Capitalism's Collapse: Henryk Grossmann's Marxism

Author(s): Rick Kuhn

Source: Science & Society , Summer, 1995, Vol. 59, No. 2 (Summer, 1995), pp. 174-192
Published by: Guilford Press

Stable URL: https://www.jstor.org/stable/40403485

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 Science & Society, Vol. 59, No. 2, Summer 1995, 174-192

Capitalism's Collapse:
Henryk Grossmann's Marxism

RICK KUHN*

ABSTRACT: Henryk Grossmann regarded an account of capital-

ism's tendency to breakdown as an essential element of revo-
lutionary Marxist theory and of the case against reformism. In
1929, Grossmann systematically elaborated Marx's argument that
the tendency to breakdown is inherent in the capitalist produc-
tion process itself, in the form of the tendency for the rate of profit
to fall. He demonstrated how this operates, using Otto Bauer's
reproduction scheme; identified how the mass of surplus value
can act as a trigger for economic crises; and examined the effects
of countervailing tendencies in slowing the fall in the rate of
profit. Grossmann has been criticized as a theorist of automatic
collapse. This criticism misunderstands the method of succes-
sive approximation of reality which Grossmann both identified
in Marx's work and used in his own argument. In fact Gross-
mann was committed to revolutionary working-class action to
end capitalism and was, in this sense, an orthodox Leninist.

GROSSMANN (1881-1950) realized that a theory

of economic crisis and collapse was not just some added
optional extra in the socialist critique of capitalism. Eduard
Bernstein, the leading theoretician of revisionism, had correctly seen
the argument that capitalism was inherently crisis- and collapse-
prone as central to the logic of Marxism: "If the triumph of social-
ism were truly an immanent economic necessity, then it would have
to be grounded in a proof of the inevitable economic breakdown

* I am grateful to Jürgen Scheele for making his informative thesis available to me and
for stimulating discussion. Rakesh Narpat Bhandari, Jack Barbalet, Mary Gorman and
Bob Kuhn have all provided valuable support, assistance or advice in the preparation of
this article and the ongoing conduct of a larger project on Grossmann's life and work.
The article has also benefitted from the comments of the editors of Science & Society.

174

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 HENRYK GROSSMANN 1 75

of the present order of society" (quot

His denial that such a proof was possib
part of his case against classical Marxi
Capitalism does many horrible thing
radical differences in income and wealt
and immense luxury on the other. It a
and from our natural capacities - for w
sure. The system reproduces itself by d
trary lines of nation, gender, race, rel
Its wars periodically massacre huge num
provide bases for socialist critiques of t
tion. But if capitalism can go on forev
of wealth all the time, then in principa
could either be overcome through wor
wealth or ameliorated into unpleasant b
circumstances, Grossmann argues, the wo
ily reconcile itself with capitalism as volu
ize socialism (Grossmann, 1992, 56-57)
Leading social democratic theorists, s
and Bauer, believed that state action cou
which were the consequence of disprop
ferent industries. They refuted Bernstein
no theory of collapse in Marx's accoun
mal adherence to Marxist orthodoxies,
same ground as Bernstein, the contem
social democratic parties and market s
nized the dangers of this approach:

It was a great historical contribution of Rosa

scious opposition to the distortions of th
the basic lesson of Capital and sought to r
the continued development of capitalism e
Frankly Luxemburg's efforts failed . . .
. . . Her own deduction of the necessary
rooted in the immanent laws of the accum
scendental fact of an absence of non-capita
the crucial problem of capitalism from the
circulation. Hence the form in which she
lute economic limits to capitalism comes
of capitalism is a distant prospect bec

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176 SCIENCE & SOCIETY

non-capitalist countries is the task o

125-126.)1

Grossmann already maintained

that "an economic system based o
sole goal and regulator of produc
ficulties and 'unsolvable problem
portant sources in the genesis of
tific economics" (Grossmann, 1924
Bauer's position by arguing that
(Grossmann, 1922-1925, 285-90),
favor of an account based on M
rate of profit to fall. The Marxis
dency to collapse, which he elabor
ment about socialist strategy and
not his only, contribution to Mar
In a later summary of his theory

the meaning of a theory of collapse i

proletariat drives forward most stron
objectively shaken. At the same tim
successful suppression of ruling clas

Grossmann made a powerful case

the tradition of Marx and Lenin,
conservative politics and economi
Marxism deserve a critical assessm
unfavorable and, in some respects
the Marxist economic: literature

The Logic of Capital Accumulati

Grossmann grounded his argum

historical materialism. Capitalism
tion, is a transitory form of org
development is fundamentally co

1 In this respect Luxemburg's approach has b

pendency" school of development, who belie
sands of years of life in it (Frank and Gills,

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 HENRYK GROSSMANN 1 77

tween the forces and relations of p

capitalism "creates its own negation
natural process" (quoted in Grossmann
of capital becomes a fetter upon the
has flourished alongside and under it,"
propriation of the expropriators" (M
argued, with Marx, that this is the "H
ist Accumulation" (Marx, 1976, 927),
the tendency for the rate of profit t
Volume III (Grossmann, 1992, 39).
He maintained that the contradiction between use value and

exchange value, whose significance, Rosdolsky points out, had bee

overlooked by earlier Marxists (Rosdolsky, 1977, 73, 87-88),2 wa
vital to Marx's theory of breakdown:

The capitalist process of production has a dual character. It is a labor pr

cess for the production of commodities, or products, and it is at the sam
time a valorization process for obtaining surplus value or profits. Only t
latter process forms the essential driving force of capitalist production
whereas the production of use values is for the entrepreneur only a mea
to an end, a necessary evil. (Grossmann, 1992, 61; cf. 144-147.)

Commodities, as use values, satisfy human needs. The process

of capitalist development involves the potentially unrestricted growt
in the production of use values, given the capacity of human nee
to expand and change. Production, however, is not undertaken t
satisfy human needs, but to produce profits, additional exchang
value for capitalists:

From a purely technological aspect, as a labor process for the productio

of use values, nothing could impede the expansion of the forces of pr
duction. This expansion encounters a barrier in the shape of the valor
zation process, the fact that the elements of production figure as capit
which must be valorized. If profit disappears the labor process is inte
rupted. (Grossmann, 1992, 119; cf. 123-124.)

2 Hilferding (Rosdolsky, 1977, 73-74) and Louis Boudin (19 15, 55) both regarded the stu
of commodities as use values as lying outside the scope of political economy. Rosdolsk
mentions that Grossmann did address this issue and cites Grossmann (1977 (1941)). I
fact he had emphasized the importance of the contradiction between use and exchan
value many years earlier (Grossmann, 1922-1925, 289-290; 1924, 59).

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178 SCIENCE & SOCIETY

Grossmann demonstrated how t

duction scheme elaborated by Ott
of Austrian social democracy betw
of Marx's model in Volume II of C
This model involves assumptions
stant capital (machinery and equi
value of the labor power or people
duction process) and generates a spec
stage in the analysis of the tendency
from less fundamental aspects of th
tuations in prices, deviations of pr
or unevenness in the development
ations were reintroduced at a late
basic features of capitalism had
Bauer's scheme assumed initial values of 100,000 for variable
capital v9 and 200,000 for constant capital c; a constant rate of
exploitation (rate of surplus value), s/v, of 100%, so that surplus
value s always had the same magnitude as variable capital; accumu-
lation of variable capital, av (and therefore population growth) at
a rate of 5% a year, and of constant capital, ac, at 10% a year
(Grossmann, 1992, 168).
The choice of Bauer's model and these assumptions was a polit-
ical one. Bauer had let his model run for seven years and argued
that it demonstrated that capitalism could go on forever, without
crises, so long as output from different industries (simplified in the
model to two "Departments" of production producing means of
production and means of consumption) was kept in the correct
ratios. Grossmann let the model go on for 36 years and found that
it runs into difficulties after year 34 and collapses entirely in year
36 (Grossmann, 1992, 74-77).
Realistically, Bauer's model assumed a higher rate of accumu-
lation of constant than variable capital. Capitalists will try to reduce
the value of their commodities so that they can undercut their rivals.
Increasing the productivity of their workers by introducing new and
more expensive machinery and technology is an effective way of
doing this. As total output grows, constant capital will tend to ex-
pand more rapidly than variable capital. So there will be a rise in
the weight of constant capital in capitalists' total outlays, which is
measured by the organic composition of capital, c/v. It is the vari-

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 HENRYK GROSSMANN 1 79

able capital alone, however, that produ

measured against total outlays, a de
creating variable capital will mean a fall
if the rate of exploitation is held con
talism increases the productivity of
the production of use values, it is the
tendency for the rate of profit to fa
capitalist collapse.
Bauer's model implied a falling rate
his fellow "neo-harmonists" thought
tend downwards indefinitely getting
out ever disappearing altogether. Gro
not the case, and his explanation is im
have regarded the tendency of the ra
cant (Yaffe, 1973, 204; Mattick, 1974,
have just assumed that low profit rat
should a crisis arise when the rate of
or 27%?
Grossmann showed that the mass of
of surplus value, is the trigger of capi
77-78, 187). Beyond a certain point
although the mass of profit continue
purchase the additional constant and
a production period. The incentive for
begins to decline after year 20 when
for the private consumption of the ca
rate of accumulation of constant and
tained. At this stage, capitalists will s
profitable investment, outside produ
activity and the export of loan capita
year 35 no surplus value is available fo
tion and surplus value is insufficient t
in additional variable capital, av. Th
Not only does the rate of profit fa
rate of growth of absolute surplus va
at 5% per annum, reflecting the rate
also falls behind the rate of growth
tion (which asymptotically approache
point is eventually reached when the

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180 SCIENCE & SOCIETY

not cover the increase in investm

rate (Grossmann, 1992, 103). Gro
calculating when this point is
factors that slow down or acceler
rated by a higher organic compo
accumulation of constant capital.
accumulation of variable capital
of surplus value slows down th
mann, 1992, 96-101). Grossman
assertion that "... the falling ten
nothing whatever to do with
(Sweezy, 1970, 211), a particular
ship between the two.

Recurrent Crises

Marx dealt with the issue of economic crises at different places

in his work, and identified a variety of factors that can interrupt
the circuit of capital. Of these he regarded the tendency towards
breakdown, lying at the heart of the capitalist production process
itself, rather than developments in the spheres of circulation and
consumption, as "the decisively important one." It is important,
nevertheless, to examine mechanisms which may offset the tendency
of the rate of profit to fall if any given concrete situation is to be
understood. Once these countertendencies are introduced into the
model, the tendency to breakdown will take the form of recurring
crises rather than an uninterrupted collapse. "In this way the break
down tendency, as the fundamental tendency of capitalism, splits
up into a series of apparently independent cycles which are only
the form of its constant periodic assertion" (Grossmann, 1992, 85).
A crisis is itself, what is more, "from the standpoint of capitalist
production, a healing process through which the valorization o
capital is restored" (Grossmann, 1992, 99).
Grossmann, like Marx, took care to examine the implications of
the accumulation process itself in the long and short run, while rec
ognizing that a variety of factors could generate crises, even under
circumstances of simple reproduction, i.e., when there is no accu-
mulation and the scale of production remains constant (Grossmann
1992, 65, 128). Grossmann's approach justified his conclusion that

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 HENRYK GROSSMANN 181

other theories of the business cycle

bear a static character. They cannot
discrepancy between demand and sup
in equilibrium theory prices represen
ing one to the other. Disruption of
terms of exogenous factors.
There is no such defect in Marx's t
procedure starts from the assumpti
forms only a tentative methodologica
in the long run equilibrium is impo
1992, 126-127.)

By progressively dropping the simplifying assumptions of his ini-

tial model, Grossmann brought the analysis closer to concrete real-
ity. He introduced the credit system and showed how it leads to
the characteristic lower interest rates in the early stages of a re-
covery and, subsequently, as the pace of accumulation grows, to
rising rates of interest (Grossmann, 1992, 112-117). This explana-
tion, grounded in developments in the sphere of production, pro-
vides a better guide to understanding the excesses of the decade
of the 1980s, with its stock exchange bubbles, as well as the cur-
rent phase of economic recovery, than either the incomprehen-
sion of mainstream economists or social democratic deprecation
of the irresponsibility of capitalists in the absence of closer state
regulation.
Grossmann lifted a series of other assumptions and examined
the countertendencies in some detail, including the specific efforts
of capitalists and states to overcome their problems.

The capitalist's continual efforts to restore profitability might take the form
of reorganizing the mechanism of capital internally (for instance, by cut-
ting costs of production, or effecting economies in the use of energy, raw
materials and labor power) or of recasting trade relations on the world
market (international cartels, cheaper sources of raw material supply and
so on). This involves groping attempts at a complete rationalization of all
spheres of economic life. (Grossmann, 1992, 133.)

Of particular interest are Grossmann's comments on rising levels

of productivity, the devaluation of capital and the role of the world
market, monopoly and imperialism.

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182 SCIENCE & SOCIETY

Countertendencies

The process of capital accumulat

both variable and constant capital
nology and superior equipment
produced with the expenditure of
the means of consumption that w
labor power and means of produc
So cheapening of the cost of vari
surplus value, by reducing the pro
ers have to spend reproducing th
of wages below the value of labo
higher rate of surplus value will t
ses; a lower rate of surplus value
ses. Desirable as the defense of wo
its own sake, Grossmann pointed
clear we have a means of gaugin
those theoreticians in the trade un
as a means of surmounting the crisi
ket" (Grossmann, 1992, 140).
Howard and King (1988; 1989)
criticisms made of Grossmann's p
• Capitalists would deliberately
mulation to avoid the consequence
position of capital (Howard and
ignores the competitive advantage
capitalist in a sector to take advanta
being the first to introduce a new
of surplus value to innovators fro
- or, better, because of - the inc
composition of capital compared t
cf. Hunt, 1983, 137-145).
• Technological progress leads to
power, which increases the rate o
3 Contemporary discussions of Grossmann's
Bauer, 1929, Benedikt, 1929, Caspary, 1930,
Varga, 1930. They also draw on Trottmann's
as well: Miksch, 1930 (who also argued that
"counter-tendencies" are less important than t
Braunthal, 1929 and Sternberg, 1930.

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 HENRYK GROSSMANN 183

plus value), and reduces the value

the organic composition of capital.
rate of profit (Howard and King, 1
mann maintained that Grossmann had failed to draw a balance
between the tendency for the rate of profit to fall and its coun
tendencies (Trottmann, 1956, 66). But for Grossmann this was,
the short term, an empirical question, to be determined at
particular point in time. His own observations led him to conc
in early 1929 that another serious crisis was in the offing (Gro
mann, 1992, 193).4 Chris Harman and Anwar Shaikh, among ot
ers, have also pointed out, following Marx (for example, 1973, 3
that there is a logical limit to which increasing the rate of surp
value can contribute to the rate of profit: when all new value create
in a period is appropriated by the capitalist and workers do
receive back anything to reproduce their labor power. There is
such limit on the size of constant capital, which can grow inde
nitely (Harman, 1984, 28; Shaikh, 1987, 757).
• In relation to the reduction in the value of constant capit
"at any point in time, the more of this surplus value an individ
capitalist can get hold of and invest in means of production, t
more productivity-increasing innovations he will be able to int
duce compared to his competitors." Given this incentive, a cap
ist faced with particular means of production whose value has
clined will find it advantageous to use the savings to purchase m
or better means of production (Harman, 1984, 28). Shaikh a
points out that "if technical progress is more or less general acr
departments [producing means of consumption and means of p
duction], the organic composition will tendentially reflect chan
in the technical composition" of capital, that is the ratio in wh
machinery and workers are combined (Shaikh, 1978, 251).
• Grossmann ignored capitalism's realization problems (How
and King, 1988, 305). This is true in The Law of Accumulation
it was deliberate. Grossmann, in this book, sought to identify c
fully those contradictions of capitalism that emerge from its c
in the process of production itself (Grossmann, 1992, 29-33).
A different countertendency to those discussed by Grossman
critics was particularly important during the 1950s and 1960s. T

4 For a recent empirical application of Grossmann's approach see Kuhn, 1993.

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184 SCIENCE & SOCIETY

decades before the Cold War an

boom, sustained by the effect o
global organic composition of cap
man, 1984, 75-90), Grossmann po
ist theory of accumulation it foll
of capital values bound up with
necessarily prove a new impetus t
mann, 1992, 158).5 Arms spending
the circuit of capital that would
position of capital, slows down ac
the rate of profit to fall.
Even if he had not offered pro
prone nature of capitalism, Gross
tention for its treatment of impe
Imperialismus und die soziale Rev
berg's Der Imperialismus to a with
The sections in The Law of Accum
tinuation of this debate. They re
World War II theorists who gave
oped countries and pinned their ho
on revolutions in the third world
as Grossmann's main target was u
continued, along with a distinctive
Sweezy and Paul Baran.
According to Grossmann, impe
be understood in relation to crise
value production in developed c
profit rates. Imperialism provide
several means for improving prof
to stagnate. In relation to intern
of production for international m
their production and circulation
At the same time the formation of
modities produced with a lower
selling below their value and thos
composition selling above theirs,
transfer of surplus value from le
5 YafFe (1973, 221-222) denies that arms prod
ence to Grossmann's framework.

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 HENRYK GROSSMANN 185

This was a rigorous formulation of

a term Grossmann used, long befor
among third worldists (Grossmann
however, that capital accumulation
veloped countries. Imperialism was
tween the developed and underde
of capitalist countries at a high sta
comes particularly pronounced dur

In proportion to the growth in the nu

capital, competition and the struggle
intensify. The repercussions of this wi
home. (Grossmann, 1992, 197.)

Underdeveloped countries cannot,

argued, provide a market capable o
of the developed countries. In reali
more developed a country is the la
other developed countries (Grossm
Grossmann criticized explanatio
veloped countries that ran purely in
be found there. Given the formatio
is no more likely in the underdevel
On the other hand, efforts to secu
cheap raw materials were means of
capital in the imperialist lands (G
main example is U. S. global oil poli
(Grossmann, 1992, 176).6
The export of capital, in the form
lative investments overseas, is als
opportunities for adequate returns
due to low profit rates and the inab
at home to increase the mass of su
180, 187-188). The same is true of
tive activity as capitalism ages and,
of cycles of crisis and recovery. In
torical discussion, Grossmann ident

6 For a large amount of additional illustrative m

rials by the imperialist powers, see Grossman

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 186 SCIENCE & SOCIETY

tendencies first emerged in diff

Netherlands in the 17th century
illustrative material on the pursu
rialist powers (Grossmann, 1970
foreign loans can be used to obta
prices, at the expense of compet

The point of capital export, in add

tioned, such as securing raw materi
in the tribute that the recipients of l
(Grossmann, 1970, 529.)

In other words, the inadequacies

tion can be offset by getting a
where through the interest earn
1929, but his conclusions apply i

It is also, therefore, clear that the s

also the greatest danger to world pe
tion of the future should be clear t
"Dollar Diplomacy" with the appropr

Marx's Method

Grossmann repeatedly emphasizes that his use of Bauer's re-

production scheme, reflecting his understanding of Marxist meth-
odology, is an initial stage of analysis. The scheme captures the
fundamental aspects of reality, and forms the basis for a more nu-
anced account of the totality of capitalist society, as simplifying
assumptions are relaxed and the analysis becomes more concrete.
But this emphasis has been to little effect. Most of the critics of
The Law of Accumulation and Breakdown of the Capitalist System have
accused it of fatalistically arguing, on the basis of arbitrary assump-
tions, that capitalism would inevitably collapse of its own accord.
This view has been expressed by representatives of radically dif-
ferent political currents: social democrats Bauer (1929, 280) and
Braunthal (1929, 204); council communist Pannekoek (1973, 41);

7 In addition, Grossmann undertook the first detailed Marxist account of the origins and
significance of the capitalist slave trade from the 15th century (Grossmann, 1970, 396-415).

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 HENRYK GROSSMANN 187

Stalinists Varga (1930, 95) and Behre

doxy, expressed by most of the revie
lication through Sweezy's Theory of
(1970, 213-214) to Howard and King's
is that Grossmann's explanation of c
In fact they have failed to understa
method:9 "It is really a major misun
Marx's thought when one . . . sees only
and not their subsequent corrections
widespread misinterpretation has a g
fluence of Stalinist and reformist ideas in the labor movement.
Grossmann's commitment to historical materialism and working-
class self activity are alien to those who have faith in parliamen-
tarians or an all-knowing dictator (Howard and King, 1989, 331
332).
In moving from the most abstract level to more concrete levels
of analysis, Grossmann demonstrated at length the consequences
of varying his assumptions - rates of accumulation, and surplus
value, initial magnitudes of constant and variable capital - and
countervailing tendencies, including several not mentioned by
Marx.

8 Also noteworthy in this regard are Jay (1973, 18), Hansen (1985, 142) and Milios (1994).
Ernest Mandel's understanding of Grossmann's analysis is, on a series of counts, among
the least useful contributions in 65 years of confused and tendentious commentary on
The Law of Accumulation. His Marxist Economic Theory (1968, 328) identifies Grossmann
as a proponent of disproportionality theory. Apart from misunderstanding Grossmann's
method, Mandel argues, in Late Capitalism (1978, 152), that Grossmann "forgets" to deal
with the "historical and social element" of the value of labor power, which Grossmann
explicitly discusses (Grossmann, 1970, 580-603, 594-595), and that Grossmann funda-
mentally misunderstands the role of competition in Capital (Mandel, 1978, 31). Gross-
mann explicitly refutes this point (Grossmann, 1971, 53-54). Scheele draws attention to
Grossmann's conception of competition (1990, 62). Even someone, like Kenneth Lapides,
who applauds Grossmann's exposition of Marx's method, judges his economic analysis
a failure (Lapides, 1992, 150, 152). Lapides concludes that Grossmann's analysis of the
method underlying Capital is superior to Rosdolsky's in The Making of Marx s "Capital."
Grossmann is better understood by Walter Braeuer, 1954; 1966; Mattick, 1974; Marramao,
1975; Harman, 1993; Yaffe, 1973; andjacoby, 1975, whose essay on the history of Marx-
ist crisis theory is useful, though mistaken in stating that Grossmann was "fundamen-
tally an economist," ignoring his original work as an economic historian and statistician,
and in asserting that his first Marxist writings appeared in 1924, 20 years after his ear-
liest publications, which already embraced a Marxist perspective (Grossmann, 1905).
9 Grossmann was the first to explore why Marx had altered his original plans for Capital and
the implications of this change for his methodology, in both The Law of Accumulation (Gross-
mann, 1992) and, soon after, in "Die Änderung des ursprunglichen Aufbauplans des Marx-
schen 'Kapital'" (Grossmann, 1971). Lapides (1992) quotes from this essay at length.

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188 SCIENCE & SOCIETY

The task of dispelling the long

The Law of Accumulation is not m
the recent English edition. The
tion, where Grossmann conclude
crete politics by examining the i
sis for the class struggle and th
capitalism, has been deleted. Gro
ing that capitalism would inevit
point he made briefly in the sec
correctly remarks, there are no ab
mann, 1992, 95). Before, in and a
purpose of Grossmann's argume
to clarify the necessity for revo
in which it could take place.
A commitment to socialist polit
whole life. In his early twenties
of the left-wing student organiz
Karl Radek. In 1905 he was a co-f
cratic Party of Galicia. After Wo
become a member of the underg
of Poland, was one of the two ch
that operated under Party direc
his relationship with the Party
subsequently involved in a social
while a member of the Institute
furt School") in Germany and la
(1935-1937) and New York (193
political orientation did not chan
tique of Fritz Sternberg's book
Lenin's description of the objecti
cessful revolution, he maintained

It is not mere "class consciousness" (

hammering into heads of the final
cance as a subjective factor. Someth
"the capacity of the revolutionary clas
requires an organization of the unif
ence in everyday class struggles. (G

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 HENRYK GROSSMANN 189

Fifteen years later the same theme

The third element in Marx's general th

no matter how weakened, collapses by i
be "overthrown". . . . so-called "historic
matically but requires the active partic
historical process. (Grossmann, 1943, 5

Grossmann showed that as the

capitalists try to rationalize their o
the onset of crisis, they will attem
they need as cheaply as possible. To
wages will be depressed below the
are not successful, the scale of mas
either case, such periods are charac
the working class. This is precisely
class in most countries today. Gros
logically from the preceding analys

Only on the basis of our description of

to understand the fact that, at the highe
over the division of revenue is not mer
dards of the classes involved. It is also
capitalist mechanism itself. . . .
In this way the struggle of the work
is bound up with its struggle over the
the working class fights, is not an ide
ment from outside by speculative mea
of the struggles of the present, is put off
as the law of collapse presented here show
day struggles and its realization can b
(Grossmann, 1970, 602-603.)

Grossmann's political message is cle

that underpins it is still a powerful

Department of Political Science/ Arts

Australian National University
Canberra ACT 0200
Australia

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190 SCIENCE & SOCIETY

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