Home > economics, political-economy, politics, shorter work time > Why didn’t capitalism collapse in 1929? (Part two)

Why didn’t capitalism collapse in 1929? (Part two)

September 23, 2009 Leave a comment Go to comments

Continued from here

The oddest statement to be found in Grossman’s reconstruction of Karl Marx’s Theory of Capitalist Breakdown is the one he makes at the very end of his essay:

The historical tendency of capital is not the creation of a central bank which dominates the whole economy through a general cartel, but industrial concentration and growing accumulation of capital leading to the final breakdown due to over-accumulation.

What is so odd about this statement is that it pretty much sums up exactly what happened following the collapse of the economy during the Great Depression!

Grossman made this argument – again, oddly enough – not in response to  a mainstream economist contemporary, or some defender of capitalism, but in response to another Marxist who claimed Marx had been wrong in his prediction of capitalism’s demise.

Wikipedia: Hilferding and his wife, 1928.

Wikipedia: Hilferding and his wife, 1928.

The guy’s name was Rudolf Hilferding, and he made a big splash predicting that capitalism would eventually be taken over and regulated by the biggest banks of each nation.

Before we get to Mr. Hilferding, however, we need to address this very odd statement by Mr. Grossman.

Grossman indeed made the above statement, and, it is pretty obvious life corrected him on this point. But, in his defense, we should point out that Grossman was only talking about the raw economic logic of capitalism.

Grossman spends a considerable amount of time in his essay showing how Marx stripped every non-essential feature of a capitalist economy from his theoretical model in order to reduce it to its most minimal elements. Gone were such things as prices, money, imbalances between industries, and between supply and demand.

He goes further: Marx assumes there is no foreign trade, no banks, no credit, no other nations, no classes except workers and the owners of businesses, and, at the start of his model, competition between businesses are assumed to be at equilibrium.

In doing this, Marx essentially is discounting every other known economic factor which has been cited by one economist or another as the causes of economic disturbances in a capitalist economy – gone are Krugman’s greedy Wall Street banks, hyper-salivating mobs of irrational investors, and, impotent and corrupted regulators, as well as income inequality, discrimination, huge bonuses, colonies, oil price shocks, and acne.

In other words, Marx strips capitalism of every recognizable feature, reduces it to its most abstract processes, and asks himself: Can this thing survive? Can an economic system rooted in scarcity and the need for work survive as it undermines both of those conditions?

Marx’s conclusion is fairly straightforward: Given its focus on the profitability of its undertakings, capital is compelled toward the “unconstrained development in geometrical progression of the productivity of human labour.” Human labor takes on an almost supernatural quality: Books which once took months to transcribe can be copied in their entirety from a digital archive in fractions of a second; agriculture, for centuries the labor-intensive vocation of the greater part of humanity, is reduced to the labor of the smallest fraction of the labor force; the sheer consumptive power of economic activity is such that it threatens to destabilize the climate itself.

But, the process is not merely technical, because capital itself is rooted in the very work which is being abolished by the geometrical progression of productivity. Hence, even as it abolishes work, it is abolishing its own conditions of existence. The more productive work becomes, the greater the quantity of goods thrown on the market; the greater the quantity of goods thrown on the market, the greater the mass of profits; the greater the mass of profits, the greater the need to convert those profits into more raw materials, more machines, and more employees, and bigger markets.

When ever capital runs up against the limits to its expansion crises erupt, followed immediately by efforts to exceed the constraints: improved machinery, new markets, new sources of raw materials, competition between businesses, nations, etc., seeking always to make room for the increased application of employees to an expanded scale of production. All of these methods of rationalizing economic activity, however, are only temporary, and merely set the stage for the next round, where the interruption of expansion takes on an even greater magnitude.

Ultimately, there is no possibility of further expansion, and the economic contraction which characterizes previous episodes of dislocation becomes a permanent feature of society. From this point forward hours of work must be reduced and they are, in the form of a massive implosion of employment.

Wherein Grossman gets served by the Masters of the Universe

In none of this bare outline of Marx’s theory (provided we have offered an accurate view) is there a notion of any central bank emerging from the rubble of society to take control of the economy and operating it along the lines proposed by Hilferding.

Ben Bernanke and Jean-Claude Trichet, head of the ECB

Ben Bernanke and Jean-Claude Trichet, head of the ECB

According to Hilferding, capitalism was moving not toward some massive implosion driven by the reduction of work, but toward some form of equilibrium maintained by the biggest banks who would rationalize the more chaotic features of the economy, and set the stage for some later political revolution of the working class, which would then take over this instrument for its own ends:

Finance capital puts control over social production increasingly into the hands of a small number of large capitalist associations, separates the management of production from ownership, and socializes production to the extent that this is possible under capitalism … The tendency of finance capital is to establish social control of production, but it is an antagonistic form of socialization, since the control of social production remains vested in an oligarchy. The struggle to dispossess this oligarchy constitutes the ultimate phase of the class struggle between bourgeoisie and proletariat.

There was, in Hilferding’s view, no inherent reason for capitalism to implode as Marx believed; it simply suffered from the fragmentation of industry, which prevented the smooth coordination of all of the elements of the economy. But, the very development of capital itself – particularly the growing role of the banks in the economy – would facilitate this coordination under some form of banking cartel.

Indeed, as Hilferding pointed out, “Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry …”

We can infer from the fact that Ben Bernanke still gets invited to all the best parties in Washington and New York that, in fact, something very much like Hilferding’s scenario emerged from the economic chaos which erupted on Thursday, October 24, 1929.

Marx may have stripped away every non-essential feature of capital to show why it would collapse, but, in doing so, he also stripped away some pretty important attributes of capitalist society that we try to capture with the term political-economy. Plainly, capital is not just an economic formation, it is also a political formation – full of self-interested people, who have lobbyists, and bagmen, and the kinds of living standards inconsistent with some cranky old dead guy in Germany who predicted they would soon have to get real jobs, if there are any jobs left.

The Federal Reserve Bank was born just about the time Hilferding was writing his most famous work, from which the above statements are taken. By the time of the Great Depression, it had already captured much of the economic policy role in Washington. The events which unfolded before the ink was dry on Grossman’s book would seem to defy Marx’s prediction of capitalism’s inevitable demise.

To be continued

  1. suitsmeveryfine
    September 25, 2012 at 11:24 am

    The end of Grossman’s 1929 “essay”, a book which is actually twice as thick in the original German, is followed by a chapter (not included in the abridged English edition) that contains reflections on the class struggle. Grossman didn’t believe that the economic breakdown would by itself put an end to capitalism but at the moment of crisis/breakdown intensified class struggles can potentially do just that. Let me cite a part of the missing end chapter (translation by Rick Kuhn 2007, p. 135):

    “[If workers are successful in struggles over wages and conditions] a decline in the rate of surplus value and consequently an accelerated breakdown of the capitalist system will occur … It is thus apparent that the idea of breakdown, necessary on objective grounds, definitely does not contradict the class struggle. Rather, the breakdown, despite its objectively given necessity, can be influenced by the living forces of the struggling classes to a large extent and leaves a certain scope for active class intervention. … Only now is it possible to understand why, at a high level of capital accumulation, every serious rise in wages encounters greater and greater difficulties, why every major economic struggle necessarily becomes a question of the existence of capitalism, a question of political power. (Note the English miners’ struggle, 1926.) The struggle of the working class over everyday demands is thus bound up with its struggle over the final goal.”

    Of course, when the economy is at a standstill there has to be a qualitative shift in class struggle where the proletariat no longer fights over wages and conditions but against value production and class society as such, otherwise capitalism will find a way to resurrect itself.

    Another quote where Grossman later reflects on the Great Depression:

    “What was the year 1929 in the USA and the year 1931 in Germany and England if not a giant breakdown? The working class was not prepared for this. It did not have a Lenin, who awaited and worked towards such a moment. Rather, for decades it heard from Hilferding and Helene Bauer that a breakdown was impossible. Only such a disorientation of the working class made it possible for the ruling class to overcome the panic and to survive the breakdown.”

  1. September 23, 2009 at 6:06 pm
  2. September 25, 2009 at 10:39 am

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