Breakdown was more than a thought experiment

by Jehu

I received this response by Adam Buick to my post, “The collapse already happened, Adam”,

Frankly, I don’t see how anybody reading the Fragment on Machines can come to any other conclusion than that Marx was writing about a theoretical situation where productivity had become so high that the labour-time content of individual commodities would be so low as to mean that their exchange value would be virtually zero. It is not about money or the rate of profit (though of course at this theoretical point the rate of profit too would be zero). And it wasn’t a “prediction” (i.e something he expected to actually happen) but rather a “thought experiment” based on assuming what would happen if current trends continued to their mathematical end.

I don’t think Marx thought that the abandoning of a currency directly linked to gold would mean the end of production based on exchange value. Fiat money (“inconvertible paper money issued by the state and given forced currency”) is even discussed as early as chapter 3 (section c) of Capital where there no suggestion that capitalist production could not continue if such money were to become the only currency. There is also a good discussion of fiat money and its relation to commodity-money (silver) rather than gold) in chapter 2 of Hilferding’s Finance Capital.

As to the rate of profit, we need to distinguish between the short-term fluctuations that govern the course of the business cycle and a theoretical long-run tendency for it to fall. This latter is, once again, a thought experiment, not a prediction, as Marx was well aware that in practice there were countervailing tendencies. In any event, the long-term rate of profit has not fallen to zero.

Let me first say that I am disappointed by this response, Adam. It did not move the ball one foot in either direction. You say Marx’s “collapse statement” was a thought experiment. I say Marx’s “collapse statement” was a prediction. Then you repeat that Marx’s “collapse statement” was a thought experiment. This accomplishes nothing.

Having set out our initial disagreement, what we now need to do is to agree to disagree, concede one or the other of our respective positions or buttress our respective positions with evidence.

Since I don’t want to waste my time engaging in a sterile “Yes, he did. No, he didn’t.” debate with you, let me try to move the ball down the field a bit.

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In your statement that Marx’s note in the Grundrisse “wasn’t a “prediction” (i.e something he expected to actually happen) but rather a ‘thought experiment'”, you fail to take into account an important piece of supporting evidence for my opposing position:

Marx devotes an entire section in volume three of Capital to the law of the tendency of the rate of profit to fall in which he makes the exact same point he made in the Grundrissse, only this time in relation to the rate of profit, rather than production based on exchange value:

“The rate of profit does not sink because the labourer is exploited any less, but because generally less labour is employed in proportion to the employed capital.”

Do you think the law of the tendency of the rate of profit to fall was also a thought experiment? Think carefully before you answer this question, because if you say, “Yes”, Marx’s entire explanation for periodic capitalist crises now gets thrown out the window.

According to Marx,

“the development of the productivity of labour creates out of the falling rate of profit a law which at a certain point comes into antagonistic conflict with this development and must be overcome constantly through crises.”

I asked that question, because a careful and close reading of the complete passage you quoted in the Grundrisse will show Marx believed that, at a certain point, as capital reduced the employment of direct labor in production, both the rate of profit falls to zero and production based on exchange value breaks down.

As Marx put it, in a more complete rendering of that passage you quoted:

“As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down…”

Note the statement about the surplus labor of the mass ceasing to be the condition for development of general wealth. This is an obvious reference to the production of surplus value. Chapter fifteen of volume three actually throws light on the meaning of Marx’s complete statement in the Grundrisse.

Marx’s prediction of a breakdown of production based on exchange value could not have been a thought experiment any more than the law of the tendency of the rate of profit to fall is a thought experiment, since both are produced by the same process: the reduction of direct labor in production.

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Even more depressing was your statement that there is nothing in Capital to suggest that capitalist production could continue in the absence of commodity money. Who made any such suggestion, Adam?

Oh yeah, that’s right. That suggestion wasn’t made by me, but perhaps by people like George Caffentzis who falsely conflate money with capital:

“I remember quite clearly watching with comrades in a Capital study group on Sunday August 15, 1971 the broadcast of Nixon’s announcement that he had ordered the “closing of the gold window.” Given that we were reading for the previous few months passages like the following from Capital: “money–in the form of precious metal–remains the foundation from which the credit system, by its very nature, can never detach itself” (Marx 1994:606), we left each other that night with the thought that either Capitalism or Marxism was coming to an end before our very eyes!”

Anyone who regularly follows my blog knows I have never subscribed to this nonsense — if for no other reason than the fact that money is not capital.

The point of my post wasn’t just that capitalism could continue after 1929 even if money had been replaced by debased state-issued fiat currency, but that capitalism could continue after 1929 only because money was replaced by debased state-issued fiat currency. Had money not been replaced by this debased state-issued fiat currency, capitalism would have collapsed along with production based on exchange value.

As I have demonstrated in several posts, drawn from the actual historical record, after 1929, commodity money would no longer circulate in the world market. It had begun to be withdrawn from circulation by its owners and hoarded.

One example of this sort of hoarding behavior taken from another one of my posts should suffice here:

In October 1930, the Fed warned massive quantities of gold were being drained from the economy when it reported the loss of over $700,000,000 of gold.

“The most important question which the System faces at present is the problem of bank failures and hoarding of currency. Failures had been increasing at a rapid rate and are exercising a terrific pressure on the credit situation. Every action of the System should be considered in the light of its possible effect on these failures and on the willingness of banks to help out their corres­pondents in time of difficulty# A decrease in the System’s holdings of govern­ment securities might affect the situation adversely, first, by its psychological influence as indicating a policy of pressure, and second* as tending to increase the amount of member bank discounts and so making them somewhat less willing to lend freely to help banks actually in need.”

At the same time, according to Eichengreen’s book, Gold Fetters, in Argentina, gold could no longer be obtained in return for domestic currency. In Brazil, it was impossible for investors to convert currency into gold. Meanwhile, Canada lost a one fourth of its gold reserves in 1928.

There is a big problem with the sort of gold hoarding that took place in 1929: capitalist production requires the sale of labor power. Labor power can’t be sold if the owners of gold will not part with their gold because they think they cannot make a profit buying labor power, as was precisely the case in 1929.

Historical studies have concluded that only after countries abandoned commodity money did the rate of profit begin recover and capitalist economies begin to grow again.

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I had more, but this subject is very complicated and freighted with a long history of highly subjective interpretations. It probably helps to address it in little chunks, so I will stop here.

I would like to hear your thoughts on this.