Economic crises are unavoidable under capitalism

Recurrent economic crises are unavoidable under capitalism. Marx’s account of the mechanisms involved culminated in his discussion of the tendency for the rate of profit to fall in the third volume of Capital. Henryk Grossman, in his The Law of Accumulation and Breakdown of the Capitalist System, Being also a Theory of Crises,[1] was the first Marxist to highlight and develop Marx’s account of the roots of economic crises. Grossman’s and thus, often, Marx’s arguments have been sharply criticised by writers identifying with both bourgeois and Marxist traditions.

Grossman was the most important Marxist economist of the twentieth century. The imminent publication of the first full translation of his book into English is an important event. Previously, aspects of his argument and his very important concluding chapter have not been accessible to an English-reading audience. The following discussion draws on the introduction to Jairus Banaji’s and my translation of the work.[2]

Much of the criticism of Grossman’s crisis theory has been based on lazy or wilful misperceptions of it as an argument that capitalism will break down and be replaced without the need for working-class action. These travesties of his argument were often bolstered by the notion that the primary cause of economic crises lies outside the sphere of production, alien to Marx’s conception.

Marx identified the tendency for capitalism to break down, due to the process of competitive capital accumulation lying at the heart of the system, the very mechanism which has led to repeated revolutionary increases in the productivity of human labour in the course of capitalist development. In his book, Grossman recovered Marx’s account of this tendency and the way in which it is expressed in recurrent economic crises. While the book focused on economic questions, its purpose was also profoundly political: to identify circumstances under which revolutionary working-class struggles were most likely to arise and be successful.

The sections below assess the empirical and theoretical validity of substantive criticisms of the case he made. Brief outlines of Grossman’s life and that case are necessary preliminaries.


Born in 1881, Henryk Grossman became a socialist while a student at Kraków’s academic high school.[3] Kraków, in the Austrian province of Galicia, was the cultural capital of partitioned Poland. When studying at the city’s Jagiellonian University, he organised Yiddish-speaking Jewish workers, who had been neglected by the organisation to which he belonged, the Polish Social Democratic Party of Galicia (PPSD). On May Day 1905, when he was barely 24 years old, Grossman became the founding secretary and leading theoretician of the Jewish Social Democratic Party of Galicia (JPSD), which was modelled on the Bund (General Union of Jewish Workers) in the Russian Empire. This Marxist organisation, which split from the PPSD in order to express the interests of Jewish workers, soon had 2,000 members and a weekly newspaper.

The Russian revolution of 1905-7 had a major impact over the border in Austria-Hungary where this was also a period of heightened class struggle. The JSDP’s secretary was a revolutionary, declaring at the Party’s 1906 Congress that

…the use of power takes different forms. There were times when the proletariat fought with weapons on the barricades. Then weapons gave way to voting slips. Now we are preparing for a mass strike which is again the prelude to active revolutionary struggle. That is the dialectic of history: after a period of active revolution there is a period of legal struggle that again gives way to revolutionary struggle. We can therefore say that legal struggle prepares for illegal struggle. That is, a period of accumulating forces prepares the way for the moment when a revolutionary outbreak opens a period when rights are extended.[4]

As the level of class struggle subsided, Grossman devoted more attention to his university studies and, in late 1908, moved to Vienna where he undertook research under Carl Grünberg, the first Marxist professor at a German-speaking university. His project was to study aspects of the initial phase of the transition from feudalism to capitalism in eighteenth-century Galicia. It gave rise to several publications, including a book, which was eventually recognised as his higher doctoral thesis (Habilitation).[5]

During World War I Grossman served in the Austro-Hungarian army, at the front and in research posts. Deemed ineligible for citizenship by the racist policies of the post-war, rump Austrian state’s first government, led by social democrats, Grossman was unable to take up the offer of a senior post in its Central Statistical Commission. Then he was appointed to a senior position in the Polish Central Statistical Office in Warsaw and charged with the organisation of the new Republic’s first census. He also joined the Communist Workers Party of Poland (KPRP), the success of the Russian revolution and the policies of the Soviet state having persuaded him to abandon an aspect of the Bund’s and JSDP’s politics: support for national cultural autonomy for eastern European Jews.

Unwilling to fudge the results of the census in favour of ethnic Poles, Grossman left the Statistical Office for a full professorial post in economic policy at the non-governmental Free University of Poland (WWP) in 1922. For his political views and activities, Grossman was subjected to police repression, including five arrests between 1922 and 1925, and, although he was never convicted, periods of “investigative custody”, the longest for eight months in Warsaw’s infamous Pawiak Prison.

In 1925 Grossman went into qualified exile in Germany. Grünberg, now the Director of the Institute for Social Research, which was associated with the university in Frankfurt, had arranged for him to become one of his assistants. His political situation along with the comfortable income and time for research afforded by this post insulated Grossman from two pressures: from the discipline of the German Communist Party, with which he sympathised, as it succumbed to the effects of the Russian revolution’s degeneration; and from some of the pressures associated with employment by a publicly financed university. After being granted a higher doctorate in 1927, he began to teach courses related to his research at the university.

This was Grossman’s most productive period, during which he wrote The Law of Accumulation and Breakdown of the Capitalist System, Being also a Theory of Crises, published in 1929, and several related essays.

The Institute and most of its members went into exile early in 1933, after the Nazis were handed power in Germany and soon re-established itself in New York. But Grossman went to Paris, where he associated with exiled members of the Socialist Workers Party of Germany, a split from the Social Democratic Party led by prominent former members of the Communist Party of Germany. Disillusioned with Stalinism while there, he recommended Trotsky’s analysis of the German catastrophe to a correspondent, the council communist Paul Mattick.

After a period in London, Grossman moved to rejoin the rest of the Institute in New York in 1937. But there was a rupture between him and the Institute in the early 1940s, although he remained on the payroll. Influenced by what he regarded as the Communist International’s support for the Spanish revolution during the civil war, his faith in the Stalinist leadership of the International and Russia revived. But he never abjured his subjective commitment to working-class self-emancipation or his own work in Marxist economics, which had already been anathematised in the Communist movement in 1929. Meanwhile Max Horkheimer, at the head of the Institute, had moved away from Marxism and embraced a liberal critique of Stalinism. Pay cuts for most Institute employees, to sustain Horkheimer’s comfortable lifestyle in sunny Los Angeles, were also an issue.

In 1949, Grossman left the United States of America to take up a professorial chair at Leipzig University, in Communist East Germany. This was part of a short-lived effort to re-establish the University’s prestige, by recruiting prominent academics who had been in exile in the west. Despite his efforts to arrange the republication of some of his writings, that never happened in what became the Democratic Republic of Germany, where he died in 1950.

Grossman’s argument

The following outline focuses on the main steps in Grossman’s argument in The Law of Accumulation. The introduction included a description of Marx’s method, which structures Capital, as a process of successive approximation (Annäherungsverfahren). Marx made a series of assumptions that bracketed out less fundamental aspects of capitalism’s economic mechanism, in order to study the system’s essential logic. In subsequent steps, these assumptions were lifted and the consequences examined, bringing the analysis progressively closer to the features and movements of capitalism which can be observed empirically. This approach also structured Grossman’s book.

While Marx’s labour theory of value entailed a theory of breakdown, it was rejected by both “revisionists”, like Eduard Bernstein and Mikhail Ivanovich Tugan-Baranovsky, and apparently orthodox Marxists, like Karl Kautsky and Rudolf Hilferding. But “[i]t was Rosa Luxemburg’s great historical contribution that she – in conscious opposition to and protest against the distortions of the neo-harmonists – held fast to the fundamental insight of Capital and sought to support it by proving that there is an absolute economic limit to the further development of the capitalist mode of production”. Her explanation of that limit, based on the progressive disappearance of non-capitalist markets, was, however, mistaken. Quoting Lenin, Grossman stressed that, for capitalism, “There is no such thing as an absolutely hopeless situation”.[6] Having recovered Marx’s theory, in whose elucidation the reproduction schemas of Capital’s second volume played a crucial role, rather than being faulty as Luxemburg argued, he returned to the relationship between capitalism’s tendency to break down and working-class struggle in his book’s conclusion.

Otto Bauer had elaborated a useful model of capital accumulation in a reproduction schema which he used to refute Luxemburg’s contention that capitalism’s survival depended on the realisation of surplus value in non-capitalist domains. Realistically, Bauer assumed with Marx that the rate of accumulation of constant capital was more rapid than that of variable capital, ie that the organic composition of capital rises. The organic composition of capital is the ratio of the value of machinery, equipment, buildings and raw materials compared to the wages bill, “in so far as it is determined by” the ratio of the physical quantity of machinery compared to the number of workers.[7]

By extending Bauer’s own schema beyond the four years of his exposition, Grossman proved that accumulation cannot be sustained forever and breaks down. Given the model’s assumptions, the absolute amount of surplus value set aside for the capitalist class’s consumption would eventually have to decline, if the assumed rates of accumulation of constant and variable capital were to be sustained. Subsequently, even further inroads into and then the elimination of the capitalists’ pleasures and subsistence would not suffice to maintain the assumed rates of accumulation. As the model assumed a constant rate of population growth, further accumulation would then also result in rising unemployment. If accumulation nevertheless continued, a point would be reached at which there was no scope for investment in further variable capital and additional outlays on constant capital would not, therefore, yield an increase in the mass of surplus value.

A crisis would already set in, however, once the incentive for capitalists to invest disappeared, ie when their consumption fund began to decline. Even before that point, capitalists would pursue counter-measures: wage reductions or a reduction in the rate of accumulation of constant capital.

The operation of countertendencies, which Marx had identified and Grossman explored in greater detail, means that in the real world the breakdown tendency is interrupted and transformed into periods of growth punctuated by crises. Contrary to other theories of economic crises, Grossman argued that crises would recur even when prices remained constant, there was no credit squeeze, no miscalculation by capitalists, and there was proportional growth between the two departments of production, which create producer goods (department I) and consumer goods (department II).

Given the effect of countertendencies, Grossman again invoked Lenin on the absence of “hopeless situations” for capitalism. He then provided a formula for the time at which Otto Bauer’s schema broke down. That point would change if the assumptions of the schema were modified by countertendencies.

The breakdown tendency expresses the way in which capitalist relations of production constitute a fetter on the development of the forces of production. The tendency for the rate of profit to fall, as the foundation for Marx’s theory of breakdown and crisis, is itself an expression of the contradiction between the relations and forces of production. The output of the labour process creating use values knows no limits, as productivity grows. But, under capitalism, this labour process is subordinated to the valorisation process (the process of value creation) in the pursuit of profits. New technology is not applied wherever it can save the expenditure of labour but only where expenditure on it is outweighed by savings on wages. Moreover, as the amount of accumulated capital increases and hence the rate of profit falls, the incentive to invest in new, more expensive technology declines. The unemployment not only of machinery and equipment but also the most fundamental force of production, human labour power, as a feature of economic crises is another expression of the way capitalism fetters society’s productive forces.

Grossman’s concluding chapter returned to his concern with the significance of Marx’s theory of breakdown and crisis for the class struggle, by discussing the logic of movements in wages and criticising the predominant social democratic contention that a non-revolutionary transition from “organised capitalism” to socialism was already under way.

Hilferding had argued that planned production could eliminate crises under capitalism and the transition to socialism could be consummated by subordinating a “general cartel”, which embraced the whole of society’s production, to democratic, parliamentary control.[8] But, Grossman pointed out, greater regulation of the economy by cartels does not resolve the underlying problem, which derives from the accumulation of capital in pursuit of profits, which is a fundamental feature of capitalism. The elimination of competition by monopolies and cartels on domestic markets only stimulates greater competition on international markets: the system’s inherent tendency to breakdown cannot be avoided. Quoting from Marx’s discussion of the commodity fetishism, Grossman contrasted Hilferding’s internally inconsistent, reformist utopia with socialism:

The veil [of value, concealing “the practical relations of everyday life between man and man, and man and nature”] is not removed from the countenance of the social life-process, ie the process of material production, until it becomes production by freely associated men, and stands under their conscious and planned control.[9]

Criticisms and responses

A plethora of objections has been raised against Grossman’s arguments. Here only the most widespread and substantive ones are considered.

A mechanical theory of automatic breakdown?

Marx has long been portrayed as a crude determinist, on the basis of trivial readings and/or ignorance of his works.[10] The argument that any materialist analysis is mechanical or determinist goes back a long way. Moses Mendelssohn made this unwarranted criticism of Baruch Spinoza’s materialist understanding of the world in the late 18th century.[11]

Otto Bauer, in a similar vein, accused Luxemburg of making the economic argument that “Capitalism will…founder on the mechanical impossibility of realising surplus-value”, an assessment which Bukharin repeated.[12] And Grossman went along with this, arguing that “[i]t could also suggest that capitalism could break down automatically, without the need for working class struggle”. Hardly an accurate or fair charge, given Luxemburg’s own political activity, her important published interventions, notably Social Reform or Revolution and The Mass Strike, and her explicit statements about the relationship among Marxist theory, capitalism’s breakdown and class struggles.[13]

The same accusation was made against Grossman himself, in the strongest form: that his theory of capitalism’s tendency to break down was not only mechanical but also led to the conclusion that the class struggle was irrelevant. Critics of his book on a left spectrum from council communism, through to Stalinism and social democracy, asserted that he had a mechanical theory of capitalism’s breakdown.[14] It is absolutely clear, on the basis of his personal political commitments and engagement from his youth through to his old age that this was not how he formulated or understood his own arguments. At two points in The Law of Accumulation, as we have seen, he was also quite explicit that capitalism will not face a “hopeless situation” in the absence of successful revolutionary class struggles. The book’s conclusion affirmed that:

The final goal which the working class struggles for is not, therefore, some ideal that is brought into the workers’ movement “from the outside”, in a speculative manner, whose realisation is reserved for the distant future, quite independently of the struggles that occur in the present. It is, on the contrary, as the law of breakdown developed here suggests, a result that flows from immediate day to day class struggles and whose realisation is accelerated by these struggles.

Grossman’s account, like Marx’s, identified how the system’s tendency to break down did not result in monotonic decline but in cyclical economic crises. These, he maintained, were the circumstances in which revolutionary working-class action had the greatest likelihood of arising and of success. Hence his statements, not only in letters and manuscripts, and The Law of Accumulation itself, but also in publications before and after the appearance of the book. For example, before:

“The totality of all these objective changes is called a revolutionary situation.” It is not merely revolutionary consciousness (which, incidentally, cannot be produced outside a revolutionary situation, merely by hammering the final goal into heads) that only figures in addition as a further condition with a subjective character. It is rather something entirely different: “the ability of the revolutionary class to take revolutionary mass action, which presupposes an organisation of the coherent will of the masses and extensive experience in the class struggles of everyday life.[15]

And after:

The point of breakdown theory is that the revolutionary action of the proletariat only receives its most powerful impetus from the objective convulsion of the established system and, at the same time, only this creates the circumstances necessary to successfully wrestle down the ruling class’s resistance.[16]

But were the arguments in his book so sloppily formulated that they invited the conclusion that he advanced a theory of capitalism’s automatic breakdown? This can only be asserted if unqualified statements by Grossman, such as “a relative decline in the mass of profit necessarily results in the capitalist system’s breakdown”, are plucked from the context of their repeated qualification in discussions of countervailing factors to the tendency to breakdown. For Grossman, the law of capitalism’s breakdown is, undoubtedly, a corollary of Marx’s law of the tendency for the rate of profit to fall.

Even though the breakdown tendency is periodically interrupted and weakened, more and more the mechanism as a whole necessarily approaches its end, with the progress of capital accumulation, because the valorisation of this expanded capital becomes progressively more difficult as the accumulation of capital grows absolutely. If these countertendencies are themselves weakened or brought to a halt…the breakdown tendency gains the upper hand and is realised in the absolute form of the “last crisis”.

The “last crisis” is contingent. Increases in the rate of surplus value, as a consequence of ruling-class victories in the class struggle, constitute a significant countertendency. Given that capitalism knows no “hopeless situations”, the “last crisis” is best understood as class struggle which results in a successful working-class revolution. Many commentators, including critics of Grossman’s work, have had no difficulty in recognising that he was not arguing that capitalism would collapse without conscious working-class intervention.[17] The evidence that he argued capitalism’s downfall would occur independently of working-class struggle is as thin as that for attributing the same view to Marx and Engels on the basis of rhetorical flourishes, such as the assertion in the Communist Manifesto that the bourgeoisie’s “fall and the victory of the proletariat are equally inevitable”.[18] On this issue, Grossman’s position, expressed with particular clarity in a publication which appeared after The Law of Accumulation, was the same as Marx’s: “regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its [capital’s] violent overthrow”.[19]


Before Grossman, Marxists had noted Marx’s “law of the tendential fall in the rate of profit” but failed to attribute significance to it in the explanation of crises and capitalism’s tendency to break down. Criticisms of Grossman’s discussion of the law opened the way to the same criticisms being directly targeted against Marx by Marxists. The criticisms raised early by the social democratic Marxist Helene Bauer have often been repeated. They focus on two factors which countervail to the tendency for the rate of profit to fall: the way improved technology increases the productivity of labour and therefore reduces the value of both means of consumption and means for production.[20] Sweezy explicitly argued against Marx that the balance between rises in the organic composition of capital and increases in the rate of surplus value was indeterminate and that the tendency for the rate of profit to fall could only be maintained on the basis of a falling rate of surplus value.[21]

Hans Neisser, a mainstream economist and social democrat, was a pioneer in explicitly extending criticisms of Grossman to Marx, within a social democratic framework. While Ladislaus von Bortkiewicz in 1907 had maintained that new technology would never reduce the rate of profit, Neisser in 1931 argued that the introduction of new technology does not necessarily result in a higher organic composition of capital and hence a lower rate of profit, because it increases the productivity of labour and hence cheapens the value of commodities, including means of production.[22] Bortkiewicz’s categorical argument was repeated against Grossman and Marx by the conservative Marxologist Karl Muhs[23] and, more recently via the mathematical demonstration of Nobuo Okishio, by leftists and Marxists.[24]

Marx and Grossman included a higher rate of surplus value and cheapening of constant capital in their discussion of countervailing factors. The scope for increasing absolute surplus value (making workers labour longer for the same pay) is limited by the fact that there are only 24 hours in a day; and for increasing relative surplus value (by increasing the proportion of the day workers labour to create the value appropriated by capitalists, as opposed to the value of their wages, that is the value of what they consume) by the length of the working day. Both must be under 100 percent. The value composition of capital, understood as the relationship between dead and living labour in the production process, on the other hand, can rise indefinitely, overwhelming increases in the rate of surplus value.[25]

The notion that not only the technical but also the organic composition of capital, simply expressed as that the ratio of investment in constant capital to outlays on wages, has not risen in the long run under capitalism is simply fanciful. If improvements in productivity due to improved technology are similar in the departments producing means of production and means of consumption, then changes in the organic composition of capital will parallel changes in the technical composition of capital.[26] Moreover Grossman, in an unpublished manuscript, later pointed out that:

[T]he question of whether devaluation is of the same extent as the growth in the mass of the MP [means of production] and thus the growth in mass is paralysed by the decline in value, or rather whether devaluation is not as great and consequently that despite the devaluation of the MP, its value in relation to L [labour] grows, cannot be abstractly, deductively decided and has to be decided through empirical observation. Experience, indeed experience of more than one hundred years, teaches that the value of constant capital, thus also of the total capital, in relation to variable capital grows more quickly than variable…[27]

The refutation of the Bortkiewicz/Okishio contention that technological change cannot reduce the rate of profit is relatively straightforward. Technological innovation can raise the rate of profit for the first capitalists to invest in it, because they can sell their products at prices determined by the average costs of production in the industry, above their lower costs of production, ie above their values. In order to stay in business, competitors have to adopt the new technology too. But once the bulk of the industry is using that technology, the average costs of production and hence prices will be close to that experienced by the innovators. The extra profit will evaporate and, other things being equal, the average rate of profit will fall. This temporal process cannot be captured by mainstream economics with its assumption of instantaneous adjustments.[28]

A different countertendency to those discussed by Grossman’s critics was particularly important during the 1950s and 1960s. Massive, competitive arms spending helped sustain the long post-World War II boom. Unlike the products of departments producing means of production and means of consumption, the output of the arms industry cannot return to the circuit of capital. The expansion of the arms industry therefore slowed down accumulation and the tendency for the rate of profit to fall, by diverting surplus value which could otherwise have been invested and thus raised the organic composition of capital.[29]

A permanently falling rate of profit

Neisser and Anton Pannekoek argued that accumulation of both constant and variable capital could grow forever in Grossman’s schema, but at lower rates. The schema only gave rise to idle machinery, equipment and buildings with insufficient workers to set them in motion because Grossman had made the arbitrary assumption that constant capital would be prioritised over variable capital in the allocation of surplus value for investment.[30] This objection ignored the point of Grossman’s argument. Where Otto Bauer’s reproduction schema, with its equally arbitrary assumptions, was intended to show that capital accumulation could continue forever, Grossman’s schema, based on Bauer’s, effectively demonstrated that accumulation cannot be maintained indefinitely at any given rate of additional investment. The allocation of additional investment was not, furthermore, arbitrary in Grossman’s schema. Taking use values into account, the production of means of consumption in it became insufficient to sustain accumulation of variable capital first, before production of means of production had a chance to become insufficient to sustain accumulation of constant capital.

A rational collective response to a falling average rate of profit would be for the whole of the capitalist class to lower the rate of accumulation in concert. But, as both Grossman himself, earlier, and Harman pointed out, competition among capitals means that the rational response of individual capitals may be to maintain or even raise their rate of investment, in order to keep up with or undercut their rivals by reducing the price of their output below the average price for the industry, thus maintaining or improving their share of total surplus value.[31]

The lumpiness of constant capital as use values, Grossman later observed, is also a factor which can disrupt accumulation as the rate of profit falls.[32] Particularly at very low rates of profit, the amount of surplus value created in a single year may not be sufficient to purchase the minimum unit increments of constant capital, embodied in a large productive complex, which can generate new commodities and maintain the circuit of capital.


The social democrats Alfred Braunthal and Helene Bauer both joked that Grossman had derived the breakdown of capitalism from the impoverishment of the capitalists rather than of the proletariat.[33] Another of Grossman’s unpublished manuscripts included the response that:

Nowhere did I say that capitalism will go under due to the impoverishment of the capitalists. I showed, rather, that an increasingly large part of surplus value (ac) is, under the assumptions of Bauer’s schema, devoted to accumulation. The remainder available for the consumption of the capitalists and workers does not suffice. As a consequence an increasingly sharp struggle between workers and entrepreneurs over the level of wages necessarily flares up. If workers continue to receive the same wage, then nothing remains for the entrepreneurs. If, however, the latter maintain and, where possible, even increase their living standard then they force down the level of wages, ie from this point on the impoverishment of the workers necessarily sets in. That, however, drives the workers to revolution and, as a result of this impoverishment of the workers, and [sic] capitalism will go under.[34]


There have been debates over Grossman’s account, in The Law of Accumulation and his essay on “Change in the Original Plan for Marx’s Capital”, of Marx’s method and the structure of Capital. That debate and evidence supporting Grossman’s assessment have been discussed at some length elsewhere.[35] Overall, his explanation of the structure of Capital, in terms of Marx’s method of successive approximation, along with the logic of the change in Marx’s plan for Capital, if not its timing, have withstood criticism.[36]


According to Arkadij Gurland and Roman Rosdolsky, Grossman’s analysis was one-sided, because it ignored capitalism’s realisation problems.[37] This is true and it could be added that he also ignored, for example, capitalism’s transient problems in maintaining proportional outputs among industries, economic disruption caused by war and difficulties that arise in the credit system (not to mention the economic impact of a deadly global epidemic), all of which can give rise to difficulties in the process of accumulation and can trigger crises. But this was deliberate. Grossman’s purpose in The Law of Accumulation was to carefully identify fundamental contradictions of capitalism which emerge from its core in the process of production itself. Varga’s (erroneous) complaint that the book had not mentioned the Bolshevik revolution or the circumstances in which it occurred,[38] was likewise beside the point.

Relevance of the value-price transformation

Neisser argued that Grossman’s analysis did not take into account the transformation of commodities’ values into prices of production, through the equalisation of profit rates across industries. (According to Marx, market prices fluctuate around prices of production.) Basing his argument on Tugan-Baranovsky’s and Bortkiewicz’s criticisms of the way Marx handled this transformation, Neisser asserted that the prices-of-production rate of profit could vary from the value rate of profit and that it was therefore “in no way certain that giving up this assumption [that commodities exchange at their values] must not alone finally lead to the profound modifications of Grossman’s theory”.[39] In response, Grossman asserted that his analysis was an aggregate one of general crises embracing all spheres of production, which would not be affected by changes in relative prices because total values equal total prices. Elements of his analysis did, however, include the allocation of surplus value between the departments of production. In a counter-attack, Grossman also noted that the neoharmonists’ contention that capital accumulation could continue smoothly, ie proportionately, was made on the basis of the reproduction schemes of the second volume of Capital. But this conclusion was not justified before the transformation of values into prices of production and further modifications, which result from the introduction of commercial profit, interest and ground rent, are taken into account.[40]

The “transformation problem” has subsequently, moreover, been satisfactorily resolved in a way which, contrary to Bortkiewicz, maintains the equivalence of the value and prices-of-production rates of profit.[41]


The arguments in The Law of Accumulation were not flawless. There were inconsistencies and errors. In places, Grossman sloppily wrote that the mass of surplus value/profit declined in his schema, for example:

In the final phase of the business cycle, the mass of profit (s), and therefore also its accumulated constant (ac) and variable (av) parts, contract so sharply that it no longer suffices to sustain accumulation on the previous assumptions, that is, in accord with the annual increase in population.

But the mass of employed variable capital never fell during the 36 years of the schema Grossman presented and, as the rate of surplus value was constant, the mass of surplus value/profit did not fall either. Grossman conflated an accurate account of what happens during empirical business cycles with an accurate description of his reproduction schema. “In the final stages of the business cycle”, but not in Grossman’s schema, the mass of profit does contract sharply. The mass of profit does become insufficient to sustain the assumed rate of accumulation in Grossman’s schema but it, as opposed to the size of the capitalists’ personal consumption fund k, does not decline.

Likewise, rather than writing “a decline in the mass of profit”, in the following passage, Grossman should have referred to “too great a relative decline in the mass of profit”.

[F]rom the law of accumulation it follows…that at any given population [growth rate] capital accumulation encounters an insuperable barrier beyond which any further accumulation is pointless, because it will be accompanied by a decline in the mass of profit and therefore also with the emergence of a reserve army.

And the use of a quotation from Marx to justify Grossman’s identification of the pivotal role of capitalists’ personal consumption was questionable: “The fall in the rate of profit would be accompanied this time by an absolute decline in the mass of profit… And the reduced mass of profit would have to be calculated on an enlarged total capital”.[42] Marx’s observation was made in the course of a discussion which was not entirely clear and included the possibility of a fall in the rate of surplus value as wages were bid up.

Elsewhere Grossman was more careful, specifying that “a relative decline [or fall] in the mass of profit” was the trigger for breakdown.[43]

There was also inconsistency in Grossman’s use of the terms “absolute overaccumulation”,[44] “overaccumulation”, and “overproduction”. They were used to designate both the point in his schema beyond which the capitalists’ consumption fund began to decline and the point beyond which, in reality and following Marx, further accumulation produces no additional surplus value. Grossman also conflated the latter with the point in his schema at which the capitalists’ consumption fund disappeared and it broke down because its assumed rate of accumulation of constant and variable capital cannot be sustained.[45] This terminological confusion does not invalidate his schema, which demonstrates that capitalism tends to break down, given any specific rate of accumulation, nor his account of capitalism’s inevitable experience of economic crises and his claim to have derived these from Marx’s analysis, if more creatively than he implied.


Grossman’s attempt to encompass credit in a reproduction schema failed. He portrayed the source of credit as a fund made up of deductions from new investment, slowing it over several years, which is subsequently drawn down to sustain investment in later years. This would disrupt the circuit of capital because surplus value, in concrete form, would lie idle for years until it was redeployed back into production.[46] In a different context, after the publication of The Law of Accumulation, Grossman himself warned against the introduction of credit into Marx’s schemas:

After all, it is one of the many simplifying assumptions of Marx’s reproduction schema that it abstracts from credit. The very purpose of the schema is to show the exchange relations between its two departments and to investigate whether complete sale is possible. It is not permissible to change the initial assumptions after the fact, once one has encountered difficulties in solving the problem.[47]

Empirical verification

Since 1957, there have been studies which have attempted to test Marx’s law of the tendency for the rate of profit to fall against statistical evidence, especially of trends in the economy of the United States.[48] But the translation of the categories of bourgeois economics and statistical collections into aggregates which match Marxist concepts remains a challenge. From the 1980s, statistical studies became more frequent and, in some cases, more sophisticated. Differences in results have often arisen from different approaches to the translation. That there have not been any attempts to operationalise Grossman’s account of the role of capitalists’ private consumption statistically is understandable, given that it was an heuristic device to highlight the role of class struggle in patterns of economic growth, the course and the onset of crises.

A collection, edited by Guglielmo Carchedi and Michael Roberts, in which Grossman’s insights were invoked at several points, offered extensive evidence for Marx’s account of the tendency for the rate of profit to fall in the long run, due to a rising organic composition of capital, at the level of several national economies and globally. Contributors also related fluctuations in the rate of profit to periods of economic contraction and growth and also provided extensive references to the previous, very substantial empirical literature.[49]

In summary

Grossman’s fundamental arguments about capitalism’s tendency to break down because of the law of the tendency for the rate of profit to fall, and the way this takes the form of recurrent economic crises, withstands the criticisms made of it. There are, in The Law of Accumulation, some exaggerated statements, some mis-specifications and an inadequate attempt to incorporate credit into Marx’s reproduction schemas. But, far more importantly, it grounds Marx’s and Engels’s proposition that bourgeoisie “is unfit to rule because it is incompetent to assure an existence to its slave within his slavery”[50] in a powerful analysis of economic crises as arising from the very essence of the capitalist process of production. That analysis also reinforces their conclusion that capitalism can only be superseded through its revolutionary overthrow by the working class.


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[1] First published as Grossmann (1929); abridged translation, Grossman 1992; quotations below, unless otherwise attributed, are from the full translation, Grossman 2021, forthcoming.

[2] Grossman 2021.

[3] Information about Grossman’s life is from Kuhn 2007.

[4] Grossman 2020b; also see Grossman 2020c.

[5] Grossmann 1914.

[6] Lenin 1966, pp226-7.

[7] Marx 1981, p958.

[8] Hilferding 1981, p297; Hilferding 2017, pp569, 571-2.

[9] Marx 1976, p173. Grossman’s emphasis. My interpolation, which includes part of Marx’s previous sentence.

[10] Barth 1967, particularly p61, was an early example. Ferdinand Tönnies, the bourgeois sociologist, already identified how incorrect this characterisation was, Tönnies 1894, pp502-12. See Berlin 2013, particularly, pp121 and 129, and Popper 1947, particularly, pp97 and 127 for a more recent version of the argument about determinism.

[11] Spinoza 2002, eg pp324-5, 447-8. Mendelssohn 2011, p78. On the parallels between the treatment of Spinoza and Marx see Greene and Fluss 2020.

[12] Otto Bauer 2012, p273. Bukharin 1972, p149.

[13] For example, Luxemburg 2008; Luxemburg 2015, pp362, 375.

[14] Just a few examples follow. Council communist: Pannekoek 1977, pp77-8. Stalinist: Varga 1930, pp62, 95; Behrens 1952, pp27, 46. Social democratic: Braunthal 1929, p304; Helene Bauer 1929, p280. Also Sweezy 1962, pp11-20; Foster and McChesney 2010, pp53-4; Milios et al 2002, pp149.

[15] Grossman 2019c, p143, quoting Lenin 1964, pp213-4, Grossman’s emphasis.

[16] Grossman 2019g, p385. Also see Grossman 2019i, pp596-7.

[17] Mattick 1934, pp19-20; Marramao 1975, p63; Krahl 2008, pp88-9, 213; Shaikh 1978, p236; Tula 1979, ppxxx, xxxvi-xxxvii; Glaser 1981, p237; Howard and King 1989, pp329, 331-2.

[18] Marx and Engels 1976, p496.

[19] Marx 1987, p134. Grossman’s interpolation. My emphasis.

[20] Helene Bauer 1929, p274. The conservative Muhs 1931, pp14-5, asserted that increases in relative surplus value “at least” offset rises in the organic composition of capital. Much earlier, Tugan-Baranowsky 1901, pp211-5, had attempted to refute the law of the tendency for the rate of profit to fall in terms of a rising rate of surplus value as a consequence of the introduction of new technology.

[21] Sweezy 1962, pp100-6.

[22] Bortkiewicz 1952, pp58-74; Neisser 1931, pp79-80. The bourgeois economist Miksch 1930 made the same point against Marx and Grossman.

[23] “There is no doubt that a higher organic composition only becomes a reality, even it can be achieved technically, if it yields higher profits. A falling rate of profit and rising organic composition are therefore in fundamental contradiction with each other”. Muhs 1931, p17.

[24] Okishio 1961. Accepting the Okishio theorem were, for example, Parijs 1980; and, citing Parijs in support, Harvey 1982, p185; Heinrich 2014, pp339-40; and, citing Heinrich in support, Milios et al 2002, pp150-7.

[25] Argued and mathematically demonstrated in Yaffe 1973, pp 201-2; Cogoy 1987, pp61-4; Shaikh 1987. Also see Harman 1999, p28; and the classic defence of Marx’s account of the tendency for the rate of profit to fall, Rosdolsky 1977, pp376-82.

[26] Shaikh 1978, p251.

[27] Grossman 2019d, p212. My interpolations.

[28] For an extensive and mathematical refutation of the “Okishio theorem” and outline of its history see Kliman 2007, especially pp44-5, 113-38. Carchedi and Roberts 2013 provided a systematic defence of Marx’s theory of the tendency for the rate of profit to fall against the Okishio and other criticisms.

[29] Harman 2009, pp129-32, 166-8. Harman had previously explained the effect of military spending on the rate of profit, in part, by invoking Bortkiewicz’s neo-Ricardian solution of the “transformation problem”, which meant that a high organic composition of capital in industries producing commodities which are not means of production or of consumption did not undermine the rate of profit in other sectors (for example, Harman 1999, pp81, 167). Schmiede and Yaffe 1972, p8, criticised this argument. In his 2009 book, Harman tacitly abandoned that approach and simply argued that unproductive expenditure on arms slowed the rise in the organic composition of capital, referencing Grossman as well as Marx.

[30] Neisser 1931, pp83-4; Pannekoek 1977, pp69-70. Also see the suggestion that the personal consumption fund for capitalists can be maintained at the expense of unemployment (and hence the rate of accumulation) in Trottmann 1956, pp26-8.

[31] Grossman 2019b, p47; Harman 2009, p78.

[32] Grossman 2019h, p532.

[33] Braunthal 1929, p294; Helene Bauer 1929, p275. Similarly Muhs 1931, p23.

[34] Grossman 2019d, pp216-7. My interpolation.

[35] Kuhn 2013.

[36] On Marx’s method in Capital, see Callinicos 2014, particularly p130.

[37] Gurland 1930, p80; Rosdolsky 1957, p355. For similar criticisms, which regard additional factors as of equal importance to Marx’s account of the tendency for the rate of profit to fall in the explanation of crises, see Clarke 1994; and Harvey 2016. For a response to the condemnation of “monocausal explanations” see Carchedi 2010, p124.

[38] Varga 1930, p62. Bukharin 1972 is criticised in The Law of Accumulation for neglecting to systematically examine the economic causes of the breakdown which contributed to the Bolshevik revolution and overgeneralising from the Russian case.

[39] Neisser 1931, pp74. Grossman’s interpolation.

[40] Grossman 2019f, pp311-314.

[41] See Kliman 2007 and Moseley 2016.

[42] Marx 1981, p360. Grossman’s emphasis.

[43] My interpolations. Grossman later asserted that “I do not claim that surplus value becomes smaller. It can become larger. And still it is insufficient…”, Grossman 2019e, p229. This was true of the claims embodied in his numerical examples but not consistently in his textual argument.

[44] As pointed out by Trottmann 1956, pp9-10.

[45] In Grossman’s discussion of the formation of a reserve army of labour both the points at which the capitalists’ consumption funds starts to decline and at which it disappears seem to be equated with Marx’s account of overproduction.

[46] See Trottman 1956, pp45-7; Howard and King 1989, p331.

[47] Grossman 2019f, p326.

[48] See the pioneering work of Gillman 1957 and Mage 1963.

[49] Carchedi and Roberts 2018. Also see Jones 2014.

[50] Marx and Engels 1976, p495.

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