Analysing capitalism: Rick Kuhn, Henryk Grossmann and the Recovery of Marxism

Posted: July 14, 2011 by Nick S in capitalist crisis, Economics, Marxism, Revolutionary figures

Rick Kuhn, Henryk Grossmann and the Recovery of Marxism, University of Illinois Press, 2007; reviewed by James Heartfield for Redline

As a left-wing activist in the 1980s one of the hardest arguments to win was that the economic recession that had set in was not just a minor problem, but intrinsic to capitalist society.  Of course there were lots of people who thought they were Marxists – but for the most part that just meant that they identified with the trade union movement.  Their Marxism usually just meant that they mixed up a lot of Marx’s categories – ‘exploitation’, ‘surplus value’, the ‘falling rate of profit’ – with things they had read in the newspapers’ financial pages, without really understanding Marx’s theory of capitalism.  They did not understand that Marx saw these things as a total system, with each of its terms inter-related; still less did they understand that he saw that system as historically redundant, increasingly at odds with human development.  Trade union officers certainly did not want to overthrow capitalism.  They wanted to get it to work better, and to get rewarded for doing so.

Most economics at the time saw the crisis as a passing phenomenon that came about because of glitches in the system.  The free market think tanks that were advising the Tory leader Margaret Thatcher said that it was the trade unions’ monopoly that was distorting the labour market, pushing wages too high and causing unemployment. Quixotically, some radical economists, like Tony Cliff (The Employers’ Offensive, 1970) and Bob Sutcliffe agreed that rising wages were the cause of the crisis – as if militant wage demands could bring capitalism down and socialism in.  More often left-leaning policy makers, influenced by John Maynard Keynes, would argue that capitalism could be reformed; if workers had more wages their increased spending would restore the system to profitability (as if capitalism did not grow by holding wages down to a minimum).

Henryk Grossman’s book The Law of Accumulation, Being also a theory of Crises was a great boon in the economic debates of the 1980s, though it had been written in the 1920s. A hundred or so copies of an abridged English translation by Jairus Banaji was run off on Roneo-machine in the late seventies, photocopied and circulated among Marxists.  In 1992, Tony Kennedy, who wrote on economics for Living Marxism, prepared the manuscript for Pluto Press – I helped on some of the editing.

Like the German-American Paul Mattick (Marx and Keynes, 1969; Economic Crisis and Crisis Theory, 1980) and the Ukrainian scholar Roman Rosdolsky (The Making of Marx’s Capital, 1977) Grossman’s book showed that Marx’s theory was a total system.  Grossmann taught us that Marx logically reconstructed the dynamics of capitalism, starting with the simplest abstraction – the commodity-form, building it up to show how the ability to work, ‘labour-power’ became a commodity that once set in motion, yielded a ‘surplus value’ over and above its cost and this surplus value was the basis of the capitalist’s profits.  Grossman’s great insight was that Marx’s theory worked at different levels of abstraction, so that he would set aside all questions of foreign trade, for example, if that were not the issue under investigation.  Grossman would explain to impatient critics like Eugen von Bohm-Bawerk that there was no point in saying that Marx’s theory of value contradicted his theory of profits, because they had just failed to notice that Marx had already shown that the law governing value was modified.

Marx did more than systematise the categories of nineteenth century economic theory (the Classical Economics or ‘Political Economy’ of Adam Smith and David Ricardo).  He historicised them, as Grossman explained in an essay “Marx, Classical Political Economy and the Problem of Dynamics” (reprinted in Capital and Class, 2 and 3, 1977).  Where Smith and Ricardo saw features of the economy, the prices, profits and rents as natural phenomenon, and the laws governing their movement, like the law of supply and demand, as natural laws, Marx explained that they were historically specific features of capitalist society that did not obtain under feudalism or tributary social systems, just as they would disappear under communism.

Those things we took for granted, like the fact that goods have a value, were, Marx showed, extraordinary features of market societies that would make no sense if they were made directly for use, instead of for sale.  The representation of the workers’ subsistence fund as wages was a peculiarity of capitalism.  All but the most wretched societies produced more than they consumed; under capitalism the product was divided into the wage-bill, or what Marx called ‘variable capital’ (represented algebraically as v) which went to the working class, and the surplus value (s) which went to the capitalists, and was the source of their funds for their own consumption and for new investments (the ration s/v, the division of the gross product between the two classes is the rate of exploitation).  And the organisation of industry around the production of profits displaced the more obvious goal of making goods for people.  Distinguishing at each point between the historically specific character of capitalist production and production in general was Marx’s way of showing not only that society could be organised differently, but that it would have to be, as the capitalist mode of production became increasingly outmoded, acting as a brake on development.

Grossman’s book The Law of Accumulation in particular was dedicated to showing that the industrial crises that preoccupied economists in the 1920s were not a disruption of the market system, but the necessary result of the process of capital accumulation (that is the reinvestment of profits in new plant and technologies).  Because only living labour gave rise to surplus value, the source of profit, the greater share of investment in machinery and plant would tend to diminish the rate of profit to the total capital invested. In Marx’s formula for the rate of profit was represented as p¢ = s/c+v, where s, surplus value was divided by both the money invested in machinery, constant capital, c, and that invested in wages, variable capital, v.  As c got larger relative to v, the ratio of profit would shrink in relationship to the total capital invested (c+v), even as the mass of surplus value (s) grew.

In this way, Grossman explained, what ought to be positive for mankind, the development of new means of production, created problems for capitalists.  Even though they had little choice but to reinvest their profits, accumulating capital would give rise to diminishing returns on those investments.  Distinguishing between the positive growth in technology and the negative ‘overaccumulation of capital’ was the theoretical precondition to distinguishing between them in fact, that it to organise new industry under socialist planning rather than capitalist competition.

The great clarity of Grossman’s work was that it methodically excluded all the bad excuses that people made for the system – that the economic disruption was just a problem of disproportionality between different parts of the economy, or that workers’ consumer spending was insufficient to buy over-produced goods.  The barrier to capitalist accumulation, as Marx explained, was capital itself.

Grossman also resolved a misreading of Marx common among the Marxists. Rosa Luxemburg and Otto Bauer had both reacted to the publication of the second volume of Marx’s three-volume work Capital, which deals with the conditions of capitalist reproduction.  The first volume, dealing with the process of exploitation, was well-liked by socialists active in the workers’ movement.  But volume two seemed to show that the capitalist economy would thrive, because different sectors would act as purchasers to each other’s products (Marx differentiated between the producers of means of consumption, food and clothes, and the producers of the means of production, machinery and raw materials).  Marx laid out arithmetical ‘schemes of reproduction’ showing how each sector would have to grow proportionately if the new means of production on the one hand, and the consumer goods on the other, were to be sufficient, but not overproduced.  The revolutionist Luxemburg thought that Marx had got it wrong, while the reformist Bauer was glad to cite Marx’s argument that capitalism would prosper, elaborating his own, extended ‘schemes of reproduction’.

Grossman explained that both Luxemburg and Bauer had misread Marx.  The ‘schemes of reproduction’ were not meant to show that capitalism would last forever, only to sketch out the necessary proportions it would have to assume to reproduce at all. The critics had simply misunderstood the levels of analysis that Marx worked on. The historical limits to capitalist reproduction did not arise out of a disproportionality between different sectors, it arose out of the overaccumulation of capital relative to surplus value, which Marx set out in the third volume, not the second.  Just to rub Bauer’s face in it, he extended Bauer’s reproduction schemes to show that even on his calculations, capitalism would collapse 34 years into its growth.  This was an exegetical device, which caused some confusion to inattentive readers who assumed that Grossman was arguing that the reproduction schemes did prove the necessary collapse of capitalism.  Actually, Grossman simply folded the assumptions of volume three – the ratio between total capital invested and surplus value – back into the schematic representation of the proportions between the different sectors; capitalism collapses because the rate of profit declines, despite the equilibrium between the different sectors.

Though Grossman’s Law of Accumulation was central to the revival of Marxist analysis in the 1980s, we knew very little about the man.  Rick Kuhn’s biography Henryk Grossman and the Recovery of Marxism puts that failing right with a fascinating account of a remarkable life.  Far from being just an academic, Kuhn explains, Grossman was active from an early age in the Social Democrats in Galicia, leading a Jewish Social Democratic Party that broke with the increasingly chauvinistic Polish Party.  Grossman’s contemporaries in Poland’s socialist movement included Rosa Luxemburg, who would go on to lead the revolutionary faction of the German SPD, Josef Pilsudski, the right-wing social democrat who led the country to war against the USSR in 1920, the Comintern fixer Karl Radek (who Grossman defended when smeared by opponents), the anthropologist Gumplowicz and the Soviet Union’s secret policeman Felix Dzerzhinsky – clearly this was a very creative moment.

Just as remarkable is Grossman’s other career as a statistician and economist, working in Austria and Poland, where his talents were rewarded with university posts and prizes, until he was made second in command at the Polish census bureau.  In 1918, Grossman was economic advisor to the Austro-Hungarian Foreign Minister Count Czernin as he negotiated the peace treaty with Leon Trotsky and Karl Radek at Brest-Litovsk.  In a stark rebuff to Polish nationalism, Grossman worked for the Austrian occupation in Lublin.  Kuhn shows us that alongside the rather pointed theoretical criticisms of Otto Bauer, von Bohm-Bawerk and others were some tense personal relations.  As a foreigner, Grossman was debarred from working in Vienna under discriminatory laws passed by the government Otto Bauer served as Foreign Minister.  Remembering his clashes with the Polish nationalists, Carl Grunberg wrote that Grossman “experienced the blow of being designated a Pole”.

Rick Kuhn’s research for this biography is very good indeed.  Not only did he go back to discover the early material relating to the split that gave birth to the Jewish Social Democratic Party, he also uncovered the extensive notes kept by the Australian novelist Christina Stead who, with her husband the banker-turned-Marxist Bill Blake, befriended Grossman when he was in America.  Stead wrung anecdotes from Grossman for her fiction.  These give new insights into Grossman’s work with the Institute for Social Research (Frankfurt School) run by Max Horkheimer and Theodor Adorno – where, despite an eventual clash as the school drifted to the right, Grossman’s deepening work on Marxist economic theory, as well as some fascinating sidelines in the history of science and the birth of capitalism were encouraged.  Kuhn, who has selflessly resurrected interest in Grossman’s wider work over the last decade, has written an excellent, well-informed and sympathetic account of the life and works.

At the risk of being churlish, though, it should be said that there is one argument that runs through the biography that really does not stand up, and that is Kuhn’s view that Grossman’s ‘own experiences in the labour movement’ were the preconditions for his intellectual achievement (95).  Kuhn wants to argue that theory and practice were united in Grossman’s life, but that is not really true.  In fact one of the consequences of his moving back and forward between Poland, Vienna, Berlin and New York, working for the civil services and universities, was that on each occasion he had to undertake not to involve himself in local socialist parties, before authorities who knew his reputation.  As a consequence, Grossman was, after he left Poland the first time, mostly disengaged from active politics.

What is more, his isolation from the day-to-day agitation of the Communist International probably saved him from the fates that befell other defenders of Marxist theory.  Despite his support for the Communist cause, Grossmann had the instincts to avoid an invitation to go to the USSR to teach, a judgement validated by the persecution of the great Marx scholars Isaac Ilyich Rubin and David Ryazonov.  As an independent scholar, Grossman could openly criticise Comintern hacks like Eugen Varga and the increasingly vulgarised version of Marxism that the official Communist movement propagated in a way that more active party members, like Georg Lukacs, could not.

Indeed Grossman’s direct involvement in politics showed that he mostly got it wrong.  Breaking from the Polish Party as a Jewish Social Democratic Party meant that the chauvinistic ideas of the mainstream party were never challenged, and Grossman’s faction’s criticisms remained at the level of ethnic organisation – a point that Kuhn partly concedes without understanding that the greater danger was not the failure to recruit Galician Jews to Social Democracy but the entrenchment of national chauvinism among Polish social democrats.  As Kuhn makes clear, Grossman’s intuitive rejection of Stalin’s policy towards the Nazis in Germany did not lead to a complete break with the by-then reactionary Communist leadership.  Nor did Grossman fully understand the way that Adorno and Horkheimer were remodelling the Frankfurt School in its American exile, to the extent that it would become an accomplice of the US reconstruction of Germany after the war (see Istvan Meszaros, Power of Ideology, 1989).

Grossman could be courageous in fighting for his principles – he resigned from the Polish census office rather than obey a demand to miscount Jews as Poles, and during the Polish-Soviet war, he steered a train over to the Soviet side, risking jail.  But Ilse Mattick remembered him as rather arrogant, not a man of the people at all, lecturing in white silk gloves, carrying a cane.  Indeed it was probably that side of his character, the quality that Marx praised in David Ricardo’s work as a willingness to hold fast to abstraction, that lent his theoretical work such force.  Of course it is true that without an identification with Marxism, Grossman would have probably become simply a good statistician.  His practical political affiliation was to Stalinism, but that confidence that let him pursue his intellectual work without compromise saved him from the crass theoretical errors that increasingly dominated the Communist International.

Kuhn sees Grossman’s work as contributing to the recovery of Marxism, and certainly I hoped so when I worked on the English edition of Law of Accumulation.  But realistically, one has to look at the reception of Grossman’s work in the changed circumstances of the 1990s.  Following the defeats of the workers’ movement in the 1980s, and the restoration of the market in the former USSR and China, capitalism has enjoyed a marked stabilisation and expansion.  Millions more workers have been recruited to create new surplus-value for capitalism, in China, Eastern Europe and Russia, as well as with the expansion of the workforce, through the recruitment of women workers and migrant labour in America and Western Europe (see Heartfield, Ray and Woudhuysen, ‘The State of the World’, revolution magazine, June 2001).

In the eighties, as in the 1930s, the great problem was that evidence of the historical limits of capital accumulation was being avoided by reformists who hoped that stability could be restored.  But in the period from 1995-2008 the problem was almost reversed.  In the face of the evidence of a stabilised capitalism, radicals sought to prove that the crisis was upon us, to sustain their organisations with the imperative of imminent social collapse.  If anything there is an exaggerated sense of crisis today, with successive conjunctural disturbances like the Asian, Russian and Mexican financial collapses, the dot.com bubble and the credit crunch of 2008 all being cited in turn as evidence of the collapse of capitalism.  The radicals’ preoccupation with crisis marries well with the environmental movement’s belief that not just capitalism, but industry as such, is on a collision course with nature.

While Kuhn himself has often warned against exaggerating the scale of problems faced by capitalism at this moment in history, much contemporary Marxist scholarship is dedicated to proving on paper what cannot be shown in fact – that capitalism is in its final crisis. The academic rediscovery of Grossman by Anwar Shaikh, Rakesh Bhandari, Chris Harman, Paul Mattick Jr. and others was all part of the desire to bring about the downfall of capitalism algebraically or in columns, where the system itself had, at least for the period 1995-2008, stabilised.

What these Grossman scholars miss is precisely the most interesting part of his Law of Accumulation book, the third part on the modifying counter-tendencies to the collapse. It was there that Grossman answered the question ‘why has capital not already broken down?’ (1992, p. 131). In this section of the book Grossman distinguishes between two kinds of mechanism that tend to restore profitability.  The first are spontaneous, and occur because the crisis is itself the basis of the restoration of profitability.  Here, following Marx, Grossman talks about the way that in a crisis overaccumulated capital loses its value as businesses go bankrupt and sell off their stock and machinery at knockdown prices.  Also unemployment favours employers’ attacks on wages.  Both of these things happened in the cycle of crises and recessions in 1972-5, 1979-83 and 1989-93.  Most pointedly, demoralisation and a combined government and employers’ offensive effectively dismantled much of the labour movement creating the conditions where expanding employment did not give rise to inflation over the period 1995-2008.

In the second section of part three, Grossman looks at the way that world market domination can help to restore profitability.  He shows that controlling access to raw materials helps to cheapen the cost, and that the overaccumulation of capital can be offset by exporting it to new fields of production in the developing world.  That was an important factor in the rising trend to export capital in the 1980s that tended to boost production in the Tiger Economies of the Far East.  Since then, in the unique conditions offered by the political collapse of the Stalinist regimes, capitalism has extended into China, Vietnam and Russia.  The creation of these new points of production – which could have been very disruptive for western economies – has overall been a great boon to capitalism.  In recent times the Chinese locomotive has been pulling the world economy, and its cheap manufactured exports helped fuel a retail boom in the West. The current difficulties in the US and Europe show us that any stabilisation is only temporary.

Henryk Grossman could not help us to anticipate all of that, but his insistence of analysis at many levels is a fantastic tool in the development of a rounded theory of capitalist dynamics – and Rick Kuhn’s biography is a very welcome addition to the understanding of the man.

James Heartfield’s history, The Aborigines’ Protection Society: Humanitarian Imperialism in Australia, New Zealand, Fiji, Canada, South Africa, and the Congo, 1836-1909 is out this month, published by Hurst, and by Columbia University Press in October.

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