Baran and Sweezy’s “Monopoly Capital”

By Paul Mattick

Revolt Library Anarchism Baran and Sweezy’s “Monopoly Capital”

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(1904 - 1981)
Paul Mattick Sr. (March 13, 1904 – February 7, 1981) was a Marxist political writer and social revolutionary, whose thought can be placed within the council communist and left communist traditions. Throughout his life, Mattick continually criticized Bolshevism, Vladimir Lenin and Leninist organizational methods, describing their political legacy as "serving as a mere ideology to justify the rise of modified capitalist (state-capitalist) systems, which were [...] controlled by way of an authoritarian state". (From :


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Baran and Sweezy’s “Monopoly Capital”

Source: Anti-Bolshevik Communism by Paul Mattick, published by Merlin Press, 1978;
Transcribed: by Andy Blunden, for 2003.

The authors of Monopoly Capital,[1] Paul A. Baran and Paul M. Sweezy, attempt to overcome “the stagnation of Marxian social science” by shifting the focus of attention from competitive to monopoly capital. The Marxian analysis of capitalism, they say, “still rests on the assumption of a competitive economy”, which has, however, in the meantime, undergone a qualitative change by turning into monopoly capitalism. Marx, the authors relate, “treated monopolies not as essential elements of capitalism but rather as remnants of the feudal mercantilist past which had to be abstracted from in order to attain the clearest possible view of the basic structure and tendencies of capitalism” (p.4). Their own book tries to remedy this situation and to do so by using Marx’s own “powerful analytical method”.

Marx’s analysis of capitalist development is based on the labor theory of value and surplus-value. However, market relations, Baran and Sweezy point out, “are essentially price relations” and in their view “the study of monopoly capitalism, like that of competitive capitalism, must begin with the workings of the price mechanism” (p.53). For Marx, price relations derive from value relations and the study of capitalism must therefore begin with value relations. The value analysis of capitalism disregards competition, for in the social aggregate all prices equate with total value. Contrary to what Baran and Sweezy say, the Marxian analysis does not rest on the assumption of competitive capitalism but on the abstract concept of total capital. If this concept is at all valid, it is so regardless of whether the actual capital structure is competitive, monopolistic or both.

Marx lived in a highly competitive capitalism, to be sure, and he knew that prices, not values, determine market events — even though market events are themselves circumscribed by the social relations as value relations. The descriptive parts of Capital refer to capital competition and to the elimination of competition by way of competition, i.e. to the centralization and concentration of capital. What Baran and Sweezy might possibly mean by their assertion that Marx neglected monopoly — i.e. administered instead of competitive prices, and a tendency toward stagnation rather than expansion — is that Marx did not use the term monopoly in its bourgeois sense in opposition to competition. His theory of capital competition is at the same time a theory of monopoly, and monopoly, in this sense, always remains competitive, for a noncompetitive monopoly capitalism implies the end of market relations such as sustain private-property capitalism.

Of course, during capitalism’s heyday there is more competition than during its early or late stages. “When capital is still weak,” Marx pointed out, “'it tends to lean on the crutches of past modes of production. As soon as capital feels itself strong, however, the crutches are thrown away and capitalism moves in accordance with its own laws of motion. But as soon as it begins to feel itself as a barrier to further development and is recognized as such, it adapts forms of behavior through the harnessing of competition which seemingly indicate its absolute rule but actually point to its decay and dissolution.”[2] In other words, the prevalence of monopoly characterizes the infantile and the senile stages of capital development. Appearances to the contrary notwithstanding, when, instead of being a form of competition, monopoly eliminates competition, capitalism finds itself on the way out.

For Baran and Sweezy, the asserted ‘fundamental structural change’ from competitive to monopoly capitalism demands an alteration in the laws derived from Marx’s ‘competitive model’, as, for instance, that of the falling rate of profit. But, to repeat, the Marxian model of capital formation and its consequences is based not on competition but on the application of the labor theory of value to the accumulation process. Although capital accumulation is actually a competitive process, the falling rate of profit does not depend on competition but on the shifting value relations of capital expansion.

To recall this law: according to Marx, capital invested in means of production advances relatively faster than capital invested in labor-power. Because surplus-value is surplus-labor time, the reduction of labor time relative to the growing mass of unproductive capital leads to a fall of the rate of profit, since this rate is ‘measured’ on total capital, i.e. on both the capital invested in means of production, or constant capital, and that invested in labor-power, or variable capital.

The tendential fall of the rate of profit is just another expression for the accumulation of capital and the increasing productivity of labor.

Marx speaks of a tendency of rates of profit to fall because the same causes “which bring about an absolute decrease of surplus-value and profit on a given capital, and consequently in the percentage of the rate of profit, produce an increase of the absolute mass of surplus-value and profit appropriated by the total capital.”[3] This is so, because “while any aliquot part, any hundred of the social capital, any hundred of average social composition, is a given magnitude, for which a fall in the rate of profit implies a fall in the absolute magnitude of profit just because the capital which serves as a standard of measurement is a constant magnitude, the magnitude of the social capital, on the other hand, as well as that of the capital in the hands of the individual capitalists ... varies inversely to the decrease of its variable portion.”[4]

Notwithstanding the tendential fall of the rate of profit “there may be an absolute increase in the number of laborers employed by capital ... an absolute increase of the mass of surplus-value absorbed, and consequently an absolute increase in the mass of the produced profit. And this increase may be progressive. And it may not only be so. On the basis of capitalist production, it must be so, aside from temporary fluctuations”.[5] All that this requires is that “capital grows at a faster rate than the rate of profit falls”.[6] It is the accumulation process itself which nullifies the immediate practical importance of the declining rate of profit.

According to Marx, however, accumulation is characterized by: “First, the increase of surplus-labor, that is, the reduction of the necessary labor time required for the reproduction of labor-power; secondly, the decrease of the labor-power (the number of workers) employed in general for the purpose of setting in motion a given capital.”[7] These occurrences are mutually conditioned by one another and affect the rate of profit in opposite ways. While the rate of surplus-value rises in one direction, the number of laborers falls in the opposite direction. “To the extent that the development of the productive powers reduces the paid portion of the employed labor, it raises the surplus-value by raising its rate; but to the extent that it reduces the total mass of labor employed by a certain capital, it reduces the factor of numbers with which the rate of surplus-value is multiplied in order to calculate its mass.”[8]

And thus, while the fall of the rate of profit is checked by accumulation it cannot entirely be prevented, for there are definite limits beyond which the absolute labor-time cannot be extended and the necessary labor-time, i.e. the labor-time falling to the workers,

cannot be any further shortened in favor of surplus-labor time. To speak in extremes: the absolute working-time during any one day cannot exceed 24 hours, and the necessary labor-time cannot be reduced to zero. The compensation of the relative reduction in the number of workers by their increased exploitation cannot go on ‘forever’. Whatever the mass of labor-power in the real capitalist world, in relation to the progressively faster growing constant capital it must become a diminishing quantity. Thought out to its ‘logical end’, a continuously accelerating capital expansion will change the latent decline of the rate of profit into its actual decline because of a lack of surplus-value with respect to the swollen mass of total capital. At such a point, reality would correspond to Marx’s model of capital accumulation.

There is a point of accumulation where the decreased variable capital cannot find compensation in an increase of surplus-value large enough to yield sufficient profits on total capital. At this point the rate of profit falls below what is necessary to continue the expansion process. The arrival of this point in concrete reality is not predictable, but the tendency in this direction explains for Marx the recurrent crises and the increasing difficulty of overcoming periods of capital stagnation through changes in the conditions of production which raise the rate of surplus-value. However, as long as capital accumulates it does so because it is still able to increase the mass of surplus-value. Under such conditions there is no point in rejecting the theory of the falling rate of profit because of an observable increase in the mass of surplus-value; this does not affect Marx’s theory.

Baran and Sweezy think it necessary to substitute “the law of rising surplus for the law of falling profit”, apparently unaware of the fact that for Marx, too, and for all practical purposes, a rising surplus-value cancels the actual fall of the rate of profit. By engaging in this superfluous task, Baran and Sweezy say they are not “rejecting or revising a time-honored theorem of political economy”, but are simply “taking account of the undoubted fact that the structure of the capitalist economy has undergone a fundamental change since this theorem was formulated” (p.72). For them, the mere ‘change’ from competition to monopoly sufficed to set aside Marx’s immanent law of capital expansion. The ‘proof’ for this assertion is the apparent abundance of surplus-value in the United States. Assuming, for the moment, that Baran and Sweezy are right, they would still only repeat what Marx himself pointed out, namely, that a sufficient rate of exploitation temporarily bars the fall of the rate of profit.

Baran and Sweezy not only substitute “the law of rising surplus for the law of falling profit”, but also surplus for surplus-value. “We prefer the concept ‘surplus’ to the traditional Marxian ‘surplus-value’,” they say, “since the latter is probably identified in the minds of most people familiar with Marxian economic theory as equal to the sum of profit-interest-rent.” It is true, they continue, “that Marx demonstrates that surplus-value also comprises other items such as the revenues of state and church, the expense of transforming commodities into money, and the wages of unproductive workers. In general, however, he treated these as secondary factors and excluded them from his basic theoretical schema” (p.10). According to Baran and Sweezy, such “procedure is no longer justified”, and they express the hope that their change of terminology, the substitution of surplus for surplus-value “will help affect the needed shift in theoretical position” (p. 10).

Because for Marx “the relation between wage-labor and capital determines the entire character of the capitalist mode of production”,[9] his capital analysis is in terms of value and surplus-value. Even the division of surplus-value into profit, interest and rent disappears in his value analysis. The best points in Capital, Marx wrote to Engels, “are 1) the twofold character of labor, according to whether it is expressed in use-value or exchange-value (all understanding of the facts depends upon this); and 2) the treatment of surplus-value independently of its particular form of profit, interest, ground rent, etc.”[10] By observing the relation of surplus-value to total capital, Marx succeeded where Ricardo had failed, namely, in recognizing in the falling rate of profit an immanent law of capital accumulation; a law, which for Marx, “was the most important of political economy”.” If there is no point in considering interest and rent in the value analysis of capital development, there is even less in considering the additional items enumerated by Baran and Sweezy into which surplus-value is divided in capitalist society — except that this distribution will affect the rate of accumulation in case too much surplus-value is consumed instead of being capitalized.

Even in Baran and Sweezy’s definition of surplus as constituting “the difference between what society produces and the costs of producing it”, (p.9) we still have only value and surplus-value. If surplus-value is now simply called ‘surplus’ by Baran and Sweezy, it is because “in the actual economy of monopoly capitalism only part of the difference between output and cost of production appears as profit” (p.76). But this was equally true for competitive capitalism. The substitution has been made because Baran and Sweezy have switched from Marxian to bourgeois economic analysis, which does not operate with class terms such as value and surplus-value but with the amalgam national income, the concept of ‘effective demand’, and the Keynesian remedies for capital stagnation. It would indeed be a strange kind of ‘Marxism’ which paid more attention to the distribution of surplus-value among the capitalists and their retainers than to the division of the social product between labor and capital. But if there is just income and just ‘surplus’ instead of surplus-value, there is of course no falling rate of profit as a consequence of the value relations of capital production and no immanent barrier to profit production. If there is stagnation nonetheless, it is due not to the production relations as capital-labor relations, but to something else and, in Baran’s and Sweezy’s view, to the monopoly structure of present-day capitalism.

In Baran’s and Sweezy’s view, the difficulties of monopoly capital are caused not by a lack of profit but by an unabsorbable ‘surplus’. The magnitude of the ‘surplus’ in the United States, they point out with the aid of Joseph D. Phillips, “amounted to 46.9 per cent of Gross National Product in 1929 and reached 56.1 per cent in 1963. But the portion of the surplus which is usually identified with surplus-value, i.e. profit, interest and rent, declined sharply in the same period. In 1929 this property-income was 57.5 per cent of total surplus, and in 1963 it was only 31.9 per cent.” in view of these facts, Baran and Sweezy think that “not only the forces determining the total amount of surplus need to be analyzed but also those governing its differentiations and the varying rates of growth of the components” (p. 11).

Whatever these statistics may be worth, and they are admittedly not worth much, they do not relate to the Marxian problem of the determination of the rate of profit, but to the capitalist problem of the division of recorded income — other than wages — among the various interest groups living on the surplus-product. They simply tell us what is obvious, namely, that in a few capitalist nations the productivity of labor has enormously increased in order to allow for a great amount of waste-production as well as for higher living standards even under conditions of relative capital stagnation. They also indicate that government requires and receives an ever greater share of the Gross National Product. Apparently, all is well with capitalist society as far as the rate of exploitation is concerned. Only the utilization of the ‘surplus’ provides difficulties and requires such obnoxious items as advertising, government expansion, armaments, imperialism and war.

Looked at from Marx’s theory of the falling rate of profit, Baran and Sweezy write, “the barriers of capitalist expansion appeared to lie more in a shortage of surplus to maintain the momentum of accumulation than in any insufficiency in the characteristic modes of surplus utilization” (p.13). But under monopoly capitalism and “with the law of rising surplus replacing the law of the falling tendency of the rate of profit, and with the normal modes of surplus utilization patently unable to absorb a rising surplus, the question of other modes of surplus utilization assumes crucial importance” (p. 114).

According to Baran and Sweezy, the normal modes of surplus utilization are capitalist consumption and investment — augmented by unavoidable expenses of the circulation process and by necessary but unproductive activities. In monopoly capitalism, however, these normal modes of surplus utilization no longer suffice because production outruns the effective demand. And since ‘surplus’ can no longer be absorbed it will not be produced. The normal state of monopoly capital is thus stagnation. “With a given stock of capital and a given cost and price structure, the system’s operating rates cannot rise above the point at which the amount of surplus produced can find the necessary outlets. And this means under-utilization of available human and material resources. Or to put the point in slightly different terms, the system must operate at a point low enough on its profitability schedule not to generate more surplus than can be absorbed” (p.108). What Baran and Sweezy have thus far said is that it does not pay ‘monopoly capital’ to increase production beyond the point where it ceases to be profitable. This was equally true for ‘competitive capitalism’, as the recurrent periods of depression testify. Only, what used to be a period of stagnation within the business cycle has seemingly become the normal state of affairs. Because periods of stagnation are crisis conditions, one could say that the temporary crisis has become permanent.

The unabsorbable ‘surplus’, of which Baran and Sweezy speak, does not really exist because production stops at the point of loss of profitability. Instead, there are unused human and material resources. It is, then, not an actual ‘surplus’ which troubles monopoly capital but merely a potential surplus, which could be, but is not, produced. Monopoly capital, Baran and Sweezy write, “left to itself, that is to say, in the absence of counteracting forces which are no part of what may be called the ‘elementary logic’ of the system, would sink deeper and deeper into a bog of economic depression” (p.108). And on the basis of their theory it could not be otherwise, for if monopoly capital is no longer able to ‘absorb’ the ‘surplus’ it is capable of producing, any further increase in the productivity of labor, which would enlarge the ‘surplus’ still further, would force monopoly capital into still more extensive restrictions of production. With the resultant growth of idle resources, capital accumulation, that is, the capitalist mode of production, would come to an end.

For all practical purposes it is quite immaterial whether a lack of effective demand is made to explain a restriction of production, or a lack of profitability is seen as the cause for a restriction of production and a consequent lack of effective demand. In the one case the problem is approached from the market angle and in the other from that of production, but in both there is restriction of production. In any case, it is only under conditions of rapid capital accumulation that demand expands sufficiently to enable the realization and capitalization of surplus-value.

Because productivity increases even in the absence of accumulation, it is quite independent of the production process as a capital-expansion process. With accumulation a going concern, however, the increasing productivity of labor goes hand in hand with the value-expansion of capital. Constant and variable capital in their value form are inextricably intertwined with the material conditions of production, i.e. the means of production and labor power. Marx distinguished between the value composition and the material (technical) composition of capital. Between the two, he wrote, “there is a strict correlation. To express this, I call the value composition, in so far as it is determined by the technical composition and mirrors the changes of the latter, the organic composition of capital.[12] The concept of the organic composition of capital points to the identity and the difference between the material and value production and repeats, on the larger social scale, the concept of value as the identity and the difference of use-and exchange-value — the basic contradiction of capital production. For Marx, it is a discrepancy between material and value production which leads to difficulties in the accumulation process, but which also allows for its resumption and expansion through changes in the material-technical conditions of production which raise the productivity of labor and therewith the rate of surplus-value and profit. Where and when this is no longer possible, investments will be unprofitable and consequently will not be made.

According to Marx, moreover, the profitability of any particular capital depends on the profitability of the capitalist system as a whole. The latter is an unknown quantity. The only indication as to whether it is rising or falling is given by market events. It is, then, the state of the market which decides for any particular capital whether it should expand, contract or leave production at a given level. To increase their shares of a given market, or to maintain their profitability in a shrinking market, the different capitals will try to cheapen their production in order to maintain or increase their competitive ability. They do so all along; but under conditions of economic contraction, weaker capitals succumb more quickly to stronger ones, and the changes in the sphere of production are accompanied by changes in the market sphere. Capital will not only be more productive but also more concentrated and centralized. Fewer capitalists will have a larger market to themselves, and though this change ‘for the better’ is due to changes in the conditions of production, it appears, and is recognized, as a change in market conditions, as the restoration of an effective demand allowing for the resumption of the accumulation process.

For Baran and Sweezy, however, capitalist problems are exclusively market problems. Not the production but the realization of the ‘surplus’ is capitalism’s current dilemma. A lack of effective demand relative to the production potential leads to unused resources. It is clear, in that case, that if production were less effective the demand would be relatively greater. And since the rising ‘surplus’ and the lacking demand are one and the same phenomenon, the one cannot serve as an explanation for the other; rather, this two-sided but single phenomenon is itself in need of explanation. Obviously, if monopoly capital were able to sell a larger product it would do so. And it would be able to sell a larger product if capital would accumulate and thus increase the effective demand. But capital does not expand because it would not be profitable. The complaint about the lack of demand is then, actually, a complaint about insufficient profitability.

In Baran’s and Sweezy’s exposition it is the sheer capacity to produce which enforces the restriction of production. This theory disregards the value-character of capitalist production. The ‘surplus’ is seen not as surplus-value but simply as surplus production. In capitalism the increasing mass of commodities (as use-values) appear, however, as exchange-values. Since the mass of exchange-value declines with the growing productivity of labor, capital accumulation requires a faster growing mass of use-values. It is only through the growing capacity to produce that total exchange-value is enlarged and capital accumulated. In fact, the capacity to produce increases particularly in crisis situations in order to effect a resumption of the accumulation process. It is precisely the compulsion to increase the capacity to produce which points to the reality of the tendential decline of the rate of profit. It is also the only available means to arrest this decline. It is then the exchange-value of the surplus products, not the products themselves, which must be related to the value of total capital in order to determine the sufficiency or insufficiency of profitability. Since the capitalist capacity to produce relates not to a definite quantity of commodities but to the exchange-value of this quantity, Baran and Sweezy would have to prove their position not with reference to the increasing capacity to produce commodities but with an increasing capacity to produce exchange-value.

In capitalism all ‘surplus’ is surplus-value or it is not a surplus but a loss. According to Baran and Sweezy, ‘monopoly capital’ prevents the loss by limiting the ‘surplus’ through the limitation of production. In reality, however, capital, no matter what its structure, relentlessly attempts to increase surplus-value under conditions of either a full or a partial use of productive resources. When resources remain idle it is not because they are too productive but because they are not productive enough. The increasing rate of obsolescence indicates the quickening pace in which means of production lose their profit-producing capacity. It is often only the most efficient productive apparatus which will secure the profitability of capital. Moreover, insatiable as it is in its quest for profits, capital goes out of its way to extract surplus-value from all the corners of the world in order to augment the profits made at home.

Why this enormous appetite for surplus-value and profit when, according to Baran and Sweezy, ‘monopoly capital’ is already choking on the available ‘surplus'? Actually, there can never be enough surplus-value and profit, because of the diminishing profitability in the course of capital expansion. The surplus-value embodied in commodities is surplus-labor time. Whatever the ‘surplus’ in its physical form, with respect to the capitalist system it is just a definite quantity of surplus-labor time — part of the total labor time. No matter how much the ‘surplus’ may be increased in its commodity form, the surplus-labor time diminishes with the diminishing total labor time in the course of the rising organic composition of capital. It is not the mass of commodities as a growing ‘surplus’ which determines the rate of profit, but the value relations between ‘dead’ and ‘living’ labor; that is, the changing relationship between constant and variable capital modified by the rate of exploitation. The rate of profit can fall in spite and because of a ‘rising surplus’, seen as just a mass of commodities. In that case, the ‘surplus’ itself expresses the fall of the rate of profit in its concrete manifestations in the crisis of over-production, or, more recently, in the semi-permanent underutilization of productive resources. Both situations indicate that the rate of profit on capital is such as to discourage, or even exclude, additional capital investments on a scale large enough to bring forth an effective demand which would assure the realization of surplus-value on a larger production.

To think once more in extremes: assume that a thoroughgoing automation of production reduces the variable capital to an insignificant part of the total capital. The productivity of labor would then turn, so to speak, into the ‘productivity of capital’. There would be an enormous amount of production but little direct labor and therefore little surplus-labor. Because the displaced working population would still be there, it would have to be supported out of the automated production; capital would feed labor instead of labor feeding capital. The conditions of capitalism would have been completely reversed. Value and surplus-value production would no longer be possible.

It is for this reason, of course, that such a situation cannot come to pass within the framework of capitalism. For so long as exchange-value is the goal of production, labor-time quantities remain the source and measure of capitalist wealth. “Although the very development of the modern means of production,” Marx wrote, “indicates to what a large degree the general knowledge of society has become a direct productive power, which conditions the social life and determines its transformations,”[13] capitalism’s particular contribution to this state of affairs consists of no more “than in its use of all the media of the arts and sciences to increase the surplus-labor, because its wealth, in value form, is nothing but the appropriation of surplus-labor time.”[14]

Marx’s model of capital accumulation represents a closed homogeneous system in which the rising organic composition of capital results in the fall of the profit when the limits of surplus-value extraction are reached. If a highly industrially-advanced country such as the United States — which underlies the whole reasoning of Baran and Sweezy — could be considered a closed system, then, in the Marxian view, its rate of profit should fall with its increasing organic composition of capital, unless offset by an increased rate of surplus-value expressed in an accelerated capital expansion. But it is not a closed system, and is thus able not only to slacken its rising organic composition of capital, by way of capital exports, for instance, but, via the world market, to increase its profits through the importation of profits from abroad. However, capital exports have not significantly hindered the rise of the organic composition of capital, and profit imports have thus far not been large enough to explain America’s apparent profit sufficiency. In the main, it is the increasing productivity of labor which accounts for her increased production.

Considering the world as a whole, however, it is self-evident that it does not suffer from ‘surpluses’ but from ‘shortages’. The ‘potential surplus’ of ‘monopoly capital’ is more than matched by the actual lack of everything in the capital-poor nations. The overproduction of capital in one part of the world confronts the undercapitalization in another.

Considering capitalism as a whole — as a world market system — the ‘surplus’ disappears and instead there is a great lack of surplus-value.

For capitalism as a whole, of course, the organic composition is not high enough to account for a rate of profit too low to induce further rapid capital expansion. But the accumulation process is at the same time a capital concentration process, and just as it tends to play the accumulating capital into fewer hands in each nation, so does it concentrate the world capital into a few countries. For it is the value-expansion of the existing capital that matters, not its extension in o space, and the latter takes place only to the extent that it enhances the value-expansion of the concentrated and dominating capitals. Monopolization in this sense divides the world into different national systems with respect to their organic capital compositions. If capitalism could expand generally, if the accumulation process would not simultaneously be a capital concentration process, the ‘potential surplus’ in a few industrially advanced nations, even if turned into an actual surplus, would hardly suffice to take care of the capitalization needs of world capitalism. The contradiction of capital production erects barriers to its expansion long before the abstract borders of Marx’s theory of capital development find some kind of approximation in reality.

Marx predicted that capitalism, while once rapidly developing the social powers of production, would come to fetter them, and that its further existence would then necessitate not only periods of crises and stagnation but the outright destruction of capital. The inability of capitalism to capitalize world production is evident in the ‘potential surplus’ in capitalistically advanced nations and in the increasing misery in the rest of the world. From the market point of view, this inability appears as a profit-realization problem. While ‘monopoly capital’ is unable to sell what it is potentially capable of producing, the rest of the world, due to the retardation of its productive powers, cannot buy for lack of surplus-value. What appears as a profit-realization problem in one part of the world, is a profit-producing problem in another. Considering the system as a whole, however, it is a general lack of surplus-value which accounts for its slow rate of expansion.

In principle, it is not different in any particular capitalist country. The increasing disuse of productive resources resulting from a lack of profitability can only increase the dearth of profits relative to the capitalist accumulation needs. Insofar as the unused resources represent constant capital, they lose their capital character through their disuse, i.e. they do not function as surplus-value-producing capital. To the extent that capital loses its capital character, the profitability of total capital — whatever it may be — will be impaired, and the surplus-value, however great, will be smaller than it would be under conditions of full use of productive capacity.

In Baran’s and Sweezy’s view, however, “monopoly capital ... tends to generate ever more surplus, yet fails to provide the consumption and investment outlets required for the absorption of the rising surplus and hence for the smooth working of the system” (p.108). What makes ‘monopoly capital’ so extraordinarily profitable? “Declining costs,” Baran and Sweezy say, “which imply continuously widening profit margins” (p.71). This was of course true throughout capitalist development and explains this development. According to Baran and Sweezy, however, there is a difference with respect to ‘monopoly capital’, which, in distinction to ‘competitive capital’, is no longer a ‘price taker’ but a ‘price maker’ (p.54), and “owing to the nature of the price and cost policies of the giant corporations, there is a strong and systematic tendency for surplus to rise” (p.79). In brief, it is simply by administered prices, that is, by keeping them artificially high while costs are lowered, that ‘surplus’ is piled up.

At one point in Baran’s and Sweezy’s exposition, a ‘surplus’ arises because the economy’s capacity to produce grows too rapidly. Now, it is due to the imperfection of competition under monopoly conditions. Through increasing productivity and the power to make its own prices, ‘monopoly capital’ succeeds in securing and enlarging its profits even under conditions of relative capital stagnation. Because, by and large, the existing productive apparatus is more than adequate to take care of the given ‘effective demand’, there is no point in making significant new capital investments. Depreciation charges largely suffice to finance the technical innovations of, and the additions to, the productive apparatus, which, with a slow rate of expansion, is effective enough to provide an increasing national income and an even faster rise of profits. While production, productivity and profits soar, the rate of investments declines. In short, the capacity to produce a growing ‘surplus’ diminishes the accumulation of capital.

Capitalistically, however, the growth of production and productivity makes ‘sense’ only when it enlarges the existing capital. Insofar as it is not consumed, surplus-value must become additional capital. There would be no point in increasing production if the rate of accumulation were to diminish. The rate of accumulation is the determining, not the determined factor with regard to production. The basic reason for the expansion or contraction of the economic system is to be found in capital-labor, or wage-profit, relations — not in the technical capacity to produce. Ignoring this basic social relationship, Baran and Sweezy make possible the capitalistically impossible by combining an increasing ‘surplus’ with a diminishing rate of accumulation.

They can do so only, however, by accepting the current illusion that income-transfers and expenses can be counted as income so long as they are government transfers and expenses. They even go one better by extending this curious idea to private capital; not only by asserting that monopoly profits enlarge the social ‘surplus’, but by discovering a way of accumulating capital by way of advertising. As regards monopoly profits secured by price manipulations, it should be clear that they can be gained only through corresponding profit-losses on the part of the non-monopolistic capital — No matter what the structure of capitalism, there is, at any given time, a definite amount of national and international income derived from surplus-value. If ‘monopoly capital’ is able to enlarge its share of this total by selling far above the average rate of profit, it can do so only at the expense of capitals unable to do likewise; consequently, the latter have to divide among themselves a correspondingly smaller part of the total income falling to total capital.

Monopoly profits reduce the competitively established average rate of profit and therewith lead to the progressive decline of the quantity of profits transferable to monopoly capital. In the not-so-long run, the extraction of monopoly profits is a self-defeating process, bound to affect negatively both the monopoly-rate and the competitive rate of profit. Only under conditions of rapid capital expansion would it be possible to maintain monopoly profits without reducing simultaneously the absolute rate of profit of competitive capital. Conditions of stagnation, under which Baran’s and Sweezy’s ‘monopoly capital’ operates, exclude this possibility.

If ‘monopoly capital’, as Baran and Sweezy say, tends to generate ever more surplus’, why should it still insist upon price policies which diminish the profits of competitive capital? But, then, Baran and Sweezy also say that ‘monopoly capital’ does not really generate a ‘surplus’, for it stops producing before a ‘surplus’ arises, as illustrated by the growing idle resources. Nonetheless, even though there is no ‘surplus’, in their view, a fierce competitive struggle ensues for the realization of the ‘surplus’, which, due to the monopoly character of capital, is now waged by salesmanship rather than by price-cutting. Although there is no real, but only a potential ‘surplus’, capital’s rationale derives, just the same, “from the simple fact that the obverse of ‘too much’ on the supply side is ‘too little’ on the demand side; instead of cutting back supply they Am at stimulating demand” (p.110).

Conceptually, Baran and Sweezy write, the sales effort “is identical with Marx’s expenses of circulation. But in the epoch of monopoly capital, it has come to play a role, both quantitatively and qualitatively, beyond anything Marx ever dreamed of” (p. 114). The sales effort, they go on to say, “turns out to be a powerful antidote to monopoly capitalism’s tendency to sink in a state of chronic depression” (p.131), for it “absorbs, directly and indirectly, a large amount of surplus which otherwise would not have been produced” (p.142). By increasing the ‘effective demand’, advertising increases the level of income and employment, so that “the direct impact of the sales effort on the income and output structure of the economy is similar to that of government spending financed by tax revenue” (p.126). Finally, “with regard to investment opportunities, advertising plays a role similar to that which has traditionally been assigned to innovations. By making it possible to create the demand for a product, advertising encourages investments in plants and equipment which otherwise would not take place” (p. 126).

According to this theory, advertising accomplishes a number of contradictory things; while it is an expense of circulation, it also is a creator of income, and while it ‘absorbs’ part of the ‘surplus’, it also enlarges the ‘surplus’ by inducing new investments. Obviously, a lot of people make their living by selling and advertising, while others lose part of their incomes by paying higher prices — prices which include the costs of advertising. This has always been so, but, according to Baran and Sweezy, its quantitative extension under ‘monopoly capital’ gives it a qualitative difference, i.e. if the expense is large enough it becomes a form of additional income. Because consumption is increased through exhortations, the enlarged consumption leads to increased production and investments. This is, of course, Keynes’ increasing ‘propensity to consume’ as a possible medium for an expanded production under conditions of decreasing investments. But while Keynes’ suggestion (unrealizable within capitalism) relates to total national income, Baran and Sweezy relate it only to the ‘surplus’, that is, to that part of social production which falls to the capitalists.

Advertising penetrates the whole market, not only that part which caters to capitalist consumption. Everybody is advised to spend more even though, according to Baran and Sweezy, it is only the ‘surplus’ which has to be gotten rid of. The ‘surplus’ is there (and is as large as it may be) because the costs of production, that is, the income of the workers, is as small as it is in comparison with the ‘surplus’. To have that ‘surplus’ means to have correspondingly low costs of production, for which reason it would not do to increase the ‘propensity to consume’ by way of higher wages. Unless taken from the workers, there is no ‘surplus’, and the latter, in order to be such, must first be realized on the market. If not realized there is no ‘surplus’ but a loss. Capitalists intensify their sales efforts so as to avoid losses, not to get rid of the ‘surplus’. When it is not possible to convert all produced commodities into money, it is not possible to realize the profits based on that part of production which falls to the capitalists. The ‘sales effort’ finds its emphasis not in an increasing ‘surplus’ but in the market situation as a whole as determined by a declining rate of accumulation.

Advertising cannot ‘create’ anything but advertisements. New products, catering to new wants, are not advertisements, even though they may be advertised. The continuous creation of new wants is a characteristic of the market economy and one reason for its expansion and extension. Advertising as such cannot increase the ‘effective demand’ and, via this demand, enlarge production. Capital must accumulate in order not only to remain competitive but to retain its capital-value. Capitalists cannot consume all of their profits, for by doing so, they would soon cease being capitalists. Advertising cannot affect this compulsive need to accumulate, and accumulation determines the ‘effective demand’ with respect to consumption goods from this quarter. No advertising could enlarge the objectively determined ‘effective demand’, although it may affect it in favor of one or another product, or one or another seller of identical commodities. Advertising can affect the distribution of the available surplus-value, but it cannot add to its size, for it is itself only a part of the available total surplus-value.

Baran’s and Sweezy’s curious reasoning with respect to advertising rests on the illusion that production outside the ‘self-limiting’ confines of ‘monopoly capital’, i.e. production which is actually undertaken but would not be forthcoming were it not for advertising and government purchases, could actually benefit ‘monopoly capital’, and, by creating income and employment, the whole of society. There is, then, after all, a growing ‘surplus’ which does not need to issue into protracted stagnation, and full employment combines with an ‘absorption’ of the ‘surplus’ through government — and advertising — agencies. What remains regrettable in Baran’s and Sweezy’s view, however, are the irrational uses to which the larger part of the ‘surplus’ is put by both these agencies.

The ‘surplus’ in evidence in the ‘affluent society’ is, then, not a ‘surplus’ produced by monopoly capital but in spite of it. It is in fact brought forth, as Baran and Sweezy point out, by government purchases which increase the ‘effective demand’ and thus prevent crisis conditions. The crisis is set aside by the “colossal capacity to generate private and public waste” (p.3). To waste the ‘surplus’ is one way of ‘absorbing’ it, however, and as there are no limits to the generation of waste, there is no need for a ‘surplus’ to arise and thus also no ‘surplus-utilization’ problem. Particularly not, because, in Baran’s and Sweezy’s view, the waste does not reduce the profits of ‘monopoly capital’, for it constitutes that part of the ‘surplus’ over and above the ‘surplus’ realized as profit. Just as the ‘sales effort’ absorbs “a large amount of surplus which would otherwise not have been produced”, so “government plays a similar role but on a larger scale” (p.142). When idle resources are put to work, “they can produce not only necessary means of subsistence for the producers but also additional amounts of surplus. Hence if government creates more effective demand, it can increase its command over goods and services without encroaching on the income of its citizens” (p.143).

By treating surplus-value as ‘surplus’, Baran and Sweezy manage to look upon capitalism as if it were something other than itself. “The size of the surplus,” they write, “is an index of productivity and wealth, of how much freedom a society has to accomplish whatever goals it may set for itself” (p.9). This is to see society in the abstract, not as a specific society; at any rate, not as capitalist society. In the latter, the means of production belong to a specific class — not to the government and not to the ‘citizens’. The idle resources — even in their idleness — remain capitalist property. Unless confiscated, they can be utilized by government only through its purchases, and the money used in these transactions must first be extracted from private capital either by taxation or through borrowings. Financed in this manner, government-induced production does not increase the quantity of marketable commodities and can thus not be turned into exchange-value and, consequently, not into surplus-value. No matter how much employment and income it may generate, the final product of government-induced production, such as public works of a useful or wasteful nature, is not a marketable product, whereas the real income in capitalist society has to be realized via the circulation of commodities. While increasing the total mass of labor and of products, it does not increase the mass of surplus-value and represents, therefore, a loss rather than a gain — a loss similar to that suffered by overproduction when part of the produced commodities cannot be converted into money.

According to Baran and Sweezy, “the vast and growing amounts of surplus absorbed by government in recent decades are not deductions from what would otherwise be available to corporations and individuals for their private purposes” (p.147). However, Baran and Sweezy, themselves, have pointed out that that portion of the surplus usually identified with surplus-value declined sharply from 1929 to 1963. To recall, while property-income was 57.5 per cent of total surplus in 1929, it was only 31.9 per cent in 1963. According to these statistics, the ‘surplus’ absorbed by government grew faster than that falling to property owners. The reduction of surplus-value has some connection with the growth of government expenses, or, in Baran’s and Sweezy’s terms, with the ‘absorption’ of ‘surplus’ by government.

To be sure, Baran and Sweezy maintain that this property-income would not have been any greater without government-induced production. This is most probably so, because government-induced production is enlarged to compensate for the declining private production, in order to ameliorate the social consequences of prolonged crisis conditions. But this does not alter the fact that the utilization of productive resources by government is the utilization of privately-owned productive resources. And as the government has nothing to give in exchange but the money it extracts out of the economy, the utilization of private productive resources by government equates — as far as private capital is concerned — with their non-utilization in their previous state of idleness.

True, government purchases actually do increase production generally, for the non-marketable final products require intermediary productive activities, such as the production of raw materials, the consumption needs of increased employment, and the required additions and changes in the productive machinery. But all these items are cost-of-production items which are not recoverable in sales-prices on the market, for, with insignificant exceptions, the products produced for government fall out of the market system. Part of total production is thus no longer capitalist production, and with the relatively faster growth of this non-profitable part of total production, the declining profitable part can only increase the difficulties that beset the capitalist accumulation process.

Still, Baran and Sweezy insist that government absorption of ‘surplus’ is in addition to, not subtracted from, private surplus. Even more: “Since a larger volume of government spending pushes the economy nearer to capacity production, and since up to this point surplus grows more rapidly than effective demand as a whole, it follows that both the government and the private segments of surplus can and indeed typically do grow simultaneously” (p. 148). And so it seems; but it does not show up in the rate of capital expansion, only in the size of the Gross National Product, of which a growing part is no longer profitable. This fact is hidden, however, by the money-veil that covers capitalist production and exchange, and quite successfully so, since even critics of ‘monopoly capital’ are taken in by it.

“If what government takes would otherwise not have been produced at all,” Baran and Sweezy write, “it cannot be said to have been squeezed out of anybody. Government spending and taxing, which used to be primarily a mechanism for transferring income, have become in large measure a mechanism for creating income by bringing idle capital and labor into production” (p.150). It is through this ‘new mechanism’ that “what the government takes in taxes is an addition to, not a subtraction from, private surplus” (p.149). The government has not succeeded, however, in convincing the capitalists that this is actually so, for, now as before, capital does object to the increase in taxes and the growth of the national debt as being detrimental to its own profitability and accumulation requirements.

What does the government actually do by bringing together labor and idle capital for the production of non-marketable goods? Taxes are a part of realized income through market transactions; if taken from capital they do reduce its profits, regardless of whether or not these profits would have been consumed or reinvested into additional capital. If not, idle capital in its money form would exist as a private hoard. As such it cannot function capitalistic ally; but neither can it function capitalistic ally when taken by government to finance the non-profitable production of public works and government waste. Instead of a capitalistically-useless money hoard there is then a capitalistically-useless production of goods and services. There is a difference, however: whereas without taxation capital would be in possession of a money hoard, with taxation — for purposes of public spending — capital is actually expropriated to the extent of the otherwise possible money hoard.

When used for government purchases, taxes taken from capital flow back to the capitalists in form of government contracts. The production resulting from these contracts is being paid for by the capitalists through their taxes. Getting their money back through government orders, the capitalists provide the government with an equivalent quantity of products. It is this quantity of products which the government ‘expropriates’ from capital. The size of this quantity determines the extent to which production has ceased being capital production, and the growth of production by way of taxation indicates the decline of the capitalist system as a profit-determined private enterprise system. Not only is this type of production non-profitable, it is made possible only through that part of total production which is still sufficiently profitable to yield taxes large enough to extend government production by way of taxation. With the decline of profitability it becomes increasingly more difficult to expand production in this particular way.

But government can borrow additional funds. These funds also flow back to the capitalists as payments for production contracted by government. The expense of government-induced production piles up, in part, as the national debt. The increase of the debt is held to be quite harmless as long as the national income increases faster than the debt. The growing national debt is then usually compared with the growing national income, which substantiates the claim that deficit-financing will be accompanied by a rising national income. This claim rests, however, on a curious way of accounting, for, actually, the growing national debt cannot be related to total national income, but only to that part of the total which has not been injected by government into the economy. It is by counting an expense as an income that the illusion arises that a growing national debt is neutralized by a rising national income.

Unless the national debt is actually recovered through additional income in the private sector of the economy, that is, additional income apart from that injected into the economy by government, the ‘income’ derived from the latter procedure remains, as far as capital is concerned, a mere government expense. This ‘expense’ consists of the government’s utilization of privately-owned productive resources for non-profitable purposes. It is a partial ‘expropriation’ of capital, even though the ‘expropriated’ capital was no longer able to function capitalistic ally on its own behalf. But that does not prevent the capitalists from demanding compensation for the government’s use of their productive resources. The possibility of honoring the government debt depends on the future profitability of private capital. Unless this profitability actually materializes, the debt cannot be honored and today’s additional income becomes tomorrow’s loss of income. The whole matter is a case of ‘counting one’s chickens before they are hatched’, and given the tendential decline of the rate of profit in the course of capital expansion, there will be no chickens.

Immediately, of course, government-induced production increases income and employment beyond what it would be without this intervention. There is more production, albeit largely waste-production, and part of this production Baran and Sweezy regard as a ‘surplus’. This ‘surplus’, however, does not contain surplus-value, but exists as an unavoidable expense of surplus-value production. “Given the inability of monopoly capitalism to private uses for the surplus which it can easily generate,” they write, “there can be no doubt that it is to the interests of all classes — though not of all elements within them — that government should steadily increase its spending and its taxing” (p. 151). If this is so, it will of course not only increase the production of waste, but slowly and surely destroy the private-enterprise system. In the first place, government spending must be restricted to production and services that do not compete with those of private capital, for otherwise it would reduce the ‘effective demand’ within the private sector of the economy to the same extent to which it increases the ‘effective demand’ through government-induced production. In order not to destroy private capital, government-induced production must remain non-profitable production. In the second place, government-induced production must remain small relative to total production so as not to deprive too much of the capital resources of their capital character, i.e. of being profit-producing means of production. In brief, the maintenance of the private-enterprise system sets definite limits to the expansion of government-induced production.

Not so, however, in Baran’s and Sweezy’s opinion. Even America’s “ruling class attitude toward taxation and government spending,” they write, “has undergone a fundamental change ... To the Big Businessman ... government spending means more effective demand, and he senses that he can shift most of the associated taxes forward onto consumers or backward onto workers” (p.149). He not only ‘senses’ this but actually does so, which, however, can only mean that while he secures his own profitability, he reduces the ‘effective demand’ through higher prices. This procedure, however, is precisely the way by which part of the expense of government spending is spread over all of society. While part of the expense of government-induced production piles up as the national debt, another part is continuously distributed over the whole of the economy and being paid for in higher prices by means of inflation.

The businessman’s positive attitude toward government spending, in so far as it exists, is determined by the profit requirements of his particular business. Why should he understand the capitalist economy any better than Baran and Sweezy, who, even by considering the economy as a whole and not merely a particular business within it, come to the conclusion that government spending would solve the economic problems of capitalism and of all its classes? But while the businessman has the excuse, at least, of his flourishing business, Baran and Sweezy have no excuse, because the ‘prosperity’ created by way of government spending is a false prosperity, capable of postponing, but not of abolishing, crisis conditions.

The individual businessman is not concerned with the nature of the ‘effective demand’ which he supplies. To him, it makes no difference whether it stems from government or from private spending. Likewise, the financiers do not care whether loans are made to private entrepreneurs or to government, so long as they are secure and yield the desired rate of interest. To the individual it also makes no difference whether he is employed in the production of waste or in that of marketable commodities. In practice, no distinction is made between the public and the private sector of the economy, and in both all transactions are money transactions. In money terms, production of waste is just as, or even more, lucrative, than the production of commodities, and — until finally repudiated — the accumulation of the national debt appears as the accumulation of capital. Considering society as a whole, however, it is only the private sector which brings forth surplus-value and profit. All the social layers which live on surplus-value, as well as the expansion of capital as capital, depend on this surplus-value, which, however much it may be increased through the growing productivity of labor, is at the same time also decreasing through the relatively faster growth of the non-profitable rather than the profitable sector of the economy.

There is no denying, of course, that in a few nations and for a considerable time, capital has been able to prevent the rise of depressions such as plagued the world prior to World War Two. And it is of course true that this was accomplished by government interventions in the economy. It is thus of great importance to consider whether or not these interventions have actually set aside the laws of capitalist development as set forth by Marx. Undertakings such as Baran’s and Sweezy’s are fully justified, only, in their case, they sail under a false flag by claiming to avail themselves of Marx’s own ‘powerful analytical method’. This is precisely what they do not do. Of course, Marx’s ‘analytical method’ may seem to have lost its relevance because of the modifications brought about by monopoly capital and government interventions into the economy. But here appearances are misleading and, in any case, would not suffice to destroy Marx’s theory of the immanent laws of capital accumulation.

The modifications of the capitalist system can just as well be interpreted as political reactions to uncontrollable economic events, which, like other ‘countertendencies’ to the dominating trend of capital expansion, serve, for a time, to maintain social stability through a pseudo-prosperity based on waste production. “If military spending were reduced once again to pre-Second World War proportions,” Baran and Sweezy point out, “the nation’s economy would return to a state of profound depression” (p.153). In other words, the economy is still in a state of depression, countermanded by expenditures which by no stretch of the imagination can be called an accumulation of capital. Without the accumulation of capital, however, the capitalist system can only contract, and it contracts the faster, the more its production becomes unprofitable. Unless the whole of capital should be nationalized to be utilized for other than private-enterprise ends, government interventions in the economy are necessarily limited by the need to secure the profitability of the dominating private capital. When these limits are reached they will cease countermanding the capitalist crisis.


1 Monthly Review Press, New York, 1966.

2 Grundrisse der Kritik der Politischen Ökonomie, Berlin, 1953, p.544.

3 Capital, Kerr edition, Vol. III, p.259.

4 Loc. cit.

5 Ibid., p.255.

6 Ibid., p,261.

7 Ibid., p.289.

8 Ibid., p.290.

9 Ibid., p.1025.

10 Marx-Engels, Selected Correspondence, Moscow, p.232.

11 Grundrisse, op. cit., p.634.

12 Capital, op. cit., Vol. I, p.67.

13 Grundrisse, op. cit., p.594.

14 Ibid., p.595.

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