Marxist political economy and the crisis

Notes from a speech by Mike Kidron to an International Socialists political economy day school, Leeds, June 1974,

(This is my summary of what Mike said. He has not checked the text, and is not responsible for any errors and omissions I may have made. JK)

I’ll start with a number of fundamental propositions in Marxism which have recently come under severe and systematic attack from within the Left -and which, as revolutionaries, we hove to defend to the last drop… of ink, at least.

Notice for example on article by Geoff Hodgson in a recent issue of New Left Review. He concludes that it’s quite respectable for a revolutionary to be agnostic about one of the basic tenets of Marxism, namely the tendency of the rate of profit to fall,
It’s significant that the thesis of falling rate of profit has been attacked, by Hodgson and others, on technical and empirical grounds – but not assessed in terms of its fundamental position within the Marxist analysis Yet it’s here that we must start.
The history of human society has been one of increasing control over the physical world – a control expressed, for example, in rising productivity. Class society was both a consequence of growth in productive capacity, and a premise of further expansion in productivity.

One implication is that a growing proportion of the productive effort of society is devoted to the creation of means of production rather than production itself. That is, a rising organic composition of capital,

Within capitalism, productivity rises dramatically. But the forms of social organisation are imposed and inflexible. And therefore do. not change to match the extension of control over nature.
Thus – increasingly – the springs of creativity embedded in society are choked – a result which you can call a decreasing return to investment, or decline in the rate of profit.

I put the point in these broad and analytically impure terms to stress that when a Marxist talks about the organic composition of capital, what is being talked about is something of more than technical significance. But an essential element in the dialectical materialist view of history. If you reject the thesis of the declining rate of profit, then you reject the entire Marxist analysis,
Hodgson, once an IS member, is fairly openly making his quietus with IS, Others undermine the falling rate of profit thesis more surreptitiously. As for instance Glyn and Sutcliffe. Their recent Penguin* (British capitalism, workers and the profit Squeeze) should be read. It’s an interesting example of reformism at its most militant. They argue that the rate of profit has been in decline – but for accidental reasons. They locate the source of that decline in a chance combination of increasing international competition and an increase in the militancy of workers. So their argument implies that if, for a period, workers were less militant, or international competition became less sharp, then the rate of profit would go up.

There are of course technical and empirical issues involved in all this, but I’m not going to try and settle them here. A full discussion would take more time than we’ve got. But there is one point of great importance There is a common feature in the literature attacking the falling rate of profit whether old style Stalinist work like Gillman’s or the voluntarist revolutionaries round the New Left Review. Most of them base their conclusions on figures and definitions which exclude from the reckoning a large part of what we would call capitalism. Most of them talk about industry in the private sector.

Our reply must therefore start with the question – “what is the basic unit of capital?”

The writers I am discussing generally exclude the state sector, and also usually the household sector where women do their work. They say these sectors are distinct from, and subordinate to the central structure of capitalism.

Politically therefore they stand opposed to the ‘state capitalism’ of IS. And IS in turn can tag them as reformist. Because they try to soften the confrontation with capitalism where it is. If you exclude the state sector from your definition of capital, then the door is wide open to reformism, through the use of that state sector which is not your enemy as implacably as the rest of capitalism.

This unclarity about what the basic unit of capitalism is, has consequences. Eg. it encourages exaggeration of the differences between the ‘state and private sectors as employers.
It leads to exaggeration of the importance of the multinational corporations, as if they are the central institutions of contemporary capitalism, separate from and not controlled by the rest of capitalism (eg, the state). Even in IS literature this exaggeration sometimes appears.

But – to take the obvious example – when the oil crisis blew up in the Middle East, what independent role was played by the biggest multinationals in the world, the oil companies? Suddenly these all-powerful bodies appeared as in fact they are- part only of a much bigger structure, state and private capital combined.
Most of the attacks on the falling rate of profit start from a distorted definition of what the basic unit of capital is. I won’t here attempt a final definition. But, for us, the state is emphatically part of the basic unit of capital — given its role as an organiser of productive activity.

I want now to take up another point of cardinal importance in the defence of Marxism. Many of the critics do not appreciate the distinction between capitalism as an abstract model and capitalism as a historical system.

It is inherent, built into, the model that it will run down, ie. expand at a slower rate. But the model is not the same as the historical system, and the two must not be blurred.

Where the distinction becomes crucial is in the matter of surplus value. In the pure, abstract model, all surplus value extracted is used for the extension of the system in further productive activity.
of surplus

But in the historical system there have always been source value which have not been generated within capitalist, Marx described the primitive accumulation of capital – eg. the peasant robbed of loot used to build factories etc.

Also not all of the surplus generated within capitalism is used for productive purposes, ie. for the extension of capitalism. On the contrary, a lot of it is eaten by the capitalists. Or used to keep the state going. Or spent on arms.

So there is a quantitative distinction between the surplus that is extracted by capitalism and the surplus used productively by capitalism.
In the early days of capitalism, the quantity of surplus available to capitalism for growth was very much larger than the quantity generated within the system.

But now, in the period of the decline of the system, the quantity of surplus used for its extension is very much less than the quantity available, ie that has been extracted from within. Thus we’re increasingly in a period of waste economy, in which the necessary cost of unproductive activities is growing as a proportion of the surplus that is available to society.

Which takes us the fourth major point which we have to defend. Namely, that within a waste economy, there are certain kinds of waste which are as determining of the system as accumulation itself.

I can only mention the two ways in which current forms of waste in capitalism help determine the fate of the system,
(1)Effect of waste on the organic composition of capital
(2)Over time – every productive investment of capital requires larger initial sizes both of the productive apparatus and of the basic unit of capital (eg. every ten years, say, the minimum productive size of a steel works rises by an output measure of 1m tons,., or 2m… etc etc)

So – in the same way, every generation, the minimum necessary size of arms waste grows. So there comes a time when the minima both in the productive and the non-productive sectors are so huge as to compete for resources in a way which I’ll discuss in a moment.

To some up so far. I’ve been arguing that we must fight in defence of the following:

1.Thesis of tendency of rate of profit to decline
2.A concept of the basic unit of capital which includes the productive activities of the state.
3.The distinction between the abstract model and the historical system
4.The proposition that in a period of capitalist decline, unproductive expenditure (esp. military) is as determinative of the system as productive expenditure.

On these points we should take the offensive – eg. we should not let the Bulletin of the Conference of Socialist Economists get off with a long series of garbage articles on multinationals, Bukharin made mincemeat of Kautsky when latter hailed multinational corporations as the great up and coming centre of capitalism. We should use Bukharin to disintegrate Robin Murray.
I want to apply this theoretical perspective to talk about the two issues of major importance which confront us.


We know that arms expenditure is a primary form of waste, and a very important one because of its domino effect, (Though one should add that there is a counter-domino effect now, since the minimum effective size of that expenditure is becoming so large that more and more it becomes the monopoly of the superpowers)
An important result of this is that there is a secondary waste effect which works as follows. If the minimum size for productive investment is now huge…. if the minimum size for the military defence of a capital from its competitors is also huge…. then it’s clear that many concentrations of capital cannot afford both or either one of them. In China making of fissile material for warheads might absorb something like half of the electricity production. In India, maybe half the energy of top scientists plus special steels, chemicals etc. Leaving not much left for achieving minimum productive size necessary for entry into the productive system of world capitalism. The hugeness of these minimum sizes make nonsense of the productive investments they are making.

The ruling classes in the backward countries force the workers and peasants of these countries to make inhuman efforts. Yet all these sacrifices are useless. They cannot achieve a big enough scale of production to ensure survival in a competitive capitalist world. And this is what we mean by stagnation.

Note how little of their wealth is being invested domestically by the Sheiks. They recycle it into the advanced world. They do not extend the capitalist system, merely claim a larger chunk of the existing system.

Indian and Chinese industry will soon be overrun with weeds. In Bombay already grass is spreading in the streets and, over the whole of India, life expectancy is on the increase.


Underlying inflation there are two factors;
(a)Waste expenditure is inflationary
(b)There has been a loss of control over the money supply – eg. the growth of Eurocurrencies, now $130 billion, much larger than gold and foreign reserves of all countries. Also in individual countries the unit size of production is now so large that Governments cannot any longer allow major firms to go bust.
In the old days it was relatively simple for capital to solve problems like inflation. The source of the problem was fairly straightforward. Waste built into production, increasing because of the inflexibility of the social forms. Increased power of workers because of full employment etc. plus monopoly situations enabling higher prices to be passed on by firms.

The capitalist solution to inflation – bankruptcies and unemployment, which helped rationalise the system by getting rid of inefficient firms. Wow, life is not so simple. Previously they could close one centre of production and open others. But now if they lose one major firm they may have lost the ability to compete worldwide because it was the only firm of its type in the country – like Rolls Royce. Or like British Leyland, on which rests not just British car production, but large parts of the glass, rubber, steel etc industries as well. So in the present period, the ruling class must rely on nationalisation and internal rationalisation.

On this basis, our economic forecast would point to continued inflation rather than depression.