The Myth of Secular Stagnation, Part Two

by Jehu

In part one of my blog post, The Myth of Secular Stagnation, I explained the background to the debate among bourgeois simpleton economists. The stagnation debate among bourgeois economists begins with the Great Depression and Keynes’ characterization of the problem of the Great Depression as “technological unemployment”. The source of the technological unemployment was the improvement in the productivity of labor, the industrial revolution wrought by capital. For Keynes in 1930, this was not necessarily a malady in and of itself, it promised a future where labor itself would be abolished. The transition to a society of less work might be very painful, but the distress was only temporary.

By 1933, however, Keynes’ argument had changed: although he continued to insist that, technically, the “economic problem” had been solved he now focused on the problem of restoring capitalist profit. The Great Depression was no longer caused by the lack of investment opportunities, instead there was a lack of sufficient state deficit spending. The Great Depression, now having lasted 3 years, required state intervention; “a blend of economic theory with the art of statesmanship”.

6. How Marx formulated the problem of capitalist crises: Excess capital and overwork of the social producers

This brings me to the charge, made by Mark Blyth in his book, Austerity: History of a dangerous idea, that labor theory offered no alternative to the fascist state deficit spending in the 1930s. According to Blyth, labor theory, as outlined by Marx, essentially counseled imposition of an austerity regime in crises like the Great Depression, in the vain hope the resulting catastrophe would produce socialism:

“As Sheri Berman brilliantly illuminates, the German Social Democrats of this period (the SPD) were intellectually Marxist but programmatically Ricardian: classical liberals in socialist clothing. Marx’s economics were, apart from his view of the rate of profit and the possibility of a general failure of demand, as much Ricardo’s as they were his own, especially as they were interpreted by the leading “theologians” of the German Social Democrats. Upon such a view, when the economy was in a slump, there was literally nothing to be done except let the system melt down until socialism magically appeared.”

First, it is an outright lie that Marx believed socialism arose because the present mode of production was prone to crises. Although Marx held the mode of production was prone to crises and that these crises “would cause a revolution, because it would put the bulk of the population out of the running”, in Marx’s argument, it is not capitalist crises, but capitalism itself, i.e., the production of surplus value, production for profit, that created all of the necessary material conditions for communism. Capital itself, says Marx, contained the solution to its own crises:

“The contradiction between the general social power into which capital develops, on the one hand, and the private power of the individual capitalists over these social conditions of production, on the other, becomes ever more irreconcilable, and yet contains the solution of the problem, because it implies at the same time the transformation of the conditions of production into general, common, social, conditions. This transformation stems from the development of the productive forces under capitalist production, and from the ways and means by which this development takes place.”

Second, whatever the defects of the social democrats during this period, it is just not honest to blame Marx’s labor theory for these defects. It is just not true Marx believed there was literally nothing to do in a crisis but let socialism magically appear. Berman may or may not be correct about this with regards to the leadership of the German social democrats, but no one could ever make such a charge stick against Marx. The argument could not even be made against a very large portion of German Marxists, many of whom split from the SPD and formed the KPD during this period over a number of issues, including the idea of socialism magically appears, i.e., steady uneventful evolution of capitalism into socialism. Berman and Blyth should be completely familiar with this dispute and are deliberately trying to cloud the issues at stake.

Second, Marx held a crisis like the Great Depression was produced by overaccumulation of capital, which appeared in the form of excess capital and a relative surplus population of workers. In particular, he notes,

“Labour-power becomes redundant for it as soon as it is no longer necessary to employ it for 12 to 15 hours daily. A development of productive forces which would diminish the absolute number of labourers, i.e., enable the entire nation to accomplish its total production in a shorter time span, would cause a revolution, because it would put the bulk of the population out of the running. This is another manifestation of the specific barrier of capitalist production, showing also that capitalist production is by no means an absolute form for the development of the productive forces and for the creation of wealth, but rather that at a certain point it comes into collision with this development. This collision appears partly in periodical crises, which arise from the circumstance that now this and now that portion of the labouring population becomes redundant under its old mode of employment. The limit of capitalist production is the excess time of the labourers. The absolute spare time gained by society does not concern it. The development of productivity concerns it only in so far as it increases the surplus labour-time of the working-class, not because it decreases the labour-time for material production in general. It moves thus in a contradiction.”

According to Marx, then, the contradiction within which capital moved was that it reduced the socially necessary labor time required for production of commodities while seeking always to extend the total labor time to produce surplus value. It did not matter to capital that the advance of the productivity of labor could be employed to reduce the labor time of all members of society and thus free society itself from labor; capital was only interested in increasing productivity to increase the surplus value produced by the working class.

Restating this argument in a way that can be understood within the context of a discussion of secular stagnation, the problem the capitalistic mode of production inevitably encountered is that the working class was being overworked to such an extent that both a definite mass of workers and a definite mass of capital were being rendered redundant to production of surplus value by the development of productivity itself.

Of course, Marx’s concern in Capital is the historical trajectory of the capitalist mode of production, not in formulating a laundry list of measures that can be taken to avoid periodic capitalist crises. However, it doesn’t exactly take a fucking Nobel Prize genius to figure out what is necessary in a capitalist crisis produced solely by overworking the social producers: Just reduce labor hours! What Marxists in the 1930s almost unanimously rejected is the dumb idea that crises caused solely by overworking the social producers could be resolved by state deficit spending to absorb the superfluous capital the workers necessarily produced because they were being overworked.

As Marx had earlier stated in the Grundrisse, capital, which was only concerned with production of surplus value, was a moving contradiction that continually ran into the problem that, periodically, a very large portion of capital had to stand idle or even be destroyed, while a very large population of workers were thrown into the streets, when, in any rational mode of social production, labor hours would have simply been reduced.

Following Marx, there are three things that can be said about so-called secular stagnation that we should bear in mind when trying to understand what is at stake in the debate:

7. The capital lent to the state is in excess of the needs of private capitals

First, according to Keynes, private capitals were self-financing and did not need the vast majority of excess profits that resulted from improvement in the productivity of labor even during economic expansions. These excess profits were instead absorbed by the public sector.

“[It] is unlikely that private enterprise will, on its own initiative, undertake new loan-expenditure on a sufficient scale. Business enterprise will not seek to expand until after profits have begun to recover. Increased working capital will not be required until after output is increasing. Moreover, in modern communities a very large proportion of our normal programmes of loan-expenditure are undertaken by public and semi-public bodies. The new loan-expenditure which trade and industry require in a year is comparatively small even in good times. Building, transport, and public utilities are responsible at all times for a very large proportion of current loan-expenditure.”

Today, this very same argument can be found at the heart of the definition of so-called ‘secular stagnation’. For instance, as I showed in part one of this post, the Financial Times defines stagnation as a condition that occurs when the percentage of savings is likely to start exceeding the percentage of so-called ‘public investment’. To put this another way, in a ‘mature’ capitalist economy, the savings of capitalists must equal private investment plus public deficit spending. Hyman Minsky stated this argument more explicitly in 1992:

“[Aggregate] profits equal aggregate investment plus the government deficit.”

The argument is stated here as a mere accounting equality, but its implications are far more significant than that. Remember, Keynes’ initial diagnosis of the Great Depression was that capitalist economizing on the use of labor was now outrunning the pace at which new uses could be found for labor. If this was true, Keynes was predicting a long-term decline in private investment. If aggregate profits equal aggregate investment plus public deficits, but aggregate investment was falling over the long-term, any increase in aggregate profits had to be the result of rising public deficits.

In other words, private firms only invest today, because they believe the sum total of private capital investment plus fascist state deficit spending will be greater tomorrow. If the expansion of private investment is now flat or even declining as Keynes suggested — i.e., if the economizing on the use of labor has definitively outrun the pace at which capital could find new uses for labor — all net new private investment now essentially depended on continuous expansion of public deficits. Within the limits of bourgeois simpleton understanding of “how capitalism works”, Minsky’s argument explains why any attempt to reduce fascist state deficit spending must lead to crises.

Bourgeois economists generally agree that the liabilities of the fascist state are not neutral as most on the Left appear to believe, they are in fact the assets of the capitalist class that have been lent to the fascist state because there is no productive use for them, i.e., the newly created surplus value cannot be invested for the purpose of capitalist self-expansion on a still greater scale. The total mass of such assets must constantly increase, because the total mass of surplus value that has been produced for which no productive employment can be found constantly increases. It follows from this that when the state retires some portion of its outstanding debt, a new mass of excess surplus value is already present to claim its place in the form of a new loan to the fascist state, so that the absolute mass of fascist state debt never falls.

8. Deficit spending and austerity go hand in hand

Second, this excess capital is in no way excess in relation to the material needs of society. The surplus capital is only excess in relation to capital. Capital, however, is not the production of material wealth to satisfy the needs of society; it is production of surplus value, production for profit. The excess capital that must be borrowed by the fascist state is only excess in relation to production for profit, i.e., the production of surplus value. It is capital that cannot be invested for the purpose of self-expansion of capital, that cannot be employed for the purpose of producing even more surplus value.

In relation to the material needs of society, the means of production are not sufficient to satisfy the material needs of society, nor to employ the available labor power of society in a way that is rational. Even if there is too much capital to function as capital, there is far too little for the production of material wealth to satisfy real material social needs, as even a cursory glance at our society will confirm. There is, for example, not too many houses, too much education, healthcare, infrastructure investment etc., but far too little. On the other hand, addressing these material needs of society can only be accomplished by capital if it can be provided at a profit.

Bluntly stated, because so many on the Left seem to be too stupid to realize it on their own, debate over secular stagnation and fascist state deficit spending is in no way determined by the material needs of society, but by the needs of capital. These imbeciles will continue to point to crumbling infrastructure, rising poverty and inequality, and homelessness and hunger as evidence of a need for ever increasing state deficits, while stubbornly refusing to recognize fascist state deficits have nothing to do with these social ills. No matter whether state spending in general is high or low, rising or declining, deficit spending must always increase, driven solely by the ever increasing rate of exploitation.

As we have seen over the past 35 years, even as the total mass of fascist state deficit spending rises in many advanced countries, this rise is accompanied almost everywhere by measures designed to place further restriction on the subsistence of the working class, i.e., austerity. Fascist state deficit spending does not stand in contradiction to austerity, but, rather, takes austerity, i.e., the forcible reduction of subsistence of the working class by political measures, as its starting point. At no point in post-war history have the policies associated with austerity been practiced with more ruthless determination than the same period that deficits have become a routine fact of American government spending.

The process that leads to fascist state deficits begins with measures designed to reduce the subsistence of the working class. Fascist deficit spending and fascist state austerity are not incompatible, but each is a pole of the other. Have we not seen the dismantling of the “Keynesian social welfare state” advancing hand in hand with a steady accumulation of national debt? How dense do you have to be to ignore this? To continue pretending that deficits spending is somehow incompatible with austerity? Even if you could not explain the correlation between fascist state deficit spending and austerity, the correlation itself contradicts what we are led to believe and should call into question the assumption that the two are incompatible.

How else is it possible to explain the accumulation of a very large volume of profits on the ledgers of private firms, for which no productive use can be found, and thus fascist state deficits themselves, except on the basis of growing social want. Public deficits and austerity are the two poles of one and the same phenomenon — austerity at one pole and public deficits at the other. Austerity forcibly reduces the subsistence of the working class and, therefore, renders an even greater mass of capital excess to the production of surplus value.

9. Excess capital has no economic value

Third, as we have seen above, the argument that excess capital cannot be used productively only refers to the production of surplus value. To call capital excess does not imply in any way that the capital cannot be used as means for production of material wealth. To give an example: if a pants factory should be closed down and the workers laid off because it can no longer serve as means for production of pants at a profit, this does not mean the machinery and unemployed workers can no longer produce pants. The production of profit and the production of pants are two entirely separate things and should never be conflated.

One difficulty this creates is that some on the Left believe even if capital is excess as capital — as means for production of surplus value — this is no impediment to its employment as material means. While it is true the factory can still be employed as means for production of pants, in this employment as means of production of material wealth it is no longer capital. To put this another way, once production for profit is no longer possible, the pants produced by the factory cannot be sold at their prices of production. Beyond a certain point, the labor expended on them no longer produces any value at all, i.e., the product produced by labor are no longer commodities according to labor theory.

It is not true that the labor expended on them produces no surplus value, but still produces simple exchange value. If the labor expended on the production of pants produced any value at all, production for profit would still be possible. Once the forces of production has reached the point where the production of surplus value ceases, this is only because the expenditure of living labor itself no longer produces value. Surplus value itself is only exchange value, the product of labor beyond a certain duration. Beyond this duration, no surplus value is produced precisely because no value is produced.

To return to our example, if the factory can no longer be employed to produce pants at a profit, this is because the pants have no exchange value, they cannot be sold at any price. Whatever pants were produced by the factory would have to be given away because they could not be sold in the market at any price. This problem, which is difficult for Leftists to understand even when we limit it to a straightforward industrial production example becomes positively impossible for the Left to wrap their heads around when the discussion shifts to fascist state deficits. Even if it is acknowledged that the deficits of the fascist state are entirely composed of excess capital, it would seem this excess capital, once borrowed by the fascist state, can still be employed as money, i.e., to “support demand”. The capital is clearly excess, which means it cannot be employed for production of surplus value; it would seem only logical that if the capitalists are willing to lend it to the fascist state, the state is free to spend it as it pleases.

It can. for example, borrow the excess capital and use it to fund a basic income scheme or a jobs guarantee as some on the Left hope. “Money does not smell”, so there is no way to tell the source of the spending once the excess capital enters circulation. Once in circulation, there is no way to distinguish consumer spending that results from a basic income stipend from consumer spending that results from wages. If the capitalists are intent on producing surplus value they cannot invest productively why not borrow the capital to fix the social ills created by capitalism? What Leftists miss is that the capital borrowed by the fascist state is lent to the state because it already has no value at all. The value of capital consists entirely of its capacity to produce surplus value, not material use values. The fascist state borrows capital that is completely worthless in return for a stream of interest payments. It is thus buying a “commodity” (the loaned money capital) that has no exchange value.

Moreover, Leftists with this sort of argument miss a critical problem: capital does not produce surplus value, only labor does this. The problem is not that capital is producing surplus value that cannot function as capital, but that the social producers are expending surplus labor time that produces no value. Essentially, the Left is asking the working class to perform billions of hours of labor that has no economic value, so that the state can borrow the product of this labor — which itself has no economic value.

If this labor was performed as in our example of the pants factory, it could be distributed among the producers free of charge. It could, in other words, constitute the initial step toward a society where the product of labor was distributed to each according to need. Communism is not possible until the labor of the producers creates no exchange value; it thus begins only where production for profit ends.