Breakdown controversy

Where did the term "breakdown theory" come from?

At the end of the nineteenth century the expectation was widespread in the German Social Democratic Party that a great economic crisis would soon bring capitalism down and socialism in. In 1898 Eduard Bernstein, a party theorist living in exile in England, wrote articles in Die Neue Zeit against the English socialist Belfort Bax in which he named this expectation the "breakdown theory" (Zusammenbruchstheorie) and criticised it. The next year, in the preface to The Preconditions of Socialism and the Tasks of Social Democracy (1899), he summed up his position:

"I have opposed the view that we stand before a collapse of bourgeois society to be expected shortly, and that Social Democracy should determine its tactics by the prospect of such an impending great social catastrophe, or make them dependent on it. I maintain this in full." (Bernstein, preface to The Preconditions of Socialism; our translation from the German)

„Ich bin der Anschauung entgegengetreten, daß wir vor einem in Bälde zu erwartenden Zusammenbruch der bürgerlichen Gesellschaft stehen und daß die Sozialdemokratie ihre Taktik durch die Aussicht auf eine solche bevorstehende große soziale Katastrophe bestimmen, beziehungsweise von ihr abhängig machen soll. Das halte ich in vollem Umfange aufrecht.“

Bernstein's argument rested on capitalism's "adaptability". The development of communications and transport, the greatly increased wealth of the European industrial states, the elasticity of the modern credit system and the rise of industrial cartels had so reduced the power of local disturbances to spread to the whole economy that, at least for a long time, general crises of the old kind were unlikely. Instead of speculating on the great collapse, therefore, Social Democracy should organise the working class politically, educate it for democracy and fight for every reform that would raise the working class and transform the state in a democratic direction. This argument set off the revisionism dispute in the party.

How did the orthodox Marxists reply?

Karl Kautsky, in Bernstein and the Social-Democratic Programme (1899), first took issue with the word itself:

"A special 'breakdown theory' was never set out by Marx and Engels. The word comes from Bernstein." (Kautsky, Bernstein and the Social-Democratic Programme, ch. II; our translation from the German)

„Eine besondere „Zusammenbruchstheorie“ ist von Marx und Engels nicht aufgestellt worden. Das Wort stammt von Bernstein“

Kautsky pointed out that the passage of the Erfurt Programme on crises contains not a word about collapse, and that no official statement of the party asserted that a crisis would open the social revolution or that power could be won only during a crisis. Bernstein, he argued, had inflated the views of Bax alone into those of the whole party, and then into the theory of Marx and Engels.

Rosa Luxemburg, in Social Reform or Revolution? (1899), replied from another direction. What Bernstein rejected, she argued, was not a particular form of the breakdown but the breakdown itself, and then socialism ceases to be objectively necessary. Scientific socialism, she wrote, rests on three results of capitalist development: the growing anarchy of the capitalist economy, which makes its downfall inevitable; the progressive socialisation of the production process, which creates the germs of the future social order; and the growing organisation and class consciousness of the proletariat. Abandon the first, she warned, and socialism sinks into a matter of ideals or morals.

What did the debate turn on after 1913?

In the early twentieth century the side that denied breakdown also built theories. The Russian Tugan-Baranovsky argued that if production were organised by plan, with full knowledge of demand and the power to shift labour and capital freely, supply would never exceed demand, so that capitalism could expand without end as long as proportions were right. Rudolf Hilferding held that the concentration of capital stabilises capitalism, and Otto Bauer tried to show with a reproduction scheme that accumulation can adjust to the growth of population. Grossman called them "neo-harmonists".

In The Accumulation of Capital (1913) Luxemburg sought the ground of breakdown in the market: capitalism needs non-capitalist surroundings to realise surplus value, and accumulation becomes impossible once that outside is gone (see The Accumulation of Capital (Luxemburg)). Her critics answered that this was underconsumptionism.

What did Grossman set out to show?

Henryk Grossman, a Polish-born Marxist economist, published The Law of Accumulation and Breakdown of the Capitalist System (Being Also a Theory of Crises) in 1929, based on lectures given at the Frankfurt Institute for Social Research in 1926–1927. He wrote that the theory of breakdown was the "cornerstone" of Marx's economic system, yet in decades of controversy no one had reconstructed its place in the system as a whole. He set himself this task:

"Our task is to show how the capitalist reproduction process, through causes arising from the economic cycle itself, necessarily runs in cyclical, that is, periodically recurring, upward and downward movements and finally leads to the breakdown of the capitalist system." (Grossmann, The Law of Accumulation and Breakdown, p. 79; our translation from the German)

„Unsere Aufgabe besteht darin, zu zeigen, wie der kapitalistische Reproduktionsprozess durch Ursachen, die aus dem Wirtschaftskreislauf selbst entspringen, notwendig in zyklischen, also periodisch sich wiederholenden Auf- und Abstiegsbewegungen verläuft und schließlich zum Zusammenbruch des kapitalistischen Systems führt.“

Grossman took Bauer's reproduction scheme as it stood and carried the calculation further. In Bauer's scheme constant capital grows by 10 percent a year and variable capital by 5 percent. Bauer computed only four years and concluded that, although the rate of profit falls, the mass of profit keeps growing, so there is no economic reason for breakdown. When Grossman continued the calculation under the same rules, by the 35th year the increase in surplus value no longer sufficed to maintain the conditions of accumulation.

The principle can be seen with simple numbers (an illustrative assumption). If the constant capital that must be added each year grows faster than surplus value, the part of surplus value left for capitalists' consumption first shrinks only as a share, then in absolute terms, and finally approaches zero. Suppose that with a surplus value of 100, 60 goes to additional constant capital, 20 to additional variable capital and 20 to capitalist consumption. If decades later surplus value has grown to 200 but additional constant capital requires 170 and additional variable capital 40, there is no way to cover the missing 10. From then on wages must be cut or employment reduced, leaving unemployed workers on one side and idle capital on the other. Grossman called this "absolute overaccumulation" of capital, arising because valorisation is insufficient.

Grossman did not present this as a prophecy of automatic collapse. He saw Marx's method as one of "successive approximation", starting from simplifying assumptions and drawing step by step nearer to reality, and devoted the other half of the book to the countertendencies that delay breakdown: the devaluation of constant capital, wage cuts, capital export, the destruction of capital values by war, and imperialism. The features of recent capitalism (monopolistic organisations, the export of capital, the struggle to divide up sources of raw materials) were for him surface appearances stemming from the essence of capital accumulation. The outcome, he held, would be decided by the class struggle between workers and capitalists.

How was Grossman's book received and rediscovered?

The book appeared months before the Wall Street Crash of 1929 and drew wide attention in the German-speaking world, but most reviews were hostile and often misrepresented it as a fatalistic prediction of automatic collapse. Social Democrats attacked it for its revolutionary conclusions and the emerging Stalinist orthodoxy for deviating from approved dogma. Critics such as Nikolai Kondratiev rejected any deterministic law of breakdown. In the same year the Japanese economist Kuruma Samezō, apparently independently, drew attention to the decisive importance of crisis theory in Marx's writings.

Grossman was rediscovered by the West German New Left in the late 1960s; in the 1970s David Yaffe and others used his theory to explain the end of the post-war boom, and Paul Mattick's Economic Crisis and Crisis Theory (1981) introduced it accessibly. An abridged English translation appeared in 1992. Roman Rosdolsky judged that "the assertion that Marx did not propose a 'breakdown theory' is primarily attributable to the revisionist interpretation of Marx before and after the First World War", and that Luxemburg and Grossman "rendered inestimable theoretical services by insisting, as against the revisionists, on the breakdown theory". Michael Heinrich, by contrast, sees in breakdown theory chiefly a function of historical reassurance (however bad the current defeats, the end of the enemy was certain) and stresses that crises are not only destructive but violently restore the unity of moments, such as production and consumption, that belong together but have become independent of each other. The breakdown controversy continues today in the debates over the tendency of the rate of profit to fall.