Yaffe and Bullock - Inflation, The Crisis and the Post-War Boom

Inflation, the Crisis and the Post-War Boom - David Yaffe and Paul Bullock, 1979

Part I

The Crisis as it Presents Itself

PART I. THE CRISIS AS IT PRESENTS ITSELF

(a) Introduction

In an editorial contribution at the end of December 1974, The Economist, the house journalof the British industrial bourgeoisie, somewhat belatedly announced the end of the post-warboom. It told its readers that the greatest boom in history was over, a boom which saw industrialproduction rise an unprecedented three and a half times between 1948 and 1973. It painted athreatening scenario of heavy unemployment ahead in a world slump which could carry in itswake the disintegration of the 'social structure of democracies'. As heavy unemployment andcuts in living standards became general, individual nations, The Economist argued, would retreatinto siege conditions as protectionist measures became widespread. The world economic climate

has turned hostile: National capitals must prepare to defend their interests at home and abroad.1

The class instincts of the bourgeoisie dictate this unsentimental and decisive turn. Thebourgeoisie is no more able to understand this development than it can explain the duration ofthe post war boom. But its reflexes have not been impaired. For Britain the programme of thebourgeoisie is brutally plain. It demands large cuts in state expenditure, a wage freeze and adevaluation of sterling (already well underway). It calls for a massive shake out of labour and

severe curbs on Trade Union rights.2 In short, it represents a concerted assault on the workingclass to force down wages below the value of labour power in an attempt to restore theprofitability and improve the competitive position of British capital in an increasingly hostilecapitalist world market.

The post war boom, with its massive expansion of production and productivity, allowednational capitals to share out world wide profits according to their relative competitive positions,Hence the relative 'peace' between the advanced capitalist nations; 'so long as things go well,

competition effects an operating fraternity of the capitalist class'.3 However, now that it is nolonger a question of sharing profits but of limiting losses 'competition then becomes a fight of

hostile brothers'.4 Each national capital, as well as confronting its own working class, will beforced to limit its losses at the expense of other national capitals. Protectionism, import controls,competitive devaluations all become acceptable measures as each national capital attempts to

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survive.

The crisis of world capital, therefore, expresses itself at both a state and inter-state level, as aconflict between labour and capital and between capital and capital. Each ruling class will tryand gather together the support of sections of its own working class, attempting to split theworking class movement in this struggle to survive. Calls for national sacrifice and nationalunity, appeals to national chauvinism will be used to cover over capital's primary aim: to 'solve'this world crisis, like the last, at the expense of the working class.

In these conditions the reformist traditions of the working class movement, traditionsconsiderably strengthened throughout the post war boom, have flowed spontaneously through tothe present. While the ruling class is calling its troops to arm, the working class is being disarmedby the ideological and political unpreparedness of our movement. In Britain, the politics ofreform which guided the TUC through the post war boom - a period of gradually rising livingstandards even for Britain - has not basically changed. While the bourgeoisie attempts to drivehome its class interest, placing the burden of the crisis on the working class, the trade unionleadership looks for joint solutions, a shared responsibility with the ruling class for 'overcomingthe crisis facing the country'. So there are joint talks between the TUC, the government and theCBI. Jack Jones, once regarded as a pillar of the left-wing of the labour movement, becomes thespokesman for this fatal trend.

'The trade union movement must find ways and means to secure a positive response to the

Government's efforts in fighting off the effects of the economic crisis.'5

This loyalty to a Labour government intent on massively reducing the living standards of theworking class is not only the prerogative of the 'right' and 'centre' of the Labour Party.Wedgwood Benn, for example, at the annual conference of the Institute for Workers' Control,1975, told the left-wing critics of the Labour government not to work for its destruction.

'We must sustain and maintain that Labour Government...there is too much at stake to risk tolose it.'

According to Benn, the problems that the government had inherited had been 'much biggerthan foreseen' in 1973 when the Labour Party manifesto was being drawn up. Under suchcircumstances to make a principled stand and resign when the government introduces policiescompletely at odds with its 1974 Election Manifesto is not, it seems, the best thing to do. Rather,Benn argues that it is necessary to influence government policies from within the movement to

bring about the implementation of that manifesto 'as far as possible'.6 In this respect he does notdiffer from Jack Jones, because essentially he sees 'socialism' being brought about through areformed, more efficient and more equitable capitalism. His programme for Britain makes thisvery clear when he calls for;


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'an unprecedented national programme of investment leading within a decade to thecompetitive and profitable manufacturing industry we desire, recognising that to do so we must

inevitably guide our mixed economy to make this possible.'7

This has to include reforms which take into account 'the role of people and their right to

control in various ways the decisions which affect their lives'.8 Together they constitute part ofthe Utopian and nationalistic programme which is becoming common among sections of theBritish 'left'. For Benn it is the Labour Government and the much heralded (and maligned)National Enterprise Board which are to be the institutional means to carry through thisprogramme. This is why he, like Jack Jones, is still committed to this Labour Government.

It is precisely at a time when capitalism moves into crisis that it most needs a reformistleadership of the working class. Reformism, as an ideology within the working class movementwhich sees 'socialism', gradually evolving from a reformed capitalist state, inevitably ties theworking class to such bourgeois ideological conceptions as 'national unity' and 'national crisis',while at the same time attempting to reconcile the class conflicts which will inevitably rise insuch a context. Programmes for nationalisation, workers' cooperatives, democratic control at thework place and other 'radical' measures spontaneously arise to the surface precisely in periods ofthreatened unemployment, redundancies and closures of factories. But as such programmes areconceived within the framework of capitalist production - the so-called 'mixed economy' - theyeventually constrain the working class to the interests of the ruling class. That is why there isnothing inconsistent in Benn playing a leading role, during a period of growing crisis, in arguingfor 'radical' views and at the same time calling on the 'left' to sustain a Labour Governmentintent upon complying with the interests of the international bankers and the Confederation ofBritish. Industry. The Economist with its characteristic smugness, drives home the essentialpoint.

'Labour's first 500 days of government since February 1974, have achieved one object whichshould not be undervalued: the education of the general public, left-wing ministers and trade

union leaders in the inexorable laws of economics.'9

As long as capitalist relations of production remain unchallenged it will always be the'inexorable laws of economics' which underlie the rationalisations of those, whether of the 'right'or 'left', who seek solutions to the problems facing the working class as the crisis develops.

(b) The crisis seen as a British crisis

The present crisis is a world capitalist crisis. It presents itself in the empirical form of anaccelerating inflation, stagnation and sharpening tensions between nation states. Although therehas been a recent slowdown world-wide in the rate of inflation this has been due to an enormousincrease in unemployment and a large fall in industrial production. In most industrial countries


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the working class has suffered significant cuts in living standards. Britain, one of the weakercapitalist countries, has had a slower growth rate and a lower investment rate than any otheradvanced capitalist country. It now suffers from a much higher rate of inflation. This has ledmany, including the radical left, to see the cause and solution of the crisis in a British context.

Ex Tory Prime Minister Edward Heath, in a speech in the House of Commons (22.7.75)argued that the reason for recurring crises in the past 30 years is that Britain has an unbalancedeconomy. The solution, it would seem, is to turn the British economy into one with a reasonable

balance of wealth, trade union power, management expertise and so on.10 What is significant,besides the empty rhetoric, is the presentation of the crisis outside of the context of a developingworld crisis. So a solution is conceived in the form of a national, British solution. It also impliesthat it can be solved by better economic management or better government.

If this conception did not also underlie the views of sections of the radical left, it would not beworth remarking on. But it does. While the radical left recognises the existence of a developingworld crisis of capitalism it nevertheless concentrates on the particular problems of the Britisheconomy and again conceives of a national, British solution to the crisis. So, in a recent

pamphlet, Britain's Economic Crisis,11 the end of the great post war capitalist boom is ofsignificance because it 'has starkly revealed the bankruptcy of the advice proffered to theLabour government by the orthodox economists.' It is the acceptance of such policies and thoseinternational links with the world economy that they imply which has 'prevented the pursuit ofprogressive economic policies in Britain'. The current crisis, however, and this is central to theargument, is 'simply a severe manifestation of the deep-rooted structural problems which have

plagued the British economy and British society for the last century.'12

This British orientated view of the crisis is common in the Labour movement. So the TribuneGroup can call on the government to 'introduce a set of measures which would go some waytowards re-establishing "confidence" - not the "confidence" that the City of London wants, but aconfidence in the ability of British people to escape from the present crisis without furthersupplication to those who see no alternative to drag us even deeper into the Western world's

economic problems'13. A recent ASTMS discussion paper argues in the same vein.

'In this document we discuss measures to cushion the effect of the world recession in 1975,and argue that Britain can be set on an expansionist course in 1976. Any deepening recession inBritain beyond the end of this year - with the attendant unemployment - would above all

represent a victory of Treasury orthodoxy over rational and radical economic thought.'14

It can argue this precisely because it puts down the crisis of British capitalism to a shortfall inproductive investment, the build up of property speculation and gross economic mismanagementin a system which, even when working well, has not distributed wealth fairly, nor has been


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capable of creating it.15

The Communist Party of Great Britain, while also recognising the deepening crisis of thepresent stage of capitalism, nevertheless puts the low growth of British capitalism, and so the

aggravated form of the British crisis, down to 'deliberate government policies'.16 All these viewssuggest that capitalist Britain could escape these 'inexorable laws of economics' by having aradical government taking progressive measures to protect British capitalism from the effects ofthe world crisis. In this respect, as we shall see, these positions have both a reactionary andutopian content, in spite of the fact that they are often cloaked under the guise of 'socialist'policies.

All these programmes call for strict controls of imports. So Tribune argues:

'...to protect our industries and facilitate our planning policies through the mechanism ofimport quotas in relation to specific industries including machine tools, heavy engineering goods,cars, textiles, footwear etc., and/or through import surcharges of 20 to 30 per cent on specific

goods.'17

Import controls, according to the ASTMS argument, would give Britain the opportunity of

'escaping from being dragged down in a three or four year world recession'.18

They would, also allow a massive programme of investment to restructure British industryshielded from the damaging effects of uncontrolled trade and capital movements to othercapitalist countries. British industry and commerce, we are told, has to be made responsible to

Britain over and above obtaining the highest financial return on a world wide basis.19 Thedocument, however, at the same time, can call for an investment policy directed to the growth,export-oriented areas. Such a programme, according to Tribune, would allow Britain to compete

on equal terms with its competitors.20

The funds for this industrial investment necessary for overcoming Britain's long-termstructural problems, common to all such programmes, are to come from various sourcesdepending on the radical claims of the writers. They include the sale of shares and assets ofBritish companies abroad, and preventing the free movement of capital abroad (CP, BEC),mortgaging a part of British North Sea oil supplies through oil bonds and recycling pension funds(Tribune), cutting down military and other 'wasteful' expenditure (CP, BEC, Tribune) and anefficient use of the National Enterprise Board (ASTMS, Tribune).

What seems a simple solution to increase employment and competitiveness in one country -import controls/export led growth - becomes reactionary when viewed as a whole. Jobs saved inone country become lost in another in a period of growing capitalist crisis. Unemployment isthrown on to workers elsewhere. International trade already falling will fall further still. As one


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country takes protectionist measures another will retaliate in order to survive. The laws ofcapitalism cannot be overcome in this 'commensensical' way.

If the commodities produced are not competitive with the exports from other countries, thento bring prices down will require large increases of productivity, which, at the present time,means a growth of unemployment, or a large reduction of costs which, for the capitalist, meansmuch lower wages. Import controls will not prevent the capitalist from eventually forcing wagesdown and reducing employment in that industry. Import controls and growing internationaltensions are an indication that capitalism, unable to bring about international co-operation isabout to plunge the world into another round of economic and political conflict in which workersof one country are set against workers of another. Neither will the 'national' solution of importcontrols do anything to develop the productive forces in a planned manner. Rather the resultingstagnation and loss of foreign markets will be used to justify even more massive doses of wagecontrol and government cut-backs - all in the 'national' interest.

All the programmes of the radical left see some progressive way out of Britain's economiccrisis though a British, state controlled (-managed) capitalism of varying degrees. Suchprogrammes are reactionary because they try and turn their backs on the historical developmentof the international division of labour. They do not recognise that the development of theproductive forces to the degree achieved today come about precisely because capital is driven

beyond national barriers.21 Socialists see this as their starting point and recognise that capitalismis no longer progressive, and this has been the case since before the first imperialist war, becausecapital has itself become a barrier to the further development of the productive forces on thisinternational basis. The expansion of the post war boom required as a precondition yet anotherimperialist war, and the massive defeats of the working class movement which were a prelude tothat war.

As the crisis develops, capital turns back on itself, inter-imperialist rivalries drive nationalcapitals into retreat behind protectionist barriers and threaten to engulf the working class in yet anew imperialist war. Such 'state-capitalist' programmes serve the interests of the ruling class, aseach bourgeoisie calls for 'national unity' and 'national sacrifice' when its own national capital isfaced with the need to survive. Internationalism has to be central to any programme of thelabour movement in this period of growing capitalist crisis. The anti-EEC chauvinism and callsfor protectionism in the programmes above are the greatest barriers to developing a socialisttradition in the British labour movement.

Another feature of these programmes is their utopian, as well as reactionary, character. Thiscan he seen in the programme which seems the most radical, the most 'socialist', that of theCambridge academics in Britain's Economic Crisis. Their solution like the others, is necessarilyof a national British kind. They even attack, by way of introduction, the 'starry-eyedInternationalism' of the Bolsheviks, who 'dreaming of a simultaneous world revolution' awoke to


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find themselves 'quite unprepared for the real material and political problems facing them'. Theyutilise the Communist Manifesto to support their reactionary-utopian stand.

'Though not in substance, yet in form, the struggle of the proletariat with the bourgeoisie is atfirst a national struggle. The proletariat of each country must, of course, first settle matters with

its own bourgeoisie'.22

However, the substance is conveniently forgotten and so, indeed, is the settling of matterswith their own bourgeoisie. In the context of the Manifesto as a whole this quote meanssomething quite different from how it is interpreted. What Marx is saying is that the proletariatmust settle politically with its own bourgeoisie before its economic problems can be resolved.Our Cambridge academics completely reverse this.

What do the practical, technocratic and realistic solutions of our Cambridge academicsamount to? First it is necessary to break off those international links with the world economywhich have so limited British economic growth. They are for taking international trade out of thehands of market forces, nationalising foreign firms in Britain, reducing substantially the role ofthe City, ending overseas military expenditure and leaving the EEC. However, in order to reducethe risks of damaging trade boycotts which might (!) follow such policies, our ever so 'realistic'technocrats would compensate foreign capitalists for their UK assets, paying out of the assets ofBritish capitalists abroad. They would also appeal to the European working class for solidarity

against such boycotts23. Once this is done a left government could carry out progressive policiesbased on planning, nationalisation of industry, a higher level of investment and various taxationand other policies to redistribute wealth etc. and create a democratic and egalitarian society. Our'dreamy-eyed nationalists' seem to have forgotten something. Those 'starry-eyed internationalists'the Bolsheviks first seized state power, smashing the capitalist state and instituting thedictatorship of the proletariat, a necessary condition for carrying out their programme of socialistconstruction. Such was the hostility of the capitalist class both nationally and internationally thatthey had to fight a civil war against an enemy supported by five imperialist powers. Further,throughout the Bolsheviks insisted that socialism could not be built without utilising theinternational division of labour and the up to date achievements of advanced capitalist

techniques24. This recognition that the revolution had to be spread was not 'starry-eyedinternationalism' but a 'realistic' practical understanding of what was required. In contrast to this,our Cambridge academics managed to almost expropriate the capitalists using 'every

stratagem...to divide and out-manoeuvre (their) opponents'25 without destroying the capitaliststate. It is not surprising therefore that in their last chapter 'The Economic Potential of a SocialistBritain', they assume 'a victorious working class have taken power'. It is indeed a long jump froma left government carrying out progressive nationalist policies to a Socialist Britain, and one thatthey clearly are not going to make.


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(c) The form of appearance of the crisis confused with its cause. Inflation and the crisis.

It is the way capitalist production appears to both the working class and the capitalist classwhich is the foundation of the different bourgeois views of inflation. The bourgeoisie remainstied to the 'level of appearances' of capitalist production and this dominates their conception. Itis just because the outward appearance and the essence of things do not coincide that it isnecessary to delve below the outward manifestations of the crisis to get to its root cause. Anunderstanding which remains at the level of the circulation of commodities, that sees inparticular prices, whether domestic prices, wages, monopoly prices, or prices of imported goodsthe cause or causes of inflation, remains tied to the conceptions of the bourgeoisie.

A recent article in the Midland Bank Review propounds a commonly held view which hasbecome the ideological justification for the assault on working class living standards in Britaintoday. It boldly stated in November 1974 that 'the problem of imported inflation is being rapidly

replaced by wage inflation'26. The Bank of England Quarterly Bulletin also agrees that,whereas much of the rise in prices a year ago could be regarded as imported inflation, areflection of the world-wide rise in prices, now it is predominantly due to a rise in domesticcosts. And, as last summer pay rises (together with the effect of threshold payments) have beenexceeding the rise in prices by a substantial margin, we know which domestic costs are to

blame27. World-wide costs are outside British control unlike wage-costs which can be reduced.In such a way the programme of wage-cuts is given an ideological prop.

Wage costs however reflect the price of the commodity labour power. If a general rise in theprices of other commodities is taking place, and if real wages are to be maintained, then moneywages must necessarily rise. It is precisely the fact that, money wage settlements in Britain arerelatively high - compared to other countries - which strengthens the illusion that wage rises arethe predominant cause of inflation. When it is pointed out that, in fact, a 33 per cent moneywage increase is required to offset a 25 per cent rise in prices given present taxation and nationalinsurance rates, the problem has to shift. For average earnings have risen 28.3% (May) over the

last year and average prices by 26.1% (June)28.

An attempt has, therefore, been made to coin the concept of a 'social wage' - that arising frompublic spending and consumed socially - to deal with the rise in public spending, and this leads toanother view of the causes of inflation. It is due to the rapid growth of government spending,especially those parts concerned with social services etc., and the accompanying borrowing anddeficit financing associated with such expenditure. Those who hold to this view - and in Britainthe borrowing requirement of the public sector has reached 9 per cent of the GNP - call for cutsin public spending and a reduction of the role of the public sector in general. It becomes anotherjustification for cutting the standard of living of the working class. But why has public spendingand the so-called 'social wage' risen so fast? A theory of inflation which cannot explain this has


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explained nothing at all.

The monetarist view of inflation argues that 'excess demand' results in higher prices if andonly if it is associated with an increase in the quantity of money-notes in circulation and bankdeposits. Without an increase in the stock of money being permitted, the monetarists argue,prices cannot rise. This is then related to the previous view because it becomes difficult to havea stable growth in the money supply unless government expenditure is under control - since thegovernment has the power - which the private sector has not - to expand the money supply tofinance its own expenditure. Hence monetarists usually wish to curb the growth of State

expenditure and often hold to laissez-faire ideological views29. The State sector becomesregarded as a wealth consuming unproductive sector. So Sir Keith Joseph - a right wing Tory -can ask:

'Yet is there any substitute for the entrepreneur, from the one-man businessman to the tycoon?Someone has to create the wealth. State enterprise has yet to do so. Until now it has lived off thesurplus created by the private sector. But as the state sector grows - and a new subsidised privatesector with it, designed to perpetuate occupational population patterns inherited from the

industrial revolution - the private sector is in danger of collapsing under the burden.'30

While the productive worker has suddenly become a tycoon, the result of the problem is seenas the cause. Everything is reversed in the minds of the bourgeoisie. But it is precisely whenprivate capital accumulation is in danger of collapse that the state sector is forced to grow morerapidly. So that when the crisis is precipitated it appears to the bourgeois mind that a result ofcapital accumulation - the growth of state expenditure - is the cause of its collapse.

The radical left has fared little better with this problem than the bourgeoisie. Often it accepts,as in the case of the 'radical' neo-Ricardians their explanations of inflation. So Glyn and Sutcliffesee the profits crisis as being caused by high wages squeezing profits and intensifiedinternational competition preventing sufficiently high price rises to offset this. Their radical callfor workers not to 'moderate their wage demands but to destroy the system which exploits them'was, as we argued elsewhere that it would be, of little avail. Far from being wages causinginflation, it is inflation, as we shall show later, which is a preferable means, and an indirect way,of cutting wages. It is such views as their own which do nothing to undermine the so farsuccessful campaign mounted by the ruling class to make the Trade Unions accept a cut in wages

in the 'National Interest'.31

However the rest of the radical left fares little better. So Socialist Worker the paper of theInternational Socialists, can argue:

'Of course high wages are part of the explanation for high prices. If lorry drivers get high payincreases, their bosses will increase...the haulage rates...But there are plenty of other reasons for


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price rises.32

How does this fundamentally differ from Jack Jones who is the driving force within theLabour Movement supporting wage cuts?

'Wages are by no means the main cause of inflation, but the present trend for wages to

increase faster than prices spells economic danger'.33

It's common sense, isn't it? If wages go up, as 'any cost of production must have an effect on

the ultimate price',34 so will prices. This is a modern version of Adam Smith's theory ofcost-price, a theory which does no more than express the 'thought of the agent(s) of capitalist

production' themselves - it is the standpoint of the individual capitalist.35 This theory ultimatelytreats profit as cost, and demonstrates itself as the most vulgar apology for capitalistexploitation. Such a position has recently been provided by the IMG. Their newspaper followsthe line of thought pursued by the IS and Jack Jones. It is quite wrong, they say,

'...to believe that wages are the sole cost involved in producing goods and that therefore ifwages go up so prices must go up by the same amount. There are a whole series of costs other

than wages - for example profits,...etc - involved in production.'36

This 'reasoning' obscures the existence of exploitation. Marx had strongly warned against suchviews,

'The habit of representing surplus value and value of labour power as fractions of the valuecreated - a habit that originates in the capitalist mode of production itself... - conceals the verytransaction that characterises capital, namely the exchange of variable capital for living labour

power, and the consequent exclusion of the labourer from the product.'37

The IS, the IMG, the Communist Party, Eric Heffer, and Jack Jones - all claiming to representthe working class - speak from the ideological standpoint of representatives of the capitalistclass. Their explanations, by rejecting Marxist science, must remain at the level of the surfaceappearance of capitalist production and show an inability to offer a more profoundunderstanding. Both the bourgeoisie and the 'radical' left are left squabbling over the relativeimportance of the costs in question - while no real understanding of inflation and the crisis isprovided by either. It is necessary to explain why all prices - including that of the commoditylabour power - have had a secular tendency to rise. Otherwise one ends up explaining the rise inprices by the rise in prices - which is no explanation at all.

Having accepted that rises in wages partially (marginally) cause rises in prices the left thenhas to show why cuts in wages - which at least ought to help - will not contribute to easing thecrisis. The Communist Party explains why:


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'To improve our competitiveness abroad requires maximum capacity working, impossiblewithout a strong growing home market, which can only be maintained and expanded by

increased consumption at home through increased wages and benefits'38

This view which sees the crisis as an under-consumptionist crisis is now very widespread on

the radical left39. It has been criticised elsewhere40. Politically it gives rise to reformist illusionsthat the crisis can be resolved through increases of expenditure whether by increasing wages orgovernment spending. It is precisely the Keynesian assumptions underlying such positions whichthe latest crisis has so thoroughly undermined.

Another widespread view on the left is that inflation is due to the pricing policies of largefirms and 'monopolies'. So Socialist Worker can say:

'In the past, prices have gone down as unemployment goes up. This year, prices andunemployment are going up together. Why? Because the huge, international companies are

strong enough to keep their prices rising even though demand for their goods is falling.'41

The Communist Party extends this to an international scale seeing as one cause of the rise inprices:

'the rapid development of the multinational companies, which on a world scale had the sameeffect as national monopolies in raising prices to maintain and increase profit at a higher level

than in conditions of more international competition.'42

This suggests that monopolies somehow can avoid the law of value and its expression throughthe competition of capital world-wide. The evidence for this view is somewhat scarce. Clearlylarge firms are able to survive where smaller firms go bankrupt but this is primarily due to theirhigher productivity and not an ability to hold prices higher than smaller firms. There is noevidence to show that small firms are not forced to increase prices as well in their attempt to

survive, so it is not really a question of large capital but capital overall43. On the contrary, theevidence available shows that export prices have increased much slower than domestic prices.And since the export industries have a higher concentration of large firms, this at least seriouslyundermines the Communist Party case.

Price deflator for exports ofgoods and services(1963-68)44

GDP pricedeflator(general pricelevel)

US. 10.7% 14.3%Japan. 5.9% 23.7%France. 5.5% 18.1%West Germany. 1.7% 13.3%


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Italy. 2.5% 17.7%UK. 17.6% 20.7%

While clearly some elements of state subsidies are involved here, these figures give no supportto the position that monopolies are a major cause of price rises. Implicit in this view of theCommunist Party, is the reactionary standpoint, that matters would improve in a morecompetitive small firm world. History becomes reversible in the escapist imagination of thepetty-bourgeoisie. But it is just the general tendencies of capitalist development, includingrecurring crises, which have led, since the turn of the century to rapid concentration andcentralisation of capital, large increases in the productivity of labour and a secular rise in thegeneral price level. Again results of a process are turned into their cause.

The failure of all the views that we have considered here lies in their inability to locate thecrisis at the level of capitalist production and show how the secular rise in prices, includingmoney wages, the massive extension of credit etc., the rising government expenditure arenecessary forms of appearance of the contradictions of capitalist production in its latest phase,of a capitalism in decline. We have to establish the mediating links between the outward form ofthings and their inner source, the fundamental contradictions of the capitalist mode ofproduction. Most of the radical left are keen to stress that there is not one cause of inflation.

'The truth is that inflation, is caused by a number of factors'45 says Eric Heffer and SocialistWorker, as we have indicated above, clearly agrees. The Communist Party argues that 'Inflationcannot be ascribed to anyone cause, unless that single cause is the ever deepening crisis of thepresent stage of capitalism'. But it is precisely that 'ever deepening crisis of capitalism' thatrequires some understanding if inflation is to be explained.

Wage-inflation, cost-inflation, imported inflation, or even price-inflation (!) are confusedideological concepts which give support to the standpoint of the bourgeoisie. They do not relateto the production process of capitalism but remain transfixed to its circulation process. It is,therefore, important to break with these concepts and relate the phenomenon of inflation to theproduction of value and surplus value, to the reproduction and expansion of capital. What has tobe explained is the seemingly contradictory appearance of a secular tendency of arise in thegeneral price level, when the increases in productivity, accompanying the accumulation processof capital, should result in a steady fall in the price level. Inflation in this sense began about the

turn of the century and accelerated during the postwar boom.46

(d) The crisis as it appears internationally.

The British crisis has to been seen as part of the growing crisis of the world capitalist system.It is important to understand the qualitative change which has taken place in the last few years.It presents itself as a quantitatively higher level of the rate of inflation, a turn down in the growthof the gross national products of the main capitalist countries and a steady, and recently very


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steep, increase In unemployment.

The rate of inflation was more than double in 1973, and more than three and a half times in1974, that of the average for the period 1961-1971. The major increases occurred between 1972and 1973, and 1973 and 1974. Although there has been a slight slowdown in the rate of inflationin the recent period in most countries (excluding Britain) this has been due to the severity of therecession as the unemployment figures indicate below. In the six months ending in May 1975,the rise in OECD consumer prices dropped back to an annual rate of 10 per cent (still 2.7 timesthe 1961-1971 average) from the 15 per cent rate experienced just before the end of 1974.

Consumer Prices(Percentage changes at annual rates.)

Average1961-71 1972 1973 1974

12 monthsto May1975

UK. 4.6 7.1 9.2 16.0 25.0Italy. 4.2 5.7 10.8 19.1 19.7US. 3.1 3.3 6.2 11.0 9.5W. Germany. 3.0 5.5 6.9 7.0 6.1Japan. 5.9 4.5 11.7 24.5 14.1France. 4.3 5.9 7.3 13.7 12.1Total OECD 3.7 4.7 7.9 13.4 12.0

Growth of real GNP/GDP(Percentage changes at annual rates.)

Average1959-60 to

1971-72

From1972

previous1973

year1974

Estimates1975

UK. (GDP) 3.1 3.5 5.2 -0.2 0.5Italy. (GDP) 5.5 3.4 6.3 3.4 -2.75US. 4.1 6.1 5.9 -2.1 -3.75W. Germany 4.9 3.0 5.3 0.4 -2.0Japan. 11.0 9.4 9.9 -1.8 1.5France (GDP) 5.8 5.5 6.5 3.9 1.0Total OECD 5.4 5.7 6.3 -0.1 -1.5

After the mini-boom of 1972-73, which carried along with it large increases in the rate ofinflation including the enormous leap in commodity prices, there has been either stagnation or areduction in demand and output of the OECD countries. GNP indicators do not show the fulldepth of the recession. By the first quarter of this year, industrial production had fallen from its


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last peak by some 20 per cent in Japan, 10-15 per cent in the U.S., Germany, France and Italy,and by 5 per cent in the U.K. Capacity utilisation in manufacturing industry dropped to 68.3% inthe U.S. In the 18 months since the second half of 1973, GNP fell by about 7½ per cent in theU.S. (responsible for greater than 40% industrial production in the OECD) and virtuallystagnated in the rest of the OECD countries taken together. This has to be compared with typicalpast rates of increase over 18 months periods of around 6 per cent and 9½ per cent respectively.Perhaps the most significant indicator of the depth of the crisis facing capitalism is the recentrapid growth in unemployment rates.

Unemployment rates.

Average1962-1972 1971 1972 1973 Average

1974Latestfigures

UK. 2.3 3.0 3.4 2.6 2.5 4.7 JulyItaly. 3.4 3.1 3.6 3.5 2.9 5.6 JuneUS. 4.7 6.0 5.6 4.9 5.6 9.2 MayW. Germany 1.0 0.7 1.1 1.3 2.7 4.7 MayJapan 1.2 1.2 1.4 1.3 1.4 1.7 MayFrance 1.7 2.1 2.3 2.1 2.3 4.5 June

From these figures it can be seen that the mini-boom, set off by reflationary policies inresponse to the growing trend of unemployment did not bring the rates of unemployment(excluding Italy) below the average 1962-1972 levels. Because of the rapid acceleration ofinflation accompanying the boom, including the rise of commodity prices and oil prices,governments veered back in the direction of deflationary measures and the rate ofunemployment after 1973 increased very steeply to a post-war record for many countries. Totalunemployment in the OECD area was approaching 15 million in May. But these figures actuallyunderstate the true situation since average hours worked have also declined in the last year by8.6 per cent in the U.S., 2.9 per cent in W. Germany, 2.1 per cent in France, 2.0 per cent in U.K.,3.7 per cent in Japan and 2.2 per cent in Italy. This means that unemployment will continue toincrease even if there were to be an upturn in production, as is 'optimistically' forecast for

mid-197547.

A final indicator of the growing tendency towards crisis since the early 1960s is the rate ofreturn on capital. Although this ratio is not to be confused with the rate of profit as understoodby Marx, it may be regarded as giving some indication of the growing difficulties of maintainingprofitability. The figures for the United States and Britain are given below.

Rate of profit48 (less stock appreciation) on capital of non-financial companies in theUnited States.

Year Before tax After tax


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1948-50 16.2% 8.6%1951-55 14.3% 6.4%1956-60 12.2% 6.2%1961-65 14.1% 8.3%1966-70 12.9% 7.7%1970 9.1% 5.3%1971 9.6% 5.7%1972 9.9% 5.6%1973 10.5% 5.4%

Rate of profit49 (less stock appreciation) on Net assets of industrial and commercialcompanies.

Year Pre-tax Post-tax

1950-54 16.5% 6.7%1955-59 14.7% 7.0%1960-64 13.0% 7.0%1965-69 11.7% 5.3%1970 9.7% 4.1%

It should be noted for Britain that taxation policies have limited the actual fall in the post-taxrate of profit. Burgess and Webb as a result of examining a whole number of calculations for therate of return on capital in Britain have concluded that:

'All the series indicate that the rate of return on capital has experienced a secular decline, at

least throughout the 1960s, whether profitability is measured before or after tax.'50

Similar tendencies have been noted for West Germany. Income of companies divided by thenet holdings of these companies declined by about 20% between 1960 and 1968 and by 25%

between 1968 and 197351.

The figures we have discussed in this section give a clear indication of the acceleratingtendency towards crisis of the world capitalist system. A theory of inflation has to explain whythe much higher levels of inflation in the advanced capitalist countries are occurring togetherwith a growing trend towards higher unemployment. Why stagflation? We need to understandwhy this recession is the first general recession since the Second World War, occurring in allcountries at the same time, and what the significance of this is. We need to locate the growingcrisis of profitability in this context.

The rest of this article will be concerned to answer these, questions. It will develop a theory ofinflation from an understanding of Marx's theory of crisis, and so show the political significanceof the end of the post war boom. Finally it will examine the crisis of British capitalism as a


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concentrated example of the general crisis of world capitalism.

First, we need to cover a great deal of fundamental theoretical ground. The confusion on theBritish left today, the inability to come to grips with the basic Marxist categories, make this all,the more essential.

PART II THE MARXIST THEORY OF CRISIS52

First we need to look at the theory of crisis developed by Marx in Capital. Step by step, wemust show how the contradictory nature of the capitalist system manifests itself at differentstages in the historical development of capital.

(a) Capitalist Production.

What distinguishes Marx from his classical predecessors is that he never loses sight of the factthat the production of surplus value, central to capitalist production, is only an historical form ofthe production of wealth. The labour-process becomes a process in which surplus-value isproduced. Capitalist production is oriented not towards consumption needs, that is theproduction of use-values, but towards production for profit that is the production ofexchange-value and, in particular, surplus-value. It is the dual nature of a commodity underconditions of capitalist production, that is, as a use-value and an exchange-value that containswithin it the general possibility of crisis. However, to know the cause of the crisis we need toknow how this possibility turns from general possibility into actuality.

Under capitalist conditions of production natural resources are only utilised, the socialproductivity of labour only developed, labour is only employed, and will only continue to beemployed, if it serves the self-expansion of capital, that is the reproduction of existing capitalvalues and the creation of additional value, surplus-value. Capitalist production is not only theproduction of use-value, but the production of exchange-value, not only exchange-value butsurplus-value. To increase surplus-value to a maximum, capital must accumulate and must do soon an ever increasing scale. So long as capitalist relations of production exist, so long as oneclass, owns the means of production as capital, and another has to sell its labour power to live,so long will the aim and end of production be the accumulation of capital.

It is in analysing the process of capital accumulation that we can understand how this generalpossibility of crisis is transformed into actuality. Crises, as Marx showed, not only can arise, but,on the basis of capitalist relations of production, must do so. To show this, we must first examinehow the elementary contradiction within the commodity finds its further development in theduplication of the commodity into commodity and money.

(b) Value, Money and Price.


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(i) The Price Form.

To explain the historical movement of prices we must first understand price. To understandprice, however, requires an understanding of the money commodity. This commodity, a thing, isthe form in which a social relation appears. The social relation is still further obscured when thething itself is represented by a symbol, mere paper printed with the money name.

The historical development of money arises out of tile nature of the commodity itself. Thecommodity is the simplest social form in which the product of labour presents itself in capitalistsociety. The commodity appears both as a use-value and an exchange-value. But further analysisreveals that it is both a use-value and a value, i.e. the product of individual concrete labour andgeneral abstract labour. This contradictory nature of the commodity develops into theduplication of the commodity into ordinary commodities and the money commodity.

Before the setting aside of a particular commodity as the universal equivalent, i.e. as money, acommodity would express the value of other commodities, whilst other commodities in turnexpressed its value. The contradiction here was that individual commodity producers enteredinto direct social relations through the exchange of the products of their private individuallabour. With the growth of commodity production this contradiction between the private and thesocial character of labour finds its spontaneous resolution in the setting aside of part of society'slabour force in order to produce the money commodity - the universal commodity - i.e. acommodity which is the embodiment of directly social labour. Various concrete labours havehistorically assumed this role but it has ultimately devolved upon the gold producer. The reasonis that gold is a fitting materialisation of that which is common to all commodities -homogeneous abstract human labour. We now have, on the one hand, ordinary commodities inwhich the social character of labour exists only latently, and on the other hand, the moneycommodity which serves as the direct embodiment of social labour, and therefore can bothexpress and realise the value of all other commodities. Individual commodity producers relate toone another not directly through the products of their individual private labour, but indirectlythrough the money commodity. This is a necessary development arising with the emergence ofcommodity production and enables the further development of such production. The innercontradiction of the commodity is resolved, only to be recreated at a higher level. The possibilityof crises and generalised overproduction is contained in the splitting of the commodity intoordinary commodity and money - the separation in time of purchase and sale.

The special commodity, the money commodity, gold, is the product of social labour andtherefore has a value. The magnitude of its value, as with all other commodities, is the timesocially necessary to produce a given quantity of it. The magnitude of the values of commoditieswith which it is exchanged comes then to be expressed in a quantity of this money commodity -that is, their values are expressed in the weight of a certain quantity of gold.


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The money name of the quantity of gold which expresses the exchange value of thatcommodity for which it is exchanged, is the price of that commodity. Price is the phenomenalform of a social relation expressing the commensurability of commodities founded on theircommon nature as the products of abstract labour. However, commodities exchange for money

only after they have been ideally transformed into prices53. In the establishing of the price ofcommodities the quantity of the really available money is of no consequence. Commodities are

first transformed into money ideally before exchange takes place54.

The money commodity cannot have a price itself since this would make necessary theexistence of a second commodity to serve as money - a double measure of values.

The money name can be 'detached' from its social base. For example anything of quality e.g.virgin forest or conscience, which has no value, may be given a price. Thus it acquires the formof a commodity. The price form here conceals a qualitative inconsistency, since it ceases toexpress value altogether. This aspect of the price form will not be considered here.

(ii) The Quantity of Money.

It is essential to establish, at this level of abstraction, the necessary relation between thequantity of money and the mass of commodities which circulate it. Later when capitalistproduction is treated as a whole, where credit is taken into account, the quantity of moneycirculated can be fully explained.

To establish the basic principles here we must examine the simple circulation of commodities,and ignore credit. Assuming for the moment that the value of gold, the money commodity isconstant, a general rise in commodity prices can result only from a rise in values. A fall in pricescan result only from a fall in values through increases in the productivity of labour. If the valueof gold falls, a proportional rise in the price of commodities must result, as more gold is requiredto express their values. With the movement in value of both commodities and gold, a movementin prices occurs where a discrepancy between shifts in the value of the commodity and itsuniversal equivalent, money, occurs.

A change in the value of the money commodity, given that the value of commodities wasconstant, would not affect its functions as a standard of price since it is the relative proportionsthat are important here. They would be unchanged despite a higher or lower value of gold, the

gold price of commodities would merely be lower or higher55. A continual decrease in the valueof gold would thus mean a higher level of gold prices only, but a general constancy in the

relative prices of commodities.56

The amount of money required at any time, given a constant velocity of circulating money,is dependent on the level of commodity prices, the quantity of commodities circulating and the


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value of the money commodity57. An increased velocity of circulation of money substitutes for

its quantity58. This is elementary, yet the level of prices is regularly ascribed to the amount ofmoney circulating at any time, a view stemming from the absurd supposition that commodities

are without price, and money without value, when they first enter circulation.59

'This much is clear, that prices are not high or low because so much or so little moneycirculates, but that much or little money circulates because prices are high or low; and further,that the velocity of the circulating money does not depend on its quantity, but that the quantity

of the circulating medium depends on its velocity...'60

The price of commodities varies inversely with the value of money, and the quantity of moneyvaries directly with the price of the commodities, given the constant velocity of circulation ofmoney. This quantity of money does not change as the 'monetarist' would have it, because of itsfunction as a medium of circulation, but because it is the measure of value. It is clear then thatthe money movements express the circulation of commodities, not, as it appears, that the

circulation of commodities results from the movement of money.61

In sum, if we assume a fixed value of gold, and a constant velocity of money circulation, thequantity of money is determined by the sum of the prices to be realised. If the prices are given,the sum of the prices depends on the mass of commodities in circulation; and if the mass ofcommodities is constant, the quantity of circulating money varies with fluctuations in prices.Now this is true for total capital whether or not prices accurately reflect value in the individualcase - since it is quite impossible for total price to express anything other than total value.

The elementary conception of the determination of the quantity of money circulating mustnow be developed. Historically, the mass of gold and other precious metals was displaced ascommon currency by paper symbols. Both the acceptability of such symbols, and the necessityof facilitating the expansion of capital on a base other than the restricted mass of precious metal,underlay this development. Paper, which substitutes for gold and silver, as coin, is of coursealmost valueless. Its utilisation then, relies upon its social recognition which rests today upon itscompulsory circulation as inconvertible paper money issued by the State. Such paper money canonly arise upon the basis of money as a circulating medium.

'In so far as...(symbols) actually take the place of gold to the same amount, their movement is

subject to the laws that regulate the currency of money itself.'62

It is important however that the issue of paper money does not exceed in amount the gold orsilver which would actually circulate if not replaced by symbols of the money commodity. If itdid exceed this 'proper limit', it would fall, as Marx says, into general disrepute; whilst still onlyrepresenting that quantity of gold values which is required by the circulation of commodities.The possibility of inflation is given here in the divorce of paper money and commodity money.


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But this possibility is not to be confused with the cause. The cause is found in explaining how

the possibility becomes actuality63.

If an issue of 'money' in bank notes, rose over and above its 'proper limit', the legalequivalence of bank notes to a fixed weight of gold (of constant value), would be undermined byits lower real equivalence. The paper would represent less value than it declared. Such adepreciation of the paper money would express itself in a rise in paper prices-inflation. Theartificial expansion of the supply of paper money, which enables the purchase of commoditiesbefore their payment, would lead to the depreciation of the paper money - demonstrating as

illusion the power of the State to transform paper into gold by the 'magic of its imprint'.64

What is significant here is that the use of inconvertible paper money results in greaterdifficulties in the analysis of the workings of the law of value, than when dealing withgold-money .A change in the paper price of commodities, conceals more effectively than achange in gold-prices, its cause. Whether it is a rise in the value of commodities brought aboutby decreased productivity, a fall in the value of gold or a forced expansion in the paper moneysupply - all are indistinguishable in the paper price rise. These movements themselves requireexplanation.

(iii) The Transition from simple price to price of production.

With the transition from simple commodity production to capitalist commodity production,value appears in the phenomenal form of prices of production. Just as the price form ofcommodities is a form in which social relations are expressed under conditions of simplecommodity production, so are prices of production the phenomenal form through which socialrelations are expressed under capitalist commodity production. Production is carried on undercapitalism not merely for exchange but to produce additional value, surplus value. Forgeneralised commodity production, the necessary separation of value and its phenomenal form(price) becomes a condition for the accumulation of capital given a general rate of profit.

Under capitalist production, capitals of the same sizes demand equal rates of profit. Given therate of exploitation, capitals with differing organic compositions will acquire differing masses ofsurplus value - hence differing rates of profit. Through its separation from value, the price formentails the possibility of a quantitative incongruity with value for the individual commodity. Thisallows the various capitals of equal size to set prices which ensure than an average rate of profitis realised. Prices will be above or below the value of the commodities bringing about aredistribution of surplus-value between producers. Whilst this is possible only because theprice-form allows a quantitative difference between magnitudes of value and of price, it isnecessary since it is only when such prices of production are formed, that capital accumulationcan continue. The formation of such prices of production, brings about an average industrialprofit for all capitals of the same size. The real limit to this redistribution of surplus-value is the


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total value produced, which constrains the various movements of individual commodity prices,

since total price can only express total value.65

The prices of production are not, however, the 'final prices' of commodities on the market.They are only intermediate links in the formation of final prices. They will be further affected bythe operation of Merchant and Banking capital which circulates commodities, and by rent etc.Such 'final prices' are subject to fluctuations brought about by demand conditions for individualcommodities in the market. These fluctuations move about the final price, over the long-run. Outof these fluctuations arise the confused ideas about price determinations in the bourgeois mind.

(iv) Credit Money.

Today the chief form of money is that based upon credit. This arises out of the function ofmoney as a means of payment. It is considered here insofar as it affects the quantity of money incirculation.

Payments In the circulation of commodities may be delayed. That is by buying a commoditybefore paying for it, the buyer resorts to the use of credit. In this case, we assume the vendorbecomes the creditor, while the purchaser becomes a debtor. Here the means of payment entercirculation only after the commodity has left it, the seller's price is realised as a legal claim uponmoney. Money functions as a measure of value and a standard of the price of the commoditybought, which becomes the obligation of the debtor in a contract. Here money is an ideal meansof purchase, since the equivalent quantity of money is not thrown into circulation.

We see then that where the mass of payments are delayed - in the case of credit - that iswhere no money is actually circulated, money acts ideally only as a measure of value, as moneyof account. In general these debts balance each other out, so in actual payments money is notnow a circulating medium, not a transient agent of interchange. Only where payments are madeis money an independent form of the existence of exchange-value. This use of the universalequivalent by which price is expressed, means that ideal payments are expanded with theexpansion of credit facilities. What is to be remembered here is that the sum of money currentduring a given period must,

'...given the rapidity of currency of the circulating medium and of the means of payment, (be)equal to the sum of the prices to be realised, plus the sum of the payment falling due, minus thepayments that balance each other, minus finally the number of circuits in which the same piece

of coin serves in turn as means of circulation and of payment.'66

No longer do the mass of commodities circulating in a given period correspond to the quantityof money current. Money representing commodities long out of circulation continues to becurrent, and commodities circulate whose equivalent may well not appear until some future date.Indeed debts contracted each day and payments due then are incommensurable quantities. In


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practice, coin and paper money are relegated to the retail trade, whilst the extension of credit asdebt enables the continuation of large commercial transactions.

It is only in the international sphere of exchange that money acquires to the full extent itscharacter as the commodity whose bodily form is also the 'immediate social incarnation ofhuman labour in the abstract'. Here gold remains the medium of international payments, moneyof the world. As the recognised embodiment of social wealth it enables the transference ofwealth between countries directly. Domestically, and to an increased extent internationally,money comes to be expressed with symbols, and so arose the mistaken notions that it is asymbol. The international acceptance of the dollar as a money symbol strengthened this notion,and a rash of 'plans' to do I away with gold, as money of the world, followed. The belief thatmoney is merely a symbol is all the more serious in this paper world of circulation - where realprice and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange andsecurities.

(c) Productive and Unproductive Labour.67

This distinction is central to Marx's work, and no discussion of the role of State intervention ispossible until these categories are clear.

The most general concept of productive labour is quite simple - and applicable to all socialmodes of human labour. It is merely useful labour, a certain expenditure of which will always be

a necessary condition of human existence. To determine such 'productive labour in general'68

we examine production from the labour process alone, from the point of view of - the result, ie

whether it is useful or not.69 It is from this point that Marx begins to consider the co-operative

character of the labour process,70 from which he then narrows the concept to the particular,capitalist, mode of production. Here the labour power expended is viewed not merely from thestandpoint of its result, a useful product, but as a use value produced within a specific socialrelation. Productive labour for capital does not simply produce, but produces value and surplusvalue through, the production of commodities. Under capitalism,

'That labourer alone is productive, who produces surplus value for the capitalist, and thus

works for the self expansion of capital.'71

Whereas classical political economy defined productive labour in this way it's understandingvaried with its differing conceptions of value. It was never able to penetrate beyond anunderstanding of the formal exchange of capital and labour in the market. The real 'exchange',the consumption or labour power for the purpose of the production of value and surplus valuewas not grasped, and so productive labour was not properly conceived.

For the definition of productive labour, its particular characteristics are irrelevant. The


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speciality of the worker is of no significance. The use-value produced 'may be of the most futile

kind'72. Productive labour cannot be defined by the returns, either the type or amount, to labour

itself73. It is a definition of labour derived not from its individual content or result, but from itsparticular social form. Thus the morals and merits of any two works have nothing to do with the

distinction.74 As we shall see the particular concrete nature of the productive labour does haveeconomic significance as in the case of luxury production, owing to the special part that suchproducts play in the reproduction process. But this significance is of no concern when definingproductive labour itself. The labour power of the productive labourer is consumed in theproduction of value and surplus value - its use-value for capital is the capacity to producesurplus value. Real variable capital is the labour power of the productive labourer in action.

When Marx defined productive labour he was concerned to analyse labour power consumedin the labour-process proper, the regulation and control by mankind of the material reactionsbetween itself and nature. However the production of surplus value can take place in the realm

of immaterial commodity production, which does not fall within the labour process proper.75

Unproductive labour is labour that does not produce value and surplus value. Although allproductive labour is free wage labour, not all wage labour is productive. Unproductive labour, aswage labour, does not produce the objective conditions of its possible reproduction andexpansion - its absorption into the base of capital. The exchange of labour power againstrevenue distinguishes services. Such labour is not the substance of value, but merely usefullabour for the consumer. It follows from this that no surplus value is produced here, that wagesdo not form part of the variable capital and that therefore socially necessary labour is not

worked. The labourer however, will consume the commodities necessary for his reproduction76.Much of such labour today provides 'services' through employment by the State. However, as wehave indicated above not all 'services' are provided by unproductive labour; immaterialproduction may fall within the province of productive labour.

A different case presents itself with labour which

'...produces, trains, develops, maintains or reproduces labour power itself.'77

Labour power is a unique commodity. Where training takes place, the value of the labourpower is raised. If this training is carried out capitalistically the trainee will directly absorb boththe necessary and surplus labour time performed by the trainer. His labour power thus containsvalue and surplus value, which presents itself as a higher price to the purchaser of that labourpower.

Capitalists however can render themselves independent of labour power that contains surplusvalue, by changing the process of production. For this reason the state will normally take overthis sphere of 'production' and ensure that only necessary labour is performed in it. This labour


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of training is a part of variable capital but creates no surplus value. As in the case of labourpower expended directly on the passive element of productive capital, it is called productivelabour of a special kind. Whether or not the increase in the cost of training reduces the rate ofprofit will depend on whether the rise in productivity resulting from the training is sufficient tooffset its costs.

Turning to labour power which maintains rather than trains the productive labourers, we again

encounter productive labour of a special type78. In this case however the expenditure of thislabour, while increasing variable capital cannot offset the additional cost through rises ifproductivity. In all instances therefore medical expenditures on the working class will lower therate of profit. It is only the historical struggle of the working class which has given rise to presentlevels of state expenditure on health.

Labour expended in 'educating' and 'maintaining' unproductive labour is itself unproductivelabour and a large part of the state sector employs this labour. For Harrison and Gough all Stateworkers are productive including the police, their wages like those of productive labourers forma part of variable capital, from which we may conclude that the policing of the workers enters

into the historically determined needs of the working class. Brilliant!79

Wage labourers employed in the sphere of circulation are unproductive. Their labour realisesrather than produces surplus value, it changes the commodity to money, and is a cost to social

capital. It is the cost of realising existing values80 and creates neither value or surplus value. Itinvolves accounting, marketing, correspondence etc., but is often bound up with functions suchas transporting and storage which are directly connected with the production process, aconnection which is misused by those intent on treating labour power used in the sphere ofcirculation as productive.

The costs incurred by commercial and banking capital attract surplus-value from productivecapital. Capital in the sphere of circulation does this by purchasing commodities from productivecapital below their prices of production and selling them at those prices. The exploitation ofcirculation labour is profitable for commercial capital, but unproductive for total capital, sincecirculation labour works unpaid labour time for its master but produces neither value or surplusvalue.

It follows from this that from the standpoint of total social capital, surplus-value is extractedfrom one category of workers, productive workers. The labour power of service workers andcirculation workers, also takes the commodity form, is wage labour, but do not produce value orsurplus value. Finally the labour power of those State employees who contribute to thereproduction of the special commodity labour power, of the productive labourers, is included invariable capital but produces no surplus value.


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Although unproductive workers are wage labourers, the share of 'wages' and 'profits' in thenational income is no indication of the rate of exploitation. It is possible that if unproductiveemployment is growing at a faster rate than the productive sector, total wages as a share ofnational income can grow, and the rate of exploitation still rise. This is possible because thewages of unproductive labourers are in reality apart of surplus value.

We are now in a position to examine accumulation.

(d) The General Law of Capital Accumulation and the Theory of Crisis.

(i) The rising organic composition of capital.

Capitalist production has as its aim and driving force the production of the greatest amount ofsurplus-value. Surplus-value is the difference between the exchange-value of labour-power(representing that part of the working day in which the worker produces the equivalent of hisown means of subsistence, necessary labour-time) and its productive capacity (representing thetotal working day). So that an increase in the productivity of labour, viewed capitalistically,makes no sense unless it increases surplus-value ie, decreases the value of labour - power or thetime necessary to sustain and reproduce the workers. In other words, the productivity of labouris constrained by the need to produce value and surplus-value, is bound by the reproductionand self-expansion of capital.

The class struggle cannot prevent the fall in the value of labour-power (as productivity

increases)81 , but it can prevent the occurrence that the value falls in the same relation as theproductivity increases. That is, ensure a rise in real wages takes place (consumption ofuse-values) with increases in productivity at the same time as an increase in surplus-value.

While, in exceptional cases, extended reproduction on the same technological scale ispossible, in general, accumulation 'revolutionises out and out the technical processes of

labour'82. Since continuous accumulation under capitalist production conditions soon comesacross the limits of the existing working population, that is since the normal working day has its

physical and social limits83, a transition from the production of absolute surplus-value(extension of the working day) to that of relative surplus-value (decreasing the necessary part ofthe working-day by an increase in the social productivity of labour) takes place. Together withthis change, occurs, generally, an increase in the intensity of labour as capitalism tries to obtain

more value per unit time (increased expenditure of labour in a given time84) from the sameworker. Both increased productivity and greater intensity of labour augment the mass of articlesproduced in a given time and therefore shorten the part of the working-day necessary to producethe wages of the workers. In so far as increasing intensity of labour requires, as compensation,an equivalent increasing real wage, it has no effect on the rate of exploitation. Otherwise, it will

increase it85. The increase of the intensity of labour has also physical and social limits so that


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the main method open for increasing surplus-value under developed capitalist conditions ofproduction is to increase the productivity of labour, ie through technical change.

Increases in the productivity of labour from the standpoint of material production involve achange in what Marx calls the technical composition of capital.

'This latter composition is determined by the relation between the mass of the means ofproduction employed, on the one hand, and the mass of labour necessary for their employment

on the other'.86

Increases in productivity involving increases in the technical composition of capital arerepresented under capitalist production by changes in the value composition of capital, ie theratio of constant capital, or value of means of production, and variable capital or value oflabour-power. Between the technical and value composition there is a 'strict correlation'. Marxexpresses this relation by saying that:

'The value composition, in so far as it is determined by its technical composition and mirrors

the changes of the latter (is called) the organic composition of capital'.87

The importance of grasping the process of accumulation from both its material and value sideis crucial for understanding Marx's general theory.

The increase in the mass of means of production per worker (rise in the technicalcomposition) is not merely a technical premise which enters into Marx's argument at a particularstage. It is the expression in general terms of the only way that the productivity of labour canrise under capitalist production, that is, by the extension of the social division of labour. Thislatter process, accompanied by an increase of the mass and volume of means of production, isalso the basis of Marx's, argument that the organic composition of capital in so far as it isdetermined by the technical composition will rise, although not as fast as the technicalcomposition, due to the increasing productivity of labour.

'With the growth in the proportion of constant to variable capital grows also the productivityof labour, the productive forces brought into being, with which social labour operates. As aresult of this increasing productivity of labour, however, a part of the existing constant capital iscontinuously depreciated in value, for its value depends not on the labour time that it costsoriginally but on the labour-time with which it can be reproduced and this is continuouslydiminishing as the productivity of labour grows. Although, therefore, the value of the constantcapital does not increase in proportion to its amount, it increases nevertheless because its

amount increases even more rapidly than its value falls.'88

Marx regarded it as an incontrovertible fact , as a self-evident or a tautological proposition90,that the organic composition of capital should rise. To show that this was not a mere assertion


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but follows logically from the concept of capital itself will be the concern of the rest of thissection.

The compulsion to employ machinery, under capitalist production and to increase by thesemeans the productivity of labour is expressed in reality by competition and the consequent needto reduce the cost of production. But this is not its explanation, which must be deduced in termsof Marx's method, from the concept of capital itself and its relation to living labour, without

reference to other capitals91. The concept of capital is a contradictory one. On the one side wehave capital as 'value in process' as value attempting to expand itself without limit and on theother side we have the working population, the limited basis of that expansion.

Capital, therefore, must, on the one hand, try and make itself as independent as possible ofthat basis in its process of self-expansion; it attempts to reduce the necessary labour-time to aminimum by increasing the productivity of labour. On the other hand it needs to increase thebasis of its expansion, that is the labour-power available for exploitation; that means to increasesimultaneously the working population. This can be expressed in another way. Given theworking-population (in labour-time units, i.e. number of working days multiplied by the time perworking day) available to society, then surplus-value can only be increased by increasing theproductivity of labour, that is, by a reduction of the (relative) working population. Similarly,assume a given development of the productive forces then surplus-value can only be increasedby increasing the available working-population, i.e. by an increase in the (relative) working-population. Marx then argues that:

'the unity of these contradictory tendencies, hence the living contradiction, (comes) only with

machinery'92

The dialectical solution to this contradiction (its removal to a higher level) is to increase thescale of production through the replacing of living labour by objectified (dead) labour in theform of machinery.

'...the quantitative extent and the effectiveness (intensity) to which capital is developed asfixed capital, indicate the general degree to which capital is developed as capital, as power overliving labour, and to which it has conquered the production process as such. Also, in the sensethat it expresses the accumulation of objectified productive forces and likewise of objectified

labour'93

What we have tried to show from an examination of the concept of capital is the necessity ofincreasing the social division of labour, through the application of machinery, and therefore ofreplacing on an increasing scale living labour by objectified (dead) labour. It follows from thisthat the technical composition of capital and therefore the organic composition of capitalmust increase in the process of capitalist production although the latter will not increase as


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quickly as the former due to increases in the productivity of labour.

This is clearly expressed by Marx when he says:

'However much the use of machinery may increase the surplus-labour at the expense ofnecessary labour by heightening the productiveness of labour, it is clear that it attains this result,only by diminishing the number of workmen employed by a given amount of capital. It convertswhat was formerly variable capital, invested in labour-power, into machinery which being

constant capital does not produce, surplus-value...'94

The necessity to continually extend and substitute objectified, labour for living labour isclearly expressed in the condition for the introduction of machinery for the purpose ofcheapening a product. That is, that less labour must be expended in the production of themachine than the (paid) labour (value of labour-power) that is displaced by the employment ofthe machinery. The limit to the use of the machinery is given by the difference between the

value of the machine and the value of the labour-power replaced by it.95 This latter point can beexpressed algebraically as follows:

ct+1 - ct < vt - vt+1 (usual notation).

Clearly if all labour available for exploitation is to be employed in the interest of capital thisrequires a further extension of the division of labour (material side) and C must likewise increaseat a faster rate than V for total social capital (value-side). Likewise if we consider total socialcapital in periods 't' and 't+ l' and let w be the total value produced in one period of production,then with the usual notation:

Ct + Vt+ St = wt

Ct+1 + Vt+1 + St+1 = wt+1

If the total working-time available to capital for its employment remains constant (V + S =constant) then for accumulation to take place:

wt+1 > wt

so that with or without an increase in the rate of exploitation, if all labour is to be employed:

Ct + 1 > Ct

Vt + 1 Vt

If the working population increased then accumulation would have to be that much faster(greater than the increase in the working population) to satisfy the condition for the introductionof machinery and the expansion requirements of capital. We have, therefore, shown that anecessary condition for capital accumulation given an increasing productivity of labour and the


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production of relative surplus value, is a rising organic composition of capital.

(ii) The tendency of the rate of profit to fall and the crisis theory.

That it is inherent in capitalist production for capital in the process of its self-expansion to

create an ever increasing basis for that expansion, that is, the proletariat96, and at the same timeseek to increase the productiveness of social labour, that is set into motion a constantlyincreasing quantity of means of production with less expenditure of labour-power, leads to theformation of the industrial reserve army.

'The same causes which develop the expansive power of capital, develop also thelabour-power at its disposal. The relative mass of the industrial reserve-army increases therefore

with the potential energy of wealth'.97

Marx calls this the absolute general law of capitalist accumulation which like all other laws,he says, is modified in its working by many circumstances. This law is the general expression ofthe contradictory nature of capitalist production, of the increase in the social productivity oflabour under the 'power of capital'. The size of the reserve army is relative to the rate of capitalaccumulation. During periods of stagnation and average prosperity it weighs down on theworking population and during periods of rapid expansion, being a reservoir of labour-power,

holds bad the 'pretensions' of the labour force98.

The process of capitalist production, of accumulation and the increase of the socialproductivity of labour has so far been examined through an analysis of its 'invisible andunknown essence'. The appearance of surplus-value and rate of surplus-value in the form ofprofit and the rate of profit is the next step in the analysis.

'Although the rate of profit thus differs numerically from the rate of surplus-value, whilesurplus-value and profit are actually the same thing and numerically equal, profit is neverthelessa converted form of surplus-value, a form in which its origin and the secret of its existence areobscured and extinguished. In effect, profit is the form in which surplus-value presents itself to

view, and must be initially stripped by analysis to disclose the latter'.99

The general law of capitalist accumulation from the standpoint of capital (and the capitalist)presents itself as a tendency of the rate of profit to fall. This is not a mechanical or algebraicrelation but the expression of the contradictory nature of the accumulation process fromthe standpoint of capital.

The development of the social productivity of labour under capitalism, leads to a decrease ofthe value of commodities relative to their use-value (they are produced with less expenditure oflabour-time) together with an increase of the mass of use-values. Since the value contained ineach commodity declines, so must its price. The accompanying rise in the organic


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composition of capital means that the mass of the means of production grows faster than themass of labour employed from the material side, and from the value side, constant capital growsfaster than variable capital. However, due to the increasing productivity of labour the value-composition rises slower than the technical-composition. If the rate of exploitation, theproportion between surplus and necessary labour-time remained the same, the rise in the organiccomposition of capital would lead to a falling rate of profit since it is only the variable part ofcapital that yields surplus-value, while the rate of profit is measured on total investments, i.e.constant and variable capital. This inherent tendency for the rate of profit to fall is called byMarx:

'the most important law of modern political economy and the most essential one forunderstanding the most difficult relations. It is the most important law from an historical

standpoint.'100

The law, however, does not express itself in absolute form. Since the increase in the organiccomposition of capital represents an increase in productivity, the rate of surplus-value will notremain constant but will be increased because the value of the mass of products constituting theequivalent for the necessary labour-time is cheapened. This is the result of an increase in relativesurplus-value.

'The tendency of the rate of profit to fall is bound up with a tendency of the rate ofsurplus-value to rise, hence with a tendency for the rate of labour exploitation to rise. ...Both therise in the rate of surplus-value and the fall in the rate of profit are but specific forms through

which growing productivity of labour is expressed under capitalism.'101

Nevertheless the tendency, immanent to the accumulation process, for the rate ofsurplus-value to rise, cannot prevent the fall in the rate of profit,

'the compensation of the reduction in the number of labourers by means of an increase ofexploitation has certain insurmountable limits. It may for this reason, check the fall in the rate of

profit, but cannot prevent it entirely.'102

Surplus-value is produced by living labour and the physical and social limitations andpossibilities involving this labour affect the production of surplus-value.

'Inasmuch as the development of the productive forces reduces the paid proportion ofemployed labour, it raises the surplus-value, because it raises its rate; but in as much as itreduces the total mass of labour employed by a given capital, it reduces the factor of the numberby which the rate of surplus-value is multiplied to obtain its mass. Two labourers, each working12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours,

even if they could live on air and hence did not have to work for themselves at all.'103


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Although the argument is unclear as to what is the surplus labour-time of the twenty-fourlabourers, the point is clear. While the means of production per man employed have no 'finite'limit theoretically the mass of surplus-value produced by a worker has an impassable limit,namely the duration of the working day. Further as capitalism develops it becomes increasinglymore difficult to shorten the necessary labour-time by an increase in productivity.

'The larger the surplus-value of capital before the increase of productive force...or, the smallerthe fractional part of the working day which forms the equivalent of the worker, which expressesnecessary labour, the smaller is the increase in surplus-value which capital obtains from anincrease of the productive force. Thus the more developed capital already is, the more terriblymust it develop the productive force to expand in only smaller proportion, i.e. to addsurplus-value -because its barrier always remains the relation between the fractional part of theday which expresses necessary labour, and the entire working day. It can only move within these

boundaries'.104

The smaller the fractional part of the working day falling to necessary labour is already, or thegreater the surplus-labour, the less can any increase in productivity augment surplus-value. Sothat the higher the rate of exploitation (the less time it requires to reproduce the value of labour-power) the greater must be the increase in the rate of exploitation in order to increase the mass

of profits sufficiently to check the falling rate of profit.105

The tendency of the rate of profit to fall is an expression of the increasing difficulty in raisingthe rate of exploitation sufficiently to satisfy the self-expansion requirements of capital ascapitalism progresses.

The accumulation process involves arise in the organic composition of capital, arise in theproductivity of labour and a relative decrease (absolute increase) in the labour employed. Theseexpress themselves in a tendency of the rate of profit to fall, although the mass of profits orsurplus-value absolutely increases and the rate of exploitation increases. This means,

'The progress of the process of production and accumulation must therefore, be accompaniedby a growth of the mass of available and appropriated surplus-labour and consequently by agrowth of the absolute mass of profit appropriated by the social capital...The same laws, thenproduce for the social capital an increase in the absolute mass of profit and a falling rate of

profit.'106

So long as accumulation increases the mass of profits sufficiently to compensate for the fallingrate of profit, all is well. This is the case if capital grows at a faster rate than the rate of profitfalls. This only expresses the fact that capital of a higher organic composition of capital mustgrow at a faster rate than that of a lower composition to employ the same, let alone an increased

amount of labour power107.


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Besides the imminent tendency within the accumulation process, to check the tendency of therate of profit to fall by an increase in the mass of profits there are other counteracting tendenciesthat can apply temporarily. These are the increase in the rate of surplus-value by lengthening theworking-day or intensification of labour, the pushing down of wages below their value, the

cheapening of the elements of constant capital, and foreign trade108. The fall in the rate of profitis, therefore, not linear, but in some periods is only latent coming to the fore more or lessstrongly in other periods and appearing in the form of a crisis cycle.

(iii) Luxury production and the rate of profit.

Luxury goods are not part of the consumer necessaries i.e. means of subsistence of theworking class, nor do they contribute directly or indirectly to the production of consumernecessaries. Increases of productivity in the luxury industries therefore cannot reduce the valueof consumer necessaries so cannot produce that form of surplus value which results from thegrowing productivity of industry as such. Increased productivity in the luxury industry cannot,

therefore, effect the rate of profit insofar as it is determined by the rate of surplus value109.Luxury production can only influence the rate of profit insofar as it affects either the amount ofsurplus value or the ratio of variable capital to constant capital and to the total capital.

A rise in the organic composition of capital in the luxury sector will simply accelerate thetendency of the rate of profit to fall as it cannot increase the rate of exploitation, and so increaserelative surplus value to partially counter this fall. Accumulation of capital in the luxury industryincreases the mass of surplus value, but it prevents the growing mass of surplus value from risingsufficiently to partially offset the tendency of the rate of profit to fall. A growing proportion ofcapital in the luxury industry restricts that form of capital which can increase relative surplus

value and so partially offset the tendency of the rate of profit to fall.110

The profits of luxury production enter into the equalisation of the general rate of profit just as

much as that in any other sphere111. But the nature of the use-value produced has a particulareffect in the reproduction process of capital.

(iv) Capital in the sphere of circulation and rate of profit.

Mere circulation costs from the standpoint of capitalist production are unproductive. Althoughwage-labour is performed and the capitalist investing in this sphere receives a profit, no additionto surplus-value, to total social capital, is made. Such costs, necessary for the realisation ofprofits reduce the overall rate of profit of industrial capital. The employment of commercialworkers, office staff etc. increase the expenses of the industrial capitalist and therefore the massof capital to be advanced without directly increasing surplus value. If the extra costs are Δc,then the rate of profit will be reduced from s/c to s/c + Δc. The labourer who works in thecommercial sphere still performs unpaid labour and his cost to the capitalist is the value of his


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labour power.

(v) The capitalist crisis.

On this theory capitalism is always driven to a higher and higher productivity of social labourin order to produce sufficient surplus-value for the continuous reproduction and expansion ofthe growing capital. But this process is a contradictory one.

'The contradiction...consists in this that the capitalist mode of production has a tendency todevelop the productive forces absolutely regardless of value and of the surplus-value containedin it and regardless of the social conditions under which capitalist production takes place; whileit has on the other hand for its aim the preservation of the value of the existing capital and its

self-expansion to the highest limit (that is an ever accelerated growth of this value)'.112

When the expansion of production outruns its profitability, when existing conditions ofexploitation preclude a further profitable capital-expansion or what amounts to the same thing,an increase of accumulation does not increase the mass of surplus-value or profits sufficiently,there will be an interruption or stagnation in the accumulation process. This interruption ofaccumulation or its stagnation constitutes the capitalist crisis. It represents an overproduction ofcapital with respect to the degree of exploitation. From the point of view of profitability atthis stage, existing capital is at the same time too small and too large. It is too large in relationto the existing surplus-value and it is not large enough to overcome the lack of surplus-value.Capital has only been over-produced in relation to profitability. This is not a materialoverproduction for the world in this respect is under-capitalised. This stresses once again thecentral contradiction between the commodity as a use-value and as an exchange-value, betweenproduction for use and that for profit. There exists besides the Marxian theory of value andaccumulation (of which the second is only a more concrete development of the first) no separatetheory of crisis. As Mattick has put it:

'Marx's value theory of capital development is at once a general theory of accumulation and a

special crisis theory; that is to say neither one nor the other can be dealt with separately'.113

Although the actual crisis has to be explained out of the real movement of capitalist

production, credit and competition114, it is the general tendencies of the accumulation processitself and the long-run tendency of the rate of profit to fall that constitutes the basis of thatexplanation. These tendencies have been analysed through an understanding of the 'inner natureof capital'. The overproduction of capital arises out of the conflict between the increase anddevelopment of the productivity of labour from a material standpoint and the narrow basis andaim of that development under capitalist conditions of production, i.e. the self-expansion ofcapital.


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'The real barrier of capitalist production is capital itself It is the fact that capital and itsself-expansion appear as the starting and closing point, as the motive and aim of production; thatproduction is merely production for capital, and not vice versa, the means of production meremeans for an ever expanding system of the life process for the benefit of the society ofproducers. The means -unconditional development of the productive forces of society - comes

continually into conflict with the limited end, the self-expansion of the existing capital'.115

We have shown the tendency that capitalism has towards over-production and crisis withoutconsidering competition. In the discussion so far it has also been assumed that all goods areactually sold at their value and there are no realisation difficulties; that is the tendency towardscrisis and overproduction of capital can be deduced independently of such considerations. Inorder to indicate why the crises take the form of periodically reoccurring explosions' with eachcycle tending to be more severe than the last, we need to discuss the role of the crisis in restoringthe conditions for a new profitable expansion. It is here that competition becomes a decisivefactor in the whole discussion.

With a relatively decreasing mass of surplus-value in relation to the growing mass of constantcapital, competition for this declining mass becomes a vital element in the accumulation process.Competition is the result of the struggle for profits and extra-profits accompanying the rise in theproductivity of labour. For those first introducing new methods of production can sell theircheaper produced commodities above their price of production, and under their social value(above their individual value). Competition is the force that equilibrates different productionprices to a new social average value.

Competition does not create or establish the laws of bourgeois economy, but merely allowsthem to be realised ('the inner Nature as external necessity'). Competition forces the laws ofcapital on to individual capitals. So that competition can generalise a fall in the rate of profit forall capitals but that fall has to be conceived prior to competition and regardless of it.

'a fall in the rate of profit connected with accumulation necessarily calls forth a competitivestruggle. Compensation of a fall in the rate of profit by a rise in the mass of profit applies only tothe total social capital and to the big, firmly placed capitalists. The new additional capitaloperating independently does not enjoy any such compensating conditions. It must still win themand so it is that a fall in the rate of profit calls forth a competitive struggle amongst capitalists,

not vice versa.'116

Competition comes into its own in the crisis situation. The crisis while representing an end tothe accumulation process, is nevertheless the precondition for its continuation on a higher level.In the crisis, profitability of capitalist production is restored, in principle, in a number of ways.Assuming no physical destruction of capital takes place (either through lack of use orabandonment or destruction through war), the same quantity of use-value, of means of


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production, before the crisis represents a smaller exchange-value of means of production afterthe crisis through devaluation of constant capital. However, neither the rate of surplus-value northe mass of surplus-value are affected as they relate to the unaltered use-value of capital andhence to its unaltered productive capacity. Hence the rate of profit will increase because thesame amount of surplus-value relates to a lower total capital. Clearly, this only holds once theexpansionary process has begun again and represents a redistribution of profits (or potentialprofits) in favour of those capitalists who have managed to buy up capital 'cheaply'. Secondly,with the centralisation and restructuring of capital that takes place in the crisis throughcompetition, only the more productive capitals survive and allow for a higher social productivityof labour with increased markets. It is this mechanism which decreases the value oflabour-power and thereby increases the rate of exploitation and mass of surplus-value. The largemarkets allow for increasing 'economies of scale'.

Thirdly, this restructuring usually includes the abandoning of part of the least profitable andoften obsolete constant capital and as such frees the surviving capital (in money or commodityform) for new, more productive investment. Fourthly, due to the relative surplus-population(increase in unemployment) wages, which had a tendency to go above their value in the periodof prosperity previous to the crisis are now temporarily pushed below their value. Furtherthrough 'rationalisations' in the labour-force new methods and techniques of work, new methodsof production can be introduced without the 'frictions' that would have taken place before the'disciplining' effect of the crisis on the labour-force.

All these factors together playa role in the restoration of profitability of capital and this allowsthe accumulation process to continue on a new higher level. The crisis therefore, removes thetemporary barrier to further accumulation but only to set new limits on a higher level still.

We have explained why competition has only been introduced at this stage. In effectcompetition takes place throughout the production process reflecting the striving aftersurplus-value and tending to equalise profit rates establishing prices of production and drivingthe less efficient capitals out of business. But it is only in the crisis that competition reallybecomes 'a life and death struggle'.

'Under all circumstances, a portion of the old capital would be compelled to lie fallow, to giveup its capacity of capital and stop acting and producing value as such. The competitive strugglewould decide what part would have to go into this fallow state. So long as everything goes well,competition effects a practical brotherhood of the capitalist class as we have seen in the case ofthe average rate of profit, so that each shares in the common loot in proportion to the magnitudeof his share of investment. But as soon as it is no longer a question of sharing profits, but ofsharing losses, everyone tries to reduce his own share to a minimum and load as much aspossible upon the shoulders of some other competitor...competition then transforms itself into afight of hostile brothers. The antagonism of the interests of the individual capitalists and those of


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the capitalist class as a whole then makes itself felt as previously the identity of these interests

impressed itself practically as competition'.117

The overproduction of capital, and therefore the crisis, was due to the fact that accumulationand the expansion of production had outrun profitability. Given the degree of exploitation anyfurther capital invested would not yield sufficient profits. The crisis mechanism restructurescapital and increases the rate of exploitation so that a new expansion becomes possible. In thissense the capitalist crises can be regarded as the strongest counteracting tendency to thelong-run tendency of the rate of profit to fall. The tendency towards 'breakdown' and stagnationtherefore takes the form of cycles due to the effects of the counter-tendencies of which theactual crisis is an extreme case.

'Otherwise, it would not be the fall of the general rate of profit, but rather its relativeslowness, that would be incomprehensible. Thus the law acts as a tendency. And it is only undercertain circumstances and only after long periods that its effects become strikingly

pronounced'118

The actual periodicity of crises simply stems from the ability of capitalism to overcome theoverproduction of capital, through changes in the conditions of production which increase the

mass of surplus-value, and restore an adequate rate of exploitation relative to existing capital.119

Whether the crisis will be successful in restructuring capital to a greater profitability clearly isnot merely a narrow 'economic' question. Nothing is more clear in the crisis than the wastefuland destructive side of capitalism. Its 'civilising' tendencies are seen to be bought at an enormousexpense. The struggle between capital and labour, the class-struggle in the widest sense,becomes a struggle about the system itself. The outcome of the struggle cannot be predicted, andin this sense 'no crisis is the final crisis' for capitalism. The 'crisis' is the most poignant expressionof the 'disease' of the contradictions of capitalist production but it is also the 'cure', 'the forcibly

established unity of elements that have become independent'.120

(e) Credit and Crisis.

The actual crisis cannot be understood unless we have an appreciation of the role of credit inthe reproduction process. Our concern here then is not to give a detailed account of theinstruments and institutions of credit, but to seek to show how credit is developed to maintain asteady turnover of capital.

(i) The basis of credit.

We saw earlier that credit enables the purchase of goods before the payment for them. Nowcredit has become an essential factor in the reproduction process of capital. Despite thecontinued effort of capitalists to reduce the circulation time, and so extend the period of


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production, there will always be real delays in converting commodities into money. Such delaysgrow with the extension of trade. To overcome this period in which he would have to wait for hisreturns, and so lack the means to continue his business, the capitalist resorts to credit. Theconsequence of this is that between capitals money generally serves only as a means ofpayment, so that commodities are not sold for money, but a written promise to pay for them at acertain date. Such promises, credits, are mutual amongst capitalists. Each capitalist ensures themaintenance of his business by selling those promissory notes - bills of exchange - to the banksat a discount. He will circulate money capital, however, only to the extent that net paymentshave to be made by him in any period, since the credits he gives and the credits he receives, ingeneral, cancel each other out in his accounts.

Bills of exchange - the 'real instrument of the circulation of the mutual advances of producersand merchants' - were then, the basis of the development of credit-money proper. Credit allowsthe seller to send out his commodities before they are paid for, before they are reconverted intobank notes - inconvertible paper money. The buyer can receive the value of the commoditiesbefore it has been really transformed into money. It follows then that:

'Credit renders the reflux in money-form independent of the time of actual reflux, both for the

industrial capitalist and the merchant'.121

The duration of credit will lengthen with the distance of markets. The volume of credit willrise with the value of production. Credit arises then, out of the expanding value of productionand consequent exchange. It promotes the actual successive phases in the production of thesame article, and secondly, the transfer of the articles including its transportation from one

merchant to another.122 While the development of the production process extends credit, creditleads to an extension of industrial and commercial operations.

'As long as the reproduction process is continuous and, therefore, the return flow assured, thiscredit exists and expands, and its expansion is based upon the expansion of the reproduction

process'.123

Commercial credit then, forms the basis of the credit-system, although practically, this processis mediated by the banks. The real limit of credit is the entire wealth of industrialists andmerchants - of which a portion will constantly be in the hands of the banks. The centralisation ofdiscounting bills is possible once there is a central access to the reserve funds and of the depositsof industrial and money capitalists - at the banks.

However, while discounting bills of exchange is normal during expansion, since it changes theforms of value and enables regular reproduction, the capitalist discounts his bills of exchange:

'not in order to expand his business or secure additional capital but in order to balance the


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credit he gives by the credit he receives.'124

By exchanging his bills - titles to commodity ownership - he only changes the form in whichvalue is held by him. The bankers discount however results in the businessman acquiring money-

capital of a smaller value than the original advance he received.125 As far as this sort of credit isconcerned, it is important to understand that a large quantity of it within the reproductionprocess doesn't imply large quantities of idle capital. It isn't capital being offered for loan,seeking profitable investment, but rather a large employment of capital in the reproductive

process.126 Any notion of the 'autonomy' of such credit is thus entirely incorrect. It is

indissolubly tied to reproduction, irrespective of its numerous forms of existence.127

In the retail trade consumer credit is given by the seller to the buyer. This credit is often basedupon further credits given to the retailer by the wholesaler or banks. The aim of this credit is theforcing of consumption the expansion of needs. Its limits however, are really determined by thewages of the working class, and the part of the surplus-value spent on consumer and luxurygoods. This contrasts with credit between capitalists, which is limited by the mass of value inprocess.

(ii) Loan Capital

The development of banks and other institutions, through which money-capital is centralised,enables industrialists and merchants to seek credit in the form of loans, as well as discountingtheir commercial bills. The loan is the normal manner of financing an expansion of capitalistproduction. The loan, since it does not come from the seller, does not arise directly out of thereal reproduction circuit. Its origin is thus entirely different from that of commercial credit. Theindustrialist or merchant can begin his business only after seeking loans from money-capitalists.It is only through this loan that the continued, regular expansion in the circuit of capital can bemaintained. We say in this case that the point of departure for the whole movement of capital is

a legal one.128 Nevertheless the real value of loans 'available' is limited by the expansion ofvalue and surplus-value. For the individual capitalist, this form of credit represents an access tototal social capital, the access to the use of social labour. Loans are demanded for the expansionof production. The most productive capitals attract loans most easily. The existence of creditthus contributes to the process of the centralisation of capital.

Loan capital develops out of the savings and the interest on those savings of industrial andcommercial capitalists. It accumulates in the hands of money capitalists at the expense of bothindustry and commerce. Furthermore successful speculation with government and othersecurities, by money-capitalists, results in the appropriation of a further portion of the money-capital of the public who purchase such securities. Whilst the expansion of loan capital is limitedby the real accumulation process, it follows here that not every augmentation of loanable


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money-capital indicates a real accumulation of capital or expansion of the reproductive process.

It could be the appropriation of a larger proportion of existing capital by money-capitalists.129

The illusion is thus sown that the existence of loan capital is 'autonomous' from the realaccumulation process.

At the beginning of a cyclical upturn there will be an initial surplus of loan capital - expressingthe relative stagnation of industrial capital - alongside low interest rates. The relativeindependence of commercial from banking credit is here apparent, Loan capital stems from thereserves of money - capitalists which increase with the accumulation of capital, Commercialcredit steins from the mutual credit of merchant and industrial capitalists, With the centraliseddisbursement of money-capital from the banks this distinction is lost sight of.

As accumulation of capital proceeds, less and less surplus loan capital will be available forexpansion, since most of it will have been taken up, As with commercial bills, loan capital in usealso expands with, and is limited by the real expansion of capital.

'...rapid development of loan capital is, ..., a result of actual accumulation for it is aconsequence of the development of the reproduction process, and the profit which forms thesource of accumulation for these money-capitalists is only a deduction from the surplus-value

which the reproductive ones filch...' (from the productive workers).130

It is to be noted that with the extensive nature of borrowing, the wage and constant capitalfund, money-capital, appears as a temporary function of loan capital since it is all temporarilyborrowed by industrial and merchant capitalists. This only misleads the modern 'economists' whosee the slow-down in capital accumulation as a result of the restriction on loans, rather than thedeclining rate of profit.

So far we have seen the basis of two forms of credit. Loan capital however gives rise to theuse of terms which may be confusing. It always costs interest - and from the standpoint of the

lender it is interest-bearing capital.131 This interest is often called the 'price' of money-

capital.132 However it is a conception of price quite different to that which we associate withordinary commodities. It must be considered to be an irrational form of price. Certainly theexplanation of inflation is not directly concerned with a rise in this 'price' - interest. Here,

'The price is reduced to its purely abstract and meaningless form, signifying that it is a certainsum of money paid for something serving in one way or another as a use-value; whereas the

conception of price really signifies the value of some use-value expressed in money'.133

Clearly the 'price' of loan-capital is different from its value, it is in fact the portion ofsurplus-value which the ownership enables him to claim from the borrower. There is no lawdetermining the division of the profits into interest and its residue, the 'profit of enterprise'. In


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some cases, as just before the outbreak of a crisis, the interest to be paid may rise above profit,Here interest on one loan may be paid by taking up another. For total social capital, however. themaximum limit of interest may be regarded as profit.

Throughout the industrial cycle the characteristic movement of the money-capital interest rateis as follows:

'...at the beginning of the industrial cycle, a low rate of interest coincides with a contraction,and at the end of the industrial cycle a high rate of interest coincides with a superabundance ofindustrial capital. The low rate of interest that accompanies the 'improvement' shows that thecommercial credit requires bank credit only to a slight extent because it is still

self-supporting'.134

It is necessary to grasp the origin of the general movements in the interest rate, in the courseof the productive process - the changing demand for money-capital.

(iii) Fictitious Capital

So far we have established that, credit is limited by the real process of production. However,the larger capitals use the issue of stocks and bonds to draw together the mass of money-capitalrequired for further expansion. The demand for money-capital thus leads to the formation ofjoint stock companies. This borrowing results in the debtor receiving a title to further surplus-value, as interest payments. These titles are commonly sold themselves, are treated ascommodities (!), and this gives rise to a series of confusions.

For example, the State or private capitals commonly sell bonds or stocks on the moneymarket. The sum raised may be consumed unproductively or productively. The titles themselvesare easily negotiable for most of the cycle of production, and function in the creditors' handsmuch as cash. A class of 11 annuitants is perpetuated here. The titles are a claim to a 1 portionof future taxation or surplus-value, or in the case of agricultural mortgages, future ground rent.However, no matter how many times the title is sold, the title itself remains fictitious capital. Assoon as it becomes unsaleable the illusion of it as real capital, as value, disappears. It is illusoryto think of real capital here despite the movements in the 'value' of the title. Their market valuefluctuates with the amount and reliability of the proceeds to which they afford legal title. Capitalexists only as capital invested, or to be invested - the share of stock however is merely a title of

ownership to a corresponding portion of the surplus-value to be realised by it.135

The formation of a fictitious capital is called capitalisation, an estimate based on the incomerequired by the creditor.

'Their value is always merely capitalised income, that is the income calculated on the basis ofa fictitious capital at the prevailing rate of interest. Therefore when the money-market is tight


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these securities will fall in price for two reasons; first, because the rate of interest rises, and,secondly, because they are thrown on the market in large quantities in order to convert them into

cash'.136

The issue of stock, the formation of joint-stock companies represents the need for money-capital for capitalist expansion as real capital requirements burgeon. Thus the accumulation ofthese claims arises from actual accumulation; but it differs from it.

In a period of boom, and of a tightening of demand for money-capital, the 'price' of money-capital, i.e. its interest rate, rises. At the same time, the 'price' of creditors' titles, the securities,i.e. their capitalised values, falls. These 'prices' are quite different from the value, expressed inmoney, of the real capital. It is not the rise in these 'prices' that we first seek to explain when weanalyse inflation.

Now with an accumulation of fictitious-capital, all that is indicated is an enormousaccumulation of claims on production, on social labour. It is an accumulation of the marketprice, the illusory capital value of these claims. We can now see that credit, in its result as titlesto debts, leads to the creation of a sphere of paper 'values' which distorts the real value ofcapital represented. This particular form of money-capital is the largest part of bankers' capital.

'The greater portion of banker's capital is then, purely fictitious and consists of claims (bills ofexchange), government securities (which represent spent capital) and stocks (drafts on future

revenue)'.137

To recapitulate, it is fictitious because it is paper which consists of drafts on guaranteedrevenues (government securities) or titles of ownership to real capital. The value of these titles(e.g. stocks) is regulated differently from that of the real capital which the paper may represent.If it represents claims on revenue and not on capital, this claim is still represented ascontinuously changing fictitious money-capital.

The importance of all this is that the development of interest-bearing capital and the creditsystem, has resulted in capital seemingly doubling itself, sometimes more, by various modes inwhich the same capital and perhaps even the same claim on a debt, appears in different forms indifferent hands. The creditor retains titles - as fictitious capital - whilst the debtor now holds themoney capital. If the creditor is a bank, these titles themselves can be used to grant furthercredit. Thus the sum of credits extend over and above their real basis, although it is limited by it.That is to say a limitation is established according to the 'practical experience' of bankers,regarding on the one hand, the quantity of money-capital likely to be recalled by its depositors atany time, and on the other, the estimation that sufficient surplus value can be extracted by theconsequent extension of capitalist production.

When banks are constrained to purchase state debts the credit base of the banks is force ably


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expanded since the banks now hold more fictitious capital than they had previously. The effectof the public deficit on the money supply will vary however according to the precise form ofpublic debts acquired by the banks.

We see then that the distinction between fictitious capital and credit is not at all 'Byzantine' as

E. Mandel would seem to think.138 The 'value' of fictitious capital conceals the real basis ofvalue expansion. The lending of money-capital, and the use of the debts as commodities (an'insane' form as Marx called it), creates this disguise. Once we see the different principle uponwhich the 'price' of shares, stocks or bonds rises, in comparison with the price rise of ordinarycommodities, we can see that an understanding of inflation will not, in the first place, deal withthese fictitious capital 'prices'. Mandel however promptly confuses the different movementshere, of two entirely different categories.

'Both disproportionally great expansion of consumer credit, and speculative increases ofmaterial values or shares, inevitably tend to create inflation, and after a certain period to turn it

first into a cumulative and then into a galloping process'.139 (our emphasis)

Here Mandel also sees speculation as a cause of inflation, rather than, as is now the case,inflation promoting speculation in a period of uncertainty and crisis.

(iv) Crisis

With the expansion of production there is an increased shortage of loan-capital, alongside anexpansion of commercial credit. The expansion of credit becomes vital here since it is onlythrough credit that the prices of commodities can be regularly realised. This is the centralimportance of credit. There is a continuous call for money by which to realise the growing totalprice of all commodities. Thus in the period of expansion, credit is predominant, and the velocityof the circulation of money rises faster than commodity prices.

The self-expansion of capital, its contradictory nature, can allow a free development only upto a certain point, as we have seen above; capital is its own immanent fetter and barrier toproduction, but credit continually aims to break through this barrier. It is used in an attempt toovercome the boundaries set by circulation time, the need to transform commodities into money,and so forces the expansion of individual capitals beyond their existing rates of accumulation. Inso doing, the credit system accelerates the material development of the productive forces andthe establishment of the world market. As the rate of capital accumulation slows, the attempt todrive production beyond its capitalistic limits develops. Over-trade and over-production are theconsequences of this excessive credit. This accelerates the eruption of the contradiction ofcapitalist production.

The decline in the rate of profit is the expression of an intensification of the contradiction ofcapitalist production. The drive to expand capital, given inadequate profit rates, is continued on


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the basis of extended credit. However the issue of bankers' credit and their willingness todiscount bills of exchange is reduced as bankers see too many bills and not enough moneydeposited, whilst the demand for money-capital forces up interest. Credit, though expensive, isstill given however. In this system, where the entire continuity of the reproduction process restson credit, and where the relative costliness of credit is rising whilst the rate of profit declines -acrisis must soon occur. The general difficulty in expanding the real process of production willsooner or later result in a chain reaction of an inability to clear the bills of exchange amongcapitalists connected through commercial credit. It is this failure which mediates the outbreak ofa crisis. A tremendous rush for the means of payment follows, as the repayment of debt isdemanded and credit is extremely difficult to obtain. With the collapse of sales in a crisis, therate of discount for bankers' credit is highest. Now, generally, only cash payments have validity.At first glance, this may create the impression of a credit and money crisis only, the lack of realreturns being unrecognised in this paper world.

The massive extension of credit poses the possibility of speculation. But it is not speculationwhich causes the crisis. The crisis is preceded by an expansion of production and credit, and arise in interest and prices. This encourages hoarding and speculation. Indeed speculationbecomes a necessity for the large money-capitalists, and users of raw materials, such as theinternational corporations. If they do not speculate they will lose huge sums through both themovements of the international exchange rates of national currencies and raw material prices.Where rates of profit are in general low, the profit on speculation attracts money capital, but thereturns on this investment bear no relation to the real process of value expansion, and collapsesas the crisis itself breaks out.

Speculation is founded on the expansion of credit. The dominance of credit can conceal theincreasing difficulty capitalists face in realising their commodities at prices which enable them tomaintain their rate of profit. Rapid and apparently reliable returns always keep up for a periodafter they are really over , precisely because of the existence of credit. Credit takes the place of

real returns.140 A high rate of interest for loans must be paid alongside a slow increase in themass of profit. The maturity period of loans is prolonged while capitalists strive to pay interestrates which rise relatively to the rate of profit. Interest will even be paid for out of additionalborrowed capital - and this is done in part during times of speculation - staving off creditors withincreasing indebtedness.

As the collapse begins, everyone is borrowing in order to pay. Money is required as a meansof payment and nothing else.

'...in a period of crisis, the circulation of bills collapses completely; nobody can make use of apromise to pay since everyone will accept only cash payment; only the bank-note retains, atleast thus far in England, its ability to circulate, because the nation with its total wealth backs up

the Bank of England'.141


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The 'value' of fictitious-capital is enormously reduced in times of crisis, as money is in shortsupply and a mass of bonds, bills and stocks are thrown onto the market to exchange for money.The collapse in this 'value', reduces the ability of the owners of fictitious capital to borrowmoney on it in the market. This collapse hastens the centralisation of this form of money-capital,since the large capitals take their advantage - their access to either credit or wealth. Credit thencontinues to playa central role here, the centralisation and concentration of capital is facilitatedby it.

In the crisis then money, currency, is demanded by capitalists to pay debts and wind uptransactions. This is in contrast to periods of prosperity where little currency is required.

'On the eve of the crisis, the bourgeois, with the self sufficiency that springs from intoxicatingprosperity, declares money to be a vain imagination. Commodities alone are money. But now the

cry is everywhere: money alone is a commodity!'142

In a crisis there is a money famine, i.e. a gold famine. As the crisis turns to slump gold retainsits value whilst the value of all other commodities is sacrificed. It is only through this sacrifice ofthe capital values combined with an attack on the wages of the working class itself, that the rateof profit can be raised sufficiently to begin a further period of reproduction.

The demand for currency between consumers and retailers however, falls in the

depression.143 The difference then, is that in periods of prosperity the demand for currencybetween consumers and retailer predominates, whilst in depression the demand for currency

between capitalists predominate.144

In sum, it is not the difference in the volume of demand for loans which characterises theperiods of prosperity and depression, but the ease with which this demand is satisfied in theformer period and the difficulties it meets in the later period. As well as this the demand for

money arises for different, reasons in each of the periods.145

During the crisis everyone has products, but cannot sell them. If their payments are to bemade they must sell their commodities, take up costly loans or go bankrupt. The mass of capitalhas been impeded in its reproduction process. The shortage of credit becomes most acuteprecisely when the mass of this capital has expanded to its greatest size, when it is

over-produced146.

That the expansion is forced and finally collapses cannot be remedied, for example, by theState through its Bank attempting to purchase all the depreciated commodities at their old

nominal values.147 The crisis continues and the real values of commodities fall. Any attempt tomaintain overproduction by - providing deficient capital in the form of credit money at this stage

must result only in an intensification of inflation.148


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What is clear from this examination is that the use of credit depends upon the expansion ofprofitable production. Its formal existence, e.g. in the offer of State credits in a crisis, does notsignify the demand for or use of such credit at that rate of profit. The existence of credit at a rateof interest at which it will be taken up, is then dependent upon the process of production. Thisprocess determines the mass and rate of surplus value and so the quantity of credit and theeconomic significance of the interest rate which is charged upon it to the borrower. With thecollapse of production comes the collapse in the use of credit at anything but penal rates ofinterest. The real use of credit then is not at all 'autonomous' from the cycle of production.

(f) The extensive and intensive expansion of capitalist production.

We have shown how in the contradictory process of its expansion capital attempts to bothreduce necessary labour-time by increasing the productivity of labour - a reduction of the(relative) working population, and also to increase the basis of its expansion, the labour-poweravailable for exploitation - to increase the working population. Every barrier to further capitalexpansion is a barrier capital attempts to overcome. Through this contradictory and crisis-riddenprocess capital f not only creates the world market - is forced beyond national barriers -but mustcreate new branches of production, new needs, as well as expanding existing consumption on awider and wider basis.

It is the production of absolute surplus-value through 'the greatest stretching of the working

day with greatest number of simultaneous working days'149 which requires a continualexpansion of the sphere of circulation.

'The surplus-value created at one point requires the creation of surplus-value at another point,for which it may be exchanged; if only, initially, the production of more gold and silver, moremoney, so that if surplus-value cannot directly become capital again it may exist in the form ofmoney as the possibility of new capital. A precondition of production based on capital istherefore the production of a constantly widening sphere of circulation, whether the sphere itself

is directly expanded or whether more points within it are created as points of production'.150

This complementary tendency to create more points of exchange with the expansion ofabsolute surplus-value, shows that the 'tendency to create the world market is directly given in

the concept of capital itself'.151 Every barrier to this expansion of capital is a limit that capitalattempts to overcome and in this way the world market becomes a market for capital.

The production of relative surplus-value, on the other hand, based on an increase anddevelopment of the productive forces, and, therefore, the productivity of labour:

'requires the production of new consumption; requires that the consuming circle withincirculation expands as did the productive circle previously. Firstly quantitative expansion of


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existing consumption; secondly: creation of new needs by propagating existing ones in a wide

circle; thirdly: production of new needs and discovery and creation of new use-values'152

Within this development, many products which were earlier luxury products become part ofthe consumption of the working class, for example, radios, television, motor cars and otherelectrical goods etc. The massive increase in the productivity of labour - use-values producedper worker employed - during the postwar boom has dictated this development. Similarly theproduction of synthetic fibres, the use of new energy and raw material sources etc. 'the

development, hence, of the natural sciences to their highest point'153 in the interests of capitalare all a necessary part of this tendency.

In the course of its expansion capital links up the production of absolute and relative surplus-value. So that contained in this -- process of expansion are the contradictions inherent withincapital, and expressed by the tendency of the rate of profit to fall. We shall briefly examine whatconsequences this has in relation to the points previously made.

As capital expansion gets under way this brings with it the extension of the luxury production.The growth of luxury production is dependent for its continued existence and growth on

accumulation in general.154 In periods of prosperity the working class can also 'enjoymomentarily articles of luxury ordinarily beyond its reach'. In the crisis and turn-down incapitalist expansion the consumption of luxuries is necessarily reduced and they are withdrawn

from the consumption of the working class.155 We have shown earlier how changes inproductivity in the luxury sector cannot compensate -through the production of relativesurplus-value - for the tendency of the rate of profit to fall. So increases in the organiccomposition of capital in the luxury sector accelerate the tendency of the rate of profit to fall. Inthis sense, with the continued increases of productivity and relative surplus-value production inthe artificially prolonged postwar boom, the extension of some 'luxuries' to become 'semi-permanent' consumption articles of the working class becomes a necessary and ever more urgenttendency for capital. So the extended use of the media, advertising etc. to widen theconsumption of products - originally 'luxuries' - to the working class. Likewise the use of credit,hire-purchase etc. is expanded to make this possible. With the end of the postwar boom, it is oflittle surprise, that it is precisely in such sectors as the motor car industry where the marketappears 'saturated', and production experiences a major turn-down. Once it becomes necessaryfor capital to reduce wages below the value of labour-power to improve profitability, it will bejust these sectors, previously part of luxury production, which have recently become part ofworking class consumption, where the crisis will have a heightened expression.

The expansion of capitalist production requires a continued search for new sources ofsurplus-value and a continued extension of markets world-wide. The tendency of the rate ofprofit to fall is the driving impulse which compels intensified international competition.


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Competition for spheres of capital investment, for expanding markets, for raw material sourcesworldwide, become a feature of capitalist expansion. The export of capital, the growth of multi-national corporations, the vast increases of world trade, and the frantic search and exploitation

of new raw material sources are the expression of this general tendency.156 Along with this goesthe enormous expansion of credit internationally. As long as a basis for further capital expansionexists, for profitable production world-wide, then this process will be continually extended. Buteventually capital overreaches itself - grows, on the basis of the extension of credit, beyond thebounds of profitable expansion given the rate of exploitation - and the capitalist crisis isprecipitated, as a world crisis.

PART III INFLATION, THE CRISIS AND THE DEPRECIATION OF CAPITAL.

As the crisis of overproduction of capital deepens, capital cannot be reproduced sincecommodities cannot be sold at their prices of production, capacity is underutilised and workersare unemployed. An overproduction of capital then leads to capital values being written off -depreciation of capital - and social labour is 'devalued' as the ranks of the reserve army areswelled and wages are driven below the value of labour power. The capital accumulation processcomes to a halt and the crisis turns into a political crisis raising questions about the nature of thesystem of production itself. The survival of the capitalist system becomes a political strugglebetween the ruling class and the working class, as the ruling class attempts to restructure capitaltowards greater profitability.

With the experience of state intervention during the first world war and the world crisis of the1930s, a number of proposals were put forward to attempt to overcome the near continuouscrisis conditions of the inter-war period. In general these are associated with the name ofKeynes. The basic policy was to replace 'deflationary' policies as a cure for overproduction ofcapital, given the political consequences this entailed, by a policy of 'price rises' and expansionof production through credit financed expenditure and state deficit financing. This enablesunemployment to be kept at politically acceptable levels.

Keynes expressed this policy most clearly in his book The Means to Prosperity (1933).

'It is the declared policy of the Government and also of the representatives of the Empireassembled at Ottawa, to raise prices. How are we to do it...?

'...We must aim at increasing aggregate spending power. If we can achieve this, it will partlyserve to raise prices and partly to increase employment.'

and

'We are left with the broad conclusion that there is no effective means of raising world prices


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except by increasing loan-expenditure throughout the world. It was, indeed, the collapse ofexpenditure financed out of loans advanced by the United States, which was the chief agency in

starting the slump.'157

Keynes thought it unlikely that private enterprise, on its own initiative, would undertake newloan expenditure on a sufficient scale to achieve the required result. It was, he argued, necessary

for the public authority to take the first step.158 Such policies - which were only systematicallycarried out after the second world war (the 'New Deal' was a pre-war attempt), and later in somecountries than others - 'postpone' the depreciation of capital and the accompanying recessionaryconditions and replaces it by inflation and economic 'growth'.

However inflationary tendencies were rooted deep within capitalism before the state andstate-debt started to play a greater and greater role in maintaining private capital accumulation.Prices rose quite rapidly at the turn of the century before state expenditure and state debt beganto play the role they do today. In a later period after the first world war, in spite of theextraordinary rationalisations which took place (Taylorism, Fordism, etc.), prices rose slightly inthe US. The expansion of private debt played a significant role here. In the US from 1921 - 29,corporations expanded long term indebtedness by 111%, while national income rose by only

20%.159 The advent of the world depression saw a fall in prices but after the mid 1930s theybegan to rise rapidly. The increasing role of the state over the last 30 years has to be seen as anecessary result of the deeper and deeper crisis of capitalist profitability and the extent of themeasures now needed to combat it. Keynsianism is no more than a 'rationalisation' for what hadto occur if capitalism was to survive for a longer period. Its limited historical success had as aprecondition the destruction of capital during the second world war and the defeats of theworking class before and during that war.

The crisis has to be located at the level of capitalist production. To show how the centraltendency of the rate of profit to fall can express itself as inflation and eventually stagflation(stagnation and inflation), we need to examine how the capitalist experiences this tendency andattempts to maintain profitability by increasing prices. We then have to consider how theseprices set by the individual capitalist can be realised - that is how commodities can be sold -exchanged for money - at these prices.

(a) How the capitalist perceives the crisis

The tendency of the rate of profit to fall impresses itself, through the competition betweencapitalists, on the individual capitalist as an impulse to develop the productivity of labour. Thisprocess in turn leads to the concentration and centralisation of capital, the growth andaccumulation of larger and larger units of capital (a tendency accelerated greatly by crises). Forit is only the larger capitals which can compensate for a fall in the rate of profit by a rise in themass of profit -- they can amass more profits accumulating at a lower rate of profit.


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For those capitalists introducing a new technique, who are able to produce a commodity withless labour-time than the social average, above average profits can initially be made. This isachieved by selling the commodity at its average socially determined price (or slightly below)before the introduction of the new technique and above its individual price (as determined bythe new technique). Competition would eventually reduce these prices to a new social averageas other capitals introduce this new technique as well. So that the tendency of the falling rate ofprofit is experienced by the individual capitalist as a fall in prices (notwithstanding the fact thatthe mass of surplus-value has risen), or an inability to continue to sell the commodities producedat the old prices. Competition however, does not create the new social average price nor thegeneral rate of profit. Both must be conceived prior to competition. Competition allows them tobe established but it does not create them. In this sense competition is not the 'cause' of the fallin prices. Such a fall is not a result of changing market conditions but is a result and expressionof changes in the conditions of production -- is the outcome of the accumulation process ofcapital itself. Market conditions whether of a competitive or monopolistic character are not thecause of general price movements, regardless of whether this movement is up or down. Theorigin of these price movements must be sought in the production process itself. We can no moreargue that 'competition' is the cause of declining prices than we can blame 'monopoly' for theirrise.

Given an intensification of competition, capitalists not only see in the reduction of prices thecause of falling profits, but also see in wage levels an additional cause of this fall. If wages aremaintained under competitive conditions, then in the face of declining profits, the capitalistsview wage levels as excessive and so blame workers for aggravating the crisis. In summaryfalling profits are conceived by the capitalist as a result of excessive wages on the one side andtoo much competition forcing down prices, on the other. As we shall see later these superficialviews of the bourgeoisie persist just as much today as they did in the past, even gaining currency

among sections of the 'radical left'.160

In the period of capitalist development prior to the epoch of imperialism, the expandingfrontiers of the capitalist mode of production, the newly emerging industrial countries, Germany,US and Japan, the vast new markets of the world, and the ability to acquire cheap raw materialsetc., allowed the process of accumulation to continue without the convulsions experienced in theimperialist epoch. With the counter tendencies of the law of the tendency of the rate of profit tofall having a compensating effect, productivity increases could be expressed by a fall in pricesthrough the process of competition between capitals.

(b) The monopoly phase of capitalism.

As capital accumulation continued, as the concentration and centralisation of capitalaccelerated and more and more countries rapidly developed, so challenging the Britishdomination of the world market, capital came up against the barriers to further accumulation


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discussed in earlier sections. The development of an organised labour movement whichaccompanied this process set certain limits, in the more advanced capitalist countries, to themethods of increasing surplus value through extending the working day and intensification oflabour. More and more capital was required to bring about sufficient productivity increases toraise the rate of surplus value and obtain sufficient profits to allow the further expansion ofproduction.

In these conditions of intensified competition for a relatively smaller (but absolutelyincreasing) mass of surplus value in relation to the total capital outlay, only the larger and moreproductive capitals are able to survive. The ability to acquire a large enough share of the mass ofprofits becomes an essential factor in the attempt to expand production. The concentration andcentralisation of production becomes a dominant feature in the development of capitalism.Capital moves to what Lenin called its 'monopoly' stage. This stage results from developments inthe accumulation process itself.

The response of large capital (so-called 'monopolies') to the increasing difficulties facingcapital in the process of its expansion depends on the intensity of the crisis. Where it is merely aquestion of surviving in a period of deep crisis, cartels, and other forms of collusion, have takenplace in an attempt to prevent competition forcing prices down. Although there are elements ofthis throughout the accumulation process it is not such occurrences within the monopoly stage ofcapitalism which explain the secular rise in prices over the last 70 years or so.

During the post-war boom we have seen a continual expansion of production accompanied byan acceleration in the rise of prices - depreciation of currency - despite the large increases in theproductivity of labour, and it is this process we have to explain. We have already argued that themost important method of increasing the mass of profits is by increasing the productivity oflabour, so increasing relative surplus value. However, it is this very process which leads to a fallin the rate of profit. The individual capitalist therefore, faced with a falling rate of profit,attempts to obtain adequate profits for the further expansion of production by increasing prices.This expansion of production is a necessary condition of maintaining (and attempting toincrease) the share of the mass of profits produced, by one capital at the expense of another, andincreasing the mass of profits, by all capitals at the expense of the working class. It is the law ofcapitalist production - the tendency of the rate of profit to fall - which makes this an imperativefor capital large or small. Capitalists attempt to set prices at levels which enable sufficient profitsto be attained, making the further expansion of production possible. The question remains howthese prices are to be realised - how will the equivalent sum of money become available so thesecommodities can be sold. Here credit plays a central role. With the extension of credit, the'means of payment' for these commodities at these higher prices is mediated by the creditpolicies of the banks and, in the final analysis, the state.

The significance of 'monopoly' capitalism in terms of Lenin's definition becomes clear. It is


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precisely, the existence of finance capital, the intertwining and involvement of banking andindustrial capital and the central role of the capitalist state in preserving the general conditions ofprivate capital accumulation, which are the pre-conditions for this process to occur.

Large firms, for example, can instigate the process of credit expansion themselves. Throughthe relation of industrial and banking capital credit creation occurs through the extensive use oftrade bills either directly as 'means of payment' or by having them discounted by banks formoney-capital itself. A continual process of credit creation can be set into motion in this manner.Through such mechanisms, in spite of the tendency towards overaccumulation of capital andstagnation, production can be maintained with commodities being sold at higher prices. Whilefor these prices to be realised, a corresponding extension on the volume of credit must occur, theincreased prices are not, as the monetarists would have it, caused by the extension of credit.Rather it is the tendency of the rate of profit to fall which makes necessary an increase in creditin order to allow a continued accumulation of capital at higher prices. So that the conditions fora further expansion of production demand a definite 'monetary' policy by the banks and in thelast instance, by the state since credit policies of the banks are controlled through, for example,minimum reserve ratios set by the national bank. The development of international creditmarkets to avoid the various measures and controls of Nation States indicates that the extensionof credit is an imperative for capital accumulation to continue on the basis of higher prices.

The rise in prices does not result from the actions of the 'monopolies' in attempting to makeextra profits, but from an attempt by capital to maintain the average conditions of profitabilityrequired for the continued expansion of production. While this does not preclude, within thisgeneralised process, extra profits being made, this cannot be general, and must be limited toparticular firms. Instead of production stagnating, unemployment growing, and capital beingdepreciated, capital expansion takes place at higher prices with the associated credit policy. TheState, similarly, intervenes in the capitalist economy with definite credit, employment, taxationand other fiscal policies, not to preserve 'monopolies' (and monopoly profits) but because suchfirms involve large concentrations of means of production and labour-power. Bankruptcies andunemployment in general are not allowed to be of such proportions that they retard altogetherthe process of surplus-value extraction (capital accumulation) or lead to serious political andsocial disturbances.

When, through the mechanism analysed above, credit is extended, so that the money supply(given its velocity of circulation) increases at a faster rate than the mass of values produced,then productivity increases will not lead to an equivalent fall in prices, rather the currency isdepreciated. Eventually the money-supply, in order to allow the realisation of the higher andhigher relative prices needed to maintain profitability, will increase at such a rate that the generalprice level will begin to rise, in spite of the productivity increases. This began to occur at theturn of the century.


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This process is given impetus in that once the expansion process is underway, the creditpolicies allow the less efficient firms temporarily to expand in the wake of the larger ones. Theaverage social productivity is below that of the larger, more efficient, firms. This explains thesignificance of the statistics given in the introduction which show that the rise in prices inadvanced capitalist countries, of goods for export (involving a higher concentration of largerfirms) is lower than domestic price rises overall. It stresses that the cause of rising prices is notdue to the monopoly market conditions but is the outcome of developments of the accumulation

process itself.161

It is ridiculous to say, as the Communist Party does, that prices are higher than would be thecase with more competition. This reverses Marx's argument. The fall in the rate of profit bringsforth the competitive struggle and necessitates, in the interest of capital accumulation, thegrowth of monopolies, as a means of compensating, for the fall in the rate of profit, through anincrease of the mass of profit. It is the expansion of production through the extension of credit,which, in spite of the worsening conditions of profitability, allows those 'higher prices' to berealised. 'Monopolies' cannot arbitrarily put up prices, they cannot overthrow the law of valueeven if they have more freedom to manoeuvre than smaller capitals. Large capitals are forced toput up prices to maintain profitability necessary to expand production. At the same time thehistorical development of capitalist production creates the conditions to make this possible.

We have seen how credit comes to play a more and more vital role in maintaining theconditions for capital accumulation. However, this process of expanding credit is a contradictoryone. The very process which 'postpones' the depreciation of capital exacerbates the verytendencies it seeks to overcome. Credit allows the expansion of production on the expectationsof future profits and accelerates the process of centralisation of capital - for it is usually thelarger capitals which can obtain the available credit. The ability to acquire credit gives theindividual capital potential control over social labour. In this way credit quickens the process ofconcentration and centralisation of capital and allows the destruction of smaller less efficientcapital, which cannot obtain the necessary amount of credit. However while allowing theexpansion of production this process accelerates the tendencies towards crisis. Credit allows thelarger and larger investments necessary to bring about the increase of relative surplus value - theincrease in the productivity of labour. But the rise of the organic composition of capital entailedby this process only exacerbates the tendency of the rate of profit to fall. So that credit bypostponing the 'depreciation' of capital only exacerbates the contradictions and the tendency tocrisis. Credit

'suspends (the) barriers to the reproduction and self expansion of capital only by raising them

to their most general form ...'162

The attempt to increase the mass of profits, by increasing relative surplus-value through thegrowth of the productivity of labour means an enormous increase of the mass of commodities to


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be sold. The expansion of credit between capitalists and the increase of production this allows,necessarily extends the markets for commodities to be sold, that of both producer andconsumption goods. However, at a certain stage, this becomes insufficient to maintain theself-expansion of capital, so that as well as the credit extended to capitalists, there develops at alater stage, credit in the form of consumer credit, hire purchase etc. This credit is based on thefuture wages of the working class and that part of future surplus-value which capitalists spendon consumer and luxury goads.

Another important feature of this tendency towards concentration and centralisation of capitalis the growth of fixed capital as part of constant capital. The importance of machinery etc. hasalready been discussed in relation to the contradictory process of capital expansion. This factoris another which leads to a general increase of costs and prices in a period of a slow-down ofaccumulation. If output is reduced then certain costs may be reduced by as much as thereduction of output eg wages, raw materials etc. This is not the case with fixed capital costs egmachinery, buildings etc. So that with a slow-down of capital accumulation, prices per unit ofoutput necessarily must rise if profits are to be maintained. In periods of stagnation ofproduction, prices will be relatively higher because of the dominance of fixed capital costs aspart of total costs.

The 'depreciation' of capital is exacerbated by the need to continually introduce new methodsof production in an attempt to maintain average profits and keep competitors at bay. As theproduction of new techniques and methods of production quickens what Marx call the 'moraldepreciation' of capital comes to play an increasingly important role. This occurs when the old

methods have become 'obsolete' well before the machinery etc is 'physically' worn out.'163

Capitalists are forced to introduce the new techniques or they will go out of business - this is truefor larger capitals through worldwide competition. The growth of the availability of credithastens this process, and makes it all the more urgent to obtain further credit for the expansionof production and further increase of prices.

What we have shown is how the tendency towards overproduction of capital in general forcesindividual capitalists to increase prices. The extension of credit-money postpones the'depreciation' of capital (through the depreciation of money) and forces the further expansion ofproduction and consumption beyond those limits justified by the actual conditions ofprofitability, of the production of value and surplus-value. If credit is not extended then capitalwill not have a basis on which to expand, commodities will not be sold and capital will be'depreciated'. The growth of credit, therefore, allows the 'prices' set by capitalists to be 'realised' -the commodities sold at those prices -and capital accumulation to proceed. However, the veryprocess by which this occurs accelerates the tendencies towards crisis - necessitates a furtherextension of credit and a further increase in the general price level. The demand for credit forcesup the rate of interest, whilst the quantity of credit taken up increases that part of surplus value


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going to interest payments, so further reducing the 'profits of enterprise'. Once it is no longerpossible to sufficiently increase profitable production by the expansion and extension of credit,the accumulation process will tend to stagnate, and the whole monetary edifice built on the basisof credit will collapse.

This attempt to postpone the 'depreciation' of capital and to avoid falling profit rates by theexpansion of production through the extension of credit and the accompanying price increases,cannot in fact, in the longer run, succeed. The expansion of production on the basis of credit, aswe have shown, exacerbates the tendency of the rate of profit to fall. With each new cycle ofexpansion the organic composition of capital rises and the capitalist is forced to increase pricesfurther to maintain the overall rate of profit. The mass of profits increase but the rate of profitfalls because of the growing total capital outlay relative to surplus value. The individualcapitalist necessarily comes up against the general increase of prices in the replacement ofconstant capital. Constant capital (machinery, raw materials etc.), which is a growing total partof investment, will rise in price - as prices of production rise generally - and their replacementcost for the same type or new equipment etc will be relatively, as well as absolutely, greater.Although the value of labour power will fall with increases in productivity, (given the standard ofliving remains constant or does not grow as fast as productivity increases) the price oflabour-power or the money-wages of the working class will rise because of the general priceincreases. It is this rise in costs which is necessary, if the working class is to at least maintainliving standards, which the capitalist seizes upon as being too high and as a cause of insufficientprofits. It is because the value of labour power does not fall enough to offset the falling rate ofprofit that once again the superficial view of the capitalists comes to the fore - that wage risesare the cause of the decline of profits. Today the capitalists claim, and sections of the 'radicalleft' proclaim, that profits are being squeezed by too high wages driving costs up and increasingcompetition preventing these costs being passed on by even higher prices. History indeed doesrepeat itself, the first time as tragedy, the second as farce. This vulgarised Smithian view hasreturned to the historical stage.

So that in spite of the attempt to maintain profitability the actual fall in the general rate ofprofit will impress itself on the individual capitalist through continually rising costs (risingprices). The law of capitalist production asserts itself independently of the will of the individualcapitalist. After the first world war the large increases of productivity due to techniquesassociated with Taylorism and Fordism in the US, did not lead to systematic reductions in pricesand were insufficient to stave off - indeed they accelerated - the eventual world crisis. This wasclearly related to the crisis in Europe, together with the victory of the October Revolution inRussia. The disequilibrium between Europe and America made it impossible to exploit the new

technologies to the full and the expansion of capital world wide was severely restrained.164

With the failure of the working class to drive home the victory of the Russian Revolution intoEurope and with the eventual degeneration of that Revolution, the period after the world crisis


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saw a series of major defeats for the working class which allowed the growth of fascism and ledto the second world war.

(c) The State and inflation.

The second world war laid the basis for a new period of capital accumulation with thedestruction of capital during the war and the defeats of the working class leading up to the war.However, after this war, credit expansion alone became insufficient to guarantee furtherprofitable accumulation by private capital. The political crisis of the early war period not onlyforced the US to give aid to rebuild Europe. but dictated that concessions be made to theworking class if they were to be drawn towards the acceptance of a new period of capitalaccumulation. The state began to play a greater and greater role in the capitalist economy. Marxregarded joint stock companies as

'The abolition of the capitalist mode of production within the capitalist mode of productionitself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of

transition to a new form of production.'165

The failure to overthrow the capitalist system of production in the inter-war period, thedefeats of the working class before the war and the war itself, laid the basis for the interventionof the state in the capitalist economy to become the most heightened expression of a 'self-dissolving contradiction', within capitalism. The role of the state is to guarantee private capitalaccumulation, to attempt to overcome those barriers to the self-expansion of capital. Privatecredit alone is insufficient to allow a restructuring of capital to a greater profitability.

The State is forced to play a role in production (nationalised industries), as well as maintaininglabour power and guaranteeing employment. It plays a major role in deficit financing, inexpanding the credit base of the banks and so the supply of money. This gives impetus to theprocess which we have already discussed, enabling the products of private capital to be sold atthose prices set by the capitalists, in an attempt to maintain their profits in the face of a decliningrate of profit. However, again, the very process of allowing the further expansion of productionheightens the very contradictions it tries to resolve. It does this in a number of ways.

With the rising organic composition of capital and the growing productivity of labour,unemployment tends to increase as accumulation proceeds. The ranks of the reserve army oflabour are augmented. The state then steps in to maintain employment at 'reasonable' levels. Insuch a way its actions prevent wages being pushed below the value of labour power due to thepressure of the reserve army of the unemployed. Profits cannot be increased by simply reducingwages. This makes it all the more necessary for private capital to increase the productivity oflabour, to increase relative surplus value, in order to increase profits. However, this process isthe very one which has made the intervention of the state necessary. The further accumulation


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process with a rising organic composition of capital simply aggravates the need for further stateintervention. There is both a relative and absolute growth of those workers directly or indirectly

employed by the State.166

State expenditure being mainly 'unproductive' expenditure and consumption (see next section)further reduces the share of the growing mass of profits available to private capital. The growingmass of profits have to finance both private capital accumulation and the relatively fastergrowing state expenditure. The rate of profit in the hands of private capital then falls faster thanthat of the general rate of profit. In spite of the growing mass of profits. State expenditure, then,grows with the growing mass of profits but these expenditures reduce further the rate of profit ofprivate capital. This in turn means that private capital strives to increase the rate of profit byincreasing productivity by an even greater degree, and this in turn strengthens the tendency ofthe falling general rate of profit. We see that state expenditure grows and the rate of profit fallsnot because the rate of exploitation has fallen as the bourgeoisie and sections of the 'radical left'would have it, but because it has risen. It is not the successful economic struggle of the workerswhich reduces the rate of profit, it is rather the outcome of greater exploitation of the workingclass. To preserve full employment and maintain private capital accumulation at the higher andhigher prices set by the capitalists in the attempt to maintain their profit rates, the state mustincrease its intervention in the capitalist economy. As long as the accumulation process steadilycontinues capitalists are quite prepared to accept the growth of state expenditure alongside thegrowth of the mass of profits. But as the rate of inflation increases and stagnation in the rate ofaccumulation begins to occur, the very process which has resulted from the increase in theproductivity of labour and the growing mass of profits, the rise of State expenditure, is seen asthe 'cause' of the fall in profit rates. Such is the superficial understanding of the bourgeoisie andtheir representatives within the working class movement.

State expenditure is mainly financed out of taxation - or, in the case of state borrowing, futuretaxation. Taxation is a deduction from the mass of surplus-value (profits) in the hands of privatecapital. Although a bigger proportion of taxation is becoming a deduction from gross moneywages, a very small part of taxation (state expenditure), as we shall show in the next section,may be considered as part of variable capital and, therefore, the equivalent of the value of thesocially consumed wage goods necessary for the reproduction of the working class. Although thestate attempts through taxation allowances, investment grants, subsidies and the like to reducetaxation on capital, the continued growth of the state's expenditure must be regarded as bringingabout a deduction from the mass of profits held by private capital. However, since a greaterproportion of taxation is coming out of the gross money wages of the working class, the outcomeof the struggles to maintain real wages after tax and other deductions, becomes an importantfactor, which can clearly modify this result. In this way a growing rate of inflation can be usedby the state to reduce the real wages of the working class. If taxation allowances do not increaseas fast as inflation, or incomes policies ('social contracts') are introduced to prevent money wage


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increases rising beyond a certain level, real wages can be pushed down. The state attempts tolimit the deduction from the mass of profits of private capital at the expense of the workingclass. If this is not to be the case, money wages have to increase at a faster rate than prices. It isthis which gives way to the illusion that wage increases are the cause of price rises. Finally if realwages after tax rise, so that the working class gains some of the benefits of the productivityincreases that have taken place during the post-war boom - then the tendency towardsoveraccumulation of capital and the accompanying rise in prices will be accelerated.

Another aspect of the post-war boom which accelerates the tendency towards rising prices isthe growth of 'unproductive' labour outside the state sector. Here the necessary growth ofbanking, commercial and 'professional' employment, with the continued prolongation, on thebasis of credit and state expenditure, of the post-war boom, has been important. In recessionaryconditions these sectors would normally be cut back so adjusting to the real conditions of capitalaccumulation and profitability. As this does not occur, a result of state policies in relation to thetotal social capital, they continue to expand with the growing mass of profits, and so when theturn-down comes they appear to be too large, and are considered a burden on 'productive'capital. Again a result is seen as a cause.

With the increasing centralisation and concentration of capital and the pressing need to 'plan'and control the production process, the numbers of workers involved with administration,supervision and control necessarily grows. As most of this is necessary because capitalism is asystem based on antagonistic production relations, a great deal of this expenditure must beregarded as unproductive for capital. Parts of this employment are clearly a result of theso-called 'full employment' policies of the whole period of boom. Again the expansion of thisemployment reduces the rate of profit of the individual capitalist.

Private capital, then, faced with a declining profitability, attempts to acquire the profitsrequired for further accumulation by increasing prices. The growth of fixed capital costs with atendency to 'overcapacity' stimulates this process. The increase of the money supply, through theextension of credit and state loans, is the guarantee that these prices will be 'realised' - that is thecommodities will be sold at those prices. In such a way the 'depreciation' of capital and massiveunemployment is postponed. However, this process which accelerates the tendencies towardsoverproduction of capital, only expresses itself as a greater and greater increase of prices. Eachincrease in state expenditure and expansion of credit to avoid recession leads to anintensification of the rate of exploitation, a rise in the organic composition of capital, the growthin the mass of profits and the decline in the rate of profit. Capitalists are spurred on again toraise prices to compensate for this fall, and so we have a growing and cumulative rate ofinflation.

At a certain stage in this process, the availability of credit will not lead to an increase inprofitable production - private capital does not take it up. The state then has to step in to prevent


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an enormous increase in 'over-capacity' and the rapid growth of unemployment. The burden fallson the state to prevent the recessionary conditions turning to a full-scale depression. Its budgetdeficit will quickly and suddenly rise. But this expenditure will only accelerate the already highrate of inflation. The state then suddenly veers back to play a leading role in restructuring capital- it cuts back its expenditure and attempt to introduce rationalisations in industries it directs andcontrols. Unemployment is allowed to grow and the state begins the move to severe cuts inworking class living standards. The frequency of booms and slumps changes. The booms becomeshorter and shorter, accompanied by higher and higher rates of inflation, and the slumps longerand more severe. This is the stage we are now at. It shows that the crisis of overproduction ofcapital cannot be postponed any longer. The return of a world wide depression becomesincreasingly near.

Finally we should say something about the generalised nature of this recession - a featurewhich has not occurred since the second world war. The growing productivity of labour finds itseventual expression in the strength of national currencies in relation to one another. The 'value' anational currency stands for - in terms of the commodities it can 'buy' - is higher the moreproductive is the national capital. So that the over all productivity of national capitals finds itsreflection world-wide in the trade relations and the balance of trade, as well as the movement ofcapital including direct investment in other countries. The stronger the tendency towardsoverproduction of capital, given the rate of exploitation of labour - the more 'mature' thenational capital is - the greater importance has the export of capital (as opposed to that ofcommodities) for the consolidation and expansion of the national capital. UK and USA capitalsare examples of this. On the other hand, for a great deal of the post-war period, Japanese andGerman capital, developing at a much higher level of productivity, have depended for theirgrowth on the export of commodities, which in turn relates to the growth and acceleration ofworld trade. The higher productivity and, therefore, growing economic power of Japanese andGerman capital forcibly and belatedly expressed itself in the devaluation of the dollar in 1971.

This process of high productivity export-led growth comes up against the barriers of capitalaccumulation in the home country as well as that world-wide. The rapid increase in the export ofcapital from Germany and Japan in the last few years indicates that the tendencies towards theoverproduction of capital are now just as strong as in other countries. The massive accelerationof international credit has played a major role in bringing this about. The tendency towardsoverproduction of capital has become a world-wide phenomenon. International competitionintensifies as the battle for profits world-wide becomes an. increasingly hostile struggle tosurvive. Each state's role in relation to each national capital tends to become a dominant one.But the more the state intervenes, the more it protects its national capital through such measuresas subsidies for exports and movements in exchange rates, the more it exacerbates the tendencytowards overproduction of capital. Today we can speak of a world-wide overproduction ofcapital - an overproduction affecting all national capitals. This is why the crisis has become a


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simultaneous world-wide crisis.

What we have shown in this section is how the tendencies towards overproduction of capitalsince the turn of the century have been expressed in the form of rising prices in spite of thegrowing productivity of labour. Each method of continuing the expansion of capitalistproduction - national and international expansion of credit, growing state expenditure - onlyeventually exacerbates the very tendencies which forced them to be used in the first place.Eventually these methods become less and less effective. Unemployment and inflation growtogether. The return of classical crisis conditions is at hand.

(d) Capital and the State.

In all the major capitalist states today, a large proportion of the Gross Domestic Product, andin some cases the largest, is administered by the State itself. This development has proceededthroughout the post war boom - appearing as the growth of the so-called 'mixed economy' andthe 'welfare state'. It finds its rationalisation in the Keynesian notion of the State as mediator ofthe 'uncontrolled' nature of capital. Its political representatives are the Social Democrats.

In the recent period, the superstitious belief in the State is once again thrust to the fore. Itappears that only state intervention can maintain the process of production, restore fullemployment, and ensure social stability. This belief is founded on the real efforts of the State todo just this, which results in the servile adaption of the labour 'leaders' to the interests of thenational bourgeoisie and their State. The State appears to them as a power 'seemingly standingabove society', which orders and alleviates social conflicts.

The intervention of the bourgeois state arises directly from the needs of capital. Capitalrequires certain general conditions which it is unable to guarantee as many capitals, eg thebuilding of roads, the assurance of supplies, through subsidies or nationalisation, of the basiccommodities needed for private industry. While these developments are a political necessity forthe ruling class, their extension, to the degree that it requires further taxation, is a burden thatthe bourgeoisie is reluctant to shoulder.

We shall now briefly examine the major sectors of state intervention in the process of capitalaccumulation in order to specify its nature and effect more precisely.

(i) Social Services.

The payment of a wide range of social security benefits has been struggled for by the workingclass and has resulted from the need to maintain political and social stability after the secondworld war. The policies adopted serve two related functions.

(1) The 'full' employment policies of the state - the extension of employment in the statesector.


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(2) The maintenance and reproduction of labour power.

In the first case, as we have shown, the State limits the growth of the reserve army of labourand in so doing prevents capital from forcing down wages below the value of labour power. Thismakes it all the more necessary for private capital to increase the productivity of labour and soexacerbates the tendency of the rate of profit to fall. In so far as the extra jobs created by theState can be categorised as unproductive labour, this expenditure only accentuates the process.

The payment of unemployment and sickness benefits, pensions for the old-age workers whocapital has either thrown out of employment, has exhausted or has no further use for, resultsfrom the struggles of the working class itself. The capitalist relations of production ensure thatvery little of the rising mass of surplus products are consumed by those who need it most, theaged and the sick and those damaged by capital. On the contrary, it is precisely those workerswho consume and are not able to produce who are castigated most by the real parasites - thebourgeoisie - for dissipating the surplus product which might otherwise be used foraccumulation. As we have seen in the previous section, the cause of the falling rate of profit isnot to be found in an insufficiency of surplus products as such, but in the capitalist relationwhich requires that the value of this growing surplus product be measured against the totalcapital outlay.

The development of the forces of production and the intensification of the process ofexploitation in the advanced capitalist states throughout this century has in itself produced newneeds on the part of the working class. The demands put upon labour power by capital haveresulted in the intervention of the State in the reproduction of labour power itself. Health andeducation are main sectors concerned with this reproduction of labour power.

Health care is simultaneously a necessary repair and reproduction of labour power. As wehave shown, in so far as the state health facilities are applied to productive labour, they increasethe value of labour-power without increasing the mass of surplus value, so reducing the rate ofprofit. If they are applied to unproductive labour they are a deduction from the growing mass ofsurplus value and so reduce the rate of profit of the individual capitalist as we have alreadyexplained. As a growing proportion of society's labour is unproductive it means that more andmore health care is unproductively consumed. State services like the health service are labourintensive. It is difficult to raise productivity and the State attempts to keep its costs down.Consequently, women and immigrant labour, the least organised sections of the working class,are used to a great extent in this employment. The labour intensive nature of these services andthe difficulty in raising productivity means that money wage increases fought for by the workersin this sector, to maintain their real wages in the face of rising prices and rising taxation, has astronger overall effect, compared to industry, on the costs of the services. So arises the vulgarconception that rising wages are the cause of the rising costs. The recent unparalleled strikes inBritain throughout the health service indicate that the State's attempts further to reduce costs


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and intensify labour in this sector will be resisted. The political implications of these struggleshas not been lost on the bourgeoisie. The call to get rid of the private sector within the healthservice and make it into an adequate service for the needs of the working class, strikes a blowfor all workers against the interests of the bourgeoisie.

The accumulation of capital and the systematic development of the productivity of labour haschanged the concrete qualities demanded by capital throughout the post-war period. Thedevelopment of new skills and the extended use of new skills has meant that a minimum generaleducation is now a necessity. In so far as basic training (a very small part of education in thestate sector) augments the value of labour power of productive labour, it reduces the rate ofprofit, as we have already shown. However, unlike in the health sector, this fall may be offset bythe increased productivity of the labour which has been trained. Where this training is applied tounproductive labour, it constitutes a deduction from surplus value. The compulsory nature ofeducation in fact means that only the smallest fraction of this education actually raises the valueof the labour power consumed productively by capital. The overwhelming proportion ofeducation does not add to the skill of the labourer - its use value for capital - and so to the valueof labour power. It is also the case that a growing proportion of education will be consumedunproductively with the increasing proportion of unproductively employed labourers in society.

There are other items of state expenditure which can contribute to the reproduction costs oflabour power. Housing subsidies, building grants and council housing are examples of this.Subsidies for food and other necessary consumption goods (Department IIa) are also examples.Such subsidies contribute to maintaining the profitability of the building industry and thenational agriculture by taxing all capital, and the working class. As we have shown, the centralelements of the 'welfare state' only contain a small contribution to the value of labour-poweritself. The mass of it is unproductive consumption. Our central focus has remained on theprocess of capital accumulation itself. This is lost sight of in Glyn's vulgar proposition that themass of state expenditure:

'on the health, education, social services, welfare payments (like unemployment pay), councilhouse subsidies etc - is undeniably required to reproduce the working class at the going material

level.167

The refusal to distinguish between productive and unproductive labour leads directly to afailure to understand the elements of state expenditure and their overall effect on capitalaccumulation. Inevitably, this position must lead to the reformist conception of the state.

(ii) The Apparatus of the Bourgeois State.

This apparatus is simply an increase of unproductive expenditure. It includes both local andcentral government administration and those involved in the maintenance of social order - the


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repressive apparatus of the state. The civil servants, the police, the judiciary, armed forces,prison and probationary services, are all maintained out of state revenue. None of these workersare part of variable capital. They do not produce value or surplus value but unproductivelyconsume it. Gough, who wishes to call the 'services' of the repressive apparatus of the State'indirectly productive'(!) for capital, finally resorts to the use of the term 'social variable capital'

to give a phoney respectability to his absurdities and to mystify the role of the state.'168

From the above discussion it will now be clear that any attempt to treat variable capital as thetotal wage bill of the productive workers, either before or after taxation, is to mystify the issue.Whilst the price of productive labour power will in fact be nearer income net of taxation, theaugmentation in the value of labour power by certain state services must modify the point to asmall degree. The rest of this section will indicate further expenditures by the state which mustbe considered in this respect, whilst examining the State in relation to the production processmore directly.

(iii) The State and Production.

The State has, in its capacity as guarantor of the general conditions of the process of socialproduction, to ensure the maintenance of the basic production industries. This requirement mayforce it to regulate these industries, encourage cartelisation, perhaps subsidise them and finallynationalise them. Generally no industry will be nationalised by the state if it is profitable and isable to attract sufficient money-capital to continue a programme of investment adequate tomaintain its competitiveness. However, with the accumulation of capital, and the declining profitrate of social capital, investment will no longer take place in those industries where individualrates of profit are low. Capitals with a below average rate of profit, and which require large scalerestructuring, find it increasingly difficult to attract loans. It is in such cases that Stateintervention is most likely - in particular in the basic industries, or industries essential to aNation's trading position.

The State acts in this way in the interests of private capital. In large industries with anoutdated technical composition of capital, only the state will be able to carry out the hugerationalisations and restructuring necessary to supply the inputs to national industry atcompetitive prices.

The restructuring of these industries itself rapidly raises the level of productivity,169 whichreduces the number employed in these industries. The state must then provide furtheremployment elsewhere if it is to maintain its 'full' employment policies and limit the politicalconsequences involved with working class resistance to unemployment.

The systematic underpricing of the products of nationalised industries works in the interests ofcapitals which purchase these products. Setting a price well below the price of production results


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in the movement of value gratis to private capital. This acts as a support for the expansion ofprivate capital cheapening its costs. Where the commodity produced by the state industry isconsumed both by industry and domestic consumers eg electricity or gas, the price charged tothe domestic consumer is, in terms of unit cost, much higher. The burden of subsidising privatecapital will be forced on to the working class as far as possible. The recent very steep rises in theprices of nationalised industries in Britain are being used to lower the real wages of the workingclass.

With final prices set far below the prices of production, a loss is made on the current accountwhich sooner or later requires the writing off of capital loans made by the state, and the use ofrevenue subsidies. This process is an indirect redistribution of the total social surplus value.Private capital which is the customer of nationalised industry receives commodities containing aquantity of newly added social labour, for which it does not pay. In Britain it has been estimatedthat £7,700 million has been transferred to the nationalised industries by the state up to March

1975.170 One example of this process of subsidisation of private capital is shown in the recentdisclosures by the British Secretary of State for Energy, Wedgwood-Benn, that the British Gas

Corporation was losing £180 million annually as a result of fixed price contracts.171

Transportation is a branch of production which has commonly fallen to the state to run. Theenormous mass of constant capital required eg railway networks, and the low level ofproductivity in this industry, made it unprofitable and compelled the state to intervene tomaintain the service. It alone could guarantee the restructuring of the industry eg electrification,and increased productivity.

The high cost of restructuring the industry, and the charging of prices below the price ofproduction results in the industry remaining unprofitable. The low price of transport cheapensthe cost of labour-power, insofar as transport becomes an essential use-value for thereproduction of labour-power at the place of work. Since nationalisation, British Railways have

received a total subsidy of £3,461.6 million.172

Much of the service provided by transport is consumed unproductively eg the transport of anincreasing number of state officials and administrators, businessmen and service workers. Itseffect in this case, for the reproduction of capital, is the same as for luxury production.

(iv) Arms Production

The armaments industry is another case of production that is dependent on state orders. Sinceit produces neither necessary consumption goods nor means of production it may be consideredin a similar way to luxury production. As we have already seen in respect of such production,the production of capital in this form restricts the production of capital which is able tocounteract the tendency of the rate of profit to fall.


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The production of armaments may for particular nations have a different effect since they areexported and so exchanged for means of production or necessary consumption goods. The risingexport of arms to underdeveloped countries of the last period confirms this point. With thedevelopment of capital, the extension of trade and colonisation, and finally inter-imperialistrivalries, the production of arms must be seen as integral to the development of capitalism, sincethey are used in the final arbitration of national rivalries.

(v) Research and Development.

The role of 'research and development' by the state through its own institutes and universitieshas been an important one for capital. Such research is centralised because its increasing cost nolonger enables individual capitals to carry this unproductive expenditure. The very lack ofguarantee of any result makes such spending a serious risk. Further, its association with weaponstechnology, and competition between national capitals for world markets, eg atomic energy -encourages the state to take a certain responsibility. Labour employed here is exchanged againstrevenue, it is unproductive for capital, although it may provide the knowledge for a furtherqualitative change in the labour process. The impulse for such expenditure is capital's striving tosubject all material life to productive labour - to heighten the productiveness of labour. This time

for scientific research is made possible because of the creation of disposal time by capital.173

The development of new techniques, the increased competitiveness of capital, and the formationof new areas of production, are compensations for the cost of research and development, for thedeductions from surplus value involved.

(vi) Subsidies to national capitals.

Finally it is necessary to note the role played by the States in supporting national capitals inthe face of world competition. The struggle to increase relative surplus value through increasesin productivity advances faster in one state than another. Those states with weaker capitals maysubsidise the exports of these capitals in order to maintain them. Subsidies however must be paidfor, taxation or state borrowing has to be increased. The extension of such subsidies has becomea feature of the growing tension between nation states in the recent period.

(vii) Conclusion.

We have shown that the largest proportion of state expenditure may be regarded asunproductive expenditure. The contradictions of the capitalist state are heightened precisely in aperiod of growing crisis. While trying to restore the rate of profit for private capital it still needsto guarantee a 'politically' acceptable level of employment. The actions of many governmentsover the recent period demonstrate this point.

During June 1975 the French Government took emergency measures to prevent a suddenupsurge in unemployment, with the prospect of more than half a million school and college


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leavers flooding the labour exchanges in the following three months on top of the 800,000

unemployed already registered.174 Students are now paid to prolong their courses or take newones, employers get direct incentives to take on young people, and the public service wasallowed to take on additional staff even if not needed. In Britain a 'Temporary EmploymentSubsidy' has been paid from August to employers retaining workers who would otherwise be

made redundant. Such 'job creation' schemes have already been established in Canada.175 In theUnited States there has been pressure through the William-Javits Bill to employ one millionunemployed in public works. The contradictory role of the state here comes to a head.

In its attempts to restructure capital, and force accumulation forward it has exacerbated theinevitable crisis - it is then forced to counteract one of the results, unemployment, by increasingunproductive expenditures through deductions of surplus value - further forcing capitals toincrease productivity to offset the effect of taxation and increasing costs, and so accentuatingthe fall in the rate of profit. The increased tension within the reproduction process expressesitself in a fall in the rate of profit, in spite of the rapidly growing mass of surplus value, andincreased credit and inflation, along with a change in the nature of employment in society.

(e) The International Expansion of Credit.

The development of international credit arises out of the expansion of international trade. It isthis trade, a complement to the expanding spiral of capitalist production - which increases thecirculation of commercial bills. The expansion of the production of value and surplus value alsopromotes the increase of loan capital. These developments are augmented, in the epoch ofimperialism, by the expansion of the national debt. In this case nations rather than capitals takeup loans. The enormous growth of international trade since the Second World War - from 1949to 1970 the volume of capitalist foreign trade (exports) rose nearly fourfold - was, more than therise in production itself, which rose three and a half times. This expansion was based on thedominance of United States capital. The strength of the American economy and the politicaldominance achieved through the Second World War by the United States, enabled it to expandits imperial control over world production. It has been the United States which has been thereservoir of loan capital for the world throughout the post war period. The use of loans hasestablished further points of exchange in the world market - drawing in more labour forexploitation. This promotion of capitalist production rested upon the basis of a defeated workingclass, and enormously reduced capital values. American industry was quite capable of supplyinghuge credits at the level of accumulation it had by then achieved.

The American and British capitals had already become mature at the beginning of the postwar boom. That is to say that the rate of profit exacted by their domestic production wasinsufficient in relation to the total capital invested, whilst production of capital was extensiveenough to export large quantities of capital to more profitable areas. These states then, exportedcapital throughout the whole period.


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The export of capital was quite acceptable to the rest of the world - it was done through theacceptance of the dollar and sterling as international reserve currencies alongside gold. Thedollar was accepted as 'good as gold', through the establishment of the gold-exchange standard atBretton Woods in 1944. A domestic money symbol was accepted as the international means ofpayment. There are two necessary conditions for this role. It could be circulated in hugequantities given the size and productivity of American capitalist production, and thisproductivity of labour guaranteed the stability of the currency. The latter condition is vital forthe preservation of this status, the international means of payment. An extensive issue of dollarson an insufficient basis of expanding value would mean a depreciation of the paper dollar.

Now the expansion of credit out of production is itself limited as the expansion of capitalslows during the cycle. The demand for credit by the world's capital, and the acceptability of thedollar enabled American capital to issue credits at a rate much greater than the expansion ofAmerican production. These dollar credits enabled the purchase of foreign capital by theAmericans. The enormous issue of dollars at a time when productivity was falling relatively toother national capitals, began to bring about a real depreciation in the paper currency. Itsequivalence was set politically however against a given quantity of gold, and it was this relationwhich convinced foreign capitals to accept the dollar at its face value. Throughout most of thepost war boom the US had a positive balance of trade, but maintained a balance of paymentsdeficit which reached $62,000 million in 1971. The deficit was financed by the rest of the worldsince it accepted the dollar in exchange until that time.

The rate of growth of the productivity of United States industry was over-taken by that of thedeveloping German and Japanese capitals. The dollar at its fixed rate of exchange, becameover-valued compared with other currencies. The maturity of American capital was expressed inlower increases in productivity, raising its export prices relative to the more productive exportingnations. This was undermining the US balance of trade. It was these conditions which resulted ina refusal of capitalists to accept the dollar - they all expected its devaluation, or the revaluationof the Yen and Deutschmark to bring the exchange rates into realignment. The demand forcredit, for means of payment, continued to exist however, and the dollar, because of the role ithad developed continued to be used as the international money. For example despite the Germangovernment's attempt to restrict domestic activity in 1970, German capital simply sought moremoney-capital on the international money markets.

The dollar accumulation of foreign banks and institutions rose by $7,300 million in 1970whilst the total short-term liabilities to the rest of the world by the US was $43,400 million. Thediffering rates of productivity of American and German capital was bringing about a real changein the actual exchange rates of the currencies, yet the dollar still remained tied to gold,over-valued.

The enormous expansion of dollar credit, and its importance for world trade can be seen in the


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development of the international money markets during the post-war period. The Eurodollarmarket was formed at the end of the 1950's - the market constituted by the dollar deposits in theEuropean banks and American bank branches in Europe. In 1960 it was estimated at $2,100million, in 1967 at $17 ,500 million, and in 1971 at $60,000 million. The enormous debt that thisincluded, run up by the United States through its balance of payments deficits - was financed bythe European states.

With a slower growth of capital, because of the lower rates of profit, credit was demandedover a longer term. Thus in the second half of the 1960's there emerged an additional middleand long term capital market - an entirely new phenomenon in modern capital. The existenceof all of these money dealers rested upon the expansion in real values that was now slowingdown.

In May 1971 the flow of dollars reached huge proportions, and speculation developed in theattempts of money capitalists to protect the value of their capitals. There was a generalrecognition that the dollar was overvalued. West Germany refused to accept the dollar at itsofficial parity. US short-term dollar liabilities had now risen to $51,900 million. Despite measurestaken to partially revalue and establish floating exchange rates for certain currencies the sale ofdollars continued. In June the US announced a budget deficit of $23,000 million, and a rise in thenational debt to $400,000 million as a result of state expenditures incurred in an attempt tomaintain production and employment.

The use of the national paper money, the dollar, for international payments could continueonly as long as the productivity of American capital rose enough to maintain the dollar exchangerate. But it could not. Japanese and German capital became more productive. The formal dollardevaluation of August 1971 was forced upon the US - just as the sterling devaluation of 1969was forced on Britain. This made it more costly for the US to export capital - although itscommodities were competitive in the world market again.

No nation's currency can displace money of the world, gold, as the final means ofinternational payments. The competition between capitals will force first one, then anothernational currency into and out of the position of world wide acceptability as a means ofpayment. The refusal to accept the national paper money internationally, arises not out of someabstract 'over-issue' of such paper, or speculation in the money markets, but out of the decline inthe rate of accumulation in that state in respect to the issue of its paper money. What firstappears as a money crisis is actually the result of a crisis of production.

PART IV. THE POST-WAR BOOM - SOME SIGNIFICANT INTERNATIONALDEVELOPMENTS


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We can only give a brief sketch here of the more important developments associated with thepost-war boom. We shall show how these developments give expression to those generaltendencies we have already discussed.

The post-war boom rested on a number of important factors which we shall discuss briefly.

1. The defeats of the working class before the war. Fascism and war were expressions of thosedefeats, and the post-war boom has to be seen in that context. During and after the war thesedefeats were perpetuated by the collaborationist roles of social democracy and the stalinistCommunist Parties. Where the working class were defeated by fascism, the rate of exploitationcould be raised by increasing the working day and through the intensification of labour.

In Germany where already Fascism had massively raised the rate of exploitation the share ofwages in the national product dropped from 64% in 1932 to 57% in 1938 - it was not until 1950,or according to some writers (Kuczynski, Wallich) 1956, that the real wages of German workersreached 1938 levels. The enormous growth of the supply of labour - between 1945 to 1950, 7.9million refugees flowed into West Germany - was a contributory factor to allowing the rate of

exploitation of the fascist period to be maintained or even raised.176 In twelve industrial

branches out of 24 the average work week was more than 50 hours over this period.177 From1950 to 1959 income to capital increased at an average yearly rate of 11.4% (from 1852 to 1913it was 3.75%) whereas income to labour increased by only 7.0% over the same time-span. Thefifties were the years in which German capitalism made the highest rate of profit in its whole

history.178

In Japan figures suggest a similar process of development.

Real NationalIncome perCapita

Real MonthlyIncome ofWage Earners

1934-6 100.0 100.01949 71.9 57.81950 78.1 69.11951 85.6 72.01952 100.0 84.0

Although real national income per capita reached 1934-6 levels in 1952, this was not the casefor real monthly income of wages earners. 1949 saw monthly wages at 57.8% of the 1934-6

level.179

Even in countries like the US, although wages increased, they increased well below the levelof productivity growth. Between 1947 and 1957 wages fell from being 40.7% of value added to

35.6%.180


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2. The enormous destruction and depreciation of capital values during the war - which playeda similar role to the capitalist crisis - meant both that demand levels after the war were verymuch higher and that there was a new basis on which to begin accumulating capital. This alsoallowed the introduction of these more efficient technologies world-wide, which had beendeveloped before and during the war.

3. The outcome of the war was the dominance of the US economy world-wide. This allowedthe US economy to develop initially at the expense of other national capitals. Through MarshallAid and the export of capital, the US laid the basis for increasing control of world markets forAmerican capital, and a higher rate of accumulation of capital at a higher rate of profit. Thedisequilibrium between Europe and America in the inter-war years, in this sense, had beenover-come by the control US capital now had world-wide.

The post-war boom once underway saw a continuous increase of productivity well abovepre-war levels. Productivity has been doubling every ten years in Japan, every 15 years or so inthe major Common Market countries and about every 30 years or so in the US and UK. Figuresfor productivity increases for the major OECD countries are given below.

Average Annual Growth Rates of Output Per Man-Hour181

1957-60 1961-64 1965-68 1968-72

UK 3.4 3.5 3.9 4.8US 4.1 4.0 3.2 3.1West Germany 5.4 5.9 5.5 4.4Japan 4.0 8.2 11.4 10.4France 5.4 4.9 5.8 8.3Italy 5.4 8.9 6.9 2.8

Real wages have necessarily grown below the level of productivity increases. In the USbetween 1946 and 1969 the index of productivity per man-hour in manufacturing increased from60.8 to 145.5, an increase of 139%. However, real take-home pay increased from 80.2 to 112.8

or by 40.6%.182 In Britain average real net income after tax increased (for all employees) by

about 2.0% while productivity increased on average by 3.8%183 at an annual rate.

The growth of output has necessarily been related to the amount of investment as apercentage of GDP in each country - although other factors are also involved.

Investment as% of GNP184

(range)1960-72

Growth ofGNP/GDP1959-60-1971-72

Japan 30-35 11.0


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Germany 23-27 4.9France 20-26 5.8US (excludesgovernmentexpenditure onmachinery andequipment) 17-18 4.1Britain 16-18 3.1

The low level of investment in the UK and US and the much higher productivity growth in theother important OECD countries has meant a change in the balance of economic powerworld-wide. The following tables indicate these important changes. They are the shares of themajor capitalist countries (area) in world capitalist industrial output and the shares of exports asa percentage of market economies.

Shares of Capitalist World Industrial Output %185

USA EEC UK Japan

1937 41 22 12 4.51953 52 16 10 2.01963 44 21.1 6.4 5.31970 40.5 22 5.0 9.5

The important change in the position of the USA should be noted. After its initial large gain inthe immediate post-war years its share has gradually returned to the pre-war level. That of theEEC has moved in exactly the opposite direction. Japan has seen a continual rise of its share andBritain a continual fall. The share of exports is equally instructive.

Export of goods (% market economies)186

1938 1948 1958 1963 1968 1973

US 14.5 23.3 18.5 17.0 16.1 13.7France 4.1 3.9 5.6 6.0 6.0 6.9W. Germany n.a. 1.4 9.6 10.8 11.7 13.1Italy 2.6 2.0 2.7 3.7 4.8 4.3UK 13.0 12.2 9.9 9.0 7.2 6.0Japan 5.3 0.48 3.0 4.0 6.1 7.1

Book Value of Companies Investment Outside Own Countries and Shares in Total

($million)187

1967 % share 1971 % shareAverageincrease


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1967-71

US 59,486 55.0 86,000 52.0 45%UK 17,521 16.2 24,019 14.5 37%France 6,000 5.5 9,540 5.8 59%W. Germany 3,015 2.8 7,276 4.4 141.3%Japan 1,458 1.3 4,480 2.7 207.2%

Here again the figures show the changing balance of power and the growth of internationalcompetition throughout the period. The enormous jump in US exports just after the SecondWorld War indicated US dominance after the war. The gradual decline in its exports share sincethen and the rise of the share of Japan and Germany are the significant features. As for the shareof industrial output, Britain has seen a continuous decline of its share of exports. The newbalance of power, which both these tables point to, has set the stage for the growing inter-imperialist rivalries of the next period.

A final indicator of the growing extent of these developments can be seen from figures for theexport of capital in the form of foreign direct investments.

The 'mature' capitals have a considerable stake in the foreign direct investment abroad. ForBritain this amounts to nearly 20 per cent of the GNP and for the US, 7.5%. What is important isthe recent rapid rise in the export of capital from W. Germany and Japan. At the end of 1973Japanese investments were on a par with those of West Germany at about $10,000m, and latestestimates suggests they could amount to $42,000m by 1980. The total amount of Japaneseoverseas investment (including portfolio etc) increased by nearly 450 per cent between 1968 and1972. West German foreign direct investments increased 52% within the 12 months ending

March 1974.188

A central feature of the post-war boom has been the tendency towards concentration andcentralisation of capital. In 1968, for example, 200 of the largest manufacturing corporations inthe US controlled nearly two-thirds of all manufacturing industry assets - the same as the largest1000 in 1941. In 1970, 100 of the largest manufacturing companies were responsible for 50% oftotal manufacturing output in the UK, whereas the figure was 20 per cent in 1950. For Japan thefollowing table gives some indication of concentration and centralisation of capital.

Company Mergers in Japan 1951-69189

1951-5 1961-4 1969

Total (annualaverage) 345 812 1,163

Companieswithcapitalisation 4 27 36


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value of morethan 1 billionyen.

With the growing capital investment and increasing productity productivitythe tendencies tooverproduction of capital emerged. Credit began to increase considerably and by the mid-sixtiesthe state had begun to increase its role significantly. The US statistics for credit reveal moststrikingly the growing crisis of overproduction of capital.

Debt in the United States190

(in billions of current dollars)

YearA: GrossNationalProduct

B: PublicDebt

C: PrivateDebt

B as % ofA

C as % ofA

1946 208.5 260.4 153.4 129.4 73.61950 284.8 239.4 276.8 84.0 97.21955 398.0 269.8 392.2 67.8 98.51960 503.7 301.0 566.1 59.7 112.41965 684.9 367.6 870.4 53.7 127.11969 932.1 380.0 1,247.3 40.8 133.81973 end 1294.9 600.0* 1,800.0* 46.3 139.91974 end 1335.0* 660.0* 2,000.0* 50.0* 150.0*

* approximate

Private credit has had to grow enormously to keep the expansion of capital at a steady rate.Today the depth of the crisis becomes ever more clear. Public debt having been graduallyreduced as a percentage of GNP, over the post-war boom period, is now having to rise again.The federal budget deficit for 1974/5 was greater than $44 billion dollars - a post war record.Estimates for the next year suggest it will rise to $60 billion. Business Week has summed up thisincredible trend,

'The numbers are so vast that they simply numb the mind. £1 trillion in corporation debt, $600billion in mortgage debt, $200 billion in state and local government debt, £200 billion inconsumer debt. To fuel nearly three decades of post-war economic boom at home and abroad,this nation has borrowed an average net $200 million a day, each and every day since the close

of World War II.'191

While the growth of credit has been a dominant factor in stimulating the expansion of capital,the state in most countries has played an increasingly important role. It is difficult to findconsistent figures for state expenditures as different countries use different categorisations and,in general, the role of the state in the past has been played down in statistics. However, no


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matter what figures are used there has been a much faster growth of state expenditure than thatof the GNP in most OECD countries, since the early 1960s.

Public expenditure as a % of GNP192

(excludes capital transfers)

1955-7 1967-9

US 25.9 31.7France 33.1 (1959-61) 37.0Germany 32.4 (1960-62) 36.5Italy 28.1 34.2UK 31.7 38.0Total OECD 26.9 32.1

A larger and larger part of this expenditure has been on social services. In the US total socialwelfare expenditure grew from 8.9% of GNP in 1949-50 to 17.5% in 1971-2. As a percentage of

Government expenditure this shows a rise from 37.6% to 53.4%.193 For Britain social servicesexpenditure rose from 13.4% of GDP in 1951 to more than 22% in 1972. This was a rise from

32% to over 43% of public expenditure.194

While arms expenditure up to the Korean war was a large component of state expenditure,since that period there has been a continuous reduction of such expenditure as a proportion ofboth public expenditure and GNPs in nearly all OECD countries. Taken together for the OECDcountries, defence expenditure took 10.2% of GNP in 1952/3 at the height of the post Koreanwar rearmament; while at the peak, in 1967, the proportion was only 6.4%. In 1968 the fall in

defence expenditure elsewhere more than offset the further rise in the US.195 This fall hascontinued. Although arms expenditure gave some stimulus to the post-war expansion - given thebasis that already existed for profitable capital accumulation - it was reduced as soon aspolitically possible because of its detrimental effect on the overall rate of profit.

These state expenditures must generally be paid for out of taxation. The rise in expendituresare reflected in the rising share of taxes as a percentage of GNP.

Total Taxes as % of GNP196

1955-57 1967-69

Canada 23.8 30.0US 25.4 30.0Japan 18.0 19.0France 32.9 37.0Germany 32.4 35.1


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Italy 24.7 30.3UK 28.0 34.2OECD Total 25.8 30.5

The growth of unproductive labour and unproductive consumption has been a continualfeature of the post-war boom. A great deal of the increase has been due to the growth of thestate sector but not only this. The increase of banking, commercial and various 'professional'work has added to this. An indicator of the changes which have occurred is the shift towards'non-industrial' jobs as a proportion of industrial employment. These are as follows,

Increase in non-industrial jobs as a proportion of industrial employment 1962-73197

Britain 29%US 19%France 15%W. Germany 8%Italy 7.5%

Figures for employment in the USA are even more revealing.

% of employees by industry division, USA 198

1919 1946 1959 1974

Manufacturing 39.4 35.3 31.3 25.6Wholesale &Retail Trade 16.7 20.1 20.9 21.7Financing,Insurance, RealEstate 4.1 4.1 4.9 5.3Services 8.4 11.3 13.4 17.2Govt 9.9 13.4 15.2 18.2

The reduction in manufacturing employment and the growth in the services and governmentsector of employment indicate the trend towards the growth in the employment of unproductivelabour and unproductive consumption in the USA. In Germany the change in the number ofemployees was 770,000 from 1966-73 (+ 3.6%), however there was a decrease of 84.000 from

industry (-0.7%) and a growth of 954,000 in 'Services' (+ 10.8%).199

The figures given for the growth of unemployment and inflation. together with a stagnation inGNP have been given in an earlier section. They have been explained through an analysis of thecontradictory effects of attempting to 'postpone' the 'depreciation' of capital and social labour bythe extension of credit and public expenditure. The occurrence of stagnation and inflationtogether indicates that the limits of this process have been reached. In the last year a further


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indicator of this has been the unparalleled rise (for at least over 10-15 years) of public sectordeficits and borrowing requirements. We give the figures for three countries.

Public Sector deficit % of GNP200

1967 1968 1973 1974 1975(6 months)

US -1.6 -1.0 -0.6 -0.7 -5Germany -1.3 -0.7 1.6 -0.9 -6UK -4.8 -2.8 -4.4 -7.0 -7.5

Italy has recently approved a record budget deficit for 1976 increasing expenditure by nearly

a third and up nearly 70% from the 1975 budget.201 Japan is also likely to embark on large-scaledeficit financing this year. The budgetary gap is put at something over Y2,000 bn (£3.1bn) and

special legislation is required to permit the Ministry of finance to borrow the necessary funds.202

The governments of the major capitalist countries are unable to cope with the growingoverproduction of capital. If the large countries reflate together unemployment might be slightlyreduced but inflation will once again surge ahead. If another boom is artificially created it willhave less effect than the last (1972-73). The limits of the so-called mixed economy have beenreached. Capital now needs to be massively restructured, if profitability is to be restored. Thecondition for doing this is an intensive attack on the working class. Cuts in living standards andstate expenditure must take place. The outcome of this crisis, like the last, depends on thepolitical preparedness of the working class.

(a) The Crisis in Britain

As the oldest capitalist State, Britain has come to express the contradictions of capital in theirmost acute form. The leading capitalist State, utilising its monopoly position, Britain was able to

export more capital than its net capital formation at home, as early as 1870.203 From this periodonwards, the relative fall in domestic investment resulted in a decline in the competitiveness ofBritish commodities compared to that of other capitalist States. This export of capital took on anincreasing significance as greater profits were to be made outside of the UK. Capital exportsbecame a necessity if rates of profit were to be maintained by the owners of capital. It is notthen, as the broody nationalists would have it, a process of systematic sabotage of Britishindustry by unpatriotic capitalists, but the logic of capital that dictates this movement.

We will not discuss here in detail the whole post-war period but outline the more importantdevelopments. The defeats of the working class before and during the Second World War laidthe basis for a rise in the rate of exploitation in the post-war period. The immense destruction ofcapital values set the stage for a renewed expansion of production with a large rise in profits.


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This immediate expansion was facilitated by an increase in the indebtedness of Britain to the

United States and Canada, and sales of long term investments.204 The success of the expansiondepended upon the immediate post war advantage British Capital had over European andJapanese capital. There was a rapid growth of exports. To explain a decline in this position it isnecessary to see the effect of a recontinuation of capital exports from Britain. This wasprompted by the rise in production in Britain and the more profitable investment opportunitiesabroad.

The increases in the productivity of British capital were low compared to those achieved inEurope and Japan. The British state increasingly intervened to push up the rate of productivity,from the time of the post-war Labour government's incomes policy.

Domestic Capital Formation and Direct Capital F1ows Abroad.205

Domestic ($ billion) Abroad ($ million)

1957-60 61-64 67-68 57-60 61-64 67-68

UK 3 3.5 5 510 670 820W. Germany 4 7 7.5 120 220 320France 2.5 5.5 8.3 10 100 200Japan 3 6 13 50 90 170

UK external assets and liabilities. Private Sector. £m.206

1962 1970 1971 1973 1974

Total PrivateInvestmentAbroad. 8,070 14,530 15,190 20,195 18,870Total BankingandCommercialClaims 2,265 18,200 20,550 41,505 50,055Total externalassets of theprivate sector. 10,335 32,730 35,740 61,700 68,925

We have previously given figures to show the low level of domestic investment in the UK,compared to that of its competitors. This continuously low domestic investment is reflected inthe increases in the productivity of labour. From 1965 until 1972 the gross productivity changes

reported by Flanagan207 were as follows: - US, 20%: UK, 36.6%: Italy, 41.5%: W. Germany,42%: France, 53.5%: Japan, 130.3%. This consistently low level of productivity increase inBritain resulted in a continued decline in the proportion of British exports to the total exports ofthe market economies. From 1948 to 1972, British exports (f.o.b.) fell from 12.2% to 6.6% of


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the total exports of the market economies. This compares with a rise in German exports from

1.4% to 12.5%, and from 0.4% to 7.7% for Japanese capital.208

This declining position reflected in the near continuous balance of trade deficits, and thepressure to devalue sterling, forced the State to intervene continuously to raise productivity.Both the direct intervention of the State in production and a continuous series of 'IncomesPolicies' were the result.

The increases in productivity that resulted from State intervention meant a rise in the totalcapital outlay relative to surplus value. Capitalists struggled to obtain a greater share of the massof surplus value produced even more fiercely as the rate of profit fell. As the rate ofaccumulation fell, and as the rate of productivity rose, less and less labour was employed bycapital until more labour was being expelled from the production process than was beingre-employed by it. According to the following indicators for the British manufacturing industrybetween 1964 and 1973, the investment in constant capital rose whilst absolute employment

fell.209

Increase in plant andmachinery at constantreplacement cost %

Decrease inEmployment%

Coal andpetroleumproducts,Chemical andallied industries 67.7 8.5Other metals,engineeringand alliedindustries 33.5 11.9Bricks, pottery,glass andcement 68.1 14.2Construction 101.3 16.8Food, drinkand tobacco 63.5 9.4

The number of workers in the manufacturing industries fell from 9,010 thousand in 1964 to7,956 thousand in 1973.

To restructure British capital to the point where it was both profitable and competitive wouldrequire enormous investments of capital and a much higher rate of exploitation than presentlyexists. The massive redundancies that would result from this is precisely the opposite effect tothat posed by Benn, who sees in a restructured and competitive British Industry the employmentof more labour. On the other hand, arguments which recognise the inverse relation between


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employment and manufacturing investment empirically, but which believe that employment inpublic services can overcome unemployment, do not understand the real basis for thisemployment - surplus value production.

During the post war period the State nationalised a number of industries and proceeded torestructure and rationalise them. Between 1960 and 1974, 350,000 employees were expelledfrom the Coal industry, and 325,000 from the railways. The latest programme for the steelindustry involving £3,000m investment, envisages finally, 50,000 redundancies. Private capitalcontinued to increase productivity throughout the period especially from 1965 onwards.

Trends in Productivity 210

(Output per employee)

1955-60 60-65 66-71 72 73

1. Manufacturing 2.2 2.8 3.6 6.1 7.42. Gas, electricity,water 5.1 3.7 7.5 13.6 9.63. Insurance, bankingetc. professional andscientific services, andmiscellaneous services 2.0 0.4 1.9 0.7 -1.14. All industries andservices 1.7 2.0 3.4 3.1 2.5

In manufacturing this increase was accelerated, reaching its highest rate in the 1973inflationary boom.

An increase in the reserve of the unemployed was continuous from 1954.

'Male unemployment since 1954 has shown large fluctuations about a steady rising trend.

Female unemployment has shown similar fluctuations, but at a much flatter trend.'211

By 1972 there were 453,800 more registered unemployed than in 1959. The 1971 Census ofPopulation indicated that there were a further 70,000 men and 230,000 women looking for workand not on the register. The duration of unemployment has also risen, as a trend since 1950, and

absolutely since 1966.212 But this rise does not take up all the loss of employment that tookplace from industry over this period. There was an increase in employment by the State. Thisexpansion, alongside that in the sphere of circulation and in other services changed theemployment structure in Britain throughout the period.

Employment by occupation

(as a % of Total Working Population)213


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1959 1974

Public Administrationand Defence 5.98 6.96Miscellaneous services 8.25 9.53Insurance, Banking etc 3.0 4.7Professional & Scientificservices 9.24 14.29Distributive Trades 12.37 12.3Manufacturing 39.3 (1961) 34.6 (1973)

The proportion of the working population now employed in what is broadly understood as'white collar' work was increasing, whilst that of 'blue collar' work was decreasing.

The Shift from Industry214

1962 1973

Blue Collar 11,749,000 9,915,000White Collar 11,537,000 12,747,000

This trend can be expected to continue. A significant decline in employment is expected to

occur in the railway industry by 1981.215 The numbers of professional and technical workers

was projected, by Woodward, to rise to 4.4 million in 1981 compared to 2.7 million in 1971.216

These trends however result primarily from the increasing intervention by the State to establishother employment as productive employment decreases, alongside an expansion in the numberof circulation workers, which rose with the increase in credit expansion.

Between 1959 and 1974 employment in education rose from 873,000 to 1,693,000 whilst thatin the Medical Services rose from 729,000 to 1,113,000. These increases however did not fullyoffset the increase in unemployment, and the consequent costs of maintaining the unemployedrose.

In the last decade the number employed by the local authorities rose 800,000 to 2,700,000

people.217 Local authorities' expenditure has increased about twice as fast as national incomeand almost three times as fast as the yield from rates. Two thirds of local authority spending goesdirectly in paying its workers. As 80% of local authority spending is obligatory - statutoryresponsibility - any decrease in this expenditure will have serious social repercussions. Localauthority expenditure as a percentage of total government spending has increased from 17.3% in1950, 23% in 1960 and 30.5% in 1970, to 32.4% in 1973. Latest figures indicate that over 40%of total government expenditure and over 18% of the GNP is absorbed by local government.

The growth of public expenditure and the large proportion of social services expenditure, roseconsistently as a proportion of Gross Domestic expenditure, as well as forcing up the


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indebtedness of the State. The extent of this change was succinctly expressed by the'Economist',

'On September 1st or thereabouts, public sector spending in Britain topped £1,000-a-second.It took from the dawn of history to 1966 to reach £500-a-second, seven more years to reach

£1,000, and on today's trends £2,000 would be passed before 1980.218

Public Expenditure and Taxation

(% of GDP at factor cost)219

1957 1960 1965 1968 1970 1971 1972 1973 1974

Total PublicExpenditure 36.5 37.5 45.5 51.9 50.7 50.4 50.8 51.4 57.3Total Taxation(includingrates) 32.6 32.2 35.3 41.2 45.0 42.1 40.2 38.4 42.8Social Servicesexpenditure 14.0 15.4 17.7 20.4 21.1 21.0 22.1 21.5 22.7

The accelerating inflation had become a serious political issue for the working class by thelate 1960s. The bourgeoisie on the other hand were coming to view existing wage levels, andunproductive state expenditure as the central causes of the falling rate of profit and the risingrate of inflation. We have seen how the real processes at work in the deepening crisis, areopportunistically reversed in the minds of the bourgeoisie, and how they use their views in anattempt to decrease state employment, increase the reserve army and force wages down belowthe value of labour power.

When the Conservative government took office in 1970, it promised to 'reduce prices at astroke'. The strategy was to cut government expenditure and reduce overall taxation - both werebelieved to cause inflation. This would involve a process of 'forced' rationalisations at theexpense of the working class. However the reductions in taxation and the attempt to cut backstate expenditure, not only failed to reduce inflation, but threatened large increases inunemployment. The state was forced to increase expenditure. The figures for public expenditureand taxation for 1971 to 1973 show the failure of this so called 'lame-duck' policy. The HeathGovernment ended up paying £1.30 in aid to industry for every £1 that Labour spent in its lastyear of office.

The rise in government expenditure had now to be financed through borrowing, since the Torygovernment had reduced taxation over all. The budget deficit increased to £1,810 million at theend of March 1973 to £4,500 million in mid 1974, reaching £6,300 million at the end of 1974.

The attempt to cut inflation demonstrated that the basis of inflation did not lie directly in


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government expenditure itself, but in the systematic issue of currency and credit by the banks,which was necessary if the higher prices set by the individual capitalist were to be realised, in anattempt to overcome the profits crisis. Increased State expenditure which relies for its extensionof National Debt through the issue of fictitious capital, expands the credit base of the banksthemselves. State expenditures at present are such that the public sector deficit reached £2.16bnin the first quarter of 1975, compared to £1.37bn in the same period of 1974. Such borrowingrequirements led to higher interest rates which made matters worse by putting up the cost ofprivate and local authority investment, so adding to the pressure to raise prices. Certainly theforced expansion of credit that followed this process of State intervention went along with, andintensified the inflation arising out of the attempt by private capital to maintain its profitability.

An indicator of the sharp rise in advances that were given to industry in this period are thefollowing figures.

Total Bank Advances (£ million)220

1969 10,428.31970 12,413.81971 16,029.8

1972 21,169.3(underestimate)

1973 29,854.8(underestimate)

In an attempt to increase the mass of profits available to private capital, throughout the wholeperiod, taxation on corporations was reduced, and investment grants rose. According to Burgessand Webb, from 1967 the decline in the rate of return post tax was limited by investment

grants.221

Percentage of Income taken as taxation from Corporate Profits excluding tax

dividends222

1949-52 36.51953-56 31.51957-60 25.91961-64 22.01965-68 19.0

Indeed the extent of this cut in taxation has been so great that The Economist has noted that,

'... cuts in corporate taxation ... does not seem a top priority when taxes on profits frommanufacturing have already been estimated to have fallen to an average of 14% and manycompanies pay no mainstream corporation tax at all, thanks to free depreciation for tax purposes


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on new investments in plant and machinery'.223

The working class however did not receive such reductions, on the contrary the burden onthem increased. The rise in taxation on the working class has been increased by inflation. Extrataxation is generated by the increase in inflation - a phenomenon given the technical name offiscal drag. Here tax thresholds are raised more slowly than the rate of inflation, so that moreworkers receive money wages which are taxable, whilst those in the taxable income bracket findthemselves paying increased taxation - a higher proportion of their real income.

Changes in Income Tax (£million)224

Budgetchange

Fiscal drag Total

1968-69 +96 +199 +2951969-70 +25 +233 +2581970-71 -199 +494 +2951971-72 -610 +521 -891972-73 -1268 +613 -6361973-74 -310 +877 +567

This taxation effect actually overcame the reduction in personal taxation of the Tory budgetsof 1970- 74. The brunt of this effect falls on the working class. The percentage of income takenas taxation from wages and salaries increased continually.

Tax on Wages and Salaries225

(% of income taken as taxation)

1944-52 9.81953-56 8.91957-60 10.61961-64 12.31964-68 15.5

Net take home pay (after tax, insurance etc) as a proportion of national income, had actuallyfallen.

Net take home pay (wages and salaries) after tax etc. as percentage of national

income.226

1957 60.01960 58.81965 57.41968 55.9


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1970 56.41971 55.9

The figures for the growth of gross money, gross real and net real income (after tax) for malemanual workers, are equally instructive.

Annual compound rates of growth227

Grossmoneyincome

Gross realincome

Net realincome

1956-60 5.0 2.9 2.11960-64 5.5 2.2 1.31964-68 6.0 2.5 0.51968-70 10.0 3.6 1.31971-72 15.4 - 7.41972-73 13.9 - 1.1

Depending on the threshold arrangements for increases this meant that between 1973 and1974 the change in the income of the working class varied between -4.8% and 2.2%.

All attempts to cut State expenditure failed.228 The National Debt increased continuously asbudget deficits increased. The budget of 1975 indicated that the government was planning to lop£900 million (at 1974 survey prices) off the planned volume of public expenditure for the fiscalyear 1976-7. But this can be done only with increased unemployment and further recession.

The Labour government must cut back state expenditure, yet it faces a dilemma. Because ofthe low level of the productivity of labour in Britain, the government cannot reflate like othereconomies. It is dependent upon them for an easing of pressure, a raising of demand forcommodities. The rate of unemployment must be forced up by a halt to government expenditureincreases. Only a constant devaluation of the pound sterling from 1967 onwards has enabledexports to remain competitive, but this devaluation has been at the expense of the livingstandards of the working class.

What we have attempted to show in this section is how the British crisis is a heightenedexpression of the growing world crisis. At present the Labour Government is trying to draw inthe working class, through its leadership in the trade unions and Labour Party, to accept a wagecut as the first stage in the restoration of British capital's profitability. The 'social contract' isdesigned to achieve exactly this. However this can be only the first stage. Unless a massiveincrease in productivity in British industry is rapidly brought about, British capital can hardlysurvive the crisis of profitability world-wide. So that a rapid growth in unemployment will becentral to the strategy of a Labour Government intent on preserving private capital. State


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expenditure therefore will have to be cut and the state will play a leading role in rationalising theindustries it controls and gives subsidies to. The Ryder report is an example of this, whereproductivity gains are to be a central part of the agreement to provide the extra finance required.The refusal to give more funds to NVT is another aspect of the same approach. What the Torieswere unable to do because of the resistance of the working class - from 1971- 2, the LabourGovernment is now beginning to put into practice with the active support of many of the tradeunion leaders.

Conclusion.

Our analysis shows that this crisis is a fundamental one for world capitalism. The Left inBritain has not really understood this point. At issue is the way forward for mankind. In eachand every capitalist country the question of political power will be centrally posed. Worldwide,as inter-imperialist rivalries grow, 'nationalism' will be the greatest barrier to the unity theworking class requires. The major pressures for protectionist measures come at present from thetrade union movement in each country. It indicates that calls from the ruling class to protect the'national' capital will not fall on deaf ears. Our analysis shows how protectionism offers no wayforward for the working class. Defensive measures to protect working class living standardscannot be of that kind.

It is clear that a strategy to defend the living standards of the working class must be turnedinto an offensive struggle for political power. Increasingly the working class must assert its'control' and prevent the capitalist class resolving the crisis on the backs of the working class.This article is intended to make this a possibility. By being a critique of the ideologicalrepresentatives of the bourgeoisie and opportunists within the ranks of the working class,through to the 'radical left' which is incapable of combating such views, it is a critique of theanti-working class solutions that these views offer. In this sense it points the way forward to anindependent working class stand.

Paul BullockDavid YaffeSeptember 1975

Footnotes

The Economist, December 28th 1974, p40-42.1.

Ibid, May 17th 1975, p10, and June 14th 1975, p13.2.

Marx, K, CapitalVol 3, Lawrence and Wishart, Moscow and London, 1962, p248.3.


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Ibid. The Economist is forced to agree. With the terminology of a shame-faced liberal under attack, itconcludes, 'It is a highly desirable to look for international solutions but the prudent will look out theirnational survival kits as well.' op cit; December 1 28th 1974, p42.

4.

Speech to a South-Eastern region rally of the TGWU at Poole 17/5/75. Quoted in The Observer, May18th 1975, p1.

5.

Cited from and reported in The Financial Times, July 21st 1975, p4.6.

Trade and Industry, April 4th 1975, p2, our emphasis.7.

Ibid, February 28th 1975, p494 ff.8.

The Economist, July 19th 1975, p9. It is of course quite possible that the 'left-wing ministers' will resignfrom the government if a statutory policy is introduced, instead of threatened, should the trade unionsnot accept what amounts to a government ordered wage cut. But this underlies their confusion. Avoluntary wage cut under threat of statutory controls is acceptable whereas a statutory policy is not.Constitutional 'fine-tuning' indeed!

9.

Reported in The Financial Times, July 23rd 1975, p12.10.

Britain's Economic Crisis by the Cambridge Political Economy Group. Spokesman Pamphlet No 44,1974. Bob Rowthorn, one of the group, is a leading theoretician in the British Communist Party.

11.

Ibid, p5 and p6.12.

Tribune, Vol 39 No 25 June 20th 1975, p1.13.

The Crisis in British Economic Planning and a Draft Planning Agreement. A Discussion Paperfrom ASTMS. Published by ASTMS (no date) p4.

14.

Ibid, p2.15.

The Social Contract - Cure-All or Con-Trick? by Bert Ramelson, Communist Party pamphlet,p10-11.

16.

Tribune, Vol 39 No 26 June 27th 1975, p1, also Britain's Economic Crisis, op cit, p22, The SocialContract, op cit, 25, ASTMS pamphlet, op cit, p3, 7, and 8, Tribune, ASTMS, and the CommunistParty all held to a crude chauvinist anti-EEC view during the Common Market referendum.

17.

ASTMS, op cit, p7.18.

Ibid, p7.19.

Tribune, loc cit, ASTMS, op cit, p4.20.

Marx, K, Grundrisse, Penguin Books, 1973, p409.21.

Britain's Economic Crisis, op cit, p13 and 14. In fact the Communist Manifesto makes clear whatthis 'substance' is, 'The Communists are distinguished from the other working-class parties by this only:

22.


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1. In the national struggles of the proletarian of different countries, they point out and bring to the frontthe common interests of the entire proletariat, independently of all nationality. 2. ...' the second point isthat Communists represent the Interests of the movement as a whole. See Communist ManifestoSection II, 'Proletarians and Communists'.

Ibid, p23. Why the European working class will take such measures in the case of a working-classmovement which has supported import controls so threatening unemployment - because of reducedexports - in the other countries, is not clear. They also call for increased trade with socialist and thirdworld countries but as most capitalist countries in these times of crisis are already vying with each otherto get such trade this is hardly a radical measure.

23.

Lenin, V I ' "Left-Wing" Childishness and the Petty-Bourgeois Mentality', Collected Works Vol 27,p339. Also Lenin, V I, 'The Immediate Task of the Soviet Government', Ibid, p257, and 'Report onConcessions' April 1921, Ibid, Vol 32, p313-4.

24.

Britain's Economic Crisis, Op cit, p15. This will include mobilising popular support to 'break thepower of the capitalist class in Britain', Ibid, p15, p25, etc. But the discussion of the 'political problemsinvolved in such a mobilisation would require a book in itself' - we await that with interest. It isinstructive that the IMG's Red Weekly (17/7/75 p6-7) argues in a similar way to Britain's EconomicCrisis in its 'plan to beat the crisis'. While formally correct in calling for immediate measures to defendthe living standards of the working class, in discussions of its 'plan' it never argues that the workingclass first of all needs to seize state power -to smash the capitalist state - to plan social production in itsown interests. It talks in a similarly 'inexact' way as our Cambridge academics of 'smashing the stateresistance with which...the ruling class will threaten the labour movement'. In its recent attempt todiscuss with the Labour Party 'left' it has unfortunately fallen prey to the utopianism inherent in theirprogramme. It is dangerously confusing to call for a 'State monopoly of foreign trade' without havingclarified what type of state - a capitalist or proletarian state. The IMG, as the Cambridge academics,wishes to be rid of the capitalist, but retain capital - a fault quite common, as Marx remarked, in Englishsocialists. It is also quite consistent, therefore, for Red Weekly to regard it as 'a gigantic slander to callthe Tribune programme as a whole reactionary'. How else can we treat it but as a whole, andconsidered in this way, as we have shown, it is both utopian and reactionary. Clarity and precisionabove all are essential at this time. Chile and now Portugal indicate what is at stake and Marxists arenot impressed by left-sounding rhetoric. It is again not surprising that the failure of the AllendeGovernment in Chile was regarded by Red Weekly in the above article as a 'failure to protect wagesagainst inflation' which meant a loss of enthusiasm by workers for radical (!) policies. The failure layprecisely in the politics of those supporting the Allende government - they did not raise the question ofstate power, because they thought it possible to expropriate the capitalists and yet retain capital. Anyexamination of the crisis in Italy in the early 1920s shows that to save capital, capitalists are preparedto support handing over a great deal of 'formal' control to the workers. 'The owner of Fiat offered toturn it into a co-op run jointly with the unions.' See the review of two books written on this period byPeter Sedgwick in The Guardian, July 24th 1975, p7.

25.

Midland Bank Review, November 1974, p626.

The Bank of England Quarterly Bulletin Vol 15 No 2, June 1975, p137.27.

The Financial Times, July 24th 1975, p15, and The Economist, July 26th 1975, p63. The latest figuresfrom the Department of Employment show that average earnings have risen only 25.8% in the year toAugust 1975, compared to a rise in prices of 26.9% over the same period. As The Guardian, October21st 1975, has put it 'This implies a further sharp reduction in living standards (which declined sharplyin the second quarter of the year) after allowing for the clawback effect of increased tax and national

28.


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income contributions', p26.

For a summary of such views see the Midland Bank Review, op cit p10-11.29.

New Statesman,April 18th 1975, p502. See also 'The Unions We Deserve?' in the New Statesman, June13th 1975, p769-770. Samuel Brittan is a more muted proponent of such romantic and reactionaryyearnings for those 'ever so free times' when the market economy was allowed to work out its 'natural'course. What, of course, neither he nor Sir Keith Joseph has understood is that, as Marx succinctlyremarked, although '(the curbs on free competition) seem to make the rule of capital more perfect...(they) are at the same time, by restricting free competition the heralds of the dissolution of the mode ofproduction which are based on it.' What we now see is how those 'curb on free competition' necessaryto preserve capital, reached points where, in spite of them, the very existence of capitalist production isthreatened. Hence the yearning for those earlier times. Grundrisse, op cit, p651. (our translation).

30.

Glyn and Sutcliffe, British Capitalism, Workers, and the Profit Squeeze, Penguin Books, 1972,p20l. For a critique of this see the article by David Yaffe 'The Crisis of Profitability: a Critique of theGlyn-Sutcliffe Thesis' in New Left Review, July-August 1973, No 80, p45-62.

31.

Socialist Worker, April 5th 1975, p3. For a similar Communist Party view see Social Contract..., opcit, p12. Also Eric Heffer 'The Stalinism of Paul Johnson' in the New Statesman, July 25th 1975, p100.

32.

Speech to a TGWU rally, op cit.33.

The Social Contract..., op cit, p12.34.

Marx, K, Theories of Surplus Value Vol II, Lawrence and Wishart, London, 1969, p219. At least ASmith was speaking at a time when capitalism was beginning its progressive phase.

35.

Red Weekly, 'Inflation' p6, August 14 1975 No 112.36.

Capital Volume I, Lawrence and Wishart, London 1961 p533.37.

The Social Contract...,op cit, p20. Also Morning Star, July 8th 1975.38.

The International Socialists used it in attacking Heath's Incomes Policy. See Socialist Worker, April24th 1971, September 11th, 1971, July 19th 1971 and the Socialist Worker pamphlet on 'Unemploymentand How to Fight it', 1971 p3 and p6. Now the International Marxist Group has joined the camp. SeeRed Weekly, July 17th 1975, p6. So has the Workers Socialist League. See Socialist Press, July 24th1975. It is also an old position of the Tribunites. See Tribune, February 11th 1972, Vol 36 No 6, p1.Marx showed how absurd these views were in Vol II of Capital, op cit, p409-10.

39.

See David Yaffe 'The Marxian Theory of Crisis, Capital and the State' in Economy and Society, Vol 2No 2, May 1973, p212-16.

40.

Socialist Worker, April 5th 1975, p3.41.

The Social Contract..., op cit, p11.42.

Stressing 'monopolies' as cause of price rises etc is further justification for the reformist politics of'popular frontism' and 'anti-monopoly fronts' which has dominated the CP's politics since the mid1920's.

43.


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OECD The Growth of Output 1960-80, December 1970, p112. According to Tribune, 75 firms areresponsible for more than , one-half of British export trade, 100 firms control half the assets inmanufacturing industry and 200 firms control half the assets of all industry and services. See Tribune,Vol 39 No 26, June 27th 1975, p1.

44.

New Statesman, July 25th 1975, p100. Ernest Mandel shares this eclectic view when he says 'Marxhimself explicitly rejects any monocausal explanation of crises, insisting that they are a combination ofall the contradictions of the capitalist mode of production' in New Left Review, 'The Industrial Cycleof Late Capitalism' p3. It is precisely how these contradictions are understood and related to thefundamental contradictions of the accumulation process of capital that is central for revolutionaries.Any overt stress on disproportionality theses, or underconsumptionist views (new held by the IMG, asupporter of the Mandel majority in the Fourth International) necessarily lead to a reformist politicalpractice. This is the significance of 'the most important law of modern political economy', the tendencyof the rate of profit to fall. It is this which distinguishes Marx, more than anything from his classicalpredecessors, who were well aware of many of the other contradictions. It is this law which must becentral to any explanation of the crisis. It is not a matter of 'combination' but how and in what way thecontradictions arise from the movement of capital.

45.

There is some controversy over when this actually began. Empirical evidence for this view is given inWerner Hoffmann's Die säkulare Inflation Duncker and Humblot. Berlin 1962 pp6-15. Mandel arguesthat this could only be said to be the case after the great depression of 1929-32 had been overcome, inDer Spätkapitalismus, Suhrkampf Verlag, Frankfurt a.M. 1972 p.377. While prices fell during this greatdepression we think the trend began a lot earlier. Before the turn of the century, after the NapoleonicWars the general tendency was for prices to fall.

46.

All statistics are taken from Organisation for Economic Co-operation and Development (OECD)Economic Outlook No's 15, July 1974; 16, Dec 1974 and 17; July 1975. The July figure for UK andJune Italy unemployment rate is taken from The Financial Times 25/7/75 p1. Statistics forunemployment rates are not comparable due to different techniques of measurement in differentcountries.

47.

Figures from E Mandel's 'The generalised recession of the international capitalist economy' in InprecorNo's 16-17 Jan 1975 p6. Since price necessarily deviates from value, because it is impossible todistinguish all productive and unproductive labour empirically, and due to the international movementof capital as well, the rate of profit in the Marxist sense cannot be measured. A better indicator of thetendencies of profitability than those given would attempt in some way to distinguish betweenproductive and unproductive labour in measuring the 'rate of profit'.

48.

Glyn and Sutcliffe op cit p66.49.

Lloyds Bank Review April 1974 no 112 p17.50.

Mandel, op cit.51.

This section is a shortened version, with corrections on the question of productive and unproductivelabour, of David Yaffe's article 'The Marxian Theory of Crisis, Capital and the State' op cit. There areadditions on 'Value, money and price', 'Credit and crisis' and 'The extensive and intensive expansion ofcapitalist production'. Certain other corrections have also been made.

52.

Grundrisse op cit p193 and Capital Vol I op cit p104.53.


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Ibid p191 and Capital Vol l op cit p116-117.54.

Ibid p446.55.

M Williams, 'An Analysis of South African Capitalism - Neo-Ricardianism or Marxism?', Bulletin ofthe Conference of Socialist Economists Feb 1975 Vol IV 1. Williams has shown how, historically,gold capitalists will struggle to prevent the value of gold falling, and indeed cram as much value intogold as possible. Mechanisation is actively retarded here.

56.

Capital Vol II, op cit 121-122.57.

Grundrisse p194 and Capital Vol l op cit p117.58.

Capital Vol l op cit p123-12459.

Grundrisse op cit p195.60.

Capital Vol l op cit p116, see also Marx's criticism of J S Mill on this point. Grundrisse p864.61.

Capital Vol l op cit p127.62.

See A Altvater, et al, 'Inflation und Krise der Kapitalverwertung' in Probleme des Klassenkampfs17/18, pp250, 253, for a similar view.

63.

K Marx, A Contribution to the Critique of Political Economy. Lawrence and Wishart. 1971 p119.64.

D. Yaffe, 'Value and Price in Marx's Capital', Revolutionary Communist No 1.65.


What follows draws on the article by Peter Howell in this edition of Revolutionary Communist.Although a separate article it nevertheless forms an integral part of this discussion.

67.

Theories of Surplus Value l op cit p380.68.

Capital Vol I op cit p72-73 and p181, footnote 2, repeated p508.69.

Ibid p509 and Grundrisse op cit p470-1.70.

Capital Vol lop cit p509.71.

TSV I, op cit pp153, 160-6172.

This stands in contrast to P Baran's conception of productive labour, which is based on a subjectiveconception of some 'rational' process of production - that which is not wasteful. PA Baran ThePolitical Economy of Growth Pelican 1973.

73.

TSV I op cit p180.74.

TSV I op cit, pp397-8.75.


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Capital III op cit p293.76.

TSV I op cit p167-168.77.

An analogy may be drawn here to the labour of repairs - see K Marx Capital II op cit p172-79. Thisadditional labour is made necessary by the use of labour by capital - it becomes a current expense forcapital, 'Repairing' here however is simultaneously 'renewing'.

78.

I Gough. 'State Expenditure in Advanced Capitalism', New Left Review 92, pp72, 111 and J Harrison,'Productive and Unproductive labour in Marx's Political Economy', Bulletin of the Conference ofSocialist Economists, Autumn 1974.

79.

Grundrisse op cit p631-2... 'behind all attempts to represent the circulation of commodities as a sourceof surplus value, there lurks a quid pro quo, a mixing up of use value and exchange value.' eg,Condillac, whose argument is frequently used by modern economists, more specially when the point isto show, that the exchange of commodities in its developed form, commerce, is productive of surplusvalue.' Capital I op cit p159.

80.

This important point, overlooked by those who use a Ricardian type model, ie see wages inverselyproportional to profits, is merely another way of stressing that,

'the rate of accumulation is the independent not the dependent, variable; the rate of wages thedependent, not the independent variable' (Capital Vol l op cit p620)

Marx again makes this point in relation to the rise and fall of the rate of profit in TSV III op cit p312.

'The rise and fall in the rate of profit insofar as it is determined by the rise or fall of wages resultingfrom the conditions of demand and supply (in the labour market) ...has as little to do with the generallaw of the rise or fall in the profit rate as the rise or fall in the market prices of commodities has to dowith the determination of value in general.'

This point shows clearly the weakness of many of the arguments of the Glyn and Sutcliffe bookmentioned earlier.

81.

Capital Vol I op cit p510.82.

TSV III op cit, p300.83.

Capital I op cit p524.84.

The relevance of the class struggle is important here. One aspect of productivity deal bargaining quiteclearly involves the question of compensation for increases in the intensity of work. It would be morecorrect to say that the rate of surplus value is increased because wages are below the value of labourpower if the real wage is not increased with an increase of intensity.

85.


Ibid. It should be noted that changes in c and v not related to changes in the technical composition ofcapital do not alter the organic composition of capital. So that if wages are reduced below the value oflabour power this does not alter the organic composition of capital.

87.


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TSV II op cit p415-416.88.

TSV III op cit p364.89.

Ibid p366.90.


Ibid p775.92.

Ibid p699 and also pp690-695.93.

Capital Vol I. op cit p407.94.

Ibid p392.95.

'Accumulation of capital is therefore increase of the proletariat' Capital Vol I op cit p614.96.

Ibid p644.97.

Ibid p639.98.

Capital Vol III op cit p47.99.



Capital Vol III op cit p242 (our translation).102.

Ibid.103.

Grundrisse op cit (our translation) p340.104.

For a mathematical illustration of this point, see David Yaffe 'The Marxian Theory of Crisis...' op citp201-2. Also Marx gives arithmetical examples in the Grundrisse op cit p333-341. A simple proof ofthe tendency of the rate of profit to fall is the following. From what we have arguedS + V

C → 0

as accumulation progresses with a rising organic composition.

Now S + VC > S

C + V therefore SC + V→ 0

See M,Itoh 'The Formation of Marx's Theory of Crisis' in Bulletin of the Conference of SocialistEconomists Feb 75 op cit footnote 1 p6.

105.

Capital Vol III op cit p214 (The translation is taken from the C H Kerr edition Chicago 1909. Vol IIIp256)

106.

TSV II op cit. p542 Capital Vol III op cit pp218, 220.107.


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Although we cannot discuss the theory of imperialism here it can only be developed in relation to thetheory of crisis. For discussion of the relation of accumulation and imperialism see D S Yaffe'Imperialism and the Accumulation of Capital' in the Bulletin of the Conference of SocialistEconomists 2, 2 August, 1972, p70ff. See also Capital Vol III op cit p232-3.

108.

TSV III op cit p349.109.

This position corrects that previously outlined in the article 'Value and Price in Marx's Capital',Revolutionary Communist 1. p47-48. There, luxury production is called unproductive and it isincorrectly asserted that luxury production is excluded at the level of abstraction of the discussion ofthe formation of prices of production. Luxury production is productive for capital, but has theparticular effect on the rate of profit shown both in that article and in this. It is necessarily included inthe discussion of the 'transformation' of values to prices.

110.

TSV III op cit, p350.111.

Capital Vol III op cit p244. (Translation Kerr ed p292).112.

P Mattick, Marx and Keynes Merlin Press 1971 p98.113.

TSV II op cit p512.114.

Capital Vol II op cit p245 (Kerr ed p293)115.

Ibid p251. See also Grundrisse op cit pp 413, 414, 552, and 751-2.116.

Capital Vol III op cit p248 (Translation Kerr ed Vol III p297).117.


Mattick op cit p73. The definite crisis-cycle of the last century, as Mattick says is not directly related tothe Marxian theory.

119.

Theories of Surplus Value II op cit p513. In this sense as Marx says 'Permanent crisis does not exist,Ibid p497. That Marx clearly held to such a position can be seen from his passage in the Grundrisse, agreat deal of it written in English.

'Hence the highest development of productive power with the greatest expansion of existing wealth willcoincide with depreciation of capital, degradation of the labourer, and a most straightened exhaustionof his vital powers. These contradictions lead to explosions, cataclysms, crises, in which bymomentaneous suspension of labour an annihilation of a great portion of capital, the latter is violentlyreduced to be point, where it can go on...where it is enabled (to go on) fully employing its productivepowers without committing suicide. Yet, these regularly recurring catastrophes lead to their repetitionon a higher scale, and finally to its (capitals) violent overthrow.' Grundrisse op cit p750.

120.


Ibid p470-71.122.

Ibid p471-472.123.


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Ibid p416.124.

Ibid p445-46.125.

Ibid p471-72.126.

E Mandel 'The Industrial Cycle in Late Capitalism', NLR 90. Here Mandel writes of the monetarysphere being relatively autonomous...'a credit cycle temporarily distinct from the industrial cycle comesinto being' p13. However, by p16, the 'evidence' points towards 'a decline in the relative autonomy ofthe credit cycle'. This should suggest to Mandel that the idea of autonomy is quite incorrect.

127.

Capital Vol III op cit, p493.128.

Ibid p473-74.129.

Ibid p491.130.

Ibid p335.131.

Ibid pp366, 369-70.132.

Ibid p347.133.

Ibid pp477, 353-54.134.

Ibid pp447-448 p456.135.

Ibid p457. For an example of this procedure, and the development of forms of fictitious capital inperiods of massive credit and lower rates of profit, see p52 National Westminster Bank QuarterlyReview Feb 1975, 'Property Bonds 1966-74' P R A Kirkman and D C Stafford.

136.


NLR 90 op cit Mandel, p6.138.

Ibid p12.139.


Ibid p528.141.

Capital Vol I op cit p138.142.


Ibid p448.144.

Ibid p440-41.145.

Ibid p471-72.146.


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Ibid p441.147.

Ibid p447.148.


Ibid p407.150.

Ibid p408.151.

Ibid.152.

Ibid p409.153.

Capital Vol II op cit p403.154.

Ibid p410.155.

These points belong to the theory of imperialism, which we will not develop further here.156.

Keynes, The Means to Prosperity, London 1933 pp17, 18 and 19.157.

Ibid pp21, 22.158.

See Art Fox 'The Deep Roots of Inflation', Action Press New York 1973, especially p11ff for prices1890-1911, and for credit statistics p28ff. See also Werner Hoffmann op cit pp11, 12.

159.

See Glyn and Sutcliffe op cit, Gough op cit and Devine, 'Inflation and Marxist Theory', MarxismToday, March 1974.

160.

Evidence that during periods of accelerating inflation price increases in industries of high concentrationare slower than in other industries has been discussed by 'economists' in respect to the United States.Amongst others; W J Yordon, 'Industrial Concentration and the Price flexibility in Inflation. PriceResponse Rates in Fourteen Industries. 1947-1958', Review of Economics and Statistics August 1961pp287-294; J A Dalton, 'Administered Inflation and Business Pricing: Another Look.' Review ofEconomics and Statistics November 1973 pp516-519; and Weiss, 'The Role of Concentration inRecent Inflationary Price Movements. A Statistical Analysis', Anti-Trust Law and Economics Review,Spring 1971 ppl09-121. A recent review can be found in P Cagan 'Inflation and the Market Structure,1967- 73', Exploration in Economics Research, National Bureau of Economics Research Vol 2 No 2,Spring 1975 pp203-216. Whilst these 'investigations' pose questions from an empiricist standpoint - theevidence collected gives little support to the crude 'monopolist' view.

161.

Grundrisse op cit p623. (our translation) For this and other points mentioned in relation to credit seeCapital Vol III op cit pp429-32 and Grundrisse op cit p659.

162.

Capital Vol II op cit p185-6.163.

On the disequilibrium between Europe and America see L Trotsky, Europe and America: Twospeeches on Imperialism, 1926. Pathfinder Press 1971.

164.



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This analysis is developed in the context of productive and unproductive labour and the growing crisisin the final section of P Howell's article in this issue.

166.

A Glyn, 'Notes on the Profit Squeeze' p9 Bulletin of the Conference of Socialist Economists Feb1975 Vol IV No 1.

167.

I Gough, op cit, p70, 72.168.

It is not surprising that some of the highest productivity industries in Britain are in the nationalisedsector. See the article in The Times Friday October 29 1971 p21.

169.

The Financial Times Aug 6 1975 p12.170.

The Financial Times, July 31 1975 p8. The Guardian, August 2nd 1975. The Financial Times,August 4th 1975 p5. Pricing policies too are blamed by the British Electricity Council's Chairman - SirPeter Menzies - for the Council's £258 million loss in 1974-75.

171.

The Financial Times, August 6th p12.172.

Grundrisse op cit p401 footnote.173.

The Guardian, June 4, 1975 p15.174.

Sunday Times July 6 1975.175.

See E Alvater, etc 'On the Analysis of Imperialism in the Metropolitan Countries: The West Germanexample', in The Bulletin of the Conference of Socialist Economists, Spring 1974 pp6, 9, 10.

176.

See Winifred Wolf, 'The Relative Strength of German Capitalism', in Inprecor no 16-17 Jan 16th 1975p25.

177.

E Altvater, etc. 'On the Analysis...' op cit p10-11. Figures used are those based on a study by W GHoffmann. Untersuchungen zum Wachstum der deutshen Wirtschaft, 1965.

178.

See S Levine, Industrial Relations in Postwar Japan, 1958.179.

See Victor Perlo. The Unstable Economy, Lawrence and Wishart. London 1973, p27.180.

Taken from the National Institute Economic and Social Research Review and cited in The Times7/11/73, p27.

181.

See Victor Perlo, op cit p30.182.

See D Yaffe 'The Crisis of Profitability...' op cit p56.183.

See The Economist for these approximate figures, 31 March 1973. The GNP figures are repeated froman earlier section.

184.

See Michael Barrett Brown, From Labourism to Socialism, Spokesman books 1972, p110.185.


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UN Year Book Statistics 1973.186.

Multinational Corporations in World Development, United Nations NY 1973, pp148, 159.187.

Cited in The Times 28/5/74 p17, also in The Times 16/1/75.188.

See J Halliday and Gavan McCormack, Japanese Imperialism Today, Penguin, 1973 p167.189.

See E Mandel, Imprecor No 16-17 op cit p8.190.

Business Week, Oct 12, 1974.191.

OECD, Expenditure Trends in OECD Countries, July 1972 p66-7.192.

Social Security Bulletin, Annual Statistics Supplement 1972. US Dept of Health, Education andWelfare.

193.

Statistics taken from National Income and Expenditure Blue Books.194.

Glyn and Sutcliffe, op cit p101.195.

OECD Expenditure Trends op cit p71.196.

See the article by R W Bacon and W A Eltis in The Sunday Times 10/11/74 p16.197.

Employment and Earnings Vol 121 No 9 March 1975. US Dept of Labour.198.

Cited in The Financial Times 24{4/75, p21, (Source Eurostats).199.

OECD Economic Outlook, July 1975, p42-3.200.

The Financial Times 30/7/75.201.

The Financial Times 24/7/75 p5.202.

E J Hobsbawn, Industry and Empire p161. Wiedenfeld and Nicholson. 1968.203.

J H Dunning, Capital Movements in the Twentieth Century. Lloyds Bank Review 1964.204.

M Barratt Brown, The Economics of Imperialism p206. Penguin 1974.205.

Table D p185. Bank of England Quarterly Bulletin, Vol 15, No 2, June 1975. The total 'identifiedexternal assets' would include the Public Sector and Reserve Assets. The fall in total private investmentabroad during 1974 was the result of the fall in the market values of portfolio investment - fictitiouscapital.

206.

P Flanagan 'Productivity and World Competition' The Washington Post April 30 1973. pA22.207.

Calculated from the United Nations Yearbook of Statistics 1973.208.

G Rodgers and I Clemitson, 'Who are the Luddites now?' The Guardian April 21 1975.209.


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National Institute Economic Review 1975 No 71 p18.210.

Department of Employment Gazette March 1973. 'Trends in the composition of the unemployed'.Also The Economist May 17 1975.p28-9.

211.

Department of Employment Gazette February 1973 'Duration of Unemployment' pl12.212.

Calculated from the Ministry of Employment Gazette March 1975.213.

Quoted in R W Bacon and W A Ellis The Sunday Times Nov 10 1974 p16.214.

The Financial Times 30 May 1975 p15.215.

The Department of Employment Gazette July 1975.216.

The Sunday Times M Bowen Feb 23 1975.217.

The Economist 10/11/73 p17.218.

Calculated from the National Income and Expenditure Blue Book 1974. These are higher than theOECD figures since they include full state expenditure, including capital transfers and all currenttransfer payments.

219.

Annual Abstract of Statistics 1974 CSO table 383 p367.220.

G J Burgess and A J Webb op cit.221.

Do Trade Unions Cause Inflation? D Jackson, HA Turner and F Wilkinson CUP 1972 p80.222.



D Jackson, HA Turner and F Wilkinson op cit p80.225.

Cited in Politics and money Vol 4 no 1 January-March 1973. National income is defined as grossnational product less capital consumption.

226.

Taken from D Jackson, HA Turner, and E Wilkinson, op cit p66 (1975 edition).227.

The Times 19/12/73 p19. Here P Jay gives figures to show how state expenditure continuously roseabove estimates from 1969 to 1973.

228.

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Yaffe and Bullock - Inflation, The Crisis and the Post-War Boom

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