[This is an essay I wrote in January 1977 when I was a member of the Revolutionary Communist Party, USA, and which I submitted to the Party leadership. I received no response whatsoever. However, in October of that year this essay was cited as one of the reasons for expelling me from the Party as an "idealist" and "opportunist". Specifically, they claimed that "Our idealist has a history of denying the nature of the present crisis. ...he upholds a notion of the system's unrestrained freedom and power in this period when, he says, the Party's analysis of the capitalists' cutthroat competition and productivity drives, caused by the crisis and the shortage of capital, is wrong." I believe readers of this article will see that I say no such thing. The RCP continued to dabble with this erroneous capital shortage theory for a while longer, but pretty much abandoned it by the early 1980s—though occasional faint echos showed up even later.]

1. INTRODUCTION. During the past year or two several articles on the current economic crisis have appeared in Revolution and in other [internal] Party literature. (I will in this paper refer only to the articles in Revolution.) On the whole these articles have been insightful and accurate descriptions of the profound crisis that has been developing in the U.S. and throughout the capitalist world. But I believe that there is one major error that runs throughout these articles—namely, the theory that there exists a shortage of new capital available for investment in new plants and machinery. This may seem a small point to be disputing, but as I will try to show, it has important implications regarding the whole nature of the crisis and of imperialism in general.

2. THE ARGUMENT FOR THE "CAPITAL SHORTAGE" THEORY. As I understand it the "logic" of this theory is as follows: Despite the fact that in gross amounts profits are at a very high level, these profits are not what they seem to be. For one thing inflation has directly caused these profits to appear much larger than they are. In addition to this, outmoded accounting methods which are inappropriate during inflationary times are causing capitalist enterprises to "overstate" their real profits, which has the further result of "unduly" increasing their tax bill. More fundamentally, although profits are in fact still huge, even after all the effects of inflation are discounted, the rate of profit has declined sharply in the last few years. Internally generated profits are thus inadequate to finance new capital investment, which means that corporations must turn more to banks and other external sources of loans. However the availability of external loans is also inadequate. This problem is aggravated by huge governmental budget deficits which necessitate heavy borrowing from the private sector, diminishing the money available for capital investment loans.

Such, in outline form is the theory. It does, perhaps, have a plausible ring. But let's look at it more carefully.

3. THE ORIGIN OF THE "CAPITAL SHORTAGE" THEORY. The origin of this theory in the pages of Revolution is the debate which has been going on for several years among bourgeois economists and business experts themselves. Business Week magazine, for instance, has given extensive coverage to the possible disastrous effects of the shortage of capital. Fortune magazine has run a whole series of articles about the problems of industrial expansion in specific industries (steel, chemical, etc.). The New York Stock Exchange published a study which projected capital needs through 1985 of almost $4.7 trillion but with the actual capital supply falling $650 billion short of that. (As Fortune remarked, "That is not an amount that fits neatly into the mind.") However, the Chase Manhattan Bank contends that the shortfall will be even worse—$1.5 trillion! Government and academic economists have also jumped into the game with their own varying estimates of "shortfalls."

But there are other bourgeois "experts" who pooh-pooh all this talk, such as followers of Milton Friedman and his "Chicago School" of monetarists. Fortune summarizes their argument against the existence of any capital shortage as follows: "...it is patently impossible at any time for all 'needs' to be filled, and... interest rates may be expected to sort out very nicely which demands get satisfied and which do not. Besides, these critics say, there is always talk in inflationary times of capital shortages." [Fortune, Jan. 1976, p. 105.]

Milton Friedman, who won a Nobel Prize this year, is the wizard who says the Great Depression of the 1930s could have been avoided if only the Federal Reserve Board had increased the money supply instead of decreasing it. (On the other hand more classical "fiscalist" Keynesians such as Paul Samuelson also say the Great Depression could have been avoided by manipulating budget deficits, etc.) It is all too easy to dismiss whatever position people like this come up with as ravings of crackpots that must certainly be wrong. And to assume therefore that the monetarists' bourgeois opponents must be correct in raising the alarm about a capital shortage. It is indeed inconceivable that the monitarists' analysis of the situation could be correct—nevertheless the end result of their thinking (that there is no real capital shortage) might be correct for other reasons.

The truth about the nature of the economic crisis is not to be determined by choosing among bourgeois theorists and their theories. We must use our own heads, base ourselves on the scientific discoveries of Marx and Lenin, and use the Marxist method to analyze new situations and phenomena.

4. THE "INVESTMENT GAP". Is there in fact a slowdown in capital investment in the U.S.? There most certainly is.

If you look only at the "current dollar" figures for capital investment over the post-World War II period you will find that the average annual percent increase for the years 1970 through 1975 is very nearly the same as the average annual increase over the whole period (7.2% by my calculation). But, when you adjust for inflation a different picture emerges. (See appendix 1.)

Looking at these figures we see that the real ("constant dollar") average annual rate of increase of capital investment from 1946 to 1975 is only 3.7%. During the 1960s the average rate of increase climbed to 6.3%, primarily due to the "overheated" economy induced by the Vietnam War. But during the 1970s (so far) the average annual rate of increase has dropped to .05%—scarcely any increase at all. In fact the table shows that in four of the last six years there was a decline in the rate of capital investment as compared to the previous year. The decline in 1975 alone was 11.8%, the largest in the whole post-World War II period. (The preliminary figures I have seen for 1976 show an improvement in real capital investment of between 1% and 3%, depending on the source. One recent Department of Commerce survey showed a lowering of capital spending plans contemplated for 1977. However, another reported in the S. F. Chronicle on Jan. 1, 1977, predicts a 6% increase in real capital spending for 1977. All such projections are notoriously unreliable.)

Looked at in other ways the picture appears even more alarming for the capitalist system. Prof. Paul McCracken, former chairman of the President's Council of Economic Advisors, pointed out some of these statistics in an article in the Wall Street Journal entitled "A Dangerous Investment Gap" [Sept. 17, 1976]: "That the amount of new machinery and equipment and new facilities put in place has for years been subnormal in the American economy is clear from the facts at hand. Thus far in the 1970s the average gross amount of business investment in 1972 prices (technically, non-residential fixed investment) has averaged about $60,000 per person added to the labor force, compared with $73,000 for the 1960s and $84,000 for the 1950s. In its report last month on 'Sustaining A Balanced Expansion' the Congressional Budget Office put the same problem the other way when it pointed out that from 1970 to 1975 our stock of capital per worker increased at a rate of only 1.6% per year, compared with 2.4% during the 1960s and 2.9% in the 1950s." (There are however other reasons why such things may be true besides "underinvestment".)

Since 1960 the U.S. has had the lowest level of capital investment in relation to G.N.P. of any of the major industrialized nations. (See the International Economic Report of the President, March 1975 and March 1976.) Even Great Britain and Italy have consistently invested more than the U.S., and the rate in Japan has been twice as great. (Does this mean that more capital is "available" in other capitalist countries than in the U.S.? If the U.S. has a capital shortage why doesn't foreign capital flow into this country in a bigger way?)

A variety of tax breaks have been given to corporations in the last couple years to spur capital investment, such as raising the investment tax credit rate from 7% to 10% effective Jan. 22, 1975. (An additional increase to 12% is currently under consideration.) Nevertheless the rate of capital investment has dropped and remains quite sluggish. The question is: Why is this so?

5. TWO THEORIES ABOUT THE INVESTMENT LAG. There are two theories attempting to explain the slowdown in capital investment. As the January 1977 issue of Revolution says, "the capitalists haven't been able to get together enough capital for any heavy expansion." ["New Carter 'Promise': Inflation And No Jobs," p. 16.] The second theory is that capital is available for capital investment but that the capitalists refuse to invest it because they know they cannot expect an acceptable rate of return on their investment. So which is it, "capital shortage" or "inadequate profit expectation"?

The April 1976 article in Revolution ["Deeper Crisis, Not Recovery"] wants it both ways: "Production under capitalism is for profit. If there is not adequate profit, there is no production—no matter if millions starve. And what they are talking about is not merely amassing a certain amount of profit... What they mean is that the rate of return on their investment is not adequate. And a falling rate of profit is not going to attract investment for the continued mechanization and expansion of production that is necessary for the accumulation of profits." But then later the same article says, "But even if the capitalists thought the rate of profit was adequate to invest in key sections of U.S. industry, there is a real shortage of capital available for such investments."

It is as if the authors of the article do not believe their own statement that unless and until the capitalists expect to make a satisfactory profit they will not invest their capital. The authors find it necessary to add that no money is available for investment anyway, in order to "really" prove the capitalists are in a bind. But the first explanation is entirely adequate. As Marx put it, "The rate of profit is the motive power of capitalist production. Things are produced only so long as they can be produced with a profit." [Capital, vol. III, p. 259.]

If a capitalist does not believe that a particular investment will be sufficiently profitable, this alone is quite enough to prevent him from making the investment, even if he has the cash in hand or can easily borrow it.

Even Business Week has had to note that "the most vocal proponents of the existence of a capital gap—corporate lobbyists, organizations like the New York Stock Exchange and the Securities Industry Assn.—represent those in society that would benefit most directly from measures designed to close it. It does not help that Washington's No. 1 capital gap crusader, Treasury Secretary William E. Simon, has a Wall Street background with the Salomon Bros., a firm that would obviously benefit from pro-savings, investment legislation." [9-22-75, p. 43.]

Not only is the motivation of the capital gap "crusaders" suspect, so is their methodology. The figures come across like the guess-work they are, varying wildly from one prognosticator to the next. As BW admits, "The capital gap is difficult to define, difficult to measure, difficult to understand, and therefore difficult to take seriously." [Ibid.]

The basic procedure is as follows: a capital crisis "theoretician" first decides what production goals the U.S. "wants to", or "needs to" reach by a certain date, in order, say, to hold the rate of fixed investment constant as a share of GNP, or in order to match the economic growth of Japan or Russia, or in order to double production by that date, etc. He then "calculates" what this means for each industry, and for each year. Then he guesses how much capital is "really" going to be available based on extrapolations of current trends, and various "assumptions" and hunches. Finally he merely subtracts and finds the difference. Voilá! A miracle of economic science! We have here a form of specious reasoning wherein the conclusion is already smuggled in in the arbitrary premises.

In their simple-mindedness, Business Week even admits what is being done: "Any company that turns its engineers loose can always make a list of capital projects that it would like to complete that stretches from the earth to the moon.... Indeed,... the New York Stock Exchange [study] came perilously close to this. The exchange's research department, in effect, estimated the capital needs of industries and units of government without analyzing whether the needs are realistic in the framework of the overall economy. As a consequence, the exchange left itself open to ridicule from many economists and from the labor movement..." [9-22-95, p. 44.]

But now look at the "sound" procedure which they contrast with the NYSE's irresponsibility: "Sound studies of the capital shortage... begin by asking where the economy is now and where Americans would like it to be in, say, 10 years. They then go on to estimate the capital constraints that are likely to be met on the way." [Ibid.] Of course the capitalists would like the economy to shoot straight up, meeting no restraints—external or internal. If wishes were fishes...

(For a relatively restrained example of this nonsensical—under capitalism—methodology in action see the Economic Report of the President, 1976, pp. 41-47.

6. THE PROFIT PICTURE. Capitalist profits have now recovered from their recession lows and in nominal terms (current dollars) stand at or near record highs. Particular examples are quite amazing: ATT has posted profits of over $1 billion in each of the last two quarters reported, for example—the first times any corporation has ever made that much in a single quarter. But in constant dollars, profits have not yet recovered to their former peak. This, however, is only one of the ways that inflation affects stated profits.

A large part of reported corporate profits is actually "inventory profits." According to Paul McCracken in the article previously cited:

McCracken goes on to note that since corporations pay taxes on the whole inflated profit statement their real taxes on "economic profit" have climbed from 41% of profits in 1966 to 53% of profits in the first quarter of 1976. I do not myself understand this well enough to be sure that this is not some kind of statistical sleight-of-hand. Let us assume for now that it is not.

Even so, we must remind ourselves that another large part of actual corporate profits never does show up in profit statements at all (such as executive salaries, bonuses and stock-options). Furthermore, corporate income taxes as a percent of federal budget receipts have been steadily dropping—from 23.2% in 1960 to only 14.5% in 1975. [See Sweezy & Magdoff, "Capital Shortage: Fact and Fancy," Monthly Review, April 1976, p. 19.]

McCracken, and the other bourgeois proponents of the capital shortage theory, argue that real after-tax profits are inadequate to finance new capital expansion, and therefore profits must be taxed less. Even the drop in corporate taxes as a percent of total federal tax revenues doesn't appease Business Week. Their big scare article [Sept. 22, 1975, p. 93] shows a graph where this ratio has fallen to only 12% in the U.S., but to even lower percentages in Germany, France, Britain and Canada. This is then used to argue that there is an "undue burden" on U.S. corporations. This is a brazen attempt to shift even more of the burden of their crisis onto the backs of the workers. (See section 15 below.)

However, the point to keep in mind in this section is that corporate profits are not what they seem—they are overstated relative to past years in several ways because of inflation, and for the bourgeoisie the plain fact is that profits are inadequate.

And yet there is a "curious" fact about profits: dividends are generally maintained even when total after-tax profits decline sharply. Or putting it the other way, retained profits are not jealously hoarded in order to be better able to expand production. (See appendix 2. [Note (1998): This was a hand-drawn graphic which is not available for this on-line version.])

7. THE FALLING RATE OF PROFIT. The "capital shortage" theory and the "inadequate profit expectation" theory both hold that profits are "inadequate" from the capitalist point of view. The former, as expressed in the pages of Revolution, lays emphasis on the falling rate of profit, although logically it seems that the absolute mass of profit should be the determining factor if the real problem is a shortage of capital. The latter theory also lays primary stress on the falling rate of profit, but does so more consistently since an "adequate" profit expectation in the eyes of the capitalists means the expectation of an "adequate" rate of return.

Some bourgeois economists are clearer on this point than Revolution is. As the big scare article in Business Week reports, "The main evidence of those who foresee no capital shortage is the drop in the rate of return on invested capital that shows up in the chart on page 44. To some economists this suggests not that the supply of capital is short, but rather that the falling return has cut into the demand for capital." [Sept. 22, 1975, p. 48.]

This indeed is the traditional Marxist view (as well as that of "some" bourgeois economists who BW doesn't name). Let me quote again Marx's statement that "The rate of profit is the motive power of capitalist production. Things are produced only so long as they can be produced with a profit." This point is repeated over and over in Capital.

Business Week, however, thinks it has the answer to this objection. "...to jump from the fact that the rate of return on existing capital is falling to the conclusion that the return on newly invested capital is low may miss the entire point." BW cites Federal Reserve Board member Henry Wallich who even thinks that the factors causing the fall in the rate of return on "old capital" may be causing an increase in the rate of return on "new capital." Unfortunately BW does not spell out Wallich's full argument or present any evidence to back this up (probably because there is none).

Marx analyzed in Capital a long term tendency for the rate of profit to fall due to the increasing organic composition of capital. (That is, the fact that constant capital (machinery, etc.) takes up an ever greater proportion of total capital while the surplus value producing portion of capital (variable capital, or wages), takes up an ever diminishing portion of total capital.) If this increasing organic composition of capital is in fact the cause of the recent profit decline, Wallich is clearly refuted. It is after all new capital which (generally) devotes a larger proportion to new technology and advanced machinery and a smaller proportion to wages, than does old capital. (Until the competiton installs the new machinery and thus drives down the rate of profit to the average level this "new capital" might return a higher than average profit. But in the long run it is precisely new capital which results in a lower rate of profit and drives down the rate as a whole.)

If, on the other hand, the fall in the rate of profit in recent years is due simply to market saturation (in other words, overproduction) the result is just as bad for the capitalists. Perhaps then new capital will generate a higher profit than old capital, but it will also drive down the rate of profit as a whole. (This phenomenon is discussed by Marx in vol. III of Capital, chapter XV, part III, "Excess Capital and Excess Population." I will return to this in section 11 below.)

In either case Wallich and BW have not refuted the objection of "some" economists. It is the falling rate of profit and the already abundantly evident overproduction which is resulting in the slowdown in new capital investment. BW itself notes (while trying to prove inflation is the cause of the capital investment slowdown—inconsistency and eclecticism do not seem to bother BW) that corporations generally have capital investment "formulas". "These formulas almost always involve a threshold rate of return that an investment project must meet if it is to be undertaken." [9-13-76, p. 70.] The so-called "shortage" of capital is just a myth. The falling rate of profit and overproduction have always been perceived by the bourgeoisie as horrible things—things they just cannot believe are tendencies built into capitalism itself. From their point of view it is even better to worry about chimeras like "capital shortages" than face the fact of the willful refusal to invest resulting from falling profit rates and market saturation.

8. CAPITAL SHORTAGE THEORY PARTIALLY RETRACTED BY BOURGEOISE—BUT NOT BY REVOLUTION. Nevertheless the capital shortage theory has lost a lot of currency in capitalist circles over the past year. One year after their big scare story, BW was forced to admit that the "capital shortage" had failed to materialize even though capital investment itself was (and is) still in the doldrums: "Ironically, the stubborn refusal of business to invest heavily in new plant and equipment has become clearly visible just as most people are writing off the threat of a world-wide capital crisis." [BW, 9-13-76, p. 65.] I would only dispute the nature of the "irony" involved here, since it was precisely the myth of the capital shortage which prevented them from seeing this "stubborn refusal" to invest much earlier. BW continues: "A year ago, when solid economic recovery was still far off [!], a grim prediction was making the rounds of the world's financial centers: There would be a shortage of capital so severe that the recovery would never get under way. The events of the past 12 months have made it obvious that the darkest aspects of this scenario are not being played out.... The supply of capital has grown so dramatically that companies have been able to raise huge amounts of money in the financial markets of the world. In the U.S., business has floated a record $67 billion of debt issues since Jan. 1, 1975, and a near-record $20 billion of equity issues. As a consequence, some observers have been inclined to regard the capital crisis as one of the great non-events of this decade."

Business Week itself is still not ready to admit the capital shortage is totally mythical. After all, they point out, enough capital only exists when it is "providing financing for the strong upswing in capital spending needed to keep productivity and standards of living moving ahead." This however begs the question. It is saying no more than "if the 'necessary' capital is not being invested then there must be a shortage."

"In straight dollar terms, the U.S. is awash in capital," admitted BW. [9-13-76] Then, quoting an economist at a big New York bank, "There has been a tremendous improvement in corporations' supply of capital from their own internal operations." And yet capitalists weren't investing in new plants and machinery. A puzzle indeed for the capital shortage theorists. The best BW could say was, "the capital crisis has been avoided only because companies around the world have either abandoned or postponed plans to build new plants and to purchase new machinery." But as to the reason for this—they weren't sure.

Revolution, however, adheres to the capital shortage theory even more doggedly than does BW, as the Jan. 1977 article illustrates.

9. GOVERNMENT DEFICITS & LOAN COMPETITION. One of the major arguments in favor of the capital shortage theory is the existence of huge governmental budget deficits and resultant heavy government borrowing which—supposedly—"crowd out" private borrowers from getting loans for capital investment. One important reason for the difficulty of obtaining capital investment loans, says Revolution [April, 1976] "is that the tremendous costs of maintaining the imperialist empire, including the huge investment in a military machine needed to enforce U.S. domination, forces the government to borrow (through issuing bonds and other means) from these same sources to underwrite the government's budget deficits."

It is certainly true that the government has had a long string of heavy budget deficits which are getting worse and worse, and which necessitate heavy borrowing. In 1976 the federal deficit was a record $65.6 billion, breaking the previous record of $43.6 billion for 1975.

But there is a misconception about how these colossal deficits are financed. Although some government bonds are sold directly to banks, corporations and private borrowers—the bulk of the deficit financing is "covered" by simply printing money. (The actual procedure is more complicated, partly to hide its essence. Briefly, the government sells big denomination "debt certificates" to banks, who resell them for a quick profit to the Federal Reserve System (another agency of the Federal government) which prints up the money to buy them back.) This kind of deficit financing creates its own problems for the capitalists by inflating the currency, but it does not lead to competition for loans that would otherwise go into private capital investment.

(The monetarist school of bourgeois economists disputes this conclusion as part of their effort to prove that classical Keynesian budget tinkering is actually counter-productive and that only money supply tinkering is effective in "regulating" the economy. I find this more than curious since deficit financing itself is a way of (indirectly) increasing the money supply. For a brief discussion of this debate see BW, May 19, 1975, p. 110.)

It may be true, as outgoing Secretary of the Treasury Simon claimed (see Revolution, April 1976), that Federal government borrowing represents a large proportion of all the borrowing that goes on. But what difference does this make if the government creates all the new money that it then proceeds to "borrow"?

With the smaller (but still large) amount of deficit financing by State and local governments the situation is different: they can't print their own money. But just as with private capitalist enterprises, the Federal government can print it for them! (The Federal Reserve Board is able to increase the money supply and availability of credit in a variety of ways.) Nevertheless it is true that there is competition for loans between Cities and States on the one hand and corporations on the other. Even so the actual availability of loans shows that this competition has not been of such a magnitude to cause real shortages.

10. BANK CREDIT & LOAN AVAILABILITY. We saw above that [retained] corporate profits are inadequate to finance new capital investment. This by itself is completely of no consequence. Indeed, as has been pointed out, corporations typically have a low rate of retained profits with no evidence of any trend to increase this portion in order to finance new capital investment. In short, capitalist enterprises seem to attach no great advantage to reinvesting their own "internally generated" profits as opposed to external sources of funds, such as bank loans, bonds, new stock issues and the like. Just about every corporation in the country finds itself disbursing its own funds (profits to its stockholders, for example) while simultaneously borrowing other funds for capital expansion and other purposes. This may seem a little strange at first. But there are some basic points to remember here.

First, above all, capitalist enterprises are based on the pursuit of profit for their owners—that is the whole reason for their existence. The stockholders want their profits even if it means that their company has to borrow money for expansion.

Second, every corporation must consider that using its own funds also represents a "cost" to itself—namely the amount of interest it would otherwise make if it put its money in a bank (or loaned it to another corporation). The difference in what it costs a company to use its own surplus funds for capital investment and what it costs to borrow the money from the bank is therefore no more than the difference between the interest the banks pay on deposits and the interest they charge on loans. If corporations were at war with the banks and wanted to do as much of their own banking as possible we might expect them to develop banking subsidiaries of their own. But except for consumer loan operations this has not generally happened. Why? Because this is the era of imperialism, the stage of capitalism where industrial capital is merged with and dominated by financial capital. The big banks reign supreme. Why should the banks which control a corporation allow it to compete with those very banks? From the controlling banks point of view it is quite natural and desireable that corporations should regularly turn to them for loans.

So the question is not, "Are profits adequate to finance capital investment?" Rather it is, "Are internal funds together with available external funds (bank loans, stock issues, etc.) adequate to finance capital investment?" And the answer to this latter question is an unequivocal "Yes!".

How do you determine the availability of bank loans for businesses? By monitoring interest rates. When loans are difficult to obtain the interest rates are high, and vice versa. However there is another factor which also causes interest rates to go up or down—inflation. To see how real demand for loans is changing, therefore, we must first subract the rate of inflation from the rate of interest.

At the peak of the last so-called credit crunch in 1974 the prime rate reached 12%. (It is now 6.25%.) But at that time inflation was at a post-World War II peak (so far), the 1974 implicit price deflator for Gross Domestic Product showing a 9.4% increase over 1973. So the real rate for bank loans to their best corporate customers was less than 3%. As a matter of fact this real bank rate during the 1970s has been below what it was in the 1960s! Even so, with inflation induced interest rates of 12% and more you can see why many capitalists and bourgeois economists might start screaming about tight credit and a "capital shortage." (This is what the "monetarists" are referring to when they say that "there is always talk in inflationary times of capital shortage.")

Then too it often happens that a corporation is turned down for a loan even when the bank is looking for someone to lend its money to. (As Ogden Nash put it, "one rule which woe betides the banker who fails to heed it, never lend any money to anybody unless they don't need it.") The turned away corporation may well blame a "capital shortage"; but for the bank it may simply appear that the loan is not sound, that the investment which the corporation wants to make with the money does not sufficiently guarantee the "necessary" return. This is especially apt to be true during an over-production crisis.

Over the past year and a half there have been numerous articles in the business press about how bankers are looking for borrowers, but how they are also cautious about just who they lend to. The reason is that over the past couple years many bank loans have "gone sour" and there have been a number of bank failures. There has been much concern expressed over just how sound the whole banking system is. I cite just a couple of these articles:

"A Wary Search For Borrowers," Business Week, Dec. 1, 1975, where we read that "Revival of loan demand must await a stronger recovery." The article also states, "Until much of the economic uncertainty is removed, business is reluctant to build inventories again or embark on longer-term expansion plans, traditional reasons for borrowing." In other words just 6 weeks after this magazine devoted a whole issue to the "capital shortage" crisis, they admitted themselves that the money was available to be borrowed, but that the corporations did not choose to borrow it—or, the banks did not choose to lend it to the ones that wanted to borrow it. In either case the reason was the same—no satisfactory profit expectations.

"Bankers Grow Anxious to Lend Money And Also Anxious About Being Repaid," was the headline on an article in the Wall Street Journal, April 22, 1976, p. 40. "Bankers have become particularly aggressive in the past few months. They're out there looking for good, stable companies with a proven record of profitability," said the spokeswomen for one corporation. But apparently they weren't finding many. Interest rates have dropped drastically since 1974 and money is available for capital investment loans. And yet new capital investment plummeted in 1975 and recovered only very slightly in 1976.

"Cash Flood: Firms Spend Carefully, Pay Off Much Debt And Build Liquidity," was a recent front page story in the Wall Street Journal [1-13-77]. "...Many corporations' 1976 annual reports will show the strongest balance sheets in a decade, with sharp increases in cash and even sharper reductions in short-term debt," says the article. But "instead of exercising this renewed financial strength in aggressive expansion, however, many top managements have continued a conservative course that is further bolstering corporate liquidity."

Later this same article says: "Illustrating the spending holdback, the nation's 1,000 largest manufacturers cut their appropriations for future capital spending to a seasonally adjusted $11.34 billion in the 1976 third quarter, down 9% from the second period, according to a survey by the Conference Board, New York-based economic research organization." It goes on to note that many corporations have cash that they can't put to good use. Says one corporate president, "Our corporate average return on equity is 12.5% after taxes, so if we could put [the $50 million in excess cash we have on hand] to work at a comparable rate, it would increase our earnings substantially." The article concludes by noting that "the nation's non-financial corporations reduced their bank loans by about $3 billion last year, following a $12 billion reduction in 1975..."

A recent article in U.S. News & World Report [Jan. 10, 1977, p. 80] talks about the "bargain credit" now available. The article reports forecasts that interest rates will remain low for years ahead, barring renewed heavy inflation.

Interest rates will continue to go up and down, and the money that banks have available for loans will likewise fluctuate. But, all in all, I can only conclude that there is no capital shortage, no shortage of money in the banks to be loaned to corporations, but only a shortage of opportunities to make a satisfactory profit by making those loans and by investing the money in new plants and equipment.

11. MARX ON CAPITAL SURPLUS. To my mind it is strange that Marxist writers should ever have been taken in by the capital shortage myth. Marx himself gave a thorough explanation for the fact that capital generation is no problem for the capitalists. Quite the opposite—their problem is that they inevitably generate too much capital.

"The contradiction [which gives rise to crises]," says Marx, "to put it in a very general way, consists in that the capitalist mode of production involves a tendency towards absolute development of the productive forces, regardless of the value and surplus-value it contains, and regardless of the social conditions under which capitalist production takes place; while on the other hand, its aim is to preserve the value of the existing capital and promote its self-expansion to the highest limit (i.e., to promote an ever more rigid growth of this value)." [Capital, vol. III, p. 249, emphasis added.]

The problem with capitalism is not that it is unable to develop the productive forces (quite the contrary), but that it is unable to keep doing so at a profit. The capitalist productive forces are not too weak—just the opposite. "The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property." [Communist Manifesto, Peking edition, p. 40.]

Marx summed this all up in a famous sentence, "The real barrier to capitalist production is capital itself." [Capital, vol. III, p. 250.] —Not, I might add, any "shortage" of capital. "The means—unconditional development of the productive forces of society—comes continually into conflict with the limited purpose, the self-expansion of the existing capital." [Ibid.]

What is the real situation with the supply of capital during a crisis? "As soon as a stoppage takes place, as a result of delayed returns, glutted markets, or fallen prices, a superabundance of industrial capital becomes available, but in a form in which it cannot perform its functions. Huge quantities of commodity-capital, but unsaleable. Huge quantities of fixed capital, but largely idle due to stagnant reproduction." [Capital, vol. III, p. 483.] Money capital, it is true, is in frantically short supply during the crisis phase of the cycle. But this is because it is needed as a means of payment—not for new investment. Marx notes that it is "in the phase of the industrial cycle immediately following a crisis [the cycle phase usually known as "depression"], when loan capital lies around idle in great quantities." He further notes that "the investment of new capital is still out of the question" in this depression phase. [Ibid., p. 485.] "The surplus of loan capital expresses... a stagnation of industrial capital...," says Marx. [Ibid., p. 495.]

Marx, in fact explicity ridicules the "capital shortage" theory: Noting first that "during the crisis itself... it is not the mass of idle and investment-seeking capital, but rather the mass of capital impeded in its reproduction process, that is greatest...", Marx goes on to say, "The capital already invested is then, indeed, idle in large quantities because the reproduction process is stagnant. Factories are closed, raw materials accumulate, finished products flood the market as commodies. Nothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition. It is precisely at such times that there is a superabundance of productive capital, partly in relation to the normal, but temporarily reduced scale of reproduction, and partly in relation to the paralyzed consumption." [Capital, vol. III, p. 483, my emphasis.] And again on the next page Marx says, "A real lack of productive capital, at least among capitalistically developed nations, can be said to exist only in times of general crop failures, either in the principle foodstuffs or in the principle industrial raw materials."

When the rate of profit drops there appears a so-called plethora of capital, an over-production of capital, first among the smaller capitalists who are unable to compensate as well for the decline in the rate of profit with an increase in the absolute mass of profit, and then among the big capitalists as well. "Over-production of capital, not of individual commodities—although over-production of capital always includes over-production of commodities—is... simply over-accumulation of capital." [Ibid., p. 251.] And again, "Over-production of capital is never anything more than over-production of means of production..." [Ibid., p. 255.]

In Theories of Surplus Value [vol. II, p. 497] Marx notes that the classical bourgeois economist Ricardo was consistent enough to deny both the possibility of over-production of commodities and the over-production of capital, since they are at bottom aspects of the same phenomenon. "What then," asks Marx, "would Ricardo have said to the stupidity of his successors, who deny over-production in one form (as a general glut of commodities in the market) and who, not only admit its existence in another form, as over-production of capital, plethora of capital, over-abundance of capital, but actually turn it into an essential point in their doctrine?" And, continuing in the next paragraph: "Not a single responsible economist of the post-Ricardian period denies the plethora of capital. On the contrary, all of them regard it as the cause of crises (in so far as they do not explain the latter by factors related to credit). Therefore, they all admit over-production in one form but deny its existence in another."

Whatever we may think of the present day "return to Ricardian consistency" of the bourgeois proponents of the capital crisis, what are we to think of the picture painted in Revolution: over-production of commodities together with under-production (shortage) of capital? Comrades! We can't "admit over-production in one form but deny its existence in another."

Or is the present crisis something other than a crisis of over-production? The capital shortage theory leads us in the direction of denying over-production altogether. That is why I said at the outset that the capital shortage theory is a very dangerous error, and one that has basic implications for our understanding of the nature of the present crisis. It leads us away from a Marxist analysis.

Comrades, we must draw back from this incorrect path!

12. CAPACITY UTILIZATION. The facts in every crisis and depression bear out Marx's contention that there is at those times a capital surplus, and the present crisis in this country has already presented abundant evidence of the same.

According to Business Week, "there is more excess capacity in the U.S. than ever before: Eighteen months into the current upswing, manufacturing companies are running their plants at some 73% of capacity. This compares with an average figure of some 85% of capacity at the comparable stage of the five earlier post-World War II upswings." [9-13-76, p. 66.] No wonder capitalists are reluctant to invest! To build new plants and buy new machinery at a time when the equivalent of more than one-fourth of those they already have are shut down makes no sense whatsoever.

I should note here that this 73% utilization figure comes from the Federal Reserve Board's old series. In December 1976 they succumbed to mounting pressure from the "business community" and other government agencies and revised their series drastically upward. The 73% suddenly became 81%. (See BW, 8-2-76, p. 16 and 12-13-76, p. 16.) But that's still 6 or 7 percentage points below the (revised) level of 1973.

Sweezy and Magdoff make an excellent argument that official figures actually grossly overstate utilization of capacity. Whatever we may think of these two as "Marxists," their description of the tremendous productive capacity unleashed during World War II should make us think again about the viability of the "capital shortage" theory. [See "Capital Shortage: Fact and Fancy", Monthly Review, April, 1976.] "The history of war production [WW II] thus demonstrates with crystal clarity that, as far as real capital is concerned, talk about a capital shortage is sheer nonsense. Not only does the United States economy have the latent ability to generate an enormous amount of new capacity, but it can fabricate a great deal more with just the existing capacity. If the standards for getting more production used during the Second World War were applied today, we would probably find that only 50%, or maybe less, of existing manufacturing capacity is being used—instead of the official 75-percent figure based on current operating practices."

The standards for utilization are continuously being pushed down in order to hide the capital surplus and "over-investment". Nevertheless—whatever figure they want to use, 74% or 81%—capacity utilization is in fact low. Heavy new expansion is unwarranted (unprofitable) unless they arrange for new markets, still more credit expansion, etc.

13. IMPERIALISM & CAPITAL SURPLUS. The search for foreign markets was one of the main features of pre-monopoly capitalism. It is still a feature of imperialism as well. It represents one of the many ways that the capitalists seek to go on expanding production without limit—despite the internal contradictions and limits which capital itself errects.

But Lenin, in his pamphlet Imperialism, The Highest Stage of Capitalism, points out that: "Typical of the old capitalism, when free competition had undivided sway, was the export of goods. Typical of the latest stage of capitalism, when monopolies rule, is the export of capital." [Peking edition, p. 72, emphasis in original.]

Of course the export of capital was also a feature (though not a predominant feature) of pre-monopoly capitalism. Partly this was done to facilitate commodity exports. "The English, for example, are forced to lend their capital to other countries in order to create a market for their commodities," says Marx. [Theories of Surplus-Value, vol. III, p. 122.] He goes on in the next sentence to bring out what this means: "Over-production, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits." (Emphasis in original.)

And partly capital was exported in the old period because it could "earn" bigger profits. "If capital is sent abroad, this is not done because it absolutely could not be applied at home, but because it can be employed at a higher rate of profit in a foreign country. But such capital is absolute excess capital for the employed labouring population and for the home country in general. It exists as such along-side the relative over-population, and this is an illustration of how both of them exist side by side, and mutually influence one another." [Marx, Capital, vol. III, p. 256.]

But imperialism, says Lenin, intensifies the contradictions of capitalism [Imperialism, p. 113], and certainly intensifies the over-production of capital. "On the threshold of the twentieth century we see the formation of a new type of monopoly: first, monopolist capitalist combines in all capitalistically developed countries; secondly, the monopolist position of a few very rich countries, in which the accumulation of capital has reached gigantic proportions. An enormous "superabundance of capital" has arisen in the advanced countries." [Ibid., pp. 72-73, emphasis added.] Lenin continues:

Today we must make one correction in what Lenin says in this crucially important passage: Capitalism has finally been able to develop agriculture, although even in the U.S. the capitalist development of agriculture still lags behind the development of industry. Nevertheless Lenin's main point remains as true as ever—if capitalism could apply itself to raising the condition of the masses, there could be no capital surplus, but it cannot.

I call your attention to the last sentence of this quotation in particular. Note that Lenin is drawing a distinction between pre-monopoly capitalism and imperialism. The export of capital is no longer merely a way of boosting commodity exports, or "earning" a higher rate of profit; it has become a necessity because capitalism has become "overripe" and unable to "find a field for 'profitable' investment" at home. Lenin sees this as of such fundamental significance that he lists it as one of the five defining characteristics of imperialism: "the export of capital as distinguished from the export of commodities acquires exceptional importance." [Ibid., p. 106.]

In light of this clear position by Lenin which is completely supported both by the facts he himself presents and the developments since that time, what are we to think of the Revolution articles which proclaim that a fundamental problem of contemporary imperialism is a capital shortage?? Are we to suppose that Lenin was grossly mistaken in his analysis? Or has imperialism changed, perhaps developing into a new and yet "higher" stage of capitalism wherein some of its ealier internal contradictions have been overcome? I cannot believe any comrades wish to tread along this road.

One additonal point here: It used to be that capitalist enterprises didn't have a very precise notion about how big the total market in their industry was. Not so, today, in the age of monopoly capital and market research. Thus today when corporations refuse to invest it is more likely to be because they know there will be no market for their product. (But this of course still does not prevent over-production.)

14. SOME EXAMPLES. We have so far examined some of the specific arguments and facts surrounding the "capital shortage" theory, as well as what Marxist-Leninist political economy has to say on the subject. Now it is time for a few illustrative examples. The first we will take right from the April 1976 article in Revolution.

Back in 1973 the oil industry started howling about the need for more profits to finance new exploration and refineries. According to John Winger, a vice-president and director of the "Energy Economics Division" of the Chase Manhattan Bank, it is necessary to raise $1.4 trillion between 1970 and 1985 "to meet the burgeoning world demand for oil." Mr. Winger itemizes it all by category—so much is needed for exploration, so much for fixed investment, so much for paying off debts—and makes it sound oh so careful and scientific. At current profit rates, he says, only one-fifth of the necessary money can be raised. [Reprinted in the San Francisco Chronicle on Feb. 4, 1974, from the L.A. Times.]

But do we find oil companies expanding production as fast as possible to try to meet this "burgeoning" need? Revolution points out that "instead of investing in expanding production, each capitalist looks around for the place where he thinks he will get the most return on his investment. So instead of developing new sources of oil at a faster rate, Mobil buys Montgomery Ward in hopes of making profit in retail sales." Mobil spent a cool $870 million for Wards, but it was by no means the only oil company to spend its cash in this way. Atlantic-Richfield announced plans to expand into the petro-chemical field with a $1 billion investment, rather than produce more oil. Gulf Oil tried unsuccessfully to buy CNA Financial Corp. and even Ringling Bros.-Barnum & Bailey Circus! [S.F. Examiner editorial, 1-12-75.] Nor is this trend limited to the oil industry as Revolution itself points out: "In the past several years major banks have sunk money into real estate developments and all sorts of speculative ventures rather than invest in the production of machine tools, steel plants, auto assembly line modernization, etc." [4-15-76]

A second illustration is the steel industry. Business Week's big scare article [9-22-75] said that 30 million tons of new capacity were necessary by 1985, and that the price on this (together with modernization of old plants, pollution control equipment and the like) would be $50 billion. They estimated that $27 billion could be generated internally, and another $7 or $8 billion externally (through loans) leaving a $15 billion "gap".

At the time these "estimates" were made the steel industry was operating at only two-thirds capacity. A little over one year later, today's Wall Street Journal [1-18-77, p. 40] reports the current capacity utilization rate for the steel industry is 68.5% and dropping.

Back in 1973 Bethlehem Steel started to build a new $150 million rolling mill at Burns Harbor on the edge of Lake Michigan. They had the money, all the arrangements were made, they spent $75 million—and then they halted the project. Because of a capital shortage? Hardly! Because there was no market for the steel the mill would produce once it went into production. Bethlehem cancelled another steel complex planned for the Oakland, Calif. area just a couple years ago.

Fortune's Jan. 1976 article on steel industry capacity posed the question: Should more capacity be built? Their answer was, "In the end, it is all likely to come down to profits." Fortune even scolded steel producers, suggesting that their surplus capacity problems are due to ignoring the necessity of "earning" a "competitive rate of return." They might well be better off if they used their surplus cash in ways other than capital expansion, the article says, such as by buying up some of their own stock or increasing their dividends. "What Bethlehem and others are doing is not good [capitalist] economics." [p. 196] (What Fortune is overlooking of course is that capitalism is an expand or die system. Stagnation too is not good capitalist economics.)

A third example is the aluminum industry. This industry has been operating at a much higher percent of capacity than steel (90% currently—Wall Street Journal, 1-17-77, p. 8). Does this mean that aluminum companies are pushing ahead with big expansion programs? Not so. ALCOA, for example, has no capacity expansion plans through 1977. Beyond then, however, it "depends on our ability to improve the company's return on invested capital to justify new capacity," says Board Chairman W. H. Krome George. [Business Week, 8-2-76, p. 16.] ALCOA does plan to increase its capital expenditures in 1977 by about $100 million to a total of $350 million, but this is entirely for plant modernization. ALCOA is having no trouble financing this, the bulk of the money coming from internal funds. And oh yes! What else has ALCOA been doing with its excess cash lately? Well it is currently dumping about $50 million into two big office buildings in L.A..... [Wall Street Journal article.]

Paper is another industry which is operating "near" capacity—92% as of last summer. But Crown Zellerbach, for example, is dragging its heels on expansion because "'prices are not keeping up with costs' and return on investment remains inadequate." [BW, 8-2-76.]

Another excellent illustration is provided by the chemical industry which has attracted surplus capital from other industries (such as oil) because it has been relatively more profitable. But what is happening today? The following excerpts are taken from a front page article in the Wall Street Journal, Dec. 30, 1976, entitled "Cautious Companies: Firms Like Monsanto Give Capital Projects Tought Second Looks":

"Two years ago, Monsanto Co. confidently laid plans for a major increase in capital spending. "The plans called for spending to jump nearly 70% from 1974 to a record $525 million in 1975, to $600 million in 1976 and to more than $650 million in 1977. Projections for 1975 and 1976 proved accurate. But 1977 is a different story; the big chemical company recently shelved several major projects, and 1977 spending plans have been slashed to a range of $500 million to $525 million. "What's happening at Monsanto seems to be happening at many other companies as well. For various reasons, capital spending projects are being deferred... "The slowdown in Monsanto's expenditures 'is by no stretch of the imagination because of capital constraint,' says James J. Kerley, the company's executive vice-president and chief financial officer. 'Money is available from banks, and it isn't too expensive.' He also notes that Monsanto boasts a double-A (high-grade) bond rating. In addition, recent earnings have bolstered the company's financial position—1975 net was the second-best in Monsanto's history, and a record profit is expected for 1976. The company has indicated that the 1977 outlook is favorable. "Monsanto's caution, moreover, doesn't signal 'a change in our overall thinking with respect to future growth,' Mr. Kerley says... "...Monsanto also has decided to concentrate only on markets in which it can be a meaningful factor: accordingly, in recent years it has eliminated several marginally profitable operations with small market shares. "In short, what's happening at Monsanto, and at many other companies, is that management apparently is becoming more sophisticated about allocating capital resources and more concerned than ever about return on investment... "...the company is looking actively for ways to spend money..."

The article ends with Mr. Kerley's statement that "each new dollar spent must bring in a satisfactory rate of return."

15. THE PURPOSE BEHIND THE "CAPITAL SHORTAGE" THEORY. Sweezy and Magdoff, in their April 1976 article make out a case that the "capital shortage" crisis is simply a shuck. My own view is that at least some bourgeois take it more or less seriously, or at any rate did one year ago. It is in any case useful to see what "remedies" they suggest for the problem and to look behind the rhetoric to see just what they are trying to accomplish.

The Sept. 22, 1975 Business Week article says that a government policy "designed to increase savings is... the only one that makes sense." [p. 115] And how is that to be done? 1) "Government spending must be curbed so that surpluses emerge in the Federal Budget." (We saw above that this is based on a misunderstanding of how the government finances its deficits—but no matter.) 2) "The tax structure must be changed so that the cash flow to business increases." 'Cash flow', in economic parlance is retained profits (after taxes and dividends) plus depreciation. So BW is saying: Give corporations more tax breaks by allowing faster depreciation and by directly lowering corporate taxes. 3) "Reward" private savers and investors through such means as dropping the income tax on savings account interest and eliminating the "double taxation of corporate dividends." According to the bourgeoisie, dividends are taxed "twice" since first the corporation pays corporate income taxes on the money, and then when it is distributed to individual stockholders they must pay individual income taxes on the money. (During his last week in office Treasury Secretary Simon proposed that the corporate income tax on dividends should be set at what the individual stockholder now has to pay on them, and the individual income tax on dividends should be dropped completely!) This program, says BW, "is the only way to end the crisis."

Edward I. O'Brien, president of the Securities Industry Association, has proposed his own "remedy" package including: 1) Big increases in the exclusion from taxes on dividends and capital gains, 2) Making brokerage commissions deductible business expenses, 3) No taxes on capital gains if they are reinvested within 30 days, etc., etc. [S.F. Sunday Examiner & Chronicle, July 27, 1975, p. B-9.]

Paul McCracken, in the WSJ article previously referred to [9-17-76] suggests "the remedy" lies in: 1) Fostering business "confidence" by maintaining the "current expansion" at "a pace that is moderate enough to be enduring," 2) Federal budget deficits must "continue" [?!] to decline, and 3) Most important of all, tax corporate profits "correctly", based on real economic profits after adjustment for "archaic" accounting methods—in other words, lower corporate taxes.

We should add that if corporate taxes and individual taxes on dividends, capital gains, etc., are lowered, then the tax burden on the working class must necessarily go up still more—whether it be income taxes, sales taxes or other taxes. Furthermore if the Federal budget is to be "balanced" it can only mean slashing social services and programs such as unemployment benefits, welfare, social security, education, medical care, etc.

There are other variations on the theme but it always comes down to: Drive the workers down so that we can boost our profits. BW itself says that closing the "capital gap" "at a minimum requires changes in the tax structure that would provide greater incentives for savings and investment and greater disincentives for consumption." And shortly afterwards, "Closing the capital gap would require changes that would be painful to many, since they would require people to consume less in the short run so that society [!] may grow faster in the long run." [BW, 9-22-75, p. 43.]

Similarly, McCracken cloaks his plea for robbing the poor to pay the rich with this pious nonsense: "Whether we get investment activity more solidly based in the American economy probably will not make a great deal of difference in the way residents of the carriage districts or occupants of mahogany row offices live. It will make a great deal of difference to those behind the store counters or out in the factories who aspire to the doubling of material levels of living each generation which the American economy has historically delivered." It's all really for the benefit of the workers, you see.

As Sweezy & Magdoff conclude their article: "The capital-shortage hysteria, in the final analysis, is but the latest ideological campaign to help put the house of monopoly capital in better order—at the expense of the people."

But what really will be the effect of these bourgeois "remedies" for the non-existent "capital crisis" if they are enacted? To further impoverish the masses of course; but also to further increase the profits and capital accumulation of the bourgeoisie—in other words to aggravate the real crisis in the economy, the crisis of overproduction.

For communists to swallow and propagate the "capital shortage" myth is to do the ideological work of the bourgeoisie. Well, that is perhaps a little harsh. It is after all only an honest mistake on our part. But it is at least to sow confusion and make the job of the bourgeois apologists easier.

16. THE NATURE OF THE PRESENT CRISIS. I do not believe that anyone who accepts the "capital shortage" theory can have a really clear understanding of the nature of the present crisis. It leads to further misconceptions and most important of all it leads into denying the real fundamental contradiction in capitalism, which results in "over-production."

The January 1977 issue of Revolution provides an unfortunate example of this: "This contradiction—that they have to expand their capital investment in order to up their rate of profit but they can't raise the capital because their rate of profit is too low—has been an underlying cause driving the imperialist economy into crisis in the first place." This sentences evinces almost hopeless confusion.

In the first place, there are a great many means whereby the capitalists can increase their rate of profit "other than" through new capital investment. To name just a few that spring immediately to mind: increasing productivity through speed-up; longer working days; lower real wages; lower corporate taxes; monopoly price structures ("price-fixing"); closing down money-losing portions of the operation; selling divisions which "earn" less than the average rate of profit; burning down obsolete plants for the insurance money; government subsidies; putting idle cash into a bank; etc. I'm not saying it is easy for a corporation to find a way to boost its profit—only that there are many means by which this may be done.

Second, expansion of capital investment is by no means always a method of increasing the rate of profit. On the contrary, it is precisely during an over-production crisis (such as at present) when capital expansion typically leads to a lower rate of profit for the capitalists involved. Sometimes their profit expectations are disappointed—and they take a beating. Other times they see beforehand that an "adequate" rate of profit is not to be had—and so they refuse to invest in new plants and machinery in the first place.

And third, as we have seen, capital can easily be raised whenever there is a reasonably assured likelihood of returning an "adequate profit." There is a superabundance of capital, so much that the capitalists don't know what to do with it (...profitably). The "capital shortage" is a ridiculous myth, the exact opposite of the true situation.

To assert that this jumble is an "underlying cause" of the present crisis is just incredible. It is to deny the real underlying cause. There is one underlying cause of the current crisis and only one (though of course it manifests itself through its own collection of subsidiary contradictions.) It is the contradiction between the social nature of production and the private form of appropriation. This is the fundamental contradiction of capitalism.

It is this contradiction which manifests itself in the form of crises of overproduction—of commodities and of capital. It would require another full essay to explicate the exact mechanism whereby this is brought about, and I have as yet a very weak understanding of the subject. But one point seems central.

As one might expect of a contradiction so basic, so rich in content, that it is designated by Marx and Engels as the fundamental contradiction of the capitalist mode of production, there are many subsidiary contradictions of capitalism that derive from this basic one. The social organization of production within one factory or one corporation versus the anarchy of capitalist production as a whole, is one example. But even looking at capitalist production as a whole there is social organization on a scale never before seen in history (without even considering state capitalism of the Soviet variety). And this social production of capitalism as a whole also finds itself in contradiction with the private appropriation by the capitalist class as a whole. Though the anarchy of production enters into the explication of the mechanism of overproduction crises, it is not the most fundamental feature (as Bukharin and others have maintained). "The ultimate reason," says Marx "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." [Capital, vol. III, p. 484.]

(Marx's comments in volume II of Capital [pp. 410-411] against the simple-minded underconsumption theory of crises have often been misunderstood as being in opposition to the above quotation from vol. III. But in this passage in vol. II Marx is concerned only to rebut the liberal notion that capitalist crises can be prevented by raising real wages.)

If we lose sight of the basic nature of capitalist crises as crises of overproduction, with all that this entails, we will only confuse ourselves and mislead others. The "capital shortage" theory must be renounced and abandoned.