Capitalism’s accumulating crises: Henryk Grossman and the search for a Marxist theory of breakdown

Issue: 182

Tony Phillips

A review of Henryk Grossman Works, Volume 3: The Law of Accumulation and the Breakdown of the Capitalist System, Being Also a Theory of Crises, Henryk Grossman (Haymarket, 2022), £50

Henryk Grossman’s The Law of Accumulation and the Breakdown of the Capitalist System is a classic work of Marxist political economy that was first published in 1929, just months before the Wall Street Crash heralded the deepest crisis in the history of capitalism to date. The book was then largely forgotten until the revival of interest in classical Marxism in the late 1960s.1 This new edition has been translated from the original German and published in English in full for the first time by Haymarket Books, which has released it as the third volume of Grossman’s collected works. Grossman restates and develops the theory of crisis originated by Karl Marx but ignored or distorted by both Marx’s followers and his bourgeois critics since his death.

Today, bourgeois economists try to explain economic crises in terms of unpredictable external “shocks” such as the Russian invasion of Ukraine and the Covid-19 pandemic. They argue that supply and demand tend towards equilibrium and that price signals, with help from governments and central banks, resolve any disproportions in the system. In The Law of Accumulation, Grossman argues that capitalism is in fact a dynamic and unstable system, rather than a static one. Accumulation, the central driving force of capitalism, inevitably leads to crises—and ultimately breakdown—when overaccumulation results in insufficient valorisation, that is, an inadequate proportion of surplus value being being created by the process of production. It is this valorisation of capital by the creation of surplus value via the exploitation of workers that enables the system to continue to grow, so too little valorisation is the harbringer of crisis within the system.

Although The Law of Accumulation is largely theoretical, Grossman also includes a lot of interesting historical and empirical material, including developments in the economies of the United States and Germany in the 1920s. On the basis of this evidence, he predicts the coming Great Depression, writing, “The great crash that is coming already casts its shadow”.2

Grossman was born in 1881 in the Polish city of Kraków, which was then in the Kingdom of Galicia, part of the Austro-Hungarian Empire. He was initially politically active within the Jewish Social Democratic Party of Galicia. After the First World War, he joined the Communist Party of Poland before being forced to flee to Germany in order to escape government repression. There he joined the Institute for Social Research, a Marxist research organisation better known as the Frankfurt School. He was living in Germany when he wrote The Law of Accumulation. However, soon after its publication, he was forced to escape again, ultimately reaching the US, when the Nazis seized power in 1933.

Marx’s theory of crisis

Grossman argues that Marx did not explicitly set out a tendency towards capitalist “breakdown” (that is, economic crisis) in his key economic work, Capital. Instead, aspects of Marx’s theory of crisis appear across the three volumes of Capital. The dispersed nature of the theory opened up opportunities for critics of Marx, such as the German revisionist socialist and Social Democratic Party theorist Eduard Bernstein, to argue that there is a contradiction between Marx’s statement in the first volume of Capital that “capital begets…its own negation” and his “law of the tendency of the rate of profit to fall”, which is set out in the third volume.3 The upshot of this criticism is that there is no real basis in economic theory for the notion of a transition from capitalism to socialism in Marx’s writings, but rather only a basis in his philosophical arguments.4

Grossman contends that it is fundamental to historical materialism—the philosophical and theoretical approach underpinning the revolutionary socialist tradition—to demonstrate an objective tendency for the capitalist system to go into crisis. Furthermore, he claims, Marx did, in fact, evidence such a tendency. He argues in detail that capitalism has a built-in tendency to break down and that an understanding of this can be based on Marx’s general law of the accumulation of capital—in particular, the tendency of the rate of profit to fall.5

According to Marx, the tendency of the rate of profit to fall is rooted in the fact that, as capitalism develops, what he called the “organic composition of capital” increases; the drive to increase productivity and boost profits forces capitalists to invest an increasing proportion of their capital in “constant capital”. This latter term refers to buildings, machinery and raw materials, which Marx distinguishes from the “variable capital” spent on wages. Unlike variable capital, constant capital adds no new value during the process of production, instead merely passing on already existing value. However, because workers receive less than the value of what they produce in the form of wages—indeed, only enough to reproduce their labour power from one day to the next—variable capital expands its value during the productive process and is thus essential for the success of capital accumulation.

Increasing investment in constant capital is rational for individual firms because it increases productivity, enabling them to produce more cheaply and undercut their rivals. However, it is a problem for the system as whole, because only variable capital invested in wages produces surplus value and hence profit. Over time, this dynamic leads to a tendency towards the decline in the general rate of profit (that is, the total surplus value generated as a percentage of the total capital invested).6

Equilibrium or breakdown?

This part of Capital appears to have been a closed book for the major Marxist thinkers of the early 20th century. Instead, leading Marxist political economists, such as Otto Bauer, Rudolf Hilferding and Rosa Luxemburg, located the cause of crisis in underconsumption by the working class (caused by low wages and limited purchasing power) as well as disproportions between the various sectors of the economy. They generally overlooked the tendency of the rate of profit to fall.7 Indeed, Karl Kautsky, the most prominent German Marxist of this period, ignored Marx’s views on accumulation and crisis in Capital. This was despite Kautsky being regarded across the international socialist movement as the leading interpreter and populariser of Marx’s ideas. He instead claimed that Marx based his theory of crisis on “the anarchy of the production of commodities, then the underconsumption on the part of the labouring masses, and finally the variety in the conditions of the growth of the various component parts of social capital”.8 For Grossman, however, these factors are merely symptoms of the system’s tendency to break down, rather than its causes.

In the second volume of Capital, Marx divided the economy into two “departments”, referring to this model as his “reproduction schema”. The first department encompasses those sectors that produce the means of production (machinery, tools and raw materials); the second produces the means of consumption (for example, food and clothing). Marx’s intention was to illustrate how the different sectors of the economy interconnect so that the system as a whole is able to reproduce itself.9 Bauer, a reformist leader of the Austrian Social Democrats, used this schema to argue that that there is no tendency toward breakdown in capitalism, claiming that the system could go on expanding indefinitely, thus effectively removing the material basis for socialism. Luxemburg disagreed, but her major work, The Accumulation of Capital, argues that the accumulation of capital is dependent on the export of commodities to non-capitalist countries.10 She adapted Marx’s schema to try to show that, once capitalism embraced the entire world, it would no longer be possible to realise surplus value and the system would therefore enter a phase of economic crisis and collapse.11

Grossman agreed with Luxemburg’s conclusions, which, unlike Bauer’s, still had revolutionary implications for practical politics. Nonetheless, he rejected her reasons for reaching these conclusions. He rejected Luxemburg’s location of the cause of breakdown in the realm of circulation, instead arguing—in line with Marx—that the tendency to economic crisis is rooted in accumulation and therefore in production. In his critique of Luxemburg, Bauer saw no reason to extend Marx’s reproduction schema over more than four cycles of accumulation (each made up of one year), and so he failed to recognise the long-term tendency of the system to break down.12 In The Law of Accumulation, however, Grossman extends the schema over 36 cycles, showing how reproduction begins to break down when insufficient surplus value is realised to continue production on an extended scale.13 By years 35 and 36, insufficient surplus value is produced for the capitalists’ personal consumption; all that is possible is the continuation of production at the same scale. The mass of profit—that is, the total amount of profit as an absolute figure—rises, but the rate of profit falls continuously. Breakdown occurs, according to Grossman, when the mass of profit starts to fall relatively and is no longer sufficient to sustain the expansion of production. Crises are caused by the lack of profitable investment rather than by a lack of supply or demand, as most bourgeois economists falsely claim. Overaccumulation and the tendency to breakdown are therefore two sides of the same coin.

The law of the tendency of the rate of profit to fall continues to be controversial even among Marxists. For example, the well known Marxist geographer David Harvey argues that the tendency is neither the only nor even the principal cause of crises and therefore cannot be the basis of a Marxist theory of crisis. Instead, he suggests that that the causes of capitalist crisis are manifold and lie mainly in the realm of the circulation of capital, rather than in the arena of accumulation. He identifies these problems within the circulation of capital as including the impact of finance capital, the devaluation of fixed capital and, in particular, underconsumption by workers. Harvey claims that Marx abandoned the law of the tendency of the rate of profit to fall (although there is no evidence for this) and effectively denies that Marx had a theory of crisis at all.14

The Marxist political economist and blogger Michael Roberts has challenged these arguments, citing Grossman. Roberts points out that Marx explicitly rejected underconsumption as a cause of crisis and, following Grossman, states that low wages are an effect rather than a driver of crises.15 The central argument in The Law of Accumulation is that Marx did have a theory of crisis and that its basis was the law of the tendency of the rate of profit to fall.

Harvey also insists that the mass of profit produced by the system can continue to increase even when the rate of profit has begun to fall, which he sees as a further challenge to the validity of Marx’s law.16 Moreover, he denies that the tendency of the rate of profit to fall has been proven with empirical evidence. Roberts rejects this, pointing out that the law has been empirically demonstrated by a number of Marxist scholars.17

In their recent book, Capitalism in the 21st Century: Through the Prism of Value, Roberts and co-author Gugliemo Carchedi follow Grossman in contending that a declining rate of profit will sooner or later cause the mass of profit to fall as well, thus triggering a crisis.18 Rick Kuhn, the editor and co-translator (with Jairus Banaji) of this new edition of The Law of Accumulation, uses his very useful introduction to point out that, although Grossman uses some sloppy formulations in parts of the book, his argument is clear: “The breakdown of the system has to follow from a relative fall in the mass of profit even if it nevertheless can and does increase in absolute terms”.19 The growth of capital is linked to the rate of profit, so a falling rate of profit will, beyond a certain limit, begin to undermine the capacity of capital to grow fast enough to offset the declining rate of profit.20

Countervailing tendencies

The Law of Accumulation follows Marx’s method in Capital by proceeding from the abstract to the concrete. Although Luxemburg believed that Marx’s reproduction schema were intended to be an accurate portrayal of the workings of the capitalist system, Grossman notes that Marx abstracted away secondary factors such as competition, prices and increased worker productivity to make his argument clearer. Marx excluded competition from his presentation even though it is a major feature of the system, Grossman argues, because it emerges from accumulation and not vice versa.

Marx argued that the falling rate of profit is a tendency rather than an absolute law—otherwise the tendency to crisis would be even stronger. 21 Like Marx, Grossman moves on to make his presentation more concrete by looking at the many countervailing tendencies that can delay and even temporarily reverse the trend towards breakdown. The underlying dynamic of the system is the need to continue to valorise surplus value despite the tendency of the rate of profit to fall.22

Marx listed six countervailing tendencies in the third volume of Capital: increasing intensity of exploitation; depression of wages below the value of labour power; cheapening of elements of constant capital; relative overpopulation; foreign trade; and the increase of stock capital.23 In by far the longest section of The Law of Accumulation, Grossman adds a number of other counter-trends, which include: the reduction of the value of constant capital by the development of the productive forces; devaluation of capital through crises; destruction of capital through wars; reduction of capital turnover time; and imperialism and the export of capital.

Grossman argues that the Marxist theory of breakdown is also a theory of recurrent crisis. The rising organic composition of capital over time leads to a fall in the rate of profit and then a decline in the mass of profit, which results in recessions as well as breakdown in the longer term. This is what lies behind the regular crises of apparent overproduction that occur under capitalism every ten years or so. Capital is devalued as companies go bankrupt, which restores the rate of profit, encouraging capitalists to invest again and leading to the start of a new boom.24 Another counter-tendency investigated by Grossman concerns how increased productivity reduces not only the value of constant and variable capital in the future, but also retrospectively. This slows the increase of the organic composition of capital and therefore also the tendency of the rate of profit to fall. The other countervailing tendencies listed by Grossman also slow down or temporarily reverse the tendency of the rate of profit to fall by either directly or indirectly reducing the organic composition of capital.

Capital accumulation and imperialism

Grossman also deals in detail with the relationship between the accumulation of capital and imperialism. Apologists for capitalism argue that imperialism has always existed and is thus unrelated to capital accumulation. In fact, as Grossman points out, imperialist tensions become greater the more accumulation develops under capitalism. The heightened tendency to overaccumulation and breakdown in developed countries during the period of advanced capitalism drives capitalist competition for control of markets and access to raw materials across the world. This gives rise to conflict between imperialist powers.25 Grossman provides the example of the growing importance of oil in the early 20th century and how this led to conflict between Britain and the US for control of reserves around the world.26 Monopoly of key raw materials by some countries pushes up costs for others and thus lowers the rate of profit, which enables surplus value to be transferred from other countries to the monopolistic one.

Grossman argues that imperialism is not just about the exploitation of agrarian nations by industrialised countries. Thus, imperialism is no passing stage, despite Kautsky’s depiction of it as a transient phase in the evolution of capitalism. Imperialism also involves highly industrialised countries exploiting less industrialised ones, so it will continue to intensify as long as capitalism survives.27

Grossman points out that capitals in the less economically developed parts of the world generally have a lower organic composition than those in more economically developed countries. The equalisation of the rate of profit internationally and the formation of a common price of production means that surplus value is transferred from the poorer world to the richer world through trade because commodities are exchanged at their price of production rather than their actual value. In this way, “super-profits” accrue to the imperialist powers.28 Writers in the International Socialist tradition, within which this journal locates itself, including political economists Michael Kidron and Nigel Harris, rejected more recent theories of unequal exchange, which became fashionable in the 1960s, because they held that imperialist powers exploit the poorer countries in the same way that capitalists exploit workers.29 Kidron and Harris challenged the argument that workers in rich countries benefit from imperialism because they receive higher wages than workers in the Global South. Although some alleged that these higher wages derived from the super-profits of imperialism, writers in the International Socialist tradition stressed that workers in economically advanced countries are more productive, and therefore more exploited, due to the more advanced means of production upon which they are set to work.30

Grossman’s analysis has important contemporary relevance that is reflected in the continuing inter-imperialist proxy conflict in Ukraine, which is ultimately a struggle over access to raw materials, markets and investment opportunities as well as other geopolitical interests. Alex Callinicos, a more modern Marxist theorist of imperialism, has praised Grossman’s view that “imperialism is striving to restore the valorisation of capital in order to weaken or eliminate the breakdown tendency”, saying that this position “gives more rigorous foundations to Lenin’s theory of imperialism”.31

By contrast, Harvey has drawn on Luxemburg’s arguments in order to articulate a response to the imperialism of the 21st century. Just as Luxemburg argued that accumulation drove the imperialist exploitation of the non-capitalist world of her day, Harvey, though following Grossman in rejecting Luxemburg’s explanation of the limits of capital accumulation, claims that imperialism today is driven by a modern form of what Marx called “the primitive accumulation”, which he calls “accumulation by dispossession”.32 Thus, he contends that overaccumulation in the imperialist countries is the motive force behind imperialism today. As stated above, Grossman puts forward the argument that overaccumulation is one side of the tendency of the rate of profit to fall, which Harvey rejects.

Roberts bases his theory of imperialism exclusively on unequal exchange and other transfers from underdeveloped to developed countries. On this basis, he argues that countries such as China and Russia are not imperialist powers because they do not benefit from such transfers. This is despite their very clear competition with the US and its allies to defend and advance their international geopolitical and economic interests. Grossman consciously excluded the geopolitical dimension from his presentation, but there is nothing in The Law of Accumulation to support Roberts’s narrow definition of an imperialist power. Unequal exchange is just one aspect of imperialism rather than a definitive one.33

Credit and wages

The Law of Accumulation is full of insights into the workings of capitalism. Some are of largely historical interest, such as Grossman’s prediction of the Great Depression, his enumeration of the reasons for Britain’s relative industrial decline, and his accounts of the rise of the US imperialism and the significance for capital accumulation of the reparations imposed on Germany after the First World War. These passages demonstrate the analytical power of Grossman’s theoretical model.

Other sections have direct relevance for today, including his discussion of credit. Following Marx, Grossman argues that, although economic crises may appear to occur within the credit system (as Harvey believes they do), their cause lies in the productive process.34 Crises lead to increased speculation in money, loan capital and the stock market as the rate of profit is low and interest rates are high. Underaccumulation frees capital searching for profitable investment outside production. Interest rate rises at the crest of the boom exacerbate the fall in the rate of profit. As we have seen recently, when interest rates rise, government bonds tend to fall in value.35

Grossman’s book also contains an interesting discussion of the Marxist theory of wages, arguing that Marx’s views on wages had been distorted or misunderstood by his later followers such as Kautsky and Luxemburg. According to Grossman, the value of wages is not determined by either competition or class struggle, as Kautsky and Luxemburg had claimed. Instead, wages fall in relative terms due to rising productivity (which produces a higher rate of exploitation), and they increase in real terms due to the rising cost of the reproduction of labour power under modern capitalism because of the greater training and education required as capitalists demand higher and higher productivity. The greater the intensity of labour becomes, the greater the cost of the reproduction of the workforce will be, and thus also the greater the real value of wages, since they will be able to buy more commodities. Grossman argued that wages tend to grow during periods of increasing accumulation and fall in periods (such as today) when accumulation is weak. He believed that strikes over wages are a response to real wages falling behind the increased productivity of labour. Capitalists are forced to drive down wages below their value in order to continue to valorise capital. Grossman argues that trade unions cannot stop this indefinitely no matter how hard they fight—the only solution is socialist revolution.36


When the The Law of Accumulation was originally published, it was heavily criticised by Communists and social democrats alike. Eugen Varga, a Stalinist spokesperson on economic theory, dismissed Grossman’s theory as deterministic on the grounds that the tendency to breakdown supposedly implied that the capitalist system will collapse by itself without the need for workers’ revolution. Meanwhile, social democrats simply denied that there is any tendency towards breakdown within the logic of capitalism whatsoever. Just as today, the law of the tendency of the rate of profit to fall was rejected as a valid theory of crisis by most Marxists.

Grossman repudiated such criticisms, arguing that the working-class struggle is central to the battle for socialism and that capitalism can only be overthrown by victorious workers’ revolutions. For him, the theory of breakdown shows that capitalism is doomed to ever deeper and deeper crises, providing the material basis for the overturning of the system. However, Grossman also agreed with Lenin that capitalism will always find a way to survive if the working class lets it.37 The capitalists can delay breakdown by increasing the rate of exploitation, and the workers can accelerate breakdown by fighting to lower it.

Grossman insisted that historical materialism is not separate from the laws of motion of capitalism. The possibility of society progressing from capitalism to a higher mode of production—socialism—is directly related to Marx’s law of accumulation and the tendency of the system to break down. Yet, the overthrow of capitalism depends on the outcome of the class struggle.

Grossman expresses his sometimes complex arguments very clearly, which I am sure is partly due to Kuhn’s translation. The book makes the argument that the central contradiction facing humanity is not within capitalism but between the development of humanity’s productive forces as a whole and the limits imposed upon this by the capitalist mode of production.38 The theory of breakdown is even more relevant today, as capitalism increasingly demonstrates that it is incapable of reproducing itself in the long term due to economic crisis, climate catastrophe, pandemic and imperialist war. Its inability to valorise capital is just one barrier to the survival of the system. As Marx put it:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production… From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution.39

The Law of Accumulation will be of great interest to anyone with a serious interest in understanding why the capitalist system is in crisis and why it needs to be overthrown.

Tony Phillips is a member of the Socialist Workers Party and lives in London.


1 Thanks to Joseph Choonara and Rob Hoveman for helpful comments on an earlier draft of this article.

2 Grossman, 2022, p469.

3 Marx, 1983, p715.

4 Grossman, 2022, pp62-63.

5 See Marx, 1984, pp211-231.

6 For an introduction to Marxist political economy, see Choonara, 2017.

7 See, for example, Karl Kautsky’s review of Hilferding’s Finance Capital—Kautsky, 1911.

8 Kautsky, 1911.

9 See Marx, 1977, chapters 20 and 21.

10 See Luxemburg, 2003, pp346-347.

11 See Luxemburg, 2003, pp79-91.

12 Grossman, 2022, p122-126.

13 Grossman, 2022, pp136-137.

14 Harvey, 2014.

15 Roberts, 2014.

16 Harvey, 2014.

17 Roberts, 2014.

18 Roberts and Carchedi, 2023, pp94-97.

19 Grossman, 2022, p44. My emphasis.

20 Thanks to Joseph Choonara for this point.

21 Marx, 1984, p232.

22 Grossman, 2022, pp127-128.

23 See Marx, 1984, chapter 14.

24 Grossman, 2022, pp151-154. See also Marx, 1984, pp250-259.

25 Grossman, 2022, p477.

26 Grossman, 2022, pp403-406.

27 Grossman, 2022, pp374-375.

28 Grossman, 2022, pp368-377.

29 See Kidron, 1974, pp96-123.

30 See Harris, 1986, pp111-122. See also Marx, 1984, p214-216.

31 Callinicos, 2009, p61.

32 Harvey, 2003, pp138-142.

33 Roberts, 2021; Roberts and Carchedi, 2023, p145.

34 Harvey, 2014.

35 Grossman, 2020, pp444-471.

36 Grossman, 2022, pp483-489.

37 Grossman, 2022, p181.

38 Grossman, 2022, p239.

39 Marx, 1859.


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