Decadence of Capitalism: The Genesis

For the first time in humankind’s history, scarcity, a shortage of means of subsistence and consumption and the need for the vast majority to work day in day out to obtain them, is no longer an objective necessity. Despite the fact that never before have so many lived in hunger, a society of abundance, in which humans are freed from economic slavery, is now objectively possible. But possible is not enough. To realize it, to sweep away the society born out of scarcity and conditioned by it, the necessity of such a fundamental break with the past must be made starkly clear by the bankruptcy of the existing social order. Capitalism, like all social systems, is a temporary arrangement corresponding to a certain stage of development and knowledge of the human race, one that masks itself as eternal. It is its global, insoluble crisis that reveals its transient nature. Capitalism’s deadly effects make proletarian revolution a matter of survival for humankind.
The following text is an excerpt from an upcoming Internationalist Perspective pamphlet on the Roots of the Capitalist Crisis.

The real domination of capital, technology-driven mass production, became predominant only in the 20th century (and continues its development to this day). But the transition towards it advanced with huge leaps in the 19th century. In the industrializing world, the proportion of the labor force employed in agriculture dropped from 3/4 in 1850 to 1/3 in 1900. By 1870, the most developed countries suffered overcapacity (even though many sectors were still not mechanized and most industrial workers were still craftsmen working in small shops). Crisis and years of deflation followed. In Britain, the leading industrial nation, prices fell 44% between 1873 and 1895. This undercut the incentive for M-C, for investment in domestic industry: from 1873 to 1913, the rate of productivity growth in Britain was zero. Instead, British capital financed the industrialization of other countries, where the average organic composition of capital was lower and the rate of profit therefore higher, which yielded Britain interests that more than compensated for its negative trade balance and low domestic rate of profit. Other countries followed this example and stepped up their foreign lending when their industrialization reached a plateau, thereby fostering the horizontal spread of capitalist development that characterized the 19th century.

The crisis of the 1870’s also ended free trade. The scale-enhancement of production and the decreasing cost of transportation had greatly reduced the natural protection local markets enjoyed before. The temptation to blame foreign imports for market saturation was irresistible. Walls of tariffs were erected, behind which, as Engels put it, a war for industrial supremacy was being prepared. Some of the protectionist measures were clearly counter-productive; with various tariff wars the capitalist class shot itself in the foot. Others however, enabled countries such as Germany and US to develop the strongest industries in the world. Their accumulation was facilitated by the influx of foreign capital and fed by the metabolism between the conditions of formal domination (low organic composition, low productivity but a high rate of profit) and the newly emerging giant industries, which raked in surplus profits thanks to their competitive advantage on their large internal markets.

There were several more crisis moments before the turn of the century but the early part of the 20th century saw a real ‘sturm und drang’ period in which real domination rapidly spread, aided by a series of technological breakthroughs (the combustion engine, chemistry, electricity, etc). Every period of rapid technological change is characterized by accelerating productivity (and thus increasing material wealth) and huge surplus profits for the strongest, innovating capitals, because new cost-saving technology creates new competitive advantages and the rapid pace in which new products are introduced constantly creates temporary opportunities for monopoly-profits. But then as now, these characteristics were obscuring how the exacerbation of the underlying basic contradictions was dwindling investment-opportunities, how the M-C phase in the capitalist reproduction cycle was getting into trouble. The boom was further stimulated by the intensification of exploitation made possible because the machine’s movements swallowed the labor process and broke up labor time into ever smaller, measurable parts (Taylorism was introduced in 1895 and quickly spread). But meanwhile, an important escape-valve was in the process of being closed. Despite protectionism, the development of scale and productivity had greatly stimulated international trade. In 1913, foreign trade per capita was more than 25 times greater than in 1800. On the eve of World War I, the world economy was more integrated than it ever was or would be again until the aftermath of World War II. That extended the field of operation for developed capital. But the intensified competition established, at the end of the 19th century, for the first time in history uniform prices for most commodities traded on the world market.

Why was that important? Before that point, the market values of most commodities were determined by local conditions of production only. A low organic composition of capital yielded a high rate of profit and an even higher one for developed capitals exporting more cheaply made commodities that were sold above their value, at the local market value. So their export rose much faster than their production. Unhindered by transportation costs and tariffs, the export of financial capital was even more profitable and fast growing, mobilizing productive forces abroad and fostering horizontal industrial development. But after competition enforced uniform world market prices and thus established international values, the market value for an increasing number of commodities was no longer determined by local conditions but by (average) international conditions. That means that those capitals which produced these commodities cheaper (under their international value) still obtained a surplus profit but those which produced them with more backward, labor-intensive methods (above their international value) lost part of their surplus value to their competitors. As we have explained elsewhere (10), because of the tendential equalization of the rate of profit within nations, this loss was shared by their entire economy. As a result, the lower organic composition of capital of the less developed country, instead of yielding a higher than average rate of profit, yielded a lower one, the more that market values were determined by international trade. This was a radical change because it sharply reduced the incentive for developed capital to invest in the industrialization of others. From then on, capitalism’s main dynamic would no longer be one of horizontally spreading development. With few exceptions, the chasm between developed and underdeveloped countries would remain unbridgeable and the latter’s share of world trade almost continuously declined. Not because they were not connected to the world market but because they were. They were integrated into the international division of labor, but as permanently underdeveloped parts. The permanence of their underdevelopment reflects the permanence of a global overcapacity, of a lack of opportunity to mobilize productive forces for the creation of profit.

The first part of the 20th century was also a period of tremendous acceleration of the concentration of capital. Uncounted small companies went bankrupt, were taken over or merged. It was the time of the birth of the giant companies (Ford, General Motors, General Electric, BASF, Siemens, Daimler-Benz, etc) which still dominate today. Up to that point, the domestic market sufficed for most capitals but now industrial forces outgrew them. Despite the increase in international trade, overcapacity was building and the rate of profit fell. In some countries, the most developed industries formed cartels to carve up the market amongst themselves. Measures were taken to restrict production and avoid overproduction, to prevent prices and thus profits from falling. But inevitably, capitalism was moving towards the point at which the shortage of productive demand and the fall of the rate of profit would compel it to a massive devalorization. Before that point was reached however, war intervened.

The moment at which the progress of real domination fundamentally changed the conditions of accumulation for global capital is hard to pinpoint. But it is certain that such a change took place, whichever term is used to describe it; that massive devalorization became an intrinsic part of the accumulation process, that therefore the continuation of capitalism imposed on society a cannibalistic violence and self-destruction, which placed the working class before the need to fight, no longer just to improve its conditions of exploitation within capitalism, but to overthrow it.

The outbreak of World War I in 1914 confirmed that a new period, the decadence of capitalism, had begun. Capitalism had outgrown the conditions that gave rise to it and had thereby created new conditions that cried out for a new social order. Capitalism developed and became global in response to conditions of scarcity and lack of productivity, in order to mobilize resources and labor power as efficiently as possible, in the interests of a privileged ruling class, but indirectly of society in general as well. But it also needs scarcity, that is, an effective demand that is greater than the supply so that production can grow at the pace dictated by the inherent scale-enhancement of the productive forces, a pace that must accelerate because of the tendential decline of the rate of profit. The development of productivity made possible by capitalism tendentially destroyed the conditions of scarcity, which made the perspective of a new society freed from the slavery of value-production real. But for capitalism, a lack of scarcity means overproduction, crisis. The restoration of scarcity therefore became a matter of survival for capitalism, so that returning bouts of massive devalorization became an integral part of its functioning.

Devalorization accomplishes the destruction of excess capital in all its forms –financial capital, commodities, constant and variable capital-- creating for the surviving capital more space to grow. It takes the form of currency devaluations, stock market crashes, deflation of fixed capital and assets such as real estate as well as commodities in general. Such devalorization is the direct result of capitalist crisis and as such occurred several times in the 19th century, as a result of the uneven development of real domination (devalorization resulting from the implosion of speculative bubbles occurred of course much earlier even). But in the 20th century, the devalorization accomplished by crisis was not enough; the literal destruction of excess capital through massive, inter-capitalistic war became a ‘vital’ requirement for the continuation of value accumulation.

In that century, war would produce more casualties than in the entire preceding human history combined. It is true that amidst this endemic destruction, capitalism continued to develop and to grow, that real domination continued to deepen and spread, and that the resulting technification continued to stimulate productivity and thus also the quantity and quality of use values, even for the working class. It’s also true that the deep crises caused by the need for periodic massive devalorization, provoked savage attacks on the living standard of workers. But those who think that the conditions for revolution require the irreversible stagnation of capitalism and abject poverty for the vast majority of the working class, will wait forever. They have not understood that an irreversibly stagnating capitalism is an oxymoron, that crisis and productivity growth are not mutually exclusive, that capital seeks higher productivity to fight its crisis, yet worsens it this way, that the struggle of the working class is not merely one of variable capital reacting only against its own demobilization but of the part of humanity which, because of its place in the production process, is most capable both of recognizing the mortal danger that capitalism represents for humanity and of eliminating it.

The onset of decadence cannot be explained as mechanically imposed at a given point in time by the objective state of the economy. The case can be made that if the capitalist class would have recognized the counter-productive effects of its protectionist policies and would have retracted them, the capitalist system would have entered its phase of massive destruction considerably later. And if the capitalist class would not have clung to the gold standard or to the balanced budget-dogma, if it would have embraced Keynesianism much earlier and used the monetary and fiscal levers that were potentially there, then it could have been delayed for much longer still. But as the saying goes, with ‘ifs’ you can put Paris in a bottle. The understanding of the capitalist class of its own situation and possibilities (and the weight of the past upon it) is a material force that impacts the course of history. We reject vulgar Marxism’s mechanistic infrastructure-superstructure deterministic causal relation that reduces consciousness or the lack of it to a mere passive, reflective factor and thereby fails to understand history.

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