Towards a hypothesis of the final collapse of capitalism (2)

by Jehu

Average daily wage (in gold) - 1964-2010

CHART: Decline of the real wage after the collapse of the gold standard (Source: Bureau of Labor Statistics)

2. Breakdown of production based on exchange value and the collapse of wages

As I stated in the previous post, my hypothesis depends on the claim that the conditions of production based on exchange value are fundamentally incompatible with the conditions of the new forces of production bound up with capital (i.e., the conditions of social labor). To restate this in a way that may be more obvious: the condition of commodity production, where producers carry on their productive activities separately and only enter into definite relations during the act of exchange, are not compatible with the conditions of directly social labor that have grown up under the capitalist mode of production. Taken together, of course, the two sets of conditions constitute what we mean when we refer to the capitalist mode of production, but they stand in an antagonistic relation to one another within the social form.

What we witnessed in the 1930s depression was the realization of Marx’s prediction that production based on exchange value would collapse; that event is now in our rear view mirror. With the advantage of 20/20 hindsight we can confirm the validity of Marx’s labor theory of value, which posits a fundamental antagonism between the conditions of individual production, characteristic of simple commodity production, and the conditions of directly social production, characteristic of capital.

What remains for us to determine, however, is the nature of the period we are now passing through. Luxemburg called it barbarism, the fascists gave it the name, Fascism. But what has almost never been done is to describe the political economy of this strange animal, capitalism without exchange value. It has seldom occurred to most Marxists that barbarism, (fascism), far from being a mere political ideology, may actually constitute a distinct phase of capitalism with its own political economy. In fact, few Marxists even realize that we have passed through Marx’s predicted collapse of production based on exchange value. Thus few Marxist theorists have seen the need to ask a critical question:

Assuming a proletarian revolution was unsuccessful after the collapse of production based on exchange value, what does capitalism now look like?


The Marxist theorist we can thank for giving us the best answer to this question was Henryk Grossman, who, in 1929, on the eve of the Great Depression, published his book, Law of Accumulation and Breakdown. While most Marxists at the time were dismissing Marx’s prediction of a collapse of production based on exchange value as, “catastrophism”, Grossman restated Marx’s thesis. In his refutation of the “anti-catastrophist” argument of Bruno Bauer, Grossman arrived at what is likely one of the two most important insights based on Marx’s theory in the 20th century: At a certain point in the development of the forces of production, capitalism would finally hit an insuperable barrier. If the production of surplus value was to continue beyond this point, commodities, specifically labor power, could no longer be sold at their values:

“I have shown that even if all conditions of proportionality are maintained and accumulation occurs within the limits imposed by population, the further preservation of these limits is objectively impossible. The system of production described in Bauer’s own scheme has to breakdown or the conditions specified for the system have to be violated. Beyond a definite point of time the system cannot survive at the postulated rate of surplus value of 100 per cent. There is a growing shortage of surplus value and, under the given conditions, a continuous overaccumulation. the only alternative is to violate the conditions postulated. Wages have to be cut in order to push the rate of surplus value even higher. This cut in wages would not be a purely temporary phenomenon that vanishes once equilibrium is re-established; it will have to be continuous. After year 36 either wages have to be cut continually and periodically or a reserve army must come into being.”

The capitalist mode of production is a form of commodity production that specifically aims at the production of surplus value. This aim requires that capitalists purchase labor power and set it to work to produce a surplus product. As anyone familiar with Marx’s theory knows, the assumption that prices of commodities equal their values is a fundamental premise of Marx’s labor theory. However, Grossman argued that Marx’s theory predicts that at a certain point in the development of the productive forces the exchange value of labor power actually becomes incompatible with its purchase for purposes of capital’s self-expansion.

Grossman was thus saying the assumption that commodities are purchased at their values, found in the opening chapters of Capital, would soon have to be violated; the wages of the worker could no longer equal the value of her labor power. Production based on the assumption that commodities, including labor power, are sold at their values would come to an end. Marx’s theory would be confirmed and his prediction that production based on exchange value in the Grundrisse would be realized; after the Great Depression, labor power would never again be sold at its value.

This is the basic political economy of Luxemburg’s barbarism, capitalism without exchange value.


In the simplest possible terms simple commodity prices are equal to their labor values. This is not true for capitalist prices of production. Leaving aside all the means that enter into production other than labor power, in simple commodity production the price of the commodity is a direct function of the socially necessary labor time required to produce it (Capital, v1, c1). In capitalist commodity production, however, the price of the commodity is a direct function of the socially necessary labor time required to produce it plus an average rate of profit (Capital, v3, c1). This contradiction between the simple labor values of commodities and their capitalist prices of production is what eventually leads to the breakdown of production based on exchange value.

In Capital, v3, c15, Marx argues this inherent antagonism between the simple labor values of capitalistically produced commodities and their capitalistic prices of production is practically resolved by constant expansion of the world market:

“This is law for capitalist production, imposed by incessant revolutions in the methods of production themselves, by the depreciation of existing capital always bound up with them, by the general competitive struggle and the need to improve production and expand its scale merely as a means of self-preservation and under penalty of ruin. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law working independently of the producer, and become ever more uncontrollable. This internal contradiction seeks to resolve itself through expansion of the outlying field of production. But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest. It is no contradiction at all on this self-contradictory basis that there should be an excess of capital simultaneously with a growing surplus of population. For while a combination of these two would, indeed, increase the mass of produced surplus-value, it would at the same time intensify the contradiction between the conditions under which this surplus-value is produced and those under which it is realised.”

Grossman’s argument was that eventually the forces of production of social labor would be come so powerful, this contradiction could no longer be contained. If production for profit were to continue beyond a certain point, the wages paid to the worker for her labor power must fall below the value of the labor power. At this point, the profits of the capitalists would consist solely of difference between the actual value of the labor power of the workers and the value of their money wages. This is the economic logic behind the so-called immiseration thesis: the working class would be progressively starved.

To put this all in some historical context, Luxemburg’s “socialism or barbarism” essentially came down to the proposition that capitalism was headed to a breakdown in which either the working class would put an end to capitalism or find itself increasingly immiserated.


Grossman’s insight allows us to clarify what Marx meant by the term, collapse of production based on exchange value. In Marx’s theory, the values, or socially necessary labor time required for production, of commodities can only be manifested in the form of their exchange values. In the first chapter of Capital, v1, Marx argues exchange values of commodities express the fact that the producers carry on their productive activities without a common plan. The socially necessary labor times required for production of the commodities manifests itself in the form of another commodity, a money commodity, (typically gold or some other precious metal).

As Marx explains, once the community of social producers subject their activities to a common plan, money effectively ceases to exist. Production is regulated by the plan, not by the values of the social product. Even in the absence of a proletarian revolution, however, production based on exchange value would still come to an end in a catastrophic breakdown. This breakdown can be thought of as a breakdown (or collapse) of production based on the commodity money, the gold standard. Marx was, in other words, predicting a crisis of such magnitude that commodity money could no longer serve as means of exchange in transactions. Above all, commodity money could no longer become capital.

Why is this?

Commodity money has the unique quality that, generally speaking, it can only express the values of commodities. If, as Grossman maintained, the wages of the working class had to be continuously cut below the value of labor power to push the rate of surplus value even higher, commodity money could no longer serve as a universally valid means of exchange to purchase labor power. Thus, by the time of the Great Depression, gold, (and commodity money generally), could no longer become real capital. If gold could not serve as means to purchase labor power, this effectively amounted to the end of capitalism as a mode of production, because the purchase of labor power is the absolute precondition for all capitalist production.

The problem here is peculiar to capitalist commodity production alone. In simple commodity production, no buying and selling of labor power takes place. People do not sell their labor power, they sell the product of their labor directly into the market. For money to become capital, however, the capitalist must purchase the labor power of the worker. The collapse of production base on exchange value thus threatened capitalism itself with a catastrophe. At the same time this catastrophe did not necessarily imply the simultaneous demise of capital along with production based on exchange value. Instead, after a long period of deep contraction of production, the state was forced to step in and replace commodity money with its own valueless token.

Unlike gold, state issued tokens have no value of its own and thus could continue to circulate as means of exchange, but these tokens no longer expressed the value of the commodities.


By replacing commodity money with its valueless token, the state was able to avert the collapse of the capitalist mode of production. But the method by which it averted the complete collapse of capitalism had other consequences that were not at all obvious to the fascists:  As I stated above, the values, (or socially necessary labor time required for production), of commodities can only be manifested to the producers through a commodity money that serves as the independent socially recognized expression of socially necessary labor time. Thus, commodity money was the essential means by which the total labor time of society was forcibly limited to the socially necessary labor time required for production of commodities.

As Marx explained:

“Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskillful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour power. The total labour power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary.”

By replacing commodity money with a debased valueless token, the fascists were able to contain the collapse of production based on exchange value and avert the complete collapse of the capitalist mode of production. But, by severing the state issued fiat currency from commodity money, they had, at the same time, severed the link between the total labor time of society and socially necessary labor time required for production of commodities.

Freed from the constraints of exchange value, effectively, there were no longer any limits on the duration of the social labor day.

NEXT: Immiseration, i.e., fascist state full employment