What law of breakdown? (2022)

Book Review from the October 2022 issue of the Socialist Standard

The End of Capitalism, The thought of Henryk Grossman By Ted Reese, Zero Books, 2022. Paperback, £13.99

‘Breakdown theory’ was a speciality in German-speaking Marxist circles. The revisionist Eduard Bernstein threw down the gauntlet in 1899 when he stated that capitalism would never break down of its own accord.

One of the first to take up the challenge and try to show that it would was Rosa Luxemburg. Another was Henryk Grossman. He agreed with Luxemburg that, if it couldn’t be demonstrated that capitalism would collapse, then the case for socialism would become just a moral one, but disagreed with her proposed solution. His argument, as set out in 1929 in his The Law of Accumulation and Breakdown of the Capitalist System, was that capitalism would collapse economically because eventually a point would be reached when not enough profits would be generated to keep capital accumulation going.

Grossman was born in 1881 in Kracow, now in Poland but then part of the Austro-Hungarian Empire. He joined the local Social Democratic Party and was active in agitation amongst Yiddish-speaking workers. After the war he found himself in Poland where he joined the Communist Party but, facing persecution, had to leave in 1925. He emigrated to Germany where he took up a post with the Institute of Social Research (Frankfurt School) for whom his book on the collapse of capitalism was written. He was always a sympathiser of the Communist Party and the USSR, though as Reese shows by no means an uncritical one, and in 1949 moved from the US to East Germany where he died in 1950.

To demonstrate his theory about capitalism eventually reaching a point where there would not be enough profits to continue capital accumulation, he accepted the assumptions made by the Austrian Social Democrat, Otto Bauer, to refute Luxemburg. The most important were that the accumulation of what Marx called ‘constant capital’ (machines, factories, materials, etc) would increase at 10 percent a year but that the amount (mass) of surplus value would increase at only 5 percent. The rate of exploitation (the ratio of surplus value to capital invested in hiring wage-workers) was assumed to be constant.

On the basis of these assumptions he was able to demonstrate mathematically that after 35 years capitalism would collapse because it would not be able to maintain a 10 percent annual increase in constant capital. By then the rate of profit would have fallen below 10 percent, which meant the mass of profits generated was below the level required to increase capital invested in machinery, etc by 10 percent. He called this ‘over-accumulation’.

This conclusion was in fact built into the assumption that the amount of profits would increase at a slower rate than the amount of constant capital (the figures don’t matter as long as the increase in profits is slower). This meant that the rate of profit would gradually fall from year to year. This would not be a problem as long as the amount of profits was greater than the amount of constant capital required. But, as soon as the rate of profit fell below the rate of increase of the constant capital, the increase in the amount of profits would not be enough.

The question that arises is how realistic were the assumptions on which Grossman’s based his ‘law of breakdown’.

It is obvious that the rate at which capital can accumulate must depend on the mass of profits made since that is where the additional capital comes from. The argument seems to be that competition forces capitalist enterprises to introduce more efficient machinery so as to stay in the battle of competition and that this sets the pace of capital accumulation, a pace that could come to be greater than the amount of profits available for this. This could happen in theory but not for long. If it did happen this would provoke an economic crisis but not the collapse of capitalism.

In practice, productivity increases at a rate of around 2 percent a year. There is no reason to suppose that the amount of profits could not – and has not – increased at a similar rate, especially as the rate of exploitation does not remain constant but goes up over time. In any event, capitalism has not collapsed through there not being enough profits to continue accumulation.

Reese seems to think that ‘the absolute limit to the accumulation of capital’ has already been reached. The evidence he presents for this is mainly about world debt levels which have, in his view, become unsustainable and will soon lead to global hyperinflation. Grossman would have expected ‘absolute over-accumulation’ to result in steadily growing unemployment, but that is not happening today.

Despite this, Reese’s work is a basic introduction to the life and views of Grossman.

Adam Buick

Breakdown theory (2018)

Book Review from the February 2018 issue of the Socialist Standard

‘Capitalism’s Contradictions. Studies in economic theory before and after Marx’. By Henryk Grossman (Haymarket Paperbacks. Chicago)

For a long while it was only by reputation that Grossman was known in the English-speaking world as a collapse of capitalism theorist, as his 1929 book The Law of Accumulation and Breakdown of the Capitalist System was not available in English translation until 1992, though Paul Mattick had publicised his theory in the 1930s. Grossman was an admirer of state capitalist Russia even under Stalin and died in 1950 in East Germany.

This collection of articles lives up to its subtitle, with a useful article on some of those before Marx who put forward the view that societies differed depending on their particular system of production and changed when this changed, and another on post-Marx bourgeois economists and their theories of marginal utility arguing that left free of government interference capitalism tended towards full-employment equilibrium. Strangely there is no mention of Keynes.

Grossman took it as axiomatic that Marx held a breakdown theory of capitalism, writing in a contribution on Marxism for an encyclopaedia, reprinted here, in a matter of fact way about ‘the fundamental idea of Capital of an absolute limit to the development of the capitalist mode of production’ and of ‘Marx’s theory of the final breakdown of the capitalist system of production.’ In fact he was only promoting his own theory of this since no such theory can be found in Marx.

As exposed here at the end of this contribution, ‘it holds that once a nation’s capital exceeds a definite scale, its accumulation finds no further profitable opportunities for investment and consequently either lies idle or has to be exported.’ Grossman based his theory not so much on the falling rate of profit but on the mass of surplus value in relation to the total social capital becoming insufficient to continue capital accumulation:

   ‘…at high levels of accumulation the part of surplus value required for additional accumulation [as constant capital] will be so large that it finally absorbs almost all the surplus value.’

He seems to have thought that this stage had nearly been reached in the developed capitalist countries.

One reason why he (and Rosa Luxemburg too, though her breakdown theory was different) believed that a breakdown theory was essential was that, without it, the case for socialism would be weakened and just become a matter of moral choice, a view associated with the revisionists and reformists within the German and Austrian Social Democratic movement.  One such reformist was Rudolf Hilferding, the author of Finance Capital, who after the war became German Finance Minister on a couple of occasions. Grossman writes of him:

  ‘After the war (1927) Hilferding declared that he had always “repudiated every theory of economic breakdown”. Marx had also considered them to be false. The overthrow of the capitalist system would “not happen because of internal laws of this system” but had to be the conscious will of the working class”.’

Despite his reformism, Hilferding was right here. But it wasn’t just reformists who held this view. Anton Pannekoek, whose anti-reformist credentials are impeccable, wrote a pamphlet in 1934 refuting breakdown theories in general and Grossman’s in detail, expressing a similar point of view. It is also the view expressed in our 1932 pamphlet Why Capitalism Will Not Collapse and in our articles on this subject ever since.

Adam Buick

Council Communist (2016)

Book Review from the February 2016 issue of the Socialist Standard

'Marxism in a Lost Century: A Biography of Paul Mattick', by Gary Roth. Chicago. Haymarket Books, 2015

This biography will be of special interest to many readers of the Socialist Standard. While Paul Mattick (1904–1981) never joined the World Socialist Movement (WSM), his views were sufficiently close to ours for him to be a major contributor of articles and book reviews to the Western Socialist, journal of the World Socialist Party of the US, from the late 1940s to the late 1950s.

Mattick’s life spanned eras and continents. In his youth he participated in the grassroots upheavals in Germany that followed in the wake of World War One as an activist in the movement that came to be known as ‘council communism’ (Rätekommunismus). In 1926 he moved to the United States and settled in Chicago, where his main involvement was with the unemployed movement that developed in the early 1930s. He was a prolific writer in several genres – journalism, fiction, and travel writing as well as social criticism and political economy.

It is convenient to consider the book in three parts. Chapters 2–4 portray the life and activity of the young Mattick in Germany. Chapters 5–9 focus on his activism in the US in the late 1920s and the 1930s. The main theme of the remaining chapters is Mattick’s tireless efforts to develop and disseminate his ideas.

Paul Mattick grew up under harsh conditions in the poor family of an unskilled worker, first in rural East Prussia (now in Poland) and then in Berlin. He left school at the age of 14 to become an apprentice toolmaker in the Siemens concern. At about the same time he became politically active – first in the Free Socialist Youth, the youth group attached to the Social Democratic Party, and later in the Communist Workers’ Party of Germany (German abbreviation – KAPD), a ‘left communist’ breakaway from the Communist Party of Germany (KPD).

Chapters 3 and 4 provide a valuable account of the formation, evolution, and decline of the KAPD. The KAPD and like-minded council communist groups in other European countries opposed both the classical social-democratic model of the parliamentary party and the Leninist model of the vanguard party (‘the revolution is no party matter’). As their name indicates, they envisioned workers’ councils as the organisational vehicle of revolutionary action.

In contrast to the KPD, which quickly came to depend financially and politically on the Bolshevik regime, the KAPD maintained an independent outlook and developed an analysis of the new state-capitalist system emerging in Russia.

During the first few years after his emigration Mattick was preoccupied with the practical problems of adapting to life in a new country. He found a provisional political home in the syndicalist Industrial Workers of the World (IWW or ‘Wobblies’).

From 1932 onward Mattick played a prominent role in the effort to organise the unemployed in Chicago, who at the height of the Great Depression accounted for 40 percent of the city’s workforce. He worked through the Workers’ League, an unemployed affiliate of the Proletarian Party – a group that (like the WSPUS) had its origins in the Socialist Party of Michigan. Mattick and his colleagues – a word he preferred to ‘comrades’ – based their organising work in the network of abandoned storefronts that unemployed workers took over and used as local ‘relief stations’ (with kitchens and sleeping quarters), meeting places and print shops.

Mattick also succeeded in creating a fairly small but active group of council communists under the name of the United Workers’ Party, with a journal entitled International Council Correspondence.

The author devotes a great deal of space to the efforts made by Mattick over many years to interest left-wing editors and publishers in his writings. With few exceptions, such as the Western Socialist, the influence of Leninism within the left made these efforts fruitless until the New Left finally came to his rescue in the late 1960s. The West German student movement in particular began to show an interest in Mattick as a living link with the country’s ‘revolutionary’ past.

Mattick was in touch at various times with numerous left-wing scholars who he hoped would help him gain public recognition and get his work published. The author provides considerable detail about these interactions. However, it is disappointing that for some reason he ignores Mattick’s close relations with the WSPUS and its members during the period when he and his family were living in Boston.

There is also some scattered information about the content of Mattick’s writing – not as much as the reader might wish but as much as can reasonably be expected in a biography. Special attention is rightly paid to Mattick’s main contributions to Marxian political economy. Best known is his critique of Keynesian economics, which finally appeared in book form in 1969 under the title Marx and Keynes: The Limits of the Mixed Economy. Mattick showed that government intervention could modify the workings of capitalism only temporarily and within definite limits.

Mattick also had a persistent interest in the theory of the business cycle and capitalist crisis. Here he was greatly influenced by Henryk Grossman, whose work The Law of Accumulation and Breakdown of the Capitalist System happened to come out just before the stock market crash of 1929. Grossman’s analysis relied heavily on the schema at the end of the second volume of Marx’s Capital and the first section of the third volume, and stressed the crucial role played by the tendency of the rate of profit to fall, as well as constraints on an ever-rising mass of profit. Following Grossman, Mattick believed that capitalist crisis does not automatically lead to socialist revolution but does create an ‘objectively revolutionary situation.’ However, Grossman – a member of the Communist Party of Poland – had concepts of revolution and the post-revolutionary society very different from those of Mattick.

Besides its political and theoretical content, Roth’s biography of Mattick is of great human interest. It tells us a lot about what life was like at various times for working people in both Germany and the United States. The book is worth reading for that alone.

Stefan