why capitalism cannot be reformed

7 06 2013

By John Keeley

There are many people who regard themselves as left-wing who do not want to get rid of capitalism. Not only Ed Miliband & the Green Party in Brighton, but also some who consider themselves to the left of Labour in the new Left Unity grouping. They believe capitalism can be made more equal through government action & that the post-war period demonstrates this. In my opinion, they fail to appreciate the material conditions.

Ed Miliband

The post-war prosperity & the increasingly equality, exemplified in more equal access to health care & education, was possible due to a genuinely high rate of profit consequent upon the huge capital devaluation of the depression of the 1930’s, the capital destruction of WWII & huge increases in productivity thanks to the application of oil & gas. Unfortunately, to really grasp this point requires an understanding of how capitalism works & why it is prone to crisis. This isn’t an easy subject, but it’s worth the effort.

Unlike any other historical systems of production, capitalism has crises of overproduction. Too many commodities get produced relative to the commodity that acts as money, historically gold. This overproduction occurs due to credit money. Banks can create money by lending out more than they have in their vaults. People & organisation purchase commodities on credit & have debts. This allows aggregate prices to exceed aggregate values. Recorded profit rates are inflated by this credit money. But once debt-saturation is reached & lenders realise they may not get all their money back, panic takes hold, there’s a ‘credit-crunch’ as no-one wants to lend to anyone else & when the defaults start they set off a chain-reaction that threatens the solvency of the financial system & capitalism itself. This is what the world experienced in 2007-08, that has been temporarily patched-up with yet more debt, this time from governments in the form of so-called ‘quantitative-easing’ (buying back the government debt already sold to the financial institutions) & the purchase of other bank bad debts. If ever there was a clear example of how governments & capitalism are joined at the hip, this is it.

But this is not the full story of the current crisis. It is actually much worse than this. For behind the excessive credit/debt lies the falling rate of profit. (Remember the rate of profit is everything to capitalists – they only produce for profit, not for need. It doesn’t matter how hungry or in need of shelter you are, if you don’t have enough money your needs will not be met). Amongst Marxists the falling rate of profit theory is a source of much heated debate. In Volume III of Capital, Marx appears to be offering a basis for the economic cycle of boom & bust in the falling rate of profit consequent upon the growth in so-called ‘constant capital’ (machines, factories & the like) being faster than the growth in labour employed (referred to as ‘variable capital’). Hence many Marxists have attempted to explain just about all of capitalism’s crises with this theory, whilst other Marxists have emphasised the role of excessive credit/debt. This is the falling rate of profit v underconsumption debate.

From what I can grasp this polarisation neglects the fact that behind the excessive issue of credit can lie the problem of the falling rate of profit. It doesn’t have to lie behind all crises & may work on a longer time basis. It may explain the first Great Depression of the 1870’s, the second one of the 1930’s & today’s crisis, but not every economic downturn. This longer cycle is often referred to as the Kondratieff cycle, or as Ernest Mandel termed it a ‘wave’. Mandel’s argument was that it wasn’t a natural cycle as there could be no guarantee of an upturn, but there was a guarantee of a downturn in the form of the falling rate of profit as more constant capital replaced profit-producing labour. The upturns depended upon historical factors. The recovery in the late-Victorian era was arguably due to the introduction of railways, the telegraph, etc., & the post-war boom, as already stated, by the harnessing of the new energy sources of oil & gas & the resultant automation. There is no guarantee of a new more productive basis for today’s economy even if it were to shed its huge debt problem. It would need something like cold-fusion to stimulate productivity whilst permitting capitalists to steal an even greater amount of the value created by labour whilst leaving the labourer still materially better off than before (what essentially happened in the post-war period). It is unlikely.

This is why I believe we now have the material conditions for the end of capitalism. Capitalism can offer the workers nothing but repression. One way or another the workers will need to find a way to socialism. The creation of a society based upon the social/common ownership of the means of production. It is for us to offer this vision. There isn’t a single blueprint & there is not a single route. These are up for debate & discussion. But what we should be clear about is capitalism cannot be reformed. It’s time has passed.

For those who would like to learn more about crisis theory there are two blogs that are particularly good:

Michael Robert’s http://thenextrecession.wordpress.com/

Sam Williams’ http://critiqueofcrisistheory.wordpress.com/

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10 responses

7 06 2013

Well just a couple of comments – the rate of profit is not falling – not even Michael Roberts shows that and capitalism can be reformed. That isn’t the same thing as saying socialism can be introduced by reforms.

7 06 2013
Andrew Cooper

A good article thanks . Thinking about billjefries comment above. capitalism ‘reforms’ all the time that is the problem , of course as you say you are not going to get communism by reforms. I think what you say about the falling rate of profit is interesting where are your proofs that it is not falling? Given the elasticity of capital it is possible to locate places where the rate of exploitation is high as there is uneven development. But something must be driving and forming periodic crisis globally.

The residue of criminal colonial interests and robbery of resources in the post war era provided part of the necessary surplus for capitalists to mitigate worker demands thus acting as a cushion for workers in western nations from the vicissitudes of the emerging global “free’ market whilst reducing social unrest. This is why the socialist movement needs to be international because capitalism is completely international. It is also why in an era where the global free market vision of capitalist ‘utopia’ hell is unleashed unfettered on the population the only way forward is to democratise all resources and production. Accumulation by dispossession is continuing at full force in our own time which continues in its traditional forms of straight forward land grabbing and simultaneous creation of an impoverished population ready for exploitation and the new forms of robbery of former public resources which now infect the social body in many countries.

7 06 2013

Regardless of the faults of capitalism, it’s preferable to the hideous tyranny of Stalinist Russia. There is a good chance of reform, especially when the end goal is complete public ownership.

7 06 2013

I don’t have proof that the rate of profit is falling; I accept it’s possible that it may not be. However, I think it is likely because of the size of credit/debt that inflates recorded debt – people & organisations are paying with future labour time, not with commodity money that is realised labour time. Total debt in the developed world is estimated to be about 270% of GDP (Thomson, Reuters, Credit Suisse research). That’s public & private. As we saw after the collapse of Lehman’s profit rates went negative & governments had to bail out the financial sector & parts of the industrial sector (e.g. General Motors).
The point is you can’t just look at recorded profit rates because they are seriously inflated by credit money. Indeed, this is one of the main reasons we have boom & bust & the high profit rate gives the wrong signal that all is well, & then low & behold the crisis strikes as worries about debt repayment take hold. The next phase of the crisis is going to be even more severe as this time governments can do very little beyond turning on the printing presses.

7 06 2013

Although the mass of profit compensates for reductions in the rate of profit the rate still varies even though historically it declines. However the financial and economic aspects are only part of the current crisis. Ecologically and the ratio of productive to unproductive Labour has a significant impact on the social structure of capitalist economies. See “The Five-fold crisis of capital” at http://www.critical-mass.net . Regards, Roy

7 06 2013
John Burns

Marx praised Capitalism for the technical progress it brought. Marx looked at all aspects of Capitalism and could not figure out a solution to a fair distribution of the proceeds of a communities wealth creation. So his solution was abolish Capitalism.

Simultaneously with Marx Henry George in the USA looked at the unfair distribution of wealth that created a grinding poverty level. George recognised the positive qualities of Capitalism but, unlike Marx, came up with a solution enhancing the positive aspects of Capitalism but eliminating the grinding poverty level and giving a fair distribution of a communities wealth.

12 06 2013
Kapin Planetoid

Well actually there is proof. Andrew Kliman and Alan Feeman ave gone to great lengths to show that profits over fixed investments is is growing in disproportion.
The investments and fixed cost’s are getting bigger. And the profits are not growing, or not growing fast enough to counteract this.

But yes , moving over to China to find cheaper labor will help the capitalist out. But only by undermining the 1st worlds economic growth.

13 06 2013

Kapin, I think even Andrew would say this is evidence, not proof. Remember his data is just for the US. Although it’s quite likely that US multinationals will be reflective of the world rate of profit, we can’t be sure enough to say it is proof.

13 06 2013

I am reading volume 3 for the first time and cannot yet see where the obsession with the rate of profit comes from. Marx even says big forms deliberately reduce their profit rate to kill off smaller firms!

The ONS are reporting real wages since 2008 have reduced by their greatest level since the 1920′s. Add onto this a huge decrease in spending on public services (which Kliman likes to include in worker remuneration) and the picture gets even worse. What do we make of this?

29 06 2013

I think the author neglects the industrial flight that has occurred here in America combined with the rise of paper trading unproductive economics the rise of technology has made it possible for those with capital to make huge sums in electronic trades that take place in fractions of a second


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