Issue 245 of SOCIALIST REVIEW Published October 2000 Copyright © Socialist Review

Economic Theory

Capital development

Food queue in the 1930s
Food queue in the 1930s
Why does the capitalist system go into crisis? Rick Kuhn looks at the life and work of an economist who developed Marx's work in capital

Grossman on Lenin

In 1928, Grossman outlined Lenin's description of the objective conditions necessary for a successful revolution and concluded: 'Only then is a further subjective condition of significance. This is not simply "revolutionary consciousness" (that cannot be created, moreover, simply by hammering the final goal into people's heads, in the absence of a revolutionary situation). It is, on the contrary, something quite different, "the capacity of the revolutionary class for mass revolutionary action", which presupposes an organisation of the unified will of the masses and long experience in everyday class struggles.'

Grossman wrote against the background of the world's worst slump
Grossman wrote against the background of the world's worst slump

This year marks the 50th anniversary of the death of Henryk Grossman. He was the first person to systematically explore Marx's explanation of economic crises in terms of the tendency of the rate of profit to fall. He developed a systematic argument about how capitalism has a tendency to break down, writing in 1929 his book The Law of Accumulation and Breakdown of the Capitalist System.

Grossman was born in 1881 to a family of prosperous and assimilated Jewish businesspeople. But he joined the socialist movement in Krakow while still at school. At university he turned to organising the Yiddish-speaking Jewish working class. He played a prominent role in setting up the Jewish Social Democratic Party (JSDP) on May Day 1905 when it split from the Polish Social Democratic Party (PPSD). The increasingly nationalist Polish party had been neglecting the Jewish proletariat and had recently moved to dismantle the Jewish workers' associations.

Despite the split, the JSDP participated in the May Day marches with the PPSD and called for unity in struggle. During the upsurge that happened in Austria following the 1905 revolution in Russia the JSDP grew rapidly. It led a series of strikes which drew a new layer of workers into the socialist movement and in some mixed workplaces organised both Jewish and Polish workers into unions.

The JSDP and the Jewish proletariat had to fight not only Jewish bosses, but also against oppression at the hands of the Polish aristocracy, who controlled Galicia, and the Austro-Hungarian regime in general. Despite formal legal equality, the local civil service discriminated against Galician Jews. Grossman insisted, 'The words of the Communist Manifesto that the emancipation of the workers must be the act of the working class itself mean, as far as the Jews are concerned, that their emancipation can only be the product of their own political struggle.'

The theory of crisis

Grossman was the first to highlight and endorse Marx's method in Capital. In volume one of Capital Marx emphasised how 'the monopoly of capital becomes a fetter upon the mode of production which has flourished alongside and under it', paving the way for the 'expropriation of the expropriators'. In volume three he explained the specific mechanisms involved.

In their competitive drive to make profits by increasing the productivity of their workers individual capitalists invest a larger and larger proportion of their resources in machinery and equipment (constant capital) and a smaller proportion in wages (variable capital). But living labour is the source of new value and hence profit. Although more commodities are produced, the rate of profit, that is the ratio of newly created value to bosses' total outlay, tends to decline. Eventually many bosses will stop investing and there will be a crisis.

Of course there are 'counter-tendencies'. Marx and Grossman both identified these. In the course of crises bankrupt capitalists sell their means of production cheap. On the basis of the lower cost of these means of production, their new owners can produce at a profit. New cheaper sources of raw materials may be found. Bosses can increase the rate of exploitation, by cutting wages or intensifying work or raising the share of profits in total output. The very process of increasing productivity reduces the value of the food, clothing, shelter and the other commodities workers consume. So, in value terms, employers can pay workers less and still expect them to turn up to work properly nourished, clad and educated. Higher productivity also reduces the value of means of production and thus slows the fall in the rate of profit. If large amounts of profits are invested in unproductive industries--those that do not produce commodities that go back into the production process as means of production or workers' consumption goods, such as the manufacture of armaments--then this will have a similar effect. Grossman and other Marxists have explained how the effects of these counter-tendencies are necessarily limited. Grossman has demonstrated that no given rate of accumulation can be sustained indefinitely.

Grossman saw his contribution to Marxist economic theory as underpinning his commitment to the idea of working class self emancipation. Although he ceased to be an active member of the JSDP's leadership in 1908 when he moved to Vienna, he became a member of the Polish Communist Party in Warsaw in 1920.

The following year Grossman left the Polish Central Statistical Office where he was in charge of running independent Poland's first population census. The use of censuses in Galicia before the war had been an aspect of the repression of minorities, designed to maximise the number of 'Poles' and hence funding for education in the Polish language. Grossman refused to go along with similar manipulations by the new Polish state and resigned.

He then became a professor at the Free University of Poland where he continued to work on Polish economic history and published several Marxist studies in the history of economic thought. At the same time Grossman was one of the main organisers of the People's University. This was a very important front for the Polish Communist Party because police repression forced it to operate underground most of the time. In addition to general educational and cultural activities the People's University provided a key forum for open political discussion. Grossman was arrested five times and spent periods ranging up to eight months in prison. Eventually, after a public campaign freed Grossman, he was forced into exile in November 1925.

The Polish professor went to work under his old academic mentor in Vienna, the Marxist academic Carl Grünberg. who was now the director of the Institute for Social Research, an organisation attached to the University of Frankfurt. Grossman did not join the German Communist Party but was politically close to it as he produced his best known work on Marx's method and Marxist economics in the period leading up to the Nazi seizure of power in 1933. In his preface to The Law of Accumulation Grossman wrote, 'While Marxists have written extensively on the political revolution, they have neglected to deal theoretically with the economic aspect of the question and have failed to appreciate the true content of Marx's theory of breakdown. My sole concern here is to fill this gap in the Marxist tradition.'

Grossman also commented on the relationship between economic crises and class struggle in the final section of his book. This is missing from the English translation, reinforcing the myth that he was a theorist of automatic capitalist breakdown in which the working class played no part. It is hardly surprising that, despite his explicit statements, the journals of the reformist Social Democratic parties in Germany, Austria and Switzerland rejected Grossman's economic analysis by means of this myth. They were hostile to Marxist arguments against their preference for a non-revolutionary, crisis-free transition to socialism as were ultra-left Marxists like Anton Pannekoek and, by the early 1930s, Karl Korsch. The official Communist movement condemned The Law of Accumulation. The book was published just as Stalin was asserting his right to dictate the truth in areas ranging from genetics to linguistics.

Following the Nazi takeover in Germany the Institute for Social Research went into exile. In Paris Grossman published a path-breaking Marxist study of the origins of the modern scientific worldview. This argued that the technological advances associated with early capitalism--back to the 15th century--provided the foundations for mechanistic scientific theory.

He also reassessed the sectarian Communist strategy which had prevented a united working class fight against the Nazis in Germany. For a period he was sympathetic to Trotsky's explanation of the 'German catastrophe' and the degeneration of the Russian Revolution. But he swung back to a Stalinist position as the Comintern adopted its 'popular front' strategy and particularly in response to the civil war in Spain.

Grossman then moved to London and rejoined the rest of the Institute in New York in 1937. He stuck to his approach to Marxist economics. He wrote a long essay on Marx's originality as an analyst of capitalism's dynamics. While Grossman had moved politically back to Stalinism, the Institute's director, Max Horkheimer, gave up on any idea of working class revolution. Soon he privately described a draft of Grossman's next essay as 'a most rotten piece of work'. This further study of Marx's place in the history of economic thought was republished twice in the early 1990s. It also reaffirmed Grossman's longstanding view that 'no economic system, no matter how weakened, collapses by itself in automatic fashion. It must be "overthrown"... So called "historical necessity" does not operate automatically, but requires the active participation of the working class in the historical process.'

In 1949 Grossman left New York to take up a chair in political economy at the University of Leipzig in the Soviet zone of Germany. He joined the Socialist Unity (Communist Party) and identified with the Stalinist regime. But he continued to stand by his contributions to economic theory, although they were heretical, and he prepared a collection of his essays from the late 1920s and early 1930s. After he died nothing was done to publish it.

Grossman's essays, The Law of Accumulation and his study of dynamics were eventually reissued in the 1960s and early 1970s as a new generation of young German revolutionaries began to relate to rising levels of class struggle and to explore non-Stalinist Marxism. Today Grossman's works are more relevant than ever in describing why the system goes into crisis and what role the working class has in offering a solution.