PAMPHLET COVER

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NEW FOREWORD January 2013

In the fourteen years since this pamphlet was written, the world has changed. This was to be expected. In particular, the consequences of unfettered (neo-liberal) capitalism, described in the original foreword, has led to the greatest financial collapse in the history of capitalism and subsequently to the greatest loss of production for over seventy years. However, tempting as it is, no attempt will be made to analyse the causes behind the present malaise of capitalism.

The severity of this economic crisis would have been much deeper had there been organised workers’ opposition to the job losses, factory closures, wage restraint, intensification of work and pension/benefit cuts needed to stabilise the economic crisis. The primary reason for this lack of opposition is to be found in the realm of ideology. In this sense nothing has changed in the intervening fourteen years. Workers remain ideologically disarmed by the events that culminated in the collapse of the Berlin Wall more than twenty years ago. And if we needed reminding of this, we need look no further than the abject failure to provide an economic alternative by the ‘Occupy Movement’, which attracted such deserved scorn from the supporters of capitalism.

Stalin and his legacy benefited the capitalist world in many ways. His crushing of the remnants of the revolutionary left in Russia ended the hope of world revolution. His ‘socialism in one country’ stripped of its rhetoric, was really a peace pact with world capitalism, which he upheld by sabotaging each and every revolutionary movement from China, to Spain to Cuba to South Africa. But his greatest gift to world capitalism, one which neither he nor Roosevelt nor Churchill ever foresaw, the unintended gift, was the economic collapse of the USSR and its satellites.

Not only did this open new areas of the world to capitalist exploitation, but more importantly its ruins were recast as the gravestones of socialism. Capitalism ruled unopposed and triumphant.

In many ways the last twenty years have been squandered by the left. For most of the left it was business as usual, which meant practical activity and commenting on current affairs. The strategic theoretical tasks lay untouched. This meant that when capitalism once again plunged into crisis, the left was caught theoretically unprepared for these momentous events.

When I wrote this pamphlet before the end of the twentieth century, I had hoped to spark a debate on the causes, dynamics and contradictions that had led to the collapse of the economy in the USSR. I recognised that the analysis set out in the original pamphlet was rudimentary. Nonetheless I believe it sufficiently insightful to justify it being republished. It is my hope that this time it can contribute to a new and more vigorous debate on the economic future of humanity at a time when confidence in capitalism has been thoroughly shaken.

No society can ensure its future except by improving the economic conditions of its citizens. Since 1980, at least in the older capitalist countries, every expansion has benefited fewer and fewer people, while every recession has impoverished more and more people. Inequality has subsequently grown. Today more and more layers of the working class see only a future of increasing immiseration, where they and their children become poorer and poorer.

This is a desperate and unsustainable state of affairs which should force workers, the vast majority of society, to consider their futures with renewed urgency. The objective conditions for intense political debate and the clash of ideas matures by the day.  If an arrogant capitalism repelled criticisms before 2008, now a humbled capitalism invites it. If Marxism is to be relevant it needs to be applied to the 21st Century.

 

 

 

 

 

 

 

 

A NEW NOTE TO OUR READERS.

Our readers may ask why we analyse capitalism here in such detail, as a prelude to examining the Soviet Union. The answer is simple. Without understanding how the profit motive works concretely in the capitalist mode of production – that it is rewarded by unequal exchange – no sense can be made of what was happening in the Soviet Union. Profitability under capitalism allocates investment and drives efficiency. It therefore puts the economy into the capitalist economy by systematically raising the productivity of labour.

As we will show, no such mechanism could be found in the Soviet Union. The adoption of the profit motive itself turned out to be counter-productive and helped destroy the economy. Up until now, the reason for this has not been found. However, the evident result was an economy without financial discipline where productivity stagnated and waste soared.

Two opposed conclusions can be drawn from this. Firstly the capitalist interpretation: that only the market drives efficiency. Secondly the proletarian interpretation: that workers have not only to abolish private property, but all relations of exploitation if the potential lodged in collective property is to be realised. In the end, exploitation in the USSR corroded the new property relations to the point that they simply collapsed. That is the overarching lesson to be learnt from the tragedy that befell the USSR.

Finally I would like to comment on the structure of Marx’s ’Das Kapital‘. Many critics have counterposed Volume 1 to Volume 3 in order to find contradictions between them and thereby dismiss Marx’s monumental investigation into, and critique of, capitalism. Volume 1 looks at capitalism in the abstract while Volume 3 looks at it concretely, albeit fragmentally. It is therefore methodologically incorrect, as we shall demonstrate, to counterpose the abstract with the concrete.

Today many fields of science embody abstraction, to which we may add without being criticised for so doing. We need look no further than the fields of biology or weather forecasting, which utilise computer modelling to capture the essence of specific phenomena. This always involves a degree of abstraction or simplification depending on the amount of computing power available. In the past the degree of abstraction had to be greater; today less so, as computers have grown more powerful. The result is a more accurate approximation of reality yielding better predictions. For example, weather forecasting has not only become more accurate and localised, it can look further into the future.

Marx understood the method of abstraction (simplification) nearly two centuries ago. He recognised that capitalism was a complex, living and evolving system that could not be frozen and analysed in a laboratory. He had to adopt the method of abstraction. There is no universal Satnav to guide this journey of simplification. Each subject throws up its own problems. The only way to proceed is to master the subject matter, and that requires systematic research as well as a familiarity with the pre-existing body of theory. It took Marx many, many years to arrive at the correct level of abstraction in order to begin describing the inner workings of capitalism.

The process of abstraction is the process of removing the more specific, superficial, temporary and complicating aspects of any phenomena. This is done to expose the most generalised or basic aspects of the phenomena in order to study them in their pure or uncluttered form. Only once they have been thus described and understood, is it possible to reintroduce the more superficial and specific forms in order to understand how they connect and interact with the more fundamental forms.

An analogy will explain this. Let us take the human face. There are seven billion humans and we all share a face. Incredibly each face is recognisable by being subtly different – that is by a variation in specific features. If we were to describe a human face we would not start by comparing specific differences, say noses or the specific shape of lips or even skin colour and texture, all of which vary fantastically.

Instead we would begin with all the features we share in common. So to distinguish human faces from other mammalian faces, we would need to look at the unique hair, forehead, eyebrow, eyelashes, eyes, nose, ears, cheeks, mouth, lips, philtrum, temple, teeth, skin, and chin that constitute the human face. (Wikipedia).  We all have human eyes, human foreheads and so on. Taken together they distinguish the human face.

If we were to generalise further to say that a face is always at the front of the body; that it contains the opening to the digestive tract and that it is the site for most of the sensory organs, our description would be true of all animal life, not only of humans. It would be an over-generalisation that would bring us no closer to identifying the human face specifically. It would serve only to distinguish animal forms from plant forms.

So the process of abstraction identifies all that is common to the human face while being unique to it. Once we have identified all these generalised features, we can reintroduce all the variations to these features that shape the individual face and which allow us to identify a specific person. So from the abstract face we move to the concrete face. Interestingly it is this methodology that has allowed the security police to develop face recognition software, first by programming computers to distinguish human faces from their surrounding background, then to become more precise in order to identify and match individual faces.

So too with ‘Das Kapital’. In Volume 1 Marx deals with capital in general. Variations are dismissed. Everything is average. Workers have average productivity, average working days and intensity of work; factories contain average amounts of means of production and utilise the same current techniques of production. In addition demand and supply remain in balance so that commodities exchange at their value. This allows for equal exchange so there is no divergence between value and price. This allows Marx to analyse the unique nature of the capitalist social relation in its pure form.

Of course capitalism does not work like this. The productivity of labour varies within industries, between industries and countries. Demand and supply are continuously disrupted by innovation, the flow of investment and the introduction of new products (‘must have’ use values). The class struggle results in higher or lower income for workers and thus changes in the balance of production. Oh, and let us not forget speculation!

The surface of capitalism is therefore very choppy indeed. So choppy in fact that one would become disorientated in no time if one were to try and analyse everything at the same time. So it takes Marx three volumes before he re-introduces specific variations and modifications. These new categories include the averaging out of the rate of profit and its equalisation, prices of production and market prices, all of which describe the fact that individual commodities either exchange above or below their value and seldom at their value. (Note 2) In other words, whereas Marx deals with equal exchange in Volume 1, in Volume 3 he deals with unequal exchange or, what is the same thing, the ideal/abstract form versus the actual concrete (complex) form with all its variations, modifications and complications. More importantly he describes the laws that govern these divergences so they are explicable.

It is of course the paradox of paradoxes that in a society nominally based on equal rights, it is unequal exchange that makes profitability work. Were it not for the possibility of unequal exchange, and therefore the ability of an individual capitalist or set of capitalists not only to exploit their own workers, but the workers of their less productive competitors as well, the profit motive would fall apart. It is this dynamic that Marx revealed when his analysis became concrete in Volume 3. So not only do the learned professors dismiss Marx’s methodology, but in dismissing it, they dismiss the possibility of understanding how the economic system that pays their outsized salaries, actually works.

Readers are encouraged to read ‘Das Kapital’. It remains as relevant today as the day it was written. It is a formidable piece of work which requires patience and diligence. But then it investigates and describes a formidable mode of production that has revolutionised the life of humanity and survived repeated episodes of crises and political challenges. And it has been assisted in doing so by the fact that capitalism is such a confusing economic system, one that has bewildered and handicapped many of its opponents.

(Note 1.) Marxists are not barrack-room socialists. Our opposition to private property applies exclusively to the means of production and distribution. It does not include articles of consumption which range from food through cars to homes.

(Note 2.) If we add up all the times commodities exchange above their value and subtract the times they exchange below their value we arrive at 0. Looking at the world economy as a whole these variations cancel each other out so that the global total of prices equals the global total of values at any given time under conditions of normal growth.

Brian Green

 

 

ORIGINAL FOREWORD – 1999

A catastrophe is facing humanity: unfettered capitalism. The very planet is threatened, from the ozone layer, through the polluted air to the poisoned food chain, its trade mark is everywhere found.

A calamity has befallen humanity. In the space of one lifetime, the remnants of the first workers’ states has been trampled underfoot. With the collapse of the European degenerated workers’ states, 1989 will forever be remembered as the end of the greatest war in history and the international working class’s most abject defeat.

Yet there were no bombs, no radioactive clouds, no destruction except that of the spirit. Instead of shrapnel, there was the daily grind; instead of blast, demoralisation; instead of fire, frustration. These were societies that could not function, that could not develop production, that ignored their future, that decayed and fell back to the condition they had fought so hard to escape from.

Everywhere bureaucracy clogged the arteries, starved the organs and aged the body. A premature death ensued in the face of a capitalism made dynamic by the offensive of Reagan and Thatcher against the working class. Defeat in the west, destruction in the east. Cold war warriors triumphant.

The fallout of ideological confusion is everywhere. Socialism had failed. Humanity has no answer to the market. In despair the idealists and scribblers could only mutter of their hopes for a ’market made fit for the whole of society‘. Pity them, for the real power in society, the capitalists, had the alternative project of making society fit for the market. All barriers to the market had to be swept away. The crack of competition rose ever louder. Atomisation, insecurity and fear infused every pore and every heart.

We have witnessed a terrible tragedy, so extreme that, in what was the Soviet Union, the very length of its citizens’ lives has been shortened. Instead of the buildings, it is the people themselves who have been pulverised.

It is not the end. Capitalism’s life is determined not only by the defeat of its external enemies, but the conquest of its own internal laws. These laws of motion, rotating around the profit motive, push it forward then pull it back. It is this pulse – stronger, stronger, weaker, stronger, weaker, weaker – that marks the passing of time for this system.

Who would have thought that less than 10 years after the fall of the Berlin Wall, the most dynamic part of the world economy – the Pacific Rim – would be struck by recession and Europe by stagnation, leaving only the home of 20th century reaction, the United States, keeping the world economy’s head above water?

The future of capitalism lies not in its own hands but in those of its workers. Its survival depends on its ability to make workers pay for its failures and excesses. To achieve this, workers must be made to believe they have no future apart from their capitalist bosses; wage slaves held back by chains, not of the body but of the mind, enfeebled by their lack of independent consciousness.

This we seek to change. Like Marx before us, pondering the defeat of the European Revolution in 1852, we too have to take stock. Marx realised that if the workers were to overthrow capitalism, they needed to understand why it had to be overthrown. Without this knowledge they could not stand up to the arguments of the capitalists. They would be defeated intellectually, and therefore forced into physical submission over and over again.

No new ruling class can tower above, nor emerge from, the old society until it has first conquered it intellectually. Today that means, first and foremost, understanding what went wrong economically in the Soviet Union. The two burning questions that need answering are: if this was socialism, why did it fail? And if it was not socialism, then what was it?

This is the millennium challenge. It is not some computer bug, some programming shortcut that threatens the future of mankind. It is the intellectual disarming of workers by the events in the Soviet Union and Eastern Europe that is the real danger. Solve it and workers can begin to retrace steps long since passed. Solve it and the stranglehold of the capitalists will slip. Organised and independent, the working class can, and will, free itself.

 

 

Momentous historical events are normally accompanied by an explosion of intellectual effort seeking to account for and explain what has occurred. Unfortunately this cannot be said for the events leading up to and culminating in the collapse of the USSR. One of the few outstanding intellectual efforts is a recent dissertation by William Richard Jefferies (Bill) entitled:  ‘From the Centrally Planned Economy to Capitalist Globalisation: How Economists Underestimated the Growth of the World Economy’ which is soon to be published in book form and entitled ‘From Capitalism to “Communism” and Back Again: How Economists Mis-measured the Plan’.

Bill’s thesis is not only a restatement of Marx’s methodology but its elaboration and application to one of the defining moments of the 20th Century. Using the historically specific categories elaborated by Karl Marx, he was able to explain and plot the benefit to the world capitalist economy from the collapse of the non-capitalist economies in Comecon and China. Without this pioneering work it is impossible to explain the depth and duration of the economic boom that began in the early 1990s.

The fatal flaw of the bourgeois economists, criticised by Bill, who analysed the Soviet Union is that they did not understand capitalism itself. They did not understand that labour is the source of all value under capitalism, that value is specific to capitalism, and that therefore the income derived from it could not be applied to the Soviet Union where exchange had been abolished. Accordingly they ended up misjudging the size of the economy, were oblivious to its lack of dynamic and finally, as Bill shows, completely misconstrued what was happening when these ‘planned’ economies collapsed. Bill’s work therefore overturns a huge 50 year effort to comprehend the USSR and with it the reputation of the IMF, OECD, World Bank and the CIA who invested so heavily in this effort.

I had the privilege of reading and commenting on this dissertation and in the process of discussion with Bill we gained new insights into the contradictions that felled the USSR. These are now incorporated into this edition of the pamphlet. To that extent this pamphlet is now more complete than the first version.

CHAPTER 1. WHY CAPITALISM TENDS TO CRISES?

To understand socialism we need to understand the economy that gives rise to it and makes it possible – capitalism. Capitalism is the highest expression of economy based on the private ownership of the means of production and the realisation of its potential.

Approximately ten to twelve thousand years ago the first great leap in the productivity of labour occurred when humankind mastered the science of growing crops. More precisely it was the combination of irrigation and crop cultivation that marks this huge divide. The hunting and gathering which sustained us for nearly two hundred thousand years gave rise to herding and farming.

Through farming selected grasses, which were also storable between growing seasons, farmers could generate a more or less permanent agricultural surplus. The need to master irrigation also led to co-operative labour. This led to a change in consciousness. For the first time a section of humanity could imagine not working by making others work for them, thereby raising themselves above the general condition of that society

Wars which were previously fought to conquer territory in which to hunt, now assumed the goal of acquiring slaves to farm. Society split into classes, divided by those who owned but did not work and those who worked but did not own. The state came into being, a body of armed men to police this new exploitative relationship and to ensure that the surplus remained the property of the exploiting minority.

Alongside the appropriation of this new wealth came the need to preserve it for the future by passing it on to heirs. For this to happen the blood line had to be made pure so that the exploiters’ seed would inherit it.  Accordingly women, wives, had to be rendered celibate to all but their husband. They were reduced from the exalted sex to mere chattels. The advent of class society marked the transition from a matrilineal society to a patriarchal society and represented the world historic defeat of womankind (Engels).

Even god was transformed by this leap in productivity. Hitherto man was utterly dominated by nature and subject to its vagaries. God was represented as elemental forces found everywhere, who had to be revered and placated up to and including blood sacrifice. Through irrigation, mankind took its first step in domesticating nature. Mans’ presence was now reflected in his works and so he confidently recast god in his own image. Particularly in Egypt though not limited to it, the collective harnessing of the mighty river Nile, saw the emergence of gods and goddesses walking the earth clothed in human form. From there it was a small step for rulers and kings to legitimise their rule by appropriating the status of living gods (god-kings). Finally the rebellion by a section of Egyptian society, who called themselves the Jews, against this arrogant and earthly personification of god, laid the foundation for the emergence of one of the dominant branches of contemporary religion, the judeo-christo-islamic tradition.

 

THE EMERGENCE OF THE MARKET.

For ten thousand years agricultural production dominated society regardless of whether it was based on slavery, feudal or Asiatic modes of production. In so far as there was industrial production, it was subordinated to agricultural production, being limited to transporting, storing or modifying the results of agriculture. It is worth adding that much of industry that did exist apart from agriculture was squandered on palaces and temples. Empires grew and fell in proportion to their ability to extract a growing agricultural surplus and survive changes in the weather. None evolved into a higher mode of production.

It was only in the 14th Century in Europe that the conditions for capitalism emerged and with it the conditions for large scale industry. For industry to triumph, the factors of production – land, means of production and labour power – had to be separated from their immediate producers. This meant the monopoly of land ownership by the feudal lords and the church had to be broken. The guilds, with their restrictive craft practices and monopoly of tools, had to be bypassed. Above all there needed to be an army of impoverished landless labourers who could now only survive by seeking work from others, and for this to happen they were brutally stripped from their instruments of labour.

These conditions matured in Europe seven hundred years ago. The expropriation of Church lands, together with the bankrupting of the nobility, freed up the land. The enclosure movement drove peasants and serfs off the land and into the new industrial towns. The pooling of capital which made the factory system possible destroyed the unproductive guild system which had been based on an individual’s craft. This was no peaceful process. It was brutal and inhuman and took centuries. Capitalism emerges into the world dripping blood from every pore (Marx).

In short, the factors of production were now turned into commodities. They could be freely bought and sold. As soon as the moneyed capitalist purchased these factors and put them to work producing new goods for sale (i.e. commodities), the capitalist social relation was established. This was the genesis of generalised commodity production which evolved into capitalist commodity production.

From now on production would no longer be for immediate use or consumption, but for exchange. Henceforth producers could only exist if they had the capacity to produce useful goods for exchange, and cheaply enough. If they were unable to produce or sell any commodities, they had no access to cash and without cash they had no means to consume any of the commodities produced by the rest of society. Excluded from the market by the lack of cash, they were forced to endure the worst kind of poverty: the poverty that resides alongside plenty. Beggars outside the gate of capitalism.

Exchange now stood between production and consumption. It follows that should exchange break down for any reason, production and consumption become disconnected. This, at its most abstract, is the source of all capitalist economic crises. Whereas most pre-capitalist economic disasters were precipitated by natural disasters, capitalist economic crises are social, brought about by a disruption in the exchange of goods.

This breakdown is not due to commodities suddenly becoming useless and unwanted. They do not suddenly lose their shape or smell. Consumers do not suddenly lose their appetite or need for these goods. On the eve of any economic crisis much-needed and useful commodities like food, oil and clothes start piling up in warehouses and depots.

On the other side, money (capital) piles up unspent. They face each other over an unbridgeable chasm. Today it is calculated that the top 1000 multinationals hold over $10trn in liquid assets while $32trn (PWC) is stashed in tax havens (although to be fair, some of it will be re-invested in the world economy). This is equal to half the value of world output in one year and explains why economies are stagnating ̶ at least in the developed capitalist economies. In the language of workers, it translates into the loss of at least 300 million jobs worldwide.

So why do goods suddenly pile up on one side and money on the other? What can be causing this loss of perfectly good commodities; losses that can, and often do, exceed the damage caused by war? Why the breakdown in exchange?

The superficial explanation for this is given as the lack of demand in society. Wages are too low, inequality too high, government spending too restrained. This view is called the under-consumptionist theory of crisis. It is inadequate because it fails to address the key question: who is the biggest consumer in society?

The answer is; those who own and control the economic surplus of society.  All exploitative societies produce a surplus which is then alienated from the actual producers. As a result, it ends up in the hands of the exploiters. In a capitalist economy this surplus is called ‘capital’ and its owner is the capitalist class.

The capitalist owners of this accumulated surplus can do one of two things with it. They can either consume part of it for their own luxurious needs, or they can invest it in production. Marx called the former ‘unproductive consumption’ and it represents a huge burden on society. It is not to be underestimated. In the USA the richest 20% of the population are responsible for 75% of retail spending. (President’s Advisory Panel analysis of Hybrid Sales Tax Bill)  As a percentage of output it most likely surpasses the spending by the rulers in previous societies on their temples, churches, palaces and retinues.

But there is a second form of consumption by the owners of the surplus of capitalist society. Marx called it ‘productive consumption’ or, as it is more popularly known, investment. He called it ‘productive consumption’ as it was thrown back into production in order to expand it. While the private consumption of the capitalist class is a burden on society, the latter is vital to its wellbeing. Without investment, production would grind to a halt.

However the decision by capitalists to invest this past and present surplus is not driven by the need to benefit society but to enrich themselves. They are driven by the profit motive. They throw capital into production in order to realise more capital at the end of the process. As long as profitability remains strong, so does the incentive to invest. However, as soon as profitability wanes, so too does the urge to invest.

When investment falls or is held back, part of the surplus of society remains unused, idle or, what is the same thing, unconsumed. The capitalists build fewer factories or close down existing ones and they employ fewer workers or pay them less. In addition, this lack of investment leads to a shrinking of the tax base thereby eroding the ability of governments to maintain spending.

Suddenly it appears that there is a fall in demand. Production exceeds consumption or, what is the same thing, consumption falls below production. The fall in demand, however, is but a symptom. The cause is the prior fall in investment brought on by declining profitability. Here then is the secret behind the breakdown in exchange and the periodic crises of capitalist production. It is the tendency for the rate of profit to fall. The profit motive, from being a whip to increase production, now becomes a fetter holding it back.

As Marx pointed out, while all capitalist economic crises are a crisis of under-consumption, this is not caused by the under-consumption of the masses. Rather it is caused by the under-consumption of a tiny minority in society, the capitalists, who refuse to invest on behalf of society because they cannot be rewarded by sufficient profit. It is at this point that the idiocy of capitalism reveals itself in the form of rotting commodities, rusting factories, empty buildings, wasted skills and a general sense of decay.

 

THE LABOUR THEORY OF VALUE.

If we are to explain the contraction in investment and the subsequent breakdown in exchange, we need to locate the origin of the capital that is to be invested in production. Through his development of the ‘Labour Theory of Value’ in Volume 1 of ‘Das Kapital’, Marx provided this insight and answer. It is the ‘Labour Theory of Value’ that marks the great divide between the theorists of the working class and the apologists of the capitalist class.

We begin our odyssey with the commodity. A commodity is any object produced for sale. We know it has value, but what gives it this value? As in all matters related to class, there are conflicting explanations. Two classes, two theories, the first is psychological (subjective) while the second is real (objective).

First let us hear from the capitalists. They claim the value, and hence the price, of a commodity resides in its usefulness (or utility) and therefore in the eye of the consumer. It is a question of psychology, of need, what the brain tells the wallet. The more useful the commodity is perceived, or made to be perceived (by marketing and advertising), the more valuable it is and the higher the price.

This theory coincides with the position of the capitalist class as idle consumers. They are not workers; they are not direct producers; they consume only that which is produced by others. So they are content with the view that the value of a commodity is as high or as low as the consumer deems it to be. Price is merely a question of fashion or a matter of taste.

Of course this subjective view of value is riddled with contradictions. What can be more useful than the air we breathe? Without it we would be dead in minutes and all the usefulness of every commodity would be irrelevant. Yet air rarely has value. There are endless other examples. Water costs little, steel is cheaper than gold even though without steel there could not have been an industrial revolution, the leap in productivity and the emergence of world economy. In fact their marginal theory of utility falls flat on its face when we recognise that, in general, objects over time become more useful (they have more features) and cheaper at the same time. Take flat screen televisions. Years ago when they were first introduced they cost many thousands, today only hundreds and yet they have more utility: that is better screens with more features.

However there is another view of value. It is the value that arises in production, that is the process where materials provided by nature are turned into socially useful forms. (Note 3.) Let us return to the example of air, and in particular the example of the aqualung. In order to swim underwater for more than a few minutes, divers need to compress and bottle air in an aqualung which is then attached to the diver’s back.

Suddenly air has acquired value. You cannot walk into a diving shop and say, “Please fill up my aqualung for free because the outside air is free.” You will be pointed to the sign on the wall which says, ‘Aqualung refills £5.’ Suddenly the air in the aqualung is worth £5.

Why £5? The £5 represents the cost of filling the aqualung; it covers the wages of the attendant filling the aqualung, the electricity needed to drive the pump, the depreciation of the pump every time it is used, the rent of the shop etc. The air has not changed. If the aqualung burst after being filled and the air escaped, it could never be separated from the outside air. All that would have been wasted is your £5.

So why has the air in the aqualung suddenly acquired value? Anyone working in the diving school would quickly answer. ‘If it were not for my labour, the air would not have found its way into your aqualung.’ And so we finally arrive at the objective understanding of why commodities acquire value ̶ which happens to be the producers’ understanding of value.

Commodities acquire a value through being produced; that is by the application of labour. What is common to all commodities, despite the myriad shapes and forms they take, is that they are all products of labour. In turn the expenditure of labour needed to produce any commodity is measured by its duration – time. The value of a commodity expresses the socially necessary labour time incorporated in each and every commodity.

Why do we use the term ‘socially necessary’ labour time? Marx used this term to mean labour of average intensity. Clearly a labourer could make a commodity more valuable by taking longer to produce it, by wasting time so to speak, by reducing the intensity of his or her labour. So the value of a commodity is composed of two parts, time and intensity.

A good analogy to explain this is electricity. The term ‘Watt’ measures electrical power or output. It is equal to Amps multiplied by Volts or, in everyday language, the pressure of electricity multiplied by its volume. Electricity is like a river. The same amount of water flows through it even when it is wider and then narrower. All that happens is the speed or pressure of the water increases as it narrows. So, just as we measure Watts as equal to Amps x Volts, so we measure Total Labour as being equal to its Duration x Intensity. Those who have criticised Marx’s Theory of Labour on the basis purely of time, have oversimplified his theory in order to discredit it. In a market based society, competition averages out both time and intensity, thus preventing labour of below average intensity being rewarded.

Having digressed, we can now return to value. Tap water has little value because little labour goes into purifying, sterilizing and piping it. Bottled water has more value because more labour time is involved in bottling and transporting it. Gold has a higher value than iron or steel because it takes much more labour to mine and refine. The price of computers keeps falling because it takes less time to produce them.

 

PAID COSTS OF PRODUCTION vs ACTUAL COSTS OF PRODUCTION.

‘Wait a moment!’ snort the capitalists. ‘While we may disagree on what gives commodities their value, we also disagree that there is only one cost of production – labour. Besides the cost of hiring workers, there is the cost of materials, machinery, rent, interest and so on. All these things, not only wages, cost me money.’

Now we no longer have the argument of the idle consumer, we have the argument of the exploiter. Let us begin with land and rent. Two facts stand out. Firstly, while land provides the raw materials for production and a place to work, it was here long before the human race evolved to walk on it. Secondly, rent only emerges when a section of society manages to monopolise portions of the planet by excluding the rest of society from it. Gaining access to, or use of, this land now requires a cash payment or payment in kind – rent. To put it more crudely, but just as accurately, the land has been kidnapped and rent is the ransom for its temporary return.

If the land reverted to common ownership tomorrow, society could no longer be held to ransom. Rent as a cost would simply disappear.

And so too with machinery.  Machines do not grow on trees. If they did we would still be living in the Garden of Eden despite all the fallen apples or pears. Machines, like every other commodity, have first to be produced. They are the products of past labour. The production process can thus be defined as the process whereby today’s living labour sets in motion the instruments of past labour (machines) in order to produce tomorrow’s new products. Therefore to say that commodities are produced by labour and machines is simply to say that they are produced by past and present labour, or labour in general.

The capitalists’ concept of cost is shaped by the fact that the factors of production are privately owned. To use another’s property requires payment for it. It therefore appears as a cost to the user. No sooner has one abolished the private ownership of the land and means of production/distribution then such costs would disappear as if by magic.

This leaves only a single cost of production – labour. If we all had to work, so that society was no longer divided into classes, no longer divided between those who work but do not own, and those who own but do not work, no one would dispute this. We would all be workers expending our labour in production, and transforming the world.

To sum up: every commodity is a product of the labour process. While commodities differ in shape and purpose, this merely reflects the different forms of labour needed to produce them. In addition, different commodities represent different quantities of labour. They therefore exchange in varying proportions. One car can exchange for ten thousand loaves of bread. This is because it takes much longer to produce a car compared to a loaf of bread, which takes only a fraction of the time.

The exchange value of a commodity is expressed in terms of its socially necessary labour times. The more time taken to produce a commodity, the higher its value. And conversely, the less time a commodity takes to produce, the lower its value. One car exchanges for ten thousand loaves of bread because it takes one thousand times more time to produce.

When barter gave way to exchange by money, the term ‘price’ was coined. Price is the money name for exchange value. Different prices on average reflect different exchange values. The price of a car is high because more money is needed to exchange it and more money is needed because its exchange value is so high.

All commodities take time to produce, but as productivity increases, so less time is needed to produce the same commodity. Workers can now produce more commodities in the same time. What is the same thing, each commodity now incorporates less and less labour time. And as it incorporates less of society’s labour time, its exchange value falls. It becomes cheaper and this should be reflected in lower prices. A prime example of this is computers which not only have become more powerful but a lot cheaper. Flat screen televisions are another good example.

The fall in value is expressed through growing price competition. Companies improve productivity in order to undercut competitors and capture market share. In turn competitors are forced to respond, to innovate and invest or perish. And so prices begin to fall within an industry, and between industries, reflecting the underlying fall in exchange value.

Competition at first appears to be a mysterious thing. Like air, it surrounds us with its invisibility. We only feel it when it begins to move. From time to time it gathers itself into a storm that buffets every corner of the market. But competition is not mysterious. Under capitalism production is carried out by thousands, if not millions, of independent companies. Capitalist society is therefore divided by the act of production and only re-united by the act of exchanging these products – the market.

It follows that any change in production in one part of the economy is only felt when commodities are exchanged. These changes alter the terms of exchange or, what is the same thing, the prices at which these commodities are bought and sold. Hence competition is merely the transmission belt for changes in one part of the economy being imposed on the rest of the economy through exchange, through the market.

As capitalism develops, production becomes increasingly socialised. The large multinational corporations employ hundreds of thousands of workers and link thousands of individual investors.  Soon every industry in the global economy will be dominated by no more than ten corporations.

However, no matter how large these corporations become, they remain independent producers walled off by private ownership. They are not directly linked, but linked indirectly via the market. As their size grows, as the complexity and cost of production grows, the market becomes increasingly disruptive.

The contradiction, between the socialisation of production on the one hand and the market on the other, grows. It begs to be resolved, and it can only be resolved through the abolition of the market. Production now becomes directly socialised and with it competition ends. Instead of reacting to competition, society decides where and how to change production, prepares for it, and where once there was disruption, now there is coordination and economic stability.

 

WHERE DO PROFITS COME FROM?

The capitalist social relation comprises two exchanges. It begins with a purchase and ends with a sale. In the sphere of production the purchase comprises the factors of production (namely labour power, means of production and land on which to site production). By reuniting the factors of production the capitalist manages to set production in motion. At the end of the cycle of production the capitalist is in possession of a stock of products which he then sells.

During the first exchange, the purchase, the capitalist pays out cash. During the second exchange, the sale, he recoups cash. He makes a profit if he recoups more cash than he pays out. The difference, the surplus money, comprises his profit.

So how is the capitalist able to realise this surplus cash? Could it be that the capitalist is purchasing the factors of production for too little or selling the resulting commodities for too much? In other words, is the capitalist underpaying when purchasing or being overpaid when selling? Many radical thinkers assume the latter, that profits come from selling too dear, from being overpaid. They believe that, after the revolution, prices will come down as the profit margin, which the capitalists add to selling prices, is eliminated.

They are wrong. Marx understood that it was absurd to locate profits in undercharging for inputs or overcharging for outputs (in the realm of distribution). If this was the case the profits of the purchaser would come from the losses of the seller and vice versa. These profits on the one side and losses on the other, would cancel themselves out and the capitalist class would be no better off. No. Marx understood that the source of profits could not be found in the realm of distribution (where commodities change hands after being produced) but in the realm of production. The source of profits emanated from the process of production itself.

This process begins with the capitalist employer or employers purchasing the factors of production which includes of course labour power (hiring workers). All these factors, including labour power, are purchased at their value.   Labour power, or the capacity to work, like every other commodity, has a cost of production. It is the cost of maintaining the worker in a manner rendering him or her fit for work. The wages paid cover the food, shelter, transport, clothes, heating etc. that make workers useful (and constitutes their standard of living).

The workers’ labour power costs the employing capitalist a wage. However, what the worker costs the capitalist is not comparable to what the capitalist costs the worker. And it is this essential difference, as we are about to see, that is the source of the capitalists’ profit.

Having purchased, and thereby reunited, the factors of production, the capitalist sets production in motion. At the end of the production process, the capitalist is in possession of a sum of commodities ready for sale. During the entirety of the production process, the worker has expended his or her labour. These new commodities embody this labour and it is this social content that gives them their value.

When the capitalist sells these commodities at their value he is paid for all the labour of his workers. But has he paid his workers for all of this labour? Of course not! He has only paid them for their capacity to work, not for what they have produced. From the moment the capitalist hires the worker, the new commodities that are produced (and which embody the labour of his workers) becomes the property of the capitalist employer.

When the capitalist sells the commodities produced, he is paid for all the labour contained in these commodities. The source of profits is now becoming clear. The labour expended in production is a cost to the workers who expend it. However, it only becomes a cost to the capitalist when he has to pay for any of it in the form of a wage or salary. It follows that if these wages or salaries do not cover all the labour expended, some of it will go unpaid.

So at the profitable heart of capitalist production is unpaid labour. It is this unpaid labour that allows the capitalists to pay out less money at the beginning of the production process compared to the money they receive at the end of the process. That is why they are left with surplus money – the source of their profits. And the more money they are left over with, the more unpaid labour they have benefited from.

We have therefore arrived at the distinction between paid costs of production and actual costs of production. The only costs capitalists recognise are the ones they have to pay for. If workers were paid for all their labour there would be no difference between actual and paid costs of production. But then the capitalists could not make any profits and the system would collapse.

Capitalism survives and thrives because the paid costs of production are always less than the actual costs of production. Unpaid labour is the fuel that drives capitalism. That is why capitalism will always cost the worker more than the worker will cost the capitalist.

An example will demonstrate this. In the old days gold acted as money. Let us say a gold mine employed 1000 workers who worked for a wage of 10g of gold coin per day. Accordingly the daily wage bill for the mine owner equalled 10kg (1000 workers x 10g each) of gold. However, if the miners produced a net 50kg of gold each day, we could say that the actual cost of their labour was equal to 50kg. But because they were only paid for 10kg, their paid labour amounted to only 10kg of gold leaving 40kg unpaid each day.

Now mark this. To the capitalists the cost of their workers’ labour is only 10kg, whereas the cost to the workers for their labour is really 50kg. They are underpaid by an equivalent of 40kg which magically appears as profit to the mine owners. (For the purpose of the example we ignore the cost of wear and tear and materials used in mines such as energy, pit props etc.)

Two costs, two realities, two opposing classes. The ability of workers to produce more labour than is needed to maintain themselves is of little interest to the capitalist. All that concerns the capitalists is the paid costs of production, the ones that cost them cash. The hidden cost to the worker, his or her unpaid labour, is of no concern to the capitalist because it is the source of his or her profits, their social power, their status and their elevation above the conditions of the working class.

Unfortunately, because unpaid labour always remains hidden, it makes it more difficult for workers to uncover the true source of profits in the capitalist system. It requires the scientific method developed by Marx, which looks below the appearance of things to uncover their essence, their true origin. The capitalists take everything and give us back little. We want it all back, it is ours, it was always ours.

An elegant way of elaborating on this exploitative working relation is to divide the working day into two parts. The first part of the day may be described as the paid part. During this time, workers produce sufficient labour to reimburse their capitalist employer for the capital spent on their wages. The second part, the unpaid part, is the time employees produce surplus labour, surplus value and therefore the profits of the capitalist class.

In the case of the gold mine described above, where workers are paid for 10kg of the 50kg of gold they produce, the paid part of the working day would be one fifth or 20% of the working day. The unpaid part equal to 40kg would represent four fifths or 80% of the working day. It follows that the rate of exploitation can be measured by the ratio between the paid and unpaid part of the working day. The shorter the paid part compared to the unpaid part, the higher the rate of exploitation. In the case of the gold miners the rate of exploitation is 400%, composed of 80% unpaid divided by 20% paid.

As workers become more productive, they produce cheaper commodities due to each commodity costing less labour time to produce. Accordingly workers now need a smaller real wage to maintain their standard of living, because the goods that make up this standard of living are cheaper. And if they need less wages to maintain themselves, and the capitalists can impose lower real wages, it follows workers will be paid for less of the working day. Consequently there will be a shrinking of the paid part of the working day and an extension of the unpaid part resulting in a higher rate of exploitation.

We can see therefore that the battle cry of the trade union movement, “A fair day’s pay for a fair day’s work!” is meaningless. There is no such thing as a fair wage because a wage, no matter how large, always represents payment for only part of the working day. Nor can there be a fair profit, for no matter how small profits are, they still represent unpaid labour. All that the trade union struggle achieves is a fight over the division of the working day into its paid and unpaid part. At best, it prevents the capitalist class from stealing all the gains resulting from the rising productivity of the working class.

What is needed, which Marx called for, is the abolition of the wage relation itself. We need to discard the view of the capitalist class – that the only costs in society are the ones that they pay for. Instead we need to adopt the revolutionary view that unpaid costs are a cost to the working class. That the profits, the rents and the interest that the capitalist class live on are a cost to the working class which should no longer be tolerated.

Until then, unpaid labour will continue to be converted into capital which confronts workers, not as their product, but as the private property of another class. It appears in the market as an external and coercive force that employs workers only in order to extract more unpaid labour from them. And it does so over and over again, growing in size, dwarfing the worker, making him or her feel increasingly insignificant, ever more subordinated by his or her own product.

However there comes a time when this unpaid labour is not converted into capital. It fails to set production in motion and circulate commodities. It no longer functions productively, lies idle as though crippled. We will now look at what causes the breakdown in the production of unpaid labour and its conversion into new capital, and therefore the crisis of the capitalist economic system. But before we do so, we need to wander into the mists that surround paper money.

 

THE VEIL OF PAPER MONEY.

Earlier we talked about the cheapening of production through the effect of rising productivity on labour times. We could therefore expect the systemic fall in the value of commodities to be met by a tendential fall in prices. Yet no worker alive today has ever experienced anything other than rising prices – inflation.

Unbelievably, there were times when prices fell systemically. The most notable period was called the ‘Great Deflation’ and lasted for twenty years between 1870 and 1890. It coincided with what is called the ‘Second Great Industrial Revolution’ (cheaper steel, railroads etc.) which boosted productivity and ended with the huge gold discoveries in South Africa in 1886.

This deflation occurred because gold still acted as money. Currency was tied to it. During this time the value of gold remained constant. Let us say that on average, 1kg of gold represented 400 hours of labour time. It followed that 1kg could circulate commodities that cost 400 hours to produce, for example 8000kg of steel. The price of 8000kg steel would be gold coin equal to 1kg (or 400 hours of socially necessary labour time).

Now let us assume that the Bessemer method of producing steel is introduced, as it was, around 1870 so that 8000kg of steel now only takes half the labour time to produce – 200 hours. 400 hours of labour time in the steel industry is now crystalised in 16000kg of steel, because workers produce twice as much steel in the same time. Now it takes 16000kg of steel to equal 1kg of gold meaning that 8000kg of steel is now worth only 1/2kg of gold coin. Measured by gold, the price of steel has halved.

Of course the opposite can also be the case. If the value of gold falls, more gold is needed to circulate the existing exchange values. The consequence of the opening of the South African gold mines based for the first time on the industrial extraction of gold, was to reduce the cost of producing it. Gold became less valuable as the labour time needed to produce an ounce of gold fell. Now more gold was needed to circulate the same number of commodities. Prices rose again and this put an end to the Great Deflation.

This reflected earlier experiences. For example the Spanish plunder of silver and gold in the Americas flooded the European market with precious metals between 1650 and 1750 reducing the overall value of the existing stock of gold and silver and leading to great inflation.

It therefore follows that the fall in labour times needs not be reflected in lower prices if the value of money itself changes. If money becomes less valuable more quickly than the value of the circulating commodities it means prices will actually rise. And one event in particular can devalue money quickly, the emergence of paper money. The 20th Century will be remembered as the century during which the linkage between paper money and gold was finally severed. Now there was nothing to stop governments debauching money. Paper money became symbolic money with no intrinsic value. The 20th Century became the century of inflation and hyperinflation.

Systemic inflation, i.e. perennially higher prices, from the perspective of the working class is a fraud. If profits are legalised theft, then inflation is a fraud perpetrated to preserve and increase them. Inflation has and will continue to act as the barometer of the class struggle. It increases with the intensification of class struggle and falls with the collapse of class struggle.

As long as the balance of class forces is favourable to workers and they are able to defend their wages, the capitalists have to resort to inflation. In other words the money they pay their workers in wages is now worth less.  Should wage rises fall behind price rises then workers experience an actual pay cut.

Of course the capitalist class would rather not resort to debauching their currency. It threatens the equilibrium of the economy, the value of capital and the relationship between debtor and creditor. Better to smash the working class and its organisations. Better to decisively alter the balance of class forces in their favour. If inflation began to fall in the late 20th Century, that owed everything to the successful offensive by Reagan and Thatcher against the organised working class. It owed nothing to Milton Friedman and his idiotic doctrine of monetarism.

However, if the capitalists fear rising inflation, they fear deflation (falling prices) even more. Falling prices not only make it harder to clear debts, but more importantly, it would mean that the capitalist class would have to cut the wages of the working class year by year. Amidst falling prices, a steady wage would mean a wage rise. Assuming 2% deflation each year, the same wage would be capable of buying 2% more goods and therefore represent a real increase of 2%. A constant wage amidst falling prices means the workers retaining the benefits of their rising productivity and that to the capitalist employers is intolerable.

Deflation benefits the working class and inflation the capitalist class. Non-cyclical inflation, whether in the hands of the capitalist class or, as we shall see later, in the hands of Stalin, always and everywhere represents an attack on the working class.

(It is worth pointing out that the capitalists have no evidence to claim that falling prices would curb consumption as consumers waited for prices to fall. In fact falling prices have increased demand under capitalism rather than curbed it. Falling prices have been the precondition for the emergence of mass markets in every sphere of consumption from cars in the 1920s, to jet travel in the 1970s and to electronics in the 1990s.)

UNEQUAL EXCHANGE IN A SOCIETY BASED ON EQUAL POLITICAL RIGHTS.

The profit motive at first sight appears to be a simple mechanism. It is not. Our understanding of profits depends on whether we look at the economy as a whole or whether we look at it from the viewpoint of the individual investor. When we look at the economy as whole, it is accurate to say that the capitalist class, which invests 100% of the capital, also receives back 100% of the profit.

However, at an individual level this may not be true. A capitalist who invests 0.001% of the capital invested in production may or may not receive back 0.001% of the profits. He or she may receive more or they may receive less. Why the difference? The difference has to do with prices and values.

When we look at the economy as a whole, total prices equal total values. All the differences between them are cancelled out. However when we look at an individual level, individual prices may not equal individual values. Exchange may not be equal. The fact of the matter is that individual commodities seldom exchange at their value. Exchange therefore tends to be unequal as described by Marx in Volume 3.

It is by understanding unequal exchange that we move closer to understanding how the profit motive works in practice. The key thing is this. Unequal exchange allows one set of capitalists not only to gain access to the unpaid labour of their own workers, but to gain access to the unpaid labour of their competitors. They not only exploit their own workers but the workers of their competitors.

How do they achieve this? They achieve this by raising the productivity of their own workers and increasing the efficiency of their company above the average for their industry. This allows them to make their production cheaper than their competitors. Let us say that the actual cost of producing shoes in Company A (ignoring the cost of the means of production consumed) is £10 which by chance happens to be the market selling price. Let us say as well that £4 of that is paid out in wages leaving a profit of £6.

Now Company A invests in a revolutionary new technique of production which halves the actual cost of producing the shoes. Accordingly the actual cost of producing the shoes is halved from £10 to £5. Similarly as workers produce twice as many shoes in the same time the wages paid for each pair of shoes is also halved from £4 to £2

The observant reader will have picked up that something strange has happened. The profit lodged in every shoe now is only £3 instead of £6 (£10 minus £4 vs £5 minus £2). The capitalist owner of Company A would be distraught if he knew this. “Why oh why did I ever invest in this new technique of production when it reduced my profit per shoe?” he would wail.

However the capitalist is never aware of this phenomenon. On the contrary, he is overjoyed because his profits will actually go up. How can this be when his workers are producing less unpaid labour in every shoe?

The answer lies in the market price of his shoes. This price is set not only by his company but by the industry as a whole. He therefore finds that the price does not fall to £6, but remains at £10. But now that he has more shoes to sell he decides to reduce his price to £9. He finds that even at £9 he is making more profits for each shoe sold – £9 less £2 wages equals £7 profit. He is now earning £4 extra per shoe (or £1 as he sees it).  His investment was worth it.

So where does his extra profit come from? It comes from his competitors. Companies B, C and D find they can no longer sell their shoes for £10, but have to sell them also at £9. They each lose £1 profit and it is their losses that make up the extra profits of Company A. Like air or heat which moves from high pressure to low pressure, so profits flow from higher cost companies to lower cost companies. Money, the golden bridge, allows profits to march from higher cost companies over to lower cost companies.

If companies B, C and D want to prevent this haemorrhaging of profit and withstand the competition from Company A, they too have to invest to increase their efficiency. And as each company improves its efficiency so the price of shoes falls from £9 to a new average for the industry. Company A no longer makes a super profit, and companies B, C and D no longer lose profits.

But never mind, in the end all the capitalists gain. They all gain indirectly from their actions in raising productivity because more productive workers take less time to reproduce their wage, or, what is the same thing, higher productivity shrinks the paid part of the working day and extends the unpaid part. Shoes form part of the wage workers have to spend. As shoes, clothes, electronic goods etc. become cheaper, so workers require a relatively smaller wage to buy them and this leads to a greater pool of profits to be divided up by the capitalist class.

So directly and immediately, individual capitalists gain by raising the productivity of their workers and indirectly they all gain later by the general increase in the productivity of labour. However to the impatient capitalist, it is the immediate and direct gain made possible by unequal exchange that is the primary driver behind the profit motive.

So without exchange there could not be unequal exchange. Without unequal exchange, rising productivity would not result in an immediate increase in profits. Without this direct increase in profits, individual capitalist would not invest and thereby cheapen the cost of production. Unequal exchange is the secret behind the success of the profit motive. It is the reason more productive firms expand at the expense of less productive firms whose number diminish. As Marx said, in the end all economy is the economy of labour time, which allows more to be produced in the same time and which is the source of all progress.

We have laboured the point of unequal exchange deliberately. We do so in order to lay the basis for our understanding of why the profit motive could not work in the Soviet Union. It most probably represents the primary reason the USSR was unable to economise on labour times systematically. In short, the profit motive is unique to capitalism, its spirit is firmly and exclusively attached to the earthly world of commodity production.

 

THE TENDENDENCY FOR THE RATE OF PROFIT TO FALL.

We can now return to the question of profitability. Marx was not the first to discover the tendency for the rate of profit to fall. David Ricardo, the great English-born economist who followed Adam Smith, was aware of it. He witnessed the growth of the urban industrial proletariat, and their growing organisation and confidence. He therefore attributed this fall to the rising wages these workers obtained.

It was Marx who corrected Ricardo. Marx showed that, under conditions of rising productivity and an expanding market, wages and profits could rise together as the class struggle shared out the gains of this rising productivity. However to this day, the shallow thinkers of the capitalist class continue to blame rising wages for falling profitability. Workers on the other hand, would be fools to fall for the argument that higher wages mean lower profits.

The rate of profit describes the ratio between the total capital advanced and the gross profit returned. It informs the capitalist what his return is and whether or not it is invested in the best place. The profit motive is the spring that drives capitalist production and the rate of profit is its measure.

Any fall in the rate of profit erodes the incentive to invest. Any resulting diminution in investment undermines reproduction and precipitates economic crisis. If there is an underlying tendency for the rate of profit to fall, it means there exists within capitalism a fatal flaw, an arrhythmia that will ultimately prove fatal to the patient.

Marx uncovered this underlying tendency. When capitalists invest, they invest not only in wages (hiring of workers) they invest in means of production as well (factories, industrial plants, raw and semi-processed materials, energy supplies etc.) That is why profit rates do not describe the ratio between profits and wages but the ratio between profits and the total capital advanced (of which wages are only one part).

 Marx called the means of production ‘constant capital’ and he called wages ‘variable capital’. As capitalism develops, so capitalists invest in relatively more means of production (constant capital) and relatively fewer workers. In other words, each worker now sets in motion more and more means of production. This process has accelerated with the introduction of computers so that factories now sometimes seem devoid of workers.

It therefore follows that the amount of capital invested can increase without the amount of wages increasing, provided more is invested in means of production. Marx called the physical relation between the amount of means of production and workers ‘the technical composition of capital’. The technical composition of capital expresses the underlying changes in the forces of production as each worker works with more means of production.

To ‘the technical composition of capital’ Marx added ‘the value composition of capital’ and finally ‘the organic composition of capital’. There is a very important reason for this. The purpose of the increase in the technical composition of workers is to increase the productivity of labour – to reduce the labour times needed to produce commodities. This results in the reduction in the value of all commodities including the means of production. They become cheaper (although, as we have noted earlier, this effect may be obscured by the presence of paper money).

So the value of the means of production grows more slowly than does its physical size. This is because it becomes cheaper due to the reduction in the labour times currently producing it. For example the computers guiding many industrial processes are not only becoming more powerful, they are becoming noticeably cheaper all the time.

The same applies to variable capital. The value of the goods making up the wage is reduced and, provided workers do not capture all the gains in productivity, the expenditure of variable capital on wages will fall. This cheapening of constant and variable capital reduces the speed at which the value composition of capital grows. There is, therefore, an elastic relation between the growth of the technical composition of capital and the growth in the value composition of capital. The value composition of capital grows more slowly. The value composition of capital lags behind the growth in the technical composition. This can be shown in the form of a graph.

 

The graph shows the technical composition (top graph) rising faster than the value composition. The difference, the lighter area, represents the cheapening of the means of production. So more but cheaper machines etc. means the dark graph – the value composition of capital – grows more slowly.  What the graph plots is the growth in the volume of the means of production versus the growth in the actual cost of producing it.

So much for the side of capital.  What about the side of profits? We have described how rising productivity reduces the paid part of the working day and increases the unpaid part of the working day. It allows workers to produce more profits for the capitalist class. From this it appears that the rate of profit should never fall: cheaper capital on the one side and more profits on the other. This does indeed slow down the fall in the rate of profit. But it cannot arrest its fall permanently.

The reason is this. The quantum of profits equates to the quantum of unpaid labour. If the purpose of investment is to increase machinery while reducing the number of productive workers, it thereby reduces the number of workers producing unpaid labour. Each worker has to produce more and more unpaid labour to compensate for the fall in their number. The following example will illustrate this. Suppose 1000 workers each produce £1000 of profit every week. This yields £1,000,000 profit per week. If you halve the number of workers, they have to each produce £2,000 profit to yield the £1,000,000. And if you reduce their number to just 200 workers they each have to produce £5,000 profit.

So while the total unpaid labour remains £1,000,000 or £1m, this has to now be compared to a massive increase in the amount and value of the means of production (constant capital) invested in achieving this. Let us say it has increased from £140m to £420m or by a factor of 3. In the meantime variable capital has fallen by a factor of 5 from £60m to £12m because the number of workers has also fallen by a factor of 5. Whereas the original total capital was £200m (£140m constant + £60m variable) it has now risen to £432m (£420 + £12m). Consequently the weekly rate of profit will have fallen by over half from its original rate of 0.5% (£1m profit compared to £200m capital vs £1m profit compared to £432m).

Fewer workers mean fewer workers to produce profits. More capital means more capital over which to measure these profits. This sets limits on the growth in the rate of profit and ends up depressing it. Workers however need not be depressed. The tendency for the rate of profit to fall is merely a proxy for the rise in the productivity of labour.

This is what happened during the post war boom and the huge increase in investment. By 1970 profitability was beginning to fall. Depending on what series is used, the rate of profit in the USA, the hegemonic economy, fell between 40% and 60% from 1950 through to 1970 (Robert M Coen). Investment dried up and there followed a decade of recessions and stagnation.

 

THE CAPITALIST RESPONSE TO CRISIS.

But you may ask, why does capitalism not simply collapse? Why does the rate of profit not fall year by year to zero, the point at which the flame of capitalism would be extinguished forever? How is the rate of profit able to fall, then to rise, then to fall, then to recover and so on for centuries?

Marx called the fall in the rate of profit a ‘tendency’. There was an underlying process but that process could be interrupted by offsetting factors. He never said it was a simple process. It was his detractors who said that.

To increase the rate of profit two things must happen. Profits need to be increased and the amount of capital needs to be decreased. As the business cycle matures and profitability declines, the attack on wages and conditions accelerates. Workers’ share of productivity gains is reversed. Now it is no longer a matter of raising living standards but of defending them from belligerent employers.

This is followed by falling investment, hence falling demand and a subsequent contraction in production. As a result competition intensifies. Less efficient companies go bankrupt. Entire industries and regions are ravaged as if by war.

Now it is no longer simply a case of the cheapening of capital but rather its physical destruction. Entire towns and cities in the early 1980s were blighted as the industries they depended on were culled. Glasgow in Scotland, the original world centre for shipbuilding, was gutted by the closure of ship building on the Clyde. This levelling of industry came later to be known as the emergence of rust belts, which described empty rusting buildings where millions of workers once produced useful products.

In addition, huge amounts of redundant means of production are auctioned off to vulture capitalists at prices many times below their value. This depreciation on top of this destruction sharply reduces the value of constant capital. As expected, the most intense destruction and depreciation takes place in the older, less efficient industries and companies. To this we may add countries as well.

On the side of profits, the number of workers in employment is reduced, thereby minimising the capital spent on wages. In turn, those employed have to work harder, for longer, for less. The growing army of the unemployed is used to intimidate those in work. And of course there is the accelerated export of capital to countries with very low wages. So more profits are produced which are now measured over less capital, helping raise the rate of profit.

Of one thing we can be sure, the capitalist response to its crisis is barbaric and damaging. It not only results in blighted lives, but in the huge destruction of productive potential. It takes a recession to reveal the fact that capital and labour have opposing and irreconcilable interests. During periods of economic growth the class struggle takes the benign form of the struggle for a fair day’s wage. During recessions it takes the form of a struggle for survival by whole sections of the international working class. They are faced with mass unemployment, endemic factory closures, the destruction of whole communities, mass poverty, the removal of state help and more. The very fabric of society begins to rip.

And all the time workers are told to take responsibility and to bear their share of this sacrifice. This would make sense if workers were in any way responsible for the crisis. But the capitalist crisis is not due to high wages, nor to productivity falling. The fact of the matter is that the capitalist economic crisis is due not to failure, but to success. It is due to its success in accumulating capital which, from the point of view of profits, now appears as an over-accumulation.

There is only one solution to such an over-accumulation: part of this capital has to be destroyed. Capitalism now enters its destructive phase, or as it is euphemistically called, a period of creative destruction, where the old is destroyed to make way for the new. Following the Great Depression in the 1930s, it took the Second World War to set the world capitalist economy in motion once more under the hegemony of the United States. 

However in the eyes of the working class this insane destruction is an attack on our class. After all the destruction of capital is not a destruction of things, it is the destruction of our past labour and the source of our employment. It is a huge price for workers to pay, from which they derive no benefit.

There is, of course, another way. There need be no destruction. Workers can and must defend their factories, their workplaces, and refuse to accept any closures or redundancies. They should also refuse to work harder for less. In doing so they would be expressing and defending their class interest. They would be establishing their political independence. But in doing so they would form an obstacle to capitalism seeking a way out of its crisis. The crisis would deepen and threaten the system with ruin.

We can sum up. Profit rates begin to fall not because workers have become less productive but because they have been made more productive. The whole absurdity of capitalism, despite its glorious achievements, is laid bare. Here is a system whose very success is the cause of its recurring failures. And if the success of an economy causes it to fail, requiring destruction rather than production, then the solution is simple, do away with it. In its place erect an economy which is not based on profit, not limited by profit, one which is able to harness the rising productivity of labour without interruption.

It took ten to twelve thousand years before private property in the means of production gave rise to a fully developed market which unlocked its potential. Profitability which had driven capitalism to produce a world economy now holds it back, threatens destruction. If society is to be taken forward, its gains preserved, its humanity restored, we need to put an end to the rule of private property in the means of production.

We do not mince our words. We need to build a society based on collective property free of exploitation, we mean a socialist society. And if we are to support this proposition, we must not shy away from investigating the first calamitous introduction of collective property in the Soviet Union. To those who say, “leave the USSR in peace,” we say, “Without understanding why it failed, we will never be able to navigate our way in the future.” Today’s capitalist crisis, which has shaken the economic system to its foundations, makes it more urgent, not less urgent, that we learn the lessons of the Soviet Union.

(Note 3.) Not all commodity production involves nature providing a material substrate. Commodities can be intangible. For example in the entertainment industry where people sing or act, nature is not changed. Actors and singers produce something momentary though often unforgettable. They consider this their work and it does produces exchange value in the same way as baking a loaf of bread does, where wheat is transformed into dough and then into bread.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER 2. WHY PLANNING HAD TO FAIL IN THE USSR.

 

Contrary to all the nonsense written about Marx and Engels, they seldom commented about the future socialist society. They left that vulgar task to the dreamers and utopians. Only in 1875, when he was forced to intervene, did Marx briefly outline his vision of the future. He did so in a pamphlet entitled ‘Critique of the Gotha Programme’. Its purpose was to correct the numerous errors contained in the Gotha Programme intended to unite the German workers’ movement at the time. In it he made a number of critically important points, all of which would find expression in the Russian Revolution that occurred nearly 40 years later.

Firstly he insisted that the working class struggle, while beginning at home could only succeed as an international revolution, or not at all.

Secondly that a successful revolution would establish a workers’ state, which in effect, would be the dictatorship of the proletariat. Such a state was essential to protect the revolution and to put an end to the legacy of capitalism. Furthermore this necessary dictatorship would be temporary and it would wither in proportion to the withering of the class antagonisms inherited from the previous society. In other words a state can call itself a workers’ state, only if it actually and systematically eliminates privilege.

Thirdly that there were two stages in the path to communism, stages précised in his famous slogan, “From each according to his ability, to each according to his needs”. Marx recognised that in the first phase, individual workers’ contribution to production would be unequal. This corresponded to an international working class emerging from capitalism that was and is divided by skills.  Therefore what workers were able to withdraw from production would be unequal. ‘From each according to his ability, to each according to his ability’ defines this stage.

He recognised that this unequal right depended on the level of economic development. As he put it “Right can never be higher than the economic structure of society and its cultural development conditioned thereby.” However at a later stage when productivity will be so developed, the working day so shortened and the realm of freedom so expanded, that the true social individual will step forward, freed of the meanness of spirit created by the divisive calculation of one’s share of social production. At that point society would inscribe on its banners, “From each according to his ability, to each according to his needs.” Finally humankind will have emerged from the realm of scarcity into a world where humankind is no longer divided by production but united by it, where social relations are no longer governed by material want but by human need. The Garden of Eden never lay behind us, it lies ahead of us.

We can only wonder at these days to come as we trudge to work for others, making them richer by making ourselves relatively poorer. Now let us turn our attention to the USSR, to the first workers’ seizure of state power and private property in the means of production. And of course its tragic aftermath.

 

THE RUSSIAN REVOLUTION.

Russia proved to be the weak link in the chain of imperialism. More economically backward than any of the other major combatants in the First World War, it suffered the greatest hardship and loss of life. With Russia rocked by revolution, the Bolsheviks led the first successful workers’ uprising in October of 1917. This carefully planned and managed conquest of state power resulted in only a few hundred deaths, mainly in Moscow.

Lenin and Trotsky, like Marx and Engels before them, recognised that the success of Russian Revolution depended on making it international. They were right. Within a year Britain, the USA, France and Japan organised an international counter-revolution against the Bolsheviks. This White Terror claimed twenty million Russians lives, whereas the October 1917 Revolution claimed only hundreds. Of course these massacres are hidden from history by the imperialists and their apologists in order to maintain the myth that it is revolutions rather than counter-revolutions that provoke mass murder and even genocide.

By 1921, the Red Army under Trotsky’s leadership had prevailed, but at a huge cost. Entire cities had been devastated. Millions of the most cultured and conscious members of the working class and the Bolshevik Party had been killed or maimed. Production had collapsed and poverty enveloped everyone in its divisive embrace.

The corruption of the Bolshevik Party and the degeneration of the revolution was not due to Lenin’s untimely death, nor due to Trotsky’s legendary inability to engage in Party struggles in a timely manner. Nor was it due to the earlier banning of party factions.  Had Lenin lived and Trotsky organised independently, they would have only slowed the Stalinisation of the party, not prevented it. The river of history would have continued raging around these two rocks.

Stalin triumphed because the determining factor was the prevailing material conditions, more specifically the isolating and grinding struggle for survival. The economic desert produced by the counter-revolution sucked the revolutionary life out of the party. Only an idealist could believe the Bolshevik Party would rise above these conditions rather than be dragged down by them, that its internal life could exist apart from the life in the streets. It would succumb; it did succumb.

Where the imperialists succeeded in subsequent years, was to rewrite history and blame all the failures on the Bolshevik Party and planning. Just as no one would invite a rapist into our schools to lecture our young on sex education and etiquette, so we do not invite the imperialists and their experts to teach us about the evils of planning.  The White Terror they initiated was a key factor shaping future events in the USSR.

In sum, the Revolution, which had the disadvantage of occurring in a relatively backward capitalist empire, had been gutted. Its revival depended on a successful European revolution. The failure by German workers in 1923 to seize state power represented the last chance to revive the Russian Revolution. The suppression of the German workers signalled the ebbing of the revolutionary wave that had broken out after the Great War.

Russia was isolated, exhausted, demoralised and impoverished. Into this political arena stepped Stalin as the personification of the bureaucratic core of the Bolshevik Party. He headed the tendency within the party who were no longer concerned with the broad interests of the working class, but of furthering their own personal interests. They were to capture the Bolshevik Party and transform it into a structure for raising themselves above the awful conditions that prevailed in the USSR, and they would do so by harnessing the new property relations.

 

THE NEW EXPLOITERS AND OPPRESSORS.

This new bureaucracy faced two threats: an external threat from capitalism (imperialism), which sought to restore private property in the means of production, and an internal threat from the remnants of the workers’ opposition. Stalin’s “socialism in one country” was in effect a non-aggression pact with imperialism. In return for sabotaging revolutions around the world, Stalin expected the imperialists, primarily Britain and the USA, to respect the geographical independence of the USSR and the rule of the Party. It was an offer the imperialists could not refuse and from which they were to benefit enormously.

Internally Stalin dealt with the workers’ opposition led by Trotsky by forming an alliance with the Kulaks (rich peasants, rural traders and potential capitalists). He correctly identified the workers’ opposition as his main enemy. When this opposition had been defeated and their leaders killed or exiled between 1924 and 1927, he turned on his Kulak allies and crushed them in turn. In that way he established the bureaucracy’s monopoly of state power.

By the late 1920s, state terror ensured Stalin’s rule was absolute and the Party unchallenged. The Party was now politically able to mobilise the productive forces through the introduction of planning. Just as the capitalist personifies the inner needs of capital, so Stalin personified the needs of collective property. He had to introduce planning in order to engage the productive forces. However, as a despot, the plan would be imposed on society and society punished for any failures to implement it.  This form of planning, beginning in 1928, came to be known as the Five Year Plans.

The countryside was collectivised to extract the maximum agricultural surplus in order to pay for accelerating urbanisation. What followed was the most rapid (forced) industrialisation the world has ever seen right up to the present day. It transformed Russia from a largely agrarian society into a leading industrial power within a generation. Whereas Russia had to submit to Germany in the First World War, in the Second, Russian industry allowed its people to triumph over the Nazis and force Germany’s submission.

The abolition of private property had made possible, for the first time in an industrial country, the unhindered mass mobilisation of society in a single orchestrated effort. Terror played only a secondary role. The victory of the Red Army in 1945 did not vindicate “socialism in one country”. Quite the contrary, it was “socialism in one country” that was responsible for the war in the first place, through Stalin’s malign intervention in the workers’ struggles in Germany and Spain during the 1920s and 1930s.

Nevertheless, the pre-war rapid industrialisation hinted at the potential lodged in the abolition of private property. Unfortunately, as we shall see, these gains would be undermined and finally negated by exploitation ̶  by the bureaucracy’s parasitism.

The new exploiters, headed by Stalin, were called many things: a bureaucracy, a caste, an elite, functionaries and so forth.  We will continue to use the accepted term of a bureaucracy with this qualification: normally a bureaucracy is an agent serving another class, and does not have an independent existence. Clearly in the Soviet Union the bureaucracy served itself rather than the working class. Being parasitic and therefore unnecessary, predictably it would end up collapsing the economy it had inherited.

What can be agreed is that the bureaucracy was not a class. A class is defined by its legal relationship to the factors of production. In the case of the capitalists it is the private ownership of the means of production/distribution and the land. It is this private ownership which distributes the surplus of society in the form of rent, interest and profit into the individual pockets of the capitalist class in proportion to the size of their capital.

In fact this mode of exploitation is unique to capitalism. Contained within the exchange value of a commodity is its surplus value. As soon as the owner of the newly produced commodity is paid, this surplus value is converted into surplus money and therefore profits. Exploitation is therefore direct and immediate.

The social power of the capitalist class therefore flows directly from its ownership of commodities, of capital, from private property. Their power derives only secondarily from political control. In capitalist societies, the purpose of political power is the enforcement of these property rights. Political power is a means to an end not a means in itself. Individual capitalists do not require a position in the state to give them access to the surplus of society; they require only the security of private property. That is why the capitalist system can tolerate multi-party democracy provided the various parties respect their private property.

Things stood differently in the USSR. Private property had been abolished. Bureaucrats could no longer rely on private property to gain access to the surplus of society. They had to rely on the state. Only their monopoly of state power could ensure they were able to share in this surplus. That is why all parties other than the Bolshevik Party had to be banned and political freedoms stifled. If the Bolshevik Party was voted out of power, its members would have to forfeit their privileged state positions and return to the ranks of the working class.

So only a single party, the Communist Party, was allowed; for it was through the funnel of the Party that individuals gained access to state positions. The Party was responsible for recruiting, promoting, organising and disciplining the bureaucracy. The workers’ state, which is always and everywhere defined as a state that seeks to end privilege, had been crushed and superseded by a new form of state. Its new function was to increase privilege and to distribute it amongst the bureaucracy in accordance to rank.

As long as the economy grew, these bureaucrats’ hunger for the security of private property ̶ for their own capital ̶ was held in check. As soon as they ruined the planned economy on which their privileges rested (which occurred by the late 1980’s), they predictably led the charge to restore capitalist private property. The rest is history.

 

DID THE USE OF PROFIT RUIN THE ECONOMY IN THE USSR?

We have seen that, at every level, the USSR after 1924 contradicted everything Marx had proposed in his ‘Critique of the Gotha Programme’. The revolution was consumed by nationalism, the workers’ state was no longer the dictatorship of the proletariat and privilege had taken over from ‘each according to his ability’.

Our methodological approach to the collapse of planning is scientific. We reject the unscientific hypothesis that planning failed because it lacked this and that. A scientific approach analyses not what is absent, but what is present. It seeks to analyse what was present, the actual forces, laws and contradictions that led to collapse.

Using this methodology, we can surmise that the Soviet Union did not collapse because of the absence of workers’ democracy. Capitalism isn’t exactly democratic at the level of the workplace. Planning did not collapse because the sectional interests of individual bureaucrats made it impossible to plan. Within large corporations, heads of departments also manipulate their figures to flatter themselves and protect their department. Planning did not collapse because there was no reserve army of labour to discipline workers. Draconian labour codes replaced this discipline. Planning did not collapse because workers were the victims of the plan rather than its architect. Under capitalism workers rarely sit on the Board of Directors. The planned economy did not collapse because of waste. Capitalism is extremely wasteful as well; we need think no further than duplication, patents, marketing, advertising, packaging, over-investment, accounting, speculation, finance, corruption, recessions and more.

All the above is true, but it does not describe what really took place and why the bureaucracy never found a mechanism by which to systematically raise productivity and manage waste. Why, in sum, it was unable to economise on the expenditure of labour time at least equally effectively as the capitalists and their system.

Capitalism was, and remains, qualitative production. Or, what is the same thing, decisions are driven primarily by financial considerations.  It has never been, nor ever will be, based on quantitative production.  It does not produce for the sake of producing (except at the end of booms when the momentum of production carries it forward). It produces in order to make profits and when it cannot make profits, it stops producing.

Its driving force is of course the profit motive. We saw earlier that profits depend on exchange and the profit motive on unequal exchange. Stalin clearly did not understand Marx and neither did his successors. Otherwise they would not have desperately turned to the profit motive to try and rescue their ailing economy in the post war period.

However, in the absence of exchange the profit motive actually becomes counter-productive. Instead of reducing labour time, it ends up increasing it.  This startling observation is easily demonstrable. If an enterprise in the then USSR improved its efficiency by reducing the labour time embodied in each item, the cost of production per item or its cost price would fall. Let us say from 100 roubles to 80 roubles. Now, if its profit margin (or centrally directed mark up) was 20%, its profit per unit of production would decline from 20 roubles to 16 roubles. Better then to keep the cost at 100 roubles in order to enjoy a profit of 20 roubles.

This does not happen in a capitalist economy because market prices allow a company to make an extra profit at the expense of its competitors. We saw earlier in this pamphlet how in the case of Company A, which produced shoes, the market price ensured this company was rewarded for its improvement in efficiency. Through the market price money transfers profits from the less efficient to the more efficient producers.

But the USSR was based on collective property. Production was now directly intended for accumulation and consumption. There was no longer exchange. Production was now directly social. While it was not a socialist economy, it definitely was a socialised economy (there is a difference). The labour produced in each enterprise in the USSR immediately became part of the labour of society.

 If, through improvements in efficiency, Enterprise A reduced its labour time, it would reduce its share of the total labour of society, including any surplus labour. This reduction in surplus labour would be represented as a fall in its profits due to fixed margins. This is what lay behind the fall in profits per item from 20 roubles to 16. The fall in roubles was the monetary expression of the fall in labour times and share of total labour times.

It is now clear why we stressed the connection between exchange and the profit motive, and why it is only unequal exchange that puts the motive into the profit motive. However, even in market economies, we find problems with profits. These occur in military contracts and state tenders based on ‘cost plus’ when risks cannot be determined in advance so that a price cannot be set by the tender document. Companies that win these kind of tenders have little incentive to reduce costs as this tends to also reduce the ‘plus’ (the margin) that is added on top of these costs. Predictably, the price of this kind of tender often shoots up costing tax payers millions more than the tender document ever envisaged.

Introducing a new technique in any mode of production is always time consuming and fraught. Workers have to be retrained, new skills to be found, there is re-tooling and all the associated teething problems. These disruptions are only worthwhile if they attract extra profits.  Accordingly, there was no incentive to innovate in the USSR as the reward for doing so was reduced profits.

In an economy based on collective property, but where profits have not been abolished, there is an incentive to duplicate instead of innovate. Through duplication, there is no reduction in labour times. Two identical factories employ twice as many workers and produce twice as much labour. Twice as much labour means twice as much surplus labour under the existing conditions. The Enterprise’s share of the labour of society does not diminish but can even increase. The mass of profits increases and even the state is happy because its taxation of profits has now become a main source of revenue.

In addition, to the cautious bureaucrat, duplication is safe. The same machinery, the same material, the same skills are employed.  No need to experiment and to find sources of new and strange machines and materials. Managers therefore had little incentive to introduce new techniques of production. While duplication does expand production, it does so at the existing levels of productivity. One could characterise this inertia as ‘more of the same’ ̶  hardly the most dynamic form of investment. And this happened despite the fact that the USSR developed excellent science and technologies together with an educated workforce. In many areas they led the world. However the lack of incentive meant industry remained unreceptive to most of these innovations.

The only alternative would have been for the bureaucracy at the centre to substitute itself for the market. Instead of the invisible hand of competition redistributing profits through unequal exchange from the less efficient companies to the more efficient ones, the state could have used taxation to do this. It could have raised taxes on the less efficient enterprises and industries while reducing them on the more efficient ones. That way the more efficient enterprises would have prospered at the expense of the less efficient enterprises.

The state would be taking with the one hand and giving with the other. This would have reduced the bureaucracy from centrally commanding the economy to arbitrating between the enterprises.  It would have led to the expansion of the more efficient enterprises and the destruction of the less efficient ones.

Not only would the loss of production from the less efficient enterprises undermine the taut plan, it would have led to the concentration of economic power in the more efficient enterprises. As economic surpluses accumulated in the efficient enterprises, the control of the centre would have been undermined. It would have led to an economic civil war. The ensuing economic fragmentation would have torn the bureaucracy apart.

Instead the leadership proposed saving the economy through increasing the role of profits. In 1961, at the 22nd Congress of the Communist Party of the Soviet Union, Nikita Khrushchev declared, “We must elevate the importance of profit and profitability.” This was amplified by his successor Brezhnev in 1966, by which time enterprises could retain more of the profits they produced. Cost accounting was changed in order to emphasise the importance of making profits at an enterprise level. 

But the drive for profits backfired. The centre continued to subsidise less efficient enterprises. Now it had to reward the more efficient with extra profits. Instead of a redistribution from the less efficient enterprises to the more efficient, there was a redistribution from the centre to both the more and less efficient producers. The surplus controlled by the centre began to haemorrhage and with it the ability to finance the plan.

To the profit margin we may add any margin. It was not only the profit margin that was counterproductive, so too were all the other margins, and turnover tax margins added to the enterprise cost. In a socialised economy any margin, and a dependency on that margin, will distort the economy, as any reductions in labour times (and hence prices), will undermine these margins and reduce the amount they yield. (More on this later.)

Given that the reason for the failure of the profit motive in the USSR is only now uncovered it is worth codifying the differences between a market economy and a socialised economy. In a market economy a reduction in labour times does not immediately lead to a reduction in surplus labour because of unequal exchange (market prices). In a socialised economy reductions in labour times leads immediately to a reduction in the enterprise’s share of the labour of society. In a market economy a reduction in labour times is initially rewarded by extra profits. In a socialised economy it is rewarded by a reduction in the mass of profits.

The consequences are stark. Under capitalism, the profit motive leads to innovation; while in planned economy it leads to replication. This is the reason why capitalism survives, and the USSR is fallen. Profitability has no place in a planned economy. Once private property in the means of production has been abolished ̶  and with it exchange, the profit motive becomes counter-productive

What the collapse of the economy in the USSR showed is that there can be no viable exploitative economy after capitalism. Let us say it again. Beyond capitalism there is only socialism. Which means, not only an end to private property in the means of production, but an end to exploitation itself. Once that lesson is learned, we need not fear a repeat of what happened in the USSR but rejoice in the knowledge that it was not the abolition of private property that led to the downfall of the Soviet Union, but rather the parasitism of the bureaucracy and their reliance on profit.

 

SO WHAT IS THE ECONOMIC DYNAMIC OF A SOCIALIST SOCIETY?

In the above section we briefly recognised that the economy of the Soviet Union manifested features that were both superior to a capitalist economy (collective property) and inferior to it (low productivity). that of a capitalist economy. Ultimately, its inability to economise on labour time marked it as less advanced than capitalism, leading to its collapse.

The question is therefore posed: what economic mechanism would a democratically run socialist society embody that ensured efficiency, economy of labour time and innovation? What mechanism would replace and eclipse the profit motive and, by so doing, reveal just how primitive profitability really was. In unearthing this motive we will see once again why the USSR was unable to utilise such a mechanism.

In our section on capitalism, we recognised this mode of production to be indirectly social. Production divides society which is then re-united through exchange. Under this condition the socially necessary labour times embodied in commodities takes the form of exchange value.

In turn this exchange value is expressed by money and circulated by it. ‘Price’ is the money name for the labour time crystallised in each and every commodity. We also learnt that increases in productivity, and thereby the cheapening of commodities, need not be reflected in falling prices.  Indeed prices can and do rise due to the debauching of paper currency.

In a fully socialised economy there will be no need for money. Labour times will be measured directly, not indirectly through money. However as Marx said, no new society can emerge free of the old. Money will be needed until such mechanisms can be put in place to replace it.

In the meantime, there will be an imperative to use money, and above all, to maintain its integrity ̶ and therefore its function as a unit of account. (Under capitalism money has many functions, but under socialism this will be reduced to acting as a unit of account.)  Only through monetary stability can money begin to measure labour times. Let us be clear on this distinction. Under capitalism prices are not tied directly to actual costs of production. Exchange mediates, and unequal exchange means that prices can and do diverge from actual costs of production.

In a socialist society (and here we refer to the early transitional stage), for the first time price is indissolubly tied to actual costs of production. As a result, the cheapening of production through the raising of productivity has to result in falling prices. Costs of production will become transparent through the movement of prices.

It is falling prices that replace the profit motive under socialism. Falling prices benefit all members of society equally. They become the economic knot binding society together, for they reward the common effort equitably. In doing so, they maintain the unity of this effort by avoiding sectional or competing demands.

It is worth labouring this point, so to speak. Every worker will have an incentive to ensure that their output is of the highest standard and carried out in the minimum time. Otherwise workers further down the line will have to waste time undoing any mistakes. What is saved in labour time in one moment by cutting corners, will be lost at another through additional repairs. The net result will be no fall in labour times, therefore no fall in prices because of this waste of labour.

Some Marxists have theorised that, instead of falling prices, the incentive should be higher ’wages’. Or more precisely, wages that rise in proportion to rising productivity, with prices remaining constant. In this way workers would benefit through rising wages rather than falling prices.

Unfortunately this is muddled and shallow thinking on their part. Let us remind them that rising productivity results in the cheapening of production and should be reflected in falling prices. If it is not, then this can only be due to the devaluation of currency, which robs money of its ability to act as a unit of account.

Now it follows that if we both raise ‘wages’ and still enjoy falling prices, some of the ‘wages’ of the working class will remain unspent because total ‘wages’ net of deductions will exceed total prices. If this were to happen, prices of particular items will be bid up by excess ‘wages’ and the result will be confusion  ̶ together with the emergence of a market driven by excess money. Prices and labour times will diverge. Prices will come to reflect the push and pull of demand and supply rather than be tied directly to costs of production.

‘Wages’, if we are still using this term, represents the income of every member of society net of deductions for investment, insurance, health, education, care of the elderly and the infirm, environmental repair etc. They will represent a definite portion of the total product, the portion destined for individual consumption.  Net ‘wages’ will equal the total labour time expended in this sphere of production.

Total ‘wages’ can only increase if the amount of labour time expended in production increases. This increase can only result from an increase in the number of workers, an increase in the average length of the working day, or more subtly, an increase in the time spent in the Department of Education aimed at improving skills.

However, within the totality of wages there will of course be differences. On the qualitative side, those workers who are more skilled, or become more skilled, and who therefore contribute more to production will have higher wages. On the quantitative side, those workers who choose to work longer hours will receive higher wages. The extra contribution, either qualitatively or quantitatively, must find its reward.

But, in reality, changes in the quantitative contribution to production is an insignificant part of production. The primary increase in productive effort results from investment in new techniques, in new and improved equipment and computers. This dwarves the difference in the strength and stamina, that separates one worker from another. Machinery and equipment are the great levellers, outweighing any difference in muscle power. For example, an American farmer driving a combine harvester picks and separates more grain in one hour that nine Afghan mule herders can achieve in one month. So, for every minute of extra work by the US farmer, each Afghan worker would have to work an additional 10 hours, even though the average Afghan herder is very likely to be stronger and fitter than his US counterpart.

It is investment in new techniques of production that is the real mover of productivity. However, no worker should benefit individually from investment. Why should they? This kind of thinking mimics bourgeois ideology.  Workers receiving the new equipment may not have produced them. They are the recipients of the efforts of workers in another part of the world economy. Surely, the original producers, who may work hundreds of miles away, have the same claim to extra wages. They could legitimately say, “Without us, no new machines. So why should you benefit instead of us, simply because you are working with them?”

Planning would be drowned by claim and counter-claim. The facts are these. The rising productivity of labour brought about by new investment, while increasing output, does not increase the total labour time expended in producing this output. It therefore follows that this change in output is not reflected by a change in ‘wages’ but in prices.  And it is through falling prices that each socialist producer benefits equally. The workers who produced the equipment, benefit equally, compared to the workers utilising this new equipment. It avoids claim and counter claim, it avoids sectionalism in all its forms.

Let us restate this vital proposition. Falling prices rewards society equally. If productivity rises each year by 4% resulting in a fall in prices of around 4%, each member of society finds their individual standard of living rising by around 4%. No one gains more than the other. Collective production finds its common reward.

Not only will this fall in prices reward efficiency, it will enable us to measure the efficiency of any investment. Just as an increase in the amount of profits was a measure of efficiency, so now the predicted fall in prices allows us to measure the advantages of any investment.  It allows us to choose the most cost effective investment through its effect on the totality of prices. This transparency has another advantage, indeed an imperative, for it enables conscious planning. Prices need to be tied to actual costs in order to allow for the efficient allocation of the labour time of society which satisfies society’s needs and wants. In this way the rate of profit has been superseded by a more direct and accurate measure.

There is thus a lot more to pricing than meets the eye. The pricing system we inherit from capitalism is severally distorted. Individual prices of production bear very little relation to individual values. The averaging-out of the rate of profit, demand and supply (to name but three), results in huge deviations between individual prices and costs. The simple fact is this. Under capitalism we have no idea what individual products actually cost to produce. In capital-intensive industries they are too high, while in labour-intensive industries they are too low.

Getting rid of capitalism will take far less time than unravelling actual costs, and it will take even longer to adjust production on the basis of real prices. This difficult task will be made impossible if we debauch money and thus make financial planning impossible.  Money needs to remain a stable unit of account. We are now ready to examine the monetary policies adopted in the USSR.

INFLATION IN THE USSR.

The financing of the first Five Year Plan took two forms. In a largely agrarian society it would require the extraction of the maximum agricultural surplus to feed the newly emergent industrial towns. This was the imperative that drove rural collectivisation and all its cruel consequences. The second was inflation. The workers were to be impoverished through rapidly rising prices. Inflation was the mechanism for increasing the rate of exploitation of the labouring masses. In this manner the surplus of society would find its way into the hands and pockets of the newly triumphant bureaucracy.

In ‘The Revolution Betrayed’, Trotsky details the debauching of the rouble. Between 1925 and 1927 the volume of currency went up 35% a year from 0.7 to 1.7bn. Between 1928 and 1933 it went up by 79% a year from 1.7bn to 8.4bn. Compared to the French franc the rouble fell 77% in value between the same years. This inflation represented, in the words of Trotsky, a dreadful tax upon the toiling masses.

The bureaucracy had no choice but to debauch the rouble, for it was the basis of their false accounting. It was this false accounting that allowed them to hide their parasitism. They could no more introduce an honest rouble than a priest could admit there was no god, but only myth.  Criticising inflation became a punishable criminal offence under Stalin.

Trotsky called this debauching of the rouble, ‘the syphilis of a planned economy.’ It had two consequences. First and foremost, it destroyed the link between effort and result. Workers found that, no matter what effort they put in, they were punished by rising prices. This, together with heavy handed management, draconian labour laws, extremely long working hours and harsh working conditions, robbed the worker of any attachment to the labour process.

In the words of Trotsky, “… all correspondence between individual labour and individual wages necessarily disappeared, and therewith disappeared the personal interestedness of the worker.” Over the decades, as the working class grew in size and strength, the heavy hand of the bureaucracy was pushed back. However workers were never to re-engage with the labour process.  In their words, “They pretended to pay us and we pretended to work.” As long as workers pretended to work, there could be no antidote to bureaucratic inertia, no prop for the ailing economy, making inevitable its collapse in the 1980s

Secondly, inflation ̶ false accounting ̶ also robbed the bureaucracy of any insight into what was happening in the economy. In the absence of sound finances, planning became largely statistical. Targets were set mechanistically: so many tons of steel, so many metres of cloth, so many litres of oil. The timid targets set in 1928 soon gave way to extravagant targets. Success depended on achieving or exceeding the norms. Production became a storm.

As long as there was a pool of excess labour, these targets could be met and even exceeded. Plants could be worked for longer. There were more workers to repair overworked machinery and even substitute for them. Duplicating a plant was no problem as long as it could be manned by new workers. This requirement for labour led to the phenomenon of individual enterprises hoarding workers and tying them to the plant through ration cards, housing, health and amenities. It also led to the huge influx of women workers when the supply of male workers began to dry up.

As long as the pool of labour was not exhausted, production could increase quantitatively. When it was exhausted, the only alternative way to meet targets was to begin cutting corners. And so the quality of production began to suffer. Another ruse, adopted under the pressure to meet the plan, was to simplify production. Take steel nails. If the target was set as a weight of nails, it was easier to meet that target if you only produced one size of nail ̶ the bigger the better.  If the target was set in terms of a number instead of weight, it would be better to produce smaller nails rather than larger nails which are slower to produce. So targets were met, but at huge cost to an economy that lacked nails or screws of the right size.

Of course Stalin was aware of these shortcomings. He tried to overcome them with his six point programme in 1931. None of these addressed the contradictions ̶ namely that without honest accounting, without real prices, you cannot generate a culture of efficiency. Only real prices reveal the extent and consequence of cutting corners, the ruining of machines and the misusing of materials. It does not matter how much Stalin bemoaned the “lack of personal responsibility” or incompetent managers, or how much he blamed the wage structure, or how much he pointed the finger at wreckers, or labour indiscipline, the fact was that all these effects resulted from only one cause ̶ the presence of the bureaucracy and its need to hide its parasitism.

In the drive to increase physical output, financial planning had to give way to statistical planning, despite Stalin’s repeated lectures on the need for sound finances. The crude fact is that financial planning is often incompatible with statistical planning or as it was known, material balances Often it costs more to complete the plan than not to complete it. If meeting the plan requires adding in extra workers, if it means no time to clean and repair machines, if it means using more expensive raw materials when no other is available, it adds to the cost of production.  The last ten per cent of output often costs many times more than the first ten per cent of output, but this fact was ignored in the drive to meet the targets on which the plan was based. Indeed to refuse to produce the last ten per cent of output not only deprived other enterprises of their inputs, it also invited accusations of sabotage. The whole system was deranged by quantitative planning.

This lack of economy became endemic. Throughout the history of the Soviet Union, and despite the price revisions, prices remained subjective. Prices were manipulated to regulate the rate of exploitation, they were biased towards heavy industry and they favoured strategic areas of the economy. They were a planning tool rather than a reflection of real costs. Planning remained based on material balances and prices trailed this process. While products moved forward from extraction to production, to wholesale and finally retail, the rouble flowed backwards to compensate the various spheres of the economies, directed by prices that were planned instead of being connected to actual labour times.

So regardless of cost, enterprises had to meet their targets. They could not refuse to accept the inputs from other enterprises even if they were of inferior quality. Much of their time was spent trying to unpick defects. It was not the centralisation of planning that lay at the heart of this rise in the cost of production, it was quantitative planning, the absence of an authentic pricing system to guide these decisions. It was not the inability of GosPlan to match inputs and outputs (which they were good at) which was ultimately to wreck the economy, it was the failure to economise on labour that squandered the surplus of society.

This process accelerated as the pool of labour dried up, as production became increasingly sophisticated, as the technical requirements became more demanding.  And so this statistical approach to planning became increasingly obsolete. It held back production. While recognising this growing problem, and recognising that they were falling further and further behind the major capitalist economies, the bureaucracy found itself helpless. As we have seen, profitability was counter-productive, taxation was no substitute and honest accounting was out of the question.

Moreover, in the presence of profits, or margins of any description, quantitative planning thrives. It thrives because quantitative planning sets in motion a greater quantity of labour and therefore surplus labour. The result is more profit, not less; but at the expense of restraining improvements in the quality of production.

Financial planning like transparent pricing is not an option. It requires a democratic society devoid of sectional interests and antagonisms and it requires a committed working class. This is the opposite of the society that existed in the USSR, where the bureaucracy hid its parasitism through false accounting, where individual bureaucrats lied about their own circumstances and even sabotaged one another’s efforts in order to advance.  Economic planning required the removal of all the shadows behind which the bureaucracy hid.

The point has been reached where it is worth summing up. Labour times can never be ignored. In a capitalist society they do not appear to be the determining factor because they operate indirectly through the law of value and are therefore disguised. However they impose themselves through their effect on the rate of profit.

In the Soviet Union, Stalin and later the planning authorities wilfully ignored labour times. Stalin’s use of inflation was designed to extract a surplus product from workers by means of impoverishing them. Later, the planning bodies applied arbitrary and manipulative prices to products in order to satisfy the needs of the plan. Pricing remained subjective and was never tied to actual costs of production; they never represented weighted average labour times. While the bureaucracy sought to ignore labour times, labour times did not ignore the economy, plunging it into the abyss.

So we ended up with a pretend economy. The planning bodies pretended to price. They pretended to pay the workers with roubles that could not be spent. Workers pretended to work. What was surprising is not that the system failed, but that it took so long to fail.

 

PIECE RATES ARE AN EXTENSION OF STATISTICAL PLANNING.

Under capitalism, piece rates are resented and fought against. One of the earliest struggles of the trade union movement in the 19th Century was to abolish piece rates in favour of being paid for the hours worked. This reduced the pressure on workers and prevented the bosses withholding payment if the piece could not be finished through circumstances outside the control of their employees.

It was predictable that Stalin would copy the worst practices of capitalism. He championed the introduction of piece rate payments, whose most grotesque form was the Stakhanovism movement.  This amounted to statistical planning at an individual level. Set the number of pieces and, if that is achieved, raise the target. It was bound to fail.

It failed because it gave rise to sectionalism. It focused one’s efforts on one’s own target without regard to the effect on anyone else. When one worker is forced to increase his or her efforts it has unpredictable effects, as the Stakhanovism movement revealed.  They could only meet their extravagant targets by being helped surreptitiously, by having access to the best materials, by cannibalising equipment, by producing shoddy goods. The net result, when viewed from the perspective of the economy as a whole, was an increase in the cost of production in labour time through the waste of labour time.  Once this became clear, the project was quietly killed off.

Piece rates give rise to inevitable sectional interests. It leads to waste and resistance from ordinary workers. Trotsky is to be criticised in supporting their role in planned production. They are coercive and have no place in a socialist society. Socialism calls for better work, not harder work; collective effort, not individual effort.

 

A SHORT NOTE ON STATE CAPITALISM.

In passing, we need to deal with the ‘state capitalist’ theory of the Soviet Union. Although Tony Cliff considered himself a Marxist theoretician, this theory has little to do with an understanding of capitalism, or with the methodology developed by Marx. In outline, it holds that the USSR was a single or monolithic capitalist corporation owned and controlled by the state, which competed with the rest of the capitalist world through the arms race.

Marx on the other hand was adamant; capitalism could only exist as many capitals (companies, corporations, groups of producers etc) owned independently. Once it ceased to be many separate capitals and became a single capital, it ceased to be capitalism. Why? Because production would no longer be organised around the exchange of goods. In short it would no longer be generalised commodity production. There would be no purchase and no sale, therefore there would be no capitalist social relation resulting in surplus money – i.e. profit.

And as we have seen, where there is no exchange, there is no unequal exchange, and without unequal exchange no dynamic profit motive. Furthermore once you abolish exchange, profit can no longer direct investment from areas of low profitability to areas of high profitability, as these too are based on divergences between exchange values and market prices. The central core of Volume 3 of ‘Das Kapital’ is devoted to the transformation of values into market prices through an understanding of the forces and movements that govern the divergence of prices and values.

The theory of state capitalism is therefore a repudiation of Marx’s understanding of what constitutes a capitalist economy. Worse is to come. Having failed to locate a market within the USSR (though barter was rampant), Cliff alights on competition between the USSR and the rest of the world, particularly the USA, in the form of the arms race. The arms race which exploded out of the antagonism between the different property forms is now used to equate the forms. This is not economics, this is sleight of hand.

So let us compare two arms races. In the USA there are currently 161 arms manufacturers, some large and some small, producing weapons for private individuals. The hand gun/rifle industry is an industry like any other, distinguished only by the fact that it embraces a particularly nasty use value that takes life. All these various guns are distributed between, and displayed next to, each other in gun shops across the country. These guns are commodities, sold for money. As in every other industry, changes in the prices or capabilities of certain guns impact the rest through competition. Capital flows to, and from, this industry like any other, governed by the rate of profit. To be sure, were there to arise a moral revulsion against owning guns, such that demand plummeted, profitability in the industry would collapse and capital would flee from this industry to other more profitable ones.

Now let us look at Cliff’s version of the arms race. The arms produced by the USSR did not enter the realm of distribution. In other words they did not sit alongside arms produced by other countries in shops or warehouses where they could compete, be sold, and where money could act as the medium to distribute profits. These guns may have been indistinguishable from those sold in gun shops, but they were not commodities. When the manufacturing process of a Kalashnikov changed from forging to stamping, more than halving the cost of producing one, it had no effect on the price or the supply of the American M14 or M16 rifles. The closest these guns ever came to competing was the exchange of bullets in the hands of opposing armies in South East Asia.

Arms produced for the capitalist state, for example the USA, are always a special case as they cannot ever be used to expand production, thereby enriching society. Here there is only a single transaction, the purchase. The state purchases arms for use, not for resale. Money (taxes) goes out and no new money ever comes in.  So arms spending is seen for what it is: a burden on society (through taxation). It clearly was identified as such in the USSR, where the economic pressures to match the destructive power of the USA and NATO helped buckle the economy. Far from being a source of profit in the USSR, it was a source of losses to the rest of the economy, so why choose it as the focus of your drive to compete in the world economy? There was therefore no capitalist imperative in the USSR to engage in the arms race, just the pressure to survive in a hostile capitalist world.

The only virtue of the theory of state capitalism, is that it allowed the various organisations that supported it to disassociate themselves from the USSR and evade the consequences of its collapse. In their eyes, the only thing that happened was a change in the form of capitalism in this part of the world.  Cliff’s theory of state capitalism is not only wrong, it is an impediment to understanding how and why the economy in the USSR collapsed.

 

SOCIALISM VERSUS A DERANGED SOCIALISED ECONOMY.

In any society where the labour of the individual becomes part of the labour of society, that labour assumes the form of a cost. And that cost is an expression of socially necessary labour times.

In simple commodity production, which preceded capitalist commodity production, competition enforced this necessary labour time. Once the same commodity was produced by a number of independent producers in a given locality, say by members of a town guild, a single market price was established over time. This single price was the average for all the producers, as only the weighted average price multiplied by the quantity of commodities produced, could add up to the total labour time expended on their production by these different producers.

Competition enforced this price and changes in the average labour times altered competition. Producers who took longer received less money for their efforts and those who produced in less time received more money for their efforts. The result was that competition forced less efficient producers to work harder and more efficiently by driving them towards the average. Competition had a homogenising effect on labour times.

In capitalist commodity production, which is an immeasurably higher mode of production, competition still enforces the rule of socially necessary labour times. Within an industry, more productive companies earn more profits and less productive ones earn less profit. If a company’s labour time rises so far above the average that it no longer covers its cost price, let alone makes a profit, it goes bankrupt. The real difference between simple commodity exchange and capitalist commodity exchange is that the movement of capital causes prices to diverge from values, which leads to unequal exchange being the norm. This makes it more difficult to appreciate or observe the impact of socially necessary times and changes to them.

The point we are concerned with here, however, is an entirely different one. Under capitalism, efficiency and productivity are driven by competition, that is by an external coercive force or compulsion which cannot be ignored. In a socialist society this external compulsion ends. It is replaced by a voluntary and co-operative discipline based on the self-interest of the worker.  Due to the abolition of classes, this self-interest translates into a co-operative interest. It can be summed up as not wasting our labour time.

The expenditure of labour is a cost to the workers who expend it. Workers give of their time and are rewarded by their product. No worker therefore has any interest in wasting their labour time or that of their fellow worker. Quite the contrary, they have every interest in reducing their labour times while preserving the quality of their work. That way they are rewarded both by lower prices and a reduction in the working day.

They do not need a manager to whip them into shape, as happens under conditions of exploitation, where the purpose is not to benefit the worker but the exploiter. This is exactly what happened in the USSR with the result that workers worked mechanically and indifferently.

Secondly, as Marx points out in his ‘Critique of the Gotha Programme, in a socialist society workers own the output of society and agree democratically and collectively how much to deduct from this social product for new investment, care for the elderly and infirm, health and insurance provisions etc. Now mark, this is a deduction. In the USSR these elements took the form of additions. Exactly the opposite of what should have occurred.

It is not a question of one or the other. The difference is crucial and is accounted for by who owns and controls the social product. In the USSR it was clearly not the workers. To separate workers from their product the first thing the regime did was under-price the output of their workers. Planned prices only covered the wage fund plus a few bits and pieces. So workers had only access to a small part of what they produced.

Then in order for the bureaucracy to appropriate the rest of their labour, they added taxes and profits. Funnily enough this was completely different to capitalism. Capitalism, for the first time in history, did not use taxes as the main lever to extort a surplus from the producers.  The surplus in a capitalist society is appropriated through the act of exchange, at the moment of sale when the surplus labour of workers is converted into profits. The bureaucracy, which did not own the means of production as capitalists do, instead had to rely on their monopoly of state power to suck in this surplus. That is why it took the form of taxes, and in this regard, this mode of extraction, had more in common with feudalism and even slavery, than it had with capitalism. A lesson our state capitalists have yet to absorb.

 It is now clear why we had these additions. The undemocratic addition of taxes and profits (behind the backs of their workers, so to speak) enabled the bureaucracy to gain control of the surplus of society. Furthermore, by manipulating the level of taxes and profits, they regulated the rate of exploitation of their workers.  So what appears at first sight to be an innocent alternative (to deduct or to add) really reveals an entirely different set of social relations, one where workers are emancipated and the other where they are dominated by a hostile bureaucracy; one in which they own the social product, the other where they are alienated from it.

But we need to go further. All these additions led to fictitious prices. In order to blind workers, the bureaucracy itself was blinded when it came to planning financially because of its imbecilic pricing methods. Secondly, these margins also distorted economic behaviour. If the margin and its yield is the primary source of revenue for the bureaucracy, then its size must be preserved.  This, as we have already analysed, encourages quantitative production at the expense of qualitative production because any improvements in productivity reduces the base over which these taxes and margins are calculated. The same margin applied to a smaller base, yields fewer roubles. For example, a cost base of R1000 and a 20% margin yields R200 whereas a cost of base of say R800 yields only R160, a loss of R40 to the bureaucracy.

Margins, both tax and profit, have no role in a socialised economy. They represent the parasitism of the bureaucracy and their need to extract a surplus from their workers. As such they presented an obstacle to the proper functioning of a socialised economy. They were disruptive and ultimately fatal.

In a truly socialised economy, prices would reflect actual costs of production in the transitional period. More precisely prices for individual products would be the combination of weighted average labour times newly added, plus the cost of the means of production used up (wear and tear of equipment, materials and energy used up) in the production of these products.

Weighted average labour times are important. If there is a preponderance of efficient factories, the weighted average will fall below the simple average and, if there is a preponderance of less efficient factories, it will rise above the simple average.  Assume a situation where revolution breaks out in the most advanced capitalist countries first and then spreads to less advanced countries where productivity is lower and costs therefore higher. As the production of these higher cost countries is incorporated, it will cause a rise in the weighted average and therefore a rise in prices. Conversely, if the revolution spreads from the less advanced to the more advanced countries, prices will fall.

The price of a product is a combination of the labour newly added, the materials and energy consumed and the wear and tear on the machinery/equipment used. The question is posed, how to cost this wear and tear? Do we do so on the basis of what it cost to produce at the time, or what it will cost to produce when the machine is worn out? The answer is really simple; we need a method which allows us to calculate accurately the effect on prices resulting from proposed future introduction of any new technique of production.

Under capitalism wear and tear is based on replacement cost. This is done to account for the depreciation of money (inflation). If this were not done, the capitalist would end up with insufficient money when the time came to replace the worn out machinery and equipment. However under socialism, where there is no depreciation of money, wear and tear will be based on historical cost. This will allow us to calculate accurately the benefit from introducing a new technique of production through its impact on prices because we will be comparing the old with the new by means of a stable or fixed currency.

There is a final aspect of pricing we need to deal with. As we said, under capitalism, competition has a homogenising effect on labour times as it eliminates less efficient producers. Had the Soviet Union had an objective pricing mechanism, one which was indissolubly tied to actual costs of production, rather than loosely tied to cost prices or, at worst, just made up, the planners would have been guided by efficiencies. If the imperative had been to reduce the weighted average price of every product, it would have been clear that this required a conscious and organised effort to progressively replace the less efficient producers, beginning with the least efficient first. This is not only the quickest way to reduce the average price of that product but also to boost production.

This would have replaced quantitative production with qualitative production; it would have replaced physical targets with cost effectiveness; inefficiency with efficiency. It was not to be. The parasitism of the bureaucracy meant that production based on actual costs could not be allowed lest it shine a blinding light on their appropriation and control of the surplus of society.

We cannot take our leave without a brief word on the role of money in the transitional period. As we have said money is reduced now to means of account. But, even here, money in the transitional period will have undergone an alteration. It will no longer be a token, or more precisely a symbolic token. It will no longer be based indirectly on a weight or quantity of another commodity, be it conches, beads, silver or gold. It will be based directly on universal labour time. Once it assumes this standard it retains this standard, so it is able to measure individual labour times throughout the world economy.  In this sense it is no different to a metre or a kilogram which remains unaltered through time.

The bureaucracy in the USSR sought to ignore labour times but labour times did not ignore the bureaucracy. By denying the role of labour time in production the bureaucracy was unable to economise on it and therefore grow their economy. Behind all human development lies the growth in labour productivity or, what is the same thing, the ability of humans to harness greater and greater natural forces to effect increasing change. And with this eternal social law in mind, we bid farewell to the deranged economy of the USSR which was as far away from a truly socialist economy as night is from day, and return to the capitalist world economy and its contradictions. The Party bureaucrats now turned capitalists will find their problems have not ended, but are just beginning.

 

 

CHAPTER THREE. CAPITALISM AND THE WORKING CLASS.

Marx describes modern capitalism as social capital, no longer private capital. This corresponds to a world economy dominated by global corporations. Here we have capitals comprising many billions of dollars and combining the labour of tens of thousands of workers. With fewer but larger corporations, investment decisions have far greater consequences on the market than hitherto. Consequently these corporations seek to reduce the effect of the invisible hand through huge expenditures on market research, by manipulating the market or even by creating a market for their products where none existed.

The size of these corporations, the size of their investments, and the time it takes to implement them, increases their vulnerability to the market. What they crave above all is market stability. Hence they draw closer to the state, encouraging it to create certainty in a world of uncertainty. The primary levers deployed by the state to achieve this end are fiscal expenditure and, more importantly, monetary/credit policy.

So despite their declared fidelity to the market, they are forced to adopt methods of planning. Their market research seeks to determine not only market needs but the size of the market. The boards of directors are really there for only two purposes, to act on these decisions and to control their workforce. Once agreed, plans are drawn up and appropriate budgets are set in place to ensure the necessary finance is available to set production in motion. All kinds of statistical methods have been developed to achieve these results.

More often than not even the most informed decisions and detailed plans are upended by forces outside their control, such as investment decisions they are not aware of, or changes in global economic conditions. The result is wasted investment, over investment or lack of investment. The shipping industry is a good example. Generally there are too few ships at the beginning of a new period of growth. Shipping rates rise. More ships are built. Then the period of growth stops. But because ships take a number of years to commission and build, there are now too many ships.

Like the seas on which these ship ride, the same wave at an earlier stage of economic development does less damage to corporations than at a higher stage of development. Higher stages of development introduce investments that are larger, more complex, take longer to bring on stream, so are more susceptible to changes in market conditions, and hence they bear the potential for larger losses. Capitalism therefore makes its own case for planning. The more economies develop and the more complex they become, so more urgently grows the need for stability. Such stability can never be achieved in a market economy.

Despite itself, capitalism is dragging society into an era of collective decision making. Planning is the conscious decision to allocate the economic potential of society in order to satisfy human needs. Planners do not make decisions about what to produce or how much, as happened in the Soviet Union. All they do is execute decisions made by consumers. The purpose of production has become consumption.

Under capitalism, the most successful corporations are those closest to the consumer; those who best understand their tastes and needs and who best satisfy them ̶ both through product formulation and service.  In a socialist society it is the consumer who decides and the planner who implements. In a capitalist society the purpose of production is to accumulate capital; in this sense it is little different to the acquisition of herds at the dawn of class society, except that in the case of capitalist accumulation, society’s productive potential is enhanced. In a socialist society, production for the first time is geared purely to satisfy society’s needs and wants.

This unity of production and consumption is expressed through planning. The media, the internet etc. will make society aware of its economic potential, what is possible, what is new and what the new will cost. Consumers can then allocate what part of their income they wish to devote to any product. These decisions can be conveyed via the internet and aggregated by the planners. Production can then be adjusted to satisfy these instructions. If nothing else, capitalism has laid the material preconditions for planning via the electronic revolution.

So, instead of having an orchestra where one player changes the rhythm which forces the others to follow suit, only to have another player change the rhythm almost immediately, resulting in equilibriums which are only momentary, we will now have a conductor. Instead of the discord of capitalism, we will have the harmony of socialism.

Does that mean innovations will be stifled? That question presupposes capitalism to be highly innovative. This is only partially true. Capitalism is admittedly society’s first systematically innovative society. Only useful products can be exchanged, so throughout the history of capitalism there has been a frenzy to find more and more useful products capable of being exchanged.

But here lies the contradiction. Whereas only useful products can be exchanged, the apparent corollary is not true ̶ namely that useful products are always exchanged. Under capitalism, the usefulness of a product is always viewed through the prism of profitability. If useful products cannot be sold for profit, they are not produced, but ignored or set aside. Below we cite a number of examples where use values are suppressed, ignored, distorted or simply misused in the name of profit.

  • Many industries stifle or frustrate innovation to protect themselves, as in the case of the energy industry.
  •  Many companies ignore products that do not fit with, or are in conflict with, their mainstream activities, for example IBM and the desktop computer.
  • Many much-needed products are not developed, such as new generation antibiotics, because the market is not large enough (despite the fact that we are only an epidemic away).
  • Patents and patent wars benefit the lawyers not consumers, raise prices and stifle new products.
  • Much innovation is spurious and extreme, driven by competition, like higher heels, films, sports etc.
  •  A lot more is devoted to developing luxury goods out of reach of the majority of society.
  • Still more innovation goes into making things look better or taste better regardless of the damage it does to the consumer.
  • Product cycles are accelerated to make for early obsolescence.
  • A significant proportion of new products are developed by the defence industries whose secrecy delays their introduction for years and even decades.
  • The search for new use values invades every corner and aspect of private life.
  • Innovation and science is abused and misused, as in the case of the pharmaceutical industry where drugs are developed not for cures, but for control of medical conditions, in order that the same tablet can be sold over and over again, month after month, year after year.
  • Innovation is turned against society. The electronic revolution promised a shorter working day and more leisure. In the hands of the capitalists, computers led to unemployment, more intensive work and the export of jobs to low cost countries that could be tightly controlled by head office through the internet.
  • Finally, there are the strategic needs of society out of reach of the corporations, in particular the three planetary priorities: large scale desalination, the chemical storage of electricity and reversing the rise of CO2 in the atmosphere.

The list goes on and books have been written on this subject. Capitalism was, and remains, only relatively innovative. Having society, rather than individuals deciding on what to produce, will make for a more systematic approach to innovation. Production for use rather than profit will end the distortions and misallocations of effort in the field of innovation.  The job security afforded by a socialist society will end the practice by scientists who resist the new in order to protect their jobs by defending the old.

Production for use rather than profit will make innovation more accessible not less accessible. It will not only channel innovation effectively and without duplication, but it will do it humanely and with kindness. A socialist society is one where we work for ourselves by working with each other, providing the conditions for each and every one of us to have a choice over what is to be produced.

 

THE MARKET AND DEMOCRACY.

The USSR provokes three fears. Firstly that planning cannot work. Secondly that only the market can guarantee a democratic society. Thirdly that the market corresponds to human nature and is a source of individual advancement. Having dealt with the first concern, we can now address the remaining two.

The emergence of generalised commodity production did introduce a revolutionary period which swept away the political oppression and interference of the landed gentry. The market does lend itself to democracy. The diverse ownership of commodities and their exchange demands formal equality between buyer and seller. The law has to treat both equally, and give neither side a political advantage. This even handedness makes the rule of law appear independent of the market participants, with no one being allowed to operate above it or outside it.

The establishment, presence and tolerance of markets in towns required the right of assembly, while the freedom to advertise and market one’s wares inspired free speech. The growth of societies based on the market in turn transformed the political superstructures. It led to an independent judiciary and parliaments that were ultimately dominated by the owners and producers of commodities.

Of course these parliaments at first represented less than 20% of market participants, being limited to the propertied class. It excluded the biggest segment of the market, the owners and sellers of labour power, i.e. the working class, including women workers in an out of the home. Long struggles ensued to win the universal franchise and to open parliament to representation from all the classes. In the end the universal democracy claimed by capitalism owed less to the largesse of the rich than to the tireless political activities of the working class, activities that were often brutally repressed.

However parliamentary democracy is limited by the division of society into a minority of capitalists and a majority of workers. Most of the decisions by which the worker is ruled and disempowered, take place outside of parliament. Parliament does not hire and fire, it does not decide wage rates, it does not decide who will work and who will not, what will be produced or which factory will open and which will close.

Those decisions are taken in the head offices of the corporations by their board of directors. These head offices are as far out of reach of their employees, as the palaces, feudal courts and temples were to the serfs and peasants. When consultations do take place, their purpose is to disarm any opposition to the decisions already made by these elitist boards of directors.

Despite formal parliamentary democracy, everyone knows that there is one set of rules for the rich and one for the poor. The Chief Executive or Managing Director of a company or bank who ruins it is fired with a golden parachute ̶ a huge sum of money in lieu of lost wages together with a guaranteed pension. A worker who does even one thousandth as much damage would be sent to jail for many years. Claimants who abuse the benefit system are left to starve while the billionaires and millionaires who scam the tax system continue to enjoy their numerous homes and yachts.

However it takes a recession to strip away the superficiality of bourgeois parliamentary democracy. The predicament facing every major electoral party, be it Labour, Socialist, Social Democratic, Christian Democratic, Liberal, Conservative etc. is this: how to carry out the orders of the tiny minority who own society, while pretending to represent the majority of electors, or at least those who bother to vote. This masterful deception is only feasible during periods of economic expansion and even then only partially.

But during periods of recession or economic crisis, when it is no longer a question of making concessions, but of taking them back, this whole balancing act falls apart. Electoral parties abandon their manifestoes, betray the electorate and quickly become discredited. If this results in voter apathy and depoliticisation, so much the better for the establishment. This then is the benefit to the capitalist class of parliamentary democracy: the channelling of political power into the hands of a few hundred MPs who meet in a Palace and cannot be recalled or held personally or criminally accountable for their actions.

At the level of class struggle, the lack of democracy is even more apparent.  Every picket, every march draws the attention of the state, who allows it to proceed only if it is tightly controlled and therefore ineffective. If workers occupy a factory or hospital that is to be closed, they are treated as criminals, regardless as to whether or not that factory or hospital is vital to the community. Furthermore, they are treated as trespassers, despite the fact that it is their past and present labour that produced these factories and hospitals. The legal thieves, the capitalists, are not persecuted for this vandalism, for this crime against the community, but exonerated in the name of competition.

There can be no real democracy in a society that is divided into a minority who own but do not work, and a majority who work but do not own. In such a society the minority will seek to rule through consent, through parliament. When that fails, as it does during periods of extreme economic distress, they will resort to what an oppressive minority always does, violent suppression. Workers will come to rue the day they supported the ‘War on Terror’, when these laws and apparatuses are turned on them (as was always the intention).

Communists do not seek to abolish the gains of bourgeois democracy but to add to them, to complete them. We seek to make democratic that which is out of the reach of the vast majority of the electorate under capitalism: control of the economy, control of the surplus of society and its management in the interest of society as a whole. We seek to elevate each and every worker to the level of managing director.

The right to vote, on its own, is meaningless, as black South Africans learnt in the 1990s. They could not turn their vote into cash, or use it as a deposit on a house or swap it for a job.  Everything had changed and nothing had changed. The vast majority remained as before: poor, desperate and unemployed.

There is only one real test of a true democrat and it is this: “Do you or do you not support the abolition of private ownership of the means of production?” Everything else is irrelevant, for without the abolition of private property in the means of production, how can there be true and lasting democracy? As long as a minority exploits the majority, bourgeois democracy will be superficial, episodic, and a sham.

A socialist society must enshrine multi-party democracy provided no party supports the return of private ownership of the means of production, itself a thoroughly undemocratic act. The working class is a class that embraces the majority of society. Its sheer size means it is riven by sectional divisions, especially that of skill, but also by sex, age, race and nationality.

Within the overall class interest, special interests will exist with differing priorities. Some sections of society will campaign for the speediest abolition of the difference in skills, for the advancement of women, some will campaign for more funds to be devoted to repairing the planet, others for the rapid advancement of the less developed economies and so on. A single workers’ party should seek to represent these diverse views, but if it cannot, these groups should be able to form factions or even parties to make their voices heard and to negotiate.

No one can say in advance what political forms will emerge. What can be said is that a democratic socialist society based on majority rule, has to be a lively place for politics.  At the very least it will transform television from the opiate of the masses into an exciting medium to both inform and give voice to debate from every corner of society.

The workers’ state that will replace the bourgeois state will have to assimilate all these demands. It will represent the principle of equal right within an unequal working class  ̶  courtesy of the legacy of capitalism. As soon as the socialist economy is flourishing and the protection of collective property is no longer a concern, as soon as inequality within the working class vanishes, so the state no longer serves a purpose. It withers as its role of protecting and arbitrating vanishes, leaving only its administrative function. It thereby ceases to be a state.

It ceases to be a state in a double sense. Collective property itself is a mere legal transitional form. When the means of production and the land are owned by all, it is no longer owned by anyone. It thus ceases to be property and it therefore no longer requires a state to enforce property rights. The state, which was born out of the formation of property in land and the instruments of production, ends its days through the act of dissolving property in the means of production and in the land itself.

Democracy has put an end to itself by putting to an end the inequality that gave rise to it. In its place will emerge newly emancipated individuals who no longer distinguish their needs from the needs of others. No longer will members of society be connected by the things they produce or want, but by direct human and personal ties. A harmonious and egalitarian community will have been established.  As Marx said, this will represent the birth of true human history, the dawning of a new age.

 

 

THE VAST MAJORITY OF SOCIETY ARE WORKERS.

Finally let us deal with the view that the market encourages and rewards individual effort. As the saying goes, ‘We are hardwired to buy and sell, and inside each and every one lurks a hidden trader.’ In other words capitalism describes our being. This nostalgic view may be romantic but it is completely out of touch and irrelevant.

It is now two hundred years since the introduction of the factory system which secured the future of capitalism. In those two hundred years there has been an immense concentration and centralisation of capital. Today we are surrounded by huge corporations and banks. Within most countries four or fewer companies dominate each industry, controlling at least 80% of output and trade within it.

On a world scale, most industries are dominated by fewer than twenty corporations. Some industries such as aerospace, mobile phones and computers are dominated by fewer than ten corporations. It would be accurate to define this state of affairs as ‘international monopoly capitalism’. Most of the world’s Research and Development takes place in these companies. The swarm of smaller companies that circulate around these corporations are beholden to them.

Of course it is true that these large companies become less nimble and more cautious as they grow larger, that reporting to Wall Street or the City of London every quarter discourages long term strategies and leads to cautious and incremental improvements. Nonetheless their size makes possible economies of scale, the streamlining of production and the ability to harness the latest technologies.  These technologies often involve huge outlays, many running into billions of dollars, and are out of reach of the smaller companies.

The wheel of history cannot be turned back. Small is not necessarily beautiful. These giant companies unite hundreds of thousands of workers in common effort. They teach humans how to combine and co-operate. They tend to be much more productive than their counterparts in smaller companies. We should not confuse ownership with size, and therefore identify the problem as being size.

Moreover, it is easier to expropriate handfuls of giant corporations than tens of thousands of smaller enterprises. It is easier to build an integrated world economy on the back of these multinational corporations. Indeed these corporations provide the best school for internationalism, because the workers of the different nations will have to learn to unite if they are to stand up to the attacks of these world-sized companies.

Finally let us address the myth of social mobility. Here we may consider the legendary ‘American Dream’. For the majority of North Americans, this dream is really a nightmare. As with the lottery, only the winners are highlighted and the millions of losers ignored. Most Americans are mired in poverty with no way out.

The fact is that capitalism breeds failure not success. In order to maximise profit, capitalism has to reduce its paid costs of production. It analyses every labour process in great detail with the purpose of breaking it down into the maximum number of simple and unskilled steps. These are then held together by the minimum number of skilled or intellectual steps.

By reducing the labour process into a large number of unskilled tasks, production can be carried out by cheap and unskilled workers. Hence the vast majority of jobs in the world continue to be repetitive and unimaginative, while only a minority are skilled and stimulating. Capitalism and its quest to reduce the paid costs of production, therefore necessarily creates a society based on failure, due to its need to trap the vast majority of society in low paid unskilled work.

Capitalism covers this truth with the myth of education. Education is presented as granting each person the ability to secure skilled work, of levelling the playing field. But education does not alter the mix of skills in production. If too many skilled students graduate, creating a surplus, they have to accept menial jobs for which they are overqualified. In reality the primary purpose of compulsory education is to prepare the next generation of entrants to the labour market.

The indispensable condition for this is the separation of production and education. Production encourages collaboration whereas compulsory education encourages competition. Capitalist education creates the environment which allows the employers, via the exam system, to divide the youth and force them to compete with each other. The isolation of exams mimics the time when individual students will appear alone in the labour market, to sell their labour power. This form of education thus makes it easier, not more difficult, to consign the next generation of society to a life of failure, by destroying any bonds of solidarity between them.  And all this is done under the veneer of equality of opportunity.

Since the 1980s and the defeat of organised labour, the rich have got richer and poor have become poorer. The top 200 billionaires own more than the poorest 2 billion inhabitants of this planet. The rich have remained the rich and the poor have remained the poor. Indeed such is the lack of mobility that we may define the upper crust of society as a new aristocracy whose children are princelings, destined to monopolise the best in society, be it education or job opportunities. The privileges that surround them are akin to the old castle walls and moats that, in previous societies, protected the rich from the poor.

Worse, the combination of growing inequality and tax dodging has a deadly effect. With wealth flowing into fewer hands and these hands hiding tax, governments are increasingly deprived of revenue. The result of this tax strike by the rich is a savage attack on the poor as services are culled and help is withdrawn.  The super-rich are now extraterritorial. There financial affairs are truly international, untouchable by any national jurisdiction or tax authority. Yet one more reason for workers to think and act internationally.

The foundation for this lack of mobility is class. The apologists of capitalism never tire of clouding this class reality in order to obscure class divisions. In response we declare, a worker is one who works with means of production owned by another. Forced to sell their labour power, they either earn a wage, a salary or a commission. Using this objective criteria and not individual perceptions, it becomes clear that the vast majority of society are workers amounting to over 80% of the population. The fact that they may work in different occupations, different environments, enjoy better pay and have different levels of skills, is unimportant. They belong to a class of dispossessed producers whose ability to live depend on their ability to acquire work from others.

It takes a recession to blow away the illusions over class. Mass unemployment and the fear of it, reveals to every worker their vulnerable position in society. It wipes away their pretensions. Over the years the outlook for the working class in the developed world has worsened as competition from low wage countries has intensified. For these hundreds of millions, revolution is not an option, rather it is a necessity if they are to survive and thrive.

 

IN CONCLUSION.

Since 1970 the world capitalist economy has suffered six minor and major recessions. During this time it has been supported by the collapse of the USSR and the opening of China to the world market. Above all the defeats of organised labour in the 1980s have shifted the balance of forces decisively in favour of capital.

The twenty five years since the fall of the Berlin Wall has been a period of reaction or, as it has been more popularly called, neo-liberalism. In order to free the market, many of the democratic gains won by the working class have been rolled back. While capital has become more international, the trade unions remained fractured by nationalism.

One of the features of this period has been the growth of religion. Up to the present, the acceptance that there is no alternative to the prison house of capital has hung heavily on the world. The rise in religion cannot be explained otherwise than as an abandonment of hope. Countless millions have sought to escape the economic misery and the predicament they find themselves in, not in politics, but in the anaesthetising embrace of religion.

There is no final economic crisis that will topple capitalism. The general law is that the more capital develops, and with it the composition of capital, the more capital that has to be destroyed in order to restore profitability. This means that the working class is called upon to make larger and larger sacrifices at the altar of capital. The sacrifices made to date have almost gone unnoticed by a media totally dominated by the rich. One fact spells it out. In the world’s leading economy, the USA, real wages are stuck at their 1973 level. While US workers’ productivity has more than doubled since 1973, not one cent of that increased productivity has ended up in their pockets.

But even this depression of wages has not been enough. Not only has capital virtually bankrupted its workers to survive, it has now bankrupted its own governments. They have been forced to bear the losses suffered by the banks since 2007. The world economy, whose heart almost stopped a few years ago, remains in intensive care dependent on monetary support by the central banks.

The length and extent of this trammelling of the working class is unprecedented and it is still without an end. The future facing workers in the developed world continues to be one of falling full-time employment, stagnating wages, rising taxes and decaying services. While the outlook in the developing world looks more promising, much of this growth depends on the Chinese economy.

The future of the Chinese economy is however just as murky as the smog that clouds Beijing and most of its other major cities. The fact is that the Chinese economy has still to complete the transition to a fully-fledged capitalist economy. China is an economy of two parts. One part is integrated into the capitalist world economy and being highly profitable, is a source of revenue for the state.

The second part ̶ mining, heavy industry, banking, local government, communications and infrastructure ̶ is a relic of the past. Here the capitalist social relation is not fully established. By this we mean the two part relation, which begins with a purchase and ends with a sale. In the state owned enterprises referred to here, the second exchange is often absent or modified. In its absence, goods are often exchanged for debt, there is therefore no surplus cash, and therefore no profits. Production here is not guided by profitability but by state commands, both central and local, and is paid for by credit issued by the state banks.

The expansion of credit need not produce a bubble, provided it is reinvested in profitable production, allowing future profits to repay the advanced credit. However, if it used to sustain private and unproductive consumption like housing, it produces a bubble and ultimately cannot be paid back. If it is used to promote unprofitable production or excessive production that cannot be sold for cash, it also cannot be repaid.

In the state controlled section of the economy, state sanctioned credit has generated unregulated expansion. State owned enterprises produce 50% of economic output but absorb 85% of all bank loans (cited by the US Congress report for 2009). This has resulted in overcapacity, overproduction, the squeezing of the private sector and of course the amassing of huge debts. False accounting masks the exact size of this debt mountain, as it does the actual growth rate of the Chinese economy. Tangentially the growth of credit in relation to output demonstrates that most new credit is being used, not for production, but to service the growing debt mountain. Credit is increasingly chasing its own tail.

However, unlike the USSR of the 1980s, the Chinese bureaucrats have a workforce that does work rather than pretending to work, and they have the advantage of a broadly based export industry, as opposed to being solely reliant on oil exports as Russia was then. Notwithstanding these advantages, there is a real possibility that soon indebtedness will overwhelm the benefits derived from the export side of the economy. The Chinese leadership understands the unsustainability of this drain on the economy and have made public their anxieties, but like their bureaucratic counterparts in the USSR, they seem powerless to act.

They are unable to act because the legitimacy of the self-styled Chinese Communist Party, itself home to countless millionaires and even billionaires, rests on its ability to expand production in order to create jobs and raise standards of living. This would be unachievable if they were to reign in the statist part of the economy. Secondly, although to a lesser degree, the bureaucracy’s power and corrupt income also derives from its control over this section of the economy.

To date the growing Chinese economy has helped prop up the economies in the developing economies. Should it stumble, it will precipitate economic crisis in these countries, which up until now have been the only dynamic part of the world economy. A world depression which has been avoided hitherto will have become a reality. It will mark the definitive end to the long wave of expansion set in train by the political changes introduced in the 1980s.

 

LET THE DEBATE BEGIN.

In the period prior to 2007 the capitalist class arrogantly thought they had finally triumphed over the international working class. They declared the end of history, that capitalism had won, that it was the highest expression of human economic activity. However, the most fundamental financial crisis since the Second World War has caused them to pause and consider just how insecure their economic system actually is.

It took an event as momentous as this financial crisis to reopen the debate over capitalism. This time the capitalists had no one to blame for their woes. There were no militant unions to point fingers at, no galloping wage demands and no overweening state.  Two decades of neoliberalism, of letting the market rip, had left the capitalist class ideologically naked. This was capitalism in its pure and ugly form.

Everywhere the weight of insecurity crushes the possibilities lodged in production; namely that society’s productive potential is sufficient to provide each and every one of us with a comfortable and secure life. In the USA the wealthiest 20% consume 75% of retail sales and the remaining 80% have to be satisfied with 25%. (President’s Advisory Panel analysis of Hybrid Sales Tax Bill) Redistributing this wealth from the top 10% to the other 80% would result in a doubling or even trebling of their living standards.

In addition estimates of the unpaid taxes in various havens is put at $32 trillion. Add in the $10 trillion lying unspent on the balance sheets of the world’s private and public global companies and the unknown sums lying idle in the banks, and there is enough unspent capital to finance hundreds of millions of new jobs overnight. If capitalism invested this idle hoard, it would create sufficient jobs to prevent workers being forced to migrate from country to country looking for work. Most workers would prefer to stay at home if there was work. Instead, immigration is dividing the international working class, fracturing it and encouraging workers to support immigration controls for their country.

Immigration controls are seen as a solution to the growing competition in the national labour market. But it is a false solution because it treats only the symptoms of the disease. The cause of the disease is the lack of investment internationally. Immigration controls are not a cure because they will not lead to increased investment, only to turning worker against worker as they compete for a dwindling number of jobs.

Globalisation is an aspect of this fall in the rate of investment. What little investment there is, is directed at the lowest wage economies. Production there expands at the expense of production in the higher waged economies. The resulting competition from these low wage economies helps drive down wages throughout the world economy. There is a race to the bottom.

So while investment is international, workers remain organised nationally. The trade union bureaucracy is not interested in building international alliances and helping to organise the workers in the lowest wage economies. Instead they are only concerned with protecting their privileged positions within their union.  Accordingly they join the patriotic chorus for more immigration controls and protection of the national economy.

This is the opposite of what is needed. Now more than ever workers need to raise their consciousness, to become internationalists, to realise their problems are shared with the workers of all countries. The solutions to the problem of capitalism are international and workers need to shake off the shackles of the nation state if they are to make history and free themselves.

Not only is capitalism stuttering, but there is also a growing awareness that most of the problems facing humanity cannot be dealt with by the system; that capitalism is the problem, not the solution, to the global crises facing humanity. First and foremost that means climate change. Climate change is not accidental. It is caused by the drive to reduce the paid costs of production in order to maximise profits. If pollution can be ignored, passed on, regardless of the damage to society or consequences for the future, it is not seen as a cost.

To be blunt, it is only when pollution or climate change has to be paid for that capitalism recognises it as a cost. This is not so under socialism where there is no distinction between paid and unpaid costs. In such a society pollution will be recognised for what it is: a collective threat to society that has to be dealt with immediately. Liberated from the shackles of private property and the need to maximise profits, a socialist society will be free to mount a concerted, orchestrated and mass campaign to reverse the damage industrialisation has inflicted on our home. Imagine the difference had the $4 trillion wasted on the ‘War on Terror’ been spent on reforestation and alternative forms of energy. Perhaps it is time to change our slogan from ‘Socialism or barbarism’ to ‘Socialism or climate catastrophe’. Capitalism could cost us the earth.

But it is not only the planet that is being polluted, it is our bodies as well. We face an epidemic of chronic diseases so beloved by the pharmaceutical industry: obesity, heart disease, osteoporosis, colitis, diabetes, cancer, depression, dementia to name a few. The inability to learn at the beginning of life is juxtaposed by rotting brains at its end. Society has been turned into a careless economic jungle where the corporations roam. In its undergrowth more and more life is trampled on. As society becomes more unequal, so illness accelerates.

It is time we ended the ten thousand year rule of private property that is now global. It is time we created an international society in which we all own collectively, thereby ending all divisions and competitive antagonisms. In doing so we not only set free the productive forces, but we end the threat of nuclear war. Through abolishing private property we end the competition over private property and the drive to acquire additional private property by alliances of national groups of capitalists that always and everywhere provokes and fuels war. War was and remains the intensification and extension of economic competition into the military arena.

The overture to the symphony of revolution is always sounded by intense ideological debate. Society is forced to consider and debate the way forward.  A society which can no longer provide for the bulk of its citizens, that promises a future of falling standards of living, where children will be poorer than their parents, has lost all its legitimacy and purpose for being. Once again the question of socialism can no longer be ignored.

It is time to make society fit for the human race. To take society forward and build on its gains. Of course we expect our critics to dismiss us as idealists fated to repeat history. Let us reply to these enemies of change as politely as we can: ‘Only idealists can change the world’ but idealists who are also scholars, not only change the world, they secure its future. And they do so because they have diligently studied the past. Understanding what happened in the USSR is not an obstacle to changing the future, it is a necessary condition for the successful and irreversible transformation of society.

 

Brian Green.

NEW FOREWORD January 2013

In the fourteen years since this pamphlet was written, the world has changed. This was to be expected. In particular, the consequences of unfettered (neo-liberal) capitalism, described in the original foreword, has led to the greatest financial collapse in the history of capitalism and subsequently to the greatest loss of production for over seventy years. However, tempting as it is, no attempt will be made to analyse the causes behind the present malaise of capitalism.

The severity of this economic crisis would have been much deeper had there been organised workers’ opposition to the job losses, factory closures, wage restraint, intensification of work and pension/benefit cuts needed to stabilise the economic crisis. The primary reason for this lack of opposition is to be found in the realm of ideology. In this sense nothing has changed in the intervening fourteen years. Workers remain ideologically disarmed by the events that culminated in the collapse of the Berlin Wall more than twenty years ago. And if we needed reminding of this, we need look no further than the abject failure to provide an economic alternative by the ‘Occupy Movement’, which attracted such deserved scorn from the supporters of capitalism.

Stalin and his legacy benefited the capitalist world in many ways. His crushing of the remnants of the revolutionary left in Russia ended the hope of world revolution. His ‘socialism in one country’ stripped of its rhetoric, was really a peace pact with world capitalism, which he upheld by sabotaging each and every revolutionary movement from China, to Spain to Cuba to South Africa. But his greatest gift to world capitalism, one which neither he nor Roosevelt nor Churchill ever foresaw, the unintended gift, was the economic collapse of the USSR and its satellites.

Not only did this open new areas of the world to capitalist exploitation, but more importantly its ruins were recast as the gravestones of socialism. Capitalism ruled unopposed and triumphant.

In many ways the last twenty years have been squandered by the left. For most of the left it was business as usual, which meant practical activity and commenting on current affairs. The strategic theoretical tasks lay untouched. This meant that when capitalism once again plunged into crisis, the left was caught theoretically unprepared for these momentous events.

When I wrote this pamphlet before the end of the twentieth century, I had hoped to spark a debate on the causes, dynamics and contradictions that had led to the collapse of the economy in the USSR. I recognised that the analysis set out in the original pamphlet was rudimentary. Nonetheless I believe it sufficiently insightful to justify it being republished. It is my hope that this time it can contribute to a new and more vigorous debate on the economic future of humanity at a time when confidence in capitalism has been thoroughly shaken.

No society can ensure its future except by improving the economic conditions of its citizens. Since 1980, at least in the older capitalist countries, every expansion has benefited fewer and fewer people, while every recession has impoverished more and more people. Inequality has subsequently grown. Today more and more layers of the working class see only a future of increasing immiseration, where they and their children become poorer and poorer.

This is a desperate and unsustainable state of affairs which should force workers, the vast majority of society, to consider their futures with renewed urgency. The objective conditions for intense political debate and the clash of ideas matures by the day.  If an arrogant capitalism repelled criticisms before 2008, now a humbled capitalism invites it. If Marxism is to be relevant it needs to be applied to the 21st Century.

 

 

 

 

 

 

 

 

A NEW NOTE TO OUR READERS.

Our readers may ask why we analyse capitalism here in such detail, as a prelude to examining the Soviet Union. The answer is simple. Without understanding how the profit motive works concretely in the capitalist mode of production – that it is rewarded by unequal exchange – no sense can be made of what was happening in the Soviet Union. Profitability under capitalism allocates investment and drives efficiency. It therefore puts the economy into the capitalist economy by systematically raising the productivity of labour.

As we will show, no such mechanism could be found in the Soviet Union. The adoption of the profit motive itself turned out to be counter-productive and helped destroy the economy. Up until now, the reason for this has not been found. However, the evident result was an economy without financial discipline where productivity stagnated and waste soared.

Two opposed conclusions can be drawn from this. Firstly the capitalist interpretation: that only the market drives efficiency. Secondly the proletarian interpretation: that workers have not only to abolish private property, but all relations of exploitation if the potential lodged in collective property is to be realised. In the end, exploitation in the USSR corroded the new property relations to the point that they simply collapsed. That is the overarching lesson to be learnt from the tragedy that befell the USSR.

Finally I would like to comment on the structure of Marx’s ’Das Kapital‘. Many critics have counterposed Volume 1 to Volume 3 in order to find contradictions between them and thereby dismiss Marx’s monumental investigation into, and critique of, capitalism. Volume 1 looks at capitalism in the abstract while Volume 3 looks at it concretely, albeit fragmentally. It is therefore methodologically incorrect, as we shall demonstrate, to counterpose the abstract with the concrete.

Today many fields of science embody abstraction, to which we may add without being criticised for so doing. We need look no further than the fields of biology or weather forecasting, which utilise computer modelling to capture the essence of specific phenomena. This always involves a degree of abstraction or simplification depending on the amount of computing power available. In the past the degree of abstraction had to be greater; today less so, as computers have grown more powerful. The result is a more accurate approximation of reality yielding better predictions. For example, weather forecasting has not only become more accurate and localised, it can look further into the future.

Marx understood the method of abstraction (simplification) nearly two centuries ago. He recognised that capitalism was a complex, living and evolving system that could not be frozen and analysed in a laboratory. He had to adopt the method of abstraction. There is no universal Satnav to guide this journey of simplification. Each subject throws up its own problems. The only way to proceed is to master the subject matter, and that requires systematic research as well as a familiarity with the pre-existing body of theory. It took Marx many, many years to arrive at the correct level of abstraction in order to begin describing the inner workings of capitalism.

The process of abstraction is the process of removing the more specific, superficial, temporary and complicating aspects of any phenomena. This is done to expose the most generalised or basic aspects of the phenomena in order to study them in their pure or uncluttered form. Only once they have been thus described and understood, is it possible to reintroduce the more superficial and specific forms in order to understand how they connect and interact with the more fundamental forms.

An analogy will explain this. Let us take the human face. There are seven billion humans and we all share a face. Incredibly each face is recognisable by being subtly different – that is by a variation in specific features. If we were to describe a human face we would not start by comparing specific differences, say noses or the specific shape of lips or even skin colour and texture, all of which vary fantastically.

Instead we would begin with all the features we share in common. So to distinguish human faces from other mammalian faces, we would need to look at the unique hair, forehead, eyebrow, eyelashes, eyes, nose, ears, cheeks, mouth, lips, philtrum, temple, teeth, skin, and chin that constitute the human face. (Wikipedia).  We all have human eyes, human foreheads and so on. Taken together they distinguish the human face.

If we were to generalise further to say that a face is always at the front of the body; that it contains the opening to the digestive tract and that it is the site for most of the sensory organs, our description would be true of all animal life, not only of humans. It would be an over-generalisation that would bring us no closer to identifying the human face specifically. It would serve only to distinguish animal forms from plant forms.

So the process of abstraction identifies all that is common to the human face while being unique to it. Once we have identified all these generalised features, we can reintroduce all the variations to these features that shape the individual face and which allow us to identify a specific person. So from the abstract face we move to the concrete face. Interestingly it is this methodology that has allowed the security police to develop face recognition software, first by programming computers to distinguish human faces from their surrounding background, then to become more precise in order to identify and match individual faces.

So too with ‘Das Kapital’. In Volume 1 Marx deals with capital in general. Variations are dismissed. Everything is average. Workers have average productivity, average working days and intensity of work; factories contain average amounts of means of production and utilise the same current techniques of production. In addition demand and supply remain in balance so that commodities exchange at their value. This allows for equal exchange so there is no divergence between value and price. This allows Marx to analyse the unique nature of the capitalist social relation in its pure form.

Of course capitalism does not work like this. The productivity of labour varies within industries, between industries and countries. Demand and supply are continuously disrupted by innovation, the flow of investment and the introduction of new products (‘must have’ use values). The class struggle results in higher or lower income for workers and thus changes in the balance of production. Oh, and let us not forget speculation!

The surface of capitalism is therefore very choppy indeed. So choppy in fact that one would become disorientated in no time if one were to try and analyse everything at the same time. So it takes Marx three volumes before he re-introduces specific variations and modifications. These new categories include the averaging out of the rate of profit and its equalisation, prices of production and market prices, all of which describe the fact that individual commodities either exchange above or below their value and seldom at their value. (Note 2) In other words, whereas Marx deals with equal exchange in Volume 1, in Volume 3 he deals with unequal exchange or, what is the same thing, the ideal/abstract form versus the actual concrete (complex) form with all its variations, modifications and complications. More importantly he describes the laws that govern these divergences so they are explicable.

It is of course the paradox of paradoxes that in a society nominally based on equal rights, it is unequal exchange that makes profitability work. Were it not for the possibility of unequal exchange, and therefore the ability of an individual capitalist or set of capitalists not only to exploit their own workers, but the workers of their less productive competitors as well, the profit motive would fall apart. It is this dynamic that Marx revealed when his analysis became concrete in Volume 3. So not only do the learned professors dismiss Marx’s methodology, but in dismissing it, they dismiss the possibility of understanding how the economic system that pays their outsized salaries, actually works.

Readers are encouraged to read ‘Das Kapital’. It remains as relevant today as the day it was written. It is a formidable piece of work which requires patience and diligence. But then it investigates and describes a formidable mode of production that has revolutionised the life of humanity and survived repeated episodes of crises and political challenges. And it has been assisted in doing so by the fact that capitalism is such a confusing economic system, one that has bewildered and handicapped many of its opponents.

(Note 1.) Marxists are not barrack-room socialists. Our opposition to private property applies exclusively to the means of production and distribution. It does not include articles of consumption which range from food through cars to homes.

(Note 2.) If we add up all the times commodities exchange above their value and subtract the times they exchange below their value we arrive at 0. Looking at the world economy as a whole these variations cancel each other out so that the global total of prices equals the global total of values at any given time under conditions of normal growth.

Brian Green

 

 

ORIGINAL FOREWORD – 1999

A catastrophe is facing humanity: unfettered capitalism. The very planet is threatened, from the ozone layer, through the polluted air to the poisoned food chain, its trade mark is everywhere found.

A calamity has befallen humanity. In the space of one lifetime, the remnants of the first workers’ states has been trampled underfoot. With the collapse of the European degenerated workers’ states, 1989 will forever be remembered as the end of the greatest war in history and the international working class’s most abject defeat.

Yet there were no bombs, no radioactive clouds, no destruction except that of the spirit. Instead of shrapnel, there was the daily grind; instead of blast, demoralisation; instead of fire, frustration. These were societies that could not function, that could not develop production, that ignored their future, that decayed and fell back to the condition they had fought so hard to escape from.

Everywhere bureaucracy clogged the arteries, starved the organs and aged the body. A premature death ensued in the face of a capitalism made dynamic by the offensive of Reagan and Thatcher against the working class. Defeat in the west, destruction in the east. Cold war warriors triumphant.

The fallout of ideological confusion is everywhere. Socialism had failed. Humanity has no answer to the market. In despair the idealists and scribblers could only mutter of their hopes for a ’market made fit for the whole of society‘. Pity them, for the real power in society, the capitalists, had the alternative project of making society fit for the market. All barriers to the market had to be swept away. The crack of competition rose ever louder. Atomisation, insecurity and fear infused every pore and every heart.

We have witnessed a terrible tragedy, so extreme that, in what was the Soviet Union, the very length of its citizens’ lives has been shortened. Instead of the buildings, it is the people themselves who have been pulverised.

It is not the end. Capitalism’s life is determined not only by the defeat of its external enemies, but the conquest of its own internal laws. These laws of motion, rotating around the profit motive, push it forward then pull it back. It is this pulse – stronger, stronger, weaker, stronger, weaker, weaker – that marks the passing of time for this system.

Who would have thought that less than 10 years after the fall of the Berlin Wall, the most dynamic part of the world economy – the Pacific Rim – would be struck by recession and Europe by stagnation, leaving only the home of 20th century reaction, the United States, keeping the world economy’s head above water?

The future of capitalism lies not in its own hands but in those of its workers. Its survival depends on its ability to make workers pay for its failures and excesses. To achieve this, workers must be made to believe they have no future apart from their capitalist bosses; wage slaves held back by chains, not of the body but of the mind, enfeebled by their lack of independent consciousness.

This we seek to change. Like Marx before us, pondering the defeat of the European Revolution in 1852, we too have to take stock. Marx realised that if the workers were to overthrow capitalism, they needed to understand why it had to be overthrown. Without this knowledge they could not stand up to the arguments of the capitalists. They would be defeated intellectually, and therefore forced into physical submission over and over again.

No new ruling class can tower above, nor emerge from, the old society until it has first conquered it intellectually. Today that means, first and foremost, understanding what went wrong economically in the Soviet Union. The two burning questions that need answering are: if this was socialism, why did it fail? And if it was not socialism, then what was it?

This is the millennium challenge. It is not some computer bug, some programming shortcut that threatens the future of mankind. It is the intellectual disarming of workers by the events in the Soviet Union and Eastern Europe that is the real danger. Solve it and workers can begin to retrace steps long since passed. Solve it and the stranglehold of the capitalists will slip. Organised and independent, the working class can, and will, free itself.

 

 

Momentous historical events are normally accompanied by an explosion of intellectual effort seeking to account for and explain what has occurred. Unfortunately this cannot be said for the events leading up to and culminating in the collapse of the USSR. One of the few outstanding intellectual efforts is a recent dissertation by William Richard Jefferies (Bill) entitled:  ‘From the Centrally Planned Economy to Capitalist Globalisation: How Economists Underestimated the Growth of the World Economy’ which is soon to be published in book form and entitled ‘From Capitalism to “Communism” and Back Again: How Economists Mis-measured the Plan’.

Bill’s thesis is not only a restatement of Marx’s methodology but its elaboration and application to one of the defining moments of the 20th Century. Using the historically specific categories elaborated by Karl Marx, he was able to explain and plot the benefit to the world capitalist economy from the collapse of the non-capitalist economies in Comecon and China. Without this pioneering work it is impossible to explain the depth and duration of the economic boom that began in the early 1990s.

The fatal flaw of the bourgeois economists, criticised by Bill, who analysed the Soviet Union is that they did not understand capitalism itself. They did not understand that labour is the source of all value under capitalism, that value is specific to capitalism, and that therefore the income derived from it could not be applied to the Soviet Union where exchange had been abolished. Accordingly they ended up misjudging the size of the economy, were oblivious to its lack of dynamic and finally, as Bill shows, completely misconstrued what was happening when these ‘planned’ economies collapsed. Bill’s work therefore overturns a huge 50 year effort to comprehend the USSR and with it the reputation of the IMF, OECD, World Bank and the CIA who invested so heavily in this effort.

I had the privilege of reading and commenting on this dissertation and in the process of discussion with Bill we gained new insights into the contradictions that felled the USSR. These are now incorporated into this edition of the pamphlet. To that extent this pamphlet is now more complete than the first version.

CHAPTER 1. WHY CAPITALISM TENDS TO CRISES?

To understand socialism we need to understand the economy that gives rise to it and makes it possible – capitalism. Capitalism is the highest expression of economy based on the private ownership of the means of production and the realisation of its potential.

Approximately ten to twelve thousand years ago the first great leap in the productivity of labour occurred when humankind mastered the science of growing crops. More precisely it was the combination of irrigation and crop cultivation that marks this huge divide. The hunting and gathering which sustained us for nearly two hundred thousand years gave rise to herding and farming.

Through farming selected grasses, which were also storable between growing seasons, farmers could generate a more or less permanent agricultural surplus. The need to master irrigation also led to co-operative labour. This led to a change in consciousness. For the first time a section of humanity could imagine not working by making others work for them, thereby raising themselves above the general condition of that society

Wars which were previously fought to conquer territory in which to hunt, now assumed the goal of acquiring slaves to farm. Society split into classes, divided by those who owned but did not work and those who worked but did not own. The state came into being, a body of armed men to police this new exploitative relationship and to ensure that the surplus remained the property of the exploiting minority.

Alongside the appropriation of this new wealth came the need to preserve it for the future by passing it on to heirs. For this to happen the blood line had to be made pure so that the exploiters’ seed would inherit it.  Accordingly women, wives, had to be rendered celibate to all but their husband. They were reduced from the exalted sex to mere chattels. The advent of class society marked the transition from a matrilineal society to a patriarchal society and represented the world historic defeat of womankind (Engels).

Even god was transformed by this leap in productivity. Hitherto man was utterly dominated by nature and subject to its vagaries. God was represented as elemental forces found everywhere, who had to be revered and placated up to and including blood sacrifice. Through irrigation, mankind took its first step in domesticating nature. Mans’ presence was now reflected in his works and so he confidently recast god in his own image. Particularly in Egypt though not limited to it, the collective harnessing of the mighty river Nile, saw the emergence of gods and goddesses walking the earth clothed in human form. From there it was a small step for rulers and kings to legitimise their rule by appropriating the status of living gods (god-kings). Finally the rebellion by a section of Egyptian society, who called themselves the Jews, against this arrogant and earthly personification of god, laid the foundation for the emergence of one of the dominant branches of contemporary religion, the judeo-christo-islamic tradition.

 

THE EMERGENCE OF THE MARKET.

For ten thousand years agricultural production dominated society regardless of whether it was based on slavery, feudal or Asiatic modes of production. In so far as there was industrial production, it was subordinated to agricultural production, being limited to transporting, storing or modifying the results of agriculture. It is worth adding that much of industry that did exist apart from agriculture was squandered on palaces and temples. Empires grew and fell in proportion to their ability to extract a growing agricultural surplus and survive changes in the weather. None evolved into a higher mode of production.

It was only in the 14th Century in Europe that the conditions for capitalism emerged and with it the conditions for large scale industry. For industry to triumph, the factors of production – land, means of production and labour power – had to be separated from their immediate producers. This meant the monopoly of land ownership by the feudal lords and the church had to be broken. The guilds, with their restrictive craft practices and monopoly of tools, had to be bypassed. Above all there needed to be an army of impoverished landless labourers who could now only survive by seeking work from others, and for this to happen they were brutally stripped from their instruments of labour.

These conditions matured in Europe seven hundred years ago. The expropriation of Church lands, together with the bankrupting of the nobility, freed up the land. The enclosure movement drove peasants and serfs off the land and into the new industrial towns. The pooling of capital which made the factory system possible destroyed the unproductive guild system which had been based on an individual’s craft. This was no peaceful process. It was brutal and inhuman and took centuries. Capitalism emerges into the world dripping blood from every pore (Marx).

In short, the factors of production were now turned into commodities. They could be freely bought and sold. As soon as the moneyed capitalist purchased these factors and put them to work producing new goods for sale (i.e. commodities), the capitalist social relation was established. This was the genesis of generalised commodity production which evolved into capitalist commodity production.

From now on production would no longer be for immediate use or consumption, but for exchange. Henceforth producers could only exist if they had the capacity to produce useful goods for exchange, and cheaply enough. If they were unable to produce or sell any commodities, they had no access to cash and without cash they had no means to consume any of the commodities produced by the rest of society. Excluded from the market by the lack of cash, they were forced to endure the worst kind of poverty: the poverty that resides alongside plenty. Beggars outside the gate of capitalism.

Exchange now stood between production and consumption. It follows that should exchange break down for any reason, production and consumption become disconnected. This, at its most abstract, is the source of all capitalist economic crises. Whereas most pre-capitalist economic disasters were precipitated by natural disasters, capitalist economic crises are social, brought about by a disruption in the exchange of goods.

This breakdown is not due to commodities suddenly becoming useless and unwanted. They do not suddenly lose their shape or smell. Consumers do not suddenly lose their appetite or need for these goods. On the eve of any economic crisis much-needed and useful commodities like food, oil and clothes start piling up in warehouses and depots.

On the other side, money (capital) piles up unspent. They face each other over an unbridgeable chasm. Today it is calculated that the top 1000 multinationals hold over $10trn in liquid assets while $32trn (PWC) is stashed in tax havens (although to be fair, some of it will be re-invested in the world economy). This is equal to half the value of world output in one year and explains why economies are stagnating ̶ at least in the developed capitalist economies. In the language of workers, it translates into the loss of at least 300 million jobs worldwide.

So why do goods suddenly pile up on one side and money on the other? What can be causing this loss of perfectly good commodities; losses that can, and often do, exceed the damage caused by war? Why the breakdown in exchange?

The superficial explanation for this is given as the lack of demand in society. Wages are too low, inequality too high, government spending too restrained. This view is called the under-consumptionist theory of crisis. It is inadequate because it fails to address the key question: who is the biggest consumer in society?

The answer is; those who own and control the economic surplus of society.  All exploitative societies produce a surplus which is then alienated from the actual producers. As a result, it ends up in the hands of the exploiters. In a capitalist economy this surplus is called ‘capital’ and its owner is the capitalist class.

The capitalist owners of this accumulated surplus can do one of two things with it. They can either consume part of it for their own luxurious needs, or they can invest it in production. Marx called the former ‘unproductive consumption’ and it represents a huge burden on society. It is not to be underestimated. In the USA the richest 20% of the population are responsible for 75% of retail spending. (President’s Advisory Panel analysis of Hybrid Sales Tax Bill)  As a percentage of output it most likely surpasses the spending by the rulers in previous societies on their temples, churches, palaces and retinues.

But there is a second form of consumption by the owners of the surplus of capitalist society. Marx called it ‘productive consumption’ or, as it is more popularly known, investment. He called it ‘productive consumption’ as it was thrown back into production in order to expand it. While the private consumption of the capitalist class is a burden on society, the latter is vital to its wellbeing. Without investment, production would grind to a halt.

However the decision by capitalists to invest this past and present surplus is not driven by the need to benefit society but to enrich themselves. They are driven by the profit motive. They throw capital into production in order to realise more capital at the end of the process. As long as profitability remains strong, so does the incentive to invest. However, as soon as profitability wanes, so too does the urge to invest.

When investment falls or is held back, part of the surplus of society remains unused, idle or, what is the same thing, unconsumed. The capitalists build fewer factories or close down existing ones and they employ fewer workers or pay them less. In addition, this lack of investment leads to a shrinking of the tax base thereby eroding the ability of governments to maintain spending.

Suddenly it appears that there is a fall in demand. Production exceeds consumption or, what is the same thing, consumption falls below production. The fall in demand, however, is but a symptom. The cause is the prior fall in investment brought on by declining profitability. Here then is the secret behind the breakdown in exchange and the periodic crises of capitalist production. It is the tendency for the rate of profit to fall. The profit motive, from being a whip to increase production, now becomes a fetter holding it back.

As Marx pointed out, while all capitalist economic crises are a crisis of under-consumption, this is not caused by the under-consumption of the masses. Rather it is caused by the under-consumption of a tiny minority in society, the capitalists, who refuse to invest on behalf of society because they cannot be rewarded by sufficient profit. It is at this point that the idiocy of capitalism reveals itself in the form of rotting commodities, rusting factories, empty buildings, wasted skills and a general sense of decay.

 

THE LABOUR THEORY OF VALUE.

If we are to explain the contraction in investment and the subsequent breakdown in exchange, we need to locate the origin of the capital that is to be invested in production. Through his development of the ‘Labour Theory of Value’ in Volume 1 of ‘Das Kapital’, Marx provided this insight and answer. It is the ‘Labour Theory of Value’ that marks the great divide between the theorists of the working class and the apologists of the capitalist class.

We begin our odyssey with the commodity. A commodity is any object produced for sale. We know it has value, but what gives it this value? As in all matters related to class, there are conflicting explanations. Two classes, two theories, the first is psychological (subjective) while the second is real (objective).

First let us hear from the capitalists. They claim the value, and hence the price, of a commodity resides in its usefulness (or utility) and therefore in the eye of the consumer. It is a question of psychology, of need, what the brain tells the wallet. The more useful the commodity is perceived, or made to be perceived (by marketing and advertising), the more valuable it is and the higher the price.

This theory coincides with the position of the capitalist class as idle consumers. They are not workers; they are not direct producers; they consume only that which is produced by others. So they are content with the view that the value of a commodity is as high or as low as the consumer deems it to be. Price is merely a question of fashion or a matter of taste.

Of course this subjective view of value is riddled with contradictions. What can be more useful than the air we breathe? Without it we would be dead in minutes and all the usefulness of every commodity would be irrelevant. Yet air rarely has value. There are endless other examples. Water costs little, steel is cheaper than gold even though without steel there could not have been an industrial revolution, the leap in productivity and the emergence of world economy. In fact their marginal theory of utility falls flat on its face when we recognise that, in general, objects over time become more useful (they have more features) and cheaper at the same time. Take flat screen televisions. Years ago when they were first introduced they cost many thousands, today only hundreds and yet they have more utility: that is better screens with more features.

However there is another view of value. It is the value that arises in production, that is the process where materials provided by nature are turned into socially useful forms. (Note 3.) Let us return to the example of air, and in particular the example of the aqualung. In order to swim underwater for more than a few minutes, divers need to compress and bottle air in an aqualung which is then attached to the diver’s back.

Suddenly air has acquired value. You cannot walk into a diving shop and say, “Please fill up my aqualung for free because the outside air is free.” You will be pointed to the sign on the wall which says, ‘Aqualung refills £5.’ Suddenly the air in the aqualung is worth £5.

Why £5? The £5 represents the cost of filling the aqualung; it covers the wages of the attendant filling the aqualung, the electricity needed to drive the pump, the depreciation of the pump every time it is used, the rent of the shop etc. The air has not changed. If the aqualung burst after being filled and the air escaped, it could never be separated from the outside air. All that would have been wasted is your £5.

So why has the air in the aqualung suddenly acquired value? Anyone working in the diving school would quickly answer. ‘If it were not for my labour, the air would not have found its way into your aqualung.’ And so we finally arrive at the objective understanding of why commodities acquire value ̶ which happens to be the producers’ understanding of value.

Commodities acquire a value through being produced; that is by the application of labour. What is common to all commodities, despite the myriad shapes and forms they take, is that they are all products of labour. In turn the expenditure of labour needed to produce any commodity is measured by its duration – time. The value of a commodity expresses the socially necessary labour time incorporated in each and every commodity.

Why do we use the term ‘socially necessary’ labour time? Marx used this term to mean labour of average intensity. Clearly a labourer could make a commodity more valuable by taking longer to produce it, by wasting time so to speak, by reducing the intensity of his or her labour. So the value of a commodity is composed of two parts, time and intensity.

A good analogy to explain this is electricity. The term ‘Watt’ measures electrical power or output. It is equal to Amps multiplied by Volts or, in everyday language, the pressure of electricity multiplied by its volume. Electricity is like a river. The same amount of water flows through it even when it is wider and then narrower. All that happens is the speed or pressure of the water increases as it narrows. So, just as we measure Watts as equal to Amps x Volts, so we measure Total Labour as being equal to its Duration x Intensity. Those who have criticised Marx’s Theory of Labour on the basis purely of time, have oversimplified his theory in order to discredit it. In a market based society, competition averages out both time and intensity, thus preventing labour of below average intensity being rewarded.

Having digressed, we can now return to value. Tap water has little value because little labour goes into purifying, sterilizing and piping it. Bottled water has more value because more labour time is involved in bottling and transporting it. Gold has a higher value than iron or steel because it takes much more labour to mine and refine. The price of computers keeps falling because it takes less time to produce them.

 

PAID COSTS OF PRODUCTION vs ACTUAL COSTS OF PRODUCTION.

‘Wait a moment!’ snort the capitalists. ‘While we may disagree on what gives commodities their value, we also disagree that there is only one cost of production – labour. Besides the cost of hiring workers, there is the cost of materials, machinery, rent, interest and so on. All these things, not only wages, cost me money.’

Now we no longer have the argument of the idle consumer, we have the argument of the exploiter. Let us begin with land and rent. Two facts stand out. Firstly, while land provides the raw materials for production and a place to work, it was here long before the human race evolved to walk on it. Secondly, rent only emerges when a section of society manages to monopolise portions of the planet by excluding the rest of society from it. Gaining access to, or use of, this land now requires a cash payment or payment in kind – rent. To put it more crudely, but just as accurately, the land has been kidnapped and rent is the ransom for its temporary return.

If the land reverted to common ownership tomorrow, society could no longer be held to ransom. Rent as a cost would simply disappear.

And so too with machinery.  Machines do not grow on trees. If they did we would still be living in the Garden of Eden despite all the fallen apples or pears. Machines, like every other commodity, have first to be produced. They are the products of past labour. The production process can thus be defined as the process whereby today’s living labour sets in motion the instruments of past labour (machines) in order to produce tomorrow’s new products. Therefore to say that commodities are produced by labour and machines is simply to say that they are produced by past and present labour, or labour in general.

The capitalists’ concept of cost is shaped by the fact that the factors of production are privately owned. To use another’s property requires payment for it. It therefore appears as a cost to the user. No sooner has one abolished the private ownership of the land and means of production/distribution then such costs would disappear as if by magic.

This leaves only a single cost of production – labour. If we all had to work, so that society was no longer divided into classes, no longer divided between those who work but do not own, and those who own but do not work, no one would dispute this. We would all be workers expending our labour in production, and transforming the world.

To sum up: every commodity is a product of the labour process. While commodities differ in shape and purpose, this merely reflects the different forms of labour needed to produce them. In addition, different commodities represent different quantities of labour. They therefore exchange in varying proportions. One car can exchange for ten thousand loaves of bread. This is because it takes much longer to produce a car compared to a loaf of bread, which takes only a fraction of the time.

The exchange value of a commodity is expressed in terms of its socially necessary labour times. The more time taken to produce a commodity, the higher its value. And conversely, the less time a commodity takes to produce, the lower its value. One car exchanges for ten thousand loaves of bread because it takes one thousand times more time to produce.

When barter gave way to exchange by money, the term ‘price’ was coined. Price is the money name for exchange value. Different prices on average reflect different exchange values. The price of a car is high because more money is needed to exchange it and more money is needed because its exchange value is so high.

All commodities take time to produce, but as productivity increases, so less time is needed to produce the same commodity. Workers can now produce more commodities in the same time. What is the same thing, each commodity now incorporates less and less labour time. And as it incorporates less of society’s labour time, its exchange value falls. It becomes cheaper and this should be reflected in lower prices. A prime example of this is computers which not only have become more powerful but a lot cheaper. Flat screen televisions are another good example.

The fall in value is expressed through growing price competition. Companies improve productivity in order to undercut competitors and capture market share. In turn competitors are forced to respond, to innovate and invest or perish. And so prices begin to fall within an industry, and between industries, reflecting the underlying fall in exchange value.

Competition at first appears to be a mysterious thing. Like air, it surrounds us with its invisibility. We only feel it when it begins to move. From time to time it gathers itself into a storm that buffets every corner of the market. But competition is not mysterious. Under capitalism production is carried out by thousands, if not millions, of independent companies. Capitalist society is therefore divided by the act of production and only re-united by the act of exchanging these products – the market.

It follows that any change in production in one part of the economy is only felt when commodities are exchanged. These changes alter the terms of exchange or, what is the same thing, the prices at which these commodities are bought and sold. Hence competition is merely the transmission belt for changes in one part of the economy being imposed on the rest of the economy through exchange, through the market.

As capitalism develops, production becomes increasingly socialised. The large multinational corporations employ hundreds of thousands of workers and link thousands of individual investors.  Soon every industry in the global economy will be dominated by no more than ten corporations.

However, no matter how large these corporations become, they remain independent producers walled off by private ownership. They are not directly linked, but linked indirectly via the market. As their size grows, as the complexity and cost of production grows, the market becomes increasingly disruptive.

The contradiction, between the socialisation of production on the one hand and the market on the other, grows. It begs to be resolved, and it can only be resolved through the abolition of the market. Production now becomes directly socialised and with it competition ends. Instead of reacting to competition, society decides where and how to change production, prepares for it, and where once there was disruption, now there is coordination and economic stability.

 

WHERE DO PROFITS COME FROM?

The capitalist social relation comprises two exchanges. It begins with a purchase and ends with a sale. In the sphere of production the purchase comprises the factors of production (namely labour power, means of production and land on which to site production). By reuniting the factors of production the capitalist manages to set production in motion. At the end of the cycle of production the capitalist is in possession of a stock of products which he then sells.

During the first exchange, the purchase, the capitalist pays out cash. During the second exchange, the sale, he recoups cash. He makes a profit if he recoups more cash than he pays out. The difference, the surplus money, comprises his profit.

So how is the capitalist able to realise this surplus cash? Could it be that the capitalist is purchasing the factors of production for too little or selling the resulting commodities for too much? In other words, is the capitalist underpaying when purchasing or being overpaid when selling? Many radical thinkers assume the latter, that profits come from selling too dear, from being overpaid. They believe that, after the revolution, prices will come down as the profit margin, which the capitalists add to selling prices, is eliminated.

They are wrong. Marx understood that it was absurd to locate profits in undercharging for inputs or overcharging for outputs (in the realm of distribution). If this was the case the profits of the purchaser would come from the losses of the seller and vice versa. These profits on the one side and losses on the other, would cancel themselves out and the capitalist class would be no better off. No. Marx understood that the source of profits could not be found in the realm of distribution (where commodities change hands after being produced) but in the realm of production. The source of profits emanated from the process of production itself.

This process begins with the capitalist employer or employers purchasing the factors of production which includes of course labour power (hiring workers). All these factors, including labour power, are purchased at their value.   Labour power, or the capacity to work, like every other commodity, has a cost of production. It is the cost of maintaining the worker in a manner rendering him or her fit for work. The wages paid cover the food, shelter, transport, clothes, heating etc. that make workers useful (and constitutes their standard of living).

The workers’ labour power costs the employing capitalist a wage. However, what the worker costs the capitalist is not comparable to what the capitalist costs the worker. And it is this essential difference, as we are about to see, that is the source of the capitalists’ profit.

Having purchased, and thereby reunited, the factors of production, the capitalist sets production in motion. At the end of the production process, the capitalist is in possession of a sum of commodities ready for sale. During the entirety of the production process, the worker has expended his or her labour. These new commodities embody this labour and it is this social content that gives them their value.

When the capitalist sells these commodities at their value he is paid for all the labour of his workers. But has he paid his workers for all of this labour? Of course not! He has only paid them for their capacity to work, not for what they have produced. From the moment the capitalist hires the worker, the new commodities that are produced (and which embody the labour of his workers) becomes the property of the capitalist employer.

When the capitalist sells the commodities produced, he is paid for all the labour contained in these commodities. The source of profits is now becoming clear. The labour expended in production is a cost to the workers who expend it. However, it only becomes a cost to the capitalist when he has to pay for any of it in the form of a wage or salary. It follows that if these wages or salaries do not cover all the labour expended, some of it will go unpaid.

So at the profitable heart of capitalist production is unpaid labour. It is this unpaid labour that allows the capitalists to pay out less money at the beginning of the production process compared to the money they receive at the end of the process. That is why they are left with surplus money – the source of their profits. And the more money they are left over with, the more unpaid labour they have benefited from.

We have therefore arrived at the distinction between paid costs of production and actual costs of production. The only costs capitalists recognise are the ones they have to pay for. If workers were paid for all their labour there would be no difference between actual and paid costs of production. But then the capitalists could not make any profits and the system would collapse.

Capitalism survives and thrives because the paid costs of production are always less than the actual costs of production. Unpaid labour is the fuel that drives capitalism. That is why capitalism will always cost the worker more than the worker will cost the capitalist.

An example will demonstrate this. In the old days gold acted as money. Let us say a gold mine employed 1000 workers who worked for a wage of 10g of gold coin per day. Accordingly the daily wage bill for the mine owner equalled 10kg (1000 workers x 10g each) of gold. However, if the miners produced a net 50kg of gold each day, we could say that the actual cost of their labour was equal to 50kg. But because they were only paid for 10kg, their paid labour amounted to only 10kg of gold leaving 40kg unpaid each day.

Now mark this. To the capitalists the cost of their workers’ labour is only 10kg, whereas the cost to the workers for their labour is really 50kg. They are underpaid by an equivalent of 40kg which magically appears as profit to the mine owners. (For the purpose of the example we ignore the cost of wear and tear and materials used in mines such as energy, pit props etc.)

Two costs, two realities, two opposing classes. The ability of workers to produce more labour than is needed to maintain themselves is of little interest to the capitalist. All that concerns the capitalists is the paid costs of production, the ones that cost them cash. The hidden cost to the worker, his or her unpaid labour, is of no concern to the capitalist because it is the source of his or her profits, their social power, their status and their elevation above the conditions of the working class.

Unfortunately, because unpaid labour always remains hidden, it makes it more difficult for workers to uncover the true source of profits in the capitalist system. It requires the scientific method developed by Marx, which looks below the appearance of things to uncover their essence, their true origin. The capitalists take everything and give us back little. We want it all back, it is ours, it was always ours.

An elegant way of elaborating on this exploitative working relation is to divide the working day into two parts. The first part of the day may be described as the paid part. During this time, workers produce sufficient labour to reimburse their capitalist employer for the capital spent on their wages. The second part, the unpaid part, is the time employees produce surplus labour, surplus value and therefore the profits of the capitalist class.

In the case of the gold mine described above, where workers are paid for 10kg of the 50kg of gold they produce, the paid part of the working day would be one fifth or 20% of the working day. The unpaid part equal to 40kg would represent four fifths or 80% of the working day. It follows that the rate of exploitation can be measured by the ratio between the paid and unpaid part of the working day. The shorter the paid part compared to the unpaid part, the higher the rate of exploitation. In the case of the gold miners the rate of exploitation is 400%, composed of 80% unpaid divided by 20% paid.

As workers become more productive, they produce cheaper commodities due to each commodity costing less labour time to produce. Accordingly workers now need a smaller real wage to maintain their standard of living, because the goods that make up this standard of living are cheaper. And if they need less wages to maintain themselves, and the capitalists can impose lower real wages, it follows workers will be paid for less of the working day. Consequently there will be a shrinking of the paid part of the working day and an extension of the unpaid part resulting in a higher rate of exploitation.

We can see therefore that the battle cry of the trade union movement, “A fair day’s pay for a fair day’s work!” is meaningless. There is no such thing as a fair wage because a wage, no matter how large, always represents payment for only part of the working day. Nor can there be a fair profit, for no matter how small profits are, they still represent unpaid labour. All that the trade union struggle achieves is a fight over the division of the working day into its paid and unpaid part. At best, it prevents the capitalist class from stealing all the gains resulting from the rising productivity of the working class.

What is needed, which Marx called for, is the abolition of the wage relation itself. We need to discard the view of the capitalist class – that the only costs in society are the ones that they pay for. Instead we need to adopt the revolutionary view that unpaid costs are a cost to the working class. That the profits, the rents and the interest that the capitalist class live on are a cost to the working class which should no longer be tolerated.

Until then, unpaid labour will continue to be converted into capital which confronts workers, not as their product, but as the private property of another class. It appears in the market as an external and coercive force that employs workers only in order to extract more unpaid labour from them. And it does so over and over again, growing in size, dwarfing the worker, making him or her feel increasingly insignificant, ever more subordinated by his or her own product.

However there comes a time when this unpaid labour is not converted into capital. It fails to set production in motion and circulate commodities. It no longer functions productively, lies idle as though crippled. We will now look at what causes the breakdown in the production of unpaid labour and its conversion into new capital, and therefore the crisis of the capitalist economic system. But before we do so, we need to wander into the mists that surround paper money.

 

THE VEIL OF PAPER MONEY.

Earlier we talked about the cheapening of production through the effect of rising productivity on labour times. We could therefore expect the systemic fall in the value of commodities to be met by a tendential fall in prices. Yet no worker alive today has ever experienced anything other than rising prices – inflation.

Unbelievably, there were times when prices fell systemically. The most notable period was called the ‘Great Deflation’ and lasted for twenty years between 1870 and 1890. It coincided with what is called the ‘Second Great Industrial Revolution’ (cheaper steel, railroads etc.) which boosted productivity and ended with the huge gold discoveries in South Africa in 1886.

This deflation occurred because gold still acted as money. Currency was tied to it. During this time the value of gold remained constant. Let us say that on average, 1kg of gold represented 400 hours of labour time. It followed that 1kg could circulate commodities that cost 400 hours to produce, for example 8000kg of steel. The price of 8000kg steel would be gold coin equal to 1kg (or 400 hours of socially necessary labour time).

Now let us assume that the Bessemer method of producing steel is introduced, as it was, around 1870 so that 8000kg of steel now only takes half the labour time to produce – 200 hours. 400 hours of labour time in the steel industry is now crystalised in 16000kg of steel, because workers produce twice as much steel in the same time. Now it takes 16000kg of steel to equal 1kg of gold meaning that 8000kg of steel is now worth only 1/2kg of gold coin. Measured by gold, the price of steel has halved.

Of course the opposite can also be the case. If the value of gold falls, more gold is needed to circulate the existing exchange values. The consequence of the opening of the South African gold mines based for the first time on the industrial extraction of gold, was to reduce the cost of producing it. Gold became less valuable as the labour time needed to produce an ounce of gold fell. Now more gold was needed to circulate the same number of commodities. Prices rose again and this put an end to the Great Deflation.

This reflected earlier experiences. For example the Spanish plunder of silver and gold in the Americas flooded the European market with precious metals between 1650 and 1750 reducing the overall value of the existing stock of gold and silver and leading to great inflation.

It therefore follows that the fall in labour times needs not be reflected in lower prices if the value of money itself changes. If money becomes less valuable more quickly than the value of the circulating commodities it means prices will actually rise. And one event in particular can devalue money quickly, the emergence of paper money. The 20th Century will be remembered as the century during which the linkage between paper money and gold was finally severed. Now there was nothing to stop governments debauching money. Paper money became symbolic money with no intrinsic value. The 20th Century became the century of inflation and hyperinflation.

Systemic inflation, i.e. perennially higher prices, from the perspective of the working class is a fraud. If profits are legalised theft, then inflation is a fraud perpetrated to preserve and increase them. Inflation has and will continue to act as the barometer of the class struggle. It increases with the intensification of class struggle and falls with the collapse of class struggle.

As long as the balance of class forces is favourable to workers and they are able to defend their wages, the capitalists have to resort to inflation. In other words the money they pay their workers in wages is now worth less.  Should wage rises fall behind price rises then workers experience an actual pay cut.

Of course the capitalist class would rather not resort to debauching their currency. It threatens the equilibrium of the economy, the value of capital and the relationship between debtor and creditor. Better to smash the working class and its organisations. Better to decisively alter the balance of class forces in their favour. If inflation began to fall in the late 20th Century, that owed everything to the successful offensive by Reagan and Thatcher against the organised working class. It owed nothing to Milton Friedman and his idiotic doctrine of monetarism.

However, if the capitalists fear rising inflation, they fear deflation (falling prices) even more. Falling prices not only make it harder to clear debts, but more importantly, it would mean that the capitalist class would have to cut the wages of the working class year by year. Amidst falling prices, a steady wage would mean a wage rise. Assuming 2% deflation each year, the same wage would be capable of buying 2% more goods and therefore represent a real increase of 2%. A constant wage amidst falling prices means the workers retaining the benefits of their rising productivity and that to the capitalist employers is intolerable.

Deflation benefits the working class and inflation the capitalist class. Non-cyclical inflation, whether in the hands of the capitalist class or, as we shall see later, in the hands of Stalin, always and everywhere represents an attack on the working class.

(It is worth pointing out that the capitalists have no evidence to claim that falling prices would curb consumption as consumers waited for prices to fall. In fact falling prices have increased demand under capitalism rather than curbed it. Falling prices have been the precondition for the emergence of mass markets in every sphere of consumption from cars in the 1920s, to jet travel in the 1970s and to electronics in the 1990s.)

UNEQUAL EXCHANGE IN A SOCIETY BASED ON EQUAL POLITICAL RIGHTS.

The profit motive at first sight appears to be a simple mechanism. It is not. Our understanding of profits depends on whether we look at the economy as a whole or whether we look at it from the viewpoint of the individual investor. When we look at the economy as whole, it is accurate to say that the capitalist class, which invests 100% of the capital, also receives back 100% of the profit.

However, at an individual level this may not be true. A capitalist who invests 0.001% of the capital invested in production may or may not receive back 0.001% of the profits. He or she may receive more or they may receive less. Why the difference? The difference has to do with prices and values.

When we look at the economy as a whole, total prices equal total values. All the differences between them are cancelled out. However when we look at an individual level, individual prices may not equal individual values. Exchange may not be equal. The fact of the matter is that individual commodities seldom exchange at their value. Exchange therefore tends to be unequal as described by Marx in Volume 3.

It is by understanding unequal exchange that we move closer to understanding how the profit motive works in practice. The key thing is this. Unequal exchange allows one set of capitalists not only to gain access to the unpaid labour of their own workers, but to gain access to the unpaid labour of their competitors. They not only exploit their own workers but the workers of their competitors.

How do they achieve this? They achieve this by raising the productivity of their own workers and increasing the efficiency of their company above the average for their industry. This allows them to make their production cheaper than their competitors. Let us say that the actual cost of producing shoes in Company A (ignoring the cost of the means of production consumed) is £10 which by chance happens to be the market selling price. Let us say as well that £4 of that is paid out in wages leaving a profit of £6.

Now Company A invests in a revolutionary new technique of production which halves the actual cost of producing the shoes. Accordingly the actual cost of producing the shoes is halved from £10 to £5. Similarly as workers produce twice as many shoes in the same time the wages paid for each pair of shoes is also halved from £4 to £2

The observant reader will have picked up that something strange has happened. The profit lodged in every shoe now is only £3 instead of £6 (£10 minus £4 vs £5 minus £2). The capitalist owner of Company A would be distraught if he knew this. “Why oh why did I ever invest in this new technique of production when it reduced my profit per shoe?” he would wail.

However the capitalist is never aware of this phenomenon. On the contrary, he is overjoyed because his profits will actually go up. How can this be when his workers are producing less unpaid labour in every shoe?

The answer lies in the market price of his shoes. This price is set not only by his company but by the industry as a whole. He therefore finds that the price does not fall to £6, but remains at £10. But now that he has more shoes to sell he decides to reduce his price to £9. He finds that even at £9 he is making more profits for each shoe sold – £9 less £2 wages equals £7 profit. He is now earning £4 extra per shoe (or £1 as he sees it).  His investment was worth it.

So where does his extra profit come from? It comes from his competitors. Companies B, C and D find they can no longer sell their shoes for £10, but have to sell them also at £9. They each lose £1 profit and it is their losses that make up the extra profits of Company A. Like air or heat which moves from high pressure to low pressure, so profits flow from higher cost companies to lower cost companies. Money, the golden bridge, allows profits to march from higher cost companies over to lower cost companies.

If companies B, C and D want to prevent this haemorrhaging of profit and withstand the competition from Company A, they too have to invest to increase their efficiency. And as each company improves its efficiency so the price of shoes falls from £9 to a new average for the industry. Company A no longer makes a super profit, and companies B, C and D no longer lose profits.

But never mind, in the end all the capitalists gain. They all gain indirectly from their actions in raising productivity because more productive workers take less time to reproduce their wage, or, what is the same thing, higher productivity shrinks the paid part of the working day and extends the unpaid part. Shoes form part of the wage workers have to spend. As shoes, clothes, electronic goods etc. become cheaper, so workers require a relatively smaller wage to buy them and this leads to a greater pool of profits to be divided up by the capitalist class.

So directly and immediately, individual capitalists gain by raising the productivity of their workers and indirectly they all gain later by the general increase in the productivity of labour. However to the impatient capitalist, it is the immediate and direct gain made possible by unequal exchange that is the primary driver behind the profit motive.

So without exchange there could not be unequal exchange. Without unequal exchange, rising productivity would not result in an immediate increase in profits. Without this direct increase in profits, individual capitalist would not invest and thereby cheapen the cost of production. Unequal exchange is the secret behind the success of the profit motive. It is the reason more productive firms expand at the expense of less productive firms whose number diminish. As Marx said, in the end all economy is the economy of labour time, which allows more to be produced in the same time and which is the source of all progress.

We have laboured the point of unequal exchange deliberately. We do so in order to lay the basis for our understanding of why the profit motive could not work in the Soviet Union. It most probably represents the primary reason the USSR was unable to economise on labour times systematically. In short, the profit motive is unique to capitalism, its spirit is firmly and exclusively attached to the earthly world of commodity production.

 

THE TENDENDENCY FOR THE RATE OF PROFIT TO FALL.

We can now return to the question of profitability. Marx was not the first to discover the tendency for the rate of profit to fall. David Ricardo, the great English-born economist who followed Adam Smith, was aware of it. He witnessed the growth of the urban industrial proletariat, and their growing organisation and confidence. He therefore attributed this fall to the rising wages these workers obtained.

It was Marx who corrected Ricardo. Marx showed that, under conditions of rising productivity and an expanding market, wages and profits could rise together as the class struggle shared out the gains of this rising productivity. However to this day, the shallow thinkers of the capitalist class continue to blame rising wages for falling profitability. Workers on the other hand, would be fools to fall for the argument that higher wages mean lower profits.

The rate of profit describes the ratio between the total capital advanced and the gross profit returned. It informs the capitalist what his return is and whether or not it is invested in the best place. The profit motive is the spring that drives capitalist production and the rate of profit is its measure.

Any fall in the rate of profit erodes the incentive to invest. Any resulting diminution in investment undermines reproduction and precipitates economic crisis. If there is an underlying tendency for the rate of profit to fall, it means there exists within capitalism a fatal flaw, an arrhythmia that will ultimately prove fatal to the patient.

Marx uncovered this underlying tendency. When capitalists invest, they invest not only in wages (hiring of workers) they invest in means of production as well (factories, industrial plants, raw and semi-processed materials, energy supplies etc.) That is why profit rates do not describe the ratio between profits and wages but the ratio between profits and the total capital advanced (of which wages are only one part).

 Marx called the means of production ‘constant capital’ and he called wages ‘variable capital’. As capitalism develops, so capitalists invest in relatively more means of production (constant capital) and relatively fewer workers. In other words, each worker now sets in motion more and more means of production. This process has accelerated with the introduction of computers so that factories now sometimes seem devoid of workers.

It therefore follows that the amount of capital invested can increase without the amount of wages increasing, provided more is invested in means of production. Marx called the physical relation between the amount of means of production and workers ‘the technical composition of capital’. The technical composition of capital expresses the underlying changes in the forces of production as each worker works with more means of production.

To ‘the technical composition of capital’ Marx added ‘the value composition of capital’ and finally ‘the organic composition of capital’. There is a very important reason for this. The purpose of the increase in the technical composition of workers is to increase the productivity of labour – to reduce the labour times needed to produce commodities. This results in the reduction in the value of all commodities including the means of production. They become cheaper (although, as we have noted earlier, this effect may be obscured by the presence of paper money).

So the value of the means of production grows more slowly than does its physical size. This is because it becomes cheaper due to the reduction in the labour times currently producing it. For example the computers guiding many industrial processes are not only becoming more powerful, they are becoming noticeably cheaper all the time.

The same applies to variable capital. The value of the goods making up the wage is reduced and, provided workers do not capture all the gains in productivity, the expenditure of variable capital on wages will fall. This cheapening of constant and variable capital reduces the speed at which the value composition of capital grows. There is, therefore, an elastic relation between the growth of the technical composition of capital and the growth in the value composition of capital. The value composition of capital grows more slowly. The value composition of capital lags behind the growth in the technical composition. This can be shown in the form of a graph.

 

The graph shows the technical composition (top graph) rising faster than the value composition. The difference, the lighter area, represents the cheapening of the means of production. So more but cheaper machines etc. means the dark graph – the value composition of capital – grows more slowly.  What the graph plots is the growth in the volume of the means of production versus the growth in the actual cost of producing it.

So much for the side of capital.  What about the side of profits? We have described how rising productivity reduces the paid part of the working day and increases the unpaid part of the working day. It allows workers to produce more profits for the capitalist class. From this it appears that the rate of profit should never fall: cheaper capital on the one side and more profits on the other. This does indeed slow down the fall in the rate of profit. But it cannot arrest its fall permanently.

The reason is this. The quantum of profits equates to the quantum of unpaid labour. If the purpose of investment is to increase machinery while reducing the number of productive workers, it thereby reduces the number of workers producing unpaid labour. Each worker has to produce more and more unpaid labour to compensate for the fall in their number. The following example will illustrate this. Suppose 1000 workers each produce £1000 of profit every week. This yields £1,000,000 profit per week. If you halve the number of workers, they have to each produce £2,000 profit to yield the £1,000,000. And if you reduce their number to just 200 workers they each have to produce £5,000 profit.

So while the total unpaid labour remains £1,000,000 or £1m, this has to now be compared to a massive increase in the amount and value of the means of production (constant capital) invested in achieving this. Let us say it has increased from £140m to £420m or by a factor of 3. In the meantime variable capital has fallen by a factor of 5 from £60m to £12m because the number of workers has also fallen by a factor of 5. Whereas the original total capital was £200m (£140m constant + £60m variable) it has now risen to £432m (£420 + £12m). Consequently the weekly rate of profit will have fallen by over half from its original rate of 0.5% (£1m profit compared to £200m capital vs £1m profit compared to £432m).

Fewer workers mean fewer workers to produce profits. More capital means more capital over which to measure these profits. This sets limits on the growth in the rate of profit and ends up depressing it. Workers however need not be depressed. The tendency for the rate of profit to fall is merely a proxy for the rise in the productivity of labour.

This is what happened during the post war boom and the huge increase in investment. By 1970 profitability was beginning to fall. Depending on what series is used, the rate of profit in the USA, the hegemonic economy, fell between 40% and 60% from 1950 through to 1970 (Robert M Coen). Investment dried up and there followed a decade of recessions and stagnation.

 

THE CAPITALIST RESPONSE TO CRISIS.

But you may ask, why does capitalism not simply collapse? Why does the rate of profit not fall year by year to zero, the point at which the flame of capitalism would be extinguished forever? How is the rate of profit able to fall, then to rise, then to fall, then to recover and so on for centuries?

Marx called the fall in the rate of profit a ‘tendency’. There was an underlying process but that process could be interrupted by offsetting factors. He never said it was a simple process. It was his detractors who said that.

To increase the rate of profit two things must happen. Profits need to be increased and the amount of capital needs to be decreased. As the business cycle matures and profitability declines, the attack on wages and conditions accelerates. Workers’ share of productivity gains is reversed. Now it is no longer a matter of raising living standards but of defending them from belligerent employers.

This is followed by falling investment, hence falling demand and a subsequent contraction in production. As a result competition intensifies. Less efficient companies go bankrupt. Entire industries and regions are ravaged as if by war.

Now it is no longer simply a case of the cheapening of capital but rather its physical destruction. Entire towns and cities in the early 1980s were blighted as the industries they depended on were culled. Glasgow in Scotland, the original world centre for shipbuilding, was gutted by the closure of ship building on the Clyde. This levelling of industry came later to be known as the emergence of rust belts, which described empty rusting buildings where millions of workers once produced useful products.

In addition, huge amounts of redundant means of production are auctioned off to vulture capitalists at prices many times below their value. This depreciation on top of this destruction sharply reduces the value of constant capital. As expected, the most intense destruction and depreciation takes place in the older, less efficient industries and companies. To this we may add countries as well.

On the side of profits, the number of workers in employment is reduced, thereby minimising the capital spent on wages. In turn, those employed have to work harder, for longer, for less. The growing army of the unemployed is used to intimidate those in work. And of course there is the accelerated export of capital to countries with very low wages. So more profits are produced which are now measured over less capital, helping raise the rate of profit.

Of one thing we can be sure, the capitalist response to its crisis is barbaric and damaging. It not only results in blighted lives, but in the huge destruction of productive potential. It takes a recession to reveal the fact that capital and labour have opposing and irreconcilable interests. During periods of economic growth the class struggle takes the benign form of the struggle for a fair day’s wage. During recessions it takes the form of a struggle for survival by whole sections of the international working class. They are faced with mass unemployment, endemic factory closures, the destruction of whole communities, mass poverty, the removal of state help and more. The very fabric of society begins to rip.

And all the time workers are told to take responsibility and to bear their share of this sacrifice. This would make sense if workers were in any way responsible for the crisis. But the capitalist crisis is not due to high wages, nor to productivity falling. The fact of the matter is that the capitalist economic crisis is due not to failure, but to success. It is due to its success in accumulating capital which, from the point of view of profits, now appears as an over-accumulation.

There is only one solution to such an over-accumulation: part of this capital has to be destroyed. Capitalism now enters its destructive phase, or as it is euphemistically called, a period of creative destruction, where the old is destroyed to make way for the new. Following the Great Depression in the 1930s, it took the Second World War to set the world capitalist economy in motion once more under the hegemony of the United States. 

However in the eyes of the working class this insane destruction is an attack on our class. After all the destruction of capital is not a destruction of things, it is the destruction of our past labour and the source of our employment. It is a huge price for workers to pay, from which they derive no benefit.

There is, of course, another way. There need be no destruction. Workers can and must defend their factories, their workplaces, and refuse to accept any closures or redundancies. They should also refuse to work harder for less. In doing so they would be expressing and defending their class interest. They would be establishing their political independence. But in doing so they would form an obstacle to capitalism seeking a way out of its crisis. The crisis would deepen and threaten the system with ruin.

We can sum up. Profit rates begin to fall not because workers have become less productive but because they have been made more productive. The whole absurdity of capitalism, despite its glorious achievements, is laid bare. Here is a system whose very success is the cause of its recurring failures. And if the success of an economy causes it to fail, requiring destruction rather than production, then the solution is simple, do away with it. In its place erect an economy which is not based on profit, not limited by profit, one which is able to harness the rising productivity of labour without interruption.

It took ten to twelve thousand years before private property in the means of production gave rise to a fully developed market which unlocked its potential. Profitability which had driven capitalism to produce a world economy now holds it back, threatens destruction. If society is to be taken forward, its gains preserved, its humanity restored, we need to put an end to the rule of private property in the means of production.

We do not mince our words. We need to build a society based on collective property free of exploitation, we mean a socialist society. And if we are to support this proposition, we must not shy away from investigating the first calamitous introduction of collective property in the Soviet Union. To those who say, “leave the USSR in peace,” we say, “Without understanding why it failed, we will never be able to navigate our way in the future.” Today’s capitalist crisis, which has shaken the economic system to its foundations, makes it more urgent, not less urgent, that we learn the lessons of the Soviet Union.

(Note 3.) Not all commodity production involves nature providing a material substrate. Commodities can be intangible. For example in the entertainment industry where people sing or act, nature is not changed. Actors and singers produce something momentary though often unforgettable. They consider this their work and it does produces exchange value in the same way as baking a loaf of bread does, where wheat is transformed into dough and then into bread.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER 2. WHY PLANNING HAD TO FAIL IN THE USSR.

 

Contrary to all the nonsense written about Marx and Engels, they seldom commented about the future socialist society. They left that vulgar task to the dreamers and utopians. Only in 1875, when he was forced to intervene, did Marx briefly outline his vision of the future. He did so in a pamphlet entitled ‘Critique of the Gotha Programme’. Its purpose was to correct the numerous errors contained in the Gotha Programme intended to unite the German workers’ movement at the time. In it he made a number of critically important points, all of which would find expression in the Russian Revolution that occurred nearly 40 years later.

Firstly he insisted that the working class struggle, while beginning at home could only succeed as an international revolution, or not at all.

Secondly that a successful revolution would establish a workers’ state, which in effect, would be the dictatorship of the proletariat. Such a state was essential to protect the revolution and to put an end to the legacy of capitalism. Furthermore this necessary dictatorship would be temporary and it would wither in proportion to the withering of the class antagonisms inherited from the previous society. In other words a state can call itself a workers’ state, only if it actually and systematically eliminates privilege.

Thirdly that there were two stages in the path to communism, stages précised in his famous slogan, “From each according to his ability, to each according to his needs”. Marx recognised that in the first phase, individual workers’ contribution to production would be unequal. This corresponded to an international working class emerging from capitalism that was and is divided by skills.  Therefore what workers were able to withdraw from production would be unequal. ‘From each according to his ability, to each according to his ability’ defines this stage.

He recognised that this unequal right depended on the level of economic development. As he put it “Right can never be higher than the economic structure of society and its cultural development conditioned thereby.” However at a later stage when productivity will be so developed, the working day so shortened and the realm of freedom so expanded, that the true social individual will step forward, freed of the meanness of spirit created by the divisive calculation of one’s share of social production. At that point society would inscribe on its banners, “From each according to his ability, to each according to his needs.” Finally humankind will have emerged from the realm of scarcity into a world where humankind is no longer divided by production but united by it, where social relations are no longer governed by material want but by human need. The Garden of Eden never lay behind us, it lies ahead of us.

We can only wonder at these days to come as we trudge to work for others, making them richer by making ourselves relatively poorer. Now let us turn our attention to the USSR, to the first workers’ seizure of state power and private property in the means of production. And of course its tragic aftermath.

 

THE RUSSIAN REVOLUTION.

Russia proved to be the weak link in the chain of imperialism. More economically backward than any of the other major combatants in the First World War, it suffered the greatest hardship and loss of life. With Russia rocked by revolution, the Bolsheviks led the first successful workers’ uprising in October of 1917. This carefully planned and managed conquest of state power resulted in only a few hundred deaths, mainly in Moscow.

Lenin and Trotsky, like Marx and Engels before them, recognised that the success of Russian Revolution depended on making it international. They were right. Within a year Britain, the USA, France and Japan organised an international counter-revolution against the Bolsheviks. This White Terror claimed twenty million Russians lives, whereas the October 1917 Revolution claimed only hundreds. Of course these massacres are hidden from history by the imperialists and their apologists in order to maintain the myth that it is revolutions rather than counter-revolutions that provoke mass murder and even genocide.

By 1921, the Red Army under Trotsky’s leadership had prevailed, but at a huge cost. Entire cities had been devastated. Millions of the most cultured and conscious members of the working class and the Bolshevik Party had been killed or maimed. Production had collapsed and poverty enveloped everyone in its divisive embrace.

The corruption of the Bolshevik Party and the degeneration of the revolution was not due to Lenin’s untimely death, nor due to Trotsky’s legendary inability to engage in Party struggles in a timely manner. Nor was it due to the earlier banning of party factions.  Had Lenin lived and Trotsky organised independently, they would have only slowed the Stalinisation of the party, not prevented it. The river of history would have continued raging around these two rocks.

Stalin triumphed because the determining factor was the prevailing material conditions, more specifically the isolating and grinding struggle for survival. The economic desert produced by the counter-revolution sucked the revolutionary life out of the party. Only an idealist could believe the Bolshevik Party would rise above these conditions rather than be dragged down by them, that its internal life could exist apart from the life in the streets. It would succumb; it did succumb.

Where the imperialists succeeded in subsequent years, was to rewrite history and blame all the failures on the Bolshevik Party and planning. Just as no one would invite a rapist into our schools to lecture our young on sex education and etiquette, so we do not invite the imperialists and their experts to teach us about the evils of planning.  The White Terror they initiated was a key factor shaping future events in the USSR.

In sum, the Revolution, which had the disadvantage of occurring in a relatively backward capitalist empire, had been gutted. Its revival depended on a successful European revolution. The failure by German workers in 1923 to seize state power represented the last chance to revive the Russian Revolution. The suppression of the German workers signalled the ebbing of the revolutionary wave that had broken out after the Great War.

Russia was isolated, exhausted, demoralised and impoverished. Into this political arena stepped Stalin as the personification of the bureaucratic core of the Bolshevik Party. He headed the tendency within the party who were no longer concerned with the broad interests of the working class, but of furthering their own personal interests. They were to capture the Bolshevik Party and transform it into a structure for raising themselves above the awful conditions that prevailed in the USSR, and they would do so by harnessing the new property relations.

 

THE NEW EXPLOITERS AND OPPRESSORS.

This new bureaucracy faced two threats: an external threat from capitalism (imperialism), which sought to restore private property in the means of production, and an internal threat from the remnants of the workers’ opposition. Stalin’s “socialism in one country” was in effect a non-aggression pact with imperialism. In return for sabotaging revolutions around the world, Stalin expected the imperialists, primarily Britain and the USA, to respect the geographical independence of the USSR and the rule of the Party. It was an offer the imperialists could not refuse and from which they were to benefit enormously.

Internally Stalin dealt with the workers’ opposition led by Trotsky by forming an alliance with the Kulaks (rich peasants, rural traders and potential capitalists). He correctly identified the workers’ opposition as his main enemy. When this opposition had been defeated and their leaders killed or exiled between 1924 and 1927, he turned on his Kulak allies and crushed them in turn. In that way he established the bureaucracy’s monopoly of state power.

By the late 1920s, state terror ensured Stalin’s rule was absolute and the Party unchallenged. The Party was now politically able to mobilise the productive forces through the introduction of planning. Just as the capitalist personifies the inner needs of capital, so Stalin personified the needs of collective property. He had to introduce planning in order to engage the productive forces. However, as a despot, the plan would be imposed on society and society punished for any failures to implement it.  This form of planning, beginning in 1928, came to be known as the Five Year Plans.

The countryside was collectivised to extract the maximum agricultural surplus in order to pay for accelerating urbanisation. What followed was the most rapid (forced) industrialisation the world has ever seen right up to the present day. It transformed Russia from a largely agrarian society into a leading industrial power within a generation. Whereas Russia had to submit to Germany in the First World War, in the Second, Russian industry allowed its people to triumph over the Nazis and force Germany’s submission.

The abolition of private property had made possible, for the first time in an industrial country, the unhindered mass mobilisation of society in a single orchestrated effort. Terror played only a secondary role. The victory of the Red Army in 1945 did not vindicate “socialism in one country”. Quite the contrary, it was “socialism in one country” that was responsible for the war in the first place, through Stalin’s malign intervention in the workers’ struggles in Germany and Spain during the 1920s and 1930s.

Nevertheless, the pre-war rapid industrialisation hinted at the potential lodged in the abolition of private property. Unfortunately, as we shall see, these gains would be undermined and finally negated by exploitation ̶  by the bureaucracy’s parasitism.

The new exploiters, headed by Stalin, were called many things: a bureaucracy, a caste, an elite, functionaries and so forth.  We will continue to use the accepted term of a bureaucracy with this qualification: normally a bureaucracy is an agent serving another class, and does not have an independent existence. Clearly in the Soviet Union the bureaucracy served itself rather than the working class. Being parasitic and therefore unnecessary, predictably it would end up collapsing the economy it had inherited.

What can be agreed is that the bureaucracy was not a class. A class is defined by its legal relationship to the factors of production. In the case of the capitalists it is the private ownership of the means of production/distribution and the land. It is this private ownership which distributes the surplus of society in the form of rent, interest and profit into the individual pockets of the capitalist class in proportion to the size of their capital.

In fact this mode of exploitation is unique to capitalism. Contained within the exchange value of a commodity is its surplus value. As soon as the owner of the newly produced commodity is paid, this surplus value is converted into surplus money and therefore profits. Exploitation is therefore direct and immediate.

The social power of the capitalist class therefore flows directly from its ownership of commodities, of capital, from private property. Their power derives only secondarily from political control. In capitalist societies, the purpose of political power is the enforcement of these property rights. Political power is a means to an end not a means in itself. Individual capitalists do not require a position in the state to give them access to the surplus of society; they require only the security of private property. That is why the capitalist system can tolerate multi-party democracy provided the various parties respect their private property.

Things stood differently in the USSR. Private property had been abolished. Bureaucrats could no longer rely on private property to gain access to the surplus of society. They had to rely on the state. Only their monopoly of state power could ensure they were able to share in this surplus. That is why all parties other than the Bolshevik Party had to be banned and political freedoms stifled. If the Bolshevik Party was voted out of power, its members would have to forfeit their privileged state positions and return to the ranks of the working class.

So only a single party, the Communist Party, was allowed; for it was through the funnel of the Party that individuals gained access to state positions. The Party was responsible for recruiting, promoting, organising and disciplining the bureaucracy. The workers’ state, which is always and everywhere defined as a state that seeks to end privilege, had been crushed and superseded by a new form of state. Its new function was to increase privilege and to distribute it amongst the bureaucracy in accordance to rank.

As long as the economy grew, these bureaucrats’ hunger for the security of private property ̶ for their own capital ̶ was held in check. As soon as they ruined the planned economy on which their privileges rested (which occurred by the late 1980’s), they predictably led the charge to restore capitalist private property. The rest is history.

 

DID THE USE OF PROFIT RUIN THE ECONOMY IN THE USSR?

We have seen that, at every level, the USSR after 1924 contradicted everything Marx had proposed in his ‘Critique of the Gotha Programme’. The revolution was consumed by nationalism, the workers’ state was no longer the dictatorship of the proletariat and privilege had taken over from ‘each according to his ability’.

Our methodological approach to the collapse of planning is scientific. We reject the unscientific hypothesis that planning failed because it lacked this and that. A scientific approach analyses not what is absent, but what is present. It seeks to analyse what was present, the actual forces, laws and contradictions that led to collapse.

Using this methodology, we can surmise that the Soviet Union did not collapse because of the absence of workers’ democracy. Capitalism isn’t exactly democratic at the level of the workplace. Planning did not collapse because the sectional interests of individual bureaucrats made it impossible to plan. Within large corporations, heads of departments also manipulate their figures to flatter themselves and protect their department. Planning did not collapse because there was no reserve army of labour to discipline workers. Draconian labour codes replaced this discipline. Planning did not collapse because workers were the victims of the plan rather than its architect. Under capitalism workers rarely sit on the Board of Directors. The planned economy did not collapse because of waste. Capitalism is extremely wasteful as well; we need think no further than duplication, patents, marketing, advertising, packaging, over-investment, accounting, speculation, finance, corruption, recessions and more.

All the above is true, but it does not describe what really took place and why the bureaucracy never found a mechanism by which to systematically raise productivity and manage waste. Why, in sum, it was unable to economise on the expenditure of labour time at least equally effectively as the capitalists and their system.

Capitalism was, and remains, qualitative production. Or, what is the same thing, decisions are driven primarily by financial considerations.  It has never been, nor ever will be, based on quantitative production.  It does not produce for the sake of producing (except at the end of booms when the momentum of production carries it forward). It produces in order to make profits and when it cannot make profits, it stops producing.

Its driving force is of course the profit motive. We saw earlier that profits depend on exchange and the profit motive on unequal exchange. Stalin clearly did not understand Marx and neither did his successors. Otherwise they would not have desperately turned to the profit motive to try and rescue their ailing economy in the post war period.

However, in the absence of exchange the profit motive actually becomes counter-productive. Instead of reducing labour time, it ends up increasing it.  This startling observation is easily demonstrable. If an enterprise in the then USSR improved its efficiency by reducing the labour time embodied in each item, the cost of production per item or its cost price would fall. Let us say from 100 roubles to 80 roubles. Now, if its profit margin (or centrally directed mark up) was 20%, its profit per unit of production would decline from 20 roubles to 16 roubles. Better then to keep the cost at 100 roubles in order to enjoy a profit of 20 roubles.

This does not happen in a capitalist economy because market prices allow a company to make an extra profit at the expense of its competitors. We saw earlier in this pamphlet how in the case of Company A, which produced shoes, the market price ensured this company was rewarded for its improvement in efficiency. Through the market price money transfers profits from the less efficient to the more efficient producers.

But the USSR was based on collective property. Production was now directly intended for accumulation and consumption. There was no longer exchange. Production was now directly social. While it was not a socialist economy, it definitely was a socialised economy (there is a difference). The labour produced in each enterprise in the USSR immediately became part of the labour of society.

 If, through improvements in efficiency, Enterprise A reduced its labour time, it would reduce its share of the total labour of society, including any surplus labour. This reduction in surplus labour would be represented as a fall in its profits due to fixed margins. This is what lay behind the fall in profits per item from 20 roubles to 16. The fall in roubles was the monetary expression of the fall in labour times and share of total labour times.

It is now clear why we stressed the connection between exchange and the profit motive, and why it is only unequal exchange that puts the motive into the profit motive. However, even in market economies, we find problems with profits. These occur in military contracts and state tenders based on ‘cost plus’ when risks cannot be determined in advance so that a price cannot be set by the tender document. Companies that win these kind of tenders have little incentive to reduce costs as this tends to also reduce the ‘plus’ (the margin) that is added on top of these costs. Predictably, the price of this kind of tender often shoots up costing tax payers millions more than the tender document ever envisaged.

Introducing a new technique in any mode of production is always time consuming and fraught. Workers have to be retrained, new skills to be found, there is re-tooling and all the associated teething problems. These disruptions are only worthwhile if they attract extra profits.  Accordingly, there was no incentive to innovate in the USSR as the reward for doing so was reduced profits.

In an economy based on collective property, but where profits have not been abolished, there is an incentive to duplicate instead of innovate. Through duplication, there is no reduction in labour times. Two identical factories employ twice as many workers and produce twice as much labour. Twice as much labour means twice as much surplus labour under the existing conditions. The Enterprise’s share of the labour of society does not diminish but can even increase. The mass of profits increases and even the state is happy because its taxation of profits has now become a main source of revenue.

In addition, to the cautious bureaucrat, duplication is safe. The same machinery, the same material, the same skills are employed.  No need to experiment and to find sources of new and strange machines and materials. Managers therefore had little incentive to introduce new techniques of production. While duplication does expand production, it does so at the existing levels of productivity. One could characterise this inertia as ‘more of the same’ ̶  hardly the most dynamic form of investment. And this happened despite the fact that the USSR developed excellent science and technologies together with an educated workforce. In many areas they led the world. However the lack of incentive meant industry remained unreceptive to most of these innovations.

The only alternative would have been for the bureaucracy at the centre to substitute itself for the market. Instead of the invisible hand of competition redistributing profits through unequal exchange from the less efficient companies to the more efficient ones, the state could have used taxation to do this. It could have raised taxes on the less efficient enterprises and industries while reducing them on the more efficient ones. That way the more efficient enterprises would have prospered at the expense of the less efficient enterprises.

The state would be taking with the one hand and giving with the other. This would have reduced the bureaucracy from centrally commanding the economy to arbitrating between the enterprises.  It would have led to the expansion of the more efficient enterprises and the destruction of the less efficient ones.

Not only would the loss of production from the less efficient enterprises undermine the taut plan, it would have led to the concentration of economic power in the more efficient enterprises. As economic surpluses accumulated in the efficient enterprises, the control of the centre would have been undermined. It would have led to an economic civil war. The ensuing economic fragmentation would have torn the bureaucracy apart.

Instead the leadership proposed saving the economy through increasing the role of profits. In 1961, at the 22nd Congress of the Communist Party of the Soviet Union, Nikita Khrushchev declared, “We must elevate the importance of profit and profitability.” This was amplified by his successor Brezhnev in 1966, by which time enterprises could retain more of the profits they produced. Cost accounting was changed in order to emphasise the importance of making profits at an enterprise level. 

But the drive for profits backfired. The centre continued to subsidise less efficient enterprises. Now it had to reward the more efficient with extra profits. Instead of a redistribution from the less efficient enterprises to the more efficient, there was a redistribution from the centre to both the more and less efficient producers. The surplus controlled by the centre began to haemorrhage and with it the ability to finance the plan.

To the profit margin we may add any margin. It was not only the profit margin that was counterproductive, so too were all the other margins, and turnover tax margins added to the enterprise cost. In a socialised economy any margin, and a dependency on that margin, will distort the economy, as any reductions in labour times (and hence prices), will undermine these margins and reduce the amount they yield. (More on this later.)

Given that the reason for the failure of the profit motive in the USSR is only now uncovered it is worth codifying the differences between a market economy and a socialised economy. In a market economy a reduction in labour times does not immediately lead to a reduction in surplus labour because of unequal exchange (market prices). In a socialised economy reductions in labour times leads immediately to a reduction in the enterprise’s share of the labour of society. In a market economy a reduction in labour times is initially rewarded by extra profits. In a socialised economy it is rewarded by a reduction in the mass of profits.

The consequences are stark. Under capitalism, the profit motive leads to innovation; while in planned economy it leads to replication. This is the reason why capitalism survives, and the USSR is fallen. Profitability has no place in a planned economy. Once private property in the means of production has been abolished ̶  and with it exchange, the profit motive becomes counter-productive

What the collapse of the economy in the USSR showed is that there can be no viable exploitative economy after capitalism. Let us say it again. Beyond capitalism there is only socialism. Which means, not only an end to private property in the means of production, but an end to exploitation itself. Once that lesson is learned, we need not fear a repeat of what happened in the USSR but rejoice in the knowledge that it was not the abolition of private property that led to the downfall of the Soviet Union, but rather the parasitism of the bureaucracy and their reliance on profit.

 

SO WHAT IS THE ECONOMIC DYNAMIC OF A SOCIALIST SOCIETY?

In the above section we briefly recognised that the economy of the Soviet Union manifested features that were both superior to a capitalist economy (collective property) and inferior to it (low productivity). that of a capitalist economy. Ultimately, its inability to economise on labour time marked it as less advanced than capitalism, leading to its collapse.

The question is therefore posed: what economic mechanism would a democratically run socialist society embody that ensured efficiency, economy of labour time and innovation? What mechanism would replace and eclipse the profit motive and, by so doing, reveal just how primitive profitability really was. In unearthing this motive we will see once again why the USSR was unable to utilise such a mechanism.

In our section on capitalism, we recognised this mode of production to be indirectly social. Production divides society which is then re-united through exchange. Under this condition the socially necessary labour times embodied in commodities takes the form of exchange value.

In turn this exchange value is expressed by money and circulated by it. ‘Price’ is the money name for the labour time crystallised in each and every commodity. We also learnt that increases in productivity, and thereby the cheapening of commodities, need not be reflected in falling prices.  Indeed prices can and do rise due to the debauching of paper currency.

In a fully socialised economy there will be no need for money. Labour times will be measured directly, not indirectly through money. However as Marx said, no new society can emerge free of the old. Money will be needed until such mechanisms can be put in place to replace it.

In the meantime, there will be an imperative to use money, and above all, to maintain its integrity ̶ and therefore its function as a unit of account. (Under capitalism money has many functions, but under socialism this will be reduced to acting as a unit of account.)  Only through monetary stability can money begin to measure labour times. Let us be clear on this distinction. Under capitalism prices are not tied directly to actual costs of production. Exchange mediates, and unequal exchange means that prices can and do diverge from actual costs of production.

In a socialist society (and here we refer to the early transitional stage), for the first time price is indissolubly tied to actual costs of production. As a result, the cheapening of production through the raising of productivity has to result in falling prices. Costs of production will become transparent through the movement of prices.

It is falling prices that replace the profit motive under socialism. Falling prices benefit all members of society equally. They become the economic knot binding society together, for they reward the common effort equitably. In doing so, they maintain the unity of this effort by avoiding sectional or competing demands.

It is worth labouring this point, so to speak. Every worker will have an incentive to ensure that their output is of the highest standard and carried out in the minimum time. Otherwise workers further down the line will have to waste time undoing any mistakes. What is saved in labour time in one moment by cutting corners, will be lost at another through additional repairs. The net result will be no fall in labour times, therefore no fall in prices because of this waste of labour.

Some Marxists have theorised that, instead of falling prices, the incentive should be higher ’wages’. Or more precisely, wages that rise in proportion to rising productivity, with prices remaining constant. In this way workers would benefit through rising wages rather than falling prices.

Unfortunately this is muddled and shallow thinking on their part. Let us remind them that rising productivity results in the cheapening of production and should be reflected in falling prices. If it is not, then this can only be due to the devaluation of currency, which robs money of its ability to act as a unit of account.

Now it follows that if we both raise ‘wages’ and still enjoy falling prices, some of the ‘wages’ of the working class will remain unspent because total ‘wages’ net of deductions will exceed total prices. If this were to happen, prices of particular items will be bid up by excess ‘wages’ and the result will be confusion  ̶ together with the emergence of a market driven by excess money. Prices and labour times will diverge. Prices will come to reflect the push and pull of demand and supply rather than be tied directly to costs of production.

‘Wages’, if we are still using this term, represents the income of every member of society net of deductions for investment, insurance, health, education, care of the elderly and the infirm, environmental repair etc. They will represent a definite portion of the total product, the portion destined for individual consumption.  Net ‘wages’ will equal the total labour time expended in this sphere of production.

Total ‘wages’ can only increase if the amount of labour time expended in production increases. This increase can only result from an increase in the number of workers, an increase in the average length of the working day, or more subtly, an increase in the time spent in the Department of Education aimed at improving skills.

However, within the totality of wages there will of course be differences. On the qualitative side, those workers who are more skilled, or become more skilled, and who therefore contribute more to production will have higher wages. On the quantitative side, those workers who choose to work longer hours will receive higher wages. The extra contribution, either qualitatively or quantitatively, must find its reward.

But, in reality, changes in the quantitative contribution to production is an insignificant part of production. The primary increase in productive effort results from investment in new techniques, in new and improved equipment and computers. This dwarves the difference in the strength and stamina, that separates one worker from another. Machinery and equipment are the great levellers, outweighing any difference in muscle power. For example, an American farmer driving a combine harvester picks and separates more grain in one hour that nine Afghan mule herders can achieve in one month. So, for every minute of extra work by the US farmer, each Afghan worker would have to work an additional 10 hours, even though the average Afghan herder is very likely to be stronger and fitter than his US counterpart.

It is investment in new techniques of production that is the real mover of productivity. However, no worker should benefit individually from investment. Why should they? This kind of thinking mimics bourgeois ideology.  Workers receiving the new equipment may not have produced them. They are the recipients of the efforts of workers in another part of the world economy. Surely, the original producers, who may work hundreds of miles away, have the same claim to extra wages. They could legitimately say, “Without us, no new machines. So why should you benefit instead of us, simply because you are working with them?”

Planning would be drowned by claim and counter-claim. The facts are these. The rising productivity of labour brought about by new investment, while increasing output, does not increase the total labour time expended in producing this output. It therefore follows that this change in output is not reflected by a change in ‘wages’ but in prices.  And it is through falling prices that each socialist producer benefits equally. The workers who produced the equipment, benefit equally, compared to the workers utilising this new equipment. It avoids claim and counter claim, it avoids sectionalism in all its forms.

Let us restate this vital proposition. Falling prices rewards society equally. If productivity rises each year by 4% resulting in a fall in prices of around 4%, each member of society finds their individual standard of living rising by around 4%. No one gains more than the other. Collective production finds its common reward.

Not only will this fall in prices reward efficiency, it will enable us to measure the efficiency of any investment. Just as an increase in the amount of profits was a measure of efficiency, so now the predicted fall in prices allows us to measure the advantages of any investment.  It allows us to choose the most cost effective investment through its effect on the totality of prices. This transparency has another advantage, indeed an imperative, for it enables conscious planning. Prices need to be tied to actual costs in order to allow for the efficient allocation of the labour time of society which satisfies society’s needs and wants. In this way the rate of profit has been superseded by a more direct and accurate measure.

There is thus a lot more to pricing than meets the eye. The pricing system we inherit from capitalism is severally distorted. Individual prices of production bear very little relation to individual values. The averaging-out of the rate of profit, demand and supply (to name but three), results in huge deviations between individual prices and costs. The simple fact is this. Under capitalism we have no idea what individual products actually cost to produce. In capital-intensive industries they are too high, while in labour-intensive industries they are too low.

Getting rid of capitalism will take far less time than unravelling actual costs, and it will take even longer to adjust production on the basis of real prices. This difficult task will be made impossible if we debauch money and thus make financial planning impossible.  Money needs to remain a stable unit of account. We are now ready to examine the monetary policies adopted in the USSR.

INFLATION IN THE USSR.

The financing of the first Five Year Plan took two forms. In a largely agrarian society it would require the extraction of the maximum agricultural surplus to feed the newly emergent industrial towns. This was the imperative that drove rural collectivisation and all its cruel consequences. The second was inflation. The workers were to be impoverished through rapidly rising prices. Inflation was the mechanism for increasing the rate of exploitation of the labouring masses. In this manner the surplus of society would find its way into the hands and pockets of the newly triumphant bureaucracy.

In ‘The Revolution Betrayed’, Trotsky details the debauching of the rouble. Between 1925 and 1927 the volume of currency went up 35% a year from 0.7 to 1.7bn. Between 1928 and 1933 it went up by 79% a year from 1.7bn to 8.4bn. Compared to the French franc the rouble fell 77% in value between the same years. This inflation represented, in the words of Trotsky, a dreadful tax upon the toiling masses.

The bureaucracy had no choice but to debauch the rouble, for it was the basis of their false accounting. It was this false accounting that allowed them to hide their parasitism. They could no more introduce an honest rouble than a priest could admit there was no god, but only myth.  Criticising inflation became a punishable criminal offence under Stalin.

Trotsky called this debauching of the rouble, ‘the syphilis of a planned economy.’ It had two consequences. First and foremost, it destroyed the link between effort and result. Workers found that, no matter what effort they put in, they were punished by rising prices. This, together with heavy handed management, draconian labour laws, extremely long working hours and harsh working conditions, robbed the worker of any attachment to the labour process.

In the words of Trotsky, “… all correspondence between individual labour and individual wages necessarily disappeared, and therewith disappeared the personal interestedness of the worker.” Over the decades, as the working class grew in size and strength, the heavy hand of the bureaucracy was pushed back. However workers were never to re-engage with the labour process.  In their words, “They pretended to pay us and we pretended to work.” As long as workers pretended to work, there could be no antidote to bureaucratic inertia, no prop for the ailing economy, making inevitable its collapse in the 1980s

Secondly, inflation ̶ false accounting ̶ also robbed the bureaucracy of any insight into what was happening in the economy. In the absence of sound finances, planning became largely statistical. Targets were set mechanistically: so many tons of steel, so many metres of cloth, so many litres of oil. The timid targets set in 1928 soon gave way to extravagant targets. Success depended on achieving or exceeding the norms. Production became a storm.

As long as there was a pool of excess labour, these targets could be met and even exceeded. Plants could be worked for longer. There were more workers to repair overworked machinery and even substitute for them. Duplicating a plant was no problem as long as it could be manned by new workers. This requirement for labour led to the phenomenon of individual enterprises hoarding workers and tying them to the plant through ration cards, housing, health and amenities. It also led to the huge influx of women workers when the supply of male workers began to dry up.

As long as the pool of labour was not exhausted, production could increase quantitatively. When it was exhausted, the only alternative way to meet targets was to begin cutting corners. And so the quality of production began to suffer. Another ruse, adopted under the pressure to meet the plan, was to simplify production. Take steel nails. If the target was set as a weight of nails, it was easier to meet that target if you only produced one size of nail ̶ the bigger the better.  If the target was set in terms of a number instead of weight, it would be better to produce smaller nails rather than larger nails which are slower to produce. So targets were met, but at huge cost to an economy that lacked nails or screws of the right size.

Of course Stalin was aware of these shortcomings. He tried to overcome them with his six point programme in 1931. None of these addressed the contradictions ̶ namely that without honest accounting, without real prices, you cannot generate a culture of efficiency. Only real prices reveal the extent and consequence of cutting corners, the ruining of machines and the misusing of materials. It does not matter how much Stalin bemoaned the “lack of personal responsibility” or incompetent managers, or how much he blamed the wage structure, or how much he pointed the finger at wreckers, or labour indiscipline, the fact was that all these effects resulted from only one cause ̶ the presence of the bureaucracy and its need to hide its parasitism.

In the drive to increase physical output, financial planning had to give way to statistical planning, despite Stalin’s repeated lectures on the need for sound finances. The crude fact is that financial planning is often incompatible with statistical planning or as it was known, material balances Often it costs more to complete the plan than not to complete it. If meeting the plan requires adding in extra workers, if it means no time to clean and repair machines, if it means using more expensive raw materials when no other is available, it adds to the cost of production.  The last ten per cent of output often costs many times more than the first ten per cent of output, but this fact was ignored in the drive to meet the targets on which the plan was based. Indeed to refuse to produce the last ten per cent of output not only deprived other enterprises of their inputs, it also invited accusations of sabotage. The whole system was deranged by quantitative planning.

This lack of economy became endemic. Throughout the history of the Soviet Union, and despite the price revisions, prices remained subjective. Prices were manipulated to regulate the rate of exploitation, they were biased towards heavy industry and they favoured strategic areas of the economy. They were a planning tool rather than a reflection of real costs. Planning remained based on material balances and prices trailed this process. While products moved forward from extraction to production, to wholesale and finally retail, the rouble flowed backwards to compensate the various spheres of the economies, directed by prices that were planned instead of being connected to actual labour times.

So regardless of cost, enterprises had to meet their targets. They could not refuse to accept the inputs from other enterprises even if they were of inferior quality. Much of their time was spent trying to unpick defects. It was not the centralisation of planning that lay at the heart of this rise in the cost of production, it was quantitative planning, the absence of an authentic pricing system to guide these decisions. It was not the inability of GosPlan to match inputs and outputs (which they were good at) which was ultimately to wreck the economy, it was the failure to economise on labour that squandered the surplus of society.

This process accelerated as the pool of labour dried up, as production became increasingly sophisticated, as the technical requirements became more demanding.  And so this statistical approach to planning became increasingly obsolete. It held back production. While recognising this growing problem, and recognising that they were falling further and further behind the major capitalist economies, the bureaucracy found itself helpless. As we have seen, profitability was counter-productive, taxation was no substitute and honest accounting was out of the question.

Moreover, in the presence of profits, or margins of any description, quantitative planning thrives. It thrives because quantitative planning sets in motion a greater quantity of labour and therefore surplus labour. The result is more profit, not less; but at the expense of restraining improvements in the quality of production.

Financial planning like transparent pricing is not an option. It requires a democratic society devoid of sectional interests and antagonisms and it requires a committed working class. This is the opposite of the society that existed in the USSR, where the bureaucracy hid its parasitism through false accounting, where individual bureaucrats lied about their own circumstances and even sabotaged one another’s efforts in order to advance.  Economic planning required the removal of all the shadows behind which the bureaucracy hid.

The point has been reached where it is worth summing up. Labour times can never be ignored. In a capitalist society they do not appear to be the determining factor because they operate indirectly through the law of value and are therefore disguised. However they impose themselves through their effect on the rate of profit.

In the Soviet Union, Stalin and later the planning authorities wilfully ignored labour times. Stalin’s use of inflation was designed to extract a surplus product from workers by means of impoverishing them. Later, the planning bodies applied arbitrary and manipulative prices to products in order to satisfy the needs of the plan. Pricing remained subjective and was never tied to actual costs of production; they never represented weighted average labour times. While the bureaucracy sought to ignore labour times, labour times did not ignore the economy, plunging it into the abyss.

So we ended up with a pretend economy. The planning bodies pretended to price. They pretended to pay the workers with roubles that could not be spent. Workers pretended to work. What was surprising is not that the system failed, but that it took so long to fail.

 

PIECE RATES ARE AN EXTENSION OF STATISTICAL PLANNING.

Under capitalism, piece rates are resented and fought against. One of the earliest struggles of the trade union movement in the 19th Century was to abolish piece rates in favour of being paid for the hours worked. This reduced the pressure on workers and prevented the bosses withholding payment if the piece could not be finished through circumstances outside the control of their employees.

It was predictable that Stalin would copy the worst practices of capitalism. He championed the introduction of piece rate payments, whose most grotesque form was the Stakhanovism movement.  This amounted to statistical planning at an individual level. Set the number of pieces and, if that is achieved, raise the target. It was bound to fail.

It failed because it gave rise to sectionalism. It focused one’s efforts on one’s own target without regard to the effect on anyone else. When one worker is forced to increase his or her efforts it has unpredictable effects, as the Stakhanovism movement revealed.  They could only meet their extravagant targets by being helped surreptitiously, by having access to the best materials, by cannibalising equipment, by producing shoddy goods. The net result, when viewed from the perspective of the economy as a whole, was an increase in the cost of production in labour time through the waste of labour time.  Once this became clear, the project was quietly killed off.

Piece rates give rise to inevitable sectional interests. It leads to waste and resistance from ordinary workers. Trotsky is to be criticised in supporting their role in planned production. They are coercive and have no place in a socialist society. Socialism calls for better work, not harder work; collective effort, not individual effort.

 

A SHORT NOTE ON STATE CAPITALISM.

In passing, we need to deal with the ‘state capitalist’ theory of the Soviet Union. Although Tony Cliff considered himself a Marxist theoretician, this theory has little to do with an understanding of capitalism, or with the methodology developed by Marx. In outline, it holds that the USSR was a single or monolithic capitalist corporation owned and controlled by the state, which competed with the rest of the capitalist world through the arms race.

Marx on the other hand was adamant; capitalism could only exist as many capitals (companies, corporations, groups of producers etc) owned independently. Once it ceased to be many separate capitals and became a single capital, it ceased to be capitalism. Why? Because production would no longer be organised around the exchange of goods. In short it would no longer be generalised commodity production. There would be no purchase and no sale, therefore there would be no capitalist social relation resulting in surplus money – i.e. profit.

And as we have seen, where there is no exchange, there is no unequal exchange, and without unequal exchange no dynamic profit motive. Furthermore once you abolish exchange, profit can no longer direct investment from areas of low profitability to areas of high profitability, as these too are based on divergences between exchange values and market prices. The central core of Volume 3 of ‘Das Kapital’ is devoted to the transformation of values into market prices through an understanding of the forces and movements that govern the divergence of prices and values.

The theory of state capitalism is therefore a repudiation of Marx’s understanding of what constitutes a capitalist economy. Worse is to come. Having failed to locate a market within the USSR (though barter was rampant), Cliff alights on competition between the USSR and the rest of the world, particularly the USA, in the form of the arms race. The arms race which exploded out of the antagonism between the different property forms is now used to equate the forms. This is not economics, this is sleight of hand.

So let us compare two arms races. In the USA there are currently 161 arms manufacturers, some large and some small, producing weapons for private individuals. The hand gun/rifle industry is an industry like any other, distinguished only by the fact that it embraces a particularly nasty use value that takes life. All these various guns are distributed between, and displayed next to, each other in gun shops across the country. These guns are commodities, sold for money. As in every other industry, changes in the prices or capabilities of certain guns impact the rest through competition. Capital flows to, and from, this industry like any other, governed by the rate of profit. To be sure, were there to arise a moral revulsion against owning guns, such that demand plummeted, profitability in the industry would collapse and capital would flee from this industry to other more profitable ones.

Now let us look at Cliff’s version of the arms race. The arms produced by the USSR did not enter the realm of distribution. In other words they did not sit alongside arms produced by other countries in shops or warehouses where they could compete, be sold, and where money could act as the medium to distribute profits. These guns may have been indistinguishable from those sold in gun shops, but they were not commodities. When the manufacturing process of a Kalashnikov changed from forging to stamping, more than halving the cost of producing one, it had no effect on the price or the supply of the American M14 or M16 rifles. The closest these guns ever came to competing was the exchange of bullets in the hands of opposing armies in South East Asia.

Arms produced for the capitalist state, for example the USA, are always a special case as they cannot ever be used to expand production, thereby enriching society. Here there is only a single transaction, the purchase. The state purchases arms for use, not for resale. Money (taxes) goes out and no new money ever comes in.  So arms spending is seen for what it is: a burden on society (through taxation). It clearly was identified as such in the USSR, where the economic pressures to match the destructive power of the USA and NATO helped buckle the economy. Far from being a source of profit in the USSR, it was a source of losses to the rest of the economy, so why choose it as the focus of your drive to compete in the world economy? There was therefore no capitalist imperative in the USSR to engage in the arms race, just the pressure to survive in a hostile capitalist world.

The only virtue of the theory of state capitalism, is that it allowed the various organisations that supported it to disassociate themselves from the USSR and evade the consequences of its collapse. In their eyes, the only thing that happened was a change in the form of capitalism in this part of the world.  Cliff’s theory of state capitalism is not only wrong, it is an impediment to understanding how and why the economy in the USSR collapsed.

 

SOCIALISM VERSUS A DERANGED SOCIALISED ECONOMY.

In any society where the labour of the individual becomes part of the labour of society, that labour assumes the form of a cost. And that cost is an expression of socially necessary labour times.

In simple commodity production, which preceded capitalist commodity production, competition enforced this necessary labour time. Once the same commodity was produced by a number of independent producers in a given locality, say by members of a town guild, a single market price was established over time. This single price was the average for all the producers, as only the weighted average price multiplied by the quantity of commodities produced, could add up to the total labour time expended on their production by these different producers.

Competition enforced this price and changes in the average labour times altered competition. Producers who took longer received less money for their efforts and those who produced in less time received more money for their efforts. The result was that competition forced less efficient producers to work harder and more efficiently by driving them towards the average. Competition had a homogenising effect on labour times.

In capitalist commodity production, which is an immeasurably higher mode of production, competition still enforces the rule of socially necessary labour times. Within an industry, more productive companies earn more profits and less productive ones earn less profit. If a company’s labour time rises so far above the average that it no longer covers its cost price, let alone makes a profit, it goes bankrupt. The real difference between simple commodity exchange and capitalist commodity exchange is that the movement of capital causes prices to diverge from values, which leads to unequal exchange being the norm. This makes it more difficult to appreciate or observe the impact of socially necessary times and changes to them.

The point we are concerned with here, however, is an entirely different one. Under capitalism, efficiency and productivity are driven by competition, that is by an external coercive force or compulsion which cannot be ignored. In a socialist society this external compulsion ends. It is replaced by a voluntary and co-operative discipline based on the self-interest of the worker.  Due to the abolition of classes, this self-interest translates into a co-operative interest. It can be summed up as not wasting our labour time.

The expenditure of labour is a cost to the workers who expend it. Workers give of their time and are rewarded by their product. No worker therefore has any interest in wasting their labour time or that of their fellow worker. Quite the contrary, they have every interest in reducing their labour times while preserving the quality of their work. That way they are rewarded both by lower prices and a reduction in the working day.

They do not need a manager to whip them into shape, as happens under conditions of exploitation, where the purpose is not to benefit the worker but the exploiter. This is exactly what happened in the USSR with the result that workers worked mechanically and indifferently.

Secondly, as Marx points out in his ‘Critique of the Gotha Programme, in a socialist society workers own the output of society and agree democratically and collectively how much to deduct from this social product for new investment, care for the elderly and infirm, health and insurance provisions etc. Now mark, this is a deduction. In the USSR these elements took the form of additions. Exactly the opposite of what should have occurred.

It is not a question of one or the other. The difference is crucial and is accounted for by who owns and controls the social product. In the USSR it was clearly not the workers. To separate workers from their product the first thing the regime did was under-price the output of their workers. Planned prices only covered the wage fund plus a few bits and pieces. So workers had only access to a small part of what they produced.

Then in order for the bureaucracy to appropriate the rest of their labour, they added taxes and profits. Funnily enough this was completely different to capitalism. Capitalism, for the first time in history, did not use taxes as the main lever to extort a surplus from the producers.  The surplus in a capitalist society is appropriated through the act of exchange, at the moment of sale when the surplus labour of workers is converted into profits. The bureaucracy, which did not own the means of production as capitalists do, instead had to rely on their monopoly of state power to suck in this surplus. That is why it took the form of taxes, and in this regard, this mode of extraction, had more in common with feudalism and even slavery, than it had with capitalism. A lesson our state capitalists have yet to absorb.

 It is now clear why we had these additions. The undemocratic addition of taxes and profits (behind the backs of their workers, so to speak) enabled the bureaucracy to gain control of the surplus of society. Furthermore, by manipulating the level of taxes and profits, they regulated the rate of exploitation of their workers.  So what appears at first sight to be an innocent alternative (to deduct or to add) really reveals an entirely different set of social relations, one where workers are emancipated and the other where they are dominated by a hostile bureaucracy; one in which they own the social product, the other where they are alienated from it.

But we need to go further. All these additions led to fictitious prices. In order to blind workers, the bureaucracy itself was blinded when it came to planning financially because of its imbecilic pricing methods. Secondly, these margins also distorted economic behaviour. If the margin and its yield is the primary source of revenue for the bureaucracy, then its size must be preserved.  This, as we have already analysed, encourages quantitative production at the expense of qualitative production because any improvements in productivity reduces the base over which these taxes and margins are calculated. The same margin applied to a smaller base, yields fewer roubles. For example, a cost base of R1000 and a 20% margin yields R200 whereas a cost of base of say R800 yields only R160, a loss of R40 to the bureaucracy.

Margins, both tax and profit, have no role in a socialised economy. They represent the parasitism of the bureaucracy and their need to extract a surplus from their workers. As such they presented an obstacle to the proper functioning of a socialised economy. They were disruptive and ultimately fatal.

In a truly socialised economy, prices would reflect actual costs of production in the transitional period. More precisely prices for individual products would be the combination of weighted average labour times newly added, plus the cost of the means of production used up (wear and tear of equipment, materials and energy used up) in the production of these products.

Weighted average labour times are important. If there is a preponderance of efficient factories, the weighted average will fall below the simple average and, if there is a preponderance of less efficient factories, it will rise above the simple average.  Assume a situation where revolution breaks out in the most advanced capitalist countries first and then spreads to less advanced countries where productivity is lower and costs therefore higher. As the production of these higher cost countries is incorporated, it will cause a rise in the weighted average and therefore a rise in prices. Conversely, if the revolution spreads from the less advanced to the more advanced countries, prices will fall.

The price of a product is a combination of the labour newly added, the materials and energy consumed and the wear and tear on the machinery/equipment used. The question is posed, how to cost this wear and tear? Do we do so on the basis of what it cost to produce at the time, or what it will cost to produce when the machine is worn out? The answer is really simple; we need a method which allows us to calculate accurately the effect on prices resulting from proposed future introduction of any new technique of production.

Under capitalism wear and tear is based on replacement cost. This is done to account for the depreciation of money (inflation). If this were not done, the capitalist would end up with insufficient money when the time came to replace the worn out machinery and equipment. However under socialism, where there is no depreciation of money, wear and tear will be based on historical cost. This will allow us to calculate accurately the benefit from introducing a new technique of production through its impact on prices because we will be comparing the old with the new by means of a stable or fixed currency.

There is a final aspect of pricing we need to deal with. As we said, under capitalism, competition has a homogenising effect on labour times as it eliminates less efficient producers. Had the Soviet Union had an objective pricing mechanism, one which was indissolubly tied to actual costs of production, rather than loosely tied to cost prices or, at worst, just made up, the planners would have been guided by efficiencies. If the imperative had been to reduce the weighted average price of every product, it would have been clear that this required a conscious and organised effort to progressively replace the less efficient producers, beginning with the least efficient first. This is not only the quickest way to reduce the average price of that product but also to boost production.

This would have replaced quantitative production with qualitative production; it would have replaced physical targets with cost effectiveness; inefficiency with efficiency. It was not to be. The parasitism of the bureaucracy meant that production based on actual costs could not be allowed lest it shine a blinding light on their appropriation and control of the surplus of society.

We cannot take our leave without a brief word on the role of money in the transitional period. As we have said money is reduced now to means of account. But, even here, money in the transitional period will have undergone an alteration. It will no longer be a token, or more precisely a symbolic token. It will no longer be based indirectly on a weight or quantity of another commodity, be it conches, beads, silver or gold. It will be based directly on universal labour time. Once it assumes this standard it retains this standard, so it is able to measure individual labour times throughout the world economy.  In this sense it is no different to a metre or a kilogram which remains unaltered through time.

The bureaucracy in the USSR sought to ignore labour times but labour times did not ignore the bureaucracy. By denying the role of labour time in production the bureaucracy was unable to economise on it and therefore grow their economy. Behind all human development lies the growth in labour productivity or, what is the same thing, the ability of humans to harness greater and greater natural forces to effect increasing change. And with this eternal social law in mind, we bid farewell to the deranged economy of the USSR which was as far away from a truly socialist economy as night is from day, and return to the capitalist world economy and its contradictions. The Party bureaucrats now turned capitalists will find their problems have not ended, but are just beginning.

 

 

CHAPTER THREE. CAPITALISM AND THE WORKING CLASS.

Marx describes modern capitalism as social capital, no longer private capital. This corresponds to a world economy dominated by global corporations. Here we have capitals comprising many billions of dollars and combining the labour of tens of thousands of workers. With fewer but larger corporations, investment decisions have far greater consequences on the market than hitherto. Consequently these corporations seek to reduce the effect of the invisible hand through huge expenditures on market research, by manipulating the market or even by creating a market for their products where none existed.

The size of these corporations, the size of their investments, and the time it takes to implement them, increases their vulnerability to the market. What they crave above all is market stability. Hence they draw closer to the state, encouraging it to create certainty in a world of uncertainty. The primary levers deployed by the state to achieve this end are fiscal expenditure and, more importantly, monetary/credit policy.

So despite their declared fidelity to the market, they are forced to adopt methods of planning. Their market research seeks to determine not only market needs but the size of the market. The boards of directors are really there for only two purposes, to act on these decisions and to control their workforce. Once agreed, plans are drawn up and appropriate budgets are set in place to ensure the necessary finance is available to set production in motion. All kinds of statistical methods have been developed to achieve these results.

More often than not even the most informed decisions and detailed plans are upended by forces outside their control, such as investment decisions they are not aware of, or changes in global economic conditions. The result is wasted investment, over investment or lack of investment. The shipping industry is a good example. Generally there are too few ships at the beginning of a new period of growth. Shipping rates rise. More ships are built. Then the period of growth stops. But because ships take a number of years to commission and build, there are now too many ships.

Like the seas on which these ship ride, the same wave at an earlier stage of economic development does less damage to corporations than at a higher stage of development. Higher stages of development introduce investments that are larger, more complex, take longer to bring on stream, so are more susceptible to changes in market conditions, and hence they bear the potential for larger losses. Capitalism therefore makes its own case for planning. The more economies develop and the more complex they become, so more urgently grows the need for stability. Such stability can never be achieved in a market economy.

Despite itself, capitalism is dragging society into an era of collective decision making. Planning is the conscious decision to allocate the economic potential of society in order to satisfy human needs. Planners do not make decisions about what to produce or how much, as happened in the Soviet Union. All they do is execute decisions made by consumers. The purpose of production has become consumption.

Under capitalism, the most successful corporations are those closest to the consumer; those who best understand their tastes and needs and who best satisfy them ̶ both through product formulation and service.  In a socialist society it is the consumer who decides and the planner who implements. In a capitalist society the purpose of production is to accumulate capital; in this sense it is little different to the acquisition of herds at the dawn of class society, except that in the case of capitalist accumulation, society’s productive potential is enhanced. In a socialist society, production for the first time is geared purely to satisfy society’s needs and wants.

This unity of production and consumption is expressed through planning. The media, the internet etc. will make society aware of its economic potential, what is possible, what is new and what the new will cost. Consumers can then allocate what part of their income they wish to devote to any product. These decisions can be conveyed via the internet and aggregated by the planners. Production can then be adjusted to satisfy these instructions. If nothing else, capitalism has laid the material preconditions for planning via the electronic revolution.

So, instead of having an orchestra where one player changes the rhythm which forces the others to follow suit, only to have another player change the rhythm almost immediately, resulting in equilibriums which are only momentary, we will now have a conductor. Instead of the discord of capitalism, we will have the harmony of socialism.

Does that mean innovations will be stifled? That question presupposes capitalism to be highly innovative. This is only partially true. Capitalism is admittedly society’s first systematically innovative society. Only useful products can be exchanged, so throughout the history of capitalism there has been a frenzy to find more and more useful products capable of being exchanged.

But here lies the contradiction. Whereas only useful products can be exchanged, the apparent corollary is not true ̶ namely that useful products are always exchanged. Under capitalism, the usefulness of a product is always viewed through the prism of profitability. If useful products cannot be sold for profit, they are not produced, but ignored or set aside. Below we cite a number of examples where use values are suppressed, ignored, distorted or simply misused in the name of profit.

  • Many industries stifle or frustrate innovation to protect themselves, as in the case of the energy industry.
  •  Many companies ignore products that do not fit with, or are in conflict with, their mainstream activities, for example IBM and the desktop computer.
  • Many much-needed products are not developed, such as new generation antibiotics, because the market is not large enough (despite the fact that we are only an epidemic away).
  • Patents and patent wars benefit the lawyers not consumers, raise prices and stifle new products.
  • Much innovation is spurious and extreme, driven by competition, like higher heels, films, sports etc.
  •  A lot more is devoted to developing luxury goods out of reach of the majority of society.
  • Still more innovation goes into making things look better or taste better regardless of the damage it does to the consumer.
  • Product cycles are accelerated to make for early obsolescence.
  • A significant proportion of new products are developed by the defence industries whose secrecy delays their introduction for years and even decades.
  • The search for new use values invades every corner and aspect of private life.
  • Innovation and science is abused and misused, as in the case of the pharmaceutical industry where drugs are developed not for cures, but for control of medical conditions, in order that the same tablet can be sold over and over again, month after month, year after year.
  • Innovation is turned against society. The electronic revolution promised a shorter working day and more leisure. In the hands of the capitalists, computers led to unemployment, more intensive work and the export of jobs to low cost countries that could be tightly controlled by head office through the internet.
  • Finally, there are the strategic needs of society out of reach of the corporations, in particular the three planetary priorities: large scale desalination, the chemical storage of electricity and reversing the rise of CO2 in the atmosphere.

The list goes on and books have been written on this subject. Capitalism was, and remains, only relatively innovative. Having society, rather than individuals deciding on what to produce, will make for a more systematic approach to innovation. Production for use rather than profit will end the distortions and misallocations of effort in the field of innovation.  The job security afforded by a socialist society will end the practice by scientists who resist the new in order to protect their jobs by defending the old.

Production for use rather than profit will make innovation more accessible not less accessible. It will not only channel innovation effectively and without duplication, but it will do it humanely and with kindness. A socialist society is one where we work for ourselves by working with each other, providing the conditions for each and every one of us to have a choice over what is to be produced.

 

THE MARKET AND DEMOCRACY.

The USSR provokes three fears. Firstly that planning cannot work. Secondly that only the market can guarantee a democratic society. Thirdly that the market corresponds to human nature and is a source of individual advancement. Having dealt with the first concern, we can now address the remaining two.

The emergence of generalised commodity production did introduce a revolutionary period which swept away the political oppression and interference of the landed gentry. The market does lend itself to democracy. The diverse ownership of commodities and their exchange demands formal equality between buyer and seller. The law has to treat both equally, and give neither side a political advantage. This even handedness makes the rule of law appear independent of the market participants, with no one being allowed to operate above it or outside it.

The establishment, presence and tolerance of markets in towns required the right of assembly, while the freedom to advertise and market one’s wares inspired free speech. The growth of societies based on the market in turn transformed the political superstructures. It led to an independent judiciary and parliaments that were ultimately dominated by the owners and producers of commodities.

Of course these parliaments at first represented less than 20% of market participants, being limited to the propertied class. It excluded the biggest segment of the market, the owners and sellers of labour power, i.e. the working class, including women workers in an out of the home. Long struggles ensued to win the universal franchise and to open parliament to representation from all the classes. In the end the universal democracy claimed by capitalism owed less to the largesse of the rich than to the tireless political activities of the working class, activities that were often brutally repressed.

However parliamentary democracy is limited by the division of society into a minority of capitalists and a majority of workers. Most of the decisions by which the worker is ruled and disempowered, take place outside of parliament. Parliament does not hire and fire, it does not decide wage rates, it does not decide who will work and who will not, what will be produced or which factory will open and which will close.

Those decisions are taken in the head offices of the corporations by their board of directors. These head offices are as far out of reach of their employees, as the palaces, feudal courts and temples were to the serfs and peasants. When consultations do take place, their purpose is to disarm any opposition to the decisions already made by these elitist boards of directors.

Despite formal parliamentary democracy, everyone knows that there is one set of rules for the rich and one for the poor. The Chief Executive or Managing Director of a company or bank who ruins it is fired with a golden parachute ̶ a huge sum of money in lieu of lost wages together with a guaranteed pension. A worker who does even one thousandth as much damage would be sent to jail for many years. Claimants who abuse the benefit system are left to starve while the billionaires and millionaires who scam the tax system continue to enjoy their numerous homes and yachts.

However it takes a recession to strip away the superficiality of bourgeois parliamentary democracy. The predicament facing every major electoral party, be it Labour, Socialist, Social Democratic, Christian Democratic, Liberal, Conservative etc. is this: how to carry out the orders of the tiny minority who own society, while pretending to represent the majority of electors, or at least those who bother to vote. This masterful deception is only feasible during periods of economic expansion and even then only partially.

But during periods of recession or economic crisis, when it is no longer a question of making concessions, but of taking them back, this whole balancing act falls apart. Electoral parties abandon their manifestoes, betray the electorate and quickly become discredited. If this results in voter apathy and depoliticisation, so much the better for the establishment. This then is the benefit to the capitalist class of parliamentary democracy: the channelling of political power into the hands of a few hundred MPs who meet in a Palace and cannot be recalled or held personally or criminally accountable for their actions.

At the level of class struggle, the lack of democracy is even more apparent.  Every picket, every march draws the attention of the state, who allows it to proceed only if it is tightly controlled and therefore ineffective. If workers occupy a factory or hospital that is to be closed, they are treated as criminals, regardless as to whether or not that factory or hospital is vital to the community. Furthermore, they are treated as trespassers, despite the fact that it is their past and present labour that produced these factories and hospitals. The legal thieves, the capitalists, are not persecuted for this vandalism, for this crime against the community, but exonerated in the name of competition.

There can be no real democracy in a society that is divided into a minority who own but do not work, and a majority who work but do not own. In such a society the minority will seek to rule through consent, through parliament. When that fails, as it does during periods of extreme economic distress, they will resort to what an oppressive minority always does, violent suppression. Workers will come to rue the day they supported the ‘War on Terror’, when these laws and apparatuses are turned on them (as was always the intention).

Communists do not seek to abolish the gains of bourgeois democracy but to add to them, to complete them. We seek to make democratic that which is out of the reach of the vast majority of the electorate under capitalism: control of the economy, control of the surplus of society and its management in the interest of society as a whole. We seek to elevate each and every worker to the level of managing director.

The right to vote, on its own, is meaningless, as black South Africans learnt in the 1990s. They could not turn their vote into cash, or use it as a deposit on a house or swap it for a job.  Everything had changed and nothing had changed. The vast majority remained as before: poor, desperate and unemployed.

There is only one real test of a true democrat and it is this: “Do you or do you not support the abolition of private ownership of the means of production?” Everything else is irrelevant, for without the abolition of private property in the means of production, how can there be true and lasting democracy? As long as a minority exploits the majority, bourgeois democracy will be superficial, episodic, and a sham.

A socialist society must enshrine multi-party democracy provided no party supports the return of private ownership of the means of production, itself a thoroughly undemocratic act. The working class is a class that embraces the majority of society. Its sheer size means it is riven by sectional divisions, especially that of skill, but also by sex, age, race and nationality.

Within the overall class interest, special interests will exist with differing priorities. Some sections of society will campaign for the speediest abolition of the difference in skills, for the advancement of women, some will campaign for more funds to be devoted to repairing the planet, others for the rapid advancement of the less developed economies and so on. A single workers’ party should seek to represent these diverse views, but if it cannot, these groups should be able to form factions or even parties to make their voices heard and to negotiate.

No one can say in advance what political forms will emerge. What can be said is that a democratic socialist society based on majority rule, has to be a lively place for politics.  At the very least it will transform television from the opiate of the masses into an exciting medium to both inform and give voice to debate from every corner of society.

The workers’ state that will replace the bourgeois state will have to assimilate all these demands. It will represent the principle of equal right within an unequal working class  ̶  courtesy of the legacy of capitalism. As soon as the socialist economy is flourishing and the protection of collective property is no longer a concern, as soon as inequality within the working class vanishes, so the state no longer serves a purpose. It withers as its role of protecting and arbitrating vanishes, leaving only its administrative function. It thereby ceases to be a state.

It ceases to be a state in a double sense. Collective property itself is a mere legal transitional form. When the means of production and the land are owned by all, it is no longer owned by anyone. It thus ceases to be property and it therefore no longer requires a state to enforce property rights. The state, which was born out of the formation of property in land and the instruments of production, ends its days through the act of dissolving property in the means of production and in the land itself.

Democracy has put an end to itself by putting to an end the inequality that gave rise to it. In its place will emerge newly emancipated individuals who no longer distinguish their needs from the needs of others. No longer will members of society be connected by the things they produce or want, but by direct human and personal ties. A harmonious and egalitarian community will have been established.  As Marx said, this will represent the birth of true human history, the dawning of a new age.

 

 

THE VAST MAJORITY OF SOCIETY ARE WORKERS.

Finally let us deal with the view that the market encourages and rewards individual effort. As the saying goes, ‘We are hardwired to buy and sell, and inside each and every one lurks a hidden trader.’ In other words capitalism describes our being. This nostalgic view may be romantic but it is completely out of touch and irrelevant.

It is now two hundred years since the introduction of the factory system which secured the future of capitalism. In those two hundred years there has been an immense concentration and centralisation of capital. Today we are surrounded by huge corporations and banks. Within most countries four or fewer companies dominate each industry, controlling at least 80% of output and trade within it.

On a world scale, most industries are dominated by fewer than twenty corporations. Some industries such as aerospace, mobile phones and computers are dominated by fewer than ten corporations. It would be accurate to define this state of affairs as ‘international monopoly capitalism’. Most of the world’s Research and Development takes place in these companies. The swarm of smaller companies that circulate around these corporations are beholden to them.

Of course it is true that these large companies become less nimble and more cautious as they grow larger, that reporting to Wall Street or the City of London every quarter discourages long term strategies and leads to cautious and incremental improvements. Nonetheless their size makes possible economies of scale, the streamlining of production and the ability to harness the latest technologies.  These technologies often involve huge outlays, many running into billions of dollars, and are out of reach of the smaller companies.

The wheel of history cannot be turned back. Small is not necessarily beautiful. These giant companies unite hundreds of thousands of workers in common effort. They teach humans how to combine and co-operate. They tend to be much more productive than their counterparts in smaller companies. We should not confuse ownership with size, and therefore identify the problem as being size.

Moreover, it is easier to expropriate handfuls of giant corporations than tens of thousands of smaller enterprises. It is easier to build an integrated world economy on the back of these multinational corporations. Indeed these corporations provide the best school for internationalism, because the workers of the different nations will have to learn to unite if they are to stand up to the attacks of these world-sized companies.

Finally let us address the myth of social mobility. Here we may consider the legendary ‘American Dream’. For the majority of North Americans, this dream is really a nightmare. As with the lottery, only the winners are highlighted and the millions of losers ignored. Most Americans are mired in poverty with no way out.

The fact is that capitalism breeds failure not success. In order to maximise profit, capitalism has to reduce its paid costs of production. It analyses every labour process in great detail with the purpose of breaking it down into the maximum number of simple and unskilled steps. These are then held together by the minimum number of skilled or intellectual steps.

By reducing the labour process into a large number of unskilled tasks, production can be carried out by cheap and unskilled workers. Hence the vast majority of jobs in the world continue to be repetitive and unimaginative, while only a minority are skilled and stimulating. Capitalism and its quest to reduce the paid costs of production, therefore necessarily creates a society based on failure, due to its need to trap the vast majority of society in low paid unskilled work.

Capitalism covers this truth with the myth of education. Education is presented as granting each person the ability to secure skilled work, of levelling the playing field. But education does not alter the mix of skills in production. If too many skilled students graduate, creating a surplus, they have to accept menial jobs for which they are overqualified. In reality the primary purpose of compulsory education is to prepare the next generation of entrants to the labour market.

The indispensable condition for this is the separation of production and education. Production encourages collaboration whereas compulsory education encourages competition. Capitalist education creates the environment which allows the employers, via the exam system, to divide the youth and force them to compete with each other. The isolation of exams mimics the time when individual students will appear alone in the labour market, to sell their labour power. This form of education thus makes it easier, not more difficult, to consign the next generation of society to a life of failure, by destroying any bonds of solidarity between them.  And all this is done under the veneer of equality of opportunity.

Since the 1980s and the defeat of organised labour, the rich have got richer and poor have become poorer. The top 200 billionaires own more than the poorest 2 billion inhabitants of this planet. The rich have remained the rich and the poor have remained the poor. Indeed such is the lack of mobility that we may define the upper crust of society as a new aristocracy whose children are princelings, destined to monopolise the best in society, be it education or job opportunities. The privileges that surround them are akin to the old castle walls and moats that, in previous societies, protected the rich from the poor.

Worse, the combination of growing inequality and tax dodging has a deadly effect. With wealth flowing into fewer hands and these hands hiding tax, governments are increasingly deprived of revenue. The result of this tax strike by the rich is a savage attack on the poor as services are culled and help is withdrawn.  The super-rich are now extraterritorial. There financial affairs are truly international, untouchable by any national jurisdiction or tax authority. Yet one more reason for workers to think and act internationally.

The foundation for this lack of mobility is class. The apologists of capitalism never tire of clouding this class reality in order to obscure class divisions. In response we declare, a worker is one who works with means of production owned by another. Forced to sell their labour power, they either earn a wage, a salary or a commission. Using this objective criteria and not individual perceptions, it becomes clear that the vast majority of society are workers amounting to over 80% of the population. The fact that they may work in different occupations, different environments, enjoy better pay and have different levels of skills, is unimportant. They belong to a class of dispossessed producers whose ability to live depend on their ability to acquire work from others.

It takes a recession to blow away the illusions over class. Mass unemployment and the fear of it, reveals to every worker their vulnerable position in society. It wipes away their pretensions. Over the years the outlook for the working class in the developed world has worsened as competition from low wage countries has intensified. For these hundreds of millions, revolution is not an option, rather it is a necessity if they are to survive and thrive.

 

IN CONCLUSION.

Since 1970 the world capitalist economy has suffered six minor and major recessions. During this time it has been supported by the collapse of the USSR and the opening of China to the world market. Above all the defeats of organised labour in the 1980s have shifted the balance of forces decisively in favour of capital.

The twenty five years since the fall of the Berlin Wall has been a period of reaction or, as it has been more popularly called, neo-liberalism. In order to free the market, many of the democratic gains won by the working class have been rolled back. While capital has become more international, the trade unions remained fractured by nationalism.

One of the features of this period has been the growth of religion. Up to the present, the acceptance that there is no alternative to the prison house of capital has hung heavily on the world. The rise in religion cannot be explained otherwise than as an abandonment of hope. Countless millions have sought to escape the economic misery and the predicament they find themselves in, not in politics, but in the anaesthetising embrace of religion.

There is no final economic crisis that will topple capitalism. The general law is that the more capital develops, and with it the composition of capital, the more capital that has to be destroyed in order to restore profitability. This means that the working class is called upon to make larger and larger sacrifices at the altar of capital. The sacrifices made to date have almost gone unnoticed by a media totally dominated by the rich. One fact spells it out. In the world’s leading economy, the USA, real wages are stuck at their 1973 level. While US workers’ productivity has more than doubled since 1973, not one cent of that increased productivity has ended up in their pockets.

But even this depression of wages has not been enough. Not only has capital virtually bankrupted its workers to survive, it has now bankrupted its own governments. They have been forced to bear the losses suffered by the banks since 2007. The world economy, whose heart almost stopped a few years ago, remains in intensive care dependent on monetary support by the central banks.

The length and extent of this trammelling of the working class is unprecedented and it is still without an end. The future facing workers in the developed world continues to be one of falling full-time employment, stagnating wages, rising taxes and decaying services. While the outlook in the developing world looks more promising, much of this growth depends on the Chinese economy.

The future of the Chinese economy is however just as murky as the smog that clouds Beijing and most of its other major cities. The fact is that the Chinese economy has still to complete the transition to a fully-fledged capitalist economy. China is an economy of two parts. One part is integrated into the capitalist world economy and being highly profitable, is a source of revenue for the state.

The second part ̶ mining, heavy industry, banking, local government, communications and infrastructure ̶ is a relic of the past. Here the capitalist social relation is not fully established. By this we mean the two part relation, which begins with a purchase and ends with a sale. In the state owned enterprises referred to here, the second exchange is often absent or modified. In its absence, goods are often exchanged for debt, there is therefore no surplus cash, and therefore no profits. Production here is not guided by profitability but by state commands, both central and local, and is paid for by credit issued by the state banks.

The expansion of credit need not produce a bubble, provided it is reinvested in profitable production, allowing future profits to repay the advanced credit. However, if it used to sustain private and unproductive consumption like housing, it produces a bubble and ultimately cannot be paid back. If it is used to promote unprofitable production or excessive production that cannot be sold for cash, it also cannot be repaid.

In the state controlled section of the economy, state sanctioned credit has generated unregulated expansion. State owned enterprises produce 50% of economic output but absorb 85% of all bank loans (cited by the US Congress report for 2009). This has resulted in overcapacity, overproduction, the squeezing of the private sector and of course the amassing of huge debts. False accounting masks the exact size of this debt mountain, as it does the actual growth rate of the Chinese economy. Tangentially the growth of credit in relation to output demonstrates that most new credit is being used, not for production, but to service the growing debt mountain. Credit is increasingly chasing its own tail.

However, unlike the USSR of the 1980s, the Chinese bureaucrats have a workforce that does work rather than pretending to work, and they have the advantage of a broadly based export industry, as opposed to being solely reliant on oil exports as Russia was then. Notwithstanding these advantages, there is a real possibility that soon indebtedness will overwhelm the benefits derived from the export side of the economy. The Chinese leadership understands the unsustainability of this drain on the economy and have made public their anxieties, but like their bureaucratic counterparts in the USSR, they seem powerless to act.

They are unable to act because the legitimacy of the self-styled Chinese Communist Party, itself home to countless millionaires and even billionaires, rests on its ability to expand production in order to create jobs and raise standards of living. This would be unachievable if they were to reign in the statist part of the economy. Secondly, although to a lesser degree, the bureaucracy’s power and corrupt income also derives from its control over this section of the economy.

To date the growing Chinese economy has helped prop up the economies in the developing economies. Should it stumble, it will precipitate economic crisis in these countries, which up until now have been the only dynamic part of the world economy. A world depression which has been avoided hitherto will have become a reality. It will mark the definitive end to the long wave of expansion set in train by the political changes introduced in the 1980s.

 

LET THE DEBATE BEGIN.

In the period prior to 2007 the capitalist class arrogantly thought they had finally triumphed over the international working class. They declared the end of history, that capitalism had won, that it was the highest expression of human economic activity. However, the most fundamental financial crisis since the Second World War has caused them to pause and consider just how insecure their economic system actually is.

It took an event as momentous as this financial crisis to reopen the debate over capitalism. This time the capitalists had no one to blame for their woes. There were no militant unions to point fingers at, no galloping wage demands and no overweening state.  Two decades of neoliberalism, of letting the market rip, had left the capitalist class ideologically naked. This was capitalism in its pure and ugly form.

Everywhere the weight of insecurity crushes the possibilities lodged in production; namely that society’s productive potential is sufficient to provide each and every one of us with a comfortable and secure life. In the USA the wealthiest 20% consume 75% of retail sales and the remaining 80% have to be satisfied with 25%. (President’s Advisory Panel analysis of Hybrid Sales Tax Bill) Redistributing this wealth from the top 10% to the other 80% would result in a doubling or even trebling of their living standards.

In addition estimates of the unpaid taxes in various havens is put at $32 trillion. Add in the $10 trillion lying unspent on the balance sheets of the world’s private and public global companies and the unknown sums lying idle in the banks, and there is enough unspent capital to finance hundreds of millions of new jobs overnight. If capitalism invested this idle hoard, it would create sufficient jobs to prevent workers being forced to migrate from country to country looking for work. Most workers would prefer to stay at home if there was work. Instead, immigration is dividing the international working class, fracturing it and encouraging workers to support immigration controls for their country.

Immigration controls are seen as a solution to the growing competition in the national labour market. But it is a false solution because it treats only the symptoms of the disease. The cause of the disease is the lack of investment internationally. Immigration controls are not a cure because they will not lead to increased investment, only to turning worker against worker as they compete for a dwindling number of jobs.

Globalisation is an aspect of this fall in the rate of investment. What little investment there is, is directed at the lowest wage economies. Production there expands at the expense of production in the higher waged economies. The resulting competition from these low wage economies helps drive down wages throughout the world economy. There is a race to the bottom.

So while investment is international, workers remain organised nationally. The trade union bureaucracy is not interested in building international alliances and helping to organise the workers in the lowest wage economies. Instead they are only concerned with protecting their privileged positions within their union.  Accordingly they join the patriotic chorus for more immigration controls and protection of the national economy.

This is the opposite of what is needed. Now more than ever workers need to raise their consciousness, to become internationalists, to realise their problems are shared with the workers of all countries. The solutions to the problem of capitalism are international and workers need to shake off the shackles of the nation state if they are to make history and free themselves.

Not only is capitalism stuttering, but there is also a growing awareness that most of the problems facing humanity cannot be dealt with by the system; that capitalism is the problem, not the solution, to the global crises facing humanity. First and foremost that means climate change. Climate change is not accidental. It is caused by the drive to reduce the paid costs of production in order to maximise profits. If pollution can be ignored, passed on, regardless of the damage to society or consequences for the future, it is not seen as a cost.

To be blunt, it is only when pollution or climate change has to be paid for that capitalism recognises it as a cost. This is not so under socialism where there is no distinction between paid and unpaid costs. In such a society pollution will be recognised for what it is: a collective threat to society that has to be dealt with immediately. Liberated from the shackles of private property and the need to maximise profits, a socialist society will be free to mount a concerted, orchestrated and mass campaign to reverse the damage industrialisation has inflicted on our home. Imagine the difference had the $4 trillion wasted on the ‘War on Terror’ been spent on reforestation and alternative forms of energy. Perhaps it is time to change our slogan from ‘Socialism or barbarism’ to ‘Socialism or climate catastrophe’. Capitalism could cost us the earth.

But it is not only the planet that is being polluted, it is our bodies as well. We face an epidemic of chronic diseases so beloved by the pharmaceutical industry: obesity, heart disease, osteoporosis, colitis, diabetes, cancer, depression, dementia to name a few. The inability to learn at the beginning of life is juxtaposed by rotting brains at its end. Society has been turned into a careless economic jungle where the corporations roam. In its undergrowth more and more life is trampled on. As society becomes more unequal, so illness accelerates.

It is time we ended the ten thousand year rule of private property that is now global. It is time we created an international society in which we all own collectively, thereby ending all divisions and competitive antagonisms. In doing so we not only set free the productive forces, but we end the threat of nuclear war. Through abolishing private property we end the competition over private property and the drive to acquire additional private property by alliances of national groups of capitalists that always and everywhere provokes and fuels war. War was and remains the intensification and extension of economic competition into the military arena.

The overture to the symphony of revolution is always sounded by intense ideological debate. Society is forced to consider and debate the way forward.  A society which can no longer provide for the bulk of its citizens, that promises a future of falling standards of living, where children will be poorer than their parents, has lost all its legitimacy and purpose for being. Once again the question of socialism can no longer be ignored.

It is time to make society fit for the human race. To take society forward and build on its gains. Of course we expect our critics to dismiss us as idealists fated to repeat history. Let us reply to these enemies of change as politely as we can: ‘Only idealists can change the world’ but idealists who are also scholars, not only change the world, they secure its future. And they do so because they have diligently studied the past. Understanding what happened in the USSR is not an obstacle to changing the future, it is a necessary condition for the successful and irreversible transformation of society.

 

Brian Green.

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