Home > political-economy > Cat Brain at Work: How Chris Harman explains the “Marxist theory of stagnation”

Cat Brain at Work: How Chris Harman explains the “Marxist theory of stagnation”

As part of my continuing occupation of the Marxist Academy, I have been looking at various Marxist theories of the crisis of neoliberalism. I am now reading the late Chris Harman’s “The rate of profit and the world today”, written in 2007, just prior to the big crash. This is part two of my examination.


Before we go any further, let me reiterate one thing: In Marx’s theory, the law of the falling rate of profit is not expressed in “stagnation of economic growth” directly or indirectly. The so-called “stagnation thesis” appears no where in the body of Karl Marx’s works on the capitalist mode of production spanning more than 40 years. Nor does it appear in any of Frederick Engels works on the same subject spanning nearly fifty-five years. It is not even an indirect result of the laws of motion of the capitalist mode of production. Moreover, in addition to the idea of “stagnation“, no Marxist can point to a single reference in the collective body of work by these two writers — together amounting to a century of research and publication — where either the terms “financialization” or “globalization” appear.

So, why the fuck are Marxist academics trying to explain these nonexistent phenomena? I think the answer to that question is simple: they are trying to explain stagnation, financialization and globalization because they can’t explain this:

The chart show 75 years of almost unbroken expansion of gross domestic product of the US “economy”, lasting from 1933 to 2008. In conventional interpretations of Marx’s theory this is not supposed to happen. Ask a Marxist sometime to explain, using the labor theory of value, how nominal GDP growth (even when discounted for “inflation”) has managed to be positive for nearly 80 years, but be prepared for a sullen stare of dull incomprehension. Marxist academics claim to be able to explain the “stagnation of economic growth” of the last 30 years when what they should really be explaining is this.

The reason why Marxists have no satisfactory explanation for this remarkable, almost unbroken, string of positive growth for the last 80 years isn’t because they haven’t tried to come up with one — you can almost see their brains smoking as they try to make sense of the data — but because it is a fiction and they are too dumb to figure this out.

If capitalism had experienced even forty years of unbroken economic expansion it would be an unprecedented event in the capitalist epoch. But experiencing 80 years of almost unbroken economic expansion is about on par with discovering the secret of perpetual motion. Such a period of continuous expansion — lasting from the great depression until 2008 — defies the law of value itself. It is on par with saying the labor theory of value in all of its classical variants is itself a fallacy.

Today, the fascist state published the latest empirical data on the rate of unemployment; there are skeptics on both the “Left” and the “Right” who will reject this jobs data as misleading or outright distortions of reality. But, what surprises me is that, so far as I can tell, no Marxist academic has ever looked at the data on nominal GDP growth over the last 80 years and labeled it a blatant fiction — instead they all refer to this same fascist state issued data as if it were the original two tablets of stone.

I will return to this in the next post, but for now let’s see how successful Chris Harman was in his attempt to show how a nonexistent “stagnation of economic growth” results from the law of the tendency toward a fall in the rate of profit. If nothing else, this promises to be amusing.

Harman’s explanation of the operation of the Law of the Tendency of the Rate of Profit to Fall

Harman begins his argument by restating Marx’s basic theory of the falling rate of profit:

Each individual capitalist can increase his (or occasionally her) own competitiveness through increasing the productivity of his workers. The way to do this is by using a greater quantity of the “means of production”—tools, machinery and so on—for each worker. There is a growth in the ratio of the physical extent of the means of production to the amount of labour power employed, a ratio that Marx called the “technical composition of capital”.

But a growth in the physical extent of the means of production will also be a growth in the investment needed to buy them. So this too will grow faster than the investment in the workforce. To use Marx’s terminology, “constant capital” grows faster than “variable capital”. The growth of this ratio, which he calls the “organic composition of capital”, is a logical corollary of capital accumulation.

Yet the only source of value for the system as a whole is labour. If investment grows more rapidly than the labour force, it must also grow more rapidly than the value created by the workers, which is where profit comes from. In short, capital investment grows more rapidly than the source of profit. As a consequence, there will be a downward pressure on the ratio of profit to investment—the rate of profit.

Harman explains the implications of this argument: The very methods the capitalist uses to fatten his profits results in a downward pressure on those profits. By increasing the rate of exploitation of the worker, the capitalist lowers his own rate of profit. Since the capitalist is entirely motivated by profit, he experiences the declining rate of profit as a signal to cease investment. Production grinds to a halt for a shorter or longer period of time resulting in a full blown crisis — bankruptcies, unemployment, idled factories and so forth.

These crises, Harman explains, set the stage for the next expansion by forcibly removing some capitalists from productive investment, making productive capital available at reduced costs, and forcing workers to accept lower wages — thus leaving the surviving capitalists in a position to begin the process all over again on a profitable basis. The crisis, therefore, Harman emphasizes, “is not the end of the system. Paradoxically it can open up new prospects for it.”

Harman presents evidence from other researchers that demonstrates periods where the rate of profits rose more or less steadily despite its periodic fall during run ups to crises and offers this opinion:

If crises can always counteract the fall in the rate of profit in this way Marx was wrong to see his law as spelling the death knell of capitalism, since the system has survived recurrent crises over the past 180 years.

This statement implied there is some deficiency in Marx’s model of capital that fails to fully account for the actual demise of the mode of production. He then offered Kidron’s explanation for why Marx might not necessarily be wrong:

The process by which some capitals grow at the expense of others—what Marx calls the “concentration and centralisation” of capital—eventually leads to a few very large capitals playing a predominant role in particular parts of the system. Their operation becomes intertwined with those of the other capitals, big and small, around them. If the very large capitals go bust, it disrupts the operation of the others—destroying their markets, and cutting off their sources of raw materials and components. This can drag previously profitable firms into bankruptcy alongside the unprofitable in a cumulative collapse that risks creating economic “black holes” in the heart of the system.

Harman’s argument following Kidron is simple: Even if the capitalist mode of production does not collapse solely from the falling rate of profit, over time the growing concentration and centralization of capitals, and with this, the growing interdependence within the total social capital can lead to a situation where the failure of one very big capital can take the lot of them down in a cascade of successive bankruptcies.

This, Harman asserted, is what happened by the time of the Great Depression — compelling the capitalist class to seek protection from the state to prevent their collective demise, and beginning a period of interdependence between the state and the capitalist class. But this protection comes at a cost:

It prevented the first symptoms of crisis developing into out-and-out collapse. But it also obstructed the capacity of some capitals to restore their profit rates at the expense of others.

With the danger of total collapse now prevented, the capitalist class faced another problem: a growing stagnation resulting from the inability of the mode of production to rid itself of “the pressures that had caused the threat of bankruptcy.”

And here I have to plead guilty to having absolutely no fucking idea what Harman is talking about. As I recall, Harman initially argued “the pressures” leading to “the threat of bankruptcy” were none other than the law of the tendency toward a fall in the rate of profit — a law he attributed at root to the rising technical and organic compositions of capital.

So, unless I missed something in this paper Harman argued one of three things either the fascist state prevented a rise in the technical composition of capital, or it prevented a rise in the organic composition of capital, or it prevented a rise in these two from being reflected in a fall in the rate of profit. He is really not clear on exactly which “pressure” the fascist state managed to relieve for some eighty years.

In his interpretation of the law of the falling rate of profit, Harman proposed the working out of the law of value is somehow frustrated by the efforts of the fascist state to prevent a threat to “the system” of a bankruptcy of systemically important capitals triggered by the falling rate of profit. It is this political reaction of the state that eventually leads to stagnant economic growth.

Sorry, but I am not buying that bullshit. I have a simpler explanation that does not require us to believe the fascist state can suspend or even retard the law of value — not even for a single instant.

Cat brain at work: Economists and the falling rate of profit

Apparently, it never occurred to Harman — just as it never occurs to most in the Marxist academy — that since a fall in the rate of profit does not of itself directly threaten capitalism, Marx’s discussion of the law had nothing to do with his prediction of the inevitable demise of capitalism in any direct sense. It is, in other words, possible he had in mind an entirely different contribution the falling rate of profit makes to the ultimate demise of the capitalist mode of production.

So let me ask you this: Have you ever dangled a length of string in front of a kitten and watched its reaction?

Certain economists, such as Ricardo, were not as simple-minded as their simpleton colleagues and quickly realized crises had nothing to do with the technical conditions of the production of material wealth. It’s not as if suddenly factories mysteriously stopped operating, or machinery quit running, or workers stopped working just because the profits of the capitalist evaporated in a crisis. Instead, what happened in the crisis is that the capitalists’ motivation to hire workers to put these means of production to work — the return on productive investment — periodically vanished without warning, causing significant portions of the capitalist class to suddenly go belly up.

Some economists began to realize, if this could happen periodically and without warning seemingly out of nowhere, yet had nothing to do with the actual capacity of society to produce material wealth — which constantly increased despite these crises — it just might have something to do with processes at work within the capitalist mode of production itself. Please pardon me for reproducing Marx’s description of the effect this realization had on the bourgeois economist at such length, but I find it both compelling and more than a little bit lulz-worthy.

Marx explained:

…the rate of self-expansion of the total capital, or the rate of profit, being the goad of capitalist production (just as self-expansion of capital is its only purpose), its fall checks the formation of new independent capitals and thus appears as a threat to the development of the capitalist production process. It breeds over-production, speculation, crises, and surplus-capital alongside surplus-population. Those economists, therefore, who, like Ricardo, regard the capitalist mode of production as absolute, feel at this point that it creates a barrier itself, and for this reason attribute the barrier to Nature (in the theory of rent), not to production. But the main thing about their horror of the falling rate of profit is the feeling that capitalist production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; and this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production; testifies that for the production of wealth, it is not an absolute mode, moreover, that at a certain stage it rather conflicts with its further development.

There are two things about this passage which should grab our attention: First, Marx explicitly states the fall in the rate of profit leads to “over-production, speculation, crises, and surplus-capital alongside surplus-population.” He clearly does not say or imply that it leads to the demise of capitalism. If he had erroneously believed the law of the tendency toward a fall in the rate of profit led to the collapse of capitalism, or even the bankruptcy of systemically important capitals that threaten to bring this house of cards down, I am pretty sure he would have added that side effect right here — but he does not.

Second, I cannot say this for sure, but it is my general sense that Marx usually employs the term “appears” to mean a superficial expression within bourgeois political-economy of some deeper process within the mode of production. See, for instance, his argument on how vulgar economists constantly mistake appearances for the real thing in chapter 48 of volume 3 of Capital where Marx writes:

Vulgar economy actually does no more than interpret, systematise and defend in doctrinaire fashion the conceptions of the agents of bourgeois production who are entrapped in bourgeois production relations. It should not astonish us, then, that vulgar economy feels particularly at home in the estranged outward appearances of economic relations in which these prima facie absurd and perfect contradictions appear and that these relations seem the more self-evident the more their internal relationships are concealed from it, although they are understandable to the popular mind.

So when Marx uses “appears” in the above paragraph to describe how the fall in the rate of profit “appears as a threat to the development of the capitalist production process”, I don’t believe for a minute he intended to imply the law itself was the cause of capital’s demise. Rather, Marx seems to be saying that, like a kitten preoccupied with a string dangling before its nose, the capitalists and their apologists in the economics profession usually take the profit motive as an eternal law ruling over economic activity as an eternal feature of human society. And when, for no apparent reason, profits evaporate, it produces panic, horror and sets off frenzied efforts to restore the rate of profits to its pre-crisis levels.

Marx, who, understandably, cannot help himself, takes another moment to dig the knife in deeper into the hearts of his bourgeois opponents in this regard:

The rate of profit is the motive power of capitalist production. Things are produced only so long as they can be produced with a profit. Hence the concern of the English economists over the decline of the rate of profit. … What worries Ricardo is the fact that the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself. And here the quantitative proportion means everything. There is, indeed, something deeper behind it, of which he is only vaguely aware. It comes to the surface here in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself — that it has its barrier, that it is relative, that it is not an absolute, but only a historical mode of production corresponding to a definite limited epoch in the development of the material requirements of production.

What Marx is saying here is really fucking hilarious: Goaded by “their horror of the falling rate of profit”, the capitalist class actually doubles down on exactly the thing that limits the shelf-life of the capitalist mode of production: throwing still greater quantities of machinery and elements of constant capital into production to further increase the rate of surplus value extraction. The falling rate of profit is not itself the cause of the demise of the capitalist mode of production, it is the relentless goad always compelling the capitalist class to speed up that demise by reducing still further the expenditure of labor in the production of commodities.

Assuming the fascist state is compelled to seize control of the total social capital not, as Harman suggests, to prevent the destruction of capital values, but to accelerate this destruction, the end result of this seizure is not stagnation, but a mode of production hurtling toward its inevitable demise at an ever accelerating velocity — driven, the entire time, by ever more frenzied efforts to prevent a fall in the rate and mass of profits.

In my last post, I will show how Harman actually presents the evidence for this accelerating rate of demise — an acceleration the simple-minded bourgeois economist, and, apparently, most of the equally simple-minded Marxist academy, take to be symptoms of “stagnating economic growth”.

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