In the following letter published in response to a reader, Nick Beams responds to the writing of Rutgers University Professor and Faculty Advisor for the Students for Social Equality, James Livingston. I must disclose that I was the President of the Students for Social Equality while he was the advisor. As I only discovered the letter yesterday, I will respond quickly, elaborating further later. The letter can be found here:

https://www.wsws.org/en/articles/2009/01/lett-j08.html

There were three theoretical errors I noticed. The first feeds into the second, while the third, from another response to another writer, within the same article, introduces ambiguity which must be clarified. The first error is that under-consumption could not have caused the economic crisis known as the Great Depression. The second error, closely related, is that it could not have caused the crisis because it is a permanent condition of the capitalist mode of production. These two errors, taken together, lead to an unstated assumption that capitalism does not tend towards irresolvable crisis which necessitates a working-class revolution to introduce new social laws of production.

The third flawed argument, tells us that Keynesian policies “fail to tackle the essential problem: that is the overaccumulation of capital in relation to the surplus value extracted from the working class.” The term “in relation” here is ambiguous and disconnected. In order to right this disconnect, the term “in relation” should be returned to the original: the overaccumulation of capital and its devaluation of labor. This also includes the consequent devaluation of capital at the refusing hands of labor, for they refuse to work for less money than they would need to support themselves.

Marx wrote: “Thus, the specific mode of working here appears directly as becoming transferred from the worker to capital in the form of the machine, and his own labour capacity devalued thereby… Thus the appropriation of labour by capital confronts the worker in a coarsely sensuous form; capital absorbs labour into itself – ‘as though its body were by love possessed’.” https://www.marxists.org/archive/marx/works/1857/grundrisse/ch14.htm

Capital absorbs labor, as though through an act of love, or what appears to be love, leaving the labor devalued by the machine. The new machine, including within itself the labor of the worker, now works without his labor, and no longer needs him.

On the devaluation of overaccumulated capital, Marx wrote, “When e.g. in times of stagnations of trade etc. the mills are shut down, then it can indeed be seen that the machinery rusts away and that the yarn is useless ballast and rots, as soon as their connection with living labour ceases. If the capitalist employs labour only in order to create surplus value – to create value in addition to that already present – then it can be seen as soon as he orders work to stop that his already present capital, as well, becomes devalued; that living labour hence not only adds new value, but, by the very act of adding a new value to the old one, maintains, eternizes it.” (https://www.marxists.org/archive/marx/works/1857/grundrisse/ch07.htm) Capital is devalued by the workers through the cessation of work (voluntary or involuntary) due to the workers’ devaluation by capital and the consequent general stagnation.

Marx explained that Capital prolongs labor while reducing the amount of labor necessary for the capitalist. He continued, “Since fixed capital becomes devalued to the extent it is not used in production, its growth is linked with the tendency to make labour perpetual.”(https://www.marxists.org/archive/marx/works/1857/grundrisse/ch16.htm) This prolongation of labor, rather than its curtailment, for instance into an 8-hour day or a 6-hour day, explains the growth of fixed capital. It increases the power of the capitalist to control the waking hours of a worker’s day. However the fixed capital must be devalued, “‘not only through wear and tear, but also through constant mechanical improvements …’”

Like the “essential problem… in relation…” argument, the link provided to Nick Beam’s “recent lecture” as well is disconnected. After a search, I found the original lecture. Here is contained Beam’s arguments about Milton Friedman and Maynard Keynes.

Let me begin with my own conclusion on the subject: Marxists must argue that both Keynesian and Friedmanist monetarist policies taken beyond a certain point are socialist policies. They represent a continuation of the process described by Marx and Engels of the socialization of production, the creation of government-funded, regulated monopolies, to the point that the outlines of a future socialist economy are visible within the present capitalist society.

Before entering further into the lecture, let us return to the original two errors.

The first error:

“The problem with all such underconsumptionist theories, that of Keynes included, is that they seek to ascribe as a cause of the crisis a permanent condition of the capitalist mode of production. In the very nature of the profit system, the aggregate demand from workers spending their wages will never be enough to purchase all the commodities available on the market. How then does the capitalist economy expand? The driving force of economic expansion is investment financed out of the profits of capitalist industry. As long as investment keeps growing at a sufficient rate, the economy can keep growing.”

How the capitalist economy expands, through investments, does not alone explain the failure to expand and furthermore the extent to which it actually contracted. The failure to expand is not in itself a contraction. Furthermore, the drive to invest at the level at which profits could be extracted from production did not disappear either. Whether the level was $5 billion or $18 billion, investments continued to enter into the economy, further expanding capital. The forces contracting capital cannot be found in varying expectations or perceptions.

The idea of underconsumptionist theories, which were shared by Rosa Luxemburg as well, emerged to provide capital with new avenues to continue circulating, arriving at various investment opportunities, and extracting profits while increasing production. Industries with greater profits could be taxed, and that money could be invested to improve the output of capital in other industries, allowing them to produce a competitive rate of profit, increasing circulation onwards into the future. They did not fail because they were irrational or ineffective from the standpoint of macroeconomics. Paul Krugman’s graphs of increased government spending up to 1937, the 1937 cuts, and the consequent decline in GDP prove this beyond a doubt. Rosa Luxemburg’s support for this theory stemmed from a different, more socialist economic necessity, not the stabilization of capitalism, but that of circulating finance capital to develop the economies left behind by technological progress in production.

Keynesians fail to explain, however, unless they are also Marxists, that Keynesian fiscal stimuli, taken to the end without limit, amount to socialist policy making. Beyond a certain point, they turn power over to a workers’ government based on the working class majority within the citizenship or the general population. If Roosevelt raised taxes on the great fortunes of America, the Carnegie, Rockefeller, Mellon, Morgan, Vanderbilt fortunes, if he created more New Deal, Works Progress, government employment programs, then he would need to institute a workers’ democracy and take the expropriation of such fortunes much farther.

Such was not the plan of Roosevelt from the beginning, so the expectation they place on him to continue with pro-worker progressivism to the end, without regard for the oligarchy who financed the Democratic Party for their own self interest, contains the seed of their irrationality. That irrationality brings them towards support for world war as a means of stimulating the economy. How absurd! Does it not seem obvious that the war destroys the economy of a competitor, allowing for the expansion of one economy only through the destruction of the system of production of the other? The increased productivity of the American economy up to the 1920s still did not guarantee it access to European markets, whose armies defended the monopolies and trusts of their upper class from foreign competition, until their armies were defeated by a U.S. army whose superior provisions came from the more advanced social organizations of advanced mass production.

Keynesianism is not irrational. Leon Trotsky mentioned Keynes a few times, and for the most part wrote of him respectfully. Keynes reviewed a book Trotsky had written on Britain. If Trotsky replied, I found no record of it. Marx spent a great deal of time and effort defending the works of bourgeoisie economists Adam Smith and David Ricardo. You should not break so forthrightly from the intellectual tradition of Marx, but follow in his footsteps. The same can be said about the monetarism of Milton Friedman, incidentally an alumni of Rutgers University. Marx would defend the work of both Keynes and Friedman, and he would call their reduction to mere priests rather than true scientists a work of ignorance. He wrote in the Introduction to A Contribution to the Critique of Hegel’s Philosophy of Right, in 1844, that “As the revolution then began in the brain of the monk, so now it begins in the brain of the philosopher.” Marx wrote that the correct setting of the problem, for which the revolution provides the solution, is that, “It was no longer a case of the layman’s struggle against the priest outside himself but of his struggle against his own priest inside himself, his priestly nature.” Marx’s struggle with Hegel, not his outright rejection of him as a priest of the old order, provided the philosophy that underpinned the revolutionary movements of the 20th century. Separating the one part of socialist theory of Keynes and Friedman from the 9 parts chaff, Vladimir Lenin explained in his notes on Hegel, would produce the dialectical materialist conclusions that the socialist movement needs in order to come to power.

The second error:

The second error of Nick Beams, within the context of the above, does not differ much from the first. In a nutshell, he wrote, “underconsumptionism… is a permanent condition of the capitalist economy and cannot be invoked to explain a crisis.” This differs greatly from the analysis of capital written by Marx. The explanation for the crisis must be found in the inherent laws or the permanent conditions of the capitalist economy. This explains both the mechanics of the crisis, leading to possible solutions of a practical sort, and it explains the historical turning point produced by recurring crises, each produced by the insufficiency of the previous solution, which make crisis a permanent condition, and provide cause for the potentially violent destruction of capitalist states and their replacement, by force, with a world socialist economic system and a global democratic system based on the power, rights, and interests of the working class. If only temporary conditions could explain the crisis, then the root of the crisis could not be traced back to the inherent mechanical laws, scientifically observable, which Marx painstakingly studied for many years, but only to unconnected, specific factors. This would be a step backwards to the populism and utopianism that existed before the scientific discovery of Marxist economics.

Nick Beams later quotes Marx speaking of another mechanical law, or permanent condition, of the capitalist system. “Marx observed that the creation by capital of surplus value is conditional upon the expansion of the sphere of circulation, that is, the market. ‘The surplus value created at one point requires the creation of surplus value at another point, for which it may be exchanged’ (Marx, The Grundrisse, p. 407).”

Quoting Marx unfortunately does not help his situation. He has only provided another permanent condition to counter the one described by James Livingston. He went on to describe this new permanent condition: “Rather than the long production runs of American industry, the European economy was characterised by cartels and restrictive agreements. This meant that the surplus value extracted at one point, the United States, was not matched by a sufficient extraction of surplus value at another, Europe.” Nick Beams has only proved that capitalism continued to follow the laws discovered by Marx many decades earlier. Capitalism must continually revolutionize the means of production. The revolutionized means of production overturned all the old relations of production, “the cartels”, “the restrictive agreements”, and the protectionism and the mercantilism which had to fall in the face of the more advanced arguments of Adam Smith with regard to free trade, underpinned by the global economic system that grew under the Spanish, French, and English empires. Those countries who did not pursue policies that would provide a place for them within the global economy became relatively poorer, unable to compete, and eventually conquered and forced to adapt. That had been the case before, and only replayed itself with the arrival of American armies in Europe during the First World War.

The two permanent conditions discussed by James Livingston and Nick Beams can be seen as co-existing and co-dependent processes within capitalism. The underconsumption or low demand discussed by James Livingston can exist side by side with the investment-driven expansion of the capitalist system discussed by Nick Beams. The expansion, based on profit, caused underconsumption by leading capitalist to underpay the workers in order to fund expansion. Underconsumption also caused the expansion, since the unconsumed goods would then destroy competition through increased supply. The destroyed competition would then idle their machines, devaluing them until the profit produced converted to investment and bought those idled machines. This would lead to more underconsumption coupled with increased economic growth through investment.

For the subject of this discussion, of greatest interest in the five-part lecture, is part 3 on Friedman. Yet building on the acceptance of Adam Smith by the nations of the world as a prerequisite for the advancement of their economies, came the acceptance of Keynes and Friedman. Nick Beam’s quote from Alan Greenspan describes this process well. “‘This modern risk-management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year.’ The crisis had ‘turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount.’”

Keynes emerged after the acceptance of free trade had led to great economic progress through trade between Europe, America, and between empires and colonies. Keynes emerged as “intellectual edifice” of the new methods of mass-production that arose in the United States and England. These methods could only be introduced without resistance throughout Europe after the Second World War. However the limits of Keynes, who guided nations through this period, would become apparent once all the major powers had accepted the new mode of production. Competition between them brought down his intellectual edifice, but in its place arose not only mass production, but automated production, and production integrated on a world-scale by new modern forms of communication.

Along with these new production methods came a better understanding of the central bank policies that during the Great Depression in fact exacerbated the economic crisis by hastening a return to the destruction of the accumulated capital produced in the 1920s. Friedman pointed out that the real advances made in the 1920s, the automobile, the washing machine, the vacuum cleaner, the refrigerator, air mail, the telephone, partly as a result of the Russian Revolution, were seen as material excesses, indulgent, and needed to be destroyed. This would be like dismantling the electrical grid because candles provided a more spiritually pure source of light. Yet that attitude towards technology became dominant as a result, mainly, of the inability of capitalist economics, through Keynesian fiscal stimulus, to provide avenues for growth that did not lead to conflict between imperialist powers or unchecked power for the working-class majority. Capitalism, in order to survive, must go on a binge of destruction. This accounted for the destruction of wealth on the stock market, the destruction of wealth through decreased investment, and the destruction of wealth through the idling of machinery.

Had monetarist policy been invented, this process may have been delayed another 10 years. What prevented an immediate return to war in 1929 was the political reality of the end of the worst war in human history only 10 years earlier, the existence of the League of Nations, and the system of alliances set up by the allies to prevent an outbreak of war. These road blocks to large-scale destruction, which in the final analysis is the only way to feed the imperialist banks with higher returns on their investments, would be removed in only 10 years time. After World War II, a similar process took place. The advances made by the U.S. in the 20’s now spread throughout Europe until, again, a point was reached when Keynes could no longer provide the answer. In this context, Milton Friedman and the monetarists provided the intellectual edifice of the new wave of production, based on automation, computerization, and the internet to instantly transfer large amounts of information to coordinate production on greater scale than ever before. In addition, the Boeing 747, microwaves, cellphones, German and Japanese car makers, cassette tapes, digital cameras, all arose in the 1970s. In this context, Milton Friedman received his Nobel Prize in Economics.

As I discussed before, if Franklin Roosevelt in 1937 decided to follow the recommendations of Keynes, he would be considered a communist and would lose the support of the Democratic Party, and one way or another he would be removed from office. The same would be true today if Trump or other world leaders continue to follow the recommendations of Milton Friedman. One of the basic ideological constants of capitalism is that companies or investors who do not turn over a profit within a reasonable amount of time should declare themselves bankrupt. Their assets should be taken and redistributed among their creditors.

Offering more lower-rate loans, financed by taxes, to cover their liabilities and push forward the day of reckoning would be socialist, but a highly mismanaged form under the control of capitalist interests. Companies would not introduce more productivity-raising measures, and foreign competition would eventually flood the market with cheaper goods produced through more competitive production models. This could be combated only through the destructive policies of trade barriers or discriminatory and corrupt lending practices. These lead to racist wars for profit and for destruction for its own sake. Placing the Central Bank under the control of socialist planners would be on the order of the day.

Milton Friedman’s ideas, taken to their end, amount to socialist planning for the economy and government finance for industry. The central bank essentially becomes a socialist program for the redistribution of revenue from one industry to another, based upon the political decisions made by elected or appointed officials. In that way, feeding the poor need not be profitable or even break even, but could be support by monetarist policy. Companies who feed, house, or provide medicine for the poor could be extended negative interest loans, meaning that the more they borrowed, the more the government would pay them for accepting the loans. Quantitative easing, by increasing the supply of money, would essentially become a tax on wealth, reducing the value of savings and assets, while providing liquidity or cash with which to always pay wages, in the industry of the central bank’s choice, even in excess of what would be needed to increase consumption to balance increases in productivity.

Just as with Keynes and Roosevelt, however, it would be irrational to assume that Trump or Obama or any representative of the capitalist system would push monetarist policies so far that they threatened the rule of capital with a socialist revolution. Quantitative easing must reach a limit under Barrack Obama and Donald Trump as fiscal stimuli must have ended under Roosevelt. The end of quantitative easing and the destruction of the intellectual edifice of Friedman will bring about a new wave of destruction of accumulated capital. The richest families will store their assets somewhere safe, where only they have access, while the government destroys the values stored in the stock market, in the dollar, or wherever else the vast majority of people, including smaller nations, attempt to store their investments safely. Only after a period of widespread destruction will the great fortunes reemerge from hibernation and reassume their advantageous position masked as equals competing on a level playing field.

This process will lead to war. The struggle against war, the struggle against abuse of Central Bank power, the struggle against misconceptions about Keynes and the Democratic Party, the struggle for sensible economic policy cannot proceed on an anti-Marxist basis of detachment from practical scientific research. The existence of such research and its origin in bourgeois thought does not disprove the revolutionary perspective but fits in to Marxist theory. The bourgeoisie controls the means of production and the means of intellectual production as well. As long as that is true, their research will continue to provide practical solutions that guide governmental and other institutional or organizational policy. It is not beyond the ability of Marxism to note their usefulness, but as Marx’s treatment of Adam Smith and David Ricardo prove, it is part of Marxist tradition. The practicality of Keynes and Friedman made them the foremost economic thinkers of the 20th century. Within the framework of the above analysis, their ideas can inform Marxist theory if the kernels of scientific advancement separate neatly enough from the chaff of political complacence with capitalist government.

Broken link provided in article:

Click to access nb-lecture-1208.pdf

The actual link for the lecture:

https://www.wsws.org/en/articles/2008/12/nbe1-d19.html