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Half Marx: Flanders Flounders

Whenever capitalism gets into an economic crisis there is a revival of interest in Marx, and not just amongst critics of capitalism. So it was to be expected that Marx’s ideas should be examined in BBC Economics Editor, Stephanie Flanders’ recent three-part programme for BBC2 and the Open University: ‘Masters of Money’.

She examine first the ideas of Keynes (who advocated government intervention to save capitalism), then the obscure and slightly batty Austrian School economist Friedrich August von Hayek (who wanted to free capitalism from all government interference, which not even his great admirer Thatcher dared to try). Marx’s turn came last, on 1 October.

Flanders got two things right. First, that Marx analysed capitalism as an economy that pitted two classes – profit-seeking capitalists and wage-dependent workers – against each other. Second, that Marx saw capitalism as an inherently unstable system under which economic crises and downturns were bound to occur from time to time.

But she got it wrong on two other, crucial points. First, her claim, repeated several times, that Marx had offered no alternative to capitalism. Second, she made Marx have an “underconsumptionist” (workers can’t buy back) theory of capitalist crises.

Marx’s alternative

It is true that Marx did not believe in drawing up recipes for the cookshops of the future, but he did describe the basis of the society he thought was going to replace capitalism: “an association of free men, working with the means of production held in common” (chapter 1 of Capital); “a co-operative society based on the common ownership of the means of production” (Critique of the Gotha Programme); “abolition of private property”, “the Communistic abolition of buying and selling”, “the conversion of the functions of the State into a mere superintendence of production” (Communist Manifesto); “abolition of the wages system” (Value, Price and Profit). In short, a classless, stateless, moneyless, wageless society based on the common ownership of the means of production.

It was probably inevitable that what happened in Russia and Eastern Europe would be seen as a failed attempt to replace capitalism, with disastrous results. So Flanders went to visit a former Stasi prison in East Berlin but, to be fair, she didn’t overdo this and at one point hinted that Marx might not have approved. Indeed he wouldn’t. He would surely have recognised this as a form of capitalism, based on the exploitation of wage-labour by a minority which controlled the state – state capitalism.

What Marx did not say

According to Flanders, Marx’s theory of crises was that they are caused when the total income of the workers falls too low so that they are unable to buy all the products that the capitalists want to sell to them. So capitalism is in a bind: capitalists seek to maximise profits and this can only be done at the expense of wages. But, if wages are reduced, so is the market for goods. On the other hand, if wages go up, the market does expand, but profits go down, reducing the capitalist’s incentive to invest in production.

The trouble is that this simplistic theory has been put forward by people who regard themselves as Marxists. They argue that the crisis of the 1970s was caused by workers pushing up wages and so squeezing profits and that this provoked a fightback by Reagan and Thatcher in the 1980s on behalf of the capitalists. This, in turn resulted in the workers’ share in national income falling. For a while workers’ consumption was kept going by their going into debt, but when their credit ran out, the crisis caused by a fall in total workers’ income broke out. This is the view put forward, for instance, in Richard Wolff’s widely viewed video When Capitalism Hits the Fan.

Flanders accepted this as Marx’s view. But it wasn’t. This theory is based on the fallacy that capitalism is a system geared to meeting consumption and that the market is made up of paying demand for consumer goods only. In fact, the market is also made up of paying demand for producer goods (machinery, raw materials, intermediate goods and energy) so what the workers can’t buy the capitalists can. It is this business reinvestment of profits in expanding production that is the driving force of the capitalist economy, and it is variations in this – not in workers’ consumption – that causes capitalism’s instability.

Capitalism is a system geared to capital accumulation which falters, as now, when the prospects for profit fall, resulting in capitalists choosing not to spend their share of national income. This inevitably happens sooner or later in a boom when capitalists in one key sector of the economy in their pursuit of profits overproduce in relation to the demand for their products and this has a knock-on effect on the rest of the economy, leading to a more general economic downturn.

The end of capitalism

Flanders also talked of Marx arguing that economic crises would get worse and worse and would eventually lead to, as she put it, “the total collapse of capitalism”. It is true that in the Communist Manifesto, a political manifesto rather than a work of economics and written before Marx undertook his detailed study of capitalism, he did refer to “more extensive and more destructive crises” but never expressed the view nor expected that capitalism would collapse of its own accord through its inherent economic contradictions. He saw capitalism coming to an end, but through the political action of those he called its “gravediggers”, the exploited working class. In other words, capitalism had to be done to death. It still needs to be.