Misery and Debt On the Logic and History of Surplus Populations and Surplus Capital

From “Endnotes 2: Misery and the Value Form”

We tend to interpret the present crisis through the cyclical theories of an older generation. While mainstream economists root around for the “green shoots” of recovery, critical critics ask only if it might take a little longer to “restore” growth. It’s true that if we begin from theories of business cycles, or even long waves, it’s easy to assume that booms follow busts like clockwork, that downturns always “prepare the way” for resurgent upswings. But how likely is it that, if and when this mess clears, we will see a new golden age of capitalism?1

We might begin by remembering that the miracle years of the previous golden age (roughly 1950-1973) depended not only on a world war and an enormous uptick in state spending, but also on an historically unprecedented transfer of population from agriculture to industry. Agricultural populations proved to be a potent weapon in the quest for “modernisation”, since they provided a source of cheap labour for a new wave of industrialisation. In 1950, 23 percent of the German workforce was employed in agriculture, in France 31, in Italy 44 and in Japan 49 percent — by 2000, all had agricultural populations of under 5 percent.2 In the 19th and early 20th centuries, capital dealt with mass unemployment, when it occurred, by expelling urban proletarians back to the land, as well as by exporting them to colonies. By eliminating the peasantry in the traditional core at the same time as it came up against the limits of colonial expansion, capital eliminated its own traditional mechanisms of recovery.

Meanwhile, the wave of industrialisation that absorbed those who had been pushed out of agriculture came up against its own limits in the 1970s. Since then, the major capitalist countries have seen an unprecedented decline in their levels of industrial employment. Over the past three decades, manufacturing employment fell 50 percent as a percentage of total employment in these countries. Even newly “industrialising” countries like South Korea and Taiwan saw their relative levels of industrial employment decline in the past two decades.3 At the same time the numbers of both low-paid service-workers and slum-dwellers working in the informal sector have expanded as the only remaining options for those who have become superfluous to the needs of shrinking industries.

For Marx, the fundamental crisis tendency of the capitalist mode of production was not limited in its scope to periodic downturns in economic activity. It revealed itself most forcefully in a permanent crisis of working life. The differentia specifica of capitalist “economic” crises — that people starve in spite of good harvests, and means of production lie idle in spite of a need for their products — is merely one moment of this larger crisis — the constant reproduction of a scarcity of jobs in the midst of an abundance of goods. It is the dynamic of this crisis — the crisis of the reproduction of the capital-labour relation — which this article explores.4

Simple and expanded reproduction

Despite the complexity of its results, capital has only one essential precondition: people must lack direct access to the goods they deem necessary for life, finding that access instead only through the mediation of the market. Hence the very term “proletariat”, referring originally to landless citizens living in Roman cities. Lacking work, they were pacified first by state provision of bread and circuses, and ultimately by employment as mercenaries. However, the proletarian condition is historically uncommon: the global peasantry have, throughout history, mostly had direct access to land as self-sufficient farmers or herders, even if they were almost always coerced into giving a portion of their product to ruling elites. Thus the need for “primitive accumulation”: separating people from land, their most basic means of reproduction, and generating an all-round dependence on commodity exchange.5 In Europe, this process was completed in the 50s and 60s. On a global scale it is only now – with the exceptions of sub-Saharan Africa, parts of South Asia, and China – beginning to approach completion.

The initial separation of people from the land, once achieved, is never enough. It has to be perpetually repeated in order for capital and “free” labour to meet in the market time after time. On the one hand, capital requires, already present in the labour market, a mass of people lacking direct access to means of production, looking to exchange work for wages. On the other hand, it requires, already present in the commodity market, a mass of people who have already acquired wages, looking to exchange their money for goods. Absent those two conditions, capital is limited in its ability to accumulate: it can neither produce nor sell on a mass scale. Outside of the US and UK before 1950, the scope for mass production was limited precisely because of the limitation of the size of the market, that is, because of the existence of a large, somewhat self-sufficient peasantry not living primarily by the wage. The story of the post-war period is that of the tendential abolition of the remaining global peasantry, first as self-sufficient, and second as peasants at all, owning the land on which they work.

Marx explains this structural feature of capitalism in his chapter on “simple reproduction” in volume one. We will interpret this concept as the reproduction, in and through cycles of production-consumption, of the relationship between capital and workers.6 Simple reproduction is maintained not out of “habit”, nor by the false or inadequate consciousness of workers, but by a material compulsion. This is the exploitation of wage-workers, the fact that all together, they can purchase only a portion of the goods they produce:

[Capital prevents its] self-conscious instruments from leaving it in the lurch, for it removes their product, as fast as it is made, from their pole to the opposite pole of capital. Individual consumption provides, on the one hand, the means for their maintenance and reproduction: on the other hand, it secures by the annihilation of the necessaries of life, the continued re-appearance of the workman in the labour-market.7

The accumulation of capital is not a matter, then, of the organisation of either the sphere of production or the sphere of consumption. Over-emphasis on either production or consumption tends to generate partial theories of capitalist crises: “over-production” or “under-consumption”. Wage-labour structures the reproduction process as a whole: the wage allocates workers to production and, at the same time, allocates the product to workers. This is an invariant of capital, independent of geographic or historical specificities. The breakdown of reproduction creates a crisis of both over-production and under-consumption, since under capital they are the same.

However, we cannot move so directly from an unfolding of the structure of simple reproduction to a theory of crisis. For simple reproduction is, of its very nature, also expanded reproduction. Just as labour must return to the labour market to replenish its fund of wages, so too capital must return to the capital market to reinvest its profits in an expansion of production. All capital must accumulate, or it will fall behind in its competition with other capitals. Competitive price formation and variable cost structures within sectors lead to divergent intra-sectoral profit rates, which in turn drives efficiency-increasing innovations, for by reducing their costs beneath the sectoral average firms can either reap super profits, or lower prices to gain market share. But falling costs will in any case lead to falling prices, for the mobility of capital between sectors results in an equalisation of inter-sectoral profit rates, as the movement of capital in search of higher profits drives supply (and thus prices) up and down, causing returns on new investment to fluctuate around an inter-sectoral average. This perpetual movement of capital also spreads cost-reducing innovations across sectors — establishing a law of profitability which forces all capitals to maximise profits , irrespective of the political and social configuration in which they find themselves. Conversely, when profitability falls, there is nothing that can be done to re-establish accumulation short of the “slaughtering of capital values” and the “setting free of labour” which re-establish the conditions of profitability.

Yet this formalistic conception of the valorisation process fails to capture the historical dynamic to which Marx’s analysis is attuned. The law of profitability alone cannot ensure expanded reproduction, for this also requires the emergence of new industries and new markets. Rises and falls in profitability act as signals to the capitalist class that innovations have occurred in specific industries, but what is important is that over time the composition of output — and therefore employment — changes: industries that once accounted for a large portion of output and employment now grow more slowly, while new industries take a rising share of both. Here, we have to look at the determinants of demand, as independent from the determinants of supply.8

Demand varies with the price of a given product. When the price is high, the product is purchased only by the wealthy. As labour-saving process innovations accumulate, prices fall, transforming the product into a mass-consumption good. At the cusp of this transformation, innovations cause the market for a given product to expand enormously. This expansion stretches beyond the capacity of existing firms, and prices fall more slowly than costs, leading to a period of high profitability. Capital then rushes into the line, pulling labour with it. At a certain point, however, the limits of the market are reached; that is, the market is saturated.9 Now innovations cause total capacity to rise beyond the size of the market: prices fall more quickly than costs, leading to a period of falling profitability. Capital will leave the line, expelling labour.10

This process, which economists have called the “maturation” of industries, has occurred many times. The agricultural revolution, which first broke out in early modern England, eventually hit the limits of the domestic market for its products. Labour-process innovations such as the consolidation of fragmented land holdings, the abolition of the fallow, and the differentiation of land use according to natural advantages meant — under capitalist conditions of reproduction — that both labour and capital were systematically pushed out of the countryside. England rapidly urbanised as a result, and London became the largest city in Europe.

It is here that the key dynamic of expanded reproduction comes into play. For the workers thrown out of agriculture were not left to languish indefinitely in the cities. They were eventually taken up in the manufacturing sector of an industrialising Britain, and especially in the growing textile industry, which was transitioning from wool to cotton cloth. But once again, labour-process innovations such as the spinning jenny, spinning mule, and the power loom meant that eventually this industry, too, began to throw off labour and capital. And the decline in the industries of the first Industrial Revolution, as a percentage of total labour employed and capital accumulated, made way for those of the second Industrial Revolution (chemicals, telecommunications, electric and engine-powered commodities). It is this movement of labour and capital into and out of lines, based on differential rates of profit, that ensures the continued possibility of expanded reproduction:

[E]xpansion … is impossible without disposable human material, without an increase in the number of workers, which must occur independently of the absolute growth of the population. This increase is effected by the simple process that constantly “sets free” a part of the working class; by methods which lessen the number of workers employed in proportion to the increase in production. Modern industry’s whole form of motion therefore depends on the constant transformation of a part of the working population into unemployed or semi-employed hands.11

Expanded reproduction is, in this way, the continual reproduction of the conditions of simple reproduction. Capitals that can no longer reinvest in a given line due to falling profitability will tend to find, available to them on the labour market, workers who have been thrown out of other lines. These “free” quantities of capital and labour will then find employment in expanding markets, where rates of profit are higher, or come together in entirely new product lines, manufacturing products for markets that do not yet exist. An increasing number of activities are thus subsumed as capitalist valorisation processes, and commodities spread from luxury into mass markets.

The bourgeois economist Joseph Schumpeter described this process in his theory of the business cycle.12 He noted that the contraction of older lines rarely happens smoothly or peacefully, that it is usually associated with factory closures and bankruptcies as capitals attempt to deflect losses onto one another in competitive price wars. When several lines contract simultaneously (and they usually do, since they are based on linked sets of technological innovations), a recession ensues. Schumpeter calls this shedding of capital and labour “creative destruction”—“creative” not only in the sense that it is stimulated by innovation, but also because destruction creates the conditions for new investment and innovation: in a crisis, capitals find means of production and labour-power available to them on the market at discount prices. Thus, like a forest fire, the recession clears the way for a new bout of growth.

Many Marxists have espoused something similar to Schumpeter’s conception of cyclical growth, to which they merely add the resistance of workers (or perhaps the limits of ecology) as an external constraint. Hence the Marxist notion of crisis as a self-regulating mechanism is complemented by a conviction that crises provide opportunities to assert the power of labour (or correct the ecologically destructive tendencies of capitalism). In these moments, “another world is possible”. Yet Marx’s theory of capitalism contains no such distinction between “internal” dynamics and “external” limits. For Marx it is in and through this process of expanded reproduction that the dynamic of capital manifests itself as its own limit, not through cycles of boom and bust but in a secular deterioration of its own conditions of accumulation.

The Crisis of Reproduction

People usually look for a theory of secular decline in Marx’s notes on the tendential fall in the rate of profit, which Engels edited and compiled as chapters 13 to 15 of volume three of Capital. There, the tendency of the profit rate to equalise across lines — combined with the tendency of productivity to rise in all lines — is held to result in an economy-wide, tendential decline in profitability. Decades of debate have centred on the “rising organic composition of capital”, to which this tendency is attributed, as well as on the complex interplay of the various tendencies and counter-tendencies involved. Yet those engaged in this debate often neglect that the same account of the composition of capital underlies another law, expressing itself in both cyclical and secular crisis tendencies, one that may be read as Marx’s more considered re-formulation of this account — chapter 25 of Capital volume one: “The General Law of Capitalist Accumulation.”13

This chapter, which follows immediately after the three chapters on simple and expanded reproduction, is typically read as having more limited ends. Readers focus on the first part of Marx’s argument only, where he provides an account of the endogenous determination of the wage rate. There Marx shows how, through the structural maintenance of a certain level of unemployment, wages are kept in line with the needs of accumulation. The “industrial reserve army” of the unemployed contracts as the demand for labour rises, causing wages to rise in turn. Rising wages then eat into profitability, causing accumulation to slow down. As the demand for labour falls, the reserve army grows once again, and the previous wage gains evaporate. If this was the sole argument of the chapter, then the “general law” would consist of nothing more than a footnote to the theories of simple and expanded reproduction. But Marx is just beginning to unfold his argument. If the unemployed tend to be reabsorbed into the circuits of capitalism as an industrial reserve army — still unemployed, but essential to the regulation of the labour market — they then equally tend to outgrow this function, reasserting themselves as absolutely redundant:

The greater the social wealth, the functioning capital, the extent and energy of its growth, and therefore also the greater the absolute mass of the proletariat and the productivity of its labour, the greater is the industrial reserve army. The same causes which develop the expansive power of capital, also develop the labour-power at its disposal. The relative mass of the industrial reserve army thus increases with the potential energy of wealth. But the greater this reserve army, the greater is the mass of a consolidated surplus population, whose misery is in inverse ratio to the amount of torture it has to undergo in the form of labour. The more extensive, finally, the lazarus-layers of the working class, and the industrial reserve army, the greater is official pauperism. This is the absolute general law of capitalist accumulation.14

In other words, the general law of capital accumulation is that — concomitant with its growth — capital produces a relatively redundant population out of the mass of workers, which then tends to become a consolidated surplus population, absolutely redundant to the needs of capital.15

It is not immediately obvious how Marx reaches this conclusion, even if the tendency Marx describes seems increasingly evident in an era of jobless recoveries, slum-cities and generalised precarity. Marx makes his argument clearer in the French edition of volume one. There he notes that the higher the organic composition of capital, the more rapidly must accumulation proceed to maintain employment, “but this more rapid progress itself becomes the source of new technical changes which further reduce the relative demand for labour.” This is more than just a feature of specific highly concentrated industries. As accumulation proceeds, a growing “superabundance” of goods lowers the rate of profit and heightens competition across lines, compelling all capitalists to “economise on labour”. Productivity gains are thus “concentrated under this great pressure; they are incorporated in technical changes which revolutionise the composition of capital in all branches surrounding the great spheres of production”.16

What, then, about new industries; won’t they pick up the slack in employment? Marx identifies, in and through the movements of the business cycle, a shift from labour-intensive to capital-intensive industries, with a resulting fall in the demand for labour in new lines as well as old: “On the one hand ... the additional capital formed in the course of further accumulation attracts fewer and fewer workers in proportion to its magnitude. On the other hand, old capital periodically reproduced with a new composition repels more and more of the workers formerly employed by it”.17 This is the secret of the “general law”: labour-saving technologies tend to generalise, both within and across lines, leading to a relative decline in the demand for labour. Moreover, these innovations are irreversible: they do not disappear if and when profitability is restored (indeed, as we shall see, the restoration of profitability is often conditioned on further innovations in new or expanding lines). Thus left unchecked this relative decline in labour demand threatens to outstrip capital accumulation, becoming absolute.18

Marx did not simply deduce this conclusion from his abstract analysis of the law of value. In chapter 15 of Capital he attempts to provide an empirical demonstration of this tendency. There he presents statistics from the British census of 1861 which show that the new industries coming on line as a result of technological innovations were, in employment terms, “far from important.” He gives the examples of “gas-works, telegraphy, photography, steam navigation, and railways”, all highly mechanised and relatively automated processes, and shows that the total employment in these lines amounted to less than 100,000 workers, compared to over a million in the textile and metal industries whose workforce was then shrinking as a result of the introduction of machinery.19 From these statistics alone it is clear that the industries of the second industrial revolution had not absorbed anything like as much labour as those of the first in the moment of their initial appearance. In chapter 25 Marx provides additional statistical evidence that, from 1851 to 1871, employment continued to grow substantially only in those older industries in which machinery had not yet been successfully introduced. Thus Marx’s expectation of a secular trajectory of a first relative then absolute decline in the demand for labour was born out by the available evidence in his time.

What Marx is here describing is not a “crisis” in the sense usually indicated by Marxist theory, i.e. a periodic crisis of production, consumption or even accumulation. In and through these cyclical crises, a secular crisis emerges, a crisis of the reproduction of the capital-labour relation itself. If expanded reproduction indicates that workers and capital pushed out of contracting industries will try to find places in new or expanding lines, the general law of capital accumulation suggests that, over time, more and more workers and capital will find that they are unable to reinsert themselves into the reproduction process. In this way the proletariat tendentially becomes an externality to the process of its own reproduction, a class of workers who are “free” not only of means of reproduction, but also of work itself.

For Marx this crisis expresses the fundamental contradiction of the capitalist mode of production. On the one hand, people in capitalist social relations are reduced to workers. On the other hand, they cannot be workers since, by working, they undermine the conditions of possibility of their own existence. Wage-labour is inseparable from the accumulation of capital, from the accretion of labour-saving innovations, which, over time, reduce the demand for labour: “The working population ... produces both the accumulation of capital and the means by which it is itself made relatively superfluous; and it does this to an extent which is always increasing”.20 It might seem that the abundance of goods, which results from labour-saving innovations, must lead to an abundance of jobs. But in a society based on wage-labour, the reduction of socially-necessary labour-time — which makes goods so abundant — can only express itself in a scarcity of jobs, in a multiplication of forms of precarious employment.21

Marx’s statement of the general law is itself a restatement, a dramatic unfolding of what he lays out as his thesis at the beginning of chapter 25. There, Marx writes, somewhat simply: “Accumulation of capital is therefore multiplication of the proletariat.” Marxists of an earlier period took this thesis to mean that the expansion of capital necessitates an expansion of the industrial working class. But the proletariat is not identical to the industrial working class. According to what Marx sets out in the conclusion to this chapter, the proletariat is rather a working class in transition, a working class tending to become a class excluded from work. This interpretation is supported by the only definition of the proletariat Marx provides in Capital, located in a footnote to the above thesis:

“Proletarian” must be understood to mean, economically speaking, nothing other than “wage-labourer”, the man who produces and valorises “capital”, and is thrown onto the street as soon as he becomes superfluous to the need for valorisation.21

From re-industrialisation to deindustrialisation

The “general law of capitalist accumulation”, with its clear implications for the interpretation of Capital, has been overlooked in our own time because under the name of the “immiseration thesis” it was taken up and abandoned many times over in the course of the 20th century. It was held that Marx’s prediction of rising unemployment, and thus the increasing immiseration of the working population, has been contradicted by the history of capitalism: after Marx’s death, the industrial working class both grew in size and saw its living standards rise. Yet quite apart from the fact that these tendencies are often over-generalised, more recently their apparent reversal has made the immiseration thesis seem more plausible. The last 30 years have witnessed a global stagnation in the relative number of industrial workers. A low-wage service sector has made up the difference in the high GDP countries alongside an unparalleled explosion of slum-dwellers and informal workers in the low GDP countries.22 So is the immiseration thesis correct after all? That is the wrong question. The question is: under what conditions does it apply?

Marx wrote about the growth of consolidated surplus populations in 1867. Yet the tendency he described — by which newer industries, because of their higher degree of automation, absorb proportionally less of the capital and labour thrown off by the mechanisation of older industries — did not play out as he had envisaged. As we can see from the graph on the facing page, Marx’s view was correct, in his own time, for the UK: the rising industries of the early second Industrial Revolution — such as chemicals, railways, telegraph etc. — were not able to compensate for declining employment in the industries of the first Industrial Revolution. The result was a steady fall in the rate of growth of manufacturing employment, which looked set to become an absolute decline sometime in the early 20th century. What Marx did not foresee, and what actually occurred in the 1890s, was the emergence of new industries that were simultaneously labour and capital absorbent, and which were able to put off the decline for more than half a century. The growth of these new industries, principally cars and consumer durables, depended on two 20th century developments: the increasing role of the state in economic management, and the transformation of consumer services into consumer goods.23

Graph 1: Employment in UK Manufacturing: 1841-1991

Graph 1: Employment in UK Manufacturing: 1841-1991

source: Brian Mitchell, International Historical Statistics: Europe, 1750-2005 (Palgrave Macmillan 2007)

The emergent industries of which Marx wrote in the 1860s — gas-works, telegraphy, and railways, (we would add only electrification) — were already in his time beginning to be made available to consumers. Yet the consumer services generated from these technologies — initially reserved for the enjoyment of a wealthy elite — were secondary to the services they provided within the internal, planned economy of industrial firms. Railways emerged as a labour-saving innovation within mining, which was subsequently extended to other industries. It became a service offered to consumers only after extensive national-rail infrastructures had been developed by state-supported cartels. Even as costs fell and mechanised transportation via rail became available to more and more people, as a consumer service it preserved many of the features of its initial employment as a “process innovation” within industry. National railways, carrying passengers in addition to freight, absorbed large amounts of capital and labour in their construction but were subsequently relatively automated processes requiring less capital and labour for their upkeep.24

The advent of the automobile industry, subsidised by state funding of roads, eventually transformed the consumer service of mechanised transport into a good that could be purchased for individual consumption. This segmentation and replication of the product — the transformation of a labour-saving process innovation into a capital-and-labour absorbing “product innovation”— meant that this industry was able to absorb more capital and labour as its market expanded. A similar story can be told of the shift from telegraphy to telephones, and from electronic manufacture to consumer electronics. In each case, a collectively consumed service — often emerging from an intermediary service within industry — was transformed into a series of individually purchasable commodities, opening up new markets, which in turn became mass markets as costs fell and production increased. This provided the basis for the “mass consumerism” of the 20th century, for these new industries were able to simultaneously absorb large amounts of capital and labour, even as productivity increases reduced relative costs of production, such that more and more peasants became workers, and more and more workers were given stable employment.

Yet, as the unprecedented state deficit-spending which supported this process indicates, there is no inherent tendency to capital that allows for the continual generation of product innovations to balance out its labour-saving process innovations. On the contrary, product innovations themselves often serve as process innovations, such that the solution only worsens the initial problem.25 When the car and consumer durables industries began to throw off capital and labour in the 1960s and 70s, new lines like microelectronics were not able to absorb the excess, even decades later. These innovations, like those of the 2nd industrial revolution described above, emerged from specific process innovations within industry and the military, and have only recently been transformed into a diversity of consumer products. The difficulty in this shift, from the perspective of generating new employment, is not merely the difficulty of policing a market in software — it is that new goods generated by microelectronics industries have absorbed tendentially diminished quantities of capital and labour. Indeed computers not only have rapidly decreasing labour requirements themselves (the microchips industry, restricted to only a few factories world-wide, is incredibly mechanised), they also tend to reduce labour requirements across all lines by rapidly increasing the level of automation.26 Thus rather than reviving a stagnant industrial sector and restoring expanded reproduction — in line with Schumpeter’s predictions — the rise of the computer industry has contributed to deindustrialisation and a diminished scale of accumulation — in line with Marx’s.

Surplus populations under deindustrialisation: service work and slums

Deindustrialisation began in the US, where the share of manufacturing employment started falling in the 1960s before dropping absolutely in the 80s, but this trend was soon generalized to most other high-GDP countries, and even to countries and regions that are seen as “industrializing”.27 The explosive growth of a low-wage service-sector partially offset the decline in manufacturing employment. However, services have proven incapable of replacing manufacturing as the basis of a new round of expanded reproduction. Over the last 40 years average GDP has grown more and more slowly on a cycle-by-cycle basis in the US and Europe, with only one exception in the US in the late 90s, while real wages have stagnated, and workers have increasingly relied on credit to maintain their living standards.

If, as we have argued, expanded reproduction generates dynamic growth when rising productivity frees capital and labour from some lines, which then recombine in new or expanding industries, then this has an important consequence for an understanding of service industry growth. Services are, almost by definition, those activities for which productivity increases are difficult to achieve otherwise than on the margin.28 The only known way to drastically improve the efficiency of services is to turn them into goods and then to produce those goods with industrial processes that become more efficient over time. Many manufactured goods are in fact former services — dishes were formerly washed by servants in the homes of the affluent; today, dishwashers perform that service more efficiently and are themselves produced with less and less labour. Those activities that remain services tend to be precisely the ones for which it has so far proven impossible to find a replacement in the world of goods.29

Of course the bourgeois concept of “services” is notoriously imprecise, including everything from so-called “financial services” to clerical workers and hotel cleaning staff, and even some outsourced manufacturing jobs. Many Marxists have tried to assimilate the category of services to that of unproductive labour, but if we reflect on the above characterisation it becomes clear that it is closer to Marx’s conception of “formal subsumption”. Marx had criticised Smith for having a metaphysical understanding of productive and unproductive labour — the former producing goods and the latter not — and he replaced it with a technical distinction between labour performed as part of a valorisation process of capital and the labour performed outside of that process for the immediate consumer. In the Results of the Direct Production Process Marx argues that theoretically all unproductive labour can be made productive, for this means only that it has been formally subsumed by the capitalist valorisation process.30 However, formally subsumed activities are productive only of absolute surplus value. In order to be productive of relative surplus value it is necessary to transform the material process of production so that it is amenable to rapid increases in productivity (co-operation, manufacture, large-scale industry and machinery) — i.e. real subsumption. When bourgeois economists like Rowthorn speak of “technologically stagnant services” they recall without knowing it Marx’s concept of a labour process which has been only formally but not really subsumed.

Thus as the economy grows, real output in “services” tends to grow, but it does so only by adding more employees or by intensifying the work of existing employees, that is, by means of absolute rather than relative surplus value production. In most of these sectors wages form almost the entirety of costs, so wages have to be kept down in order for services to remain affordable and profitable, especially when the people purchasing them are themselves poor: thus McDonald’s and Wal-Mart in the US — or the vast informal proletariat in India and China.31

It is a peculiar failure of analysis that today, in some circles, the deindustrialisation of the high-GDP countries is blamed on the industrialisation of the low-GDP countries, while in other circles, the de-industrialisation of low-GDP countries is blamed on IMF and World Bank policies serving the interests of high-GDP countries. In fact, almost all the countries of the world have participated in the same global transformation, but to different degrees. In the early post-war period, many countries turned to “Fordism” — that is to say, the import of methods of mass production, made possible by government-sponsored “technology transfers” from high-GDP countries. Fordism is often taken to be a national economic-development policy, based on an “agreement” between capital and workers to share the gains of productivity increases. But Fordism was, almost from the beginning, predicated on an internationalisation of trade in manufactures. Europe and Japan benefited the most from the resurgence of international trade in the 1950s and 60s: capitals in these countries were able to achieve massive economies of scale by producing for international trade, thereby overcoming the limits of their own domestic markets. By the mid-60s, capitals in low-GDP countries like Brazil and South Korea were doing the same thing: even if they could capture only a small portion of the rapidly expanding international export market, they would still grow far beyond what was possible in their home markets. Thus, in the period before 1973, the internationalisation of trade was associated with high rates of growth in all industrialising countries.

After 1973, the situation changed. Markets for manufactures were becoming saturated, and it was increasingly the case that a few countries could provide the manufactures for all of the world (one chinese firm currently supplies over half the world's microwaves). Thus the resulting crisis of the capital-labour relation, which is to say, a combined crisis of over-production and under-consumption, signalled by a global fall in the rate of profit and issuing in a multiplication of forms of unemployment and precarious employment. As the capital-labour accord snapped, having always been based on healthy rates of growth worldwide, wages stagnated. Capital in all countries became even more dependent on international trade, but from now on, capitals in some countries would expand only at the expense of those in others. Though they had not yet caught up to the high-GDP countries, the low-GDP countries took part in the same international crisis. Structural Adjustment Programs only accelerated their transition to a new, unstable international framework. Deindustrialisation, or at least the stagnation of industrial employment, set in almost universally among industrialising countries in the 1980s and 90s.32

For countries that remained agricultural, or relied on traditional or resource exports, the crisis was even more devastating, as prices of “traditional” commodities collapsed in the face of falling demand. Here, too, we must look back at longer-term trends. In the early post-war period, developments in agriculture radically increased the availability of cheap food. First, synthetic fertiliser was manufactured in demobilised munitions-factories after World War II, making it possible to raise the productivity of land with new high-yield varieties of crops. Second, motor-mechanisation raised the productivity of agricultural labour. Both technologies were adapted to production in tropical climates. Thus, almost immediately after the global peasantry was drawn into the market by high agricultural-prices stemming from the Korean War boom, those same prices began to fall continuously. Exit from agriculture in the low-GDP countries was therefore already underway in the 1950s. It was the result, not only of the differentiation and expulsion of the peasantry according to market viability, but also of the massive boost to population itself (sustained by cheap food and modern medicine). Rising household sizes meant that traditional forms of inheritance now pulverised land holdings, while rising population density strained ecological limits, as resources were used unsustainably.33 Again, the Structural Adjustment Programs of the 1980s and 90s, which forced indebted countries to lift agriculture subsidies, merely dealt the knockout blow to peasants who were already on their last legs.

It should thus be clear that de-industrialization is not caused by the industrialization of the “third world”. Most of the world’s industrial working-class now lives outside the “first world”, but so does most of the world’s population. The low-GDP countries have absolutely more workers in industry, but not relative to their populations. Relative industrial employment is falling even as agricultural employment collapses. Just as de-industrialisation in the high-GDP countries entails both the exit from manufacturing and the failure of services to take its place, so also the explosive growth of slums in the low-GDP countries entails both the exit from the countryside and the failure of industry to absorb the rural surplus. Whereas the World Bank used to suggest that the growing surplus populations throughout the world were a mere transitional element, they are now forced to admit the permanence of this condition. More than a billion people today eke out a terrible existence via an endless migration between urban and rural slums, searching for temporary and casual work wherever they can find it.34

Surplus capital alongside surplus populations

We have described how accumulation of capital over long periods leads old lines to throw off labour and capital, which are then recombined in new and expanding lines. This is the dynamic of capital, which becomes at the same time its limit. Since capital is thrown off whether or not it can find productive avenues of investment, a point is reached at which “surplus” capital begins to build up in the system, beside the surplus labour it no longer employs. Marx discusses these phenomena in a section of Capital vol. 3, entitled “surplus capital alongside surplus population.”35 For most of this article we have focused on the latter phenomenon, due in large part to the neglect of this tendency among readers of Marx. In this final section we look at some recent manifestations of the former, as the story of surplus capital both mediates and distorts the story of surplus populations. Unfortunately we will be able to do little more that touch on this subject matter here, leaving a more extended treatment to Endnotes no.3.

The US emerged unscathed from World War II as the most advanced capitalist country, with the largest domestic market, the smallest agricultural population (as a percentage of employment), and the most advanced industrial technologies. By some estimates it was responsible for more than half of the world’s output.36 It also emerged from the war as the global creditor par excellence, owning two thirds of global gold reserves and with most allied powers owing it tremendous sums of money. Under these conditions, the US was able to reconstruct the international monetary order, in a shambles since the Great Depression, on its own terms. At Bretton Woods, the dollar was established as the international reserve currency, the only one to be directly backed by gold, and all other currencies were pegged to the dollar (creating a fixed exchange rate system, which nevertheless allowed for periodic adjustments). On the one hand, by fixing their own currencies to the dollar, European powers were given temporary relief from balancing their budgets during reconstruction. On the other hand, the US, by facilitating reconstruction, was assured of markets for its capital exports, which in turn facilitated the European purchase of American goods. In this way European budget deficits were funded by US capital exports, and a persistent trans-Atlantic trade imbalance was effectively written into the Bretton Woods agreements. It was an imbalance, however, which soon evaporated.

On the back of an influx of dollars, via direct foreign investment (often military), loans and credit, European countries, as well as American firms operating in Europe, had been importing US capital goods to expand European productive capacity. The same process occurred in Japan, with the Korean War playing the role of the Marshall Plan (though in Japan, US subsidiaries were notable by their absence). All this was encouraged by the US, which facilitated the transfer of its technologies of mass production and distribution all over the world. Yet by the 1960s, many countries had developed their productive capacity to the extent that they no longer relied on US imports. Furthermore, some of those countries were beginning to compete with the very US producers on whom they had previously relied. This competition played out first in third markets and then in the US domestic market itself. The resulting reversal of the US balance of trade in the mid sixties signified that the build out of global manufacturing capacity was approaching a limit. Henceforth competition for export share would become a zero-sum game.

While during the post-war boom the export of dollars via foreign direct investment had enabled rapid growth in deficit countries, this phase change meant that US capital exports became increasingly inflationary.37 The spiralling US budget deficits of the Vietnam war only intensified this problem of inflation, as the seemingly inevitable devaluation of the dollar threatened to undermine the reserves, and hence the balance of payments, of all nations, straining the fixed exchange rate system to its limits. The result was that on the one hand many central banks began to cash in their dollars for gold (forcing the US to effectively end convertibility in 1968), while on the other hand surplus dollars accumulated in Eurodollar markets began to put speculative pressure on the currencies of export-based economies who were most at risk from the effects of dollar devaluation. These included both those developing countries which had pegged their currencies to the dollar, and thus risked seeing their primary commodity exports fall in value relative to the manufactured imports on which their development depended, as well as developed nations whose export markets risked being undermined by the revaluation of their currencies relative to the dollar. In its subsequent abandonment of Bretton Woods and its policy of “benign neglect” of the deficit, the US used this threat of dollar devaluation to impose a new flexible dollar reserve currency standard on the rest of the world, effectively delegating the job of stabilizing the dollar to foreign central banks who would be compelled to spend their surplus dollars on US securities in order to maintain the dollar value of their own currencies. This to all intents and purposes removed budgetary constraints from the US, allowing it to run up deficits and issue dollars at will, knowing that foreign nations would have no choice but to recycle them back to US financial markets, particularly into US government debt which quickly replaced gold as the global reserve currency.38

Recycled surplus dollars provided an enormous boost to global financial markets, where they became the key factor in the suddenly highly volatile currency markets — as both the reason for this volatility and the only available resource for hedging against it. Yet surplus dollars also transformed the landscape and shaped the growth of the global economy for the next 30 years. Because it was far in excess of global investment demand, this “giant pool of money” became the source of expanded state and consumer debt, as well as speculative financial bubbles. In the latter sense surplus dollars have become something of a spectre stalking the planet, running up unprecedented asset bubbles in whichever national economy has the misfortune to absorb their attention.39

This chain of bubbles and busts began in Latin America in the late 70s. An influx of recycled petro-dollars (stimulated by sub-zero real interest rates on the dollar) generated a whole series of risky financial innovations (including the infamous “adjustable rate loan”), which all collapsed when the Volcker shock brought interest rates back up. It was recycled surplus dollars from Japan that saved the US economy from the subsequent deflation and enabled Reagan’s redoubled Keynesian spending programmes. Yet the US thanked Japan for its kindness by devaluing the dollar relative to the Yen in the Plaza Accords of 1985, sending the Japanese economy into a asset-price bubble of even greater proportions, which finally collapsed in 1991. This in its turn set off a series of bubbles in the East Asian economies, to which Japan had exported its manufacturing capacity (in order to get around an appreciating Yen). These economies, as well as other Latin American economies that had pegged their currencies to the dollar, then imploded as a delayed result of the dollar revaluation in the reverse Plaza Accords of 1995. Yet this merely shifted the bubble back to the US, as the US stock market bonanza created by the appreciating dollar gave way to the dot-com bubble. In 2001 the latter turned over into a housing bubble, when US corporate demand for debt proved to be an insufficient sink for global surplus dollars. If the last two bubbles were largely restricted to the United States (although the housing bubble also extended its reach to Europe), it is because due to its size and seniorage privileges it is now the only economy able to withstand the influx of these surplus dollars for any sustained time period.

If we place this phenomenon in the context of the story of deindustrialisation and stagnation described above, it becomes plausible to envisage it as a game of musical chairs in which the spread of productive capacity across the world, compounded by rising productivity, continually aggravates global overcapacity. Excess capacity is then only kept in motion by a continual process that shifts the burden of this excess on to one inflated economy after another. These latter are only able to absorb the surplus by running up debt on the basis of excessively low short term interest rates and the fictitious wealth this generates, and as soon as interest rates begin to rise and the speculative fever abates the bubbles must all inevitably collapse — one after another.

Many have called this phenomenon “financialisation”, an ambiguous term suggesting the increasing dominance of financial capital over industrial or commercial capital. But the “rise of finance” stories, in all their forms, obscure both the sources of financial capital, and the reasons for its continued growth as a sector even as finance finds it increasingly difficult to maintain its rate of return. For the former, we must look not only at the pool of surplus dollars, which we have already described, but also the fact that stagnation in non-financial sectors has increasingly shifted investment demand into IPO’s, mergers and buy-outs, which generate fees and dividends for financial companies. As for the latter, the dearth of productive investment opportunities, combined with an expansive monetary policy, kept both short and long-term interest rates abnormally low, which compelled finance to take on greater and greater risk in order to make the same returns on investment. This rising level of risk (finance’s measure of falling profitability) is in turn masked by more and more complex financial “innovations”, requiring periodic bailouts by state governments when they break down.

Unprecedented weakness of growth in the high-GDP countries over the 1997-2009 period, zero-growth in household income and employment over the whole cycle, the almost complete reliance on construction and household debt to maintain GDP — all are testament to the inability of surplus capital in its financial form to recombine with surplus labour and give rise to dynamic patterns of expanded reproduction.40 The bubbles of mid-19th century Europe generated national rail systems. Even the Japanese bubble of the 1980s left behind new productive capacity that has never been fully utilized. By contrast the two US-centred bubbles of the past decades generated only a glut of telecommunication wires in an increasingly wireless world and vast tracts of economically and ecologically unsustainable housing. The “Greenspan put” — the stimulation of “a boom within the bubble” — was a failure. It merely demonstrated the diminishing returns of injecting more debt into an already over-indebted system.

…and China?

A common objection to the account we have so far provided would be to point to China as an obvious exception to this picture of global stagnation, particularly in so far as it relates to otherwise global trends of deindustrialisation and under-employment. Of course, over these years China became a global industrial powerhouse, but it did so not through opening new markets or innovating new productive techniques, but rather by massively building out its manufacturing capacity at the expense of other countries.41 Everyone assumes that this expansion must have brought about a historic increase in the size of the Chinese industrial working class, but that is flatly false. The latest statistics show that, on balance, China did not create any new jobs in manufacturing between 1993 and 2006, with the total number of such workers hovering around 110 million people.42 This is not as surprising as it must seem at first glance, for two reasons.

First, over the last thirty years, the industrialization of the new southern industries — based initially on the processing of exports from Hong Kong and Taiwan — has kept pace with the gutting of the old, Maoist industrial northeast. That may provide part of the explanation of why China, unlike Germany, Japan, or Korea (earlier in the postwar period), saw almost no rise in real wages over decades of miracle growth rates.

Second, China has not only grown on the basis of labour-intensive manufacturing. Its low wages have helped it to compete across a spectrum of industries, from textiles and toys to cars and computers. The incorporation of existing labour-saving innovations into the firms of developing countries, including China, has meant that, even with growing geographic expansion, each set of industrialising countries has achieved lower heights of industrial employment (relative to total labour force). That is to say, not only has China lost manufacturing jobs in its older industries; the new industries have absorbed tendentially less labour relative to the growth of output.

In the 19th century when England was the workshop of the world, 95 percent of that world were peasants. Today, when the vast majority of the world’s population depends on global markets for their survival, the ability of one country to produce for all the others spells ruin, both for those who must be kept impoverished in order to maintain export prices, and for the vast multitudes whose labour is no longer necessary, but who, equally, can no longer rely on their own resources to survive. In this context the remainder of the world’s peasantry can no longer act as a weapon of modernisation, i.e. as a pool of both labour and consumer demand that can be drawn on in order to accelerate the pace of industrialisation. It becomes a pure surplus. This is true in India and sub-Saharan Africa — and in China.


Today many speak of a “jobless recovery”, but if the “general law of capital accumulation” applies then all capitalist recoveries are tendentially jobless. The tendency of “mature” industries to throw off labour, whilst facilitating expanded reproduction, also tends to consolidate a surplus population not fully absorbed by the subsequent expansion. This is due to the adaptability of labour-saving technology across lines, which mean that the manufacture of new products tends to make use of the most innovative production processes. Yet process innovations last forever, and they generalize across new and old capitals, while product innovations are inherently limited in their ability to generate a net expansion of output and employment. Here the problem is not merely that product innovations have to emerge at an accelerated rate to absorb the surplus thrown off by process innovations, it is that an acceleration of product innovation itself gives rise to an acceleration of process innovation.43

Yet if the “general law” was suspended for much of the 20th century for the reasons we have outlined above, the current growing global masses of under-employed cannot be attributed to its reassertion, at least in any simple sense. For the trajectory of surplus capital distorts the trajectory of surplus labour described by Marx, and not only in the ways that we have already described. Most importantly, surplus capital built up in international money markets over the last 30 years has masked some of the tendencies to absolute immiseration, through the growing debt of working class households. This tendency, which has kept the bottom from falling out of global aggregate demand, has equally prevented any possibility of recovery, which would be achieved only through the “slaughtering of capital values” and “setting free of labour”. For while asset-price deflation may raise the possibility of a new investment boom, the devalorisation of labour-power will, in this context, only lead to increasing levels of consumer default and further financial breakdowns.44 Thus it is not only its capacity to generate employment, but the sustainability of the recovery itself which remains in question today.

The coming decades may see a series of blowouts, if states fail to manage global deflationary pressures, or they may see a long and slow decline. While we are not catastrophists by inclination, we would warn against those who might forget that history sometimes rushes forward unpredictably. Regardless, the catastrophe for which we wait is not something of the future, but is merely the continuation of the present along its execrable trend. We have already seen decades of rising poverty and unemployment. Those who say of the still-industrialized countries that it is not so bad, that people will soldier on — in a phrase, that the proletariat has become indifferent to its misery — will have their hypothesis tested in the years to come, as levels of debt subside and household incomes continue their downward trend. In any case, for a huge chunk of the world’s population it has become impossible to deny the abundant evidence of the catastrophe. Any question of the absorption of this surplus humanity has been put to rest. It exists now only to be managed: segregated into prisons, marginalised in ghettos and camps, disciplined by the police, and annihilated by war.

  1. This article was co-written by Endnotes and Aaron Benanav.
  2. FAOSTAT Statistical Database, Food and Agriculture Organization of the United Nations, http://www.fao.org/FAOSTAT (2009).
  3. Robert Rowthorn and Ken Coutts, ‘Deindustrialisation and the Balance of Payments in Advanced Economies’ (United Nation Conference on Trade and Development, Discussion paper no. 170, May 2004), p. 2.
  4. This need not always occur through the violent means described by Marx. In the 20th century many peasants lost direct access to land not by expropriation but rather through an excessive subdivision of their holdings as land was passed from generation to generation. Becoming thus increasingly market dependent, small farmers found themselves at a disadvantage to large farmers and eventually lost their land.
  5. Marx sometimes refers to simple reproduction as an abstract thought experiment – capitalism without growth – but to leave it at that is to miss what the concept tells us about the inner mechanism of the process of accumulation. The chapter on simple reproduction concludes: ‘Capitalist production, therefore, under its aspect of a continuous connected process, of a process of reproduction, produces not only commodities, not only surplus-value, but it also produces and reproduces the capitalist relation; on the one side the capitalist, on the other the wage-labourer.’ Marx, Capital, vol.1 (MECW 35), p.573.
  6. Marx, Capital, vol.1 (MECW 35), p.573.
  7. Marxists have tended to avoid issues of demand because of a supposed neoclassical monopoly on the discourse, but Marx had no such reticence. The compulsion to expand markets and fight over market share is fundamental to the workings of the law of value. e.g. Marx, Capital, vol.1 (MECW 35), p.434.
  8. Saturation is a matter, not of the absolute amount of a product bought and sold, but of a changed relationship between the rates of growth of capacity and of demand.
  9. This process applies only to consumer-goods industries. Capital-goods industries, tend to expand and contract in accordance with the needs of the particular consumer-goods which ‘lead’ each cycle. But the relationship between the two ‘departments’ is never so simple. As we will show, labour-saving ‘process-innovations’ in dept. 1 may lead to ‘product innovations’ in dept. 2, expanding the market as a whole.
  10. Marx, Capital, vol.1 (MECW 35), p. 627 (Fowkes translation).
  11. Joseph Schumpeter. Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process (Martino Pub, 2005).
  12. Though earlier in the series, the published version of volume one – written in 1866-67 – actually postdates volume three, most of the material for which was written in 1863-5. It thus seems plausible to account for the striking parallels between chapter 25 of volume one and chapter 15 of volume three on the supposition that Marx introduced key elements of the volume three material into the published version of volume one in anticipation of the difficulty of finishing volume three in a reasonable time.
  13. Marx, Capital, vol.1 (MECW 35), p. 638.
  14. This surplus population need not find itself completely ‘outside’ capitalist social relations. Capital may not need these workers, but they still need to work. They are thus forced to offer themselves up for the most abject forms of wage slavery in the form of petty-production and services.
  15. Translations of the French edition of Capital vol.1 from Simon Clarke, Marx’s Theory of Crisis (St Martin's Press 1994), pp.172-5.
  16. Marx, Capital, vol.1 (MECW 35), pp. 622-3.
  17. Marx sometimes envisages this as a revolutionary crisis: ‘A development of productive forces which would diminish the absolute number of labourers, i.e., enable the entire nation to accomplish its total production in a shorter time span, would cause a revolution, because it would put the bulk of the population out of the running.’ (Marx, Capital, vol.3 (MECW 37), p. 262).
  18. Marx, Capital, vol.1 (MECW 35), p. 449.
  19. Ibid. p.625
  20. It is possible to imagine a world in which labour-saving innovations would lead to a reduction, not of the number of workers in a given line, but the amount of time each of them works. Yet because capitalists derive their profit from the value added by the worker beyond that required to pay his wages, it is never in the interest of capitalists to reduce the number of hours each individual works (unless, of course, they are forced to do so by action of the state or agitation of workers). Such reductions would cut directly into profits unless wages were also reduced concomitantly. Because of the peculiarities of a social form based on wage-labour, therefore, capitalists must shed the individuals themselves rather than the hours each individual works, decreasing the costs of labour relative to value added, and pushing great masses of people into the streets.
  21. Ibid., p.609 (emphasis added).
  22. In this article we have opted to use the epithets ‘high-GDP’/’low-GDP’ (meaning GDP per capita) to describe the division of the world between a wealthy minority of capitalist states and a more impoverished majority. We adopt these not entirely satisfactory terms because of the absence of associations with dubious political and theoretical analyses that are carried by other divisions (e.g. first world/third world, core/periphery, developed/underdeveloped, imperialist/oppressed).
  23. In the following we deal only with the latter phenomenon. For an account of the former see the article ‘Notes on the New Housing Question’ below.
  24. The difference between the economy of time that rail transport offered to the consumer, and the economy of time and labour it offered to the capitalist, was itself a vanishing difference as the capitalist notion of time as a scarce resource to be allocated with maximum efficiency increasingly came to dominate society at large.
  25. ‘It is not merely that an accelerated accumulation of total capital, accelerated in a constantly growing progression, is needed to absorb an additional number of labourers, or even, on account of the constant metamorphosis of old capital, to keep employed those already functioning. In its turn, this increasing accumulation and centralisation becomes a source of new changes in the composition of capital, of a more accelerated diminution of its variable, as compared with its constant constituent.’ Marx, Capital, vol.1 (MECW 35), p.623-4.
  26. See Beverly Silver, Forces of Labor (Cambridge University Press, 2003).
  27. In no country (with the exception of the UK) did deindustrialisation involve a decline in real industrial output. In 1999, manufacturing still accounted for 46 percent of total US profits, but only 14 percent of the labour force.
  28. Robert Rowthorn and Ramana Ramaswamy, ‘Deindustrialization: Causes and Implications’ (IMF Working Paper 97/42, April 1997).
  29. Jonathan Gershuny, After Industrial Society?: the Emerging Self-Service Economy (Humanities Press, 1978).
  30. Marx, ‘Results of the Direct Production Process’ (MECW 34), p. 121 – 46.
  31. Many service jobs only exist because of wage differentials – that is, massive social inequality. Marx noted that domestic servants outnumbered industrial workers in Victorian Britain (Marx, Capital, vol.1 [MECW 35], p. 449). With rising real wages it became increasingly untenable for middle class households (such as Marx’s) to employ servants. For much of the 20th century this destitute labour force was reduced to a memory, only to reappear as ‘service’ workers in every corner of the modern world.
  32. Sukti Dasgupta and Ajit Singh ‘Will Services be the New Engine of Indian Economic Growth?’ Development and Change 36:6 (2005).
  33. This does not mean that the world is overpopulated relative to food production. As we have shown, exit from the countryside was related to a massive increase in the productivity of agriculture. Food production per person has constantly risen even as population growth slows with the coming completion of the world demographic transition. It would be even higher if the overproduction of grains had not led to subsidizing the corn-feeding of animals for meat production. There is nothing Malthusian about the Marxian concept of surplus populations, which are surplus with regard to capital accumulation and nothing else.
  34. See Mike Davis, Planet of Slums (Verso, 2006).
  35. ‘It is no contradiction that this over-production of capital is accompanied by more or less considerable relative over-population. The circumstances which increased the productiveness of labour, augmented the mass of produced commodities, expanded markets, accelerated accumulation of capital both in terms of its mass and its value, and lowered the rate of profit – these same circumstances have also created, and continuously create, a relative overpopulation, an over-population of labourers not employed by the surplus-capital owing to the low degree of exploitation at which alone they could be employed, or at least owing to the low rate of profit which they would yield at the given degree of exploitation.’ Marx, Capital, vol.3 (MECW 37), pp. 254-5.
  36. Daniel Brill, ‘The Changing Role of the United States in the World Economy’ in John Richard Sargent, Matthijs van den Adel, eds., Europe and The Dollar in the World-Wide Disequilibrium (Brill 1981) p.19.
  37. Most Marxists attribute inflation in this period either to the exploding US budget deficit (due in large part to the Vietnam war) or to the rising strength of labour. Yet Anwar Shaikh convincingly argues that the restricted supply in relation to which inflation is the index of excess demand is not full employment or labour recalcitrance, but rather the maximum level of accumulation, or the maximum capacity profit rate – whose decline during this period is the leading factor behind stagflation. Anwar Shaikh, ‘Explaining Inflation and Unemployment’ in Andriana Vachlou, ed., Contemporary Economic Theory (Macmillan 1999).
  38. See Michael Hudson, Super Imperialism: The Origin and Fundamentals of U.S. World Dominance (Pluto Press, 2003).
  39. The following account owes much to Robert Brenner’s analysis. See in particular the prologue to the Spanish translation of Economics of Global Turbulence: ‘What is Good For Goldman Sachs is Good For America: the Origins of the Current Crisis’ (2009).
  40. Josh Bivens and John Irons ‘A Feeble Recovery: The fundamental economic weaknesses of the 2001-07 expansion,’ EPI Briefing Paper no. 214, Economic Policy Institute (2008).
  41. In the 1990s Japan devolved its more labour-intensive industries onto developing countries in Asia – first to the East Asian Tigers, then to the ASEAN countries and then to China. But the absorption of industries by China has undermined the hierarchy of production within the region.
  42. Erin Lett and Judith Banister, ‘Chinese manufacturing employment and compensation costs: 2002-2006,’ Monthly Labor Review no. 132 (April 2009), p. 30.
  43. See note 26 above.
  44. See Paulo Dos Santos, ‘At the Heart of the Matter: Household Debt in Contemporary Banking and the International Crisis,’ Research On Money And Finance, Discussion Paper no. 11 (2009). On the capital side, Phelps and Tilman outline a series of limitations to the potential of innovators to exploit the crisis: Edmund Phelps and Leo Tilman, ‘Wanted: A First National Bank of Innovation’ Harvard Business Review (Jan-Feb 2010).