19
ROSA LUXEMBURG (1871–1919)
The woman who dared to question Karl
Today Rosa Luxemburg is famous mostly because of the interesting life that she led. She was one of the few female economists of the 19th and early 20th centuries. When she acquired her doctorate in 1897 she was one of the few women to have done so (her thesis looked at the dependence of the Polish economy on Russia). And she was right in the middle of the raucous, dangerous politics of that era. She was a member of various radical-left parties and a fierce opponent of nationalist movements within the Russian empire. Over time she moved further and further to the left. In 1919 the Freikorps, ordered to suppress left-wing revolutionaries, shot her in the head and dumped her body in a canal. Regrettably her economic writings are given far less attention than her biography: there is surprisingly little about her ideas in English-language journals or in histories of economic thought. Michael Bradley argues, correctly, that Luxemburg’s politics had “overshadowed her contribution to economic analysis”.
Specifically, Marxist economic analysis. Luxemburg’s writings bring together the works of many of the other people profiled in this book–she was obsessed with Thomas Malthus, David Ricardo and, of course, Karl Marx. Luxemburg was not a particularly good writer. Like many Marxist theorists, her books are filled with impenetrable jargon. But even today some of her arguments will force mainstream economists to stop and think.
How dare you!
The first thing which makes Luxemburg so interesting is that she was willing to take on the great man Marx. Russian historians have a useful word, tsitatnichestvo, which describes the practice of using a barrage of citations in place of thought. Plenty of Marxist scholarship starts from the assumption that Marx was right. Select quotations from Marx’s oeuvre are then used in support of almost any Marxist-sounding thesis or interpretation of the world. And people will fall over themselves to prove what Marx “really meant”. But to question what Marx wrote, let alone find problems with it, will result in immediate removal from everybody’s Christmas-card list.
Luxemburg was, to be sure, a great admirer of Marx. She refers to Quesnay’s Tableau Economique, which is explained in Chapter 5, as “so intricate that no one before Marx could understand it”. Yet at the same time she was quite willing to point out the instances where Marx was wrong, especially as far as volumes II and III of Capital were concerned. Luxemburg did not suffer fools gladly; as Stephen Rousseas, a historian, puts it, she “could dismiss individuals in scorn and contempt with no regard for their bruised egos”, and her attitude to Marx, he says, was “more critical than venerating”. As Luxemburg herself wrote on the subject of Marxism, “Marxism is a revolutionary world outlook which must always strive for new discoveries, which completely despises rigidity in once-valid theses, and whose living force is best preserved in the intellectual clash of self-criticism and the rough and tumble of history.”
For loyal followers of Marx, Luxemburg’s approach was horrifying. For years “Luxemburgism” became a dirty word in official Marxist circles. Josef Stalin was no fan. But Luxemburg could not help but say what she thought.
Luxemburg refined her views on Marx in the process of teaching political economy and economic history at the school of the German Social Democratic Party in Berlin from 1906 to 1914, at which point the school was forced to close down because of the outbreak of the First World War.1 According to her pupils, she was a good teacher. Stephen Rousseas says that “[i]t was in trying to explain Marxian theory to her students and write it up in a coherent and logical way that she became more and more aware of its profound contradictions.” Her most famous work, the Accumulation of Capital, was published in 1913.
Luxemburg was delighted by what she had written. “The period when I was writing the ‘Accumulation’ was one of the happiest of my life,” she wrote to a friend:
I lived as though in a state of intoxication, saw and heard night and day nothing but this problem which was so beautifully unfolding itself before me, and I hardly know which gave me greater pleasure: the thought processes involved in wrestling with complicated problems as I walked slowly back and forth across the room, or the putting of results to paper in literary form. Do you know that I wrote the whole thing out in one stretch of four months–an unheard of thing!–and sent it direct to the printer without even once reading the draft through?
In place of the confusions that she found in Marx, she proposed her own theories. The first thing to say about the Accumulation of Capital is that it is not very abstract, an approach which clashed with Marx’s own approach and that of many of his followers. (That is not to say that the book is easy to read; it is not.) Luxemburg had little time for getting bogged down in high theory. She was not especially interested in the question of the labour theory of value, for instance, whereas Marx was obsessed with it, because in his mind it “proved” that exploitation of the working classes was part and parcel of capitalism. Luxemburg, by contrast, looked out of the window and said: “obviously there is exploitation”. In her own words, “the problem of accumulation is itself purely economic and social; it does not have anything to do with mathematical formulae and one can demonstrate and comprehend it without them”.
It has to end somewhere
The question of exploitation, however, was not the central issue of the Accumulation of Capital. In a nutshell the question that she tried to answer was, “Where is the extra demand, which allows economies to grow, going to come from?” In other words: economic growth is where the total amount of spending power in the economy rises–but where do we find that extra spending power? As Joan Robinson puts it, “[w]here does the demand come from which keeps accumulation going?”
Going back to Mandeville, Sismondi and Malthus, certain economists had long wondered about the question of “overproduction” and/or “underconsumption”–namely, will capitalists try to produce so many goods and services that there is no one to buy them? They had feared “yes”. Jean-Baptiste Say, by contrast, had said “no”. The implication of the physiocrats’ Tableau Economique is also “no”: the implication of that diagram is that “reproduction”–ie, the production of commodities at greater and greater quantities–can grow indefinitely.
The question of overproduction became of paramount importance to Marxists following Marx’s death in 1883. One theorist in particular stands out. Mikhail Tugan-Baranovsky, who had been influenced by Jean-Baptiste Say, argued that overproduction was impossible. As Paul Sweezy, a Marxist theorist, documents, the argument goes something like this. Imagine that the economy is divided into two sections: one section produces “stuff to make other stuff”, such as machines; the other section produces consumer goods. The thinking goes that each feeds off the other. Capitalists expand by investing in new machinery. So the machine-making department sees higher spending, and the workers in that department see higher wages. They then spend those wages in the other department, on consumer goods. In both instances the capitalists get higher profits. They then invest even more in machinery, and the cycle continues harmoniously. It is, in effect, a Marxist version of Say’s law.2
The implication of Tugan-Baranovsky’s argument, which was derived from Marx’s own conclusions, was that capitalism could well endure for ever. (In contrast with Say, however, Tugan-Baranovsky reckoned that in order to ensure perfect harmony between production and consumption, you needed government planning.) Yes, it might well be exploitative, but there were no internal contradictions that would guarantee the eventual collapse of the system. That had important political implications. Socialists were not to wait for capitalism’s overthrow or even try to force it. Instead the only solution was to reform it from within. Tugan-Baranovsky was not the only theorist to reach this sort of conclusion. In 1899 Eduard Bernstein, another Marxist theorist, published a famous book urging the German Social Democratic Party to drop revolutionary jargon and seek social reforms instead.
Luxemburg, the fervent revolutionary, could not abide by such wimpishness. So she set about showing entirely the opposite: that capitalism would not last for ever. Indeed it could collapse at any moment. To be replaced by what, nobody knew. But it is from here that Luxemburg’s famous phrase, “Barbarism or Socialism”, comes. When capitalism collapses–and it would collapse–the working classes had to be ready to spring into action. They had to seize the opportunity to shape the world in their image.
How does Luxemburg go about showing that capitalism will collapse? Marx focused on the supposed tendency within capitalism for the rate of profit to fall (see Chapter 15). Luxemburg thinks capitalism will collapse via a different mechanism. She explicitly refers to people such as Sismondi, Malthus and Say. The question she tackles is exactly how capitalists have the capacity to invest in extra machinery in the first place. As we know, Marx had argued that the production process generated surplus value–ie, value over and above what was being paid to workers. But, Luxemburg asks, how can capitalists realise this surplus value? Since surplus value is, by definition, in excess of what is paid in wages, then how can anyone actually afford to buy the goods and give capitalists a profit? Here we have, in Marxist terminology, a “contradiction” of capitalism. The desire for capitalists to make as much profit as possible leads them to pay their workers too little, which reduces demand for the very goods they produce.
The implication of Luxemburg’s theory, of course, is that quite quickly capital accumulation becomes impossible. Because capitalism is exploitative, it cannot grow. So how, then, does economic growth happen under capitalism? Mainstream economists argue, basically, that economies grow as productivity rises: workers can produce more stuff with the same amount of input. Capital spending by firms is also a form of demand.
Luxemburg had different ideas. She said that the key to the puzzle was colonialism and imperialism. Historians M. C. Howard and J.E. King argue that “[a]s early as 1884 [Karl] Kautsky argued that colonies were a prerequisite for capitalist expansion, and that Germany’s lack of them was one of the main reasons why she had failed to industrialise at the same time as Britain.” Recall that many of the classical economists had been sceptical about the economic benefits of colonialism. Adam Smith hated the East India Company. Jean-Baptiste Say had counselled the French government against imperial expansion. But Luxemburg’s theory in effect finds that capitalism requires colonialism.
Go forth and multiply
Why does capitalism require colonialism? The basic reason is that capitalism is too productive for its own good. Quite quickly capitalists must look outside their own country in order to continue to sell their wares and thereby continue to accumulate profits. The implication is that capitalism will turn from a closed system, which is held back from growth by its internal contradictions, to an open system, which can grow for much longer.3 (Luxemburg’s argument sounds quite similar to what Lenin would later argue in Imperialism, the Highest Stage of Capitalism, which was published in 1917.)
Luxemburg pointed to lots of places outside the capitalist system into which capitalism would inexorably expand: “In reality, alongside the old capitalist countries there are still those even in Europe where peasant and artisan production is still strongly predominant,” she noted, “[a]nd finally, there are huge continents besides capitalist Europe and North America, where capitalist production has only scattered roots.”
In other words, non-capitalism (so to speak) allows capitalism to endure. But only in the short term. Because what is currently an open system must eventually become closed. The world is only so big, and capitalism must eventually reign supreme everywhere. The logic of what Luxemburg said earlier will eventually reassert itself, once all colonies are exhausted. “If it be true,” says Sweezy, “that capitalism depends for its very existence on its noncapitalist environment, but that in the process of living off this environment it also destroys it, then it follows with inexorable logic that the days of capitalism are numbered.”
Some historians have used Luxemburg’s theory to make radical interpretations of the past. They argue that the “enclosure” movement of the 13th–19th centuries, where common lands were brought under private ownership, is one example of capitalism’s insatiable appetite to take over non-capitalist institutions. Others have pointed to the Spanish moving into the Americas. Others still argue that the British empire is an example of the sort of imperialism that is unavoidable under capitalism.
This sort of reading of history is probably wrong. Many of these events (such as enclosure) happened when capitalism had barely taken off. There were many other explanations for imperialism. That is not the only problem with Luxemburg’s theory, either. How, exactly, do these “non-capitalist” places provide the money that allows capitalists to make profits? She does not explain the precise mechanism by which non-capitalist places allow capitalist places to thrive. Henryk Grossman, one of Luxemburg’s keenest critics, goes one step further. He argues that “[c]ontrary to Luxemburg’s theory the backward countries gain importance as markets for advanced capitalism precisely to the degree that they industrialise.” In other words, if colonies are useful to capitalism, it is not because they are not capitalist but quite the opposite: because one day, they too will become capitalist.
More than a grand failure
Today, many Marxist theorists discount what Luxemburg wrote. Her lack of interest in the supposed phenomenon of the declining rate of profit is an affront to Marx’s entire intellectual edifice. Only recently–and especially in 2019, on the centenary of her death–have Marxists taken her more seriously.
How should non-Marxists think about Luxemburg? Being generous to her, her thesis is not quite disproven yet–there are still many parts of the world that would not be considered capitalist. Were she alive today, she might well be arguing that sooner or later, capitalism’s limits to growth would make themselves apparent. Mainstream economists would argue against her theory on the grounds that capitalism does not in fact contain the seeds of its own destruction (though, as is becoming increasingly obvious, it does have ecological limits).
Nonetheless, Luxemburg’s arguments will make mainstream economists stop and think. At certain points in history, economists have worried that capitalism has reached a point where further growth is not possible. Alvin Hansen, an American economist who in the 1930s was confronted by persistently weak economic growth, proposed the term “secular stagnation” to describe what he saw. In the face of weak growth in the period after the financial crisis of 2008–09, Lawrence Summers revived that term, arguing that as populations in rich countries age, more saving takes place, which results in structurally weak demand. Economists of both right and left worry that high levels of income inequality are bad for economic growth, since rich people save their income rather than spend it. No mainstream economist proposes imperial expansion in order to get capitalism out of its funk. But, like Luxemburg, they recognise that capitalism is less stable than some of the classical economists seem to think.