The Roots of Capitalist Crisis:
Why the Collapse of the World Economy is Inevitable


"All science would be superfluous if the outward appearance and the essence of things directly coincided." (Marx)

For the learned economists of universities, governments and think tanks, the unstoppable slide of the world economy towards chaos and turmoil seems to take place in a dense mist. They are all experts in describing and measuring what is right in front of their noses but, for the total picture, they don't have a clue. The mist was less dense for the ‘classic’ bourgeois economists of the eighteenth and early nineteenth century like Smith and Ricardo, who were not afraid to probe the fundamental mechanisms of the system that was growing before their eyes. Today, that system is no longer enjoying a healthy expansion but is bogged down in structural crisis.

For today's bourgeois economists, the fundamental questions have become too frightening. What distinguished the ‘classic’ economists from their epigones is that they dared to look at the economy as a whole, as one integrated system. It was through the study of the totality that they gained insight in its parts. For today's bourgeois economists, that viewpoint has become too frightening. They study the parts, but because they run away from the analysis of the totality, they fail miserably even at that. With their vision limited by the blinkers of the competitive class interests they serve, they can only raise questions such as how to compete better, how to gain wider markets, how to cut costs here and there. They try to impress us with statistics and computer models but then complain that it's the fault of today's world's complexity, not of their methods, that all their forecasts are unreliable. As for the solution to today's structural crisis, they shout with one voice that the growth rate of productivity must increase, but admit with refreshing honesty that they don't really know what made it stagnate in the first place. Clearly, for them it would sound as a total absurdity to say that this very productivity was not only the cause of capitalism's phenomenal success in transforming the world and creating ever more wealth, but also the cause of its decay and insoluble crisis.

That view was Karl Marx's whose ideas are supposedly forever condemned by the collapse of the Eastern Bloc, even though the only connection between the regimes there and Marx was that they usurped his name and legacy. To find a cogent explanation of the world economy's crisis, Marx's work is still the only possible point of departure.

It is not the stagnation of productivity that causes capitalism's crisis but the other way around: capitalism's crisis turns the potential bounty of the productive forces into a nightmare. Productivity is higher than ever and, with the rapid development of information technology, there is no technical reason why it couldn't rise faster than at any time since the industrial revolution. Capitalism's apologists, who pretend that the present economic dislocations are merely the birth-pangs of a new era of rapid capitalist development, blabber like excited children about the global transformation of life and work that becomes possible. But what we see instead is a world economy in which a large part of mankind must scratch out a living with primitive production methods, in which an ever larger part is excluded from productive activity altogether, and in which even the most developed part of the economy grows anaemically - if at all - and more and more human needs are unmet.

Why, if the technological potential is so great, do we see more and more hunger, homelessness, epidemics, decay, violence and despair? Why are we moving closer, not to some promised land, but to global catastrophe? We have the wings to fly and yet we're afraid to leave the path that leads straight to the abyss.

It's true that this path has led to progress. Productivity has grown throughout capitalism's history. Capitalism lays claim to humanity's continued servitude because it has succeeded better than any other mode of production in developing the means to produce what humans need. But while it boasts that it is the most efficient, indeed the only possible, method to satisfy our needs in this era that is not its purpose. It justifies its existence on the base of its capacity to produce the use values we need but, for capitalism, the production of use values is only the means to produce exchange value. That use value and exchange value are not the same is clearly demonstrated by the wide gap between the ever greater know-how and resources to meet human needs, and the ever larger number of needs that are not met. The first expresses a growing capacity to expand use values, the second a growing incapacity to expand exchange value. The second blocks the first because, in capitalism, the growth of use values is but a by-product of the growth of exchange value. Capitalist production cannot exist without the growth of exchange value. If the exchange value of what is produced and sold is not higher than the exchange value of the labour and materials consumed in production then there is no profit and thus no reason to produce.

Exchange value, as classic economists such as Adam Smith discovered, is based on the labour power used in production. But the continuous growth of productivity implies that ever more can be produced with ever less human labour. Commodities become cheaper and more abundant since the same quantity of use values contains ever less exchange value. But that also means that ever more use values must be produced to obtain the same quantity of exchange values. This has two important implications which explain why capitalist production must break down.

First, capitalist production assures the growth of exchange value because the exchange value of the labour power that it buys with wages, is lower than the exchange value of the product of this labour power. The difference is surplus value, the unpaid part of the labour power used in production, the source of the capitalist's profit. But the more the overall labour power in production declines as a result of growth in productivity, the more its unpaid part declines and thus the more the rate of profit tends to fall.

Second, it is not enough that exchange value grows in production, this expanded exchange value must also be realised. In the form of unsold goods, it loses its value. But selling it is not enough either. Artificial demand can be created easily. But for production to continue and expand, the bulk of the product must be exchanged in such a way that the wheels of production continue to turn. Exchange value must return into the production process and it can only do so if it takes the form of the use values that make production possible: infrastructure, tools, raw materials and means of living for the producers. So it is the market for the use values productively consumed that must expand fast enough to make the completion of the cycle of exchange value possible. This market must expand at an ever-faster rate, because the rise of productivity implies that the same quantity of exchange value is embodied in an ever larger quantity of use values. But the rise of productivity also implies the decline of the use of labour power in production and therefore a relative decline in the number of producers. So the market for the use values consumed by producers must decline too, along with the market for the means of production that are used to produce these use values. But is precisely these markets which must grow ever more rapidly to make the expansion of exchange value possible.

These two fundamental and insoluble contradictions - the tendential fall of the rate of profit and the growing rift between production and productive consumption - and their interaction are the subject of this text. In Part One, we analyse the tendendial fall of the rate of profit. We will see that this fall is inevitable, because the disease and its apparent cure are identical. The rise of productivity reduces the use of labour power in production and thereby pushes down the average rate of profit; yet every capitalist tries to escape from this downward trend by raising productivity, to lower his production costs under the average and so obtain a surplus profit - and, over time, causing a further decline of the average rate.

We shall show that no compensation for, or tempering of, the fall in the rate of profit is achieved either by the increase in the absolute mass of profit, or by the apparent cheapening of the components of the production process, or by the growth of stock-capital. We shall study in some detail the real counter-tendencies which slow (and at times arrest) the fall of the rate of profit, and their limitations. We shall also show why the fall of the rate of profit in itself does not cause a global breakdown of capitalist production, which can only be understood through the interaction of capital's twin economic contradictions. We shall analyze the mistakes of the influential theory of Grossmann-Mattick, (which denies the second contradiction yet fails to understand the first), a theory based on false assumptions and that cannot explain reality

In Part Two, we shall examine the second contradiction, caused by the barrier on capital's market, imposed by its own relations of production. We shall explain why this does not just mean a lack of ‘effective demand’ and why this contradiction cannot be solved by increasing the consumption of workers, capitalists or others. We shall explain why the market contradiction is neither static nor permanent and will demonstrate (both on empirical and theoretical grounds) why the static theory of Rosa Luxemburg, who thought that the market contradiction is triggered by the disappearance of extra-capitalist markets, is based on errors.

Because of the limitations of space, the text ends at that point in this issue of IP. In Part Three, to be published in the next issue, we shall continue our analysis of the market contradiction. We shall show why the conflict between exchange value and use value is not solved by the difference in the accumulation-rates and thus in the proportions of the different sectors of production; on the contrary, these (dis)proportions are themselves influenced by this conflict. We shall analyze how, when the fall of the rate of profit has created the conditions, the market contradiction leads to the global breakdown of capitalist production.

Finally, in Part Four, we shall examine more concretely how the two contradictions have developed and interacted, from the industrial revolution to the present-day dead-end. We shall analyze the role of war, reconstruction and the expansion of capitalism's terrain of action, as well as the unfolding of the crisis today.

One final note. Although this text could not have been written without the input of other comrades in IP, it is signed individually. This debate is far from finished in our group and we hope that others in the revolutionary milieu will participate in it. No-one can deny that the subject is of vital importance if we want to develop the clarity and coherence we need in order to play our role in the coming, decisive battles. Those who dismiss this concern as ‘academic’, those who reject this contribution because it threatens their sectarian dogmas, prove only that they haven't understood this role at all.



Part 1 - The Inevitable Fall in the Rate of Profit

Part 2 - The Immanent Barrier to Market Expansion

Part 3 - From Decline to Collapse

Part 4 - The Impasse of Globalization

Part 5 - The Law of Value of the World Market

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