Members’ Bulletin 2
The Causes of
Capitalist Crisis
1
Contents
page 3
What is the cause of
the current capitalist
crisis?
A document on the Marxist theory of capitalist
crisis endorsed by the following members of
the CWI: Steve Bush (E&W), Allan Coote (E&W),
Sandra De Andrade (E&W), Steve Dobbs (E&W),
Pete Glover (E&W), Georg Kumer (Austria), Rae
Lewis-Ayling (E&W), Jordan Martinez (US), Alec
Price (E&W), Wayne Scott (Scotland), Bruce
Wallace (Scotland).
In defence of the
transitional programme
A reply to Bruce Wallace and the Group of Eleven
from the Socialist Party Scotland EC
page 24
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What is the cause of the current capitalist crisis?
Theory and practice of Marxism
1. The development of a new workers party in the next
period will almost certainly be achieved with the participation and guidance of the Socialist Party and the
CWI. The last period has been extremely difficult for
the ideas of Marxism but the leadership and our members have established us as the most incisive current in
the workers’ movement.
2. Regarding both theory and practice, Lenin and Trotsky
disagreed in the formative years of Russian Marxism.
But the disagreements of the early Marxists created the
mighty Bolshevik Party. This debate will strengthen the
CWI as we move towards becoming the decisive force
in world history in the next period. This document is
written by comrades and friends in the same Marxist
organisation. This debate will be another milestone in
the great history of our Party.
3. This document addresses the questions which we believe are vital for comrades to grasp to further their
understanding of the Marxist theory of crisis and the
centrality of the Law of the Tendency of the Rate of
Profit to Fall, so that comrades are theoretically and
politically armed for the class struggle and challenges
ahead. The intention of this document is to show that
the CWI leadership have misplaced the Marxist theory
of crisis and to highlight the dangers that this poses
for our organisation, and the fate of the future socialist
revolution.
Understanding the crisis is vital
“And even when a society has got upon the right track
for the discovery of the natural laws of its movement
— and it is the ultimate aim of this work, to lay bare
the economic law of motion of modern society — it
can neither clear by bold leaps, nor remove by legal
enactments, the obstacles offered by the successive
phases of its normal development. But it can shorten
and lessen the birth-pangs”. (Karl Marx, 1867, Preface
to the First German Edition of Capital Volume I)
4. Lenin (1921) wrote ‘‘Politics is a concentrated expression of economics’’ and our economic analysis inevitably translates into our political position and programme. Therefore it is a profound misunderstanding
to describe the present debate in the CWI over the
causes of the current capitalist crisis as being a narrowly theoretical disagreement. It is, in fact, an important question for the working class and its leadership
which determines our perspectives, strategy and tactics, even if the issue appears at first glance something
minor.
5. The current capitalist crisis is perhaps the greatest in
the history of the system, or at least since the Great
Depression of the 1930s. The crisis has been dubbed
the ‘Long Depression’ as capitalism on a global scale is
attempting to limp back to recovery after the financial
and industrial crisis of 2007-8.
6. For the working class who are facing the brunt of this
crisis and the austerity offensive of the capitalist class,
the articulation of a way out of the crisis is a central
question and a crucial one for the forces of Marxism.
The movements in Turkey and Brazil, the Arab spring,
the Eurozone conflagration and the mighty movements in South Africa are not just the indirect outcome of the current crisis, but also pre-tremors of even
greater upheavals to come. Therefore, a correct short
term and long term perspective, based on a thorough
examination of the economic evidence, is necessary to
map out a road for the working class and its leadership.
7. Our organisation needs an analysis of the crisis which
can be used to 1) develop our cadre in the Marxist
method - utilising the real living events that we are
presented with, 2) provide a correct, Marxist narrative
to explain the deeper fundamental reasons why workers are facing job losses, real terms pay cuts etc. (i.e.
that the crisis is rooted in capitalist production) and
3) explain why only a socialist planned economy can
overcome crisis.
8. There is general consensus that the immediate trigger
of the crisis was the bursting of the housing bubble
(based on ‘sub-prime’ mortgages) in the USA. This has
led many people to examine the horrors of the financial and credit system and lay the blame here. An understanding of how this works is indeed important in
providing a rounded out analysis. However, the Marxist method tells us that we need to dig a little deeper to
find the root cause of the problem. This is where the
discussion is needed within our party, because the
leadership appear to be at odds with what we understand to be a genuine Marxist understanding of crisis.
We view the current position as posing serious dangers for our forces in the stormy period ahead and that
the juncture of the crisis has been misjudged.
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What is the cause of the current capitalist crisis?
Uniqueness of capitalist crisis
9. Before the development of capitalism, the pre-capitalist societies (slavery, feudalism etc) also experienced
crises. However, unlike capitalism, production was
fundamentally organised for direct use. For example,
the feudal serfs worked the land directly for themselves
and for their landlords. Crises occurred when they did
not produce enough to meet their basic needs, such
as in the case of a bad harvest or famine. These were
crises of under-production, in relation to need.
10. Under capitalism, however, production is not organised to meet human need. As Marx explained, capitalism’s sole mission is to expand the value of capital. As
capital is self-expanding value, the capitalists are the
embodiment of capital and subject to its laws. They
must invest their capital for the production of commodities, the realisation of the value congealed in
these commodities and the subsequent reinvestment
and expansion of capital value, which is the sole reason for the existence of capitalism. As a secondary outcome of this process, the capitalists are able to pocket
a portion of the new value created as money profit.
11. This continuous expansion of capital (“economic
growth”) for the sake of expansion itself inevitably
leads to periodic crises. These are crises of over-production as Marx explained in The Communist Manifesto:
“In these crises, there breaks out an epidemic that, in
all earlier epochs, would have seemed an absurdity —
the epidemic of over-production. ... Because there is
too much civilisation, too much means of subsistence,
too much industry, too much commerce.” Marx (1848)
Karl Marx on crisis
12. A capitalist crisis is always a crisis of over-production,
but because capitalism is not organised to meet social
need it cannot be described as over-production in relation to social demand. Instead, capitalism is organised so that capital can continuously expand in value.
This has historically been the progressive aspect of
capitalism in developing the productive forces. Thus,
over-production is in relation to the need of capital to
expand in value. Capitalist crisis occurs when capitalism can no longer fulfil its historical mission of accumulating and expanding in value through economic
growth.
4
13. Marx’s Law of Value explains that only workers create
new value during production. Since capitalists need
to obtain new value, profit, to accumulate and expand
their capital, the maximum rate of capital accumulation is therefore determined by the rate of profit. The
rate of profit is the amount of surplus value obtained
as a proportion to the value of capital employed in production. As the rate of profit falls, so eventually does
the rate of capital accumulation. For Marx, the rate of
profit was the motive force of capitalist production, the
soul which animates it.
The falling rate of profit
14. Marx explained that the underlying cause of a crisis of
over-production was the falling rate of profit in capitalist production:
“[T]he rate of profit being the goad of capitalist production..., 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.” Marx (1894)
15. The falling rate of profit shows capitalism meets the
limits of the capitalist mode of production itself:
“The real barrier of capitalist production is capital itself. It is that capital and its self-expansion appear as
the starting and the closing point, the motive and the
purpose of production; that production is only production for capital and not vice versa...” Marx (1894)
16. The increasing productivity of capitalism manifests itself as an economy-wide average falling rate of profit.
This is because more machinery and materials, ‘dead
labour’, are used during production in relation to ‘living labour’. Hence the source of new value, the working
class, is squeezed out of production, so that less surplus value is produced in each commodity and therefore less is realised per sale. All else remaining equal,
the rate of profit falls. This is the essence of The Law of
the Tendency of the Rate of Profit to Fall (subsequently
referred to as The Law) and the central tenet of Marx’s
theory of capitalist crisis.
What is the cause of the current capitalist crisis?
Overcoming Crisis
17. To overcome the crisis, capital and the value of capital
must be destroyed in order to restore the rate of profit.
Subsequently, the rate of capital accumulation can increase and thus the economy can grow again. The rate
of profit is thus temporally restored to some degree for a
period, and the process repeats. This explains the regular occurrence of “boom and bust” under capitalism.
18. Marx held that crisis was nothing more than the destruction of capital value, whereby the weight of dead
labour was purged from the system, which allowed the
rate of profit to be restored so a new period of capitalist expansion could ensue. This is the underlying force
that propels capitalism towards periodic crisis. The Law
explains why the falling rate of profit drives the system
towards crisis and also how it is to be overcome.
Intense debate
19. The origins and causes of the current capitalist crisis
has been the subject of an intense debate on the left
of the labour movement since the financial crash of
2007-8. A range of explanations have been offered, but
a number of Marxist economists, not all of them pure
academics, have identified the falling rate of capitalist profit as being the fundamental underlying cause
of the crisis.
20. By underlying cause they mean that all aspects of the
crisis, the financial crash or ‘’credit crunch’’, the massive fall in production throughout the capitalist world,
the plunge in investment and the sluggish global recovery can be traced to the long term decline in capitalist profitability in the advanced capitalist countries
(ACCs) and specifically in the USA 25% of the world
economy.
21. Among Marxist economists and other scholars there
is growing support for the falling rate of profit analysis of the crisis including; Roberts (2009), Carchedi
(2012), Freeman(2009), Kliman (2012), Granados
(2013), Brooks (2013), Grogan(2013), Shaikh(2008),
Deepankar and Manolakos (2010), Cockshot (2012),
Mattick (2011), Potts (2011), Liodakis (2012) and Wells
(2011).
22. Julian Wells, an economist with the Open University,
summed it up nicely in a letter to the Guardian in August this year in response to an article from Larry Elliot
the economics editor on zero hours contracts:
“As Larry Elliott rightly says, the proliferation of zerohours contracts represents an increase in the “reserve
army of labour” in an attempt to reverse a long-term
decline in profitability (Why stop at zero hours?) Why
not revive child labour, 5 August). But neither this nor
the other responses he mentions, such as financialisation, can ultimately overcome the tendency for profit
rates to fall.
This is an inherent feature of capitalist competition,
resulting not from pressure on prices but from each
capitalist’s attempt to raise their individual profit rate
by investing in more capital-intensive production processes. The overall capital, relative to total profit, goes
up, and the profit rate goes down.
Although such things as attacks on wages can offset
the basic tendency, sooner or later it results in crises
such as the one in progress since 2008. Since the
cause is too much capital, the only cure (within capitalism) is destruction of capital through bankruptcy of
less-profitable enterprises. Palliatives such as increasing workers’ purchasing power can help the system
limp along for a while but only at the cost of preparing
a bigger and worse crisis.”
Political Conclusions
23. Whether we see eye to eye politically with any of
these economists is not the point. If we disagree with
their economic arguments, we need to come up with
a scientific refutation of them. It is an unacceptable
method to dismiss the economic arguments of serious
scientific researchers purely on the basis of what we
regard as their erroneous political views.
24. Regrettably, the Socialist Party EC have attempted to
use, to take just one prominent example, Andrew Kliman’s political conclusions to denounce his economic
analysis and therefore our support for The Law as the
underlying cause of crisis. This is simply not a logical
argument, let alone a Marxist one. It is all the more
surprising given that the Socialist Party regularly base
their economics analysis on sources drawn from conservative bourgeois newspapers (e.g. The Financial
Times), Keynesians (e.g. Paul Krugman), and more
recently ex-Leninist Bill Jefferies and Mandelite USFI
supporter Husson.
25. To spell it out in black and white, none of the supporters of this document endorse Kliman’s political
conclusions, any more than the CWI, by upholding
5
What is the cause of the current capitalist crisis?
Ted Grant’s analysis of the Soviet Union, believe in reclaiming the Labour Party.
The Current position of the Socialist Party EC
26. The Socialist Party EC have made statements that
would appear to contradict one of the fundamental
tenets of Marxist theory. The main driver for the crisis
has been described as a lack of demand and deflation
(a general drop in prices). While we agree this is definitely a feature of the present crisis, it is not its cause.
The cause, as predicted by Karl Marx and supported
by mounting compelling evidence, is the falling rate of
profit within the capitalist system.
27. The position of the leadership is clearly contradictory, as the Socialist Party Scotland (2013) perspectives
document from this year’s Scottish conference in February stated:
“That is not to argue that the remedy to the capitalist crisis is to overcome “under-consumptionism”. In
other words, to get people to spend more money and
buy more commodities. Rather for Marxists the “lack
of demand” is a symptom of the malaise, but it is also
an exacerbating factor which is helping to deepen the
crisis. In that sense austerity, currently the favoured
policy of world capitalist governments and institutions
is the worst option for the bourgeois.”
28. The Scottish section unanimously voted for a perspective in February 2013 that the lack of demand is only a
symptom of the crisis, but at the party conference in
England and Wales Peter Taaffe stated in March that
lack of demand is the cause of the crisis and that it was
completely false to blame the crisis on the fall in the
rate of profit alone!
Sober assessment
29. Any analysis of the capitalist crisis can’t have such
glaring contradictions and has to include a sober assessment of the research and literature produced from
serious sources, including the work of Andrew Kliman
and others. This does not mean merely criticising his
conclusions, which we would say are inadequate and
undeveloped, but the body of his work itself. In order
for the argument of the CWI leadership to be proved
valid, the arguments of the above authors and many
others, their evidence and statistics, must be convincingly refuted. It is our contention that the leadership
6
have been unable or unwilling to do this. In our view,
the analysis of many leading comrades is sadly wanting and inadequate.
30. However, we emphatically deny that our criticism of
the leadership’s position on the causes of the crisis
depends upon the work of just one economist such as
Andrew Kliman. Our view is that the crisis is primarily due to a persistently declining rate of profit and it
is supported by a range of robust and peer reviewed
research from reputable sources, but is also based on
a serious study of the works of Karl Marx and the other
historic figures of our movement.
31. Presently the intense debate on the causes of the crisis
are a closed book to the SP leadership who have not
taken up a serious study of those economists who agree
with Marx’s most important law of political economy
and those who reject it from various quarters.
Marx Vindicated
32. In our view, Marx’s vision of the fundamental cause of
capitalist crisis has been vindicated by the course of
the crisis itself. As Marx argued:
‘’But proceeding from the nature of the capitalist mode
of production, it is thereby proved a logical necessity
that in its development the general average rate of
surplus-value must express itself in a falling general
rate of profit. Since the mass of the employed living
labour is continually on the decline as compared to the
mass of materialised labour set in motion by it, i.e.,
to the productively consumed means of production,
it follows that the portion of living labour, unpaid and
congealed in surplus-value, must also be continually
on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of
the mass of surplus-value to the value of the invested
total capital forms the rate of profit, this rate must constantly fall.” (Marx, 1894 p213)
33. Moreover, it is not just Marxist economists alone who
support the idea that the current capitalist crisis was
caused by, and is continuing because of, the inability
of the capitalists to restore the rate of profit but it is also
verified by serious research undertaken by bourgeois
economists.
What is the cause of the current capitalist crisis?
Bourgeois evidence of the historical fall in the rate
of profit in the USA
34. An outstanding data set identified but neglected by
Marxists is from the Shift Index issued by Deloitte’s
Center for The Edge in (2011). Deloitte are regularly
cited in Socialism Today so are regarded as a reputable
source. Their report described as “The Most Important
Business Study Ever?” came up with these startling
findings:
“These studies have followed 20,000 publicly traded
firms between 1965 and 2010 to yield a comprehensive measure of profitability. All iterations (2009. 2010,
2011) shows that the rate of return on assets (not simply “fixed capital”) has been in dramatic decline for the
past 45 years. It moreover demonstrates this decline
both with and without integrating the banking sector.
However, once the banking sector is included, which
now accounts for 60% of total assets (30% in 1965),
the decline has been even more pronounced.
More specifically, this comprehensive review found
that ‘US companies’ return on assets (ROA) have progressively dropped 75 percent from their 1965 levels
despite rising labour productivity’, a near doubling of
labour productivity to be more precise.’’
Deloitte’s data valid!
35. Deloitte’s study came in for criticism from capitalist
commentators as the right wing economists at Forbes
highlighted:
‘‘One might have thought that managers would headline the report and invite discussion in order to understand what has happened and why. For the most part,
however, corporate America has regarded the study
with studied indifference. It’s still business as usual in
the Fortune 500 and most business journals.
Yet every now and then, an intrepid critic steps up to
challenge the Shift Index analysis. The most recent
example is Bob Lewis’s article, Big Shift or Shifty Statistics? He writes: “On the surface, this 45-year privatesector-wide decline seems to reflect an across-theboard failure of management to do its job… Too bad
it doesn’t stand up to close scrutiny… its logic is too
shaky to rely on.”
36. However, Deloitte declared:
“After questioning and re-questioning our data and our
assumptions, we came back to the same conclusions.
The downward trend in company performance is accurate; the assumptions are reasonable, and further
analysis confirms these persistent trends.”
37. Furthermore the research was compatible with the
general development of the US economy as a whole:
‘‘How could there really be a decline in the rate of return on assets of 75% when the GDP grew from 1965
of around $750 billion in 1965 dollars to some $15
trillion in 2011? Are these numbers compatible? The
answer is yes.
Comparing total GDP in nominal dollars doesn’t take
into account population growth or inflation. When you
allow for these factors, one sees that the per capita income (based on GDP) has grown about two and a half
times over this 45 year period. This rate of growth implies a compound rate of growth of per capita income
from 1965 to 2010 of around 1.9%, which is, as you
would expect, in the middle to low end of the range of
ROA during the same period (4.8-1.2%).
The decline in ROA is also consistent with the accelerating death of firms in the Fortune 500—a trend that
has been under way for many decades, as described in
the Richard Foster’s book, Creative Destruction’’.
38. Tellingly, Forbes also point out that financialisation
has not helped American capitalism to restore profitability:
‘‘Equally, the massive expansion of the financial sector
is not contributing to growing the real economic pie.
As Gerald Epstein, an economist at the University of
Massachusetts has said: “These types of things don’t
add to the pie. They redistribute it—often from taxpayers to banks and other financial institutions.” Yet in the
expansion of the GDP, the expansion of the financial
sector counts as increase in output.
As a result of these various “overstatements” it’s hard
to regard the GDP growth as a good guide to economic
well-being or progress. In any event, there is nothing in
the GDP numbers that would put in question the Shift
Index analysis’’.
39. In short, this data from the US economy robustly supports Marx’s prediction that capital would become
7
What is the cause of the current capitalist crisis?
more centralised and concentrated through competition, and that the prime driver for this is the persistent
falling rate of profit. While there has been a historical
decline in the rate of profit in the US, this has been
partially compensated for by compound economic
growth. Although the rate of growth has been slow,
it has nevertheless been an average year on year increase in economic output. This was maintained by
massive injections of liquidity into the economies of
the ACCs, but this was unable to halt the fall in the rate
of profit which led to the credit crunch and financial
panic of 2007-8.
40. It should be apparent that we are following the advice
of Peter Taaffe (2012):
’’However, it is not sufficient to merely quote what Marx
said on this question, but seek to locate an analysis
in the real developments of capitalism without in any
way repudiating the basically correct position of Marx
on the issue’’.
Theoretical Confusion in the Socialist Party EC
41. Although not explicitly stated, certain leaders of the
CWI do not accept the falling rate of profit as being relevant to economic crisis. Whether this has anything to
do with the fact that the late economist Andrew Glyn
rejected The Law is in question.
42. In fact, Andrew, when a member of our organisation in
1980, explicitly stated that Karl Marx’s formulation of
The Law was theoretically incorrect and definitely never changed his mind. Although he left the CWI shortly
after 1980, it is clear that Andrew’s ideas are still held
or sympathised with by a number of comrades in the
leadership.
43. So while there have been statements claiming that The
Law is “totally correct” from some quarters, from others it is described as “just a tendency”. It is our contention that there is either confusion, misunderstanding
or disagreement amongst the leadership in relation to
Marx’s law. Some regard it as valid or formally correct
without believing it has any impact on the formation of
crisis (counter-tendencies have cancelled it out?) and
others actually deny that it is important at all.
44. This is a complete reversal of the position that was
held historically within our organisation and appears
to have come about sometime in the early 1990’s because prior to that period our position was that capi-
8
talist crisis was fundamentally caused by the falling
rate of profit. This has now radically changed.
45. Now we have a “one sided” explanation of capitalist
crisis that it is caused by the over-accumulation of too
much capital i.e. too many factories and machines and
not enough customers to buy their production. This is
a slightly more sophisticated explanation of workers
not being able to buy back what they produce which is
a false argument in any case.
Marx on over-production
46. For Marx, however, this was not his full explanation of
the cause of crisis because the over-accumulation of
capital and therefore over-production of commodities
was only one side of the internal dynamic of capitalist
production. As Marx clarified:
“The word over-production in itself leads to error. So
long as the most urgent needs of a large part of society
are not satisfied, or only the most immediate needs
are satisfied, there can of course be absolutely no talk
of an over-production of products— ... The limits to production are set by the profit of the capitalist and in no
way by the needs of the producers.... [T]he bourgeois
mode of production contains within itself a barrier to
the free development of the productive forces, a barrier which comes to the surface in crises and, in particular, in over-production—the basic phenomenon in
crises.” (our emphasis) (Marx, 1863)
47. He also clarified:
“Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore
simply over-accumulation of capital.” (Marx, 1894)
“Different Expressions of the Same Process”
48. The cause of the over-accumulation wasn’t just due to
investment as this was only one side of the process as
he elaborated earlier:
“A fall in the rate of profit and accelerated accumulation are different expressions of the same process only
in so far as both reflect the development of productiveness Accumulation, in turn, hastens the fall of the
rate of profit, inasmuch as it implies concentration of
labour on a large scale, and thus a higher composition
What is the cause of the current capitalist crisis?
of capital. On the other hand, a fall in the rate of profit
again hastens the concentration of capital and its centralisation through expropriation of minor capitalists,
the few direct producers who still have anything left
to be expropriated. This accelerates accumulation with
regard to mass, although the rate of accumulation falls
with the rate of profit.” Marx (1894)
49. It is the falling rate of profit which directly determines
investment and was responsible for the slowdown in
capital accumulation in the last three decades in the
ACC’s.
Further evidence to support The Law
50. Indeed, we feel we must include here contemporary
research which completely supports our argument
and which has not been acknowledged, like other evidence that flatly contradicts the leadership’s position,
from Granados (2012).
51. In his paper ‘Does investment call the tune? Empirical evidence and endogenous theories of the business
cycle’, Granados does a proper job of surveying the history of economic thought in relation to the business
cycle of booms and slumps. His primary focus is on the
contending theories of Marx and Keynes. The Keynesian thesis states that investment calls the tune for the
economic cycle, while Marx held that it was profit.
52. Granados then applies both theories to the empirical
evidence and he concludes:
“Though profits, investment, wages, output, and other
variables swing up and down ‘together’ in expansions
and recessions, observed lags and statistical analysis
show that the two potential directions of causation between investment and profits are not equally likely. The
hypothesis that profits determine investment is much
more consistent with the empirical evidence. If investment ‘calls the tune’, then that tune is an echo of a
previous melody.”
53. His empirical evidence is telling:
“Data on 251 quarters of the U.S. economy show that
recessions are preceded by declines in profits. Profits
stop growing and start falling four or five quarters before a recession. They strongly recover immediately after the recession. Since investment is to a large extent
determined by profitability and investment is a major
component of demand, the fall in profits leading to a
fall in investment, in turn to a fall in demand, seems to
be a basic mechanism in the causation of recessions.”
54. The fall in the rate and mass of profits is the “basic
mechanism in the causation of recessions” as described by Marx, but apparently this is rejected by the
Socialist Party EC.
Echos from German Social Democracy
55. Karl Kautsky was a leading Marxist theoretician of the
German Social Democratic Party in the late 1800’s
and in the first half of the twentieth century. He was
famously known as the ‘Pope of Marxism’. Although
latterly known as a centrist and as a renegade for his
criticism of the Bolshevik revolution, Kautsky’s economic ideas about the causes of crisis are important
historically.
56. It is our contention that the Socialist Party EC have
moved backwards in their theoretical conception of
crisis to adopt what is known as a multi-causal conception of crisis. This is in opposition to our contention that the fundamental driver for capitalist crisis is
the falling rate of profit. It is our contention that the
leadership’s conception of crisis is similar to Kautsky’s,
and is therefore an outmoded theoretical conception.
“Drowning in Profits”
57. Kautsky’s position was explained in a book called The
Class Struggle where he explained:
“The capitalist system begins to suffocate in its own
surplus; it becomes constantly less able to endure the
full unfolding of the productive powers which it has
created. Constantly more creative forces must be idle,
ever greater quantities of products be wasted, if it is
not to go to pieces altogether.” (Kautsky, 1888).
58. This bears a strikingly similar ring to our contemporary position in for instance “The Case for Socialism”
(2013):
“... the capitalists are drowning in profits. In Britain
alone, the major corporations are hoarding an incredible £750 billion, which they are not investing because
they do not consider they would make a sufficient profit
from it.”
59. For some time, the Socialist Party have made the case
9
What is the cause of the current capitalist crisis?
that the crisis of capitalism is expressed as an excess
of profits, not a shortage. The argument is made that
even if the rate of profit has fallen, this has been more
than compensated by a counteracting rise in the mass
of profits.
60. These ideas have historical antecedents that originate
with Kautsky. He, too, believed that the Law was an important factor but the mass of profit was more important than the rate of profit. He did not see profitability
as the key cause of capitalist crisis.
“The decline of the rate of profit, and likewise of interest, in no way implies a reduction of the income of the
capitalist class, for the mass of surplus that flows into
its hands grows constantly larger…” (Kautsky, 1888)
“No Markets”
61. Crisis, for Kautsky, had another immediate source. It
lay in the restriction of the market; that the working
class would not be able to buy back what it had produced and the widening gulf between rich and poor.
62. As our party has recently made statements that there
are “no markets” for capitalism. This is an echo from a
time when Kautksy’s views were the views of German
Social Democracy in the late 1800’s. As Kautsky said:
“For some time past the extension of the market has
not kept pace with the requirements of capitalist production. The latter is consequently more and more
hampered and finds it increasingly difficult to develop
fully the productive power that it possesses. The intervals of prosperity become ever shorter; the length of
the crises ever longer... “ (Kautsky, 1888)
63. And again:
“But there is a limit to the extension of the markets
… Today there are hardly any other markets to be
opened”.
64. The restriction of the market was a key element in his
theory of crisis.
“The large majority of the capitalists have now nothing to do but consume what others produce (Kautsky,
1888).”
65. The idea of contracting markets, a key under-consumptionist idea was attacked at the 4th Congress
10
of the Communist International in 1922 (we refer to
Lenin’s views later).
66. Our Party Manifesto again has eerie echoes of this outlook:
“The share of wealth accruing to billionaires has increased exponentially while that of the working class
quite obviously has diminished. The working class cannot buy back the full product of its labour power”. (Socialist Party, 2012.)
67. While it is completely correct to show that inequality is
built into the very fabric of capitalism, it is not correct
to infer from this that this is a particular feature of this
stage of capitalism. Levels of inequality were greater at
the time of the robber barons like Rockefeller, Vanderbilt and Carnegie.
Similarities with Kautsky
68. Our official view is unnervingly similar to the position
of Kautsky and his idea that markets become essentially saturated. Like our view of “no markets” for capitalism today, Kautsky’s understanding of crisis was that
capitalism had exhausted its possibilities as an historical mode of production and this was leading to stagnation. Stagnation was the deciding factor in changing
consciousness.
69. This theory is false as Marx held that capitalism tended towards period crisis and, eventually, the capitalist
system would “burst asunder” leading to the expropriation of the expropriators.
70. Such a perspective will not educate the cadre and the
class of the necessary preparations for sharp turns in
class consciousness caused by a renewed major capitalist crisis which will be more severe and therefore
pose the question of “who rules” in a sharper fashion.
71. The ‘drowning in profits’ outlook reflects the view that
capitalism is sitting on an enormous pile of value.
Capitalists and therefore capitalism drowns because it
has created too much of the very thing that drives it.
Profits drive capitalism. When capitalism is profitable
it should be a sign that it is healthy. However, the sickness of the system is supposedly manifested, according to the EC, by huge profits that threaten to suffocate
the capitalists themselves.
What is the cause of the current capitalist crisis?
Endless Austerity?
72. It is also revealing how the party understand the term
“stagnation”. If we mean by stagnation, a period of low
growth then that is one thing. However, we think the
EC means something else.
“The inevitable economic contraction which will arise
from this will seriously impact on the British economy.
This will result in a further ‘death spiral’, reflected in a
plunging economy and rising unemployment, resulting
in a further embittered mood with class polarisation
and social turmoil… the most likely economic scenario
is for continued economic stagnation, so that by 2015
the British economy will only be at the level of 2002,
meaning a lost decade.” (Socialist Party 2012, Congress document)
73. We also state: “The G8’s austerity policies are not working. Most of Europe is in deep recession or facing economic stagnation.” (Mulholland, 2013)
74. And from our newspaper on 27 Feb 2013: “…the reality is that there has been no real return to growth. Prolonged stagnation - ‘bumping along the bottom’ - is
the best scenario on offer.” (The Socialist 2013)
75. The party have acknowledged the perspective of the
sober bourgeois commentators:
“A new report by the Institute of Fiscal Studies predicts
that even were Britain to enter a ‘golden period of
steady economic growth’ the wages of the poorest half
of Britain would continue to decline in real terms until
at least 2020, leaving a typical low-income family 15%
worse off than they are now. Far from a ‘golden period’ the capitalist economic crisis is worsening. Cameron has told us to expect austerity to continue for the
rest of the decade: growing unemployment, enforced
part-time working and cuts to essential public services
(Sell. 2012).”
76. What is being outlined here is a decade of prolonged
stagnation caused by an excess of profits which are uninvestable. The perspective is one of years of austerity
and a capitalism itself that grinds to a standstill.
Capitalism: Stagnant or Dynamic?
77. This is contrary to the theory of Marx who explained
that capitalism is a dynamic system beset with contradictions and crises. It is incorrect to use the word stag-
nation as is has been applied. Capitalism never ceases
to expand and contract. Capital expands or it dies, and
capitalism is a system of disequilibrium, not stagnation, which leads to crisis, not stasis.
78. A sustained period of low growth for capitalism prepares it for inevitable cataclysmic convulsions. The
crash of 2007-2008 was just the prelude to a much bigger potential future collapse in capital values, which
even huge state intervention will be completely incapable of preventing, given the massive international
debt mountain. As Nouriel Roubini, the radical Keynsian economist has pointed out, governments are “just
kicking the can down the road and running out of fiscal policy bullets”.
79. The next period will not one of “endless austerity” but
of, at some point, a deeper and more extensive crisis.
It is, of course, completely correct that we expose the
evils of capitalism in our publications. But a classic crisis isn’t just a long list of the excesses of the market, no
matter how cruel and horrible.
The Coming Crisis
80. A crisis on a completely different scale than the normal boom/slump cycle has taken place. A crisis of this
magnitude has been documented at least four times
in the history of capitalism: 1) The Long Depression
of the 1870s, 2) The Great Depression of the 1930s, 3)
The Crisis of the 1970s and 4) The current Long Depression. All these crises were expressions of a falling
rate of profit and a general destruction of capital value.
The collapse in capital values that occurred during the
1930s gave momentum to fascism and ultimately led
to world war. The current impasse is calling forth similar gloomy portents.
81. In our view we must prepare our ranks for the possibility of an impending capitalist collapse that will make
the disgusting austerity measures pale by comparison.
In our view this is a sober assessment of the long term
perspective for world capitalism. We are not in a period stagnation but one of low growth, particularly in
the advanced countries.
82. However, for the next decade, the CWI leadership appear to minimise the possibility of the scenario of a
repeat of 2007-08 on a similar or even bigger scale, although accept it as a possibility.
83. The financial crisis was devastating for capitalism and
11
What is the cause of the current capitalist crisis?
nearly dragged the world economy into an epic depression. Alistair Darling recently said we were just 2
hours away from a complete collapse of the banking
system at the height of the financial crisis. Around the
same time, Gordon Brown’s aide Damian McBride
has said that the Prime Minister considering deploying troops on the streets of Britain to quell anarchy,
should cash-withdrawals and bank-cards fail to work.
A repeat on a much larger scale is a development we
must consider with the utmost seriousness.
Marx on the Counter-Tendencies
84. Marx was explicit that the falling rate of profit is the
root cause of major capitalist crises.
85. Indeed, Marx’s exposition of how crises unfold can
be applied directly to the Great Recession itself. Marx
held that a falling rate of profit would eventually lead
to a fall in the mass of profit being made by the capitalists and this is exactly what happened in the USA in
2006; a full year before the onset of the financial crisis
(see the facts below under the section “Counter-tendencies exhausted, profits collapsed”).
86. It was Marx himself who identified the operation of
counter-tendencies to the falling rate of profit. However the CWI leadership call on the mere existence of
counter-tendencies as somehow negating the impact
of the falling rate of profit itself. This is a downright distortion of Marx’s argument in Capital.
87. On the one hand, the leadership of our organisation
state The Law is “absolutely correct” in the abstract,
but then deny that it is responsible as the key driver
for the crisis because of the counter-tendencies. This
displays a misunderstanding and misrepresentation of
how the law operates in conjunction with the countertendencies.
88. Marx was explicit that counter-tendencies could slow
down the fall in the rate of profit but not halt it. All other influences act to “moderate” and “hamper”, “retard
and partly paralyse” the fall in the general rate of profit
(Marx, 1894 p239).
89. And:
“Thus the law acts only as a tendency. And it is only under certain circumstances and only after long periods
that its effects become strikingly pronounced” (Marx,
1894 p239)(our emphasis)
12
90. Marx stipulated that the law became “strikingly pronounced” through real periodic crises in real time. As
the law is an historical one, it has taken a considerable
period to express itself. Yet it is expressing itself “strikingly” specifically in this real crisis and this is supported by an abundance of evidence.
“Just a Tendency”?
91. Meanwhile, some comrades in the leadership appear
to deny the actual empirical operation of the law, stating that it is just a “tendency” and that it has no real
relevance in relation to the crisis. This is in outright
contradiction to the factual data, but a point needs to
be made in relation to the counter-tendencies themselves?
92. The counter-tendencies are not a separate factor operating independently of the rate of profit. This is also a
misrepresentation of how The L aw works. There are in
fact six key counter-tendencies which the falling rate
of profit actually brings into being and which operate
as long as the rate of profit is falling. These are primarily:
1. More intense exploitation of labour (increasing productivity)
2. Reduction of wages below their value (wage cuts)
3. Cheapening of the elements of constant capital (reducing the cost of machinery)
4. The relative surplus population (using unemployment to force down wages and conditions))
5. Foreign trade (the expansion of global capitalism)
6. The increase in share capital (the growth of banking
and finance/debt)
93. Although all of these counter-tendencies were operative during the neo-liberal period, they did not stop
the persistent fall in the historic average rate of profit,
as evidenced very clearly by the Shift Index data above.
94. Marxist economists have dissected the influences
of these counter-tendencies exhaustively and have
concluded that while the decline in profitability was
slowed down in the 1980’s and 1990’s, some argue it
was partially restored, it never recovered to the level
experienced in the period of the post war boom of the
1950’s and 1960’s. In fact, the crisis of capitalist profitability can be traced to the 1970’s and capitalism has
never fully overcome that crisis. Generally, however,
there is unanimity amongst classical Marxist economists that the US rate of profit peaked in 1997 and then
began to fall again on average until the crisis of 2007-8.
What is the cause of the current capitalist crisis?
95. The partial recovery in profitability was due, in large
part, to the increase in mechanisation and computerisation of production which boosted labour productivity or, as Marx would describe it, relative surplus value
by increasing exploitation. The other was by the extension of trade through the development of capitalism
in the Far East opening up new markets for capitalist
commodities and investment. The development of
other emerging economies was also important.
Counter-tendencies exhausted, profits collapsed
96. However, just as Marx predicted, eventually the counter-tendencies exhausted themselves and there was a
sudden plunge in the mass of profit being made by US
capitalism. In 2006 in the US, a quarter of the world
economy, there was a slump in profits. In the 3rd quarter of 2006 the mass of pre-tax profits was $1,865 billion but in the 4th quarter of 2008 this had collapsed
to $861 billion, a fall of more than half (see Brooks,
2012). On its own, such a catastrophic fall in the mass
of profits would have caused a severe recession, but
the slump in profitability and economic contraction
detonated an implosion in the bloated edifice of international finance capital, resulting in an acute financial
and economic disaster.
97. These facts appear to be ignored by the leadership
of our organisation or disputed as “new” (?), and we
state categorically that they must produce evidence
which counters this data if their argument is to prove
a valid and robust alternative. So far there has been no
attempt to refute this evidence and we challenge the
leadership that this is also a continued dismissal of
concrete reality.
98. The concept that the counter-tendencies somehow
negate the crisis mechanism of the falling rate of profit
is a straw man argument and a sign of an unscientific
approach.
Marx: lack of demand “never the cause of the
crisis”
99. A central argument put forward in the publications of
the CWI is that the crisis was caused by rampant inequality, falling wages, massive increases in consumer
debt and a lack of demand for capitalist good and services.
100.This explanation is false from both the logical and em-
pirical point of view. Marxists long ago rejected the
idea that capitalism went into crisis because of the inability of the workers to buy back what they produced.
This is, in fact, a distortion of the Marxist position.
Marx rejected this explanation emphatically:
“The general possibility of crisis is the formal metamorphosis of capital itself, the separation, in time
and space, of purchase and sale. But this is never
the cause of the crisis. For it is nothing but the most
general form of crisis, i.e., the crisis itself in its most
generalised expression. But it cannot be said that the
abstract form of crisis is the cause of crisis. If one asks
what its cause is, one wants to know why its abstract
form, the form of its possibility, turns from possibility
into actuality” (Marx, 1863)
101.So what Marx means by this is that the lack of demand
for commodities, because there are not enough buyers
for them, or the failure to be able to sell them, which is
the same thing, is actually a description of the crisis,
an observation of what is happening in the economy
as it appears to us. It is the most “general expression”
of crisis.
102.So Marx says that lack of demand is “never the cause of
the crisis” which means not ever, at no time, not in any
degree and not under any condition.
The under-consumptionist tautology
103.Marx’s clearest condemnation of the lack of demand
argument, and it’s pretty sharp, can be found in chapter 20 of Capital Volume II where he describes the
argument as a tautology (in other translations he describes the argument as being a “redundancy” i.e. useless).
104.Tautology is a logical term which means it is a circular
argument. For example if I say “it is raining” and you
ask me “why is it raining”(?) to which I reply, “because
it is raining”, then that is a tautology. I am saying that
the rain is, in effect, causing itself. A tautology is regarded as not forming a coherent proposition and it is
not a valid argument full stop. So Marx says:
‘‘It is sheer tautology to say that crises are caused
by the scarcity of effective consumption, or of effective consumers. The capitalist system does not know
any other modes of consumption than effective ones,
except that of sub forma pauperis or of the swindler.
Those commodities are unsaleable means only that
13
What is the cause of the current capitalist crisis?
no effective purchasers have been found for them, i.e.,
consumers (since commodities are bought in the final
analysis for productive or individual consumption). But
if one were to attempt to give this tautology the semblance of a profounder justification by saying that the
working-class receives too small a portion of its own
product and the evil would be remedied as soon as it
receives a larger share of it and its wages increase in
consequence, one could only remark that crises are
always prepared by precisely a period in which wages
rise generally and the working-class actually gets a
larger share of that part of the annual product which
is intended for consumption. From the point of view
of these advocates of sound and “simple” (!) common
sense, such a period should rather remove the crisis.
It appears, then, that capitalist production comprises
conditions independent of good or bad will, conditions
which permit the working-class to enjoy that relative
prosperity only momentarily, and at that always only as
the harbinger of a coming crisis” (Marx, 1885).
Major assertions based on flimsy textual evidence
105.To counter this crystal clear declaration of Marx, the
leadership of our organisation have produced two very
obscure quotes from Marx. The first one is from Capital Volume III and is a single sentence:
“The ultimate reason for all real crises always remains
the poverty and restricted consumption of the masses, in the face of the drive of capitalist production to
develop the productive forces as if only the absolute
consumption capacity of society set a limit to them.”
(Marx, 1894 p.615)
106.In fact, this sentence is actually a bracketed note
that Engels included when he edited Volume III after
Marx’s death. It appears in the midst of a long digression on the role of credit completely separate from his
main discussions on crisis but is a hardy perennial for
those who attempt to stand by what is known as the
under-consumptionist theory of crisis. This is a common theme in CWI literature that simplistically argues
that capitalist crises occur because workers are unable
to buy back all that they produce.
107.For example this is from Socialism in the 21st century
by Hannah Sell (2006):
“capitalism is incapable of fully using the capacity that
has been created because, ultimately, the working
14
class cannot afford to buy all of the goods it produces.
This leads to overproduction and overcapacity. The
bosses attempt to deal with this through lay-offs and
downsizing, resulting in a smaller number of industrial
workers producing the same amount of commodities
that a larger number produced in the past’’.
108.Now, Marx never anywhere said that this was the concrete reason for crisis, and in fact, as quoted above, he
actually poked fun at the idea as “it is sheer tautology
to say that crises are caused by the scarcity of effective
consumption, or of effective consumers”.
109.If the leadership of our organisation are relying on the
much misused quote that ultimately crises are due to
the restricted consumption of the masses then there is
a distinct problem, as workers will never be able to buy
back all that they produce under capitalism.
110.Engels explained the place of under-consumption in
his work Anti-Dühring (1878) which had been read
and approved of by Marx:
‘‘But unfortunately the under-consumption of the masses, the restriction of the consumption of the masses to
what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long
as there have been exploiting and exploited classes….
The under-consumption of the masses is a necessary
condition of all forms of society based on exploitation,
consequently also of the capitalist form; but it is the
capitalist form of production which first gives rise to
crises. The under-consumption of the masses is therefore also a prerequisite condition of crises, and plays
in them a role which has long been recognised. But it
tells us just as little why crises exist today as why they
did not exist before.’’ (On production)
111.In other words, ultimately the reason for crisis may
be traced to this condition of capitalism because it is
a precondition or prerequisite for crisis, but it doesn’t
tell us why periodic crises and crashes occur under
capitalism when they do and why they do on a regular
basis.
Infamous footnote
112.The other quote used to justify support for an underconsumptionist explanation of crisis currently being
held up as conclusive theoretical support for their
position is a footnote added by Engels to volume II of
Capital from a fragmentary sketch by Marx which was
What is the cause of the current capitalist crisis?
for “further elaboration” that he did not complete and
is suitably abstract:
“Contradiction in the capitalist mode of production.
The workers are important for the market as buyers
of commodities. But as sellers of their commodity labour-power - capitalist society has the tendency to
restrict them to their minimum price.’’
“Further contradiction: the periods in which capitalist
production exerts all its forces regularly show themselves to be periods of over-production; because the
limit to the application of the productive powers is not
simply the production of value, but also its realisation.’’
“However, the sale of commodities, the realisation of
commodity capital, and thus of surplus-value as well,
is restricted not by the consumer needs of society in
general, but by the consumer needs of a society in
which the great majority are always poor and must always remain poor”. (Marx, 1885)
113.Of course comparing this “footnote” with the key passage within the full text of volume II of Capital makes
Karl Marx look like a fool, who appears to be arguing
for two completely contradictory things at the same
time! Given that Marx did not include this in his main
text and did not elaborate upon it in any detail, it hardly stands as support for anything.
114.This is practically the total textual support that the
leadership of our organisation have been able to come
up with out of three volumes of Capital. This use of
selective quotations underscores the one-sided approach taken up by the Socialist Party EC.
Rejection of Under-Consumption by Lenin
115.Further in our support we can also draw on the economic writings of Lenin that categorically reject the
idea that crises were directly due to the under-consumption of the masses or low wages (variable capital).
“As we know,” writes Lenin in his Characterisation of
Economic Romanticism, 1899, “the law of capitalist production consists in the fact that the constant
capital increases faster than the variable; that is, an
ever greater part of the newly formed capital flows to
that department of social production which turns out
means of production. Consequently, this department
must unconditionally grow more rapidly than the one
which turns out means of consumption. Consequently,
the means of consumption come to occupy a less and
less prominent part in the total mass of capitalist production’’.
116.And:
Nothing to Lenin was “more senseless than to deduce
from this contradiction between production and consumption that Marx had contested the possibilities of
realising surplus value in capitalist society, or had explained crises as resulting from insufficient consumption … The different branches of industry which serve
each other as a ‘market’ do not develop uniformly, they
overtake each other and the more developed industry
seeks foreign markets. This circumstance does not by
any means indicate that it is impossible for the capitalist nation to realise surplus value … It merely points to
the unproportionality in the development of the various industries. With a different distribution of the national capital, the same quantity of products could be
realised within the country.”
117.It should be mentioned honestly that the Bolsheviks
did not hold directly to the theory of the falling rate of
profit being the sole driver for capitalist crisis but a full
understanding of Marx’s economic work had not been
fully grasped within the movement at that stage but it
was taken as self-evident that under-consumption as a
crisis mechanism was completely false.
118.For Marxists, it has never been the case that capitalism
faces a persistent problem in selling its commodities
except in periods of acute crisis, but what is called the
over-production of commodities is normally never a
generalised problem as Lenin emphasised.
Unscientific method
119.The reason for periodic capitalist crisis lies elsewhere,
however we must draw attention to the fact that a “battle of quotations” is an unscientific method of settling
a theoretical dispute particularly where quotes are
used out of context. It is our contention that the citations of quotes from Marx by the leadership of the CWI
are (a) selective, (b) abstract or vaguely general and (c)
not properly contextualised or explained.
120.Any presentation of the work of Marx must represent
the general arguments he put forward as a whole. We
therefore contend that the method employed by the
leadership in their use of selective quotes from Marx
15
What is the cause of the current capitalist crisis?
is not being used to clarify and explain their position
but rather to confuse and mislead members and is not
in the scientific spirit of Marx and Engels. This is not
engaging in discussion in good faith but is an attempt
to obscure and mystify serious investigation into the
object of discussion making use of selective citations
as a rhetorical device to deflect criticism from an incorrect analysis.
Workers’ Consumption
121.It must be bluntly stated that capitalist crisis is not
caused by inequality or a reduction in worker’s wages.
If this were the case, capitalism wouldn’t be able to
grow at all or would just collapse. Indeed, it is contradicted by the development of capitalism itself.
122.An article in Global Economic Intersection (2013)
summed this idea up neatly in relation to the USA:
”Let’s start with the obvious. The claim that income
inequality unconditionally leads to under-consumption
is untrue. In the US we’ve seen inequality accelerate
since the 1980s, and until 2007 we had robust demand, decent growth.”
123.Indeed, it is just untrue that inequality is a cause of crisis because it is refuted by the evidence of the growth
rate of the world capitalist economy in the last three
decades. Most of the ACC’s experienced a period of
debt fuelled boom in the 1990’s and early 2000’s, despite the rapid rise in inequality and concentration of
wealth at the top. This was not a new phenomenon as
we elaborated above. Growth rates were not spectacular when compared to the post war boom but is difficult to identify the difference between a weak anaemic
artificial boom and a genuine one.
124.It is a completely false argument that inequality or lack
of consumption by workers leads to crisis precisely as
Lenin cautioned, because the demand for means of
production outstrips that of consumer goods. Therefore, arguments that the crisis was caused by the concentration of wealth at the top are equally erroneous.
Profits and investment not consumption
125.Workers consume food and consumer goods like TV’s
and iPods and not industrial robots or super tankers.
Why should a crisis all of a sudden be caused by a reduction in the consumption of TV’s and iPods? In any
16
case, production and consumption of consumer goods
continued to grow right up to the crisis, and crises usually originate, not in the consumer goods industries,
but in the producer goods industries that make robots
and super tankers. There were specific features in the
US crisis of 2007-8 as it began in the housing market,
which is both partly a part of consumption, but also
major fixed capital assets.
126.It was the collapse in the sub-prime mortgage market
that was the proximate cause or trigger for the crisis.
The key to any crisis, however, is a reduction in investment in production (including areas like housing) and
that depends, intimately, upon profitability (see Granados, 2012).
127.This is also supported by the actual statistics for the
outstripping of consumption demand by production or investment demand (factories, raw materials,
means of production) in the USA historically, for example. These figures draw on the work of Andrew Kliman but, as far as we are aware, they have not been
successfully challenged or refuted.
128.In 2008, investment demand in the US was 77.2 times
bigger than in 1933 while GDP was only 18.5 times as
large and personal consumption demand was only
15.4 times as large. Productive investment demand
grew nearly four times faster than GDP and nearly
five times faster than consumption demand. Over this
extended period investment quadrupled while consumption only increased by 16%!
129.This is compelling evidence against the idea that capitalism is a system existing for the production of consumer goods. Capitalism only exists for the accumulation of more and more capital for accumulation’s sake,
and the motive force for this accumulation is the rate
of profit. It is also false that capitalist investment in
production ultimately has to mean a commensurate
increase in the production of consumer goods. This is
contradicted by the facts above as well as the theoretical position of Marx, Engels and Lenin.
130.The idea that under-consumption was a cause of the
crisis is also contradicted by the facts as consumption
in all branches of the ACC’s was at record levels when
the financial crisis struck and, even as the crisis deepened, consumption continued. “Lack of demand” has
only been a feature since the economies of the ACC’s
entered the depression phase from which they are now
slowly emerging.
What is the cause of the current capitalist crisis?
131.The origin of the crisis lies in production just as Marx
held, as crises do not originate anywhere in the market.
“The general conditions of crises, in so far as they are
independent of price fluctuations (whether these are
linked with the credit system or not) as distinct from
fluctuations in value, must be explicable from the general conditions of capitalist production” (Marx 1863).
132.The source of major generalised crisis is to be found
in production and only in production. It cannot be
found in the market at all (distribution and exchange).
Neither can it be found in the financial/credit system
although Marx did accept the possibility of limited
monetary crises. To argue, as the leadership does, that
crises originate in consumption is not a Marxist argument at all and is something else alien to Marxism.
Neo-liberalism: The highest stage of capitalism?
133.A distinct feature of this period was the use of finance
as a counter-tendency to the falling rate of profit, often based on government fiscal policy and recourse to
debt, or what Marx called fictitious capital. Although
this has now been termed financialisation, we challenge the idea that there was anything specifically
“new” in this phenomenon despite its rampant growth.
134.The rise of finance and its penetration of the productive sectors has been a long term trend in capitalism
that is continuing. It is not a new fundamental feature
of capitalism. Capitalism, despite tremendous changes, has not fundamentally changed. We categorically
reject the idea that neo-liberalism is a new stage in the
development of capitalism as some authors have proposed , but merely expresses a continuation of developmental trends within the system that existed prior
to the period.
135.The leadership of the CWI, whilst denying that they
have described neo-liberalism as a new phase of capitalism, or that it has fundamentally changed, nevertheless echo many of the arguments of those that do.
Specifically they maintain holding onto the idea that
the rate of profit has not fallen significantly, in fact
claiming that capitalism restored “profits” to the levels of the 1950’s and 1960’s, when this is broadly challenged by numerous Marxist economists and is contradicted by solid factual evidence that the leadership
do not acknowledge.
136.‘Financialisation’ and Keynesian theory
137.We must also point out that the economists who propose the financialisation hypothesis of the crisis are
left bourgeois or radical economists who may resort
to using some Marxist terminology, but are actually
deeply infected by the ideas of Keynes such as Stockhammer , Lapavitsas, Dumenil and Levy , and Husson
of the Unified Secretariat of the Fourth International
et al .
138.The financialistion concept straddles the ideological
divide from post -Keynesians to old Keynesians and
even to some who claim a certain adherence to Marxism. The arguments of this group of thinkers do not offer a Marxist explanation of the crisis, and tend to see
it as primarily due to inequality and out of control finance which, while a surface feature of the period, was
not the underlying cause of the crisis.
139.The debt fuelled artificial booms of the neo-liberals,
however, merely displaced the core contradictions of
the system in time and space onto the financial superstructure, stocking up combustible fictitious financial
material for a renewed major crisis of epic proportions.
140.The recourse to financialisation under the neo-liberals
clearly failed, and it is no coincidence that the nature
of the credit crunch and financial panic was so severe.
However, its root cause lay in the productive sector
and the persistent decline in profitability in the US and
other ACC’s.
141.More debt was piled on top of existing mountains of
bad debt by capitalist corporations, governments and
consumers in order to avoid a slump until the slowdown in investment and production, caused by the
falling rate of profit, could not sustain the burgeoning
swindle based financial edifice and the crash was inevitable.
Vulgar economic ideas
142.The leadership offer an explanation of the crisis on a
number of levels. In general material we refer to the
cause of the crisis in very simplistic or vulgar terms
as a crisis of overproduction but basically repeating
the idea that overproduction is caused by the inability of workers to buy back all that they produce. This
propagandistic explanation is inherently false but on
a deeper level the crisis is described as a crisis of overaccumulation.
17
What is the cause of the current capitalist crisis?
143.23
144.In short, this is also a vulgar explanation that holds
that capitalism has accumulated too much capital and
that it has no “outlet” in which to invest the vast surplus profits that the capitalists have amassed. We have
already demonstrated that the idea of the capitalist
class drowning in profits or being awash with capital is
totally contradicted by the facts in relation to the debt
mountain (see section below “Drowning in Debt, not
Profits”).
Mirror image of US under-consumptionists
145.The current position is almost a carbon copy of the
argument put forward by the Monthly Review in the
United States, the main advocate of an under-consumptionist theory of capitalist crisis, supposedly
based on Marxism. The main theorists of this school
are are Fred Madgoff and John Bellamy Foster. Their
position is summed up in a book written by Foster and
Robert W. McChesney in 2012 “The Endless Crisis”
“Capitalism, throughout its history, is characterized by
an incessant drive to accumulate …. But this inevitably
runs up against the relative deprivation of the underlying population …. Hence, the system is confronted
with insufficient effective demand––with barriers to
consumption leading eventually to barriers to investment.” (Our emphasis pp. 33–4)
146.This is completely contrary to Marx’s explanation for
capitalist crisis as he regarded capitalism as a dynamic
mode of production which tended towards crisis and
not, as our authors above suggest, long term stagnation. It is also contrary to the facts but this type of explanation is repeated in the material of the CWI ad
nauseam.
147.As was made clear by Lynn Walsh in a reply to a letter
in Socialism Today in 2012:
“This factual data (most of which has been referred to
in previous articles), in our view, confirms the analysis of a crisis in capital accumulation put forward in
Socialism Today over many years.” Walsh (2012) (our
emphasis)
148.This argument is also that put forward by the late Andrew Glyn in his book Capitalism Unleashed (2006)
which is still quoted in our economic material:
18
“There is clear evidence of a long-term decline in capital investment. Capital accumulation is the key to economic growth. Increased capital stock is required to
increase capacity and output, and investment is also
the key to incorporating new technology in production. Capital expenditure, moreover, is a key source
of demand, together with consumer demand. Figures
for the growth rates of capital stock 1960-2004 (net
growth after depreciation for worn-out or retired capacity) show that the pace of global capital accumulation
slowed, especially in the advanced capitalist countries.” (Glyn, 2006 p86)
149.The key argument proposed is that there is too much
excess capacity within capitalism for the capitalists
to be attracted to invest but this is caused by a lack of,
specifically, too little consumer demand.
150.This argument has far more in common with Keynes
and has got nothing to do with Karl Marx. In this argument the influence of the rate of profit is completely
absent, as it is in the material of the Monthly Review
and the material of the CWI.
151.In fact, in the public material of the CWI, even a mention of the Marxist category of “the rate of profit” is
generally absent and we will examine the reason for
this below.
British Economic Disaster
152.The CWI leadership’s “crisis of over-accumulation” is
also rooted in the ideas of Andrew Glyn, an academic
Marxist and former supporter of Militant who we have
already referred to above.
153.In his 1980 book “The British Economic Disaster”, Andrew mounted his first major assault on Marxist theory
and emphatically rejected The Law, notably in the Appendix:
“Advocates of the LTRPF mistakenly assume that an
increase in the physical mass of capital operated by
each worker (the technical composition of capital) necessarily implies a rise in its value relative to the value
of either output or surplus... [T]he explanation for the
general fall in the rate of profit from the mid-60’s cannot therefore be the operation of the LTRPF”. (Glyn and
Harrison 1980)
154.Andrew was confident he could disprove Marx’s “most
important law of political economy”, which also brings
What is the cause of the current capitalist crisis?
into question the validity of The Law of Value itself.
However, Andrew’s calculations were based on the
false assumption that increases in labour productivity
not only devalued newly produced commodities, but
also devalued the existing capital employed in production! This led him to falsely conclude that “The explanation [of crisis] based on the LTRPF is ... wrong”. (Glyn
and Harrison 1980)
New (old) theory to replace Marx
155.To substitute for Marx’s theory of crisis based on The
Law, Andrew proposed his own theory of over-accumulation in relation to the labour supply. Put very
simply, he believed that, since employment had been
relatively high for the previous two decades, it was not
possible for the capitalists to use unemployment as a
weapon to drive down wages and raise the rate of profit. He thought that the wage rises since the mid 60’s
in the UK were the sole reason for the falling rate of
profit. Yet, his own statistics (Glyn and Sutcliffe 1972,
p66) show that the pre-tax rate of profit had started to
fall since the early 1950’s, at a time of relative wage restraint!
156.Andrew believed if the profit share was low, capitalists
wouldn’t invest, leading to economic crisis. Conversely, those who hold an under-consumptionist position
believe that crises are caused by a high profit share
because it reduces workers’ wages and thus lowers
consumer demand. The Socialist Party EC maintain a
multi-casual approach to crisis and believe that crises
can be brought on when wages are either too high or
too low.
157.Does the Socialist Party EC therefore believe there
is a ‘goldilocks’ level of wages (not too high, not too
low) that would avoid crises altogether? Logic dictates
that this is what their current position implies. In fact,
the primary method of economic analysis employed
by the CWI leadership is to measure the wage/profit
share and to ignore the Marxist category of the rate of
profit, the same method employed by Andrew.
The contradictions in Socialist Party Analysis
158.This puts the Socialist Party EC in an obvious contradiction. On the one hand, they formally claim to accept The Law (in the abstract, of course). Yet, as part
of their “multi-casual” approach to crisis, they adhere
to Andrew Glyn’s “crisis of over-accumulation in rela-
tion to the labour supply” which was developed as a
rejection of the very same Law! How can the EC advance two completely contradictory theories? Either
Marx was right, or Andrew was right, but not both? It
requires little effort to deduce who we believe to be
correct on this matter.
159.EC member Lynn Walsh claims that the current crisis is
one rooted in over-accumulation of capital and draws
on Andrews’s ‘Capitalism Unleashed’ as evidence:
“There is clear evidence of a long-term decline in capital investment... Figures for the growth rates of capital
stock 1960-2004 (net growth after depreciation for
worn-out or retired capacity) show that the pace of
global capital accumulation slowed, especially in the
advanced capitalist countries (see Andrew Glyn, Capitalism Unleashed [2006], p86)...” (Walsh 2012)
160.However, Lynn fails to mention that the very same
book also shows a long term decline in the UK pre-tax
rate of profit since 1965, from 14% to 8% and a massive
collapse in the rate of profit in Japan since 1970, from
24% to 8% (Glyn 2006).
161.So Even by Lynn’s own sources, the rate of profit has
fallen! Why do the CWI leadership choose to ignore
this and deny the empirical validity of The Law?
Two-stage nationalisation
162.The abandonment of The Law and his departure from
Marxist theory led Andrew to reject not only Marxism,
but also the basic tenants of socialism such as the nationalisation of the economy.
163.In 1985, he wrote a pamphlet for the reformist-left
Campaign Group of Labour MP’s called “A Million Jobs
a year” – a programme for a Labour government to restore full employment. In this, he rejected socialist nationalisation of the economy and instead put forward
a programme of public control over private capitalist
industry rather than public ownership. Amazingly,
this contradicts a pamphlet he wrote for Militant only
8 years previously “Capitalist Crisis: Alternative Economic Strategy or Socialist Plan?” (Glyn 1977) where
he attacks the very ideas he later presented!
164.He does decisively call for the immediate nationalisation of the banks:
“The major financial institutions are capitalism’s nerve
19
What is the cause of the current capitalist crisis?
centre, with a dense web of links to industry, and capable of causing financial chaos in a matter of minutes by moving out of sterling or away from lending to
the government. Taking them into immediate public
ownership seems absolutely indispensible if a Labour
Government is to prevent financial crisis and be enabled to use the credit system as part of planning for full
employment.” (Glyn 1985, p31)
165.Of course, the nationalisation of the banks is something that all members of the Socialist Party would
support without question. What is significant is his approach to the rest of the economy:
“It can be argued that such approaches to the control
of [private capitalist] industry would have the advantage of demonstrating, through the process of struggling to shape the development of the economy, the
justification and eventual necessity for the full implementation of Clause IV [i.e. nationalisation of the commanding heights]. Discussion and evaluation of these
various approaches to controlling industry... is an absolute priority if a convincing Full Plan for Full Employment is to be constructed.” (Our emphasis Glyn 1985,
p34)
166.In other words, once the banks have been nationalised, a socialist government would have to somehow
demonstrate the need for the nationalisation of private
industry, which would take place over an indefinite
amount of time.
CWI adopts two-stage “socialism”
167.Unfortunately, Andrews’s ideas, fine economist
though he was, seem to have been partially adopted
by our organisation. In Socialism Today, Lynn Walsh
reviewed the book of Keynsian economist Paul Krugman “End This Depression Now” and explains the “socialist” solution:
“The banks and finance houses would have to be nationalised (not bailed out and propped up at public
expense), and run under democratic workers’ control
and management... Such measures would undoubtedly meet the entrenched resistance of the capitalist
class. State intervention in favour of the working class
would unavoidably pose the question of the takeover
of the commanding heights of the economy, to form
the basis of a democratic plan of production” Walsh
(2012b).
20
168.Lynn believes that the banks should be nationalised
first, and this would “unavoidably pose the question”
of nationalisation of the rest of economy after an undefined amount of time.
169.Another example from Lynn, this time from our newspaper:
“Workers are questioning the legitimacy of the capitalist system. What is required is a clear alternative. This
means for a start, taking over the banks, not merely
to subsidise their losses but to reorganise the banking system to act in the interests of society. This would
be the first step towards a socialist planned economy,
run under workers’ democracy.” (Our emphasis Walsh,
2012c)
170.A similar position is also put across in the Party’s latest
pamphlet “The case for Socialism” (2012), published
this year:
“So what is the alternative to dictatorship of the markets? As a start we call for the nationalisation of the
big banking and finance companies...That is why a crucial step towards solving the economic crisis would be
to take into democratic public ownership the 125 or so
big corporations that control around 80% of Britain’s
economy.” (Our emphasis)
171.Again, the Socialist Party EC presents the case that the
banks should be nationalised first, and then the next
“step” would be to nationalise the economy, after an
undefined amount of time. The Socialist Party EC justify this position because they claim it is in line with the
transitional programme and the transitional method.
However, in our view, this shows a failure to understand the transitional method itself.
172.Historically, this two-stage approach has never been
the position of the party. Partial nationalisation leading to further nationalisation was the position of Tribune, the left-reformist grouping in the Labour Party in
the 70s/80s whom Militant so successfully defeated in
debate after debate in the Labour Party. For a Tribunite idea such as this to enter the lexicon of our party
stretches the idea of transitional demands to breaking
point. We have to ask ourselves: when does a transitional demand transform itself into a reformist one?
We believe the answer is when it is underpinned by an
incorrect interpretation of Marx’s political economy,
namely, Marx’s laws of motion of capitalism and his
most important one on the rate of profit to fall.
What is the cause of the current capitalist crisis?
Militant Tendency attacks two-stage socialist
programme
173.In the 1977 Militant pamphlet “Capitalist Crisis: Alternative Economic Strategy or Socialist Plan”, the very
same Andrew Glyn sharply criticised those who failed
to put across a clear socialist programme of simultaneous nationalisation of the economy:
“By attempting to go part of the way towards a socialist
programme, this strategy is not “transitional” to such a
programme, but is transitional to a tremendous disaster. An attempt simply to implement such a programme
would be met by the capitalists using the enormous
power left in their hands to sabotage the government’s
plans. The danger is not just that the ideas of socialism would be discredited in such a way, but that the
economic chaos which would result would pave the
way for a reactionary takeover on the basis of crushing
the organisations of the working class, as the Chilean
experience makes clear.” (our emphasis Glyn , 1977)
174.In Militant International Review 34 (1987), Bob McKee wrote a scathing review of Glyn’s “A Million Jobs
a Year” and the idea of a two-stage approach to socialism after Andrew had theoretically retreated:
“A socialist leadership must explain to the working
class clearly and from the beginning what is necessary
in order to give them the most direct way of controlling the economy. That can only be a programme of
public ownership, under workers’ control and management, of the financial institutions and major industrial
and commercial monopolies. If a [socialist] government was to follow the policies [outlined by Glyn] and
decide it was not necessary ‘immediately’ ... to take
over the commanding heights, then it cannot succeed
in really controlling the economy. It will also confuse
and weaken the workers’ resolve if it changes its programme midstream after the capitalists have been
able to sabotage the economy and prepare for political
reaction. In such a situation, the advantage is with the
capitalist class while they continue to hold the levers of
economic and political power.” (our emphasis)
175.Our organisation in 1987 correctly pointed out the pitfalls of presenting a misleading and ambiguous twostage socialist programme to the working class. But it
is exactly this muddle of a programme that the Socialist Party EC are advancing in our current material.
Drowning in Debt, not Profits
176.The leadership’s apparent enthusiasm for the expropriation of the UK banks stems from the idea that they
contain £850 billion locked away in the vaults. They
have equally extravagant notions corpulent US banks.
However, the idea that the capitalists are sitting on
massive cash piles doesn’t match up with the facts.
177.Now, of course we don’t reject this figure necessarily,
but what does it really mean? Fundamentally the cash
assets in the vaults of the banks have to be balanced
against capitalist debt. Just as in a household you may
have £1,000 under the mattress, but if you owe your
creditors £10,000, your actual real assets are minus
£9,000.
178.Have the capitalists in the UK reduced their debt burden massively since the financial crisis? Hardly as the
McKinsey Global Institute pointed out in a report in
January 2012 called ‘’Debt and deleveraging: uneven
progress on the path to growth”:
179.“The United Kingdom: Deleveraging has only just begun. Total UK public- and private-sector debt has risen slightly, reaching 507 percent of GDP in mid-2011,
compared with 487 percent at the end of 2008 and 310
percent in 2000, before the bubble…”
180.UK banks have managed to recapitalize somewhat,
but financial companies have increased debt outlays
since the Great Recession and total UK debt stands at
an amazing 507% of GDP! UK Non-financial corporations have more than twice as much debt as monetary
assets. Far from drowning in profits, the capitalists are
drowning in debt!
Fictitious Capital
181.The idea proposed by the CWI leadership, that it is just
a question of seizing control of this mythical reservoir
of capital and investing it is, in our opinion, politically
dangerous. The current economic policy of the CWI
leaders is based on a false notion of cash fat capitalist
banks, when in fact the financial resources of international capitalism are deeply in the red and comprised
primarily of fictitious capital.
182.Why are the CWI leaders clinging to this false analysis
i.e. that there is sufficient capital available to re-energise the economy but only if the banks were brought
under state control?
21
What is the cause of the current capitalist crisis?
183.The Socialist Party EC is attempting to argue that this is
the application of transitional demands, but you cannot base transitional demands on a skewed version of
the facts. The working class must be told the truth and
it is pure utopianism and dangerously misleading to
suggest that seizure of the phantom bank reserves can
be regarded as a “first step” towards achieving socialism.
Conclusion
184.We submit that the leadership of the Socialist Party and
CWI are in gross error in relation to their interpretation
of the causes of the crisis in Marxist terms and that this
is infecting our strategy and tactics accordingly.
185.In our view, this has potential explicit dangers for our
forces now, but even more so in the medium to long
term.
186.This document is an initial contribution to the debate
and we have concentrated more on explaining our
criticisms of the leadership’s analysis of the crisis but
also on some of the potential dangers involved.
187.We welcome this debate and will strive to engage in it
in the spirit of our great teachers Marx, Engels, Lenin
and Trotsky. We also pledge our complete loyalty and
commitment to the CWI and it is, in our opinion, in
the best interests of our movement that we are raising
these principled Marxist disagreements. For us, in the
words of Trotsky, from In Defence of Marxism: in 1939:
188.“It is absolutely unthinkable that this old society can
be overthrown and a new one constructed without
first critically analyzing the current methods. If the
party errs in the very foundations of its thinking it is
your elementary duty to point out the correct road.”
189.Build the CWI, build the forces of Marxism!
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23
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
1. The new pamphlet from the Socialist Party and Socialist Party Scotland – The Case for Socialism - has been
subject to some severe criticism by Bruce Wallace
(BW) in a series of posts on his blog. The pamphlet is
also attacked by the small grouping of eleven members of the CWI who support BW’s position, as outlined in their recent document, What is the Cause of
the Current Capitalist Crisis? Their criticisms reflect an
increasingly strident opposition by them to our transitional programme for the economic crisis, which, in
our view, now forms a central theme of the current debate that began on whether a fall in the rate of profit
was the key underlying factor in the crisis in 2007-08.
2. The issues around the Law of the Tendency of the
Rate of Profit to Fall (LTRPF) have been more than adequately dealt with in the Socialist Party England and
Wales EC statement, A Reply to Andrew Kliman. In this
contribution we will seek to respond to the attacks by
BW and his supporters on the character of our Marxist
programme and the related issues on how to engage
with the current levels of consciousness.
3. The group that supports BW’s incorrect method of
analysis towards the causes of the economic crisis
also makes crude and ultra-left criticisms of the programme that the Socialist Party is putting forward. It
is clear, on a reading of their material, that the political method which led them to draw erroneous conclusions on the economic front is also infecting their approach to how we reach the layers of the working class
open to our ideas today.
Stages Approach?
4. Dealing with The Case for Socialism pamphlet on his
blog, BW states: “It should be apparent from a proper
reading of The Case for Socialism that what we have
here is the proposal for a minimum and a maximum
programme. In short a two-stage theory of the revolution! First you nationalise the banks and then, after an
undisclosed hiatus, you move on to the nationalisation
of the whole economy. This is an out and out reformist
plan.”
5. This accusation is repeated in the document by BW and
the group of 11 when they accuse the CWI of adopting
“two-stage socialism”. They say the Socialist Party and
the CWI has transformed the transitional programme
into a reformist one. Apparently, according to them,
we argue for the nationalisation of the banks followed
by further nationalisations at a later stage. Absurdly,
24
they assert: “For a Tribunite idea such as this to enter
the lexicon of our party stretches the idea of the transitional programme to breaking point.” The Tribune
grouping was a significant left-reformist trend inside
the Labour Party, whose programme called for a mixed
economy, involving partial public ownership.
6. We have long argued against the “stages theory” of socialism, which has been defended by reformists and
particularly the Communist Party in the past as well
as today. In essence, it is the idea that socialists should
put forward limited objectives – minimum demands
– separated in time from the need for the socialist
transformation of society. The CP, for example, split
up ‘democratic demands’ and socialism into artificial
compartments, reinforcing the idea that it was possible
to achieve long-lasting or permanent reforms or advances for the working class without linking this to the
struggle to overthrow capitalism. This led the CP and
other reformist leaders during the Spanish revolution
in the 1930s and in Chile from 1970-73 to argue against
the urgent necessity of the working class coming to
power through the socialist revolution. The main task,
they argued, was to ensure the defeat of fascism and
dictatorship and secure the victory of the ‘democratic
stage’. The struggle for socialism should be postponed
until this was achieved and conditions would supposedly be more mature. This false policy of stages led the
Stalinist and reformist parties to argue for a bloc between the workers’ organisations and the ‘democratic’
bourgeois; what followed was a catastrophic defeat for
the working class.
7. The difference between the transitional method and
the theory of stages is clear. For Trotsky, and for us
today, the key task is to base our programme on the
objective needs of the working class: the need for the
overthrow of capitalism and the establishment of a
democratic socialist society. However, we also have
to deal with reality and the existing consciousness of
the working class, which is not yet in its majority convinced of the need for socialism. This requires an allround approach and the putting forward of demands
that coincide with the current consciousness but also
act as a bridge towards an understanding of the need
for socialism.
8. Trotsky in the 1930s, in dealing with the consciousness
of workers in the US, pointed out that to simply call for
‘socialism’ would be considered by most as an “alien”
idea imported from Europe! Transitional demands on
wages, hours of work and a programme to deal with
mass unemployment were, however, immediately
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
understood by workers. This did not mean Trotsky
was abandoning socialism. He argued for expressing
the need for socialism through a series of transitional
demands in such a way that can be understood and
fought for by the working class but which could only
be fully realised by the ending of capitalism. This is the
method that that the Socialist Party and the CWI defend today.
9. It’s worth quoting from The Case for Socialism pamphlet to show exactly the position of the Socialist Party
and Socialist Party Scotland:
“As a start we call for the nationalisation of the big
banking and finance companies. Compensation
should be paid only on the basis of proven need. Not
one penny should go to the speculators who are demanding that the working class pay for the crisis for
which they bear responsibility.
“A socialist nationalised banking sector would be democratically run by representatives of banking workers
and trade unions, the wider working class, as well as
the government. Decisions would be made to meet the
needs of the majority – for example, offering cheap
loans and mortgages for housing, to assist sociallyuseful small businesses, and for the planned development of industry and services, and ending all repossessions of peoples’ homes.
“That would only be the start, however. Capitalism has
led to enormous economic destruction. In Britain the
economy has shrunk by about 10% as a result of the
great recession. Nor is there any prospect of a return
to healthy growth. This is the real difference between
now and, for example, the end of the Second World
War when the total national debt was far higher as a
proportion of the economy than now - over 200% of
gross domestic product (GDP) compared to around
68% in July 2011. Then, however, Britain entered a
period of unprecedented economic growth, thereby
shrinking the national debt. Today, the best prospect
that can be hoped for under capitalism is a prolonged
period of economic stagnation.
“That is why a crucial step towards solving the economic crisis would be to take into democratic public ownership the 125 or so big corporations that currently control around 80% of Britain’s economy. This would need
to be combined with full government control of incoming and outgoing foreign trade. This would enable a
democratically elected government – and the working
class, not the market – to control imports and exports
including capital. This would provide the possibility of
developing a democratic, socialist plan of production
that could very quickly transform the lives of millions.”
10. This point is reemphasised later in the pamphlet: “A
genuinely socialist government would take the big
corporations, which dominate the economy, into
democratic public ownership, under workers’ control
and management, in order to plan the development of
society for need instead of profit.”
11. As the centre page article written for the Socialist by
Peter Taaffe for the issue covering the TUC demonstration at the Tory Party conference in Manchester on the
29th September explained:
“Socialist and Marxists argued there is no such thing
as a ‘quarter of a revolution’. Where 80% of industry is
owned by the private sector and 20% is state owned,
the 80% will dictate to the 20% and not vice versa.”
“Unless the process of taking control out of the hands
of the capitalists is carried through completely by the
nationalisation of the commanding heights of the
economy and run through democratic workers’ control
and management, then inevitably the capitalists and
their representatives would seize the first opportunity
to turn back the wheel of history.”
12. It is crystal clear from the above examples, and many
others of a similar vein in the publications of the Socialist Party and the CWI, that the democratic nationalisation of the banks is always linked to bringing into
public ownership the major sectors of the economy,
alongside other demands. Nowhere does the Socialist Party ever say that the nationalisation of the banks
would then be followed by a “hiatus” – with no other
measures taken against capitalism.
A combination of bewilderment and misunderstanding
13. BW’s opposition to the demand for public ownership of
the finance system being brought to the forefront of our
programme is very instructive. Firstly, he completely
ignores and/or misunderstands the widespread view
among the working class that the banks bear a huge
responsibility for the economic crisis. As a recent Fire
Brigade Union pamphlet pointed out: “The banking
collapse triggered a massive downturn throughout the
world economy. Countries like Britain, which are very
dependent on the banking sector, have suffered more
25
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
in the recession than others, who depend less on financial earnings.” [FBU pamphlet, It’s time to take over the
banks, by Mick Brooks and Michael Roberts.] Ironically,
Brooks and Roberts are regularly cited by BW in defence
of his position on the LTRPF. The fact that they have coauthored a pamphlet that calls only for the nationalisation of the banks is simply not mentioned by him.
14. The character of the crisis that began spectacularly
in the finance sector has spread to all main sectors of
capitalist production – the “real” economy. However,
the deep-seated anger, exacerbated by continuing
bankers’ bonuses and a return to huge banking profits, has meant that it is absolutely correct to bring the
demand for the banks to be taken out of the hands of
those who wrecked the economy to the forefront of
our transitional programme. Moreover, given the huge
role played by finance in the world capitalist economy,
including in Britain, such a transitional demand is an
essential part of our programme.
15. There is bitter class hatred throughout the advanced
capitalist countries for those who are seen as the main
authors of the present economic catastrophe, namely
the financiers and bankers.
16. What is wrong with making this demand “first on the
list” given the way that the banks are seen by broad
sections of the working class, and the huge role the finance sector plays in the modern capitalist economy
and in many aspects of day-to-day life? In Greece, our
comrades, also raise the nationalisation of the banks,
linked to non-payment of the debt and capital controls
as immediate measures, alongside demands for public
ownership of the wider economy, and an emergency
programme of investment and a socialist confederation of European states.
17. Lying behind BW’s virulent opposition to this demand
being at the forefront of our transitional programme is
his fear that this means we are succumbing to a false
theory of “financialisation”. This is the mistaken idea
that capitalism has entered a new phase that negates
the fundamental laws of motion of capitalism worked
out by Marx, and that the crisis is resolvable by merely
taking control over banking and finance, allowing a return to a more equitable mode of capitalism.
18. We do not accept, and have never argued, that a decoupling of the world economy, particularly the advanced capitalist countries, from the dominant role of
finance capital would offer a new lease of life for the
system.
26
19. There are some left and even Marxist economists who
do argue this case – although not the CWI. However,
unlike BW and others in the LTRPF school we do recognise the decisive turn made in the advanced capitalist countries to financial investments following the
end of the post-war boom in 1973 and the onset of the
neo-liberal, globalised era. This was a product of falling profitability in the traditional manufacturing sectors of investment for the bourgeois and a search for
more “profitable” outlets for capital. For example, in
the US, trading in equities and stocks in 1970 was the
equivalent to 13.2% GDP; by 2000 this had accelerated
to 145% of GDP!
20. BW criticises the SP and the CWI for adapting our programme to suit the “left wing of the trade union movement in their strategy to build an independent working
class party. To do so they [the CWI] have rejected the
classical theory of Marx to accommodate themselves
to the ideas of left Keynesianism within the working
class.”
21. This again is very instructive. What BW is expressing
here is a doctrinaire sectarianism which ought to be
entirely alien to our movement. A key task for Marxists in this period is to understand the complications
of current consciousness as well as drawing up a skilful
transitional programme that can connect with workers and young people who are moving into opposition to capitalism. Instead of patient explanation and
consistent activity in the workers movement, BW has
fallen prey to dogmatic ultra-leftism that, if applied by
us, would turn our forces into an irrelevance as far as
the overwhelming majority of the working class is concerned.
Keynesian poison?
22. At one with Andrew Kliman, BW believes the main enemy to be confronted today is Keynesianism. All and
any manifestations of this, real or imagined, must be
put to the sword. So BW comments in his blog under
the heading: “Fight Keynesian Poison in the labour
movement”:
“What would be necessary is pitiless criticism and
struggle against these ideas as a dead end or potentially a fatal flaw in the revolutionary policy of the working class and must be fought by all means available by
revolutionary Marxists. That would also mean directly
criticising this policy in the movement not supporting
it!”
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
23. This outburst by BW, and echoed by others in the
group of 11, was in response to the three year old PCS
pamphlet, Austerity isn’t working – There is an alternative (www.pcs.org.uk) which he describes as “an
ideological pact with the ideas of the left wing of the
bourgeoisie.”
24. The PCS pamphlet calls for public ownership of the
banks, the closing of the tax gap of evaded tax, an end
to privatisation and attacks on PCS members, etc. It
also raises the idea of increased wages, investment in
job creation and an end to the policies of austerity, including criticising Labour’s austerity-lite approach. All
of which are demands we would support. It is true that
it puts forward a Keynesian-type alternative and does
not raise the issues of wider public ownership or the
need for socialism but it is a document of a trade union
not a revolutionary party.
25. What should be the approach of our trade union comrades to the drawing up of such a document in a trade
union organisation of 300,000 members? It is inevitable at this stage, given the level of consciousness, that
concessions will have to be made on what we can get
agreement. We should explain our full party position
in Left Unity and the wider PCS in favour of a socialist
programme and build support for it in the union. However, the fact that such a pamphlet only raises partial
demands does not mean our trade union comrades
would refuse to endorse it. Our role is, of course, to
support the progressive demands in the pamphlet and
the independent struggle of the workers’ movement to
implement these demands through the influence and
activity of our party, as well as seeking to build a constituency for a more far-reaching and developed programme for the trade union at a later stage.
26. BW, on the other hand, argues that leading PCS comrades should have refused to sign the PCS pamphlet.
Moreover, the Socialist Party should be “directly criticising this policy in the movement not supporting it.”
This is craven ultra-left posturing and completely at
odds with the transitional method of Trotsky and the
history of our own organisation.
27. By even raising this point BW shows extreme ignorance
of his and our own history. When we worked in the Labour Party there were many occasions when Militant
supporters standing as Labour candidates stood on a
limited and partial programme from a Marxist standpoint. This was an overhead of our work in the social
democracy where there were certain limits to what we
were able to put forward in official Labour Party mate-
rial. Of course, this was supplemented by articles and
other material in the Militant newspaper, pamphlets,
etc., as well as speeches made by our comrades that
gave a wider explanation of our programme.
28. As mentioned earlier, BW’s condemnation of the PCS
pamphlet does not extend to that of the Fire Brigade
Union’s equivalent, It’s time to take over the banks. In
it, the authors state: “Taking over high finance is the
beginning of the way to change society forever. Taking over the banks will enable planning, investment
and the creation of millions of jobs. A publicly owned
and democratically accountable banking system is essential to developing such a programme.” According
to the laws of Marxism defined by BW and his small
band of supporters, does this not fall under the crime
of “an out-and-out reformist plan”, and capitulating to
“financialisation”, given that there is no explanation for
the need to nationalise the rest of the economy? Perhaps the fact that the authors of the pamphlet are fellow LTRPF disciples Mick Brooks and Michael Roberts
makes it immune from criticism?
29. The idea that the Socialist Party and the CWI should
go to war against Keynesian “poison” in the trade unions, specifically against the ideas of Mark Serwotka,
Len McCluskey and Bob Crow, all of whom BW cites,
is so removed from reality that it could only come from
someone with no current connection with the real
struggles or experience of dealing with the consciousness of the working class.
30. Rather than take a baseball bat of condemnation to the
re-emergence of reformist ideas in the workers’ movement and workers consciousness, the role of Marxists
is to skilfully counterpose our programme to what is
missing from these ideas. Take them as a starting point,
explain the limitations and advocate a developed transitional programme that points the way forward. The
Socialist Party in England, Wales and Scotland have
done precisely this with the new pamphlet, The Case
for Socialism.
31. The emergence of mass support for left Keynesian and
left reformist ideas among the working class, which is
inevitable at a certain stage, would represent a step
forward in consciousness. It would, particularly with
our intervention, help facilitate the emergence of new
mass workers’ parties, fighting trade unions and speed
up the building of more powerful sections of the CWI.
32. Under these conditions, as we do today, we would skilfully and in a rounded-out way, explain the inability
27
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
of a Keynesian programme to deliver long-lasting reforms in favour of the working class. We would call for
a socialist government, a programme of public ownership and workers’ control and management of the
economy. We would also actively warn of the dangers
of only taking partial measures against capitalism and
the need for a thoroughgoing eradication of capitalism. This transitional approach, sadly, seems to be a
book sealed with seven seals for BW and the handful
of people who support him.
Method matters
33. Our role, especially today given the level of consciousness, is to take the experience of the working class and
the mass opposition that is developing to austerity as a
starting point and develop our programme from that,
including all the necessary demands that lead to the
conclusion of the need for socialism.
34. As we have pointed out many times, never in history
has the gap – the ‘scissors’ – between the objective
situation of capitalism and the outlook of the working
class, aggravated by the absence of organisation, particularly mass workers’ parties, been so evident.
35. Therefore, while fighting for a democratic, socialist
planned economy in the programme of socialists and
Marxists, it is necessary to put forward fighting transitional demands in the current situation. These include
partial demands on wages, conditions and demands
on governments on an array of issues.
36. As Peter Taaffe explained in his introduction to a
Socialist Party reprint of Trotsky’s Transitional programme in 2010:
“The need for a transitional programme in this era arises from the mixed consciousness of working-class people. This consciousness will be shaken and changed by
the march of events.
“But the development of a rounded-out socialist consciousness, firstly of the most politically developed layers and then of the mass of the working class, can also
be enormously facilitated by a transitional approach
and programme.
“This provides a bridge from the consciousness of
working people today to the idea of socialist change.
Sectarians have no need for such a bridge because
they have no intention of passing over from the study,
28
armchair or side-line to engage with the working class
and, together with it, helping to change consciousness
and increasing identification with socialism.”
37. Were we to take the advice of BW and his supporters,
this would have catastrophic consequences for our
ability to reach new layers of the working class and
precisely to change consciousness in a socialist direction. The role of the transitional programme is to connect with existing consciousness using day-to-day and
immediate demands and point to the need for the socialist transformation of society.
38. For example we put forward the demand of tax increases
on the rich and big business and a 50% levy on the uninvested capital of the major corporations. We also call for
an emergency programme of public investment to build
new homes, and rebuild public services, transport and
infrastructure, etc. Some of these could be described as
reformist demands if left in isolation. However, linked
to the nationalisation of the commanding heights of the
economy under democratic workers’ control and management and a socialist plan of production, they form
an essential part of a Marxist programme today.
39. We would also give full support for to a struggle for
any and all reforms by trade unionists and the wider
working class. Moreover, even the struggle for partial
demands that we put forward, against the backdrop of
this terrible crisis, tend to come up against the limits of
what the system can afford and pose the need for more
decisive measures against capitalism. Ed Miliband’s
pathetically modest pledge to freeze energy prices
from 2015 for 20 months has produced a furious reaction from the energy companies who are threatening a
strike of investment and power shortages. This poses
the question in the minds of workers of the need to nationalise the sector completely.
40. The weakness of the capitalist system in this period, its
drive to counter-reforms, has limited the ‘room to manoeuvre’ for those who base themselves on a Keynesian solution. Paul Krugman, and some of the figures
around the Common Weal and Red Paper Collective in
Scotland, put forward in reality very limited proposals,
constrained by seeking to operate within a diseased
capitalism that can offer little in the way of reforms.
However, capitalist governments and even left governments in the future may be forced, under mass pressure from the working class, to take more far reaching
Keynesian measures. Left Keynesianism/reformism
is likely to emerge as a significant force in the labour
movement at a certain stage.
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
Taking account of consciousness
41. Working class consciousness and organisation have
been thrown back, as has the idea of socialism as a
viable alternative to capitalism following the collapse
of the Stalinist states after 1989-90. Marxists therefore
have to put forward a combination of what are effectively demands for reforms, including wealth redistribution, increased taxes on the rich, a programme of
public spending to create employment and increased
wages alongside far reaching socialist measures. This
is especially the case in the absence of the former social democratic parties, like the Labour Party, that
used to raise these ideas.
42. BW and his co-thinkers clearly believe that we can
skip over the current complications of consciousness
and proceed to demanding the socialist order. Thus
he goes on to criticise our approach when we raise
the idea of wealth redistribution: “Socialism has got
absolutely nothing to do with a redistribution of the
existing wealth of society. This is a crude appeal to the
emotions and isn’t scientific. Socialism means breaking the fetters that capitalism places on the means of
production in order to raise the level of wealth of society as a whole and usher in a new mode of production where the exploitation of the working class will be
abolished.”
43. Genuine wealth redistribution is not possible on a sustained basis under capitalism and it is correct for us to
skilfully seek to counter illusions that it can. Only the
socialist transformation of society, public ownership
and control of the economy can end wealth inequality
that is inherent in the capitalist system. However, not
to include such demands as part of our overall socialist programme would make it more difficult to connect
with the consciousness of broad sections of the working class today who can be open to socialist ideas.
44. Workers, young people and the poor are emotional,
angry and outraged at the massive inequality of wealth,
unprecedented in world history, which has exploded
under neo-liberal policies and has accelerated since
the crash in 2007-08 as a result of savage austerity.
45. The idea that we do not articulate that anger and see
it as an important development of consciousness in
our programme by advocating wealth redistribution,
wealth taxes, increased wages, etc., as part of our programme would leave Marxism as a dry, arid concept,
completely divorced from the realities of workingclass life.
46. Of course while supporting increased taxes on the rich
and big business, we point out that the capitalists will
find a million ways to avoid and evade tax. They threaten to go on an investment strike, to move their money abroad, etc. That is why we explain that a socialist
government would bring the banks and big business
into democratic public ownership with a monopoly
of foreign trade, including capital controls, as part of
a socialist plan.
47. BW has clearly been disorientated by the complications that have faced Marxists since the early 1990s.
This was reflected in his long period of political inactivity and, unfortunately, the drawing of ultra-left conclusions, which have been evident since he reengaged
with the party in 2012. This political adaptation, it
seems, has been reinforced by the relative and temporary slowness in the change of political consciousness
among broad layers of workers following the crisis.
48. “In truth there is a deeper process going on [in relation to the adaptation of the CWI to Keynesian ideas]
that is entwined with a blunting of class consciousness
in general.” BW makes an important error here, but
one that is instructive for us. Socialist Party Scotland
and the CWI believe it is too one-sided to say there has
been a “blunting of class consciousness” in the last
period. It is true that socialist consciousness has been
driven back, as well as working-class organisation in
the form of mass workers’ parties and trade union
structures. But class polarisation has sharpened considerably. There is a burning class anger that, where an
outlet has been available, has burst into the open. That
was our experience in the 30 November 2011 public
sector strike when two million workers took action
against pensions as well as the mass trade union-led
demonstrations that have been organised. It is also
our experience in the Bedroom Tax campaign that has
seen an outpouring of working-class rage against the
ConDem coalition. Internationally, it is also evident
in the series of general strikes in southern Europe, the
revolutionary movement in North Africa, and the mass
movements in Turkey and Brazil.
New mass workers’ party
49. “Should a new workers’ party begin to take off the CWI
would find themselves participating in a broad party
where the majority of the leadership would adhere
to left Keynesianism. In that project the CWI, despite
its traditions and structures, would have an economic policy practically identical to the left reformists in
29
IN DEFENCE OF THE TRANSITIONAL PROGRAMME
the movement. Far from the CWI being the Marxist
spine of such a formation it would become the centrist underbelly of a left reformist project.” The incorrect position of BW on the attitude of Marxists to the
emergence of new mass workers’ parties is illustrated
in the quote above from his blog. The Socialist Party
and the CWI were unique on the left in the early 1990s
in understanding the changed character of the Labour
Party in Britain and other former bourgeois-workers’
parties across Europe and internationally. Losing their
working-class base and shifting to a neo-liberal position had over time, transformed them into out-andout capitalist parties, posing the need for the building
of new mass working- class formations.
50. We have campaigned in Scotland and Britain for the
trade unions to break from Labour and help establish, along with the non-affiliated trade unions, a new
party to represent the working class and young people.
This idea has been taken up by the leadership of the
RMT and other trade unionists, with our support and
involvement through TUSC for example. The conditions for the emergence of a new workers’ party will
be speeded up by a combination of mass struggle and
also if a Labour government led by Miliband is elected
in 2015.
51. The formation of a new party, if done in the right way,
would represent a huge step forward and would have
a big impact on working class consciousness. Engels
commented that one concrete step forward for the
working class was worth a dozen programmes. It is
true that it is most likely the policy and programme of
such a party would, initially, have a left reformist character; nevertheless it would potentially attract tens
and even hundreds of thousands to its banner, offering major opportunities to strengthen immeasurably
the already important base that Marxists have in the
working class and trade unions today.
52. This would involve us having to skilfully take up the left
reformist ideas expressed not only by leaders of such
a party but also existing in the outlook of many workers and young people. Our aim would be to convince
through patient discussion and experience the need
for a fully developed Marxist programme for the eradication of capitalism. However, were we to follow the
advice of BW we should be condemning demands like
wealth redistribution as “having nothing to do with
socialism”. We would lecture those workers who have
illusions in reformism that they were guilty of participating in a “pact with the left wing of the bourgeoisie”.
30
53. We are prepared to bloc, in a principled way, with
those trade union leaders who support the idea of a
new party, the realisation of which would represent a
huge step forward. At the same time, before and following the formation of such a party, we would put
forward our distinct Marxist programme based on
public ownership of the commanding heights of the
economy, workers’ control and management and a
socialist planned economy. But according to BW, we
have abandoned the centrality of the LTRPF “because
it allows the CWI to orient towards the lefts in the trade
union bureaucracy”.
54. There is nothing in the approach taken by the Socialist
Party and the sections of the CWI towards new left formations that would allow such conclusions by BW and
his supporters to be drawn. They clearly have no understanding or knowledge of the work carried out by
our forces in Greece (SYRIZA, Initiative of 1,000), Germany (WASG, Die Linke), Scotland (SSP, Solidarity,
SACC, TUSC) England and Wales (Socialist Alliance,
TUSC), South Africa (WASP), Brazil (P-SOL) and Spain
(IU) among many others who have and are participating in or initiating left parties and formations. The CWI
has an unparalleled record and ‘body of work’ in defending a Marxist programme and organisation while
seeking to build fighting mass parties of a broad character.
55. All this seems to be a closed book to BW, based on the
evidence of his ‘blog’ and the document of the group
of eleven who are raising criticisms of the Socialist Party and the CWI. Their largely academic and ultra-left
conclusions flow from a misunderstanding of the real
objective situation in relation to the trends in the capitalist economy, the developments in working-class
consciousness and the role of Marxist ideas today. It
has also led to them making fundamental mistakes on
the need for a skilful and all-round transitional programme. Their position does not offer us a way forward in the urgent task of building our forces in the
period ahead.