As part of my continuing occupation of the Marxist Academy, I have been looking at various Marxist theories of the crisis of neoliberalism. This is the final part of my critique of “The Crisis of Neoliberalism” (PDF) by Gerard Dumenil and Dominique Levy, first published in 2009. I am using the 2011 version of the book.
Since I am getting bored with Dumenil and Levy, this will be the last post on them.
I tried to show in my last post (Speculation, Greed and Chart Porn for Fun and Profit) even based on their own data Dumenil and Levy can’t explain how the 1930s is similar to today’s crisis. They argue the Great Depression, like the present one, resulted from causes other than a fall in the rate of profit. But, the chart they offer clearly shows a pronounced fall in the rate of profit even exceeding that leading into the depression of the 1890s.
The data is not mine — it is theirs. And it shows the profit rate, as they calculate it, fell from about 15-20 percent to about 2 percent. The fall in the profit rate to 2 percent is more severe even than the fall to 9 percent that occurred in the 1890s depression. Further, if you look at the data series back to 1870 there is a clear down slope both in terms of highs and lows in the profit rate. A series high is established in 1880 and the series low is established in 1933. Fluctuations in the rate of profit are a succession of lower highs and lower lows between 1880 and 1933. Any day trader would argue the series up to 1933 shows a clear downward trend in the profit rate.
Is this the down trend Marx argued was inherent in the capitalist mode of production? Marxists are all over the map on this question. Some question the methods Dumenil and Levy use to compile the series, others question the idea of law of diminishing profit rate itself. Apart from this confusion, it is clear Dumenil and Levy make an argument that is at odds with their evidence: a visible declining trend line. In fact, the declining profit trend is so obvious and jarring, the authors are forced to distract our attention from it with a trend line.
But I think it is important to state the series clearly points in the direction of long term fall in the profit rate from 1870 to 1933 and it point toward a catastrophic collapse in the Great Depression that almost took the profit rate to zero.
Dumenil and Levy refer to this fall as a “perturbation” — an artifact in the data that can be discounted. There are serious reasons to believe Dumenil and Levy are blowing smoke on this “perturbation” thingy.
First, as I stated the drop is not an isolated event but part of a long-term trend through two profit cycles. Second, it is consistent with predictions based on Marx’s labor theory of value. Finally, of all events in the past 100 years or so, it is accompanied by the very events Engels famously predicted: the growing socialization of the management of capital leading to the assumption of control by the state of the economic affairs of society. This was what Engels called the “next advance” in the capitalist relations of production, even if undertaken by the old state.
In the trusts, freedom of competition changes into its very opposite — into monopoly; and the production without any definite plan of capitalistic society capitulates to the production upon a definite plan of the invading socialistic society. Certainly, this is so far still to the benefit and advantage of the capitalists. But, in this case, the exploitation is so palpable, that it must break down. No nation will put up with production conducted by trusts, with so barefaced an exploitation of the community by a small band of dividend-mongers.
In any case, with trusts or without, the official representative of capitalist society — the state — will ultimately have to undertake the direction of production.
I think it is necessary to call bullshit on Dumenil’s and Levy’s “perturbation” theory and demand a real explanation for their data series.
Of course this might appears like I am just getting all geeky on an event, with, at best, only historical or sectarian significance. However it is really important to establish what happened to the profit rate leading up to the Great Depression because of what happens next: within the space of about 12 years the US profit rate is restored to a level not seen in the entire series.
The restoration begins almost immediately with the Roosevelt administration coming into office, so it clearly is a political event. Basically in twelve years the Roosevelt administration reverses almost sixty years of profit rate decline. It would appear there was not “three phases” in Dumenil’s and Levy’s “modern capitalism”, but two: “Before Roosevelt” and “After Roosevelt“. The Roosevelt administration being the transition between the first phase and the second. Further it appears this transition can be interpreted as having been completely predicted decades in advance by Marx and Engels.
I think, at a minimum, this calls into question the entire argument put forward by Dumenil and Levy — not only with regards to their own data, but also with regards to their theory of the present crisis — where it is not flawed I believe it is unnecessary to account for the present crisis. It would appear what we witnessed over the entire period “Before Roosevelt” was the inevitable emergence of the Fascist State.
Now if you don’t like your precious “liberal democracy” being called a fascist state, you can substitute any of a number of alternatives, including “corporatist“, “dirigiste“, or (the gold standard of all Leftist calumnies against “tempered” capitalism) “state-led monopoly capitalism“. In any case, the Roosevelt administration was nothing more than a fascist revolution no matter how you want to prettify it with your favorite euphemistic descriptor. Moreover it was a fascist revolution that swept all industrialized nations at a time when Marxists and anarchists expected a socialist one.
Even today Marxists and anarchists are waiting around for a socialist revolution that will never come.
Perhaps, I should not say it won’t come — but it is an unlikely occurrence precisely because that revolution presupposed certain real material relations. Specifically the socialist revolution presupposed growing incompatibility between relations of production and the forces of production that could be resolved only by assumption of public management of the forces of production by society. In fact, this public management of the forces of production was realized — but entirely within the capitalist mode of production, as the fascist state.
Again Engels throws light on the forces leading to this event:
The fact that the socialized organization of production within the factory has developed so far that it has become incompatible with the anarchy of production in society, which exists side by side with and dominates it, is brought home to the capitalist themselves by the violent concentration of capital that occurs during crises, through the ruin of many large, and a still greater number of small, capitalists. The whole mechanism of the capitalist mode of production breaks down under the pressure of the productive forces, its own creations. It is no longer able to turn all this mass of means of production into capital. They lie fallow, and for that very reason the industrial reserve army must also lie fallow. Means of production, means of subsistence, available laborers, all the elements of production and of general wealth, are present in abundance. But “abundance becomes the source of distress and want” (Fourier), because it is the very thing that prevents the transformation of the means of production and subsistence into capital. For in capitalistic society, the means of production can only function when they have undergone a preliminary transformation into capital, into the means of exploiting human labor-power. The necessity of this transformation into capital of the means of production and subsistence stands like a ghost between these and the workers. It alone prevents the coming together of the material and personal levers of production; it alone forbids the means of production to function, the workers to work and live. On the one hand, therefore, the capitalistic mode of production stands convicted of its own incapacity to further direct these productive forces. On the other, these productive forces themselves, with increasing energy, press forward to the removal of the existing contradiction, to the abolition of their quality as capital, to the practical recognition of their character as social production forces.
At some point the increasing socialization of the forces of production had to give rise to social management of these forces. How and under what conditions this social management would be achieved could only be decided by conflict between the members of society. And this conflict could only be a political conflict over the state power capable of asserting control over the forces of production.
This might be the basis of the disagreement between Marx and Bakunin — whether the proletariat should contend for power in this event. Obviously this disagreement did not matter in the end. Even countries with very well developed socialist parties fell to fascism. The disagreement between Marxism and anarchism was not over the ultimate fate of capitalism but the conditions under which it would be realized. In either case, a socialist proletarian rule or fascist rule, the material conditions for a higher stage of communism would be created. Which is to say socially necessary labor time is reduced to the point where voluntary activity of individuals suffices to satisfy human needs. Under a proletarian regime, this is accomplished directly and according to a common plan; under a fascist regime it occurs blindly. But, in either case, it must be accomplished.
My argument suggests there are two important defects of Dumenil’s and Levy’s argument
The first, I have already identified in the previous parts of this series. the Dumenil and Levy fail to take into account the capitalist nature of World War II — that is was a war for re-division of the world market, and, as such, the further concentration and centralization of capitals — understood in this context as national capitals — by means of war and massive destruction of life and means of production.
The second is that in the opening moment of the fascist revolution the state took into its hands the means to direct economic activity by nationalizing the means of exchange, and declaring its worthless fiat to be “money”. This economic measure allowed the state to commence decades of forcible depreciation of the value of wages and constant capital, putting in place a means to enforce the continuous devaluation of both variable and constant capital, precisely as predicted by writers like Grossman.
This suggests that far from leading to stagnation, as some Marxists propose, the state has facilitated almost uninterrupted development of the productive forces — allowing full play to capital’s tendency toward absolute development of the productive forces. This can be most clearly seen in the astonishing economic development of the People’s Republic of China in the space of the last 30 years.
Precisely the things Dumenil and Levy take to be the most significant features of the fascist revolution — management of trade, state sponsored cartelization, government programs and deficits, full employment, financial regulation, state investment, and labor regulation — are the least important measures of the fascist revolution. They amount to no more than measures to treat the minor secondary symptoms of a cancer. Moreover, as Dumenil and Levy demonstrate, all of these measures eventually had to be reversed as the forces of production exceeded even the capacities of states to manage them.
Finally, it is absolutely laughable for Dumenil and Levy to argue:
It is hard to imagine the set of radical views [within the FDR administration] that prevailed in the context of the Depression, notably the appeal of “planning” as a substitute for traditional competitive mechanisms (Box 22.1). The controversy around the action of the NRA raised very fundamental issues. What role should be conferred on market mechanisms? What place for central coordination? The repeal of the codes provided a first answer. There were limits to the questioning of “market mechanisms.”. (pg. 284)
This statement shows how little Dumenil and Levy grasp the significance of the debasement of currency in the fascist revolution. How is it possible to speak of “market mechanisms” when the state has imposed its monopoly control over exchange by reducing “money” to dancing electrons? Prices are meaningless when the state can simply print whatever quantity of currency it needs to make any purchase it desires. If prices are meaningless, how can any other measure of economic activity not be suspect? What, for instance, can we learn from the profit rate in the post war period when the prices of both inputs and output are meaningless? What can we learn by looking at the profit rate in the US when it can produce whatever quantity of currency its needs to buy any commodity on the world market? Of course, under these circumstances the United States national capital will always show a profit. If, for any reason, it cannot show a profit, Washington can always enter a couple of trillion dollars at a terminal and credit its own accounts.
If, months later, Greece goes belly up, or the Tunisian regime collapses because of food riots, who can know the events are related.
If Dumenil and Levy neglect the mode of production to focus on purely political aspects of this crisis, as we will see in the next series Kliman, I think, focuses only on the pre-fascist relations of capitalism and completely misses how these relations appear under fascism. I think it will become obvious Kliman misses the enormous expansion of superfluous labor that has accompanied the fascist state — an expansion that masks this actual underlying trajectory of the capitalist mode of production in our time.