The state and the final collapse of capitalism

I received a very good question on my ask.fm:

“Can you sketch out a devaluation crisis/scenario that would collapse capitalism?”

I could only partially answer the question, because of the limited space allowed by ask.fm. In my answer, I was only able to set the premises of my particular scenario for capitalist collapse. I want to extend my remarks here to fill in whatever blanks may exist.

Here is the most important premise I will be using in the following scenario, which is, of course, open to question:

The capitalist mode of production is in a permanent and continuous state of overaccumulation of capital. This condition Marx described as capital having reached the point where no new capitalist investment can increase profits. Under these conditions, each increase in capitalist investment of new capital has the paradoxical effect of reducing profits. This gives rise to a mass of capital that cannot be productively employed and a population of workers who cannot find productive employment.

Imperialism and the breakdown of commodity production

Historically speaking, absolute overaccumulation of capital likely occurred about the time just before the outbreak of the inter-imperialist conflict over markets — pre-1914.

While absolute accumulation of capital led to the rise of imperialism and division of the world market among the leading capitalist countries, it also led to another result that is even today little understood by most working people even though we have been living with the consequences for some 80 years: what Marx called “the breakdown of production on the basis of exchange value”.

What is the breakdown of production on the basis of exchange value?

While most radical activists are more or less familiar with the concept of imperialism and what impact it has had on events, the breakdown or collapse of production on the basis of exchange value is neither very well understood or even discussed among activists. So let me discuss this briefly.

As many probably already know, in labor theory it is assumed all commodities are more or less priced to sell at the monetary equivalent of the socially necessary labor time required to produce them. (Socially necessary labor time is what Marx defines as the value of a commodity.) However, what many don’t know is that Marx also predicted that eventually it would not be profitable for capitals to sell commodities at their values. Basically, the breakdown of production on the basis of exchange value means commodities produced in the economy cannot be sold at their values. At a certain point the assumption that the value of a commodity equals its price is no longer valid and prices of commodities begin to diverge from their labor values.

(At the same time, per Moishe Postone (see pg. 374 of his book), we are forced to relax the assumption that no more labor is expended in aggregate than is socially necessary for production of commodities. The breakdown of production on the basis of exchange value is, therefore, accompanied by the sudden emergence of a new category of labor time: superfluous labor time)

Why commodity production breaks down

Marx predicted the breakdown would happen because in the capitalist mode of production commodities are priced, not at their values, but at their values plus an average rate of profit. The breakdown occurs because the condition for capitalist production, profit, fundamentally conflicts with the assumption that commodities are sold at their values. The inequality between the values of commodities and their prices can be resolved for a time, (and Marx discusses how it is temporarily resolved here), however, the contradiction would not be permanently resolved and as the productivity of labor increases a point would be reached where the equation, “price = value”, would be violated.

Production on the basis of the assumption goods are sold at their values would breakdown. What happens when this point is reached? When it is reached the prices of commodities can no longer equal the values of commodities and commodity money (gold or silver) can no longer circulate in the economy. Since the circulation of commodity money in the economy is the necessary precondition for the purchase and sale of labor power, capitalist production would halt.

This is exactly what occurred beginning with the Great Depression. The solution to this was for states to move off the gold standard and replace commodity money with its own state issued inconvertible fiat.

Why does what serves as money matter? Why does fiat work in our economy today but gold cannot work? A commodity money like gold can express the values of commodities, because it is itself a commodity with value. But gold has this limitation: it can only express the value of commodities. It cannot express the value of a commodity plus an average rate of profit. This is where an inconvertible fiat currency comes in. Fiat currency has no value of its own and cannot express the values of commodities. It can, therefore, accommodate capitalist prices of production (v+s) even when they conflict with value (v).

The common denominator between imperialism and fiat

Now there is a common denominator between the rise of imperialism and the emergence of inconvertible fiat currency: both imperialism and fiat currency require the involvement of the state. This means my premise that capitalism is now in a condition of continuous overaccumulation of capital necessarily also assumes a now critical role for the state in the maintenance of capitalist accumulation.

In the first place, the state is necessary to impose the will of one national capital on all the others within the world market. There is no state of the whole world market, only various competing states that each seek to impose their will on all the other states. In the final analysis, this competition between equally sovereign states can only be settled by force — that is by military conflict.

In the second place, the state is necessary because it is the sole authority that can determine what legally serves as money within its borders. Since real money can no longer circulate as capital, the state’s legal function of determining what will replace money comes to the fore. The state can only decide what serves as money because commodity money no longer functions in the role of capital. Which is to say, state issued inconvertible fiat currency does not express the values of commodities; rather, it expresses their use value as capital.

Another way to put this is that the values of the commodities as capital are completely incompatible with their values as simple commodities. The problem could be overcome by reducing hours of labor and progressively emancipating society from labor. This is, in fact, what Keynes proposed in 1930 (see page 5 of his essay) and was supported by many other writers at the time. But this overlooks the fact that capital is solely interested in production for profit, and has absolutely no interest whatsoever in putting an end to the contradiction between the values of commodities and their prices.

Far from wanting to put and end to the contradiction between values and prices, capitalist production for profit requires that the contradiction between value and price constantly widen. This growing contradiction has two obvious expressions: First as the values of commodities fall, their market price increases (inflation). Second, as less labor is needed for production of commodities, the total labor power employed must increase; implying a growing expenditure of labor that produces nothing because it is superfluous to capital investment.

The role of state deficit spending

The contradiction thus finds its expression in the emergence and expansion of public sector debt. Public sector debt buys temporary relief from the chronic gluts of commodities and unemployment that signal absolute overaccumulation. But public sector debt buys this relief in the short term only at the cost of increasing overaccumulation in the long term. Moreover, now side by side with absolute overaccumulation, there is an ever growing mass of absolutely superfluous capital that has been lent to the state. The capital is absolutely superfluous to capital because without being lent to the state to be consumed unproductively, no use could be made of it — it could not be invested productively.

A return on the superfluous capital would be impossible unless the state paid interest on it. (Just as employment of the surplus population of workers locked out of industry would be impossible if they were not employed directly or indirectly by the state.) And without any return, the capital would have no value at all as capital. It would be immediately devalued in a massive global implosion. To prevent this implosion, the various states borrow the excess capital and unproductively consume it in various ways; handing the capitalists paper IOUs in return for it and paying them interest on capital that no longer exists.

Cracks in the structure of accumulation

This brings me to what I think is the most likely scenario of capitalist collapse.

When it comes to borrowing this excess capital, however, all sovereign states are not created equal. For instance, the United States has a national currency that is highly sought around the globe and is (with the euro) used in almost all international trade transactions. As a result of its use in world trade, most countries together have accumulated vast reserves of dollars. On the other hand, few people want to hold the Congolese franc. Since the risk involved in holding the public debt of a particular state is a function of its capacity to redeem that debt in its currency then, by definition, holding Congolese bonds is riskier than US treasuries.

Thus, when the next step down in the present depression begins, we can expect a round of sovereign defaults, beginning first with those countries whose debt is unfortunately denominated in a foreign currency, and after this rapidly spreading to those countries whose debts are denominated in their own inferior currency.

As these latter countries begin to default, credit will dry up everywhere — in first place outside the sovereign debt of the most solvent states, including the US, which has the single most important currency, and sovereigns like Germany and China with massive trade surpluses. It is likely that dozens of states will default and capital inflows will drive interest rates negative in the most important countries in the world economy. Meanwhile credit will evaporate for all the countries in between the most vulnerable and the least.

Perhaps there is a way out of this for capitalism, but I just don’t see it at this point.