basis of the development of credit-money proper. Credit allows the seller to send out his commodities before they are paid for, before they are reconverted into bank notes - inconvertible paper money. The buyer can receive the value of the commodities before it has been really transformed into money. It follows then that:

'Credit renders the reflux in money-form independent of the time of actual reflux, both for the industrial capitalist and the merchant'.121

The duration of credit will lengthen with the distance of markets. The volume of credit will rise with the value of production. Credit arises then, out of the expanding value of production and consequent exchange. It promotes the actual successive phases in the production of the same article, and secondly, the transfer of the articles including its transportation from one merchant to another.122 While the development of the production process extends credit, credit leads to an extension of industrial and commercial operations.

'As long as the reproduction process is continuous and, therefore, the return flow assured, this credit exists and expands, and its expansion is based upon the expansion of the reproduction process'.123

Commercial credit then, forms the basis of the credit-system, although practically, this process is mediated by the banks. The real limit of credit is the entire wealth of industrialists and merchants - of which a portion will constantly be in the hands of the banks. The centralisation of discounting bills is possible once there is a central access to the reserve funds and of the deposits of industrial and money capitalists - at the banks.

However, while discounting bills of exchange is normal during expansion, since it changes the forms of value and enables regular reproduction, the capitalist discounts his bills of exchange:

'not in order to expand his business or secure additional capital but in order to balance the credit he gives by the credit he receives.'124

By exchanging his bills - titles to commodity ownership - he only changes the form in which value is held by him. The bankers discount however results in the businessman acquiring money-capital of a smaller value than the original advance he received.125 As far as this sort of credit is concerned, it is important to understand that a large quantity of it within the reproduction process doesn't imply large quantities of idle capital. It isn't capital being offered for loan, seeking profitable investment, but rather a large employment of capital in the reproductive process.126 Any notion of the 'autonomy' of such credit is thus entirely incorrect. It is indissolubly tied to reproduction, irrespective of its numerous forms of existence.127

In the retail trade consumer credit is given by the seller to the buyer. This credit is often based upon further credits given to the retailer by the wholesaler or banks. The aim of this credit is the forcing of consumption the expansion of needs. Its limits however, are really determined by the wages of the working class, and the part of the surplus-value spent on consumer and luxury goods. This contrasts with credit between capitalists, which is limited by the mass of value in process.

(ii) Loan Capital

The development of banks and other institutions, through which money-capital is centralised, enables industrialists and merchants to seek credit in the form of loans, as well as discounting their commercial bills. The loan is the normal manner of financing an expansion of capitalist production. The loan, since it does not come from the seller, does not arise directly out of the real reproduction circuit. Its origin is thus entirely different from that of commercial credit. The industrialist or merchant can begin his business only after seeking loans from money-capitalists. It is only through this loan that the continued, regular expansion in the circuit of capital can be maintained. We say in this case that the point of departure for the whole movement of capital is a legal one.128 Nevertheless the real value of loans 'available' is limited by the expansion of value and surplus-value. For the individual capitalist, this form of credit represents an access to total social capital, the access to the use of social labour. Loans are demanded for the expansion of production. The most productive capitals attract loans most easily. The existence of credit thus contributes to the process of the centralisation of capital.

Loan capital develops out of the savings and the interest on those savings of industrial and commercial capitalists. It accumulates in the hands of money capitalists at the expense of both industry and commerce. Furthermore successful speculation with government and other securities, by money-capitalists, results in the appropriation of a further portion of the money-capital of the public who purchase such securities. Whilst the expansion of loan capital is limited by the real accumulation process, it follows here that not every augmentation of loanable money-capital indicates a real accumulation of capital or expansion of the reproductive process. It could be the appropriation of a larger proportion of existing capital by money-capitalists.129 The illusion is thus sown that the existence of loan capital is 'autonomous' from the real accumulation process.

At the beginning of a cyclical upturn there will be an initial surplus of loan capital - expressing the relative stagnation of industrial capital - alongside low interest rates. The relative independence of commercial from banking credit is here apparent, Loan capital stems from the reserves of money - capitalists which increase with the accumulation of capital, Commercial credit steins from the mutual credit of merchant and industrial capitalists, With the centralised disbursement of money-capital from the banks this distinction is lost sight of.

As accumulation of capital proceeds, less and less surplus loan capital will be available for expansion, since most of it will have been taken up, As with commercial bills, loan capital in use also expands with, and is limited by the real expansion of capital.

'...rapid development of loan capital is, ..., a result of actual accumulation for it is a consequence of the development of the reproduction process, and the profit which forms the source of accumulation for these money-capitalists is only a deduction from the surplus-value which the reproductive ones filch...' (from the productive workers).130

It is to be noted that with the extensive nature of borrowing, the wage and constant capital fund, money-capital, appears as a temporary function of loan capital since it is all temporarily borrowed by industrial and merchant capitalists. This only misleads the modern 'economists' who see the slow-down in capital accumulation as a result of the restriction on loans, rather than the declining rate of profit.

So far we have seen the basis of two forms of credit. Loan capital however gives rise to the use of terms which may be confusing. It always costs interest - and from the standpoint of the lender it is interest-bearing capital.131 This interest is often called the 'price' of money-capital.132 However it is a conception of price quite different to that which we associate with ordinary commodities. It must be considered to be an irrational form of price. Certainly the explanation of inflation is not directly concerned with a rise in this 'price' - interest. Here,

'The price is reduced to its purely abstract and meaningless form, signifying that it is a certain sum of money paid for something serving in one way or another as a use-value; whereas the conception of price really signifies the value of some use-value expressed in money'.133

Clearly the 'price' of loan-capital is different from its value, it is in fact the portion of surplus-value which the ownership enables him to claim from the borrower. There is no law determining the division of the profits into interest and its residue, the 'profit of enterprise'. In some cases, as just before the outbreak of a crisis, the interest to be paid may rise above profit, Here interest on one loan may be paid by taking up another. For total social capital, however. the maximum limit of interest may be regarded as profit.

Throughout the industrial cycle the characteristic movement of the money-capital interest rate is as follows:

'...at the beginning of the industrial cycle, a low rate of interest coincides with a contraction, and at the end of the industrial cycle a high rate of interest coincides with a superabundance of industrial capital. The low rate of interest that accompanies the 'improvement' shows that the commercial credit requires bank credit only to a slight extent because it is still self-supporting'.134

It is necessary to grasp the origin of the general movements in the interest rate, in the course of the productive process - the changing demand for money-capital.

(iii) Fictitious Capital

So far we have established that, credit is limited by the real process of production. However, the larger capitals use the issue of stocks and bonds to draw together the mass of money-capital required for further expansion. The demand for money-capital thus leads to the formation of joint stock companies. This borrowing results in the debtor receiving a title to further surplus-value, as interest payments. These titles are commonly sold themselves, are treated as commodities (!), and this gives rise to a series of confusions.

For example, the State or private capitals commonly sell bonds or stocks on the money market. The sum raised may be consumed unproductively or productively. The titles themselves are easily negotiable for most of the cycle of production, and function in the creditors' hands much as cash. A class of 11 annuitants is perpetuated here. The titles are a claim to a 1 portion of future taxation or surplus-value, or in the case of agricultural mortgages, future ground rent. However, no matter how many times the title is sold, the title itself remains fictitious capital. As soon as it becomes unsaleable the illusion of it as real capital, as value, disappears. It is illusory to think of real capital here despite the movements in the 'value' of the title. Their market value fluctuates with the amount and reliability of the proceeds to which they afford legal title. Capital exists only as capital invested, or to be invested - the share of stock however is merely a title of ownership to a corresponding portion of the surplus-value to be realised by it.135

The formation of a fictitious capital is called capitalisation, an estimate based on the income required by the creditor.

'Their value is always merely capitalised income, that is the income calculated on the basis of a fictitious capital at the prevailing rate of interest. Therefore when the money-market is tight these securities will fall in price for two reasons; first, because the rate of interest rises, and, secondly, because they are thrown on the market in large quantities in order to convert them into cash'.136

The issue of stock, the formation of joint-stock companies represents the need for money-capital for capitalist expansion as real capital requirements burgeon. Thus the accumulation of these claims arises from actual accumulation; but it differs from it.

In a period of boom, and of a tightening of demand for money-capital, the 'price' of money-capital, i.e. its interest rate, rises. At the same time, the 'price' of creditors' titles, the securities, i.e. their capitalised values, falls. These 'prices' are quite different from the value, expressed in money, of the real capital. It is not the rise in these 'prices' that we first seek to explain when we analyse inflation.

Now with an accumulation of fictitious-capital, all that is indicated is an enormous accumulation of claims on production, on social labour. It is an accumulation of the market price, the illusory capital value of these claims. We can now see that credit, in its result as titles to debts, leads to the creation of a sphere of paper 'values' which distorts the real value of capital represented. This particular form of money-capital is the largest part of bankers' capital.

'The greater portion of banker's capital is then, purely fictitious and consists of claims (bills of exchange), government securities (which represent spent capital) and stocks (drafts on future revenue)'.137

To recapitulate, it is fictitious because it is paper which consists of drafts on guaranteed revenues (government securities) or titles of ownership to real capital. The value of these titles (e.g. stocks) is regulated differently from that of the real capital which the paper may represent. If it represents claims on revenue and not on capital, this claim is still represented as continuously changing fictitious money-capital.

The importance of all this is that the development of interest-bearing capital and the credit system, has resulted in capital seemingly doubling itself, sometimes more, by various modes in which the same capital and perhaps even the same claim on a debt, appears in different forms in different hands. The creditor retains titles - as fictitious capital - whilst the debtor now holds the money capital. If the creditor is a bank, these titles themselves can be used to grant further credit. Thus the sum of credits extend over and above their real basis, although it is limited by it. That is to say a limitation is established according to the 'practical experience' of bankers, regarding on the one hand, the quantity of money-capital likely to be recalled by its depositors at any time, and on the other, the estimation that sufficient surplus value can be extracted by the consequent extension of capitalist production.

When banks are constrained to purchase state debts the credit base of the banks is force ably expanded since the banks now hold more fictitious capital than they had previously. The effect of the public deficit on the money supply will vary however according to the precise form of public debts acquired by the banks.

We see then that the distinction between fictitious capital and credit is not at all 'Byzantine' as E. Mandel would seem to think.138 The 'value' of fictitious capital conceals the real basis of value expansion. The lending of money-capital, and the use of the debts as commodities (an 'insane' form as Marx called it), creates this disguise. Once we see the different principle upon which the 'price' of shares, stocks or bonds rises, in comparison with the price rise of ordinary commodities, we can see that an understanding of inflation will not, in the first place, deal with these fictitious capital 'prices'. Mandel however promptly confuses the different movements here, of two entirely different categories.

'Both disproportionally great expansion of consumer credit, and speculative increases of material values or shares, inevitably tend to create inflation, and after a certain period to turn it first into a cumulative and then into a galloping process'.139 (our emphasis)

Here Mandel also sees speculation as a cause of inflation, rather than, as is now the case, inflation promoting speculation in a period of uncertainty and crisis.

(iv) Crisis

With the expansion of production there is an increased shortage of loan-capital, alongside an expansion of commercial credit. The expansion of credit becomes vital here since it is only through credit that the prices of commodities can be regularly realised. This is the central importance of credit. There is a continuous call for money by which to realise the growing total price of all commodities. Thus in the period of expansion, credit is predominant, and the velocity of the circulation of money rises faster than commodity prices.

The self-expansion of capital, its contradictory nature, can allow a free development only up to a certain point, as we have seen above; capital is its own immanent fetter and barrier to production, but credit continually aims to break through this barrier. It is used in an attempt to overcome the boundaries set by circulation time, the need to transform commodities into money, and so forces the expansion of individual capitals beyond their existing rates of accumulation. In so doing, the credit system accelerates the material development of the productive forces and the establishment of the world market. As the rate of capital accumulation slows, the attempt to drive production beyond its capitalistic limits develops. Over-trade and over-production are the consequences of this excessive credit. This accelerates the eruption of the contradiction of capitalist production.

The decline in the rate of profit is the expression of an intensification of the contradiction of capitalist production. The drive to expand capital, given inadequate profit rates, is continued on the basis of extended credit. However the issue of bankers' credit and their willingness to discount bills of exchange is reduced as bankers see too many bills and not enough money deposited, whilst the demand for money-capital forces up interest. Credit, though expensive, is still given however. In this system, where the entire continuity of the reproduction process rests on credit, and where the relative costliness of credit is rising whilst the rate of profit declines -a crisis must soon occur. The general difficulty in expanding the real process of production will sooner or later result in a chain reaction of an inability to clear the bills of exchange among capitalists connected through commercial credit. It is this failure which mediates the outbreak of a crisis. A tremendous rush for the means of payment follows, as the repayment of debt is demanded and credit is extremely difficult to obtain. With the collapse of sales in a crisis, the rate of discount for bankers' credit is highest. Now, generally, only cash payments have validity. At first glance, this may create the impression of a credit and money crisis only, the lack of real returns being unrecognised in this paper world.

The massive extension of credit poses the possibility of speculation. But it is not speculation which causes the crisis. The crisis is preceded by an expansion of production and credit, and a rise in interest and prices. This encourages hoarding and speculation. Indeed speculation becomes a necessity for the large money-capitalists, and users of raw materials, such as the international corporations. If they do not speculate they will lose huge sums through both the movements of the international exchange rates of national currencies and raw material prices. Where rates of profit are in general low, the profit on speculation attracts money capital, but the returns on this investment bear no relation to the real process of value expansion, and collapses as the crisis itself breaks out.

Speculation is founded on the expansion of credit. The dominance of credit can conceal the increasing difficulty capitalists face in realising their commodities at prices which enable them to maintain their rate of profit. Rapid and apparently reliable returns always keep up for a period after they are really over , precisely because of the existence of credit. Credit takes the place of real returns.140 A high rate of interest for loans must be paid alongside a slow increase in the mass of profit. The maturity period of loans is prolonged while capitalists strive to pay interest rates which rise relatively to the rate of profit. Interest will even be paid for out of additional borrowed capital - and this is done in part during times of speculation - staving off creditors with increasing indebtedness.

As the collapse begins, everyone is borrowing in order to pay. Money is required as a means of payment and nothing else.

'...in a period of crisis, the circulation of bills collapses completely; nobody can make use of a promise to pay since everyone will accept only cash payment; only the bank-note retains, at least thus far in England, its ability to circulate, because the nation with its total wealth backs up the Bank of England'.141

The 'value' of fictitious-capital is enormously reduced in times of crisis, as money is in short supply and a mass of bonds, bills and stocks are thrown onto the market to exchange for money. The collapse in this 'value', reduces the ability of the owners of fictitious capital to borrow money on it in the market. This collapse hastens the centralisation of this form of money-capital, since the large capitals take their advantage - their access to either credit or wealth. Credit then continues to playa central role here, the centralisation and concentration of capital is facilitated by it.

In the crisis then money, currency, is demanded by capitalists to pay debts and wind up transactions. This is in contrast to periods of prosperity where little currency is required.

'On the eve of the crisis, the bourgeois, with the self sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere: money alone is a commodity!'142

In a crisis there is a money famine, i.e. a gold famine. As the crisis turns to slump gold retains its value whilst the value of all other commodities is sacrificed. It is only through this sacrifice of the capital values combined with an attack on the wages of the working class itself, that the rate of profit can be raised sufficiently to begin a further period of reproduction.

The demand for currency between consumers and retailers however, falls in the depression.143 The difference then, is that in periods of prosperity the demand for currency between consumers and retailer predominates, whilst in depression the demand for currency between capitalists predominate.144

In sum, it is not the difference in the volume of demand for loans which characterises the periods of prosperity and depression, but the ease with which this demand is satisfied in the former period and the difficulties it meets in the later period. As well as this the demand for money arises for different, reasons in each of the periods.145

During the crisis everyone has products, but cannot sell them. If their payments are to be made they must sell their commodities, take up costly loans or go bankrupt. The mass of capital has been impeded in its reproduction process. The shortage of credit becomes most acute precisely when the mass of this capital has expanded to its greatest size, when it is over-produced146.

That the expansion is forced and finally collapses cannot be remedied, for example, by the State through its Bank attempting to purchase all the depreciated commodities at their old nominal values.147 The crisis continues and the real values of commodities fall. Any attempt to maintain overproduction by - providing deficient capital in the form of credit money at this stage must result only in an intensification of inflation.148

What is clear from this examination is that the use of credit depends upon the expansion of profitable production. Its formal existence, e.g. in the offer of State credits in a crisis, does not signify the demand for or use of such credit at that rate of profit. The existence of credit at a rate of interest at which it will be taken up, is then dependent upon the process of production. This process determines the mass and rate of surplus value and so the quantity of credit and the economic significance of the interest rate which is charged upon it to the borrower. With the collapse of production comes the collapse in the use of credit at anything but penal rates of interest. The real use of credit then is not at all 'autonomous' from the cycle of production.

(f) The extensive and intensive expansion of capitalist production.

We have shown how in the contradictory process of its expansion capital attempts to both reduce necessary labour-time by increasing the productivity of labour - a reduction of the (relative) working population, and also to increase the basis of its expansion, the labour-power available for exploitation - to increase the working population. Every barrier to further capital expansion is a barrier capital attempts to overcome. Through this contradictory and crisis-ridden process capital f not only creates the world market - is forced beyond national barriers -but must create new branches of production, new needs, as well as expanding existing consumption on a wider and wider basis.

It is the production of absolute surplus-value through 'the greatest stretching of the working day with greatest number of simultaneous working days'149 which requires a continual expansion of the sphere of circulation.

'The surplus-value created at one point requires the creation of surplus-value at another point, for which it may be exchanged; if only, initially, the production of more gold and silver, more money, so that if surplus-value cannot directly become capital again it may exist in the form of money as the possibility of new capital. A precondition of production based on capital is therefore the production of a constantly widening sphere of circulation, whether the sphere itself is directly expanded or whether more points within it are created as points of production'.150

This complementary tendency to create more points of exchange with the expansion of absolute surplus-value, shows that the 'tendency to create the world market is directly given in the concept of capital itself'.151 Every barrier to this expansion of capital is a limit that capital attempts to overcome and in this way the world market becomes a market for capital.

The production of relative surplus-value, on the other hand, based on an increase and development of the productive forces, and, therefore, the productivity of labour:

'requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use-values'152

Within this development, many products which were earlier luxury products become part of the consumption of the working class, for example, radios, television, motor cars and other electrical goods etc. The massive increase in the productivity of labour - use-values produced per worker employed - during the postwar boom has dictated this development. Similarly the production of synthetic fibres, the use of new energy and raw material sources etc. 'the development, hence, of the natural sciences to their highest point'153 in the interests of capital are all a necessary part of this tendency.

In the course of its expansion capital links up the production of absolute and relative surplus-value. So that contained in this -- process of expansion are the contradictions inherent within capital, and expressed by the tendency of the rate of profit to fall. We shall briefly examine what consequences this has in relation to the points previously made.

As capital expansion gets under way this brings with it the extension of the luxury production. The growth of luxury production is dependent for its continued existence and growth on accumulation in general.154 In periods of prosperity the working class can also 'enjoy momentarily articles of luxury ordinarily beyond its reach'. In the crisis and turn-down in capitalist expansion the consumption of luxuries is necessarily reduced and they are withdrawn from the consumption of the working class.155 We have shown earlier how changes in productivity in the luxury sector cannot compensate -through the production of relative surplus-value - for the tendency of the rate of profit to fall. So increases in the organic composition of capital in the luxury sector accelerate the tendency of the rate of profit to fall. In this sense, with the continued increases of productivity and relative surplus-value production in the artificially prolonged postwar boom, the extension of some 'luxuries' to become 'semi-permanent' consumption articles of the working class becomes a necessary and ever more urgent tendency for capital. So the extended use of the media, advertising etc. to widen the consumption of products - originally 'luxuries' - to the working class. Likewise the use of credit, hire-purchase etc. is expanded to make this possible. With the end of the postwar boom, it is of little surprise, that it is precisely in such sectors as the motor car industry where the market appears 'saturated', and production experiences a major turn-down. Once it becomes necessary for capital to reduce wages below the value of labour-power to improve profitability, it will be just these sectors, previously part of luxury production, which have recently become part of working class consumption, where the crisis will have a heightened expression.

The expansion of capitalist production requires a continued search for new sources of surplus-value and a continued extension of markets world-wide. The tendency of the rate of profit to fall is the driving impulse which compels intensified international competition. Competition for spheres of capital investment, for expanding markets, for raw material sources worldwide, become a feature of capitalist expansion. The export of capital, the growth of multi-national corporations, the vast increases of world trade, and the frantic search and exploitation of new raw material sources are the expression of this general tendency.156 Along with this goes the enormous expansion of credit internationally. As long as a basis for further capital expansion exists, for profitable production world-wide, then this process will be continually extended. But eventually capital overreaches itself - grows, on the basis of the extension of credit, beyond the bounds of profitable expansion given the rate of exploitation - and the capitalist crisis is precipitated, as a world crisis.


As the crisis of overproduction of capital deepens, capital cannot be reproduced since commodities cannot be sold at their prices of production, capacity is underutilised and workers are unemployed. An overproduction of capital then leads to capital values being written off - depreciation of capital - and social labour is 'devalued' as the ranks of the reserve army are swelled and wages are driven below the value of labour power. The capital accumulation process comes to a halt and the crisis turns into a political crisis raising questions about the nature of the system of production itself. The survival of the capitalist system becomes a political struggle between the ruling class and the working class, as the ruling class attempts to restructure capital towards greater profitability.

With the experience of state intervention during the first world war and the world crisis of the 1930s, a number of proposals were put forward to attempt to overcome the near continuous crisis conditions of the inter-war period. In general these are associated with the name of Keynes. The basic policy was to replace 'deflationary' policies as a cure for overproduction of capital, given the political consequences this entailed, by a policy of 'price rises' and expansion of production through credit financed expenditure and state deficit financing. This enables unemployment to be kept at politically acceptable levels.

Keynes expressed this policy most clearly in his book The Means to Prosperity (1933).

'It is the declared policy of the Government and also of the representatives of the Empire assembled at Ottawa, to raise prices. How are we to do it...?

'...We must aim at increasing aggregate spending power. If we can achieve this, it will partly serve to raise prices and partly to increase employment.'


'We are left with the broad conclusion that there is no effective means of raising world prices except by increasing loan-expenditure throughout the world. It was, indeed, the collapse of expenditure financed out of loans advanced by the United States, which was the chief agency in starting the slump.'157

Keynes thought it unlikely that private enterprise, on its own initiative, would undertake new loan expenditure on a sufficient scale to achieve the required result. It was, he argued, necessary for the public authority to take the first step.158 Such policies - which were only systematically carried out after the second world war (the 'New Deal' was a pre-war attempt), and later in some countries than others - 'postpone' the depreciation of capital and the accompanying recessionary conditions and replaces it by inflation and economic 'growth'.

However inflationary tendencies were rooted deep within capitalism before the state and state-debt started to play a greater and greater role in maintaining private capital accumulation. Prices rose quite rapidly at the turn of the century before state expenditure and state debt began to play the role they do today. In a later period after the first world war, in spite of the extraordinary rationalisations which took place (Taylorism, Fordism, etc.), prices rose slightly in the US. The expansion of private debt played a significant role here. In the US from 1921 - 29, corporations expanded long term indebtedness by 111%, while national income rose by only 20%.159 The advent of the world depression saw a fall in prices but after the mid 1930s they began to rise rapidly. The increasing role of the state over the last 30 years has to be seen as a necessary result of the deeper and deeper crisis of capitalist profitability and the extent of the measures now needed to combat it. Keynsianism is no more than a 'rationalisation' for what had to occur if capitalism was to survive for a longer period. Its limited historical success had as a precondition the destruction of capital during the second world war and the defeats of the working class before and during that war.

The crisis has to be located at the level of capitalist production. To show how the central tendency of the rate of profit to fall can express itself as inflation and eventually stagflation (stagnation and inflation), we need to examine how the capitalist experiences this tendency and attempts to maintain profitability by increasing prices. We then have to consider how these prices set by the individual capitalist can be realised - that is how commodities can be sold - exchanged for money - at these prices.

(a) How the capitalist perceives the crisis

The tendency of the rate of profit to fall impresses itself, through the competition between capitalists, on the individual capitalist as an impulse to develop the productivity of labour. This process in turn leads to the concentration and centralisation of capital, the growth and accumulation of larger and larger units of capital (a tendency accelerated greatly by crises). For it is only the larger capitals which can compensate for a fall in the rate of profit by a rise in the mass of profit -- they can amass more profits accumulating at a lower rate of profit.

For those capitalists introducing a new technique, who are able to produce a commodity with less labour-time than the social average, above average profits can initially be made. This is achieved by selling the commodity at its average socially determined price (or slightly below) before the introduction of the new technique and above its individual price (as determined by the new technique). Competition would eventually reduce these prices to a new social average as other capitals introduce this new technique as well. So that the tendency of the falling rate of profit is experienced by the individual capitalist as a fall in prices (notwithstanding the fact that the mass of surplus-value has risen), or an inability to continue to sell the commodities produced at the old prices. Competition however, does not create the new social average price nor the general rate of profit. Both must be conceived prior to competition. Competition allows them to be established but it does not create them. In this sense competition is not the 'cause' of the fall in prices. Such a fall is not a result of changing market conditions but is a result and expression of changes in the conditions of production -- is the outcome of the accumulation process of capital itself. Market conditions whether of a competitive or monopolistic character are not the cause of general price movements, regardless of whether this movement is up or down. The origin of these price movements must be sought in the production process itself. We can no more argue that 'competition' is the cause of declining prices than we can blame 'monopoly' for their rise.

Given an intensification of competition, capitalists not only see in the reduction of prices the cause of falling profits, but also see in wage levels an additional cause of this fall. If wages are maintained under competitive conditions, then in the face of declining profits, the capitalists view wage levels as excessive and so blame workers for aggravating the crisis. In summary falling profits are conceived by the capitalist as a result of excessive wages on the one side and too much competition forcing down prices, on the other. As we shall see later these superficial views of the bourgeoisie persist just as much today as they did in the past, even gaining currency among sections of the 'radical left'.160

In the period of capitalist development prior to the epoch of imperialism, the expanding frontiers of the capitalist mode of production, the newly emerging industrial countries, Germany, US and Japan, the vast new markets of the world, and the ability to acquire cheap raw materials etc., allowed the process of accumulation to continue without the convulsions experienced in the imperialist epoch. With the counter tendencies of the law of the tendency of the rate of profit to fall having a compensating effect, productivity increases could be expressed by a fall in prices through the process of competition between capitals.

(b) The monopoly phase of capitalism.

As capital accumulation continued, as the concentration and centralisation of capital accelerated and more and more countries rapidly developed, so challenging the British domination of the world market, capital came up against the barriers to further accumulation discussed in earlier sections. The development of an organised labour movement which accompanied this process set certain limits, in the more advanced capitalist countries, to the methods of increasing surplus value through extending the working day and intensification of labour. More and more capital was required to bring about sufficient productivity increases to raise the rate of surplus value and obtain sufficient profits to allow the further expansion of production.

In these conditions of intensified competition for a relatively smaller (but absolutely increasing) mass of surplus value in relation to the total capital outlay, only the larger and more productive capitals are able to survive. The ability to acquire a large enough share of the mass of profits becomes an essential factor in the attempt to expand production. The concentration and centralisation of production becomes a dominant feature in the development of capitalism. Capital moves to what Lenin called its 'monopoly' stage. This stage results from developments in the accumulation process itself.

The response of large capital (so-called 'monopolies') to the increasing difficulties facing capital in the process of its expansion depends on the intensity of the crisis. Where it is merely a question of surviving in a period of deep crisis, cartels, and other forms of collusion, have taken place in an attempt to prevent competition forcing prices down. Although there are elements of this throughout the accumulation process it is not such occurrences within the monopoly stage of capitalism which explain the secular rise in prices over the last 70 years or so.

During the post-war boom we have seen a continual expansion of production accompanied by an acceleration in the rise of prices - depreciation of currency - despite the large increases in the productivity of labour, and it is this process we have to explain. We have already argued that the most important method of increasing the mass of profits is by increasing the productivity of labour, so increasing relative surplus value. However, it is this very process which leads to a fall in the rate of profit. The individual capitalist therefore, faced with a falling rate of profit, attempts to obtain adequate profits for the further expansion of production by increasing prices. This expansion of production is a necessary condition of maintaining (and attempting to increase) the share of the mass of profits produced, by one capital at the expense of another, and increasing the mass of profits, by all capitals at the expense of the working class. It is the law of capitalist production - the tendency of the rate of profit to fall - which makes this an imperative for capital large or small. Capitalists attempt to set prices at levels which enable sufficient profits to be attained, making the further expansion of production possible. The question remains how these prices are to be realised - how will the equivalent sum of money become available so these commodities can be sold. Here credit plays a central role. With the extension of credit, the 'means of payment' for these commodities at these higher prices is mediated by the credit policies of the banks and, in the final analysis, the state.

The significance of 'monopoly' capitalism in terms of Lenin's definition becomes clear. It is precisely, the existence of finance capital, the intertwining and involvement of banking and industrial capital and the central role of the capitalist state in preserving the general conditions of private capital accumulation, which are the pre-conditions for this process to occur.

Large firms, for example, can instigate the process of credit expansion themselves. Through the relation of industrial and banking capital credit creation occurs through the extensive use of trade bills either directly as 'means of payment' or by having them discounted by banks for money-capital itself. A continual process of credit creation can be set into motion in this manner. Through such mechanisms, in spite of the tendency towards overaccumulation of capital and stagnation, production can be maintained with commodities being sold at higher prices. While for these prices to be realised, a corresponding extension on the volume of credit must occur, the increased prices are not, as the monetarists would have it, caused by the extension of credit. Rather it is the tendency of the rate of profit to fall which makes necessary an increase in credit in order to allow a continued accumulation of capital at higher prices. So that the conditions for a further expansion of production demand a definite 'monetary' policy by the banks and in the last instance, by the state since credit policies of the banks are controlled through, for example, minimum reserve ratios set by the national bank. The development of international credit markets to avoid the various measures and controls of Nation States indicates that the extension of credit is an imperative for capital accumulation to continue on the basis of higher prices.

The rise in prices does not result from the actions of the 'monopolies' in attempting to make extra profits, but from an attempt by capital to maintain the average conditions of profitability required for the continued expansion of production. While this does not preclude, within this generalised process, extra profits being made, this cannot be general, and must be limited to particular firms. Instead of production stagnating, unemployment growing, and capital being depreciated, capital expansion takes place at higher prices with the associated credit policy. The State, similarly, intervenes in the capitalist economy with definite credit, employment, taxation and other fiscal policies, not to preserve 'monopolies' (and monopoly profits) but because such firms involve large concentrations of means of production and labour-power. Bankruptcies and unemployment in general are not allowed to be of such proportions that they retard altogether the process of surplus-value extraction (capital accumulation) or lead to serious political and social disturbances.

When, through the mechanism analysed above, credit is extended, so that the money supply (given its velocity of circulation) increases at a faster rate than the mass of values produced, then productivity increases will not lead to an equivalent fall in prices, rather the currency is depreciated. Eventually the money-supply, in order to allow the realisation of the higher and higher relative prices needed to maintain profitability, will increase at such a rate that the general price level will begin to rise, in spite of the productivity increases. This began to occur at the turn of the century.

This process is given impetus in that once the expansion process is underway, the credit policies allow the less efficient firms temporarily to expand in the wake of the larger ones. The average social productivity is below that of the larger, more efficient, firms. This explains the significance of the statistics given in the introduction which show that the rise in prices in advanced capitalist countries, of goods for export (involving a higher concentration of larger firms) is lower than domestic price rises overall. It stresses that the cause of rising prices is not due to the monopoly market conditions but is the outcome of developments of the accumulation process itself.161

It is ridiculous to say, as the Communist Party does, that prices are higher than would be the case with more competition. This reverses Marx's argument. The fall in the rate of profit brings forth the competitive struggle and necessitates, in the interest of capital accumulation, the growth of monopolies, as a means of compensating, for the fall in the rate of profit, through an increase of the mass of profit. It is the expansion of production through the extension of credit, which, in spite of the worsening conditions of profitability, allows those 'higher prices' to be realised. 'Monopolies' cannot arbitrarily put up prices, they cannot overthrow the law of value even if they have more freedom to manoeuvre than smaller capitals. Large capitals are forced to put up prices to maintain profitability necessary to expand production. At the same time the historical development of capitalist production creates the conditions to make this possible.

We have seen how credit comes to play a more and more vital role in maintaining the conditions for capital accumulation. However, this process of expanding credit is a contradictory one. The very process which 'postpones' the depreciation of capital exacerbates the very tendencies it seeks to overcome. Credit allows the expansion of production on the expectations of future profits and accelerates the process of centralisation of capital - for it is usually the larger capitals which can obtain the available credit. The ability to acquire credit gives the individual capital potential control over social labour. In this way credit quickens the process of concentration and centralisation of capital and allows the destruction of smaller less efficient capital, which cannot obtain the necessary amount of credit. However while allowing the expansion of production this process accelerates the tendencies towards crisis. Credit allows the larger and larger investments necessary to bring about the increase of relative surplus value - the increase in the productivity of labour. But the rise of the organic composition of capital entailed by this process only exacerbates the tendency of the rate of profit to fall. So that credit by postponing the 'depreciation' of capital only exacerbates the contradictions and the tendency to crisis. Credit

'suspends (the) barriers to the reproduction and self expansion of capital only by raising them to their most general form ...'162

The attempt to increase the mass of profits, by increasing relative surplus-value through the growth of the productivity of labour means an enormous increase of the mass of commodities to be sold. The expansion of credit between capitalists and the increase of production this allows, necessarily extends the markets for commodities to be sold, that of both producer and consumption goods. However, at a certain stage, this becomes insufficient to maintain the self-expansion of capital, so that as well as the credit extended to capitalists, there develops at a later stage, credit in the form of consumer credit, hire purchase etc. This credit is based on the future wages of the working class and that part of future surplus-value which capitalists spend on consumer and luxury goads.

Another important feature of this tendency towards concentration and centralisation of capital is the growth of fixed capital as part of constant capital. The importance of machinery etc. has already been discussed in relation to the contradictory process of capital expansion. This factor is another which leads to a general increase of costs and prices in a period of a slow-down of accumulation. If output is reduced then certain costs may be reduced by as much as the reduction of output eg wages, raw materials etc. This is not the case with fixed capital costs eg machinery, buildings etc. So that with a slow-down of capital accumulation, prices per unit of output necessarily must rise if profits are to be maintained. In periods of stagnation of production, prices will be relatively higher because of the dominance of fixed capital costs as part of total costs.

The 'depreciation' of capital is exacerbated by the need to continually introduce new methods of production in an attempt to maintain average profits and keep competitors at bay. As the production of new techniques and methods of production quickens what Marx call the 'moral depreciation' of capital comes to play an increasingly important role. This occurs when the old methods have become 'obsolete' well before the machinery etc is 'physically' worn out.'163 Capitalists are forced to introduce the new techniques or they will go out of business - this is true for larger capitals through worldwide competition. The growth of the availability of credit hastens this process, and makes it all the more urgent to obtain further credit for the expansion of production and further increase of prices.

What we have shown is how the tendency towards overproduction of capital in general forces individual capitalists to increase prices. The extension of credit-money postpones the 'depreciation' of capital (through the depreciation of money) and forces the further expansion of production and consumption beyond those limits justified by the actual conditions of profitability, of the production of value and surplus-value. If credit is not extended then capital will not have a basis on which to expand, commodities will not be sold and capital will be 'depreciated'. The growth of credit, therefore, allows the 'prices' set by capitalists to be 'realised' - the commodities sold at those prices -and capital accumulation to proceed. However, the very process by which this occurs accelerates the tendencies towards crisis - necessitates a further extension of credit and a further increase in the general price level. The demand for credit forces up the rate of interest, whilst the quantity of credit taken up increases that part of surplus value going to interest payments, so further reducing the 'profits of enterprise'. Once it is no longer possible to sufficiently increase profitable production by the expansion and extension of credit, the accumulation process will tend to stagnate, and the whole monetary edifice built on the basis of credit will collapse.

This attempt to postpone the 'depreciation' of capital and to avoid falling profit rates by the expansion of production through the extension of credit and the accompanying price increases, cannot in fact, in the longer run, succeed. The expansion of production on the basis of credit, as we have shown, exacerbates the tendency of the rate of profit to fall. With each new cycle of expansion the organic composition of capital rises and the capitalist is forced to increase prices further to maintain the overall rate of profit. The mass of profits increase but the rate of profit falls because of the growing total capital outlay relative to surplus value. The individual capitalist necessarily comes up against the general increase of prices in the replacement of constant capital. Constant capital (machinery, raw materials etc.), which is a growing total part of investment, will rise in price - as prices of production rise generally - and their replacement cost for the same type or new equipment etc will be relatively, as well as absolutely, greater. Although the value of labour power will fall with increases in productivity, (given the standard of living remains constant or does not grow as fast as productivity increases) the price of labour-power or the money-wages of the working class will rise because of the general price increases. It is this rise in costs which is necessary, if the working class is to at least maintain living standards, which the capitalist seizes upon as being too high and as a cause of insufficient profits. It is because the value of labour power does not fall enough to offset the falling rate of profit that once again the superficial view of the capitalists comes to the fore - that wage rises are the cause of the decline of profits. Today the capitalists claim, and sections of the 'radical left' proclaim, that profits are being squeezed by too high wages driving costs up and increasing competition preventing these costs being passed on by even higher prices. History indeed does repeat itself, the first time as tragedy, the second as farce. This vulgarised Smithian view has returned to the historical stage.

So that in spite of the attempt to maintain profitability the actual fall in the general rate of profit will impress itself on the individual capitalist through continually rising costs (rising prices). The law of capitalist production asserts itself independently of the will of the individual capitalist. After the first world war the large increases of productivity due to techniques associated with Taylorism and Fordism in the US, did not lead to systematic reductions in prices and were insufficient to stave off - indeed they accelerated - the eventual world crisis. This was clearly related to the crisis in Europe, together with the victory of the October Revolution in Russia. The disequilibrium between Europe and America made it impossible to exploit the new technologies to the full and the expansion of capital world wide was severely restrained.164 With the failure of the working class to drive home the victory of the Russian Revolution into Europe and with the eventual degeneration of that Revolution, the period after the world crisis saw a series of major defeats for the working class which allowed the growth of fascism and led to the second world war.

(c) The State and inflation.

The second world war laid the basis for a new period of capital accumulation with the destruction of capital during the war and the defeats of the working class leading up to the war. However, after this war, credit expansion alone became insufficient to guarantee further profitable accumulation by private capital. The political crisis of the early war period not only forced the US to give aid to rebuild Europe. but dictated that concessions be made to the working class if they were to be drawn towards the acceptance of a new period of capital accumulation. The state began to play a greater and greater role in the capitalist economy. Marx regarded joint stock companies as

'The abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new form of production.'165

The failure to overthrow the capitalist system of production in the inter-war period, the defeats of the working class before the war and the war itself, laid the basis for the intervention of the state in the capitalist economy to become the most heightened expression of a 'self-dissolving contradiction', within capitalism. The role of the state is to guarantee private capital accumulation, to attempt to overcome those barriers to the self-expansion of capital. Private credit alone is insufficient to allow a restructuring of capital to a greater profitability.

The State is forced to play a role in production (nationalised industries), as well as maintaining labour power and guaranteeing employment. It plays a major role in deficit financing, in expanding the credit base of the banks and so the supply of money. This gives impetus to the process which we have already discussed, enabling the products of private capital to be sold at those prices set by the capitalists, in an attempt to maintain their profits in the face of a declining rate of profit. However, again, the very process of allowing the further expansion of production heightens the very contradictions it tries to resolve. It does this in a number of ways.

With the rising organic composition of capital and the growing productivity of labour, unemployment tends to increase as accumulation proceeds. The ranks of the reserve army of labour are augmented. The state then steps in to maintain employment at 'reasonable' levels. In such a way its actions prevent wages being pushed below the value of labour power due to the pressure of the reserve army of the unemployed. Profits cannot be increased by simply reducing wages. This makes it all the more necessary for private capital to increase the productivity of labour, to increase relative surplus value, in order to increase profits. However, this process is the very one which has made the intervention of the state necessary. The further accumulation process with a rising organic composition of capital simply aggravates the need for further state intervention. There is both a relative and absolute growth of those workers directly or indirectly employed by the State.166

State expenditure being mainly 'unproductive' expenditure and consumption (see next section) further reduces the share of the growing mass of profits available to private capital. The growing mass of profits have to finance both private capital accumulation and the relatively faster growing state expenditure. The rate of profit in the hands of private capital then falls faster than that of the general rate of profit. In spite of the growing mass of profits. State expenditure, then, grows with the growing mass of profits but these expenditures reduce further the rate of profit of private capital. This in turn means that private capital strives to increase the rate of profit by increasing productivity by an even greater degree, and this in turn strengthens the tendency of the falling general rate of profit. We see that state expenditure grows and the rate of profit falls not because the rate of exploitation has fallen as the bourgeoisie and sections of the 'radical left' would have it, but because it has risen. It is not the successful economic struggle of the workers which reduces the rate of profit, it is rather the outcome of greater exploitation of the working class. To preserve full employment and maintain private capital accumulation at the higher and higher prices set by the capitalists in the attempt to maintain their profit rates, the state must increase its intervention in the capitalist economy. As long as the accumulation process steadily continues capitalists are quite prepared to accept the growth of state expenditure alongside the growth of the mass of profits. But as the rate of inflation increases and stagnation in the rate of accumulation begins to occur, the very process which has resulted from the increase in the productivity of labour and the growing mass of profits, the rise of State expenditure, is seen as the 'cause' of the fall in profit rates. Such is the superficial understanding of the bourgeoisie and their representatives within the working class movement.

State expenditure is mainly financed out of taxation - or, in the case of state borrowing, future taxation. Taxation is a deduction from the mass of surplus-value (profits) in the hands of private capital. Although a bigger proportion of taxation is becoming a deduction from gross money wages, a very small part of taxation (state expenditure), as we shall show in the next section, may be considered as part of variable capital and, therefore, the equivalent of the value of the socially consumed wage goods necessary for the reproduction of the working class. Although the state attempts through taxation allowances, investment grants, subsidies and the like to reduce taxation on capital, the continued growth of the state's expenditure must be regarded as bringing about a deduction from the mass of profits held by private capital. However, since a greater proportion of taxation is coming out of the gross money wages of the working class, the outcome of the struggles to maintain real wages after tax and other deductions, becomes an important factor, which can clearly modify this result. In this way a growing rate of inflation can be used by the state to reduce the real wages of the working class. If taxation allowances do not increase as fast as inflation, or incomes policies ('social contracts') are introduced to prevent money wage increases rising beyond a certain level, real wages can be pushed down. The state attempts to limit the deduction from the mass of profits of private capital at the expense of the working class. If this is not to be the case, money wages have to increase at a faster rate than prices. It is this which gives way to the illusion that wage increases are the cause of price rises. Finally if real wages after tax rise, so that the working class gains some of the benefits of the productivity increases that have taken place during the post-war boom - then the tendency towards overaccumulation of capital and the accompanying rise in prices will be accelerated.

Another aspect of the post-war boom which accelerates the tendency towards rising prices is the growth of 'unproductive' labour outside the state sector. Here the necessary growth of banking, commercial and 'professional' employment, with the continued prolongation, on the basis of credit and state expenditure, of the post-war boom, has been important. In recessionary conditions these sectors would normally be cut back so adjusting to the real conditions of capital accumulation and profitability. As this does not occur, a result of state policies in relation to the total social capital, they continue to expand with the growing mass of profits, and so when the turn-down comes they appear to be too large, and are considered a burden on 'productive' capital. Again a result is seen as a cause.

With the increasing centralisation and concentration of capital and the pressing need to 'plan' and control the production process, the numbers of workers involved with administration, supervision and control necessarily grows. As most of this is necessary because capitalism is a system based on antagonistic production relations, a great deal of this expenditure must be regarded as unproductive for capital. Parts of this employment are clearly a result of the so-called 'full employment' policies of the whole period of boom. Again the expansion of this employment reduces the rate of profit of the individual capitalist.

Private capital, then, faced with a declining profitability, attempts to acquire the profits required for further accumulation by increasing prices. The growth of fixed capital costs with a tendency to 'overcapacity' stimulates this process. The increase of the money supply, through the extension of credit and state loans, is the guarantee that these prices will be 'realised' - that is the commodities will be sold at those prices. In such a way the 'depreciation' of capital and massive unemployment is postponed. However, this process which accelerates the tendencies towards overproduction of capital, only expresses itself as a greater and greater increase of prices. Each increase in state expenditure and expansion of credit to avoid recession leads to an intensification of the rate of exploitation, a rise in the organic composition of capital, the growth in the mass of profits and the decline in the rate of profit. Capitalists are spurred on again to raise prices to compensate for this fall, and so we have a growing and cumulative rate of inflation.

At a certain stage in this process, the availability of credit will not lead to an increase in profitable production - private capital does not take it up. The state then has to step in to prevent an enormous increase in 'over-capacity' and the rapid growth of unemployment. The burden falls on the state to prevent the recessionary conditions turning to a full-scale depression. Its budget deficit will quickly and suddenly rise. But this expenditure will only accelerate the already high rate of inflation. The state then suddenly veers back to play a leading role in restructuring capital - it cuts back its expenditure and attempt to introduce rationalisations in industries it directs and controls. Unemployment is allowed to grow and the state begins the move to severe cuts in working class living standards. The frequency of booms and slumps changes. The booms become shorter and shorter, accompanied by higher and higher rates of inflation, and the slumps longer and more severe. This is the stage we are now at. It shows that the crisis of overproduction of capital cannot be postponed any longer. The return of a world wide depression becomes increasingly near.

Finally we should say something about the generalised nature of this recession - a feature which has not occurred since the second world war. The growing productivity of labour finds its eventual expression in the strength of national currencies in relation to one another. The 'value' a national currency stands for - in terms of the commodities it can 'buy' - is higher the more productive is the national capital. So that the over all productivity of national capitals finds its reflection world-wide in the trade relations and the balance of trade, as well as the movement of capital including direct investment in other countries. The stronger the tendency towards overproduction of capital, given the rate of exploitation of labour - the more 'mature' the national capital is - the greater importance has the export of capital (as opposed to that of commodities) for the consolidation and expansion of the national capital. UK and USA capitals are examples of this. On the other hand, for a great deal of the post-war period, Japanese and German capital, developing at a much higher level of productivity, have depended for their growth on the export of commodities, which in turn relates to the growth and acceleration of world trade. The higher productivity and, therefore, growing economic power of Japanese and German capital forcibly and belatedly expressed itself in the devaluation of the dollar in 1971.

This process of high productivity export-led growth comes up against the barriers of capital accumulation in the home country as well as that world-wide. The rapid increase in the export of capital from Germany and Japan in the last few years indicates that the tendencies towards the overproduction of capital are now just as strong as in other countries. The massive acceleration of international credit has played a major role in bringing this about. The tendency towards overproduction of capital has become a world-wide phenomenon. International competition intensifies as the battle for profits world-wide becomes an. increasingly hostile struggle to survive. Each state's role in relation to each national capital tends to become a dominant one. But the more the state intervenes, the more it protects its national capital through such measures as subsidies for exports and movements in exchange rates, the more it exacerbates the tendency towards overproduction of capital. Today we can speak of a world-wide overproduction of capital - an overproduction affecting all national capitals. This is why the crisis has become a simultaneous world-wide crisis.

What we have shown in this section is how the tendencies towards overproduction of capital since the turn of the century have been expressed in the form of rising prices in spite of the growing productivity of labour. Each method of continuing the expansion of capitalist production - national and international expansion of credit, growing state expenditure - only eventually exacerbates the very tendencies which forced them to be used in the first place. Eventually these methods become less and less effective. Unemployment and inflation grow together. The return of classical crisis conditions is at hand.

(d) Capital and the State.

In all the major capitalist states today, a large proportion of the Gross Domestic Product, and in some cases the largest, is administered by the State itself. This development has proceeded throughout the post war boom - appearing as the growth of the so-called 'mixed economy' and the 'welfare state'. It finds its rationalisation in the Keynesian notion of the State as mediator of the 'uncontrolled' nature of capital. Its political representatives are the Social Democrats.

In the recent period, the superstitious belief in the State is once again thrust to the fore. It appears that only state intervention can maintain the process of production, restore full employment, and ensure social stability. This belief is founded on the real efforts of the State to do just this, which results in the servile adaption of the labour 'leaders' to the interests of the national bourgeoisie and their State. The State appears to them as a power 'seemingly standing above society', which orders and alleviates social conflicts.

The intervention of the bourgeois state arises directly from the needs of capital. Capital requires certain general conditions which it is unable to guarantee as many capitals, eg the building of roads, the assurance of supplies, through subsidies or nationalisation, of the basic commodities needed for private industry. While these developments are a political necessity for the ruling class, their extension, to the degree that it requires further taxation, is a burden that the bourgeoisie is reluctant to shoulder.

We shall now briefly examine the major sectors of state intervention in the process of capital accumulation in order to specify its nature and effect more precisely.

(i) Social Services.

The payment of a wide range of social security benefits has been struggled for by the working class and has resulted from the need to maintain political and social stability after the second world war. The policies adopted serve two related functions.

(1) The 'full' employment policies of the state - the extension of employment in the state sector.

(2) The maintenance and reproduction of labour power.

In the first case, as we have shown, the State limits the growth of the reserve army of labour and in so doing prevents capital from forcing down wages below the value of labour power. This makes it all the more necessary for private capital to increase the productivity of labour and so exacerbates the tendency of the rate of profit to fall. In so far as the extra jobs created by the State can be categorised as unproductive labour, this expenditure only accentuates the process.

The payment of unemployment and sickness benefits, pensions for the old-age workers who capital has either thrown out of employment, has exhausted or has no further use for, results from the struggles of the working class itself. The capitalist relations of production ensure that very little of the rising mass of surplus products are consumed by those who need it most, the aged and the sick and those damaged by capital. On the contrary, it is precisely those workers who consume and are not able to produce who are castigated most by the real parasites - the bourgeoisie - for dissipating the surplus product which might otherwise be used for accumulation. As we have seen in the previous section, the cause of the falling rate of profit is not to be found in an insufficiency of surplus products as such, but in the capitalist relation which requires that the value of this growing surplus product be measured against the total capital outlay.

The development of the forces of production and the intensification of the process of exploitation in the advanced capitalist states throughout this century has in itself produced new needs on the part of the working class. The demands put upon labour power by capital have resulted in the intervention of the State in the reproduction of labour power itself. Health and education are main sectors concerned with this reproduction of labour power.

Health care is simultaneously a necessary repair and reproduction of labour power. As we have shown, in so far as the state health facilities are applied to productive labour, they increase the value of labour-power without increasing the mass of surplus value, so reducing the rate of profit. If they are applied to unproductive labour they are a deduction from the growing mass of surplus value and so reduce the rate of profit of the individual capitalist as we have already explained. As a growing proportion of society's labour is unproductive it means that more and more health care is unproductively consumed. State services like the health service are labour intensive. It is difficult to raise productivity and the State attempts to keep its costs down. Consequently, women and immigrant labour, the least organised sections of the working class, are used to a great extent in this employment. The labour intensive nature of these services and the difficulty in raising productivity means that money wage increases fought for by the workers in this sector, to maintain their real wages in the face of rising prices and rising taxation, has a stronger overall effect, compared to industry, on the costs of the services. So arises the vulgar conception that rising wages are the cause of the rising costs. The recent unparalleled strikes in Britain throughout the health service indicate that the State's attempts further to reduce costs and intensify labour in this sector will be resisted. The political implications of these struggles has not been lost on the bourgeoisie. The call to get rid of the private sector within the health service and make it into an adequate service for the needs of the working class, strikes a blow for all workers against the interests of the bourgeoisie.

The accumulation of capital and the systematic development of the productivity of labour has changed the concrete qualities demanded by capital throughout the post-war period. The development of new skills and the extended use of new skills has meant that a minimum general education is now a necessity. In so far as basic training (a very small part of education in the state sector) augments the value of labour power of productive labour, it reduces the rate of profit, as we have already shown. However, unlike in the health sector, this fall may be offset by the increased productivity of the labour which has been trained. Where this training is applied to unproductive labour, it constitutes a deduction from surplus value. The compulsory nature of education in fact means that only the smallest fraction of this education actually raises the value of the labour power consumed productively by capital. The overwhelming proportion of education does not add to the skill of the labourer - its use value for capital - and so to the value of labour power. It is also the case that a growing proportion of education will be consumed unproductively with the increasing proportion of unproductively employed labourers in society.

There are other items of state expenditure which can contribute to the reproduction costs of labour power. Housing subsidies, building grants and council housing are examples of this. Subsidies for food and other necessary consumption goods (Department IIa) are also examples. Such subsidies contribute to maintaining the profitability of the building industry and the national agriculture by taxing all capital, and the working class. As we have shown, the central elements of the 'welfare state' only contain a small contribution to the value of labour-power itself. The mass of it is unproductive consumption. Our central focus has remained on the process of capital accumulation itself. This is lost sight of in Glyn's vulgar proposition that the mass of state expenditure:

'on the health, education, social services, welfare payments (like unemployment pay), council house subsidies etc - is undeniably required to reproduce the working class at the going material level.167

The refusal to distinguish between productive and unproductive labour leads directly to a failure to understand the elements of state expenditure and their overall effect on capital accumulation. Inevitably, this position must lead to the reformist conception of the state.

(ii) The Apparatus of the Bourgeois State.

This apparatus is simply an increase of unproductive expenditure. It includes both local and central government administration and those involved in the maintenance of social order - the repressive apparatus of the state. The civil servants, the police, the judiciary, armed forces, prison and probationary services, are all maintained out of state revenue. None of these workers are part of variable capital. They do not produce value or surplus value but unproductively consume it. Gough, who wishes to call the 'services' of the repressive apparatus of the State 'indirectly productive'(!) for capital, finally resorts to the use of the term 'social variable capital' to give a phoney respectability to his absurdities and to mystify the role of the state.'168

From the above discussion it will now be clear that any attempt to treat variable capital as the total wage bill of the productive workers, either before or after taxation, is to mystify the issue. Whilst the price of productive labour power will in fact be nearer income net of taxation, the augmentation in the value of labour power by certain state services must modify the point to a small degree. The rest of this section will indicate further expenditures by the state which must be considered in this respect, whilst examining the State in relation to the production process more directly.

(iii) The State and Production.

The State has, in its capacity as guarantor of the general conditions of the process of social production, to ensure the maintenance of the basic production industries. This requirement may force it to regulate these industries, encourage cartelisation, perhaps subsidise them and finally nationalise them. Generally no industry will be nationalised by the state if it is profitable and is able to attract sufficient money-capital to continue a programme of investment adequate to maintain its competitiveness. However, with the accumulation of capital, and the declining profit rate of social capital, investment will no longer take place in those industries where individual rates of profit are low. Capitals with a below average rate of profit, and which require large scale restructuring, find it increasingly difficult to attract loans. It is in such cases that State intervention is most likely - in particular in the basic industries, or industries essential to a Nation's trading position.

The State acts in this way in the interests of private capital. In large industries with an outdated technical composition of capital, only the state will be able to carry out the huge rationalisations and restructuring necessary to supply the inputs to national industry at competitive prices.

The restructuring of these industries itself rapidly raises the level of productivity,169 which reduces the number employed in these industries. The state must then provide further employment elsewhere if it is to maintain its 'full' employment policies and limit the political consequences involved with working class resistance to unemployment.

The systematic underpricing of the products of nationalised industries works in the interests of capitals which purchase these products. Setting a price well below the price of production results in the movement of value gratis to private capital. This acts as a support for the expansion of private capital cheapening its costs. Where the commodity produced by the state industry is consumed both by industry and domestic consumers eg electricity or gas, the price charged to the domestic consumer is, in terms of unit cost, much higher. The burden of subsidising private capital will be forced on to the working class as far as possible. The recent very steep rises in the prices of nationalised industries in Britain are being used to lower the real wages of the working class.

With final prices set far below the prices of production, a loss is made on the current account which sooner or later requires the writing off of capital loans made by the state, and the use of revenue subsidies. This process is an indirect redistribution of the total social surplus value. Private capital which is the customer of nationalised industry receives commodities containing a quantity of newly added social labour, for which it does not pay. In Britain it has been estimated that £7,700 million has been transferred to the nationalised industries by the state up to March 1975.170 One example of this process of subsidisation of private capital is shown in the recent disclosures by the British Secretary of State for Energy, Wedgwood-Benn, that the British Gas Corporation was losing £180 million annually as a result of fixed price contracts.171

Transportation is a branch of production which has commonly fallen to the state to run. The enormous mass of constant capital required eg railway networks, and the low level of productivity in this industry, made it unprofitable and compelled the state to intervene to maintain the service. It alone could guarantee the restructuring of the industry eg electrification, and increased productivity.

The high cost of restructuring the industry, and the charging of prices below the price of production results in the industry remaining unprofitable. The low price of transport cheapens the cost of labour-power, insofar as transport becomes an essential use-value for the reproduction of labour-power at the place of work. Since nationalisation, British Railways have received a total subsidy of £3,461.6 million.172

Much of the service provided by transport is consumed unproductively eg the transport of an increasing number of state officials and administrators, businessmen and service workers. Its effect in this case, for the reproduction of capital, is the same as for luxury production.

(iv) Arms Production

The armaments industry is another case of production that is dependent on state orders. Since it produces neither necessary consumption goods nor means of production it may be considered in a similar way to luxury production. As we have already seen in respect of such production, the production of capital in this form restricts the production of capital which is able to counteract the tendency of the rate of profit to fall.

The production of armaments may for particular nations have a different effect since they are exported and so exchanged for means of production or necessary consumption goods. The rising export of arms to underdeveloped countries of the last period confirms this point. With the development of capital, the extension of trade and colonisation, and finally inter-imperialist rivalries, the production of arms must be seen as integral to the development of capitalism, since they are used in the final arbitration of national rivalries.

(v) Research and Development.

The role of 'research and development' by the state through its own institutes and universities has been an important one for capital. Such research is centralised because its increasing cost no longer enables individual capitals to carry this unproductive expenditure. The very lack of guarantee of any result makes such spending a serious risk. Further, its association with weapons technology, and competition between national capitals for world markets, eg atomic energy - encourages the state to take a certain responsibility. Labour employed here is exchanged against revenue, it is unproductive for capital, although it may provide the knowledge for a further qualitative change in the labour process. The impulse for such expenditure is capital's striving to subject all material life to productive labour - to heighten the productiveness of labour. This time for scientific research is made possible because of the creation of disposal time by capital.173 The development of new techniques, the increased competitiveness of capital, and the formation of new areas of production, are compensations for the cost of research and development, for the deductions from surplus value involved.

(vi) Subsidies to national capitals.

Finally it is necessary to note the role played by the States in supporting national capitals in the face of world competition. The struggle to increase relative surplus value through increases in productivity advances faster in one state than another. Those states with weaker capitals may subsidise the exports of these capitals in order to maintain them. Subsidies however must be paid for, taxation or state borrowing has to be increased. The extension of such subsidies has become a feature of the growing tension between nation states in the recent period.

(vii) Conclusion.

We have shown that the largest proportion of state expenditure may be regarded as unproductive expenditure. The contradictions of the capitalist state are heightened precisely in a period of growing crisis. While trying to restore the rate of profit for private capital it still needs to guarantee a 'politically' acceptable level of employment. The actions of many governments over the recent period demonstrate this point.

During June 1975 the French Government took emergency measures to prevent a sudden upsurge in unemployment, with the prospect of more than half a million school and college leavers flooding the labour exchanges in the following three months on top of the 800,000 unemployed already registered.174 Students are now paid to prolong their courses or take new ones, employers get direct incentives to take on young people, and the public service was allowed to take on additional staff even if not needed. In Britain a 'Temporary Employment Subsidy' has been paid from August to employers retaining workers who would otherwise be made redundant. Such 'job creation' schemes have already been established in Canada.175 In the United States there has been pressure through the William-Javits Bill to employ one million unemployed in public works. The contradictory role of the state here comes to a head.

In its attempts to restructure capital, and force accumulation forward it has exacerbated the inevitable crisis - it is then forced to counteract one of the results, unemployment, by increasing unproductive expenditures through deductions of surplus value - further forcing capitals to increase productivity to offset the effect of taxation and increasing costs, and so accentuating the fall in the rate of profit. The increased tension within the reproduction process expresses itself in a fall in the rate of profit, in spite of the rapidly growing mass of surplus value, and increased credit and inflation, along with a change in the nature of employment in society.

(e) The International Expansion of Credit.

The development of international credit arises out of the expansion of international trade. It is this trade, a complement to the expanding spiral of capitalist production - which increases the circulation of commercial bills. The expansion of the production of value and surplus value also promotes the increase of loan capital. These developments are augmented, in the epoch of imperialism, by the expansion of the national debt. In this case nations rather than capitals take up loans. The enormous growth of international trade since the Second World War - from 1949 to 1970 the volume of capitalist foreign trade (exports) rose nearly fourfold - was, more than the rise in production itself, which rose three and a half times. This expansion was based on the dominance of United States capital. The strength of the American economy and the political dominance achieved through the Second World War by the United States, enabled it to expand its imperial control over world production. It has been the United States which has been the reservoir of loan capital for the world throughout the post war period. The use of loans has established further points of exchange in the world market - drawing in more labour for exploitation. This promotion of capitalist production rested upon the basis of a defeated working class, and enormously reduced capital values. American industry was quite capable of supplying huge credits at the level of accumulation it had by then achieved.

The American and British capitals had already become mature at the beginning of the post war boom. That is to say that the rate of profit exacted by their domestic production was insufficient in relation to the total capital invested, whilst production of capital was extensive enough to export large quantities of capital to more profitable areas. These states then, exported capital throughout the whole period.

The export of capital was quite acceptable to the rest of the world - it was done through the acceptance of the dollar and sterling as international reserve currencies alongside gold. The dollar was accepted as 'good as gold', through the establishment of the gold-exchange standard at Bretton Woods in 1944. A domestic money symbol was accepted as the international means of payment. There are two necessary conditions for this role. It could be circulated in huge quantities given the size and productivity of American capitalist production, and this productivity of labour guaranteed the stability of the currency. The latter condition is vital for the preservation of this status, the international means of payment. An extensive issue of dollars on an insufficient basis of expanding value would mean a depreciation of the paper dollar.

Now the expansion of credit out of production is itself limited as the expansion of capital slows during the cycle. The demand for credit by the world's capital, and the acceptability of the dollar enabled American capital to issue credits at a rate much greater than the expansion of American production. These dollar credits enabled the purchase of foreign capital by the Americans. The enormous issue of dollars at a time when productivity was falling relatively to other national capitals, began to bring about a real depreciation in the paper currency. Its equivalence was set politically however against a given quantity of gold, and it was this relation which convinced foreign capitals to accept the dollar at its face value. Throughout most of the post war boom the US had a positive balance of trade, but maintained a balance of payments deficit which reached $62,000 million in 1971. The deficit was financed by the rest of the world since it accepted the dollar in exchange until that time.

The rate of growth of the productivity of United States industry was over-taken by that of the developing German and Japanese capitals. The dollar at its fixed rate of exchange, became over-valued compared with other currencies. The maturity of American capital was expressed in lower increases in productivity, raising its export prices relative to the more productive exporting nations. This was undermining the US balance of trade. It was these conditions which resulted in a refusal of capitalists to accept the dollar - they all expected its devaluation, or the revaluation of the Yen and Deutschmark to bring the exchange rates into realignment. The demand for credit, for means of payment, continued to exist however, and the dollar, because of the role it had developed continued to be used as the international money. For example despite the German government's attempt to restrict domestic activity in 1970, German capital simply sought more money-capital on the international money markets.

The dollar accumulation of foreign banks and institutions rose by $7,300 million in 1970 whilst the total short-term liabilities to the rest of the world by the US was $43,400 million. The differing rates of productivity of American and German capital was bringing about a real change in the actual exchange rates of the currencies, yet the dollar still remained tied to gold, over-valued.

The enormous expansion of dollar credit, and its importance for world trade can be seen in the development of the international money markets during the post-war period. The Eurodollar market was formed at the end of the 1950's - the market constituted by the dollar deposits in the European banks and American bank branches in Europe. In 1960 it was estimated at $2,100 million, in 1967 at $17 ,500 million, and in 1971 at $60,000 million. The enormous debt that this included, run up by the United States through its balance of payments deficits - was financed by the European states.

With a slower growth of capital, because of the lower rates of profit, credit was demanded over a longer term. Thus in the second half of the 1960's there emerged an additional middle and long term capital market - an entirely new phenomenon in modern capital. The existence of all of these money dealers rested upon the expansion in real values that was now slowing down.

In May 1971 the flow of dollars reached huge proportions, and speculation developed in the attempts of money capitalists to protect the value of their capitals. There was a general recognition that the dollar was overvalued. West Germany refused to accept the dollar at its official parity. US short-term dollar liabilities had now risen to $51,900 million. Despite measures taken to partially revalue and establish floating exchange rates for certain currencies the sale of dollars continued. In June the US announced a budget deficit of $23,000 million, and a rise in the national debt to $400,000 million as a result of state expenditures incurred in an attempt to maintain production and employment.

The use of the national paper money, the dollar, for international payments could continue only as long as the productivity of American capital rose enough to maintain the dollar exchange rate. But it could not. Japanese and German capital became more productive. The formal dollar devaluation of August 1971 was forced upon the US - just as the sterling devaluation of 1969 was forced on Britain. This made it more costly for the US to export capital - although its commodities were competitive in the world market again.

No nation's currency can displace money of the world, gold, as the final means of international payments. The competition between capitals will force first one, then another national currency into and out of the position of world wide acceptability as a means of payment. The refusal to accept the national paper money internationally, arises not out of some abstract 'over-issue' of such paper, or speculation in the money markets, but out of the decline in the rate of accumulation in that state in respect to the issue of its paper money. What first appears as a money crisis is actually the result of a crisis of production.


We can only give a brief sketch here of the more important developments associated with the post-war boom. We shall show how these developments give expression to those general tendencies we have already discussed.

The post-war boom rested on a number of important factors which we shall discuss briefly.

1. The defeats of the working class before the war. Fascism and war were expressions of those defeats, and the post-war boom has to be seen in that context. During and after the war these defeats were perpetuated by the collaborationist roles of social democracy and the stalinist Communist Parties. Where the working class were defeated by fascism, the rate of exploitation could be raised by increasing the working day and through the intensification of labour.

In Germany where already Fascism had massively raised the rate of exploitation the share of wages in the national product dropped from 64% in 1932 to 57% in 1938 - it was not until 1950, or according to some writers (Kuczynski, Wallich) 1956, that the real wages of German workers reached 1938 levels. The enormous growth of the supply of labour - between 1945 to 1950, 7.9 million refugees flowed into West Germany - was a contributory factor to allowing the rate of exploitation of the fascist period to be maintained or even raised.176 In twelve industrial branches out of 24 the average work week was more than 50 hours over this period.177 From 1950 to 1959 income to capital increased at an average yearly rate of 11.4% (from 1852 to 1913 it was 3.75%) whereas income to labour increased by only 7.0% over the same time-span. The fifties were the years in which German capitalism made the highest rate of profit in its whole history.178

In Japan figures suggest a similar process of development.

Real National Income per Capita Real Monthly Income of Wage Earners
1934-6 100.0 100.0
1949 71.9 57.8
1950 78.1 69.1
1951 85.6 72.0
1952 100.0 84.0

Although real national income per capita reached 1934-6 levels in 1952, this was not the case for real monthly income of wages earners. 1949 saw monthly wages at 57.8% of the 1934-6 level.179

Even in countries like the US, although wages increased, they increased well below the level of productivity growth. Between 1947 and 1957 wages fell from being 40.7% of value added to 35.6%.180

2. The enormous destruction and depreciation of capital values during the war - which played a similar role to the capitalist crisis - meant both that demand levels after the war were very much higher and that there was a new basis on which to begin accumulating capital. This also allowed the introduction of these more efficient technologies world-wide, which had been developed before and during the war.

3. The outcome of the war was the dominance of the US economy world-wide. This allowed the US economy to develop initially at the expense of other national capitals. Through Marshall Aid and the export of capital, the US laid the basis for increasing control of world markets for American capital, and a higher rate of accumulation of capital at a higher rate of profit. The disequilibrium between Europe and America in the inter-war years, in this sense, had been over-come by the control US capital now had world-wide.

The post-war boom once underway saw a continuous increase of productivity well above pre-war levels. Productivity has been doubling every ten years in Japan, every 15 years or so in the major Common Market countries and about every 30 years or so in the US and UK. Figures for productivity increases for the major OECD countries are given below.

Average Annual Growth Rates of Output Per Man-Hour181

1957-60 1961-64 1965-68 1968-72
UK 3.4 3.5 3.9 4.8
US 4.1 4.0 3.2 3.1
West Germany 5.4 5.9 5.5 4.4
Japan 4.0 8.2 11.4 10.4
France 5.4 4.9 5.8 8.3
Italy 5.4 8.9 6.9 2.8

Real wages have necessarily grown below the level of productivity increases. In the US between 1946 and 1969 the index of productivity per man-hour in manufacturing increased from 60.8 to 145.5, an increase of 139%. However, real take-home pay increased from 80.2 to 112.8 or by 40.6%.182 In Britain average real net income after tax increased (for all employees) by about 2.0% while productivity increased on average by 3.8%183 at an annual rate.

The growth of output has necessarily been related to the amount of investment as a percentage of GDP in each country - although other factors are also involved.

Investment as
% of GNP184
Growth of
Japan 30-35 11.0
Germany 23-27 4.9
France 20-26 5.8
US (excludes government expenditure on machinery and equipment) 17-18 4.1
Britain 16-18 3.1

The low level of investment in the UK and US and the much higher productivity growth in the other important OECD countries has meant a change in the balance of economic power world-wide. The following tables indicate these important changes. They are the shares of the major capitalist countries (area) in world capitalist industrial output and the shares of exports as a percentage of market economies.

Shares of Capitalist World Industrial Output %185

1937 41 22 12 4.5
1953 52 16 10 2.0
1963 44 21.1 6.4 5.3
1970 40.5 22 5.0 9.5

The important change in the position of the USA should be noted. After its initial large gain in the immediate post-war years its share has gradually returned to the pre-war level. That of the EEC has moved in exactly the opposite direction. Japan has seen a continual rise of its share and Britain a continual fall. The share of exports is equally instructive.

Export of goods (% market economies)186

1938 1948 1958 1963 1968 1973
US 14.5 23.3 18.5 17.0 16.1 13.7
France 4.1 3.9 5.6 6.0 6.0 6.9
W. Germany n.a. 1.4 9.6 10.8 11.7 13.1
Italy 2.6 2.0 2.7 3.7 4.8 4.3
UK 13.0 12.2 9.9 9.0 7.2 6.0
Japan 5.3 0.48 3.0 4.0 6.1 7.1

Book Value of Companies Investment Outside Own Countries and Shares in Total ($million)187

1967 % share 1971 % share Average increase 1967-71
US 59,486 55.0 86,000 52.0 45%
UK 17,521 16.2 24,019 14.5 37%
France 6,000 5.5 9,540 5.8 59%
W. Germany 3,015 2.8 7,276 4.4 141.3%
Japan 1,458 1.3 4,480 2.7 207.2%

Here again the figures show the changing balance of power and the growth of international competition throughout the period. The enormous jump in US exports just after the Second World War indicated US dominance after the war. The gradual decline in its exports share since then and the rise of the share of Japan and Germany are the significant features. As for the share of industrial output, Britain has seen a continuous decline of its share of exports. The new balance of power, which both these tables point to, has set the stage for the growing inter-imperialist rivalries of the next period.

A final indicator of the growing extent of these developments can be seen from figures for the export of capital in the form of foreign direct investments.

The 'mature' capitals have a considerable stake in the foreign direct investment abroad. For Britain this amounts to nearly 20 per cent of the GNP and for the US, 7.5%. What is important is the recent rapid rise in the export of capital from W. Germany and Japan. At the end of 1973 Japanese investments were on a par with those of West Germany at about $10,000m, and latest estimates suggests they could amount to $42,000m by 1980. The total amount of Japanese overseas investment (including portfolio etc) increased by nearly 450 per cent between 1968 and 1972. West German foreign direct investments increased 52% within the 12 months ending March 1974.188

A central feature of the post-war boom has been the tendency towards concentration and centralisation of capital. In 1968, for example, 200 of the largest manufacturing corporations in the US controlled nearly two-thirds of all manufacturing industry assets - the same as the largest 1000 in 1941. In 1970, 100 of the largest manufacturing companies were responsible for 50% of total manufacturing output in the UK, whereas the figure was 20 per cent in 1950. For Japan the following table gives some indication of concentration and centralisation of capital.

Company Mergers in Japan 1951-69189

1951-5 1961-4 1969
Total (annual average) 345 812 1,163
Companies with capitalisation value of more than 1 billion yen. 4 27 36

With the growing capital investment and increasing productity productivitythe tendencies to overproduction of capital emerged. Credit began to increase considerably and by the mid-sixties the state had begun to increase its role significantly. The US statistics for credit reveal most strikingly the growing crisis of overproduction of capital.

Debt in the United States190
(in billions of current dollars)

Year A: Gross National Product B: Public Debt C: Private Debt B as % of A C as % of A
1946 208.5 260.4 153.4 129.4 73.6
1950 284.8 239.4 276.8 84.0 97.2
1955 398.0 269.8 392.2 67.8 98.5
1960 503.7 301.0 566.1 59.7 112.4
1965 684.9 367.6 870.4 53.7 127.1
1969 932.1 380.0 1,247.3 40.8 133.8
1973 end 1294.9 600.0* 1,800.0* 46.3 139.9
1974 end 1335.0* 660.0* 2,000.0* 50.0* 150.0*

* approximate

Private credit has had to grow enormously to keep the expansion of capital at a steady rate. Today the depth of the crisis becomes ever more clear. Public debt having been gradually reduced as a percentage of GNP, over the post-war boom period, is now having to rise again. The federal budget deficit for 1974/5 was greater than $44 billion dollars - a post war record. Estimates for the next year suggest it will rise to $60 billion. Business Week has summed up this incredible trend,

'The numbers are so vast that they simply numb the mind. £1 trillion in corporation debt, $600 billion in mortgage debt, $200 billion in state and local government debt, £200 billion in consumer debt. To fuel nearly three decades of post-war economic boom at home and abroad, this nation has borrowed an average net $200 million a day, each and every day since the close of World War II.'191

While the growth of credit has been a dominant factor in stimulating the expansion of capital, the state in most countries has played an increasingly important role. It is difficult to find consistent figures for state expenditures as different countries use different categorisations and, in general, the role of the state in the past has been played down in statistics. However, no matter what figures are used there has been a much faster growth of state expenditure than that of the GNP in most OECD countries, since the early 1960s.

Public expenditure as a % of GNP192
(excludes capital transfers)

1955-7 1967-9
US 25.9 31.7
France 33.1 (1959-61) 37.0
Germany 32.4 (1960-62) 36.5
Italy 28.1 34.2
UK 31.7 38.0
Total OECD 26.9 32.1

A larger and larger part of this expenditure has been on social services. In the US total social welfare expenditure grew from 8.9% of GNP in 1949-50 to 17.5% in 1971-2. As a percentage of Government expenditure this shows a rise from 37.6% to 53.4%.193 For Britain social services expenditure rose from 13.4% of GDP in 1951 to more than 22% in 1972. This was a rise from 32% to over 43% of public expenditure.194

While arms expenditure up to the Korean war was a large component of state expenditure, since that period there has been a continuous reduction of such expenditure as a proportion of both public expenditure and GNPs in nearly all OECD countries. Taken together for the OECD countries, defence expenditure took 10.2% of GNP in 1952/3 at the height of the post Korean war rearmament; while at the peak, in 1967, the proportion was only 6.4%. In 1968 the fall in defence expenditure elsewhere more than offset the further rise in the US.195 This fall has continued. Although arms expenditure gave some stimulus to the post-war expansion - given the basis that already existed for profitable capital accumulation - it was reduced as soon as politically possible because of its detrimental effect on the overall rate of profit.

These state expenditures must generally be paid for out of taxation. The rise in expenditures are reflected in the rising share of taxes as a percentage of GNP.

Total Taxes as % of GNP196

1955-57 1967-69
Canada 23.8 30.0
US 25.4 30.0
Japan 18.0 19.0
France 32.9 37.0
Germany 32.4 35.1
Italy 24.7 30.3
UK 28.0 34.2
OECD Total 25.8 30.5

The growth of unproductive labour and unproductive consumption has been a continual feature of the post-war boom. A great deal of the increase has been due to the growth of the state sector but not only this. The increase of banking, commercial and various 'professional' work has added to this. An indicator of the changes which have occurred is the shift towards 'non-industrial' jobs as a proportion of industrial employment. These are as follows,

Increase in non-industrial jobs as a proportion of industrial employment 1962-73197

Britain 29%
US 19%
France 15%
W. Germany 8%
Italy 7.5%

Figures for employment in the USA are even more revealing.

% of employees by industry division, USA 198

1919 1946 1959 1974
Manufacturing 39.4 35.3 31.3 25.6
Wholesale & Retail Trade 16.7 20.1 20.9 21.7
Financing, Insurance, Real Estate 4.1 4.1 4.9 5.3
Services 8.4 11.3 13.4 17.2
Govt 9.9 13.4 15.2 18.2

The reduction in manufacturing employment and the growth in the services and government sector of employment indicate the trend towards the growth in the employment of unproductive labour and unproductive consumption in the USA. In Germany the change in the number of employees was 770,000 from 1966-73 (+ 3.6%), however there was a decrease of 84.000 from industry (-0.7%) and a growth of 954,000 in 'Services' (+ 10.8%).199

The figures given for the growth of unemployment and inflation. together with a stagnation in GNP have been given in an earlier section. They have been explained through an analysis of the contradictory effects of attempting to 'postpone' the 'depreciation' of capital and social labour by the extension of credit and public expenditure. The occurrence of stagnation and inflation together indicates that the limits of this process have been reached. In the last year a further indicator of this has been the unparalleled rise (for at least over 10-15 years) of public sector deficits and borrowing requirements. We give the figures for three countries.

Public Sector deficit % of GNP200

1967 1968 1973 1974 1975
(6 months)
US -1.6 -1.0 -0.6 -0.7 -5
Germany -1.3 -0.7 1.6 -0.9 -6
UK -4.8 -2.8 -4.4 -7.0 -7.5

Italy has recently approved a record budget deficit for 1976 increasing expenditure by nearly a third and up nearly 70% from the 1975 budget.201 Japan is also likely to embark on large-scale deficit financing this year. The budgetary gap is put at something over Y2,000 bn (£3.1bn) and special legislation is required to permit the Ministry of finance to borrow the necessary funds.202

The governments of the major capitalist countries are unable to cope with the growing overproduction of capital. If the large countries reflate together unemployment might be slightly reduced but inflation will once again surge ahead. If another boom is artificially created it will have less effect than the last (1972-73). The limits of the so-called mixed economy have been reached. Capital now needs to be massively restructured, if profitability is to be restored. The condition for doing this is an intensive attack on the working class. Cuts in living standards and state expenditure must take place. The outcome of this crisis, like the last, depends on the political preparedness of the working class.

(a) The Crisis in Britain

As the oldest capitalist State, Britain has come to express the contradictions of capital in their most acute form. The leading capitalist State, utilising its monopoly position, Britain was able to export more capital than its net capital formation at home, as early as 1870.203 From this period onwards, the relative fall in domestic investment resulted in a decline in the competitiveness of British commodities compared to that of other capitalist States. This export of capital took on an increasing significance as greater profits were to be made outside of the UK. Capital exports became a necessity if rates of profit were to be maintained by the owners of capital. It is not then, as the broody nationalists would have it, a process of systematic sabotage of British industry by unpatriotic capitalists, but the logic of capital that dictates this movement.

We will not discuss here in detail the whole post-war period but outline the more important developments. The defeats of the working class before and during the Second World War laid the basis for a rise in the rate of exploitation in the post-war period. The immense destruction of capital values set the stage for a renewed expansion of production with a large rise in profits. This immediate expansion was facilitated by an increase in the indebtedness of Britain to the United States and Canada, and sales of long term investments.204 The success of the expansion depended upon the immediate post war advantage British Capital had over European and Japanese capital. There was a rapid growth of exports. To explain a decline in this position it is necessary to see the effect of a recontinuation of capital exports from Britain. This was prompted by the rise in production in Britain and the more profitable investment opportunities abroad.

The increases in the productivity of British capital were low compared to those achieved in Europe and Japan. The British state increasingly intervened to push up the rate of productivity, from the time of the post-war Labour government's incomes policy.

Domestic Capital Formation and Direct Capital F1ows Abroad.205

Domestic ($ billion) Abroad ($ million)
1957-60 61-64 67-68 57-60 61-64 67-68
UK 3 3.5 5 510 670 820
W. Germany 4 7 7.5 120 220 320
France 2.5 5.5 8.3 10 100 200
Japan 3 6 13 50 90 170

UK external assets and liabilities. Private Sector. £m.206

1962 1970 1971 1973 1974
Total Private Investment Abroad. 8,070 14,530 15,190 20,195 18,870
Total Banking and Commercial Claims 2,265 18,200 20,550 41,505 50,055
Total external assets of the private sector. 10,335 32,730 35,740 61,700 68,925

We have previously given figures to show the low level of domestic investment in the UK, compared to that of its competitors. This continuously low domestic investment is reflected in the increases in the productivity of labour. From 1965 until 1972 the gross productivity changes reported by Flanagan207 were as follows: - US, 20%: UK, 36.6%: Italy, 41.5%: W. Germany, 42%: France, 53.5%: Japan, 130.3%. This consistently low level of productivity increase in Britain resulted in a continued decline in the proportion of British exports to the total exports of the market economies. From 1948 to 1972, British exports (f.o.b.) fell from 12.2% to 6.6% of the total exports of the market economies. This compares with a rise in German exports from 1.4% to 12.5%, and from 0.4% to 7.7% for Japanese capital.208

This declining position reflected in the near continuous balance of trade deficits, and the pressure to devalue sterling, forced the State to intervene continuously to raise productivity. Both the direct intervention of the State in production and a continuous series of 'Incomes Policies' were the result.

The increases in productivity that resulted from State intervention meant a rise in the total capital outlay relative to surplus value. Capitalists struggled to obtain a greater share of the mass of surplus value produced even more fiercely as the rate of profit fell. As the rate of accumulation fell, and as the rate of productivity rose, less and less labour was employed by capital until more labour was being expelled from the production process than was being re-employed by it. According to the following indicators for the British manufacturing industry between 1964 and 1973, the investment in constant capital rose whilst absolute employment fell.209

Increase in plant and machinery at constant replacement cost % Decrease in Employment
Coal and petroleum products, Chemical and allied industries 67.7 8.5
Other metals, engineering and allied industries 33.5 11.9
Bricks, pottery, glass and cement 68.1 14.2
Construction 101.3 16.8
Food, drink and tobacco 63.5 9.4

The number of workers in the manufacturing industries fell from 9,010 thousand in 1964 to 7,956 thousand in 1973.

To restructure British capital to the point where it was both profitable and competitive would require enormous investments of capital and a much higher rate of exploitation than presently exists. The massive redundancies that would result from this is precisely the opposite effect to that posed by Benn, who sees in a restructured and competitive British Industry the employment of more labour. On the other hand, arguments which recognise the inverse relation between employment and manufacturing investment empirically, but which believe that employment in public services can overcome unemployment, do not understand the real basis for this employment - surplus value production.

During the post war period the State nationalised a number of industries and proceeded to restructure and rationalise them. Between 1960 and 1974, 350,000 employees were expelled from the Coal industry, and 325,000 from the railways. The latest programme for the steel industry involving £3,000m investment, envisages finally, 50,000 redundancies. Private capital continued to increase productivity throughout the period especially from 1965 onwards.

Trends in Productivity 210
(Output per employee)

1955-60 60-65 66-71 72 73
1. Manufacturing 2.2 2.8 3.6 6.1 7.4
2. Gas, electricity, water 5.1 3.7 7.5 13.6 9.6
3. Insurance, banking etc. professional and scientific services, and miscellaneous services 2.0 0.4 1.9 0.7 -1.1
4. All industries and services 1.7 2.0 3.4 3.1 2.5

In manufacturing this increase was accelerated, reaching its highest rate in the 1973 inflationary boom.

An increase in the reserve of the unemployed was continuous from 1954.

'Male unemployment since 1954 has shown large fluctuations about a steady rising trend. Female unemployment has shown similar fluctuations, but at a much flatter trend.'211

By 1972 there were 453,800 more registered unemployed than in 1959. The 1971 Census of Population indicated that there were a further 70,000 men and 230,000 women looking for work and not on the register. The duration of unemployment has also risen, as a trend since 1950, and absolutely since 1966.212 But this rise does not take up all the loss of employment that took place from industry over this period. There was an increase in employment by the State. This expansion, alongside that in the sphere of circulation and in other services changed the employment structure in Britain throughout the period.

Employment by occupation
(as a % of Total Working Population)213

1959 1974
Public Administration
and Defence
5.98 6.96
Miscellaneous services 8.25 9.53
Insurance, Banking etc 3.0 4.7
Professional & Scientific
9.24 14.29
Distributive Trades 12.37 12.3
Manufacturing 39.3 (1961) 34.6 (1973)

The proportion of the working population now employed in what is broadly understood as 'white collar' work was increasing, whilst that of 'blue collar' work was decreasing.

The Shift from Industry214

1962 1973
Blue Collar 11,749,000 9,915,000
White Collar 11,537,000 12,747,000

This trend can be expected to continue. A significant decline in employment is expected to occur in the railway industry by 1981.215 The numbers of professional and technical workers was projected, by Woodward, to rise to 4.4 million in 1981 compared to 2.7 million in 1971.216 These trends however result primarily from the increasing intervention by the State to establish other employment as productive employment decreases, alongside an expansion in the number of circulation workers, which rose with the increase in credit expansion.

Between 1959 and 1974 employment in education rose from 873,000 to 1,693,000 whilst that in the Medical Services rose from 729,000 to 1,113,000. These increases however did not fully offset the increase in unemployment, and the consequent costs of maintaining the unemployed rose.

In the last decade the number employed by the local authorities rose 800,000 to 2,700,000 people.217 Local authorities' expenditure has increased about twice as fast as national income and almost three times as fast as the yield from rates. Two thirds of local authority spending goes directly in paying its workers. As 80% of local authority spending is obligatory - statutory responsibility - any decrease in this expenditure will have serious social repercussions. Local authority expenditure as a percentage of total government spending has increased from 17.3% in 1950, 23% in 1960 and 30.5% in 1970, to 32.4% in 1973. Latest figures indicate that over 40% of total government expenditure and over 18% of the GNP is absorbed by local government.

The growth of public expenditure and the large proportion of social services expenditure, rose consistently as a proportion of Gross Domestic expenditure, as well as forcing up the indebtedness of the State. The extent of this change was succinctly expressed by the 'Economist',

'On September 1st or thereabouts, public sector spending in Britain topped £1,000-a-second. It took from the dawn of history to 1966 to reach £500-a-second, seven more years to reach £1,000, and on today's trends £2,000 would be passed before 1980.218

Public Expenditure and Taxation
(% of GDP at factor cost)219

1957 1960 1965 1968 1970 1971 1972 1973 1974
Total Public Expenditure 36.5 37.5 45.5 51.9 50.7 50.4 50.8 51.4 57.3
Total Taxation (including rates) 32.6 32.2 35.3 41.2 45.0 42.1 40.2 38.4 42.8
Social Services expenditure 14.0 15.4 17.7 20.4 21.1 21.0 22.1 21.5 22.7

The accelerating inflation had become a serious political issue for the working class by the late 1960s. The bourgeoisie on the other hand were coming to view existing wage levels, and unproductive state expenditure as the central causes of the falling rate of profit and the rising rate of inflation. We have seen how the real processes at work in the deepening crisis, are opportunistically reversed in the minds of the bourgeoisie, and how they use their views in an attempt to decrease state employment, increase the reserve army and force wages down below the value of labour power.

When the Conservative government took office in 1970, it promised to 'reduce prices at a stroke'. The strategy was to cut government expenditure and reduce overall taxation - both were believed to cause inflation. This would involve a process of 'forced' rationalisations at the expense of the working class. However the reductions in taxation and the attempt to cut back state expenditure, not only failed to reduce inflation, but threatened large increases in unemployment. The state was forced to increase expenditure. The figures for public expenditure and taxation for 1971 to 1973 show the failure of this so called 'lame-duck' policy. The Heath Government ended up paying £1.30 in aid to industry for every £1 that Labour spent in its last year of office.

The rise in government expenditure had now to be financed through borrowing, since the Tory government had reduced taxation over all. The budget deficit increased to £1,810 million at the end of March 1973 to £4,500 million in mid 1974, reaching £6,300 million at the end of 1974.

The attempt to cut inflation demonstrated that the basis of inflation did not lie directly in government expenditure itself, but in the systematic issue of currency and credit by the banks, which was necessary if the higher prices set by the individual capitalist were to be realised, in an attempt to overcome the profits crisis. Increased State expenditure which relies for its extension of National Debt through the issue of fictitious capital, expands the credit base of the banks themselves. State expenditures at present are such that the public sector deficit reached £2.16bn in the first quarter of 1975, compared to £1.37bn in the same period of 1974. Such borrowing requirements led to higher interest rates which made matters worse by putting up the cost of private and local authority investment, so adding to the pressure to raise prices. Certainly the forced expansion of credit that followed this process of State intervention went along with, and intensified the inflation arising out of the attempt by private capital to maintain its profitability.

An indicator of the sharp rise in advances that were given to industry in this period are the following figures.

Total Bank Advances (£ million)220

1969 10,428.3
1970 12,413.8
1971 16,029.8
1972 21,169.3 (underestimate)
1973 29,854.8 (underestimate)

In an attempt to increase the mass of profits available to private capital, throughout the whole period, taxation on corporations was reduced, and investment grants rose. According to Burgess and Webb, from 1967 the decline in the rate of return post tax was limited by investment grants.221

Percentage of Income taken as taxation from Corporate Profits excluding tax dividends222

1949-52 36.5
1953-56 31.5
1957-60 25.9
1961-64 22.0
1965-68 19.0

Indeed the extent of this cut in taxation has been so great that The Economist has noted that,

'... cuts in corporate taxation ... does not seem a top priority when taxes on profits from manufacturing have already been estimated to have fallen to an average of 14% and many companies pay no mainstream corporation tax at all, thanks to free depreciation for tax purposes on new investments in plant and machinery'.223

The working class however did not receive such reductions, on the contrary the burden on them increased. The rise in taxation on the working class has been increased by inflation. Extra taxation is generated by the increase in inflation - a phenomenon given the technical name of fiscal drag. Here tax thresholds are raised more slowly than the rate of inflation, so that more workers receive money wages which are taxable, whilst those in the taxable income bracket find themselves paying increased taxation - a higher proportion of their real income.

Changes in Income Tax (£million)224

Budget change Fiscal drag Total
1968-69 +96 +199 +295
1969-70 +25 +233 +258
1970-71 -199 +494 +295
1971-72 -610 +521 -89
1972-73 -1268 +613 -636
1973-74 -310 +877 +567

This taxation effect actually overcame the reduction in personal taxation of the Tory budgets of 1970- 74. The brunt of this effect falls on the working class. The percentage of income taken as taxation from wages and salaries increased continually.

Tax on Wages and Salaries225
(% of income taken as taxation)

1944-52 9.8
1953-56 8.9
1957-60 10.6
1961-64 12.3
1964-68 15.5

Net take home pay (after tax, insurance etc) as a proportion of national income, had actually fallen.

Net take home pay (wages and salaries) after tax etc. as percentage of national income.226

1957 60.0
1960 58.8
1965 57.4
1968 55.9
1970 56.4
1971 55.9

The figures for the growth of gross money, gross real and net real income (after tax) for male manual workers, are equally instructive.

Annual compound rates of growth227

Gross money income Gross real income Net real income
1956-60 5.0 2.9 2.1
1960-64 5.5 2.2 1.3
1964-68 6.0 2.5 0.5
1968-70 10.0 3.6 1.3
1971-72 15.4 - 7.4
1972-73 13.9 - 1.1

Depending on the threshold arrangements for increases this meant that between 1973 and 1974 the change in the income of the working class varied between -4.8% and 2.2%.

All attempts to cut State expenditure failed.228 The National Debt increased continuously as budget deficits increased. The budget of 1975 indicated that the government was planning to lop £900 million (at 1974 survey prices) off the planned volume of public expenditure for the fiscal year 1976-7. But this can be done only with increased unemployment and further recession.

The Labour government must cut back state expenditure, yet it faces a dilemma. Because of the low level of the productivity of labour in Britain, the government cannot reflate like other economies. It is dependent upon them for an easing of pressure, a raising of demand for commodities. The rate of unemployment must be forced up by a halt to government expenditure increases. Only a constant devaluation of the pound sterling from 1967 onwards has enabled exports to remain competitive, but this devaluation has been at the expense of the living standards of the working class.

What we have attempted to show in this section is how the British crisis is a heightened expression of the growing world crisis. At present the Labour Government is trying to draw in the working class, through its leadership in the trade unions and Labour Party, to accept a wage cut as the first stage in the restoration of British capital's profitability. The 'social contract' is designed to achieve exactly this. However this can be only the first stage. Unless a massive increase in productivity in British industry is rapidly brought about, British capital can hardly survive the crisis of profitability world-wide. So that a rapid growth in unemployment will be central to the strategy of a Labour Government intent on preserving private capital. State expenditure therefore will have to be cut and the state will play a leading role in rationalising the industries it controls and gives subsidies to. The Ryder report is an example of this, where productivity gains are to be a central part of the agreement to provide the extra finance required. The refusal to give more funds to NVT is another aspect of the same approach. What the Tories were unable to do because of the resistance of the working class - from 1971- 2, the Labour Government is now beginning to put into practice with the active support of many of the trade union leaders.


Our analysis shows that this crisis is a fundamental one for world capitalism. The Left in Britain has not really understood this point. At issue is the way forward for mankind. In each and every capitalist country the question of political power will be centrally posed. Worldwide, as inter-imperialist rivalries grow, 'nationalism' will be the greatest barrier to the unity the working class requires. The major pressures for protectionist measures come at present from the trade union movement in each country. It indicates that calls from the ruling class to protect the 'national' capital will not fall on deaf ears. Our analysis shows how protectionism offers no way forward for the working class. Defensive measures to protect working class living standards cannot be of that kind.

It is clear that a strategy to defend the living standards of the working class must be turned into an offensive struggle for political power. Increasingly the working class must assert its 'control' and prevent the capitalist class resolving the crisis on the backs of the working class. This article is intended to make this a possibility. By being a critique of the ideological representatives of the bourgeoisie and opportunists within the ranks of the working class, through to the 'radical left' which is incapable of combating such views, it is a critique of the anti-working class solutions that these views offer. In this sense it points the way forward to an independent working class stand.

Paul Bullock
David Yaffe
September 1975


  1. The Economist, December 28th 1974, p40-42.

  2. Ibid, May 17th 1975, p10, and June 14th 1975, p13.

  3. Marx, K, CapitalVol 3, Lawrence and Wishart, Moscow and London, 1962, p248.

  4. Ibid. The Economist is forced to agree. With the terminology of a shame-faced liberal under attack, it concludes, 'It is a highly desirable to look for international solutions but the prudent will look out their national survival kits as well.' op cit; December 1 28th 1974, p42.

  5. Speech to a South-Eastern region rally of the TGWU at Poole 17/5/75. Quoted in The Observer, May 18th 1975, p1.

  6. Cited from and reported in The Financial Times, July 21st 1975, p4.

  7. Trade and Industry, April 4th 1975, p2, our emphasis.

  8. Ibid, February 28th 1975, p494 ff.

  9. The Economist, July 19th 1975, p9. It is of course quite possible that the 'left-wing ministers' will resign from the government if a statutory policy is introduced, instead of threatened, should the trade unions not accept what amounts to a government ordered wage cut. But this underlies their confusion. A voluntary wage cut under threat of statutory controls is acceptable whereas a statutory policy is not. Constitutional 'fine-tuning' indeed!

  10. Reported in The Financial Times, July 23rd 1975, p12.

  11. Britain's Economic Crisis by the Cambridge Political Economy Group. Spokesman Pamphlet No 44, 1974. Bob Rowthorn, one of the group, is a leading theoretician in the British Communist Party.

  12. Ibid, p5 and p6.

  13. Tribune, Vol 39 No 25 June 20th 1975, p1.

  14. The Crisis in British Economic Planning and a Draft Planning Agreement. A Discussion Paper from ASTMS. Published by ASTMS (no date) p4.

  15. Ibid, p2.

  16. The Social Contract - Cure-All or Con-Trick? by Bert Ramelson, Communist Party pamphlet, p10-11.

  17. Tribune, Vol 39 No 26 June 27th 1975, p1, also Britain's Economic Crisis, op cit, p22, The Social Contract, op cit, 25, ASTMS pamphlet, op cit, p3, 7, and 8, Tribune, ASTMS, and the Communist Party all held to a crude chauvinist anti-EEC view during the Common Market referendum.

  18. ASTMS, op cit, p7.

  19. Ibid, p7.

  20. Tribune, loc cit, ASTMS, op cit, p4.

  21. Marx, K, Grundrisse, Penguin Books, 1973, p409.

  22. Britain's Economic Crisis, op cit, p13 and 14. In fact the Communist Manifesto makes clear what this 'substance' is, 'The Communists are distinguished from the other working-class parties by this only: 1. In the national struggles of the proletarian of different countries, they point out and bring to the front the common interests of the entire proletariat, independently of all nationality. 2. ...' the second point is that Communists represent the Interests of the movement as a whole. See Communist Manifesto Section II, 'Proletarians and Communists'.

  23. Ibid, p23. Why the European working class will take such measures in the case of a working-class movement which has supported import controls so threatening unemployment - because of reduced exports - in the other countries, is not clear. They also call for increased trade with socialist and third world countries but as most capitalist countries in these times of crisis are already vying with each other to get such trade this is hardly a radical measure.

  24. Lenin, V I ' "Left-Wing" Childishness and the Petty-Bourgeois Mentality', Collected Works Vol 27, p339. Also Lenin, V I, 'The Immediate Task of the Soviet Government', Ibid, p257, and 'Report on Concessions' April 1921, Ibid, Vol 32, p313-4.

  25. Britain's Economic Crisis, Op cit, p15. This will include mobilising popular support to 'break the power of the capitalist class in Britain', Ibid, p15, p25, etc. But the discussion of the 'political problems involved in such a mobilisation would require a book in itself' - we await that with interest. It is instructive that the IMG's Red Weekly (17/7/75 p6-7) argues in a similar way to Britain's Economic Crisis in its 'plan to beat the crisis'. While formally correct in calling for immediate measures to defend the living standards of the working class, in discussions of its 'plan' it never argues that the working class first of all needs to seize state power -to smash the capitalist state - to plan social production in its own interests. It talks in a similarly 'inexact' way as our Cambridge academics of 'smashing the state resistance with which...the ruling class will threaten the labour movement'. In its recent attempt to discuss with the Labour Party 'left' it has unfortunately fallen prey to the utopianism inherent in their programme. It is dangerously confusing to call for a 'State monopoly of foreign trade' without having clarified what type of state - a capitalist or proletarian state. The IMG, as the Cambridge academics, wishes to be rid of the capitalist, but retain capital - a fault quite common, as Marx remarked, in English socialists. It is also quite consistent, therefore, for Red Weekly to regard it as 'a gigantic slander to call the Tribune programme as a whole reactionary'. How else can we treat it but as a whole, and considered in this way, as we have shown, it is both utopian and reactionary. Clarity and precision above all are essential at this time. Chile and now Portugal indicate what is at stake and Marxists are not impressed by left-sounding rhetoric. It is again not surprising that the failure of the Allende Government in Chile was regarded by Red Weekly in the above article as a 'failure to protect wages against inflation' which meant a loss of enthusiasm by workers for radical (!) policies. The failure lay precisely in the politics of those supporting the Allende government - they did not raise the question of state power, because they thought it possible to expropriate the capitalists and yet retain capital. Any examination of the crisis in Italy in the early 1920s shows that to save capital, capitalists are prepared to support handing over a great deal of 'formal' control to the workers. 'The owner of Fiat offered to turn it into a co-op run jointly with the unions.' See the review of two books written on this period by Peter Sedgwick in The Guardian, July 24th 1975, p7.

  26. Midland Bank Review, November 1974, p6

  27. The Bank of England Quarterly Bulletin Vol 15 No 2, June 1975, p137.

  28. The Financial Times, July 24th 1975, p15, and The Economist, July 26th 1975, p63. The latest figures from the Department of Employment show that average earnings have risen only 25.8% in the year to August 1975, compared to a rise in prices of 26.9% over the same period. As The Guardian, October 21st 1975, has put it 'This implies a further sharp reduction in living standards (which declined sharply in the second quarter of the year) after allowing for the clawback effect of increased tax and national income contributions', p26.

  29. For a summary of such views see the Midland Bank Review, op cit p10-11.

  30. New Statesman,April 18th 1975, p502. See also 'The Unions We Deserve?' in the New Statesman, June 13th 1975, p769-770. Samuel Brittan is a more muted proponent of such romantic and reactionary yearnings for those 'ever so free times' when the market economy was allowed to work out its 'natural' course. What, of course, neither he nor Sir Keith Joseph has understood is that, as Marx succinctly remarked, although '(the curbs on free competition) seem to make the rule of capital more perfect...(they) are at the same time, by restricting free competition the heralds of the dissolution of the mode of production which are based on it.' What we now see is how those 'curb on free competition' necessary to preserve capital, reached points where, in spite of them, the very existence of capitalist production is threatened. Hence the yearning for those earlier times. Grundrisse, op cit, p651. (our translation).

  31. Glyn and Sutcliffe, British Capitalism, Workers, and the Profit Squeeze, Penguin Books, 1972, p20l. For a critique of this see the article by David Yaffe 'The Crisis of Profitability: a Critique of the Glyn-Sutcliffe Thesis' in New Left Review, July-August 1973, No 80, p45-62.

  32. Socialist Worker, April 5th 1975, p3. For a similar Communist Party view see Social Contract..., op cit, p12. Also Eric Heffer 'The Stalinism of Paul Johnson' in the New Statesman, July 25th 1975, p100.

  33. Speech to a TGWU rally, op cit.

  34. The Social Contract..., op cit, p12.

  35. Marx, K, Theories of Surplus Value Vol II, Lawrence and Wishart, London, 1969, p219. At least A Smith was speaking at a time when capitalism was beginning its progressive phase.

  36. Red Weekly, 'Inflation' p6, August 14 1975 No 112.

  37. Capital Volume I, Lawrence and Wishart, London 1961 p533.

  38. The Social Contract...,op cit, p20. Also Morning Star, July 8th 1975.

  39. The International Socialists used it in attacking Heath's Incomes Policy. See Socialist Worker, April 24th 1971, September 11th, 1971, July 19th 1971 and the Socialist Worker pamphlet on 'Unemployment and How to Fight it', 1971 p3 and p6. Now the International Marxist Group has joined the camp. See Red Weekly, July 17th 1975, p6. So has the Workers Socialist League. See Socialist Press, July 24th 1975. It is also an old position of the Tribunites. See Tribune, February 11th 1972, Vol 36 No 6, p1. Marx showed how absurd these views were in Vol II of Capital, op cit, p409-10.

  40. See David Yaffe 'The Marxian Theory of Crisis, Capital and the State' in Economy and Society, Vol 2 No 2, May 1973, p212-16.

  41. Socialist Worker, April 5th 1975, p3.

  42. The Social Contract..., op cit, p11.

  43. Stressing 'monopolies' as cause of price rises etc is further justification for the reformist politics of 'popular frontism' and 'anti-monopoly fronts' which has dominated the CP's politics since the mid 1920's.

  44. OECD The Growth of Output 1960-80, December 1970, p112. According to Tribune, 75 firms are responsible for more than , one-half of British export trade, 100 firms control half the assets in manufacturing industry and 200 firms control half the assets of all industry and services. See Tribune, Vol 39 No 26, June 27th 1975, p1.

  45. New Statesman, July 25th 1975, p100. Ernest Mandel shares this eclectic view when he says 'Marx himself explicitly rejects any monocausal explanation of crises, insisting that they are a combination of all the contradictions of the capitalist mode of production' in New Left Review, 'The Industrial Cycle of Late Capitalism' p3. It is precisely how these contradictions are understood and related to the fundamental contradictions of the accumulation process of capital that is central for revolutionaries. Any overt stress on disproportionality theses, or underconsumptionist views (new held by the IMG, a supporter of the Mandel majority in the Fourth International) necessarily lead to a reformist political practice. This is the significance of 'the most important law of modern political economy', the tendency of the rate of profit to fall. It is this which distinguishes Marx, more than anything from his classical predecessors, who were well aware of many of the other contradictions. It is this law which must be central to any explanation of the crisis. It is not a matter of 'combination' but how and in what way the contradictions arise from the movement of capital.

  46. There is some controversy over when this actually began. Empirical evidence for this view is given in Werner Hoffmann's Die säkulare Inflation Duncker and Humblot. Berlin 1962 pp6-15. Mandel argues that this could only be said to be the case after the great depression of 1929-32 had been overcome, in Der Spätkapitalismus, Suhrkampf Verlag, Frankfurt a.M. 1972 p.377. While prices fell during this great depression we think the trend began a lot earlier. Before the turn of the century, after the Napoleonic Wars the general tendency was for prices to fall.

  47. All statistics are taken from Organisation for Economic Co-operation and Development (OECD) Economic Outlook No's 15, July 1974; 16, Dec 1974 and 17; July 1975. The July figure for UK and June Italy unemployment rate is taken from The Financial Times 25/7/75 p1. Statistics for unemployment rates are not comparable due to different techniques of measurement in different countries.

  48. Figures from E Mandel's 'The generalised recession of the international capitalist economy' in Inprecor No's 16-17 Jan 1975 p6. Since price necessarily deviates from value, because it is impossible to distinguish all productive and unproductive labour empirically, and due to the international movement of capital as well, the rate of profit in the Marxist sense cannot be measured. A better indicator of the tendencies of profitability than those given would attempt in some way to distinguish between productive and unproductive labour in measuring the 'rate of profit'.

  49. Glyn and Sutcliffe op cit p66.

  50. Lloyds Bank Review April 1974 no 112 p17.

  51. Mandel, op cit.

  52. This section is a shortened version, with corrections on the question of productive and unproductive labour, of David Yaffe's article 'The Marxian Theory of Crisis, Capital and the State' op cit. There are additions on 'Value, money and price', 'Credit and crisis' and 'The extensive and intensive expansion of capitalist production'. Certain other corrections have also been made.

  53. Grundrisse op cit p193 and Capital Vol I op cit p104.

  54. Ibid p191 and Capital Vol l op cit p116-117.

  55. Ibid p446.

  56. M Williams, 'An Analysis of South African Capitalism - Neo-Ricardianism or Marxism?', Bulletin of the Conference of Socialist Economists Feb 1975 Vol IV 1. Williams has shown how, historically, gold capitalists will struggle to prevent the value of gold falling, and indeed cram as much value into gold as possible. Mechanisation is actively retarded here.

  57. Capital Vol II, op cit 121-122.

  58. Grundrisse p194 and Capital Vol l op cit p117.

  59. Capital Vol l op cit p123-124

  60. Grundrisse op cit p195.

  61. Capital Vol l op cit p116, see also Marx's criticism of J S Mill on this point. Grundrisse p864.

  62. Capital Vol l op cit p127.

  63. See A Altvater, et al, 'Inflation und Krise der Kapitalverwertung' in Probleme des Klassenkampfs 17/18, pp250, 253, for a similar view.

  64. K Marx, A Contribution to the Critique of Political Economy. Lawrence and Wishart. 1971 p119.

  65. D. Yaffe, 'Value and Price in Marx's Capital', Revolutionary Communist No 1.

  66. Capital Vol l op cit p139.

  67. What follows draws on the article by Peter Howell in this edition of Revolutionary Communist. Although a separate article it nevertheless forms an integral part of this discussion.

  68. Theories of Surplus Value l op cit p380.

  69. Capital Vol I op cit p72-73 and p181, footnote 2, repeated p508.

  70. Ibid p509 and Grundrisse op cit p470-1.

  71. Capital Vol lop cit p509.

  72. TSV I, op cit pp153, 160-61

  73. This stands in contrast to P Baran's conception of productive labour, which is based on a subjective conception of some 'rational' process of production - that which is not wasteful. PA Baran The Political Economy of Growth Pelican 1973.

  74. TSV I op cit p180.

  75. TSV I op cit, pp397-8.

  76. Capital III op cit p293.

  77. TSV I op cit p167-168.

  78. An analogy may be drawn here to the labour of repairs - see K Marx Capital II op cit p172-79. This additional labour is made necessary by the use of labour by capital - it becomes a current expense for capital, 'Repairing' here however is simultaneously 'renewing'.

  79. I Gough. 'State Expenditure in Advanced Capitalism', New Left Review 92, pp72, 111 and J Harrison, 'Productive and Unproductive labour in Marx's Political Economy', Bulletin of the Conference of Socialist Economists, Autumn 1974.

  80. Grundrisse op cit p631-2... 'behind all attempts to represent the circulation of commodities as a source of surplus value, there lurks a quid pro quo, a mixing up of use value and exchange value.' eg, Condillac, whose argument is frequently used by modern economists, more specially when the point is to show, that the exchange of commodities in its developed form, commerce, is productive of surplus value.' Capital I op cit p159.

  81. This important point, overlooked by those who use a Ricardian type model, ie see wages inversely proportional to profits, is merely another way of stressing that,

    'the rate of accumulation is the independent not the dependent, variable; the rate of wages the dependent, not the independent variable' (Capital Vol l op cit p620)

    Marx again makes this point in relation to the rise and fall of the rate of profit in TSV III op cit p312.

    'The rise and fall in the rate of profit insofar as it is determined by the rise or fall of wages resulting from the conditions of demand and supply (in the labour market) ...has as little to do with the general law of the rise or fall in the profit rate as the rise or fall in the market prices of commodities has to do with the determination of value in general.'

    This point shows clearly the weakness of many of the arguments of the Glyn and Sutcliffe book mentioned earlier.

  82. Capital Vol I op cit p510.

  83. TSV III op cit, p300.

  84. Capital I op cit p524.

  85. The relevance of the class struggle is important here. One aspect of productivity deal bargaining quite clearly involves the question of compensation for increases in the intensity of work. It would be more correct to say that the rate of surplus value is increased because wages are below the value of labour power if the real wage is not increased with an increase of intensity.

  86. Capital Vol l op cit p612.

  87. Ibid. It should be noted that changes in c and v not related to changes in the technical composition of capital do not alter the organic composition of capital. So that if wages are reduced below the value of labour power this does not alter the organic composition of capital.

  88. TSV II op cit p415-416.

  89. TSV III op cit p364.

  90. Ibid p366.

  91. Grundrisse op cit p777.

  92. Ibid p775.

  93. Ibid p699 and also pp690-695.

  94. Capital Vol I. op cit p407.

  95. Ibid p392.

  96. 'Accumulation of capital is therefore increase of the proletariat' Capital Vol I op cit p614.

  97. Ibid p644.

  98. Ibid p639.

  99. Capital Vol III op cit p47.

  100. Grundrisse op cit p748.

  101. Capital Vol III op cit p234.

  102. Capital Vol III op cit p242 (our translation).

  103. Ibid.

  104. Grundrisse op cit (our translation) p340.

  105. For a mathematical illustration of this point, see David Yaffe 'The Marxian Theory of Crisis...' op cit p201-2. Also Marx gives arithmetical examples in the Grundrisse op cit p333-341. A simple proof of the tendency of the rate of profit to fall is the following. From what we have argued
    S + V
    → 0
    as accumulation progresses with a rising organic composition.
    S + V
    C + V
    C + V
    → 0
    See M,Itoh 'The Formation of Marx's Theory of Crisis' in Bulletin of the Conference of Socialist Economists Feb 75 op cit footnote 1 p6.

  106. Capital Vol III op cit p214 (The translation is taken from the C H Kerr edition Chicago 1909. Vol III p256)

  107. TSV II op cit. p542 Capital Vol III op cit pp218, 220.

  108. Although we cannot discuss the theory of imperialism here it can only be developed in relation to the theory of crisis. For discussion of the relation of accumulation and imperialism see D S Yaffe 'Imperialism and the Accumulation of Capital' in the Bulletin of the Conference of Socialist Economists 2, 2 August, 1972, p70ff. See also Capital Vol III op cit p232-3.

  109. TSV III op cit p349.

  110. This position corrects that previously outlined in the article 'Value and Price in Marx's Capital', Revolutionary Communist 1. p47-48. There, luxury production is called unproductive and it is incorrectly asserted that luxury production is excluded at the level of abstraction of the discussion of the formation of prices of production. Luxury production is productive for capital, but has the particular effect on the rate of profit shown both in that article and in this. It is necessarily included in the discussion of the 'transformation' of values to prices.

  111. TSV III op cit, p350.

  112. Capital Vol III op cit p244. (Translation Kerr ed p292).

  113. P Mattick, Marx and Keynes Merlin Press 1971 p98.

  114. TSV II op cit p512.

  115. Capital Vol II op cit p245 (Kerr ed p293)

  116. Ibid p251. See also Grundrisse op cit pp 413, 414, 552, and 751-2.

  117. Capital Vol III op cit p248 (Translation Kerr ed Vol III p297).

  118. Capital Vol III op cit p233.

  119. Mattick op cit p73. The definite crisis-cycle of the last century, as Mattick says is not directly related to the Marxian theory.

  120. Theories of Surplus Value II op cit p513. In this sense as Marx says 'Permanent crisis does not exist, Ibid p497. That Marx clearly held to such a position can be seen from his passage in the Grundrisse, a great deal of it written in English.

    'Hence the highest development of productive power with the greatest expansion of existing wealth will coincide with depreciation of capital, degradation of the labourer, and a most straightened exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises, in which by momentaneous suspension of labour an annihilation of a great portion of capital, the latter is violently reduced to be point, where it can go on...where it is enabled (to go on) fully employing its productive powers without committing suicide. Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its (capitals) violent overthrow.' Grundrisse op cit p750.

  121. Capital Vol III op cit p438.

  122. Ibid p470-71.

  123. Ibid p471-472.

  124. Ibid p416.

  125. Ibid p445-46.

  126. Ibid p471-72.

  127. E Mandel 'The Industrial Cycle in Late Capitalism', NLR 90. Here Mandel writes of the monetary sphere being relatively autonomous...'a credit cycle temporarily distinct from the industrial cycle comes into being' p13. However, by p16, the 'evidence' points towards 'a decline in the relative autonomy of the credit cycle'. This should suggest to Mandel that the idea of autonomy is quite incorrect.

  128. Capital Vol III op cit, p493.

  129. Ibid p473-74.

  130. Ibid p491.

  131. Ibid p335.

  132. Ibid pp366, 369-70.

  133. Ibid p347.

  134. Ibid pp477, 353-54.

  135. Ibid pp447-448 p456.

  136. Ibid p457. For an example of this procedure, and the development of forms of fictitious capital in periods of massive credit and lower rates of profit, see p52 National Westminster Bank Quarterly Review Feb 1975, 'Property Bonds 1966-74' P R A Kirkman and D C Stafford.

  137. Capital Vol III op cit p459.

  138. NLR 90 op cit Mandel, p6.

  139. Ibid p12.

  140. Capital Vol III op cit p438.

  141. Ibid p528.

  142. Capital Vol I op cit p138.

  143. Capital Vol III op cit p440.

  144. Ibid p448.

  145. Ibid p440-41.

  146. Ibid p471-72.

  147. Ibid p441.

  148. Ibid p447.

  149. Grundrisse op cit p770.

  150. Ibid p407.

  151. Ibid p408.

  152. Ibid.

  153. Ibid p409.

  154. Capital Vol II op cit p403.

  155. Ibid p410.

  156. These points belong to the theory of imperialism, which we will not develop further here.

  157. Keynes, The Means to Prosperity, London 1933 pp17, 18 and 19.

  158. Ibid pp21, 22.

  159. See Art Fox 'The Deep Roots of Inflation', Action Press New York 1973, especially p11ff for prices 1890-1911, and for credit statistics p28ff. See also Werner Hoffmann op cit pp11, 12.

  160. See Glyn and Sutcliffe op cit, Gough op cit and Devine, 'Inflation and Marxist Theory', Marxism Today, March 1974.

  161. Evidence that during periods of accelerating inflation price increases in industries of high concentration are slower than in other industries has been discussed by 'economists' in respect to the United States. Amongst others; W J Yordon, 'Industrial Concentration and the Price flexibility in Inflation. Price Response Rates in Fourteen Industries. 1947-1958', Review of Economics and Statistics August 1961 pp287-294; J A Dalton, 'Administered Inflation and Business Pricing: Another Look.' Review of Economics and Statistics November 1973 pp516-519; and Weiss, 'The Role of Concentration in Recent Inflationary Price Movements. A Statistical Analysis', Anti-Trust Law and Economics Review, Spring 1971 ppl09-121. A recent review can be found in P Cagan 'Inflation and the Market Structure, 1967- 73', Exploration in Economics Research, National Bureau of Economics Research Vol 2 No 2, Spring 1975 pp203-216. Whilst these 'investigations' pose questions from an empiricist standpoint - the evidence collected gives little support to the crude 'monopolist' view.

  162. Grundrisse op cit p623. (our translation) For this and other points mentioned in relation to credit see Capital Vol III op cit pp429-32 and Grundrisse op cit p659.

  163. Capital Vol II op cit p185-6.

  164. On the disequilibrium between Europe and America see L Trotsky, Europe and America: Two speeches on Imperialism, 1926. Pathfinder Press 1971.

  165. Capital Vol III op cit p429.

  166. This analysis is developed in the context of productive and unproductive labour and the growing crisis in the final section of P Howell's article in this issue.

  167. A Glyn, 'Notes on the Profit Squeeze' p9 Bulletin of the Conference of Socialist Economists Feb 1975 Vol IV No 1.

  168. I Gough, op cit, p70, 72.

  169. It is not surprising that some of the highest productivity industries in Britain are in the nationalised sector. See the article in The Times Friday October 29 1971 p21.

  170. The Financial Times Aug 6 1975 p12.

  171. The Financial Times, July 31 1975 p8. The Guardian, August 2nd 1975. The Financial Times, August 4th 1975 p5. Pricing policies too are blamed by the British Electricity Council's Chairman - Sir Peter Menzies - for the Council's £258 million loss in 1974-75.

  172. The Financial Times, August 6th p12.

  173. Grundrisse op cit p401 footnote.

  174. The Guardian, June 4, 1975 p15.

  175. Sunday Times July 6 1975.

  176. See E Alvater, etc 'On the Analysis of Imperialism in the Metropolitan Countries: The West German example', in The Bulletin of the Conference of Socialist Economists, Spring 1974 pp6, 9, 10.

  177. See Winifred Wolf, 'The Relative Strength of German Capitalism', in Inprecor no 16-17 Jan 16th 1975 p25.

  178. E Altvater, etc. 'On the Analysis...' op cit p10-11. Figures used are those based on a study by W G Hoffmann. Untersuchungen zum Wachstum der deutshen Wirtschaft, 1965.

  179. See S Levine, Industrial Relations in Postwar Japan, 1958.

  180. See Victor Perlo. The Unstable Economy, Lawrence and Wishart. London 1973, p27.

  181. Taken from the National Institute Economic and Social Research Review and cited in The Times 7/11/73, p27.

  182. See Victor Perlo, op cit p30.

  183. See D Yaffe 'The Crisis of Profitability...' op cit p56.

  184. See The Economist for these approximate figures, 31 March 1973. The GNP figures are repeated from an earlier section.

  185. See Michael Barrett Brown, From Labourism to Socialism, Spokesman books 1972, p110.

  186. UN Year Book Statistics 1973.

  187. Multinational Corporations in World Development, United Nations NY 1973, pp148, 159.

  188. Cited in The Times 28/5/74 p17, also in The Times 16/1/75.

  189. See J Halliday and Gavan McCormack, Japanese Imperialism Today, Penguin, 1973 p167.

  190. See E Mandel, Imprecor No 16-17 op cit p8.

  191. Business Week, Oct 12, 1974.

  192. OECD, Expenditure Trends in OECD Countries, July 1972 p66-7.

  193. Social Security Bulletin, Annual Statistics Supplement 1972. US Dept of Health, Education and Welfare.

  194. Statistics taken from National Income and Expenditure Blue Books.

  195. Glyn and Sutcliffe, op cit p101.

  196. OECD Expenditure Trends op cit p71.

  197. See the article by R W Bacon and W A Eltis in The Sunday Times 10/11/74 p16.

  198. Employment and Earnings Vol 121 No 9 March 1975. US Dept of Labour.

  199. Cited in The Financial Times 24{4/75, p21, (Source Eurostats).

  200. OECD Economic Outlook, July 1975, p42-3.

  201. The Financial Times 30/7/75.

  202. The Financial Times 24/7/75 p5.

  203. E J Hobsbawn, Industry and Empire p161. Wiedenfeld and Nicholson. 1968.

  204. J H Dunning, Capital Movements in the Twentieth Century. Lloyds Bank Review 1964.

  205. M Barratt Brown, The Economics of Imperialism p206. Penguin 1974.

  206. Table D p185. Bank of England Quarterly Bulletin, Vol 15, No 2, June 1975. The total 'identified external assets' would include the Public Sector and Reserve Assets. The fall in total private investment abroad during 1974 was the result of the fall in the market values of portfolio investment - fictitious capital.

  207. P Flanagan 'Productivity and World Competition' The Washington Post April 30 1973. pA22.

  208. Calculated from the United Nations Yearbook of Statistics 1973.

  209. G Rodgers and I Clemitson, 'Who are the Luddites now?' The Guardian April 21 1975.

  210. National Institute Economic Review 1975 No 71 p18.

  211. Department of Employment Gazette March 1973. 'Trends in the composition of the unemployed'. Also The Economist May 17 1975.p28-9.

  212. Department of Employment Gazette February 1973 'Duration of Unemployment' pl12.

  213. Calculated from the Ministry of Employment Gazette March 1975.

  214. Quoted in R W Bacon and W A Ellis The Sunday Times Nov 10 1974 p16.

  215. The Financial Times 30 May 1975 p15.

  216. The Department of Employment Gazette July 1975.

  217. The Sunday Times M Bowen Feb 23 1975.

  218. The Economist 10/11/73 p17.

  219. Calculated from the National Income and Expenditure Blue Book 1974. These are higher than the OECD figures since they include full state expenditure, including capital transfers and all current transfer payments.

  220. Annual Abstract of Statistics 1974 CSO table 383 p367.

  221. G J Burgess and A J Webb op cit.

  222. Do Trade Unions Cause Inflation? D Jackson, HA Turner and F Wilkinson CUP 1972 p80.

  223. The Economist 12/4/75 p82.

  224. The Economist 8/9/73 p76.

  225. D Jackson, HA Turner and F Wilkinson op cit p80.

  226. Cited in Politics and money Vol 4 no 1 January-March 1973. National income is defined as gross national product less capital consumption.

  227. Taken from D Jackson, HA Turner, and E Wilkinson, op cit p66 (1975 edition).

  228. The Times 19/12/73 p19. Here P Jay gives figures to show how state expenditure continuously rose above estimates from 1969 to 1973.