Capitalism’s crisis deepens by Richard D Wolff, Haymarket Books $18.95

The New York Times magazine has described Richard Wolff as “probably America’s most prominent Marxist economist”. And that is probably not an exaggeration in the description of this emeritus Professor of Economics at the University of Massachusetts, Amherst and visiting professor at the New School University in New York.

Richard Wolff has been one of a handful of Marxist economists with full tenure at an American university. And he has worked tirelessly to bring home to students and all who would listen in the US the Marxist alternative explanation of the nature of US capitalism and its current crisis. Wolff has written several important economics books, sometimes with his close collaborator, Stephen A. Resnick. In particular, their recent book, Contending Economic Theories, neoclassical, Keynesian and Marxian is a very useful and clear explanation of the main strands of economics for those who don’t know.

His new book, however, is a compilation of his short articles and essays that he has written since the end of the Great Recession in 2010. In many ways, it mirrors the approach that I adopted in my book, The Great Recession (Lulu 2009), which also was a series of essays and articles in chronological order covering the lead-up to the Great Recession and its immediate aftermath.

Wolff’s book is not chronological as such, as he breaks down his essays into themes about the current crisis: the first section looks the depth of the crisis and the responses of economists and politicians; the second part considers the specific issues of austerity, bank failure and debt; the third looks at the failure of government monetary and fiscal policy; and the final part looks at the socialist alternatives.

In the first section, Wolff outlines how mainstream economics has been dominated by and divided between neoclassical and Keynesian theories, while Marxist economic theory has been excluded and ignored. And yet it is Marxian economics that best explains “capitalism’s repeated crises over the last century” (p7). However, it is here that Wolff’s own view of the Marxist explanation of recurrent crises under capitalism appears – and it is very much the old ‘underconsumptionist’ thesis with extras added on about excessive household debt that many (indeed most) left Keynesians and Marxists have adopted as the explanation of the Great Recession.

According to Wolff, it was the end of rising wages in the neo-liberal period from the early 1980s and rising household debt to compensate for that which eventually led to the great slump as “mass worker exhaustion, stress and debt drove the system to collapse” (p14). Indeed, Wolff sums up five main reasons for the “persistence of the crisis” (what I call the Long Depression after the end of the Great Recession) – p31-34. They are: the exhausted purchasing power of the working class; overcapacity and too much cash “without profitably productive outlets”; renewed speculation and debt; unending corruption; and no firm political and economic alternatives.

Now readers of my blog and my papers know that I do not agree that the Great Recession, and for that matter, previous capitalist slumps, were due to the lack of workers purchasing power or even just an excessive credit/debt bubble that burst. For one of the earliest and best denials that underconsumption is Marxian economic theory, see this article by John Weeks back in 1982 (http://marx2mao.com/PDFs/JW82.pdf).

For Wolff, the “classic contradiction” of capitalism is that capitalists “paid insufficient wages to enable workers to purchase growing capitalist output” (p166). But the main contradiction, in my view, lies not in ‘insufficient wages’ but in Marx’s law of the tendency of the rate of profit to fall. This tendency can for periods (sometimes long) be counteracted by more exploitation and new technology, but it eventually operates to drive down profitability and total profits, leading to a collapse in investment and then incomes and employment.

This explanation is entirely missing in Wolff’s book. Wolff’s five reasons for the Long Depression are true only because they describe the nature of the current low-growth world, but the explanation lies with continued low profitability (near post-war lows), a failure to reduce debt levels and the failure of business investment to recover as a result. It’s not too much cash and capacity but too little profit.

Wolff does take up the “truth about profits” p81, but only to tell us that “profits have risen dramatically over the last 30 years”. This is true if measured against GDP, as many do. But this really only measures profit margins (profits per unit of output) not profitability in the Marxist sense, as profits over the stock of capital and labour employed. On that measure, profitability has risen somewhat since the 1980s, only to start to decline again from the end of 1990s and is now below levels achieved 20 years ago in most major capitalist economies. And now even profit margins are falling. By the way, Wolff’s book concentrates almost totally on the US capitalist experience.

In later sections, Wolff clearly exposes the failure of mainstream economic policies designed to restore the fortunes of US capitalism: whether it is ‘austerity’ policies; bailing out the banks; easy money etc. So what is the alternative? Wolff dismisses the prescriptions of the Keynesians like Paul Krugman or Robert Reich, pointing out correctly that the New Deal and deficit spending never “overcame the 1930s depression (World War 2 did)” p167.

A key problem with Wolff’s underconsumption theory is that it implies that if wages are made ‘sufficient’, then purchasing power returns and capitalist companies can sell and all is well. This is the economic and political implication of the underconsumption theory: that capitalism can deliver as long as the distribution of profits and wages is pitched right as presumably it was in the Golden Age of the 1960s.

Wolff rightly does not draw that conclusion that flows from his analysis. Instead, for him, the solution to recurrent crises and rising inequality lies in “changing the class structure of capitalist enterprises” and replacing them with “workers-directed enterprises.” Wolff is concerned , rightly, to correct the view that the socialist alternative to capitalism is simply the public ownership of the major corporations and a national plan (p312-3). Without democracy and workers control at company level there can be no real socialist development. Otherwise state officials merely replace a capitalist board of directors. This is “insufficient conceptually and strategically” (p316).

Wolff wants to include and emphasise the role of what he calls Workers Self-Directed Enterprises (WSDEs). I think that Wolff still sees the necessity of a national plan based on collective ownership of the major sectors of the economy, finance, industry and key services, to be combined with WSDEs. I hope so because the socialist alternative cannot just be the latter any more than it can be just the former.