THE PASSING of the British revolutionary socialist Chris Harman in late 2009 was a loss not only to those of us who knew and learned from him, but also for the many thousands of socialists his writings had helped to educate in his 50 years in the workers’ movement. The range of Harman’s contributions—from revolutionary history to philosophy to political analysis and more, mostly accomplished while working as editor of a weekly newspaper—were an unparalleled contribution to the International Socialist tradition in which theISR stands.

Some of Harman’s most important work was his development of Marxist economic theory. He had some formal training in the field: Harman famously misplaced his PhD dissertation written at the London School of Economics. But his approach to Marxist economic theory, developed in dialogue—and, often, debate—with comrades like Tony Cliff, Mike Kidron, and Nigel Harris, was shaped not in academia, but by his effort to build a revolutionary party as a member of the revolutionary organization in Britain that eventually became the Socialist Workers Party. It was Harman who integrated Cliff’s version of the theory of state capitalism with Kidron’s analysis of the permanent arms economy to anticipate the timing and shape of the economic crisis of the 1970s, both in the Eastern bloc and in the West. The journal articles that became Harman’s book, Explaining the Crisis, were a powerful assertion of the relevance of Marxist economics amid the slump of the early 1980s.

Some of this writing was unavoidably technical. But Harman was never content to trade obscure polemics with other Marxist theorists. He always took pains to cut through the jargon and make economics accessible to a wider audience. This was the hallmark of his columns in the Socialist Reviewmagazine, a UK monthly, and his short book, Economics of the Madhouse, which popularized Marxist economic concepts without watering down the content.

In today’s protracted economic crisis, Harman’s sudden and untimely death is felt all the more keenly. Thus we are fortunate that he had the opportunity to complete a major work of economic analysis, Zombie Capitalism: Global Crisis and the Relevance of Marx. First published in Britain in 2009, just months before Harman passed away, and now republished by Haymarket Books in the fall of 2010, the book brings to bear Marx’s analysis of capitalism on the economic crisis that erupted as he was completing the book.

Harman delivers a forceful indictment of what he calls a “runaway system” that is not only incapable of meeting the basic needs of the world’s population, but is, in its heedless pursuit of profit, poisoning the planet. And he concludes with a compelling case for the world working class as the agent of revolutionary change, as against fashionable economic theories about the absorption of the working class into a post-industrial “multitude.” For anyone interested in understanding Marxist economics and its relevance for charting the way forward for the working class in the current crisis, this book is crucial.

The book’s first chapter offers a clear and succinct exposition of Marx’s key concepts, from the crucial distinction between the use value and exchange value of a commodity to the labor theory of value, the nature of exploitation, surplus value, profit, and accumulation. Chapter two takes on the critics of Marx’s theory of value, and chapter three uses Marx’s key concepts to present a general picture of the dynamics of capitalism in motion, including the system’s tendency toward periodic crisis and the underlying factors that contribute to or exacerbate crisis, such as the falling rate of profit and the role of credit, as well as those factors that permit the system to emerge from crisis and to begin the accumulation process afresh.

While mainstream economists start with so-called “marginal utility”—the subjective value individuals place on a commodity—Marx began with the dual nature of the commodity under capitalism. On one hand it has a use value—something with everyday utility, like a pair of shoes. On the other hand, those shoes have exchange value—but that value can only be reckoned in comparison with other objects of exchange. The only thing that qualitatively different commodities share that make them commensurable is that they are all objects of human labor.

In making this distinction, Marx was building on the bourgeois economists Adam Smith and David Ricardo, who further argued that exchange value must be based on the labor time embodied in each product. Marx’s crucial advance on this labor theory of value was to point out that the exchange value of a given commodity was determined not on the performance of the particular workers who produced, for example, the shoes mentioned above, but on thesocially necessary labor time needed to produce shoes generally. In other words, if I try to sell my homemade shoes that took me 20 hours to make, their exchange value will be based not on the hours that I personally worked, but on the 20 minutes workers around the world needed, on average, to produce similar (but far better quality) shoes in up-to-date factories.

Harman is at his best in handling such crucial theoretical points, putting them across in a way that’s comprehensible to those with little or no familiarity with Marxist economics—even while conveying their relevance to understanding the capitalist economy today.

People speak of “the power of money,” as if its power did not come from the human labor for which it is a token; or of the “needs of the market,” as if the market was anything more than an arrangement for linking together the concrete acts of labor of different human beings. Such mystical attitudes lead people to ascribe social ills to things beyond human control—the process which the young Marx had called “alienation” and which some Marxists since Marx have called “reification.” Simply seeing through such mysticism does not in itself deal with the social ills. As Marx noted, simply arriving at a scientific understanding of the character of existing society leaves it intact just as “after the discovery of the component gases of air, the atmosphere itself remained unaltered.” But without seeing through the fetishism, conscious action to transform society cannot take place. Hence the importance of grasping the distinction between use value and exchange value and of grounding value in socially necessary labor.

Harman is equally adept at explaining Marx’s theory of surplus value—that in employing labor power, capitalists are able to extract an amount of labor whose value exceeds wages. “The difference between the value of the worker’s labor power and the value of the labor done was the source of the surplus value,” writes Harman, and that is the source of profits.

He further offers a crisp explanation of the consequences of capitalist competition—that in order to expand market share and beat out the competition, each capitalist is compelled to constantly lower the unit costs of production, either by making workers work harder for less, or by investing in new factories and machinery to boost the level of labor productivity. The first capitalist who introduces new labor-saving technology can undercut the competition and yet still raise his or her profit rate by selling above the cost of producing the commodity. However, once other capitalists adopt that new technology, this advantage disappears. What is left is a general tendency to reduce the ratio of labor to machinery, as fewer workers are needed to set the machinery of production in motion.

But labor, particularly unpaid labor, is the source of profit. Only active human labor can produce surplus value, that is, value over and above the cost of its own maintenance (wages). Over time, cutting down the input of labor in the production process in the system as a whole reduces that component that is responsible for producing profit, while increasing the costs of the other inputs, especially machinery. This reduces the quantity of surplus value that can be produced compared to total investment. Therefore, a higher ratio of means of production to living labor, expressed in value terms—what Marx called the organic composition of capital—accelerates the tendency of the rate of profit, defined as the rate of return on total investment, to fall.

Thus what makes sense for an individual capitalist—investment in new technology—plants the seeds of crisis for the system as a whole. Eventually the competitive drive of capitalists to keep ahead of other capitalists results in a massive scale of new investment which cannot be sustained by the rate of profit. If some capitalists are to make an adequate profit it can only be at the expense of other capitalists who are driven out of business. The drive to accumulate leads inevitably to crisis. And the greater the scale of past accumulation, the deeper the crises will be.

Harman cautions that his abstract presentation of the dynamic plays out differently in the real world. He recounts Marx’s exposition of countervailing tendencies that can slow or postpone the falling rate of profit. These include trying to raise the rate of exploitation of labor with a longer or more intense workday, wage cuts (a common practice in Marx’s time that’s making a comeback among bosses today), or a recession that drives weak capitalists out of businesses, devalues the means of production, and thereby restores the rate of profit. But Harman argues that the tendency of the rate of profit to fall is the key to understanding why capitalism chronically goes into crisis—not just the recessions euphemistically described as the “business cycle,” but protracted crises such as the one that has gripped the United States and most of the advanced industrialized world since 2007.

The question remains, however, why the system was able to escape such a deep crisis for so long. After the Great Depression of the 1930s and the Second World War, the system enjoyed a long boom from the late 1940s until the recession of 1974–75. Thus Harman devotes much of Zombie Capitalism to explaining the long boom as well as the return of crises. This effort takes him on a wide-ranging look at economic history and includes a useful overview of debates in contemporary Marxism on how to apply Marx’s theories to capitalism today. It is here the book is more controversial and, at various points, flawed.

Explaining the boom—and the crisis
In his overview of twentieth century capitalism, Harman draws upon the International Socialist tradition’s hallmark analysis that he did so much to develop, mainly, the analysis of state capitalism in Russia and the Stalinist states, and the role of the permanent arms economy in underpinning the long boom of the 1950s and 1960s.

The theory of the permanent arms economy—initiated in the 1940s by the American socialist Ed Sard (writing under the pseudonyms of T.N. Vance, Frank Demby, and Walter J. Oakes), was further developed by Mike Kidron in the 1960s and elaborated upon by Harman in the 1980s. In their view, the huge arms spending during the Cold War had the effect of stabilizing the system economically by counteracting the rate of profit to fall. The reason: enormous investments in nuclear weapons and other armaments didn’t flow back into the economy, either as commodities for workers’ consumption or as investment into new plant and equipment. As a result, the organic composition of capital—the ratio of plant and equipment to workers mentioned above—rose much more slowly than it otherwise would have. That, in turn, helped sustain profit rates in the United States.

That effect fizzled out by the early 1970s, however, when new competitors without the same burden of arms spending—namely, Japan, Germany, and newly industrializing countries—asserted themselves in global markets. Washington’s rival, the USSR, as Harman explains, had a bureaucratic state capitalist economy that competed with the United States in military spending, which imposed the dynamics of competitive capitalist accumulation at the level of the entire economy. While the U.S. arms industry benefited from technological advances stimulated in part by a global division of labor, the USSR’s closed economy eventually collapsed under that pressure.

From long boom to long crisis?
Zombie Capitalism provides a very useful systematic overview of the main economic trends of the twentieth century. It has, however, a major weakness: a tendency to view the current crisis as the latest manifestation of the same global economic crisis that emerged in the 1970s.

To be sure, the version of this argument put forward in Zombie Capitalism is much more qualified than in Harman’s earlier work. And Harman’s defense of the theory of the tendency of the rate of profit to fall as the cornerstone of Marx’s crisis theory is powerfully argued. The difficulty comes when Harman portrays the tendency of the rate of profit to fall as a more or less absolute trend in the world economy since the 1970s. This robs the book, which is strong in so many respects, of some of its analytical power.

Harman’s argument that the crisis of the early 1970s hasn’t been fully resolved dates from his book, Explaining the Crisis, published in 1984. In that work, Harman showed convincingly that the long postwar boom ended in the 1970s as the United States faced new competitors in Germany and Japan—industrial powers that didn’t carry the burden of the nuclear arms race with the USSR. The result was one that would have been familiar to classical Marxist economic theorists: a prolonged downward pressure on the rate of profit and a crisis of overproduction on a world scale.

In Marx’s day, such slumps were overcome when relatively small firms went bankrupt or were bought out on the cheap by stronger rivals. Yet as Harman showed, the rise of modern industrial corporate capitalism made it much more difficult for the system to overcome the Great Depression of the 1930s, as the failure of gargantuan, money-losing companies dragged down healthy ones as well. Harman argued that with the development of giant multinational capitals, allowing any one of them to go under threatened the plunge the whole system into deep crisis. By the 1980s, Harman wrote, capitalists had learned their lesson. Capitalists (and the state) would therefore strain mightily to prevent the repeat of such a crash, even if the resulting chronic overproduction and low rate of profit led to sluggish growth and stagnation. He concluded that

the present phase of crisis is likely to go on and on until it is resolved wither by a plunging of the world into barbarism or by a succession of workers’ revolutions.... This does not mean the world economy is doomed simply to decline. An overall tendency to stagnation can still be accompanied by minor booms, with small but temporary increases in employment.

Harman restated that position in a two-part International Socialism article published in 1993, “Where Is Capitalism Going?,” arguing that

room for economic recovery through restructuring is less, as the debt hangover from the wild speculative party of the late 1980s dampens even the most enthusiastic entrepreneurial spirits. They have no chance of a return to the glorious 1960s, and even their attempts to return to the inglorious 1980s will exacerbate their disarray. The next ten years will be harder and nastier than the last ten years—for both them and us—and therefore will be punctuated by great explosive struggles.

Economic predictions are notoriously difficult to make, and the point of citing Harman’s mistake isn’t to hold him to some special standard of prognostication. Indeed, Harman noted in a 2001 International Socialismarticle that he had underestimated the capacity of U.S. capitalism to recover from the 1991 recession: “I have to admit I did not expect the U.S. economy to enter eight years of expansion, resulting in an increase in the gross domestic product (GDP) of some 50 percent and a resurgence of U.S. economic power compared with that of Japan and Europe.”

The difficulty is that though Harman periodically acknowledged the expansion of the system during boom years, he continued to insist that capitalism nevertheless failed to overcome the stagnation that emerged in the 1970s. Thus in a 2007 article in International Socialism on profit rates, Harman wrote that “it is wrong to describe the situation as one of permanent crisis—rather it is one of recurrent economic crises.” Yet while he accepts that the big corporate bankruptcies in the 1980s and 1990s “was a process of recurrent ‘restructuring through crisis’ on an international scale,” he maintains that “it was only a limited return of the old mechanism for clearing out unprofitable capitals to the benefit of the survivors.”

Yet the considerable U.S. expansion of the 1990s—to say nothing of the impressive Chinese boom, with its vast increase in productive capacity and enormous impact on the world economy—is in fact compelling evidence that the harsh restructuring did prepare the way for strong growth and a surge in profits, just as classical Marxist theory would anticipate. Moreover, characterizing the period since the 1970s as one of “recurrent economic crises” doesn’t get us very far. Capitalism has experienced periodic recessions since its inception. The booms that come between may be strong or weak and long or short. But for socialists, failure to take proper account of those expansions—and the rate of profit, the key indicator of the system’s health—can lead to theoretical confusion and political disorientation.

Certainly Zombie Capitalism highlights much of what has changed in the world economy over the last thirty years, including the results of its expansion. Harman cites manufacturing’s role as the basis of the U.S. industrial boom of the 1990s and focuses on the significance of China’s industrialization. He also quotes Marx as stating that there is “no such thing as a permanent crisis,” and states toward the end of his book that the current crisis “does not automatically lead to an endless slump.” Nevertheless, inZombie Capitalism Harman still contends that the causes of 1970s crisis have never been fully resolved, and remains the underlying reason for today’s protracted crisis.

Harman’s evidence for this claim is the failure of the system to return to the high rates of profits of the 1950s and 1960s. This, he argues, is evidence of a tendency towards stagnation that, in turn, has led capital to shift investment toward finance rather than expanding the means of production. The financial crash of 2007–2008, in other words, was a consequence not merely of bank deregulation and complex financial instruments, but of a crisis of profitability in the productive core of the system.

The strength of this argument is undeniable on one level. The first form the crisis took was that of a financial panic, but the underlying causes run much deeper. The problem is lies Harman’s claim that these underlying causes date back to the 1970s.

The debate on profitability
There are two problems with Harman’s argument about the origins of the current crisis. The first is in his denial of the significance of the recovery of the system from the crisis in the 1970s by emphasizing that capitalism has been unable to achieve the growth rates and profit rates of post-war boom. The second is his denial of the demonstrable ways in which real restructuring took place—restructuring that Harman had insisted wasn’t possible—to restore profitability and growth in the system in the 1980s and 1990s.

Harman contrasts U.S. and Western profit rates generally to their heyday following the Second World War. But the comparison is highly misleading. In the 1950s, the United States enjoyed overwhelming economic dominance, thanks to the wartime destruction of the industries of both allies and enemies. And the United States of 2010 isn’t competing with the United States of the 1960s, but with contemporary Japan, Germany, China, etc. An American capitalist decides his or her next move not by looking at old statistics on profits, but by anticipating the actions of rival bosses. For contemporary capitalists, what mattered was the fact that profit rates had recovered sufficiently beginning in the 1980s and 1990s to entice them into investing in factories, equipment, and offices—perhaps not so much in Cleveland or Detroit, but in Shanghai, Bangalore, or Sao Paulo.

As a result, there was real accumulation in the system. World gross domestic product (GDP), in real terms, doubled between 1969 and 1990 and increased by another 60 percent by 2009, with the result that world output in 2009 had tripled since 1969. In Zombie Capitalism, Harman does acknowledge this expansion, but without sufficient emphasis. Instead, he focuses the explosion of the financial sector as a sign of the system’s weakness. Yet a key characteristic of the neoliberal period has also been the rapid expansion of the productive economy on a world scale—and its shift to the East. As Robert Brenner has noted, from 1990 to 1996, capital formation in East Asia rose almost 300 percent, compared to 40 percent in the United States and Japan.

As if anticipating such a criticism, Harman contends that GDP figures are misleading, since the growth of GDP per capita has actually slowed down on a world scale. That’s decisive evidence, he claims, of a stagnant system. Capitalists don’t measure success by GDP per capita, however, but by their ability to make profits. As the late British academic and socialist economist Andrew Glyn put it,

The fact that output per head has been growing more slowly since 1990 than it did in the turbulent period 1973–79, never mind the Golden Age [of the 1950s and 1960s] must be a severe disappointment to those who believed that unleashing the free market would restore rapid growth. But does this constitute a “crisis” for the advanced countries? Only by distorting the original meaning of the term.... The fact that economic performance overall has been unspectacular does not imply that the system is in crisis.

We can wholeheartedly agree with Harman that the financial crash wasn’t simply the result of parasitic bankers destabilizing the system, but rather the result of deeper contradictions in the underlying economy. But the system was able to overcome the slump of the 1970s, giving rise to two substantial booms in the 1980s and 1990s, punctuated only by a relatively mild recession (for capitalists) in 1991. U.S. capitalism in particular carried out a deep industrial restructuring on a scale that Harman had long argued was impossible, clearing the way for restored profitability.

This restructuring took place in a number of ways. During the period of the 1980s and 1990s, as Harvard labor economist Richard Freeman estimates, the capital/labor ratio internationally was lowered by 55 to 60 percent by the entry of workers from previously closed state capitalist economies from the USSR, China, and India into the world market. Even if Freeman’s estimates are too high, the changes he calculates would have the effect of a major reduction in the organic composition of capital. According to an important article on U.S. profit rates published in 2003 by the Marxist economist Edward N. Wolff, U.S. capitalism did in fact manage to slow down the growth in the ratio of capital to labor in industry. Hence the article’s title: “What’s behind the rise in profitability in the U.S. in the 1980s and 1990s?”

Nevertheless, Harman cites Wolff’s article, along with the work of other Marxist economists, to show that that the 1980s and 1990s booms failed to reach their peaks of the 1960s. But Wolff’s point is that U.S. capitalism did indeed experience a revival in profitability—a point that is contrary to Harman’s arguments.

Profit rates rebounded in the United States after the recession of 2001 as well. As the Marxist economist Fred Moseley noted in a 2009 article in ISR 64:

the last several years, especially since the recession of 2001, have seen a very strong recovery of profits, as real wages have not increased at all, and productivity has increased rapidly (4–5 percent a year). And these estimates include only profits from domestic U.S. production, not the profits of U.S. companies from their production abroad. They also do not include the multimillion-dollar salaries of top corporate executives. On the other hand, these estimates do include a large and increasing percentage of profits from the financial sector (approximately one-third of total profit in recent years has been financial profit), much of which will probably turn out to be fictitious (i.e., anticipated future earnings that are “booked” in the current year, but will probably never actually materialize because of the crisis). All in all, I conclude that there has been a very substantial and probably almost complete recovery of the rate of profit in the United States.

Even so, in Zombie Capitalism, Harman cites a somewhat earlier study of the U.S. economy by Moseley as evidence of the weakness of profits. Harman states that Moseley’s figures put profit rates “marginally above their lowest points in the long boom.” But the question isn’t whether capitalism has recovered the exceptional growth rates and profits of the “golden age” of the 1950s and 1960s, but how far it has overcome the crisis that beset the system in the early 1970s.

The evidence shows that it has. In a 2009 article in Historical MaterialismDavid McNally argues that,

the tendential rise in the organic composition of capital that characterized the period 1947–82 was abruptly ?reversed during the period of vigorous neoliberal expansion (1982–1997) and the productivity of new investment rose. In the language of bourgeois economics, “aggregate capital-productivity” increased; in Marxian terms, after 1982, new capital-inputs were able to generate larger increments of surplus value.

Harman’s case about the supposed underlying stagnation of the system appears to be on much stronger ground in his assessment of the 2002–2007 expansion. Despite the bounce-back in profit rates noted above, the recovery was characterized in the United States by weak levels of business investment, the continued loss of manufacturing jobs and, of course, the housing bubble and debt that was needed to prop up consumer demand amid stagnant or falling wages. As Joel Geier has detailed in several articles in the ISR, this was the result of super-low interest rate policies by the Federal Reserve that turned the United States into the importer of last resort, measures originally taken to keep the 1997–98 East Asian financial crisis from going global and used again to counteract the 2001 recession.

Yet while the 2002–2007 expansion was weak in the United States, faster growth rates elsewhere actually accelerated the shifts in the world economy. In particular, sustained high growth rates in China fueled exports of raw materials and stimulated economies across Asia and Latin America, while Western Europe and Japan benefitted from Chinese demands for machine tools and other capital equipment. By 2007, the world economy as a whole was growing at its fastest rate in 30 years.

Then, of course, came the slump, which officially began in the United States in December 2007, followed by the financial panic the following year and a worldwide economic contraction. So it is reasonable to ask the question: since the depth of the current crisis is now brutally clear to everyone, is it really so important to delve into the details about how we got here? If we can agree that the current slump will be prolonged and result in savage attacks by capital on the workers of the world, is it so important to examine the performance of the capitalist system over the last three decades?

It is, because those who wish to challenge and transform the system must not only have a clear analysis of contemporary capitalism, but must also understand its contradictions, limitations, and capacities. It isn’t sufficient to simply make an abstract observation that capitalism is a system of chronic crises (something that Harman, of course, never did). Understanding the specific capitalist conjuncture is the basis for formulating a viable political perspective. Comprehending capitalism’s immediate past is the precondition for understanding its likely direction in the future. That’s why the question of profit rates—and what they tell us about the underlying state of the system—are so important.

Indeed, economic growth in China, India, Brazil, and other parts of the developing world has been strong enough to shift the share of world GDP away from the United States and the older industrialized world. As Zombie Capitalism was being written in 2009, the so-called BRIC countries—Brazil, Russia, India, and China—represented some 15 percent of world GDP. While that is still far behind the figure of around 26 percent for the United States and a similar number for the 15 core countries of the European Union, it marks a major change in the balance of power in the world economy. That trend will likely continue as China and other industrializing countries continue to have high rates of growth while the older industrialized countries recover from the slump much more slowly.

By downplaying these developments, Harman weakens his overall case. What is missing is an account of the crisis that sees the crash of 2008 and the agonizingly weak recovery in the United States as rooted not in a long stagnation since the early 1970s, but rather in the strength, character, and contradictions of the booms in the neoliberal era. The current slump was triggered not by a lack of profitable investments, but rather overinvestment in everything from automobiles to computers to ships—much of which was plowed into China. This led to a classic crisis, in Marxist terms, of overproduction.

Not only were there too many cars, computers, etc. than could be profitably sold, but also there was a vast overcapacity in the factories that produce them. It is only the unprecedented stimulus spending by the world’s leading economies that maintained at least some demand to absorb those goods and spark a recovery, particularly in China. But the underlying overcapacity remains, and will continue to weigh on the system for some time to come—for example, by depressing business investment and hiring in the United States.

These shortcomings, however, should not overshadow Harman’s many important achievements in Zombie Capitalism. He rightly insists that the current crisis puts the ruling class in a bind:

Today the sheer scale of integration of national economies means that serious implementation of state capitalist solutions would cause enormous disruption to the system as a whole. Yet for national states simply to sit back and leave giant firms to go bust in the hope of crises liquidating themselves, as the [free-market] Hayekians preach, would do even greater damage. The two long-term tendencies pointed to by Marx—for the rate of profit to fall on the one hand and for the concentration and centralization of capital on the other—combine to put the whole system in a noose. The attempts of capitals and the states in which they are based to wriggle out of it can only increase the tensions between them—and the pain they inflict on those whose labor sustains them.

By restating the foundations of Marxist economics and rescuing important debates from academic obscurity, Harman has provided a new generation of militants with a handbook to understand why capitalism is prone to crisis. Moreover, his account of the crash of 2008–2009 cuts through the superficial explanations of the mainstream media that the fault lies simply with an unleashed financial sector or greedy bankers. The problem, he shows, is the dynamic of capitalism itself—the endless accumulation of capital for its own sake, rather than meeting human needs.

Finally, Harman demonstrates that the world working class, rather than disappearing amid technological change or the growth of the slum-dwelling population cities of the Global South, is more central to the world economy than ever. What’s needed, he argues—citing Marx’s classic formulation—is the kind of theoretical framework, politics, and organization that can assist the working class to act for itself, in its own interests. And in Zombie Capitalism, working class militants and socialists have an important resource to help them carry that project forward.