Karl Marx’s alternative to capitalism part 8 – crises and contradictions ii

A view common among Marxists is that socialism will arise out of a crisis of capitalism.  This is believed for a number of reasons.  The most fundamental is the view that socialism will arise from the contradictions of capitalism and these contradictions give rise to repeated crises; crises of overproduction, of profitability and of class relations.  Economic and political crises point to the inevitable triumph of socialism as every such capitalist difficulty signals the possibility of an alternative and the opportunity to create one.

A more common sense way of understanding it is that if capitalism continued to deliver the goods then why would anyone fight to change it?

These contradictions include the contradiction between capital and labour in which capital accumulates and grows through augmenting itself with the value created by labour for which labour is not remunerated in wages.  These contradictions also include the tendency for the development of the forces of production to conflict with the relations of production within which they develop.  The productive forces of machinery, technology and other means of production and productive relations determined by the ownership of these means of production by capitalists and the exclusion from ownership of those who create and work with these means of production, the working class.

The contradictions are the tension between the more and more effective socialisation of production and its private capitalist appropriation. Production is more and more subject to a division of labour with hundreds if not thousands of components produced and shipped from all over the world before final assembly in one location.  This final product such as a computer can then join thousands of other products in creation of another final product such as a car.  The workers who produce this final product likewise consume commodities created from all across the world which are themselves assembled from products created across the globe.  A vast meshed network of companies, of communications and transport has been created by capitalism that requires an enormous degree of co-ordination and planning by millions of workers to ensure this all takes place, and takes place profitably.

Yet this production is sold on a market in competition with other similar products from other companies or in competition with very different goods that could equally be bought instead.  Only after the fact is it recognised whether the labour employed in producing these goods has been wasted.  If the prices obtained for them do not result in sufficient profit the capitalists will close down, reducing production and reducing the market for goods generally as workers are laid off and supplier companies equally reduce employment.  If this happens on a big enough scale economic crises result.

Were imbalances in production to arise in an economy under workers’ collective ownership this production would be rebalanced without making workers suffer for any misallocation.  It would be in the interest of everyone to reallocate this labour to produce goods or services for which there is more need.  With capitalist appropriation however, despite the socialised nature of production, despite the enormous cooperation and scale of planning required, it is only the private profit of individual capitalist companies that counts.  And if this means closing down productive assets, wasting resources and creating unemployment well . . production is only for profit under capitalism.  It is competition not cooperation which predominates, competition between companies for sales of commodities and competition between companies to extract the maximum surplus from their own and other workers.

For Marxists this global economic result arises from the very nature of the commodity itself and its simultaneous existence as a use value and as a value.  As a commodity it must have usefulness for it to be purchased by anyone but it must also have a value that can be exchanged with other commodities and money.  At the end of the day it is the value in exchange that matters for the capitalist because it is from this aspect of the commodity that profit is derived.

A more common way of describing this is that production is for profit and not for use; commodities are produced only in so far as they procure a profit but which are only purchased in so far as they are useful.  Goods and services are produced which are profitable but which only a tiny minority of the world’s population find useful while goods useful to millions are not produced because they are not profitable.

The craziness of this has been on display in Ireland, which has had an enormous economic boom largely built in its last years upon housing and other property production. A boom that eventually turned to bust not because everyone had a decent home, or the commercial fabric of society had been completely renovated, but because the prices demanded by developers and construction firms could no longer be afforded by those expected to buy or rent. Prices collapsed, building firms went bust sacking tens of thousands of construction workers; developers went bankrupt, their loans could not be paid and the banks that lent them the money then also went bust, unable to remain solvent given the scale of the bad loans on their books.

The capitalist State then stepped in to assure the banks’ solvency by guaranteeing their loans and when it was proved that it could not afford to do so it too went bust; so the European Commission, European Central Bank and the International Monetary Fund also stepped in to ensure that the State could make good its guarantees to the banks – in exchange for the State cutting the tripe out of state services, increasing taxes, lowering public sector wages and reducing public sector employment.  The State survived all this by spreading its debts across the generations so that even in 2050 the children and grandchildren of the boom generation will be paying for the boom and the bust.

At the peak of the boom 90,000 houses a year were being built by employing around 274,000 workers. Last year fewer than 13,000 new homes were built while demand is running at 25,000 a year.  There are over 1,000 families homeless compared to 400 at the beginning of last year while there are an estimated 90,000 families on waiting lists for social housing.  But this is happening in a country that has 230,000 vacant homes, some in “ghost estates” in far-flung towns where few Irish people now wish to live — if they ever did.

This is reported in Ireland and elsewhere as if this was a peculiarly Irish problem, but not only have there been property booms across the world but housing and property booms are only the most visible manifestations of classic crises of overproduction that have been a feature of capitalism for almost two centuries.  Visible because the commodities overproduced sit there staring everyone in the face for years.  This is not an Irish problem, although it has to be said that the Irish are very good at doing it with houses, but is a classic capitalist problem of desperate need not being addressed because to do so would not deliver the requisite profit.

housing 1
It has been reported by the Society of Chartered Surveyors in Ireland that it costs €330,000 to provide a standard family home, a figure that appears to have changed little despite the deep recession!  Construction costs account for less than half of this figure with the rest made up of fees, levies, site acquisition costs, finance costs, and tax and profit margins.  Developers would rather hoard land they over-paid for in the boom because to do otherwise would mean them accepting a loss.  This would then hit the banks who everyone is pretending are now fine and no one wants a repeat of the 2008 crash.  So the process of the previous boom and bust is repeated for the sake of avoiding another one.
Housing 3

But very few people can afford houses at these prices and single people and those on even average incomes can’t afford them and would drown in a sea of debt if, or rather when, interest rates increase (although of course no one is thinking of this now). Instead the solutions put forward by the Government include grants to first time buyers, which will simply increase prices by the amount of the grant, or subsidies to developers, who will probably pocket the money while maintaining their asking price.  In short, the same policies pursued during the boom.  As the table below shows the huge debt already built up is a big constraint on any solution that seeks to stuff working class people with even more credit.

Housing 2

The solution is to build affordable houses by expropriating the land holdings of developers and re-employing many of the construction workers who were made unemployed in the crash.  However, this calls for a radical break with the prerogatives of private property which is a more entrenched religion in Ireland than theCatholic Church.

From the point of view of our look at Karl Marx’s alternative to this sort of mess there is another striking question that arises.  Just how do such crises lead to replacement of the system that produces them with a new one called socialism?

Yes, capitalism leads to these crises and yes, they would not arise within a socialist society, but what is the mechanism by which this contradiction leads from the former to the latter? What leads workers from recognising there’s a crisis to understanding that it’s a result of capitalism and agreeing that socialism is the answer, and then fighting to introduce it?  All while their starting point is not so much a very conscious rejection of socialism so much as a recognition/acceptance of capitalism because it is the system that actually exists, works (however badly) and places them in a subordinate position within which, by and large, they are powerless to effect very radical change, either as individuals or even as individuals that are part of collective organisations.

A lack of understanding of what socialism actually is and little confidence that the world can be changed, or that they must do it themselves, are not even the first condition of this problem but the result of the more basic conditions within which workers live.  Is there a contradiction at this more basic level of workers’ everyday lives that can provide the experience that they can learn from either directly or indirectly; that capitalism does not have to be accepted and that an alternative can actually exist, already exists even if in an underdeveloped form that must be developed further?

In all this it is clearly the development of political consciousness that is key.  Only through its development will workers become active makers of their own future, seeking greater and greater control over their lives and thus greater and greater control over society.  But Marxists believe that it is material conditions that generate consciousness and it is not at all clear that conditions of crisis can generate socialist consciousness.  They have not done so in Ireland.  Some of the first posts on this blog were a record of how previous capitalist crises generated reactionary solutions and the growth of xenophobic and racist solutions today are testament to this.

Marxists do not believe that the rational superiority of socialism on its own will lead to socialism.  Or rather, to be more precise, Marxists do not believe that rational argument about the superiority of socialism over capitalism will bring it about.  It plays a vital part in the work of socialists in the workers’ movement but rational argument is ultimately only powerful if it corresponds to the rational development of capitalism itself.

If capitalism tended more and more to a state antithetical to socialism, to a position that was further and further away from the possibility of collective workers’ ownership of the means of production, then ultimately no amount of rational argument about the putative superiority of socialism would matter because it could not arise in the real world. And if it could not arise in the real world the argument as to its superiority would not be rational either. A world built on unqualified love between all members of humanity may appear a rational argument, as opposed to the hate and oppression of the existing one, but it is not rational because we all know such a society cannot exist.

Crises are ephemeral, they are the means by which capitalism resolves its contradictions, even if only temporarily. They generally weaken the working class and its movement and they often present opportunities to disorient them.  They invite immediate solutions when many workers generally experience capitalism as individuals or are not grouped in organisations that are by their nature capable of providing answers.  What attitude workers take to crises, how they understand them, who they blame and what solutions they seek are strongly conditioned by their previous experience prior to and outside capitalism’s difficulties.  Generally this experience does not prepare them for taking conscious control of society, which is the essential challenge posed by the greatest crises.

Capitalist crises therefore give expression to the contradictions of capitalism but are not themselves the contradictions upon which the alternative higher form of society will arise.  History is replete with subordinate classes’ willingness to fight against their oppressor classes, such as the countless rebellions by Chinese peasants against their ruling dynasties or medieval peasants against their feudal lords.  But even when the contradictions involved in their class antagonism burst through in successful rebellion no stable society was created by these victorious oppressed class because the class contradiction evoked no mode of production resting on the unified class interests of the victorious class.

Even when the class of feudal lords disappeared from history it was not a peasant mode of production that was eventually built on the bones of their feudal rule.  Similarly, when the working class in Russia succeeded in overthrowing the Tsarist state and the capitalist economy in Russia it failed to create a new socialist society because the material conditions would not allow a new socialist mode of production to grow and develop.

So basing the alternative to capitalism on the crises of capitalism is not enough.  Developing consciousness of the need for an alternative is not even enough.  The contradictions that exist must contain within them the potential for a new socialist society to arise out of them.  In other words, it is not enough that there is contradiction but that the contradiction is resolved, in this case in a new and higher form of society.  And for this to be the case the nature of the contradiction has to contain the potential for this to occur.

It is not that the contradiction creates a clean slate upon which something new can be built but that the new arises from within the development of the contradiction itself.  Clearly the nature of this is therefore key, for its development must not only contain the end of the old but the beginning of the new at one and the same time.  Consciousness by the working class of the necessity for a new society is necessary for it to happen because it must be its creation but this is only possible if the process exists in reality.

Back to part 7

Forward to part 9

3 thoughts on “Karl Marx’s alternative to capitalism part 8 – crises and contradictions ii

  1. Again, another slight correction. You say,

    “With capitalist appropriation however, despite the socialised nature of production, despite the enormous cooperation and scale of planning required, it is only the private profit of individual capitalist companies that counts.”

    I’.m not sure that this is the actual problem that Marx describes, and Lenin later takes up this point. I don’t have time here to go into the whole theory of overproduction, but the point that Marx makes in this particular connection is that it is the divergence between socialised production and private appropriation. Private appropriation takes a number of forms. Firstly, a privately owned productive-capital provides profits directly to the owner – though they will feel constrained by competition to have to use a growing portion of those profits for capital accumulation rather than private consumption.

    Secondly, if forms interest for money-capitalists. That may be in the form of interest to a bank, or coupon to an owner of bonds, or dividends to a shareholder. In fact, as Marx, sets out in Chapter 23 and subsequent, of Capital III, these payments of interest are a deduction from profits, which is what sets up the antagonism between interest-bearing capital (which is increasingly privately owned and the form of wealth of capitalists) and productive-capital (which is increasingly socialised, and so owned by no one).

    Thirdly, it takes the form of rents paid to landlords, and the owners of monopolised factors of production that prevent an equalisation of the rate of profit. Fourthly their is the taxes deducted by the capitalist state.

    As Marx sets out in Capital III, it is the fact that the recipients of these different revenues obtain them on such a grotesquely distorted proportion, compared to the revenues obtained by workers as wages, that means that final demand for commodities itself is skewed, and so social demand can only be analysed on the basis of these class divisions. To give, a simple example. The majority of workers, may not be able to buy a house, but the recipients of these other revenues, may have more than enough money to buy houses, and then rent them to workers. So, although the need for houses by workers, is not translated into a demand, which would normally mean that prices of houses fell, landlords, capitalists, money-capitalists use their revenues to buy houses, pushing up demand and prices.

    Or take another example, which I gave in my book on Marx’s Theory of crisis, workers may not be able to buy cars at their current price. But, capitalists, and other exploiters can. Say, the price of a car is £1,000. Suppose the price of a car falls to £800, and so every exploiter who previously bought a car, now buys an additional car, but workers still can’t afford to buy one. The price of a car now falls to £600. Workers still cannot buy them, but at this price, the exploiters have no great desire to buy yet a further additional car, and settle for only replacing their old ones when they wear out. In other words, demand can fail to increase in response to a fall in price – what orthodox economics calls elasticity of demand – because for some consumers their demand is already sated at current prices, whilst for others it has not yet even begun to be met.

    But, it is this problem of private revenues that leads to this problem, not the profit obtained by the firm in the first place. In fact, as Lenin points out, and Marx also makes this point in Theories of Surplus Value, ultimately, firms have to produce according to what there is greatest demand for at the appropriate price of production, because that is what maximises their profits. This is in fact, as Marx describes, the way the Law of Value operates within capitalism to match production to expressed social needs. The point is that because of the grotesque distortion of revenues, those social needs are themselves grotesquely distorted.

    So, there is no specific problem in respect of the profits obtained by each individual firm. In fact, on the basis of what Marx says, about the way the rate of profit is equalised, the high profits of one firm in a sphere are a consequence of social demand not being met, so that market prices exceed the price of production leading to surplus profits, which should be corrected by those higher profits encouraging additional accumulation and production in that sphere, which thereby reduces market prices down to the price of production, as social demand is satisfied.

    If all firms were worker owned co-operatives – and even if shareholders did not exert undue influence over the payment of dividends etc. of corporations – then this gross distortion of revenues would not exist, and so social demand would more accurately reflect the needs of the vast majority of society, and the profits of those companies, would be an accurate reflection of the extent to which social need was being met, and provide a guide to where additional capital needed to be accumulated. In fact, Marx and Engels seem to think that this was the most effective means of organising production prior to the forces of production expanding to such a stage whereby a general abundance, at least in the vital commodities, could be established.

    As Marx, put it in the Critique of the Gotha Programme,

    “Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one.”

  2. Just a slight clarification, because I know you will realise this, and you are just setting out a summarised account of crises and contradictions. You write,

    “If the prices obtained for them do not result in sufficient profit the capitalists will close down, reducing production and reducing the market for goods generally as workers are laid off and supplier companies equally reduce employment. If this happens on a big enough scale economic crises result.”

    At the extreme this is correct, and its more true of very small capitals. However, Marx describes the way, even under 19th century capitalism, credit modifies this process. He sets out that because productive-capitalists come to want to use their own money-capital more effectively, they use credit, both commercial credit between capitals, and bank credit when that is not available to cover their own current costs, i.e. to pay wages and buy materials.

    On this basis, Marx says, if a firm finds that it cannot sell all of its output at the price of production, it may decide to reduce its production – unless it thinks that the problem is just one of the usual short term fluctuations. But, he says, because it now obtains the money-capital, which is then metamorphosed into productive-capital, via the purchase of labour-power and materials, all this means is that this particular capital now obtains less commercial or bank credit. Similarly, that means the providers of this credit, particularly banks, have that credit available to give to other firms.

    So, if the demand for chocolate has declined, but the money that consumers would have spent on chocolate they now are prepared to spend on chips, the demand for chips will rise. That means, Marx says, that the credit can then be simply diverted to chip shops, who then use it to buy more potatoes etc., and to hire more workers. If labour-power were completely homogeneous, then the reduction in employment of labour-power by the chocolate producer, would be compensated by an increase in the employment of labour-power by the chip shops. In the same way, although fewer materials are bought by the chocolate producer, more materials are bought by the chip shops, and so on.

    This is, in fact, the way capitalism effects the movement of capital from one sphere to another in order to bring about an equalisation of of the rate of profit, via prices of production, as it increases supply in one area, and reduces supply in another. It is also why Marx says that credit can play an important part in the transition from capitalism to socialised production. For one thing it means individual capitalists are required.

    As he says, if you compare this with the situation where productive-capital exists as private property, the individual chocolate capitalist would indeed, as you have said, have to reduce their own production, and then could only establish chip production – if indeed they felt qualified to be able to undertake such a business – when they had acquired sufficient money-capital to start such a business. The consequence is that they have to stop employing workers, and buying materials for quite some time, before they could start this new production, and then employ workers and buy materials, with all the effects you describe.

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