Mandel and Capitalist Breakdown

We reproduce here a quite interesting synthesis on the work of Ernest Mandel, one of the great Marxist economists of the 2Oth Century, although we disagree with some of the points adopted by the writer. For instance, we doubt very much that Mandel would characterize modern China as a capitalist country, if he was alive.

Mandel and Capitalist Breakdown

Using insights from Belgian Marxist thinker Ernest Mandel, economist George Kerevan argues capitalism will suffer profound breakdown this century.

It is now 25 years since the death of Ernest Mandel (1923-1995), one of the 20th century’s most engaging and original economists. Economics is not everyone’s cup of tea. The Scots philosopher Thomas Carlyle christened it the “dismal science” – and that was before the discipline was poisoned by abstruse mathematical models. Besides, the track record of modern economists in predicting impending financial catastrophe is hardly good. So what makes Ernest Mandel worth remembering?

For starters, Mandel, a Marxist, had a better track record of economic prediction than most economists – with insights still valid today, as we’ll see below. He was also the antithesis of the rarefied, bourgeois academic. A Jewish resistance fighter against the Nazis in his Belgian homeland, Ernest was arrested and escaped three times. In the 50s, he was an important influence in the Belgian trades union movement. In the early 60s, Mandel was in Cuba working with Che Guevara on economic planning. He happily donated his own upturned car as a street barricade to fend off CRS stormtroopers, during the May ‘68 uprising in Paris. Yet Ernest was also a charming, non-dogmatic personality – as I found in the 1970s, when showing him around Edinburgh.

Above all, Mandel was an Enlightenment intellectual polymath. He lectured and wrote about political economy in a bewildering (sometimes intermingled) host of languages yet was always effortlessly intelligible and fascinating. In an absurdly crowded life, he published 30 books and some 2,000 often technical articles – in German, Dutch, French, and English. One of these books was actually a political history of the crime novel, a genre to which he was addicted. Po-faced colleagues on the British New Left Review journal were aghast at this “lapse”, but Ernest just smiled his perpetual, mischievous smile.

Ernest Mandel was no closet academic but a committed anti-capitalist. In fact, his path into academia proper was delayed by the small matter of his being banned – at one time or another – from entering a variety of Western democracies, including France, the United States, Australia, and Switzerland. The refusal of the Nixon administration to let Mandel into the US to lecture at Stanford University (and debate Kennedy’s pet economist, John Kenneth Galbraith) was appealed all the way to the Supreme Court.

Late Capitalism

Mandel had committed the cardinal sin of being not only a Marxist but one who could wield his Marxism intellectually (and to great effect) against existing economic orthodoxy. Famously, he predicted the collapse of the post-war economic boom at a time when conventional bourgeois economists were fantasising that growth and full employment would last forever, thanks to state intervention. Mandel’s magnum opus, entitled Late Capitalism, was written just before the 1974-75 global slump, the first synchronised recession since the 30s and bellwether of the arrival of the age of neoliberalism.

Late Capitalism is a 600-page, forensic analysis of the mechanics of the Keynesian era of 1940-1975, artfully predicting that government deficit spending and the permanent arms economy were not enough to delay a generalised global crisis. Mandel was one of the few theorists to grasp that Keynesian deficit spending and high welfare expenditures meant high taxes, and that this would eventually squeeze profits to the point where capitalists revolted. He foresaw this would mean an assault on the welfare state compact that existed in most Western democracies, an assault eventually ushered in by Reagan and Thatcher.

Note here that Mandel was not predicting economic breakdown in some mechanistic fashion, similar to the vulgar propagandism of some on the socialist left (including the old Militant Tendency and its leader Ted Grant, who forecast the immediate collapse of capitalism on an annual basis). Rather, Mandel was trying to identify the play of contemporary economic and class forces in real time. For instance, in a prescient chapter of The Second Slump (1977), entitled ‘Industrial Contraction, Financial Panic’, Mandel identified a new seam of instability in global banking that would have fatal consequences decades later in the 2008 crash.

He notes that big corporations are increasingly able to borrow from the banking system while simultaneously obfuscating their accounts (think Enron, Carillion, and sub-prime mortgage lenders). Unfortunately, Mandel points out, “the competence of top bank officials…inevitably declines as recruitment speeds up” while “the atmosphere of sharpened competition prevailing among banks frequently impels them to take greater risks…”. He also identified a shift towards central banks underwriting this reckless lending, opening up the prospect of a cycle of increasingly dangerous financial crises (sadly, this was a promising theme he failed to develop in later years – a fault shared by most Marxist economists around the end of the 20th century).

Mandel’s Method

The crux of Mandel’s method was to use Marxist economic categories to analyse current problems, illuminated with contemporary data rather than filial quotes from Das Kapital. The first example of this approach was Mandel’s widely published Marxist Economic Theory, written in the 1950s when he was editor of the Belgian Socialist Party newspaper La Gauche. In this work, he broke new ground by reconstructing Marxian economics through a critical engagement with post-war pro-capitalist economists and sociologists – a full-frontal ideological offensive against the academic citadel of bourgeois theory. As a result, Marxist Economic Theory had an impact well beyond Mandel’s tiny Trotskyist circle, including radical movements in both North and South America. Significantly, bourgeois academics were forced to respond. Robert Heilbroner, a doyen of US mainstream economics, gave Mandel’s book a critical yet highly complimentary examination in the New York Review of Books, calling the publication of the American edition “an event of great importance”.

Mandel’s restatement of Marxist economics broke with the mechanical determinism that had infected interpretations of Das Kapital among Stalinists, left social democrats and orthodox Trotskyists alike. He went back to Marx’s original insight that the system is determined by an interplay of real forces. These interact dialectically, that is the various magnitudes and tendencies change each other when they interact. As a result, and like Marx, Mandel eschewed mono-causal explanations of capitalist instability and breakdown. Unlike some, he reaffirmed Marx’s conclusion that the capitalist economic system is indeed entropic and subject to existential disruption because of the internal inconsistencies exhibited by the contending forces on which it is based.

To be critical, the method employed by Mandel can seem a trifle eclectic. Anglo-Saxon empiricism craves the simplicities of a mono-causal explanation of a crisis. Alas, the material world – especially the dense thicket of social relations that define a capitalist economy – is always multi-various, multi-faceted, multi-connected, and multi-directional. Making sense of the meta-phenomenon that is a mode of production requires concrete analysis in real time. What Marx provided (and Mandel revived and modernised) is a set of conceptual tools to describe the precise economic relationships and forces at work in a specifically capitalist system. For Marx and Mandel, the interplay of these relationships and forces is never random. Rather it is governed by identifiable tendencies, aka “economic laws”.

Long Waves

In particular, Mandel revived and embellished the idea of “long waves” of capitalist expansion and contraction, first identified by the Soviet statistician Nikolai Kondratiev (shot by the NKVD in 1938). Capitalist instability exhibits itself in periodic booms and slumps. But Kondratiev noticed a longer pulse of roughly 25-30 years expansion, in which investment in new technology triggered an increase in capital accumulation. This was followed by a similar downswing of 25-30 years, when profits slump and economic growth slows. Mandel went beyond Kondratiev’s empirical studies to theorise the forces creating such generational economic pulses. At root, Mandel’s fascination with the phenomenon of long waves represents an attempt to explain the prolonged existence of capitalism through the 20th century – a longevity persisting far beyond what the founding fathers or Lenin’s generation could ever have imagined.

Mandel’s chief concern was the totally unexpected (even by pro-capitalist economists) upswing during the period 1940-1965 – sometimes 1945-1970. Clearly there was a “long boom” in these decades, characterised by massive new investment in cars, consumer white goods, television, leisure and travel, automated machine tools and calculating devices, aircraft, atomic science, early computers, energy, and defence technology. On the class front, a massive expansion of the organised American and European industrial proletariat forced massive wage concessions, but these were affordable in the short term as a result of huge productivity and output gains. The detonation of this cycle Mandel located in the supercharged rise in the rate of exploitation (aka increasing relative surplus value) of the working class introduced by fascism allied to the wholesale physical destruction of existing fixed capital during WW2. Mandel characterised this new period – somewhat inadequately – as “neo-capitalism” or “late capitalism”.

Within this framework, Mandel identified an important ancillary role played by competition between the triad of the US, the Common Market (later EU) and Japan. Europe formed the Common Market to shield itself from foreign competition while embarking on a massive capital investment programme exploiting the cheap labour of German, French and Italian peasant farmers driven from the land by the Common Agricultural Policy. Japan followed very much the same route. Result: by the start of the 60s, the US was under intense competition from Europe and Japan. The Kennedy administration responded by cutting taxes and promoting a massive wave of investment in new technology, in a bid to counter this reborn Franco-German and Japanese capitalism. Mandel was a long-time opponent of the Common Market and EU, seeing it for what it was – and still is – a front for the interests of European big business and finance capital.