Home > Occupy the Marxist Academy > The Great Financial Crisis and the Shameful Failure of the Marxist Academy

The Great Financial Crisis and the Shameful Failure of the Marxist Academy

In the aftermath of the events of 2008, the British monarch shocked the bourgeois economics profession by asking them how they managed to despoil her wealth with their fumbling that led to this so-called financial crisis — in actuality it is a catastrophic failure of fascist state economic policy. Responses came from all directions in the economics profession, and (unsurprisingly) each response pointed fingers in every other direction.

What struck me at the time was this: not one communist activist out there stood up and confronted Marxist academics with an even bigger question: how could all of these academics without exception have missed the biggest depression in 100 years, which led directly to the catastrophic failure of fascist state economic policy? Thinking about the lack of accountability within the Marxist academy led me to write this post.



Crises of the type we are experiencing occur once in a generation; and it is necessary for me to point Marxism was not prepared for it. After the collapse of the Soviet Union and China’s turn state capitalism, Marxism had a decade to repair the damage to itself caused by a faulty model. And this depression, which has lasted more than a decade, gave Marxism additional time and ample material to rebuild itself. Moreover, at the beginning of the period, Moishe Postone clearly demonstrated a need for a reappraisal of the role of value producing labor in Marx’s theory, redirecting Marxism’s attention away from its preoccupation with state power.

The outbreak of the current depression should have been obvious to academic Marxism, because all the tools necessary to identify  it already existed in Marx’s labor theory of value and his theory of money. Even if academic Marxism could get no further than simply identifying the depression’s outbreak it would have served its purpose, because then it would have been clear what was behind the talk of deflation after 2001. Such as in, for instance, the Bernanke speech to the Federal Reserve in November 2002; or the 2004 publication of Chris Farrell’s book, Deflation: What happens when prices fall; or even Paul Krugman’s bizarre demand in 2002 for the Federal Reserve to create a bubble in housing to replace the one that burst in the NASDAQ. It might have even been possible to identify the first explicit symptom of this depression in 1999 in an almost unprecedented backwardation in gold lease rates.

These events put an end to the myth that Marx’s labor theory of value is either no longer relevant or redundant to analysis of capitalism, because employing a strict interpretation of Marx’s argument on money to US GDP shows the present depression began in 2001. I have shown this graph before which demonstrates the onset of the present depression measured in gold.

United States Gross Domestic Product (Gold) 1929-2009

As can be seen in the chart above, beginning in 2001, the gold measure of US GDP was showing a deepening depression. Yet, at the time, Marxist academics were debating whether Marx’s theory of money was relevant and necessary for analyzing the capitalist mode of production. Among the participants in that idiotic gabfest — Yes, I am going to name names — De Brunhoff, Arthur, Campbell, Moseley, MurrayLapavitsas, Foley, and Nelson, among others. The participants came down on all sides of a debate on the relevance of Marx’s theory of money. But what is unfathomable in this debate is that while Marx’s theory was showing the world market bound up with capital was imploding, and bourgeois economists were scrambling in terror trying  to shore it up, not one of the participants in this debate took note of what gold was actually saying in the empirical data!

It gets worse: At the very same time as Marx’s theory was showing the deepening depression on a global scale and Washington was scrambling to create a bubble in housing to counter it, the Marxist professor Ian Steedman was labeling Marx’s labor theory of value  “redundant”, and stating Marx’s theory could be replaced by fucking Sraffian corn models!

You see, usually no one keeps track of academic Marxists except other Marxist academics, so they can get away with their bullshit, but I was forced to because I had the nagging suspicion that much of what is popularly called “economic growth” was in fact nothing more than the extension of the social working day beyond its materially necessary limit. And I wanted to understand what was going on with this gold-dollar thingy, which was irritating the hell out of me. Dollars said the economy was growing, and everyone looking at the issue seemed to agree, but gold said the economy was shrinking. I wanted to figure out which was right.

That is when I stumbled into the foul swamp known as academic Marxism

As the world market sunk slowly into depression, the folks we depend on to alert us about these things — because this is basically all they do — were having  the theoretical equivalent of a mid-life crisis. And, I think, the reason they were having this mid-life crisis is that Marxism is and remains preoccupied with the notion of seizing state power. This conclusion may seem like a stretch, but let me explain.


Although the experience of the German Social-Democratic party showed the fallacy of preoccupation with the seizure of state power — when this party collapsed first into opportunism in the Great War, and then fell before fascism in the Great Depression — Marxists who remained faithful chalked that failure up to the peculiar ideology and personalities dominant in that party — the Soviet Union offered to them hope another path was possible to state power. When at the end of the 1980s, at last, even this path proved to be a dead end, Marxism was at last forced to confront its obsessive preoccupation with the state.

The most interesting feature of this obsessive preoccupation with the state is that it is the mirror image of anarchism’s own obsession with the state. Both Marxism and anarchism share this obsession, but it is expressed in contradictory forms — one aims to seize it in order to overturn capitalist relations of production, while the other believes it created capitalist relations of production. The focus of both is on the role of the state, not the capitalist relations of production that determine this state.

In correspondence with a comrade in 1872, Engels’ rebuked the anarchist Bakunin‘s argument on the state and set forth his own views on Bakunin’s silly theory:

“While the great mass of the Social-Democratic workers hold our view that state power is nothing more than the organisation with  which the ruling classes, landlords and capitalists have provided themselves in order to protect their social prerogatives, Bakunin maintains that it is the state which has created capital, that the capitalist has his capital only by favour of the state. As,  therefore, the state is the chief evil, it is above all the state which must be done away with and then capitalism will go to  hell of itself. We, on the contrary say: do away with capital, the appropriation of the whole means of production in the hands of  the few, and the state will fall away of itself. The difference is an essential one.”

I want to draw you attention to two things in this passage that, I think, show it can be applied not only to the anarchist conception of the social revolution but also to the Marxist conception:

First, Engels is rather explicit in what he thinks are the failures of Bakunin — Bakunin, Engels states, holds to the argument that the state is the creator of capital, not its mere appendage. In Engels view, however, capitalist relations of production are the key problem facing the working class, and the state is the mere appendage of these relations. On this basis, Engels dismisses Bakunin’s obsessive refusal to engage in politics. The second thing of interest is Engels’ argument that the focus of effort should be aimed at capitalist relations of production. If this material incarnation of capital is done away with, says Engels, its appendages must fall away as well.

Marxists and anarchists alike point to this argument as the touchstone of the differences between Marxism and anarchism, but, what they both conveniently overlook is that it was written 140 years ago when capitalism looked very much different than it does today. The real question is whether Engels is making a theoretical argument on the relation between capital and the state for all time or a practical argument set in his own time?

Marxists take Engels statement as a theoretical argument, and this passage has been incorporated into the body of Marxist dogma — go after capital first and the state will wither away. But what these Marxists neglect is an equally interesting statement Engels makes only eight years later in a more comprehensive setting forth of his views. In that argument, and in contrast to the earlier one, Engels predict the growing convergence of the state and capital into a single entity. Engels states:

“The modern state, no matter what its form, is essentially a capitalist machine — the state of the capitalists, the ideal  personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it  actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over.”

Here Engels begin with his previous argument — that the state is an instrument wielded by the capitalist class — but he then goes on to state it was evolving to become more than this: rather than mere instrument and ideal personification of capital, it was evolving  in the direction of assuming the functions of the capitalist class itself. Eventually, Engels argues, the state must become the national capitalist.


Engels died in 1895; yet from that period on Marxists continue to treat the state and capital as distinct entities, where the former is a mere appendage of the latter. Ask a Marxist to explain to you the difference between the state and the total social capital today, and he will direct your attention to WHAT ENGELS WROTE IN 18 — FUCKING — 72. In the Marxist ideology — and that is what it is — there is a Chinese wall between the state and the total social capital: The state is public and concerned with public problems, while capital is the private pursuit of individual aims. This world view is as completely developed and mature as that of neoclassical economic theory — and it is just as much a superficial expression of an altogether qualitatively different underlying reality, the world as it appears in the heads of academic Marxists, who take this superficial appearance for the underlying reality.

Insofar as Engels at his death left us with some understanding of the growing socialization of the functions of the capitalist at the turn of the century, Marxism has not  progressed a single inch beyond this understanding. So, for instance, in their analysis of the present crisis, Dumenil and Levy, have a comprehensive explanation of the so-called  “managerial revolution” at the turn of the 20th Century. Yet nowhere in their analysis do we find any evidence that the state later assumed this management role itself. And nowhere do we find any discussion of what this assumption means for the categories of the labor theory of value.

So, as the world market was collapsing into the third depression in 70 years, not a single Marxist academic appears to have noticed. And they did not notice even though there were a number of superficial signs to the depression for which Marx’s theory was not even needed! For instance, the sudden replacement of Alan Greenspan, with his Randian economic theory, by Ben Bernanke, an alleged expert on monetary policy during the Great Depression; or the extremely odd divergence between the predictions of the Taylor Rule and Fed monetary policy; or this paper in 2003 discussing the problem of a monetary policy liquidity trap.

It turns out every Marxist academic without exception missed the greatest depression in the last 100 years not just because they ignored Marx’s theory, but because they are completely disconnected from the real world in every real sense of that term. They don’t grapple with real world issues and have no interest in the problems facing working people. Not one Marxist academic — Kliman, Moseley, Dumenil, Saad-Filho, the Monthly Review editors, etc. — has stepped forward to accept this failure on behalf of the Marxist academy. The depression eleven years ago set in motion the events leading to a catastrophic failure of fascist state economic policy measures that we mistakenly call “the financial crisis” today.

Still, to this day, not a single Marxist academic even acknowledges it occurred. They don’t even try to trace the financial crisis to its origins in this depression. All they can tell us is that, for some reason, banks started falling all over the place. And this is the shameful thing: even to this very minute they don’t yet even realize it happened!



Because in the Marxist ideology the state and capital are two entirely different things; and, in the Marxist ideology, the main task is always seizure of the state power to overthrow capital. The task itself only makes sense if the state and capital are two distinct entities. If Bakunin was right that the state is the creator of capital, the task makes no sense; but it also makes no sense when Engels’ prediction that the state must assume the function of the capitalist class is realized. So, the Marxist remains completely ignorant of the changes the state has undergone in the 140 years since Engels’ correspondence.

Once the state assumes management of the total social capital of a country, politics is reduced to which party will now manage this capital. Abolishing capital and abolishing the state becomes one and the same act, not because the state creates the national capital but because it is the national capitalist. Marxist theory has been frozen in the same state since the moment Engels took his last breath 117 years ago this month.

This problem of the Marxist ideology becomes acute when Marxists try to discuss phenomena like neoliberalism and globalization. They have to provide two explanations for the same development: the political aspect of the fascist state and the economic aspect of global corporations. The first seeks to explain neoliberalist theory as an ideology of the ideal state; while the second describes economic processes. (You can see the first argument — neoliberalism as a theory of the ideal state — fully displayed in David Harvey’s argument I ranted about in a previous post.)

So, for instance, US relations with China, Brazil, the EU, or India, is described in the purely political terms of neoliberalism: The US (with, perhaps, Britain as a junior partner) are trying to impose on the world its own vision of the ideal state. Neoliberalism as defined is treated quite apart from globalization — corporate activities within the world market — where these corporate activities are only ideally expressed in US policy.

This also can be seen in the failure of Marxism to come to grips with the emergence of fascist states during the Great Depression. Marxists are all too willing to point to 1930s Japan, Germany, Italy or Spain as examples of fascist states of that period; but they point to the exact same policies and practices in the US and Britain as examples of an enlightened social compromise between the two classes imposed by the state! In fact, if you want to piss off a Marxist, just tell him the US is a fascist state — it is hilarious to see him get almost as indignant as a Democrat. The reason for this reaction is obvious, no matter that Washington controls the US economy more tightly than the Nazis ever did the German economy,  we still have elections on which party of gangsters get to run the management apparatus.

Neoliberalism and globalization presents a paradox for Marxism, since it is obvious neoliberalism represents the interest of the capital class, but so does the nation state. To the Marxist, therefore, neoliberalism appears to represent the capitalist throwing off its own ideal representative. And why would the capitalist class do this? The easiest explanation, of course, is that the capitalist class wants to renege on the social compromise established by an enlightened RoosevelT administration in the catastrophe of the Great Depression. The explanation of events are completely political, where no relation is demonstrated to, and even fundamentally contradict, Marx’s labor theory of value.

Fascism is defined purely in political terms, not as the convergence of capital and state power, or the assumption of the functions of the capitalist by the state, but as some sort of compromise between classes imposed by an enlightened Democratic Party administration. Theoretical gymnastics like this are necessary if Marxists are to maintain their obsessive preoccupation with the seizure of state power.

Now none of this would be anything more than a litany of trivia, since Marxists aren’t running anything and never will run a damned thing; but this all culminates in the biggest failure of Marxism in the 21st Century: being caught completely off-guard first by the eruption of a massive depression and then a major financial crisis. Marxists have predicted 20 of the last three catastrophic depressions, but missed this one and the crisis that followed entirely.

And why they missed can be traced directly to their inability to recognize the state is, and has been, the capitalist since the 1930s. Which is why, when David Harvey asked and answered this question:

“Can capitalism survive the present trauma? Yes. But at what cost?”

I knew he was spouting meaningless gibberish. I mean really! Do you want to put your trust in the call of an academic who missed the biggest depression in 100 years! A depression that led precisely to the failure of the very fascist state economic policy he was discussing in his lecture? And to this day he doesn’t even realize it happened.

Or this interview with Andrew Kliman, which purports to trace the crisis to a fall in the rate of profit. There are probably pages and pages of graphs in Kliman’s latest book, “The Failure of Capitalist Production”, but I will bet my last valueless state-issued dollar not one of those charts shows we are now in the third depression in seventy years. Of course, if we are in a depression, the rate of profit is falling — but you can prove it only if you use Marx’s labor theory of value, not Kliman’s.


Why is it important to understand that the total social capital is now managed by the state acting as the national capitalist?

Well first it makes it easier to explain globalization and neoliberalism as one process generated by competition between national capitals. Now we can put what is happening to Greece within the context of the concentration and centralization of massive conglomerations of capital organized along national lines, and competing within the world market for which will continue to function as capital and which will be forced to cease functioning altogether. Second, state management of capital places at the disposal of the national capital resources it would not directly control in a democracy. Engels, for instance, argued people would get increasingly angry as monopolization increased:

“No nation will put up with production conducted by trusts, with so barefaced an exploitation of the community by a small band of  dividend-mongers.”

But, with the sponsorship of the state, the domination of a massive cartel of financial interests can be sold to the public as a central bank. The state could even determine “on its own” that this central bank has to be insulated from political pressures — that is, from control and oversight by the electorate. In this way, a good portion of the state’s actions as the national capitalist could be hidden behind a purely formal legal limitation. The state might even turn its money supply over this “cartel” and then “borrow” it back to “fund” its operations — paying this financial oligarchy a kickback for every dollar the state itself calls into existence out of thin air.

However third, and most important, all the categories of Marxist labor theory of value undergo a conversion. This conversion begins with the means of exchange, which is stripped of its commodity base. In Marx’s theory, the value of a commodity can only be expressed as exchange value in the material form of a commodity money. Marx is very clear on this:

“The progress of our investigation will show that exchange value is the only form in which the value of  commodities can manifest itself or be expressed.”

But what happens when this commodity money is replaced by a state issued fiction? The replacement of commodity money has the effect of suppressing the value of commodities in circulation. The prices of commodities no longer reflect the socially necessary labor times required for their production. Moreover, in Marx’s theory, every commodity has a two-fold character: its value in use and its value in exchange. Absent the material to express the commodity’s value in exchange, it is entirely possible for an object having no use value at all to have a price — like trident nuclear submarines. All that is required for this to occur, is that the means of exchange used in the transaction have no value as well – that it be a state issued fiction

Academic Marxism has yet to look at the consequences of state management of capital for the categories of capital, because, to these imbeciles, this state intervention in the economy is only of political significance.

However, these changes don’t simply run in one direction. With the state’s assumption of the function of national capitalist, another conversion takes place: the state is now subject to the law of value. This is a completely unexpected result of Marx’s labor theory of value and hails the complete collapse of Marxist ideology and the nation state itself. As the state gains mastery over the capitalist process within its borders, it becomes subject to the law of value within the world market as if it were just another capitalist firm.

We have seen this process play out in one region after another: Japan, Brazil, Mexico, Britain, South Asia, Russia, Argentina, Chile, the EU. States, which Marxist ideology takes to be unchanging sovereign entities, are compelled to adjust their policies under pressure from the world market, and even driven to bankruptcy one after another. Marx’s law of value as easily explains the policies of national capitals as it does the capitals within each nation.

Academic Marxism has no more understanding of this, than they have of the fascist state itself, so they were completely unable to anticipate the crisis that exploded in 2008 — without exception. They look at the empirical data based valueless state issued currency and, as might be expected, cannot peer below this useless data to examine the actual working out of the law of value hidden beneath it.

And no one holds them to account for the failures that result from this stupidity; no one demands they explain their failure! There is less accountability among Marxist academics than even among bourgeois economists — if that is possible.

I don’t expect folks to be right on every call, but I think it is important for them to get the big ones right — like a FUCKING DEPRESSION!


And why do I expect this? You may ask.

Simple: it is precisely during periods of depressions that the two great classes fight over the two most important issues of the capitalist epoch: The length of the labor day, and the division of this labor day between them. Now this dispute is becomes even more significant once you realize that, by assuming the role of national capitalist, the state becomes one of the parties in this conflict. The state as the national capitalist now has every interest in extending hours of labor as long as is tolerable and constantly compelling the increase in the portion of the labor day falling to capital.

Since, I know, I cannot be taken as an authority on the aims of fascist state economic policy, let’s hear from someone who is — Larry Summers, former economic adviser to President Obama:

“I think we got the Recovery Act right,” Larry Summers, the president’s chief economic adviser, said in an interview. “The primary  objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable  to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”

Summers offered this opinion in response to a question about labor hours reduction as the alternative to “creating jobs” by trying to stimulate the extension of the social working day

Folks, this is THE failure of academic Marxism: it still hasn’t realized the other party in the conflict with wage labor in this depression is the fascist state itself.

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