An exchange on crises and the "Tendency of the Rate of Profit to Fall"

Submitted by martin on 16 November, 2008 - 12:54 Author: Phil Ferguson/ Martin Thomas

Criticism by Phil Ferguson of the notes Marx on capitalist crisis, and a response by Martin Thomas.

This is a very strange analysis.

They dismiss Marx’s point in the Grundrisse about the law of the tendency of the rate of profit to fall being “the single most important law of political economy”, use a lot of earlier stuff that Marx wrote about the possibilities of crisis being inherent in capitalism, and the development of a money economy (the kind of stuff which has been long since assimilated by bourgeois economists) and then claim that the TRPF “was elevated to the status of ‘the Marxist theory’ by Stalinists in the 1930s.”

Well there are 50 pages on the theory in Capital vol 3, written by Marx in his most mature period and assembled by Engels. Nothing to do with “Stalinists in the 1930s”.

Indeed, the key post-1917 work on the subject was Grossman’s and it was the first book ever published by the Frankfurt School – clearly not Stalinists. Indeed, although Grossman belonged to the Polish CP, his book was not welcomed by the CPSU or the leaders of any other CPs. It was partly attacked, but largely ignored, by the CP leaderships. So the WL is simply mistaken.

Indeed, the dominant economic analyses of the CPs from the 1930s on were ones which fitted the political strategy of coalescing with “progressive” bourgeois forces in the West, like Roosevelt’s New Deal Democrats in the USA. TRPF points to entirely different political conclusions – revolutionary ones.

The key person in the 1930s who took up and attempted to popularise Grossman’s work was Paul Mattick – a very staunch anti-Stalinist. In fact, Mattick was a council-communist politically.

When Grossman’s work, and vol 3 of ‘Capital’, plus the ‘Grundrisse’ were kind of rediscovered in the late 1960s by a new generation wanting to understand the postwar boom and its end, the people who most prominently figured in this were largely Trotskyists and a few people sympathetic to Maoism. In Germany, it was people like Elmar Altvater, in Italy Mario Cogoy, in Britain a cluster of people in the Conference of Socialist Economists (most especially David Yaffe who was a member of IS at the time and Paul Bullock). The CSE members linked with the CPGB of the day were totally hostile to TRPF theory. Also the Ukrainian Trotskyist Roman Rosdolsky, who wrote the important two-volume ‘The Making of Marx’s “Capital”’. One of the first places Grossman appeared in English was in India , where Jairus Banaji and a circle of people sympathetic to Trotskyism translated it and it was partly from there that it entered Britain (see, for instance, the Tony Kennedy introduction to the first English-language version of the Grossman book, published by Pluto in the early 1990s).

There’s also an excellent work on Grossman that just came out recently, written by Rick Kuhn, one of the long-time leaders of the IS tendency in Australia which looks, among other things, at Grossman’s role in retrieving this key theoretical achievement of Marx.

All this is part of the historical record, so I find Brisbane WL’s attempt to link TRPF with “Stalinism” odd to say the least. And especially odd since TRPF theory, in and of its very nature, suggests that the only way to solve capitalist crises is the overthrow of capitalism whereas with all the other theories the logical consequence is the pursuit of a different set of policies within capitalism – for instance, regulating the money markets.

As for TRPF theory “not much cited in discussion of crises in the great period of Marxist intellectual life up to 1914”, that would be because this period was not so great in terms of Marxist intellectual life, but was actually dominated by revisionists of various stripes seeking to neuter the revolutionary content of Marx’s theory and meld it to bourgeois theory. The last thing you would expect to find in that period is the likes of Kautsky, Plekhanov, Bernstein, Hilferding etc discussing TRPF. The really rich period of Marxist intellectual life came after 1917 and was inspired by the Russian Revolution and the revolutionary upsurge that took place globally and threw up all kinds of questions. Grossman’s book was written at the start of the Great Depression, when the need to answer the question of capitalist crisis was especially pressing.


Response by Martin Thomas

Phil's comments centre on the place of the TRPF in Marx's work, and on who developed and promoted the TRPF after Marx's death.

I'll deal with those; but they are secondary to my main points, which were:

  • That closer examination shows that what Marx considered to be the "counter-tendencies" to the TRPF will generally be stronger than the TRPF itself, insofar as we consider technological change alone. Profit rates often fall; they may drift downwards over long periods; but there is no technologically-based "iron law" for them to move down.
  • That even if the TRPF were to operate as an "iron law", it would not explain crises. It tells us only about the structure of production, whereas an explanation of crises must give an account of the interaction of production and markets.

    Moreover, a long-term "iron law" cannot explain periodic crises. "It is only under certain circumstances and only after long periods that its [the TRPF's] effects become strikingly pronounced", wrote Marx. Normally "the river of capital rolls on… or its accumulation does, not in proportion to the rate of profit, but in proportion to the impetus it already possesses".

    In some remarks in Capital volume 3 chapter 15 Marx tentatively offers an account of crisis based on the specific effects of the TRPF on small new capitalist enterprises. The account doesn't hold up.

These main points would hold whatever the place of the TRPF in Marx's writings, and whoever had taken it up after Marx's death.

Marx never mentioned the TRPF in anything he readied for publication. When Engels wrote Anti-Duhring in 1877-8, and included in it a short account of capital's propensity to crises, Marx read the whole manuscript and contributed a chapter, but made no suggestion to Engels that he add a reference to the TRPF.

To maintain that the TRPF was nonetheless the foundation of Marx's revolutionary perspectives - as many writers do - thus seems foolhardy.

Earlier? Later? The most famous boost for the TRPF in Marx's writings not readied for publication is in the Grundrisse, the earliest of his big economic manuscripts.

The "stuff that Marx wrote about the possibilities of crisis being inherent in capitalism, and the development of a money economy" is in Capital volume 1, constantly revised by Marx for new editions up to his death in 1883. It is "later". "Later" too than the manuscript of 1864-5 which Engels edited to produce Capital volume 3.

In Emile Burns's "Handbook of Marxism" (1935), the most influential English-language Stalinist primer of the 1930s, the theory of crisis is explained entirely as a matter of the TRPF.

Henryk Grossmann had developed a similar argument before, in his 1929 book. He was an unorthodox Stalinist, but a Stalinist. Tony Kennedy writes in his foreword to Jairus Banaji's translation of Grossmann (cited by Phil):

"Always more of an academic than a political activist, it seems that Grossmann never joined the Communist Party in Germany, though he remained a loyal defender of the Soviet Union…. As they [the Frankfurt School] became increasingly hostile towards Stalinism, he became more isolated in his support for the Soviet Union". After World War 2 he chose to return from exile in the USA to Stalinist East Germany.

The core problem with Grossmann's argument is that it is wrong - it rests on a scheme where the yearly increases in constant capital become greater than the total of surplus value produced - but, right or wrong, it comes from a Stalinist background.

To some degree Burns's "Handbook" must have functioned as an esoteric doctrine for the "cadres". (Presumably, also, most of the work on it must have been done in Third Period times, for it to be ready for publication in 1935). It would take more research into the Stalinist literature of the 1930s to know properly, but it is certainly true that by the Popular Front period the Communist Parties were more inclined to use an "underconsumptionist" account of crises for exoteric purposes.

Burns, a pliant "party" Stalinist, was happy to write an "underconsumptionist" account for his more popular little pamphlet "What is Marxism?" (1939). Grossmann, the "independent" Stalinist, remained scathing about "underconsumptionism".

By the early 1970s, of course, the Communist Parties of the richer countries had pretty much mutated into social democracy, and developed a culture inimical to any talk of "iron laws" of capitalism.

Phil is not right to say that all writers connected with the CPs rejected the TRPF. In Britain, for example, two of the foremost academic economists connected to the CP, Ben Fine and Laurence Harris, continued to defend the TRPF (in a strange "anti-empiricist" version), at the same as they rationalised the CP's "Alternative Economic Strategy". (I know, because I wrote my dissertation on the TRPF at Birkbeck College, London, under the supervision of Ben Fine!)

There were revolutionaries arguing against the TRPF in the early 1970s - Sue Himmelweit, for example - and the most vocal TRPF-ists, David Yaffe and his friends, were by no means politically healthy. By the mid-1970s Yaffe and his friends were well on their way to the politics they have now, Stalinistic but with Cuba as "socialist fatherland" rather than the vanished USSR.

That the "iron law" character of the TRPF attracted some would-be revolutionaries in the 1970s is understandable, but does not make it right. The attraction of the "iron law of wages" for revolutionary currents in the period before 1914 like the De Leonites, and the eagerness of reformists in that period to stress the elasticity of the laws of wages, did not make that "iron law" right.

The notion that revolutionary politics is marked off from reformism by subscribing to an "iron law" of capitalist breakdown is false. It was the "centre" of pre-1914 social democracy that clung closest to that breakdown thesis. The opportunist conclusions were straightforward: since capitalism was inevitably going to break down, the best tactic for the workers' movement was to conserve its forces for that moment, and not to try anything rash in the meantime. It was Lenin, in contrast, who stressed that there are no crises without a way out for the bourgeoisie.

There was indeed, as Phil says, a tremendous flowering of Marxist discussion after 1917. But it was very short: the heavy hand of Stalinism was descending on it as early as 1922, and after that the valuable writings are more and more restricted to the output of a tiny and beleaguered minority around Trotsky. And, understandably, most of it was concerned with relatively immediate questions of strategy and tactics.

To dismiss the much broader Marxist discussion before 1914 as all the work of the "revisionists" of that time is to define out of existence the culture which educated the Bolsheviks, Lenin, Trotsky, Luxemburg, Mehring and others.

A final point: in our discussions in Brisbane in 2000, I don't remember anyone dissenting from the broad lines of the critique of the "Tendency of the Rate of Profit to Fall" sketched in the notes. But the notes are my responsibility, not that of the whole group.