Misunderstanding Capitalism

— Alex Callinicos

TRYING TO MAKE sense of the direction in which capitalism is going is often a difficult business. It is easy enough to get things wrong: constructive debate among Marxists can help identify and correct the mistakes we make. Kim Moody's critical comment on my little book, Trotskyism, seems to be written in such a spirit, and I shall try to respond in the same vein [see “The Competition of Capitals,” by Kim Moody ATC 52].

Moody understands that my book was intended, not as a comprehensive, fully rounded history of the Trotskyist movement, but as a stimulus to discussion written from a standpoint within that movement, namely that of the British Socialist Workers Party and its sister organizations, for example, the International Socialist Organization in the United States.(1)

Perhaps predictably Moody aims his fire at this tradition's centerpiece, the theory developed by Tony Cliff in the late 1940s according to which the Soviet Union and other Stalinist countries were bureaucratic state-capitalist societies.(2)

To my mind, one of the great strengths of this theory has always been that it offers an explanation of Stalinism which integrates it into Marx's general analysis of the capitalist mode of production, rather than (as do the theory of bureaucratic collectivism and other versions of the idea that Stalinism represented a new form of class society) tacking on some rather ad hoc set of propositions typically ill-integrated into historical materialism.(3)

Distortion of Capital?

Moody's main charge, however, amounts to the claim that the theory of state capitalism substantially waters down the analysis developed by Marx in Capital. More specifically, he concentrates on three main issues. The first concerns the nature of capitalist competition.

Moody acknowledges that capitals are compelled to accumulate, and thereby to initiate the process leading to the tendency of the rate of profit to fall, by the pressure of competition among them. Now, Cliff argues that in the case of state capitalism, it was the military rivalries between the Soviet Union and the Western powers which forced the Stalinist bureaucracy to divert productive resources into building up the heavy-industrial base required to achieve and maintain Great Power status.

But Moody denies that this process counts as an instance of the competitive pressure to accumulate: “To substitute the state, much less the vaguer `international state system,' for the competition of capitals is to do fundamental damage to the entire theory” of the falling rate of profit (37).

Moody offers no direct argument for this assertion. In effect, he @relies on what he has to say about a second issue, the Marxist theory of the state. Cliff, like Bukharin before him, was committed to “the notion of the increased fusion of the state with capital” (38).

What such ideas fail to recognize, Moody contends, is the state's “tendency toward autonomy” (39): “The state must have a certain measure of autonomy from capital in order to mediate the competition between capitals and resolve the myriad conflicts of interest among the factions of the ruling class” (37). It follows necessarily that the Stalinist societies, where “the fusion of the bureaucratic state and economy” was an undeniable fact (38), cannot have been capitalist.

Moody detects further support for this argument in what he has to say about a third issue, namely the contemporary trends towards what has come to be known as “globalization.” Thus, for example, the Single European Act, GATT, and NAFTA all reflect “the ability of capital to reclaim authority over the state through the process of internationalization.” The tendency for capital to become far more globally integrated is, from Cliff's point of view, “ironic” since “it is not fusion that explains this reversal, but the tendency towards state autonomy” (39).

Moody's formulations here are interesting. He talks about capital reclaiming authority over the state, about a reversal having occurred. Well, what is it exactly that is being reversed?

The answer comes a few sentences on: “through its autonomous internationalization . . . capital has now reversed the `stratification' tendency” (39). This is the closest that Moody comes to acknowledging a massive historical reality -- the truly global tendency for the state not simply to intervene in and regulate, but frequently to supplant markets in very wide sectors of economic life during the first half of the twentieth century.

States and Capitals

What Moody asserts of the Stalinist societies -- that they “grew by virtue of their withdrawal from the world market and their suppression of internal capital markets or competition” (38) -- is in large measure true of the Western imperialist powers in the era of the Great Depression and Second World War.

To take the most important case, the National Socialist (German Nazi -- ed.) regime overcome the impact of world slump by seeking to build up an autarkic economic empire based on German military power -- a process inseparable from the development of Goring's Reichswerke into a vast state-owned multinational competing with private capital for the productive assets amassed by successive conquests.(4)

It is perhaps understandable that Moody ignores this massive intrusion by the state into the market, since it poses very serious difficulties for his argument.

In the first place, if, as he suggests, there is a transhistorical “tendency toward state autonomy” which is inherently incompatible with any fusion of the state and capital, how could these developments have possibly taken place? They seem to be ruled out by theoretical fiat. How unfortunate that history didn't have the good manners to conform to theory.

Moreover, the fact that such developments did occur implies a drastic restriction of the scope of Marx's analysis of capitalism, at least on Moody's interpretation of it. If the fusion of the state and the economy is a sign that the logic of capital accumulation no longer operates, as Moody's remarks on the Stalinist economies imply, then it seems that the period when capitalism is generally thought to have suffered its deepest crisis -- what Arno Mayer has called the “Thirty Years' War” of 1914-1945 -- in fact saw that mode of production's domain of operation dramatically attenuated.

Given the degree to which the state and economy were fused in Nazi Germany, we could no longer accept unreservedly Trotsky's analysis of fascism as a movement whose interests correspond to those of capital. Maybe James Burham's interpretation of fascism and Stalinism as instances of a new “bureaucratic society” needs dusting off.

At the price of seeming pretentious, I would like to suggest that Moody's argument suffers from a severe lack of dialectics. He is perfectly correct to insist, in general, on the distinction between the state and capital, and, in that sense, on the autonomy of the state.

What he fails sufficiently to recognize is that, under certain conditions and at a particular state of capitalist development, the very factor which requires that the state is kept separate from capital -- roughly speaking, the need to defend the interests of capital as a whole against, not just the working class, but individual capitalists -- may require the state to invade the domain of private accumulation.

The development of the welfare state is, plainly, an instance of this kind of process. So too is the undeniable tendency of the state in the late nineteenth and early twentieth century to become, not merely the regulator of the accumulation process, but a direct participant in it. Nazi state capitalism was a feature of the drive to military expansion which Hitler's big-business allies recognized as essential to the future of German capitalism, even though the Reichswerke often flourished at the expense of private enterprise.(5)

The emergence of what Chris Harman called “political capitalists” -- a section of the state bureaucracy in direct control of productive capital -- creates a complex and contradictory situation, since their activities may entail benefits for private capital, while at the same time taking resources and markets away from the latter.

Typically some sort of unsteady equilibrium is maintained between state and private capital; it was only in the expectional historical circumstances of the USSR, where a workers' revolution had destroyed the old ruling class, that the state bureaucracy could take full control of the economy, and then export this model by force or example to a number of usually very weak capitalist societies.

Military Competition & Accumulation

The contradictory relationship between state and private capital held true also for the world economy. Moody argues that a world system based on military competition among state capitals would lead to the “absurdity” of “not a falling rate of profit, but a falling rate of accumulation leading to disaccumulation” (38).

Now, in fact, at no stage (perhaps with the exception of the Second World War) did military competition come close to supplanting market competition, a point to which I shall return. But if we consider the theory of the permanent arms economy, first outlined by T.N. Vance and further developed by Michael Kidron, it does explain the postwar boom of the 1950s and 1960s by the effect of high levels of arms expenditure, which slowed down the rate of accumulation and thereby served to offset the tendency of the rate of profit to fall.

There seems no reason why slower accumulation should, as Moody suggests, lead to disaccumulation. Nevertheless, the propensity for those economies with relatively high levels of arms spending (the United States, the USSR and Britain) to grow more slowly than those with relatively low levels (West Germany and Japan) is demonstrable.

Here we have rather a nice example of a dialectical contradiction: military state capitalism had a stabilizing impact on the postwar world economy, but the competitive disadvantage it created for those powers where it was most developed, in the long run promoted the revival of the intense rivalries on the global market which ushered in a new period of crises at the end of the 1960s.(6)

This return to crisis was only possible because of the continued existence of international competition among private capitals for markets and investment opportunities. But the theorists of state capitalism had never claimed otherwise. Bukharin during the First World War identified two main tendencies characteristic of the imperialist epoch -- that towards the integration of the nation state and private capital, and that towards the internationalization of capital.

To a large extent the history of the twentieth century is the playing out of the changing relationship between these two tendencies. If, as I have argued, the first tendency predominated till, roughly, the end of the 1950s, the second has become increasingly dominant since that time.

Moody makes a great play of “the internationalization of production” and how it supposedly refutes the theory of state capitalism; he does, however, acknowledge that in another book, The Revenge of History, I “pay . . . homage to all these new trends” (39).

In doing so, I drew on an extensive body of discussion and analysis of the internationalization of capital that has built up chiefly in the SWP's theoretical journal, International Socialism, over the past fifteen years. Far from ignoring “globalization” or regarding it as an embarrassment, we can claim to be among the first on the left to have identified it and to have sought to establish its precise extent and significance.

Capitalism and History

Moody's fundamental error is, I believe, to rely on an essentially ahistoric conception of capitalism. Any economic phenomenon which fails to conform to a certain ideal type in which an “autonomous” state merely regulates economic life is either ignored or treated as an instance of a mode of production other than capitalism.

What this fails to take into account is the insight offered by the great theorists of imperialism, Lenin, Luxemburg, Hilferding, and Bukharin -- that capitalism has a history, that it undergoes a process of development involving distinct stages during which different features come into prominence.(7)

The effect of this failure is that, we have seen, a large portion of twentieth-century world history just drops out of the picture, ceasing to be explicable in Marxist terms. But there are also political dangers.

Simply to identify capitalism with international market competition can lead -- as it has various Marxist and bourgeois theorists of “globalization” -- to an underestimation of the role played by the state in contemporary capitalism. This role does not simply consist in the vast and destructive military power of the major capitalist states.

Deregulated, globalized capitalism still needs the state to fight its economic wars -- as the GATT talks and many other cases of conflict show -- and to save it from market failure -- the dramatic intervention of the Federal Reserve and other central banks during the October 1987 stock market crash is a case in point, as is the Group of Seven's bailout of Mexico.

Failure to appreciate this fact can lead, at worst, to the belief that when the states does intervene, it may be acting against the interests of capital. Moody's remarks on the contemporary world economy show no signs of such a dangerous error, but his arguments open the door to it.


  1. Moody's article thus compares favorably with Alan Wald's comments in “The End of American Trotskyism? Part 2,” ATC 54, which criticizes my book for failing to do what it never set out to achieve.
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  2. T. Cliff, State Capitalism in Russia<D> (new edition, Chicago: Bookmarks, 1988).
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  3. See Cliff's “The Theory of Bureaucratic Collectivism: A Critique,” Appendix 2 to State Capitalism, and my discussion of “new class society” theories in Trotskyism (Minneapolis: University of Minnesota Press, 1990), chapter 4.
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  4. See R. Overy, Goering (London: Routledge and Kegan Paul, 1984) and more generally, C. Harman, Explaining the Crisis (London: Bookmarks, 1984), chapter 2.
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  5. For an important general discussion of the issues touched on in this paragraph, see C. Harman, “The State and Capitalism Today,” International Socialism, 2:51 (1991).
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  6. See Harman, Explaining, chapter 3.
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  7. This argument is developed at much greater length in my discussion of perhaps the most important contemporary “new class society” theorists, Robert Brenner, in Theories and Narratives (Durham, NC: Duke University Press, 1995), chapter 3.
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ATC 56, May-June 1995

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