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The three fractures Stalinism in the Soviet Union, fascism in Europe and Keynesianism in the capitalist countries forced Marxists to rethink the intertwined nature of state and capital and the growing importance of ‘bureaucratization’. This rethinking was certainly influenced by the work of Max Weber and Robert Michels; but perhaps the strongest catalyst, particularly among the Trotskyites, was the self-published monograph of Bruno Rizzi (1939).

According to Rizzi, the Soviet Union represented a new social order of bureaucratic collectivism. It was a different mode of production, one whose class structure and relations of production set it apart from both capitalism and socialism. Although this mode of production was for the time being unique to the Soviet Union and the fascist countries, its essential bureaucratic elements were already apparent – if only embryonically – in the capitalism of the New Deal. The famous works of James Burnham (1941), Milovan Djilas (1957), Max Shachtman (1962) and John Kenneth Galbraith (1967) reproduced Rizzi’s argument in different forms.

Bureaucratization melted the traditional definitions of politics and economics. This ambiguity, amplified by the chaos and confusion of the 1930s and 1940s, led Marxists to draw different (and often diametrically opposed) conclusions about the changing nature of capitalism.

On one side were those who emphasized the ‘politicization’ of capitalism (as if capitalism can be anything but political). The extreme position, held by Friedrich Pollock of the Frankfurt school, was that economics in fact had come to an end. Private capitalism, he argued, was being replaced by ‘state capitalism’, whether democratic or totalitarian. This new order ‘signifies the transition from a predominately economic to an essentially political era’, an era in which the will to political power supersedes the profit motive. And since according to Pollock there are no ‘economic laws’ to prevent this new 50 Dilemmas of political economy state capitalism from taking hold, it follows that ‘economics as a social subject has lost its object’ (Pollock 1941: 78, 86–87).

An opposite perspective was offered by Pollock’s colleague, Franz Neumann. In his classic study of National Socialism, Behemoth (1944), Neumann argued that fascism was neither a post-capitalist nor a posteconomic phenomenon, but rather an extreme form of capitalist dictatorship.

What Pollock mistakenly referred to as ‘state capitalism’ was in fact ‘totalitarian monopoly capitalism’, an economic order in which the large capitalist organizations subjugate state organs to their own ends.

The wide gulf between these opposing interpretations signalled the end of universal Marxism. With no agreement on what constituted ‘economy’ and ‘state’, there could be no agreement on the source of value; and without a theory of value, Marxism lost its unifying basis.

The neo-Marxism that emerged from this breakdown was therefore necessarily fractured. It sometimes offered penetrating insights, but these insights were inherently partial and disjoined. Over time, the fracture developed into three distinct theoretical strands: (1) an attempt to rework Marxian economics; (2) a cultural critique of capitalism; and (3) a new theory of the capitalist state. We deal with each of them in turn.

Neo-Marxian economics: monopoly capital The key hallmark of neo-Marxian economics is the explicit incorporation of power into ‘economics’ proper. This incorporation opens up new theoretical and empirical horizons, but it is also costly: it requires the abandonment, explicit or implicit, of the labour theory of value.

Kalecki’s degree of monopoly The post-war revitalization of Marxian economics owes much to the pioneering work of Michal Kalecki. Writing during the 1930s and 1940s, when much of Marxian economics was still stifled by Leninist–Stalinist dogma, Kalecki was breaking new ground on several fronts. He offered a triple theoretical synthesis, one that integrated Marxist class analysis, the new literature on oligopoly and big business and the aggregate view of Keynesianism.4 He was also one of the first Marxists to incorporate into his research new mathematical and statistical techniques that were only beginning to make their way into mainstream economics.

In his articles from 1939 to 1943, collected posthumously in his Selected Essays on the Dynamics of the Capitalist Economy, 1933–1970 (1971), Kalecki identified what he called the ‘degree of monopoly’: a quantitative proxy for economic power whose effect is registered on the profit markup. By extending 4 In fact, several of Kalecki’s writings, published in Polish during the early 1930s, anticipated the essential argument of Keynes’ General Theory (see Kalecki 1971: vii).

Deflections of power 51 this notion to the economy as a whole, Kalecki showed how changes in the structure of power are linked to the class distribution of income – and from there to broad patterns of consumption, investment, the business cycle and economic policy.

From surplus value to economic surplus Kalecki’s work had a significant influence on the Monopoly Capital school affiliated with the New York-based journal Monthly Review.5 Capitalism, the theorists of this school claimed, had moved from a competitive to a monopolistic footing, and that qualitative transition annulled Marx’s capitalist laws of motion. Since power now varied across firms/sectors and changed over time, there was no longer a tendency for rates of profits to equalize, no longer a tendency for market prices to be proportional to labour values, and no longer a tendency for surplus value to be equal to profit.6 Instead of Marx’s surplus value, Baran and Sweezy proposed a new category: the economic surplus (Baran 1957; Baran and Sweezy 1966).7 The two concepts differ markedly. First, whereas surplus value is denominated in terms of abstract labour time, the economic surplus is counted directly in prices. Second, the two concepts have very different boundaries. The limit of surplus value is given by subtracting from maximum efficient production the subsistence wage of productive workers. In comparison, the notion of economic surplus is both broader and looser in that it also incorporates bygone production – due to inefficiency, unutilized capacity and wasteful spending. Finally, the two magnitudes have different determinants. Surplus value is created in the productive sphere, subject to Marx’s tendency of the falling rate of profit. The economic surplus, by contrast, is affected by both production and demand and has a tendency to rise.

Realization and institutionalized waste The tendency of the economic surplus to rise, though, is only latent and has to be ‘realized’. On the one hand, the power of big business and its oligopolisitic interdependencies create an upward price bias: they make prices 5 Key contributions to this school include Josef Steindl (1952), Shigeto Tsuru (1956), Paul Baran (1957), Paul Baran and Paul Sweezy (1966), Harry Magdoff (1969) and Harry Braverman (1975).

6 This conclusion, Sweezy (1974) would later argue, did not invalidate the existence of labour values. It merely asserted that labour values are modified under monopoly capital and that this modification called for a new Marxist theory of capitalist development. As we shall see in Chapters 6–8, the problem with this solution is that labour values are impossible quite independent of monopoly power, and that impossibility leaves nothing to ‘modify’.

7 There are in fact not one but three theoretical versions of the economic surplus – planned, potential and actual – along with a fourth, ‘practical’ measure that Baran and Sweezy use in their empirical estimates in Monopoly Capital (1966). In this paragraph, we deal with the features common to all versions.

52 Dilemmas of political economy move up or sideways, but rarely down. On the other hand, large-scale production helps cut costs faster than ever. As a result of this divergence, profit margins tend to widen – but this widening is merely the first step. In order for the surplus to actually increase (be ‘realized’), it has to be ‘absorbed’ into or ‘offset’ by profitable spending outlets. And here lies the problem.

In competitive capitalism firms are compelled to constantly invest lest they perish, which means that realization is rarely a lasting problem. Not so in monopoly capitalism. As large firms add new capacity, eventually the additions begin to lower their rate of return on existing assets. Investment, therefore, continues only as long as it is expected to boost average returns. The problem is masked during periods of ‘epoch-making innovations’ that amplify obsolescence on the one hand and propel profit expectations on the other, and in so doing fuel an investment-led boom. But in the absence of such innovations, Baran and Sweezy argued, monopoly capitalism requires wasteful expenditures – wasteful in the sense that they absorb more surplus that they create.8 This waste can be generated, among other things, by a systemic sales effort, by the erection of a financial superstructure, and particularly by military spending. Without such institutionalized waste, the rising tendency of the surplus manifests itself as chronic stagnation.

The limits of neo-Marxian economics The explicit emphasis on power thus helped provide an alternative, neoMarxian framework. It allowed the theorists of Monopoly Capital to chart the path of American capitalism in the second half of the twentieth century and shed light onto similar processes in other capitalist countries. During the 1950s and 1960s, their framework seemed consistent with the dominance of big business and government regulation, with high military spending and the aggressive posture of US neo-colonialism, and with the long economic boom and the apparent disappearance of economic crisis (Sweezy 1972).

Needless to say, classical Marxists didn’t like this new theoretical trajectory. They criticized the neo-Marxian concepts as imprecise, subjective and – ultimately – ‘non-Marxist’. Their critiques began to resonate during the 1970s and 1980s. Despite the persistence of massive institutionalized waste, the long boom had ended and profits margins declined. Growth had given rise to stagflation, the global economy had opened up and international competition intensified. The models of Monopoly Capital and Military Keynesianism no longer seemed very persuasive.9 8 Baran and Sweezy noted their indebtedness to Thorstein Veblen, who was probably the first to identify the role of institutionalized waste in the new order of business enterprise.

9 For critiques of Monopoly Capital, under-consumption theories and ‘Military Keynesianism’, see for instance Bleaney (1976), Shaikh (1978) and Weeks (1981: 149–69). For an attempt to reconcile Monopoly Capital with the classical (or ‘fundamentalist’) position, see Sherman (1985).

Deflections of power 53 The classical Marxists, though, haven’t offered a new alternative to Monopoly Capital and instead have called for a ‘return to Marx’. The transformation from competitive to monopoly capitalism – if it ever happened – was merely a historical blip, they have argued, and the tendencies for crisis and for the rate of profit to fall remain intact. Consequently, the way forward is not to dilute Marxism with subjective concepts, but rather to re-examine and sharpen Marx’s objective analysis.

This solution is unsatisfactory. To go back to Marx’s original framework is to retain its conceptual problems, and that leaves us pretty much right where we started. It is true that the key contribution of the neo-Marxists – the explicit introduction of power into economics – is problematic. But the problem is not that neo-Marxists went too far. It is rather that they did not go far enough. They introduced power – yet retained the assumptions that power makes logically impossible. Specifically, they maintained the formal bifurcation between politics and economics, they kept the division between production and finance, and, most importantly, they continued to treat capital as a productive/economic entity.

The net result is a theoretical void. The neo-Marxists have abandoned Marx’s labour theory of value, at least as a practical guide for understanding the pecuniary dynamics of capitalism. But to this day they haven’t replaced it with a different theory of value.

The culturalists: from criticism to postism During the 1930s, orthodox Marxism came under a parallel cultural attack.

The disappointment with Stalinism, the apparent triumph of Nazism and the authoritarian nature of capitalist mass culture all pointed to the limits of ‘materialist’ analysis. At stake now was the very method of Marxist inquiry, and the first to systematically re-examine this method were the writers of the Frankfurt School.10 Although deeply revolutionary in aim, these writers took Marx’s assumptions and methods merely as a starting point that must be re-examined – and, if need be, discarded. They challenged positivism and scientism – including their penetration into Marxism – and re-examined the meaning of what constitutes truth. Following Marx, they argued that theory – both social and natural – is part of the very constitution of society and therefore cannot be seen as something that stands entirely ‘outside’ of society. At the same time, and perhaps contradictorily, they also insisted on the autonomy of theory.

10 Originally founded in 1923 as the Institute for Social Research in Frankfurt University, the Frankfurt School later came to indicate a general approach rather than a physical location.

The first-generation founders of the Frankfurt School included Friedrich Pollock, Max Horkheimer, Theodor Adorno, Walter Benjamin, Herbert Marcuse, Erich Fromm and Franz Neuman.

54 Dilemmas of political economy In particular, they warned against the subjugation of theory to the alleged interests of the proletariat and the dictates of the Communist Party.

The early writings of the Frankfurt School spawned a radical literature that questioned the ‘reified’ nature of the economy, if not its very existence, and that focused instead on the oppressive cultural powers of capitalism.

Initially, these questions were addressed as part of a re-examination of the young Hegel, the young Marx, Luckács and Gramsci. But since the 1970s, the inquiry drifted in an entirely different direction, situated somewhere between Foucault and Derrida.

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