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Henryk Grossman and the End of Capitalism

Ted Reese

June 21, 2022

“The problem of the possible future end of [the capitalist mechanism] has never been taken up within the investigative scope of [bourgeois] economics! Just raising the problem throws them into a fearful panic,” writes Henryk Grossman in his 1929 The Law of Accumulation and Breakdown of the Capitalist System – a tour de force of economic theory and unsurpassed defense of Marx’s Capital. “But even within the Marxist camp, the conditions for understanding Marx’s life-work were extremely unfavorable. From the correspondence between Marx and Engels, it is apparent how mortified Marx felt by the fact that party circles in Germany were almost unbelievably indifferent to Capital... Even the leading thinkers of the workers’ movement were incapable of grasping the decisive aspects of Marx’s theory.”

That theory expounds on capitalism’s necessary tendency to breakdown – eventually absolutely. Anticipating a “massive” stock market crash in the US, Grossman felt compelled to produce a major study that would expose the revisionists and reformists in the socialist movement who claimed that, so long as consumption and distribution were properly regulated, capital could accumulate harmoniously and indefinitely. His book was the first accurate explanation of Capital’s structure and revolutionary implications.

Grossman, Capital, and Crisis

Grossman, a Polish Jew born in 1881, was not altogether surprised that Capital – especially volume three and its more detailed account of crisis theory – had sunk in a sea of idealism following a “period of vigorous capital accumulation” between 1890 and 1913, bringing about a “departure from Marx’s theory rather than its deepening”.

Following the appearance of Capital, two generations had to march across the historical stage before capital accumulation’s advance and its consequences had sufficiently ripened capitalism into its present imperialist phase and spawned conflicts that found a temporary end in the convulsions of the World War. Only now does the problem of realising socialism descend from the nebulous regions of the socialist programme to the reality of day-to-day practice. Only now are lessons and answers sought in Capital to questions that are no longer purely ‘academic’, no longer simply problems of theory but are thrown up by the harsh necessities of everyday life. In the changed historical situation, the inquisitive gaze reveals previously unnoticed words and content.

Grossman’s book was the most read publication produced by a member of the Frankfurt School – the academic institute focused on Marxist philosophy – and came out just months before the depression-inducing Wall Street Crash, immediately confirming Grossman’s suspicions, which had not been shared by reformists. But with the New Deal managing to prevent any sustained revolt in the US and fascism emerging to beat back reformist and revolutionary forces in Germany, thereby isolating the Soviet Union, Grossman’s book and crisis theory met with almost universal hostility. Even Stalin’s closest economic advisor Jenő Varga dismissed Grossman’s work and, like his reformist counterparts, located capitalism’s contradictions at the level of consumption and distribution.

Although Grossman repeatedly stressed that only a victorious struggle for socialist revolution could make a breakdown absolute, his insistence that such a manifestation must eventually become an objective necessity – since capitalism must come up against an insurmountable ‘final breakdown’ – was disingenuously but roundly attacked for neglecting the importance of class struggle.

Grossman thus met with the same fate as Marx – as did the idea of socialism’s historical necessity with the fall of the Soviet Union. Marx was wrong and historical progress had, in fact, ended.

And yet…

In the wake of the “unforeseen” global financial meltdown in 2008 – followed by the fastest ever stock market crash in March 2020 – large chinks in capitalism’s armor have reappeared. Grossman, who died in 1950 after a brief spell teaching Marxist economics in socialist East Germany, has thus started to make an unlikely comeback. A small but growing band of a new generation of Marxists is drawing attention to Grossman to bolster their understanding and defense of Marx and the contention that capitalism is destined for a final breakdown – in the not-too-distant future.

Ground zero

Empirical data can now tell us that general rates of profit, interest, GDP growth and even production costs are all trending secularly, historically and evermore rapidly towards zero. Of the roughly 750 currencies that have existed since 1700, less than 20% remain, and the US dollar and British pound sterling have lost nearly 100% of their purchasing power over the past century, at an accelerating rate. Between 1964 and 2014, the average lifespan of S&P 500 companies shrank from around 60 to 18 years. Perhaps most damningly, the Energy Return on Investment (EROI) has fallen from above 100:1 (a return of 100 for every 1 invested) before the 1930s to around 3–6:1 in 2019.

Now inflation is soaring, and fears abound about a global food and fuel crisis. Baseline interest rates in the US, Britain, and Europe have been more or less stuck at zero for more than a decade and usually require an average of 6% cut to end recessions (by making capital cheaper to borrow). Putting rates up is bound to trigger recessions by making it more expensive to repay debt, which is already at record levels across the board (relative to productivity as well as in absolute terms). The US economy suffered an “unexpectedly severe” contraction in the first quarter of 2022 after only a small uptick in the baseline rate.

Efforts to endlessly postpone a full-blown depression in the wake of 2008 have since prevented a technical recession (two quarters/six months of contraction), mainly through ‘austerity’ – publicly subsidizing capital – and central bank money printing used to buy up debt that private banks and corporations cannot afford (thereby pushing up the price of bonds and depressing interest rates). Reversing recessions once they get going will surely involve doubling down on that policy on the basis of negative rates well below zero. That would be unprecedented. Rates had never even been as low as zero before 2009. Banks complain that negative rates will threaten their viability.

Capitalism was supposed to have solved all these problems. How can any of this be explained by the misregulation of consumption and distribution, or any other factor external to the mode of production?

Back to Basics

Grossman does three things to put the focus back on the mode of production per se. Firstly, he defends Marx’s labor theory of value. The real measure of value is in fact labor time; the source of profit is surplus labor time appropriated from commodity-producing wage-workers by the capitalist class. The system’s problems, therefore, have to be rooted in the production of value.

Secondly, he re-establishes the dual nature of the commodity. It is both an exchange value, containing surplus value appropriated from labor; and a use-value, a utility satisfying a need or want. If four use values can be made in the time it previously took to make two, each one will be worth half as much as before – a form of devaluation that reformists had not taken into account in their work.

Thirdly, Grossman re-establishes Marx’s scientific methodology of successive approximation. He isolates and simplifies capitalism’s main features and relations to see if such a ‘pure’ version of the system can reproduce itself in a mathematical schema without any problems. Can an outlay on wages expanding at 5% per cycle consistently expand the value of capital at 10% per cycle? (A higher number for capital corresponds to the empirical observation that capital tends to accumulate at a much faster rate than the laboring population.) Finding that the figures eventually break down, Grossman gradually reintroduces elements that were initially discarded (competition, third persons, ground rent, etc.) and modifies the assumed numbers to bring the initial simplifying abstraction closer and closer to how capitalism plays out in the real world. He finds that while the breakdown tendency is countered and postponed, it always eventually re-emerges. Capital overaccumulates – it cannot be reinvested profitably. This is also an underproduction of surplus value; there is not enough of it to cover the amount of additional capital, additional wages, and the consumption fund of the capitalist class at the postulated rate of accumulation. To revive accumulation, the assumed rate must slow; capital has to be devalued; the labor base has to expand; the rate of exploitation (surplus labor time appropriated) has to rise, and so on.

Grossman thereby proves that capitalist crises arise inherently and structurally at the point of production, although he does not claim that external factors can never cause recessions, of course. Capitalism is a technical labor process and a valorization process – but the progress of the technical process depends on increasing the amount of value, i.e. accumulating capital. If the total value stagnates then the incentive for capitalists to invest in production diminishes until a devaluation enables an upturn at a higher level.

Essentially, the valorization process hits a limit in every cycle because there is only so much labor and labor time to exploit. A crisis is not only inevitable but necessary in order to restore accumulation on a higher level. The breakdown induces panic selling and price reductions, making expansion, innovation, and mergers affordable again, enabling the reconversion of surplus capital into productive capital.

But because raising the rate of productivity through innovation means the amount of productive (commodity-producing) labor tends to dwindle relative to the amount of capital (means of production), the underproduction of surplus-value resurfaces, and tends to do so to a greater extent. The overaccumulation of capital tends to become more and more “formidable” in Marx’s idiom; representing a greater proportion of total capital, i.e., relative to the capital that can be valorized.

Reformists – and even revolutionaries like Rosa Luxembourg – had undertaken the same sort of work, but misinterpreted Marx’s provisional schema, wilfully or not, as his empirical findings. They had treated his abstraction as a concretization – leaving no appreciation for any successive approximation.

Otto Bauer of the reformist Austrian Social Democratic Party had only studied his (‘provisional’) schema through four cycles. This was cited by reformists as evidence for the harmonious and inexhaustible nature of capital accumulation. When Grossman used the exact same schema, he found that it actually broke down.

Absolute Overaccumulation

Because the amount of commodity-producing labor dwindles relative to the amount of means of production – something that, Grossman points out, happens under any mode of production – the until now crises of relative overaccumulation are approaching a state of absolute overaccumulation.

In the age of automation, capitalism is undergoing a decisive structural shift, a second industrial revolution. As Marx points out, the expansion of production is done increasingly on the basis of the newest technology. The increasing rate of devaluation of the obsolete means of production delays the breakdown tendency, but this cannot go on forever. The greater the overaccumulation of capital becomes, the more capitalists will turn to automation to raise productivity, reduce the outlay on wages, and see off the competition. Even the most productive and therefore highest-paid workers – scientists, technicians, coders, etc. – cannot be spared indefinitely.

The system is fast approaching an absolute historical limit. The tax base will collapse and the attacks on wages will increasingly compel a fightback from the masses of workers who depend on a wage to subsist. Hence – as Grossman stresses in the last chapter of his book – the class struggle over the distribution of income can only be ultimately resolved by the working class taking state power and all production under social ownership. (The final chapter was omitted entirely from the 1992 English abridgment, adding to the confusion over his position on the class struggle, but a full English version finally came out in 2021.)

Grossman adds that a technical labor process free of the valorization process – the exponentially rising capacity of the former is anyway making the latter obsolete – can operate without any inherent structural fetter on productivity.

They may have been ahead of their time, but Marx and Grossman were undeservedly made to feel irrelevant. Even if their final breakdown thesis did not manifest during their lives, their crisis theory has always been relevant given that capitalist economies tend to suffer recessions every decade. But absent a final breakdown, their work went neglected.

The enormity of a world-historic final breakdown now looms increasingly large. Although we cannot know for sure until capitalism is buried for good, the most important arguments in Marx and Grossman are rapidly becoming relevant again – perhaps even, in some sense, for the first time ever.

Ted Reese's latest book The End of Capitalism: The Thought of Henryk Grossman is out now.

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