Global Capitalism in Crisis
Karl Marx & The Decay of the Profit System
As global capitalism enters into a new structural crisis, there has been revived interest in Marxist theory, especially the Marxist analysis of capitalist economic crisis. For Smith, the 2008-09 “Great Recession” was more than a conjunctural crisis of overproduction. It was a deep-seated crisis which should be viewed against the historical-structural crisis of capitalism. The central argument of Smith’s book is based on Marx’s “law of the tendency of the rate of profit to fall.”
In Chapter 1, Smith applies the law of falling rate of profit to the context of contemporary capitalism. Because of the inherent conflicts between the capitalist class and the working class, capitalist technological progress has a bias towards labor-saving technologies. As a result, “constant capital” (the part of capital invested in the means of production) tends to grow more rapidly than “variable capital” (the part of capital invested in the purchase of labor power), leading to a rising “organic composition of capital.” The rising organic composition leads to a falling rate of profit, to the extent it is not offset by a rising rate of surplus value.
Smith uses data from the U.S. and Canadian economies to demonstrate that the law of falling rate of profit was mostly consistent with empirical data for the postwar period. According to Smith, the current crisis has taken place against the background of a structurally high organic composition of capital in the advanced capitalist countries.
In Chapter 2, Smith goes over the basic arguments of historical materialism and Marxist political economy. Someone who has been trained in the Marxist tradition would find the materials familiar. But the chapter provides a nice summary of Marxist theory for anyone who has become newly interested in Marxism.
In Chapter 3, Smith elaborates his criticisms of Robert Brenner’s analysis of global capitalist crisis, which has been popular among some leftist intellectuals. According to Smith, Brenner’s analysis is essentially one version of the “disproportionality crisis” theory. But Brenner’s analysis is incomplete, as Brenner fails to explain why the general price level was not sufficiently high to “realize” a reasonable profit rate for the capitalists. The puzzle could only be resolved if one accepts a labor theory of value perspective and the Marxist theory of the falling rate of profit.
Chapters 4 and 5 discuss the subject of contemporary class struggle. In Chapter 4, Smith argues that when the more skilled an better educated salary earners are taken into account, the working class continues to constitute a decisive majority of the population in the advanced capitalist countries and is strategically positioned to end the rule of capital.
According to Smith, the international distribution of surplus value provides the opportunity that the advanced capitalist countries may resolve their crisis at the expense of other regions. To the extent that the western working classes have benefitted from this distribution, this may have encouraged them to pursue a strategy of collaborating with one’s “own” capitalist class, contributing to the western working classes’ historical passivity.
Chapter 5 concludes the book by arguing that capitalism has long exhausted its potential to promote further human progress and the objective historical conditions for socialist revolution have become ripe. The vital task for the international working classes is to bring consciousness and activity (the “subjective factor”) into correspondence with the objective reality.
The book includes two appendices. Appendix 1 criticizes the neo-Ricardian interpretation of value theory and Appendix 2 advances the controversial argument that capital invested in the purchase of unproductive labor power should be best understood as part of constant capital rather than surplus value.
The book’s key arguments rest upon Marx’s theory of rising organic composition of capital and falling rate of profit. It is well known that the “law of the tendency of the rate of profit to fall” is not without controversy in the Marxist literature. For the law to be valid, it is necessary to demonstrate that in the long run, the total labor time embodied in the means of production (the dead labor) tends to grow more rapidly than the total labor time committed to current production (the live labor, or the labor that produces new value). There is no doubt that the physical ratios of means of production to the labor power employed in current production (or the “technical composition of capital”) have tended to rise over capitalist history. However, for the dead labor/live labor ratio to rise, not only must the technical composition of capital rise, but also the technical composition of capital must rise more rapidly than labor productivity in the means-of-production sector. To date, there has been no convincing theoretical argument which establishes that this will necessarily be the case.
In the future, when the global ecological crisis becomes apparent and insurmountable limits are imposed on capitalist accumulation, capitalist accumulation may indeed inevitably lead to a falling rate of profit. But ecological crisis is one subject that Smith’s book has not covered.
Following the Trotskyist tradition, Smith considers contemporary China as a deformed workers’ state. Smith argues that China is not yet completely capitalist, as state ownership continues to dominate the core of the national economy and centralized economic planning still has a significant role. For this reviewer, these arguments are unconvincing. They do, however, have important practical, political implications. If China were considered to be a deformed workers’ state, then the task of the working class would be limited to a “political revolution” with no or limited changes in the underlying relations of production. On the other hand, if one accepts that China has become fully capitalist, the historical task for the Chinese working class would be a straightforward proletarian socialist revolution. Historically, the Russian Revolution broke the weakest link of the imperialist chain. “Today, given the political passivity of the western working classes, China could very well prove to be the weakest link of the global capitalist chain.
Despite the controversial issue of the “law of the tendency of the rate of profit to fall,” Smith provides a timely and important analysis of the global capitalist crisis from the Marxist perspective. In this reviewer’s opinion, the book’s basic argument - that capitalism is now in a historical-structural crisis, and has exhausted its potential to promote further human progress - correctly characterizes our current world-historical conjuncture. The book contributes to the preparation of the crucial subject factor which, according to Smith, is urgently needed to match the objective historical conditions.
–Minqi Li, Department of Economics, University of Utah for Science & Society, Volume 76, No.3, July 2012.