After many years of being written off as outdated – by those who didn’t know any better – the investigation of the capitalist mode of production by Karl Marx, once again proves its undoubted merit. I shall argue in this article (divided into two postings) that the ongoing economic and financial crisis (of 2008 to 2011 and beyond) cannot be fully understood without having grasped the analysis made by Marx. Despite a long interval of time the situation remains as his friend and associate Engels stated, Marx‘s analysis; “…offered to him who knew how to use it the key to an understanding of all capitalist production“. (Engels. Preface to Volume 2 Capital.) A few pro-capitalists have recently admitted as much in the main stream media. One commentator declared the current crisis as the ‘Revenge of Marx‘. Another, Nouriel Roubini, asserted;

“Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labour to capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labour costs more and more down, but labour costs are someone else’s income and consumption. That’s why it’s a self-destructive process.” (Interview. Wall Street Journal. Sept.2011.)

However, despite the above insight, the majority of the so-called economic ’experts’ continue to flounder as they try to predict outcomes and suggest remedies for the volatile symptoms of the debt-riddled capital ‘markets‘. Some commentators have understood that there is a problematic connection between the production of commodities and services (the basis of any social and economic system) and the speculative antics of the finance and banking capitalists. However, typically they perceive the relationship the wrong way around. They view the financial sector as determining the economic sector, when in fact, as we shall see, it is the reverse. Thus they start from a position which assumes that in this crisis, everything else in society must be sacrificed to propping this financial sector up. In this way they advise attempting to deal with the symptoms of crisis and not the causes. If we consider the economic analysis of Marx, the fallacy of this self-serving inverted perspective will become clear. What will also become clear is the real source of the crisis and the nature of the process which creates it. However, before, looking in more detail at the capitalist economic process it is worth considering an important summary of the conclusion reached by Marx after studying, Smith, Ricardo and over a hundred other noted economists of the capitalist system. He observed;

“Since the aim of capital is not to minister to certain wants, but to produce profit,……a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier. Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities.” (Marx. Capital Volume 3. Page 251.)



a) The circulation of commodities and services.

At the basis of any society lies the production and circulation of products and services. This is no less true of the modern complex capitalist system than previous forms of society. The difference being under capitalism, these goods and services -and the main means to produce them – are presently under the control of those who own money in the form of capital. This ownership and control of production arose out of previous economic developments which created an extensive system of exchanges, which required money as a medium of exchange. Marx again on the circulation of commodities;

“The circulation of commodities always requires two things: Commodities which are thrown into circulation and money, which is likewise thrown into it….The process of circulation … does not, like direct barter of products, become extinguished upon the use-values changing places and hands. The money does not vanish on dropping out of the circuit of the metamorphosis of a given commodity. It is constantly being precipitated into new places.…” (Marx. Capital. Volume. I, page 162. Emphasis added. RR).

It is the insertion of accumulated money in new places within circulation, which, as we shall see below, creates additional wealth for the rich, but at the same time impoverishes the poor. The initial function of money – and still its primary mode of operation for the vast majority of people – is as a means of exchange for things they need. Even money banked for the vast majority of people, is as a store for future probable exchange needs. However, for a minority who become rich, much of their money has taken on a new ‘mode’ of operation and becomes a means of gaining more money. They have, or can obtain, more money than they need to purchase goods and services, and they invest this ‘surplus’ to obtain even more money. The huge and multiple problems accruing with this process as it has developed will be considered later. Meanwhile Marx describes this intrusion of money – as capital – in the following manner;

“The simple circulation of commodities—selling in order to buy—is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits.” (Marx. Capital. Volume 1 page 219. Emphasis added. RR)

The problem with inserting accumulated money into the circulation process, is that it is both parasitic on the primary process, and at the same time it pushes the process beyond production for need and on to production for greed – the unlimited use of money in order to create more money. The fact that some people are able to use money in this new mode (to create more money) has allowed a class to develop which enables them to ‘speculate’ in three main ways. 1: They can use the money to buy bulk commodities and sell them in the circulation process for more than they bought them – gaining a profit from commerce. 2: Alternatively they can use their surplus money to set up production of commodities or services and sell these in the circulation process, for more than they paid for them – obtaining profit from production. 3: They can lend their surplus money at ‘interest’ so as to make more money – extracting profit from production via financial banking and speculation. Each of these three arena’s of ’investment’ are crisis prone and during such crises, negatively effect the normal functioning of production and exchange. A crisis, or disturbance, in one part of this financially extended (and accelerated) circulation of production and exchange, results in a crisis for everyone. As it developed from feudal times to modern capitalist, the increased complexity of social production and exchange, created the potential for the three above sources of crisis to become international and then world-wide. The infamous ’South Sea Bubble’ was one such early and notable capitalist collapse, the 1930’s Wall Street Crash, being another. However, since these earlier periods, the pool of surplus money has increased astronomically. This accumulation accelerated when money was invested as ‘capital’ in the increasing mechanisation of the production of commodities, starting with the industrial revolution and on to today’s automated production. It is this production process, we need now to consider.


b) Capitalist production. (surplus production and surplus profits.)

So the real impetus to the existence of a large-scale, multi-facetted circuit of commodity production, came with the development of capital as a complex integrated system of money-directed and money-propelled ‘means of production‘. Marx, transforming the insights of Smith and Ricardo, argued that the real value-adding catalyst of those ‘means of production’ (raw materials, machinery and labour) bought together by the capitalist, was the ‘labour-power’ of the worker, purchased as a commodity. The wage paid to the worker under the rule of capital was henceforth, directly related to the means to keep him or her alive, not to how much value the labour-power of the worker gave to the production process. With admirable intellectual persistence, Marx was able to probe away at every detail of capitalist theory and practice. Using the analytical concepts of necessary labour and surplus labour he then went on to explain how profits were ultimately obtained. It is as follows. The worker works part of the day, week or month, the necessary part, and during that necessary time, gives a value to the commodities or services equal to his or her wages or salary. However, at the point where the worker has returned the value of his or her wages, the worker is not allowed to depart and leave the place of work. Under the capitalist wages system, the workers must continue to work the hours remaining in the negotiated ‘working day’, and work them for no return. As Marx noted with regard to the 19th century level of exploitation;

“Half the working day costs capital nothing; it thus obtains a value for which it has given no equivalent.” (Marx. Grundrisse. Notebook 3. Page 324. 1973.)

Due to the above-noted improvements due to mechanisation, automation and computerisation, modern production has decreased necessary labour time and increased surplus labour time. The surplus labour time worked, therefore, creates even more surplus products or services. It is these surplus products and services which as a consequence contain the surplus value (profits) which is realised as money, when they are sold. The proceeds of these sales returns as capital to the capitalists, who begin inserting it into and onto the circulation process again. By his detailed, forensic analysis, Marx had revealed one moral question and two important economic aspects leading to crisis. First the moral. The fact that a portion of the days work was surplus labour and unpaid, the exchange between the worker and the owner of capital is a ‘rip-off’. In fact it is often a double rip-off because after the very first complete circuit of a productive capital, or soon after, the capitalist pays the workers’ next set of wages out of the previous or subsequent cycles of surplus value (unpaid labour) created by the workers. The degree to which this double exploitation takes place, determines the rate of surplus value created. Thus;

“The rate of surplus-value is therefore an exact expression for the degree of exploitation of labour-power by capital, or of the labourer by the capitalist.” (Marx. Capital Volume 1, page 314/15.)

Clearing away the confusions of earlier economists, Marx transparently exposed the fact that the workers are, by means of a detour through the accounts of the owners of capital, actually paying themselves for the privilege of producing untold wealth for the owners of capital. Capital accumulation, by private individuals whether as owners or shareholders, is nothing less than a sophisticated form of theft, but one successfully disguised by sophistry, the payment of a wage and the spuriously justified concept of valid profits. Yet, as noted, the subtle and blatant immorality of this disguised form of unequal exchange was not all that Marx’s economic analysis revealed. It revealed that the logic of capital, through its surplus value (profit) accumulation, pushed surplus production to the point of a crisis of over-production of commodities and overproduction of capital. A crisis which then, as it is doing now, dislocates the normal functioning of commodity production and exchange.


c) Overproduction. (The source of economic crisis.)

As was noted in the first quote from Marx, the difference between the value embodied in surplus production and the value paid in wages is such that the total wages of the working population are in no way sufficient to purchase all the items they collectively produce. This difference between the total value created and the total amount paid to the workers creates a scenario of what Marx described as relative overproduction. Relative overproduction in the sense that more items are produced than can be sold and bought in order to realise the profit (surplus value) embodied in them. As Marx further commented;

“The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” (Marx. Capital Volume 3 p 650.)

At one moment in time this early form of the crisis appears as an overproduction of commodities at another moment an overproduction of capital invested in commodity production. Older, readers may recall, the infamous, ‘butter mountains’ and ‘wine lakes‘, which along with other surplus production ‘dumping‘, were the early symptoms of this initial stage of a developing capitalist crisis. This potential for overproduction, multiplied as it was (and is) by the increases in technology and in the number and diversity of capitalist enterprises employing masses of workers, periodically creates the above-noted problem of crisis. Marx also drew his readers attention to the further consequences of capitalist inspired over-production – permanent levels of unemployment;

“Over-production of capital is never anything more than overproduction of means of production—of means of labour and necessities of life — which may serve as capital, i.e., may serve to exploit labour at a given degree of exploitation; a fall in the intensity of exploitation below a certain point, however, calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of capital….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…. “ (Marx. Capital. Volume 3 page 339. Emphasis added RR.)

Over the last few decades, there has been systemic, and still increasing levels of unemployment, alongside the proliferation of mass commodities in all the advanced capitalist countries of the world, particularly Europe, North America and Japan. This has been due to the increases in the productiveness of labour via time and motion studies and the introduction of automation and electronic technology. The general fall in the rate of profit, after the boom period following the Second World War, also saw capitalist production facilities transferred from the advanced countries of Europe and North America, to those with lower labour costs. This capital ‘outflow’ left unemployment behind but led to a further increase in the mass of profits, which was then available to be used for any and every form of ’investment’. This whole development demonstrates that the mechanisms revealed by Marx in his economic studies still operate. This is so even though the sophistication of the commodities and services, along with production techniques, has evolved along with the complexity of the financial sectors and the involvement of the state. And it is this complexity which often disguises the reality of what is taking place.

“Hence what appears as a crisis on the money market is in reality an expression of abnormal conditions in the very process of production and reproduction.” (Marx. Capital. Volume 2 page 429/430.)

It is these abnormal conditions, which have been caused by the fact that the surplus capital created in the production processes, and the urge to create more, has been used to develop the extensive use of credit and international speculation. The use of credit, in place of direct money, has allowed the capitalist system to extend and expand astronomically, but at the cost of problems caused by defaults and failures to pay, due to interruptions within the increasingly complex infrastructure of financial institutions. Credit has also put enormous amounts of fictitious money (as capital) into the financial superstructure and placed it into the hands of people whose primary and sometimes only goal is to create bonuses and fees for themselves. Thus;

“With the development of the credit system; great concentrated money-markets are created, such as London, which are at the same time the main seats of trade in this paper. The bankers place huge quantities of the public’s money-capital at the disposal of this unsavoury crowd of dealers, and thus this brood of gamblers multiplies.” (Marx. Capital. Volume 3 page 688)

It is here that we should note the financial sectors concern for the crisis publicly emerging in 2008 and continuing, described in terms of ‘toxic loans’ and ‘credit defaults‘. We need only recall, the Internet speculative ‘bubble’ of the late 20th century and the 21st century, collapse of the housing mortgage ’sub-prime’ mortgage packages in the USA, to confirm the relevance of Marx’s diagnosis of crisis. That a breakdown at any link in the increasingly complex chain of circulation, would throw the whole essential process of production and exchange into chaos, confusion and crisis. And during Marx’s own lifetime, it did. Yet this was not the only problem revealed by his persistent, searching analysis. The separation of the financial sector and the continuing rise in surplus value amassing within its area of control has led increasingly to speculative adventures in which huge funds were, and are, allocated to wild and desperate projects in the hope that a profit could be made. The crises, created by speculative losses in the financial sector, have severe repercussions in the circulation of capitalist-driven productive relations.

“This confusion and stagnation paralyses the function of money as a medium of payment, whose development is geared to the development of capital and is based on those presupposed price relations. The chain of payment obligations due at specific dates is broken in a hundred places. The confusion is augmented by the attendant collapse of the credit system, which develops simultaneously with capital, and leads to violent and acute crises, to sudden and forcible depreciations, to the actual stagnation and disruption of the process of reproduction, and thus to a real falling off in reproduction.” (Marx. Capital. Volume 3 page 336.Emphasis added. RR.)

The losses, defaults and banking collapses, which have triggered the present confused turmoil and threaten peoples jobs, houses, pensions and general welfare are the modern analogues of what Marx describes above. The banking system from merely being large-scale, safe, temporary cash-boxes for spare cash were transformed into lenders of capital. In this way an institutional separation and an apparent independence grew up within the financial sector, leading for a period to appearances of banking solidity and reliability. This growth of the purely financial sectors of capital, which on one level lubricated the path of capital accumulation for the capitalists, had also introduced other levels of complexity and further contradiction. The pathway of the circulation of capital now has more points of separation and thus more points of possible interruption. The imperative to realise the surplus value and thus preserve the original capital and its incremental offspring (profit), gave rise to the aggressive search for new markets, internally and then externally. This led to the aggressive penetration of capitalism into every nook and cranny on the globe – the period of colonialism and imperialism – which has still not completely ended as the examples of Israel, and recent armed interventions in Iraq, Afghanistan and Libya demonstrate.

However, there is a second important and crisis-ridden symptom caused by the vast amounts of surplus value realised in the capitalist production of commodities and services. Much of that surplus value, realised as money-capital (ie money returned to the capitalists but not destined for the capitalists own consumption), becomes surplus not only to the needs of the wealthy individuals, but also to the commodity production processes themselves. As we have seen, this money, collected together in banks and other financial institutions, now exists as ‘loan capital’ or ‘money capital’ and driven by the desire of its owners and managers for more (the latter for fees), therefore seeks alternative ‘speculative’ outlets. These vast amounts are loaned at ‘interest’ or used to buy and sell ‘stocks‘, ‘bonds’ and other more modern ‘financial instruments’ such as ‘futures’ and ‘derivatives’. All of which, as we shall see in the next posting, have led to the current economic and financial crisis, and which now threatens the lives and livelihoods of so many citizens of the world.

(This article to be continued…covering Marx on the issues of; Speculation; Sovereign Debt; and Ecological destruction.)

A second article THE RETURN OF MARX – 2, will distinguish between Marx and the ‘Marxists’ who seek to subordinate revolution to dictates of a ‘Party’)

Both will also appear at