With hyperinflation looming and automation abolishing the source of profit, socialism is becoming an economic necessity (Q&A)

The general rate of profit tends historically towards zero. Source: Estaban Maito.

Capitalism is losing its ability to create new exchange-value and is sooner or later likely to spiral into a crisis of worldwide hyperinflation. Only socialism, capitalism’s historically logical successor, can revive economic stability.

Is worldwide hyperinflation really looming?

➤ The record high aggregate global debt is unsustainable since the tax base needed to repay it is shrinking in relative terms. Global debt across all sectors increased by over $10 trillion in 2019, topping $255 trillion. At over 322% of GDP, that put global debt 40 percentage points ($87 trillion) higher than at the onset of the 2008 financial crisis. Nations that fail to get back below 90% usually go on to default on their debt (fail to repay it). The actual figure has been reported to be 2.5 times higher (as of July 2019) and 2.5 times higher than the global money supply (as of 2015, up from two times higher in 2013). That is despite unprecedented growth in the money supply as governments have electronically ‘printed’ money to deal with the shortage of exchange-value being created by commodity-production (see below). In the eurozone, 57% of all government debt repayments are (as of 2015) interest.

➤ Lifting the economy out of recession has required on average since 1958 a base interest rate cut of 6%, but since the stock market crash in February 2020 (the steepest ever) rates are already at zero (having been cut by 0.75% in the UK and 1.75% in the US — neither country had ever gone below 1% before 2010. Going lower still will mean charges on bank deposits along, quite likely, with: bans of high dominations of cash and charges on low dominations; wealth taxes; and ‘bail-ins’ whereby banks stave off solvency by seizing assets from customers or converting deposits into equity. All this may reinflate the global bond bubble for another decade or so but will also require increasingly massive amounts of central bank money printing to push up the prices of bonds (thereby lowering interest rates). Monetary financing, as this is called, will continue to devalue the money supply and has historically led to hyperinflation. The trillions of dollars of sovereign debt already subjected to negative rates, meaning investors are essentially paying for the privilege of lending money, has been remarkably and increasingly high since 2014. Banks, many of which are already close to going bust, have warned that making base rates too negative would make privately owned banks unviable.

➤ Eventually even the the richest countries will default on their debt. Central banks such as the Federal Reserve in the US just about managed to bail out the banks in the 2007–08 crisis, thanks to a sufficient devaluation and centralisation of capital (the necessary solution to every capitalist crisis/recession), accelerating rises in monopolisation, poverty and inequality. Will it be possible for the International Monetary Fund (IMF) to bail out the Federal Reserve, let alone the world economy? And even if it can, who will bail out the IMF when an even bigger crisis emerges in another decade or so?

➤ Eventually central banks will run out of ways to convert cash into stocks and the debt bubble will burst as interest rates will start going back up, making government debt more expensive to pay-off and leading to surges in debt-to-GDP and panic selling as investors realise that the government is broke. All the money central banks have printed will become worthless, likely leading to hyperinflation (or, if the central banks reverse course and shrink the money supply beforehand, hyperdeflation, which would follow the former anyway.)

➤ Bondholders will dump bonds and instead panic buy hard assets, especially precious metals, adding to the potential for high or hyper-inflation. Central banks may be forced to purchase dumped bonds, sending national (public) debt ever-higher.

➤ Capitalists also use high/hyper-inflation in a crisis anyway to reduce wages, debt and and taxes, ie in order to improve profit margins.

Automation is abolishing the source of profit? What?!

➤ Alongside 0% interest rates, British pound sterling has lost more than 99.5% of its purchasing power since its adoption as official currency in 1694. The US dollar has lost more than 96% of its purchasing power since 1913, having barely changed in the previous 140 years, when the rate of the economy’s growth (relative to its size) was much higher. The vast amount of that figure, 91%, has come since 1949, when the US supplanted Britain as the world’s imperialist superpower. The figure since 1970 is 85% (93.5% for Britain), when the technological revolution really took off and currency’s link to gold became a restraint on economic growth (since gold’s finite nature limited the number of dollars that could be printed).

➤ GDP growth rates are trending towards and already closing in on zero, having been around 6% in the 1960s and below 2% since 2000.

➤ The aggregate global rate of profit is also trending historically towards zero, having fallen from an estimated 43% in the 1870s to 17% in the 2000s.

➤ Manufacturing costs and consumer commodity prices are also falling towards zero, since the more abundant something is, the cheaper it is. For example, whereas the world’s fastest supercomputer in 1975 was worth $5m ($32m in 2013’s money), the price of an iPhone 4 released in 2010 with the equivalent performance was $400. Aerospace companies producing propulsion systems in 2010 for $24m in 24 months are now 3-D printing their engines for $2,000 in two weeks.

➤ Machines cannot sell their labour power and are therefore unexploitable; i.e. they do not produce surplus value, the value the capitalist appropriates from workers and realises through the sale of commodities. (If the worker creates eight hours worth of value a day they only keep roughly what they need to pay for their food, clothes, etc; three or four hours, for example. This is obscured by the money-wage relation.) Services workers are relatively unproductive/unexploitable, since they only tend to handle finished/near-finished commodities. Even Africa and Latin America have been deindustrialising (moving to services-based workforces) over the past decade. Automation, a necessary development due to capital accumulation’s ongoing need for ever-rising productivity growth, is therefore abolishing the source of exchange-value and profit. To be more precise, automation is the final expression of capitalism’s self-abolishing tendency.

➤ Capital itself is an ever-growing fetter (restraint) on productivity growth, which has spluttered below 1% in the richest countries over the past decade (hence increasing trillions of dollars hoarded in tax havens, waiting for profitable investment opportunities to turn up).

➤ Capital accumulation is approaching a historical limit and is destined to break down much earlier than a zero rate of profit, as capital’s value is only preserved if it grows; an ever-greater proportion of surplus value has to be dedicated to accumulation, meaning the consumption fund for the capitalist and the worker begins to decline absolutely, provoking capitalists to ramp up attacks on both their competition and the working class. In such circumstances, the Canutes who do not fight for socialism can only fight for fascism, slavery and (probably world, i.e. nuclear) war (since the accumulation crisis is forcing nation-states into intensified competition, as evidenced by the rising trade wars.)

➤ Another way of looking at the situation in historical terms: just as the number of slaves in the US declined as a percentage of the population (from approx. 25% in 1790 versus 16% in 1860) — leading to the end of slavery, via civil war — manufacturing workers have declined as a percentage of the US workforce from 26.4% in 1970 to 8% today.

➤ The means of production evolve and improve ‘organically’ in order to meet the demands of capital accumulation (although innovation is also historical; it continues under any system) — but eventually demand new relations of ownership. Just as slavery became an inefficient form of production, the same is now true of capitalism and the private ownership of the means of production. The deindustrialisation, servicisation, automation and digitalisation of labour has created a new economic-technical basis to society; this demands a new, applicable political superstructure, i.e., the public ownership of all production and services and the replacement of money by a voucher system pegged to labour time.

What makes socialism the economic solution?

➤ Since the private sector is increasingly monopolised and dependent on long-term central planning (budgets, forecasts, stock coding, etc) and state (public) subsidies (including tax cuts) — trending towards 100% of income and therefore nationalisation — taking the means of production under public ownership, a ‘final merger’, and centrally planning the economy as a whole, is becoming, for the first time, an economic necessity.

➤ Since the private sector is losing its ability to employ value-creating (commodity-producing) labour — it does so only if profitable — society, via state enterprises, must take over responsibility for employment, enabling (almost total) full formal employment.

➤ Since the workforce is now mostly services-based, economic stability can only be established by an applicable system, whereby value is created not by for-profit commodity-production but by break-even utility-production.

➤ Since fiat currency is dying a natural death, with cash also disappearing in relative terms (not due to any conspiracy but because accumulation demands increasing efficiency), it must be replaced by a digital voucher system, with the ‘currency’ pegged to labour time. Workers will therefore receive all the value they create during the working day (instead of having part (most!) of it appropriated by capitalists), paid in units of labour time worked. This will probably need to be graded according to the type of work and productivity rates to incentivise certain types of work. Combined with full employment, this will institutionalise equality of labour (the right to receive all the value you create), underpinning equal rights (whereas rights under capitalism only really exist if you have money) and limiting economic inequality to a minimum; while consistently raising living standards for all (especially via general falling prices). And since digital vouchers will be non-transferable, cancelled like train tickets once ‘spent’ on consumer goods, the centralisation of wealth into the hands of a few becomes impossible.

➤ In the long run, as full automation (along with 3D-printing, lab-grown food, etc) becomes increasingly diffuse and localised, so that the divide between producer and consumer increasingly disappears and bringing about abundant (plentiful) material wealth for all, class and the state will become increasingly irrelevant, and both will therefore wither away. In this way, whereas capitalism has a long-term tendency to centralise wealth and power, socialism has a long-term tendency to decentralise wealth and power.

Essentially, socialism completes what capitalism started but could not finish.

Why not skip straight to ‘full’ communism/anarchism?

Socialism is the ‘lower stage’ of communism, a transitional period between capitalism and the ‘higher stage’ of communism, when the state has been abolished. Cementing the abolition of the all-capitalist state requires the establishment of an all-socialist state, which must be able to defend itself from both internal and external counter-revolution.

Furthermore, replacing money with vouchers on a systemwide basis is an inherently centralised task. Remote or poor regions, both domestically and internationally, may not have all the resources they need to eliminate poverty or build up their productive forces, also necessitating distribution through central planning, both nationally and internationally, which would also prevent (non-fraternal) competition between co-operatives and communes.

Socialism is not defined by ‘good’ or ‘bad’ policies but by the mode of production and the all-socialist character of the state. The working class is not a monolith and the majority of a given country’s population may at one time or another vote for ‘bad’ policies.

But because socialism is driven by utility production based on needs and wants, rather than commodity production and private profit — and removes the fetter of surplus capital — socialism is a higher mode of production than capitalism that abolishes unemployment and economic crisis, enabling consistently higher productivity.

Socialism will therefore progressively and consistently improve material conditions, thereby enabling ongoing social and cultural progress, especially since, in the long run, the demographics of the population will change, i.e. continue the integration of race and gender that began in earnest with the post-war productivity boom in late capitalism.

No one can promise ultraleft fantasies to immediately abolish religion, prisons, the nation-state, etc. Certainly the change in class and economic character of the state, new institutions and (ongoing) repurposing reforms will transform the nature of the state considerably; but the state, etc, have to be made increasingly irrelevant — by significantly improving material conditions, both nation-wide and internationallybefore most people will agree that they should be officially abolished or completely transformed. (Indeed, religion already tends to be most irrelevant where living standards are highest.) The more localised, communised and abundant production becomes, the more the centrality of the state and the state itself will disappear.

Because ultraleft demands are too abstract, too far off from realisation, communist parties need to propose a focused programme that appeals to the immediate needs of the masses if they are to have a bigger pull than fascism. My view is that communist parties should advocate:

➤ Full employment, including large earn-as-you learn trainee schemes

➤ A reduced working week and retirement age (including good, guaranteed pensions)

➤ A green industrial revolution that is actually green (see below)

➤ Build highly accessible public transport in every region

➤ A digital voucher system and flat rate income tax (a percentage of value created, initially worked out by planners or even algorithms; so 40% would be 0.40 of every 1.0 labour credit) to cover state expenditure, including universally available education, health, social and child care, free at the point of access. (Income tax will likely have to be high to start with to pay, through long-term debt, for compensation for expropriations of private companies (which will make the transition more peaceful than if compensation is not paid), but it will fall in real terms the more productivity rises.)

➤ The cancellation of all private debt and mortgages on private homes. This means converting private housing property into personal property (like a car). The land will be rented from the state, set as a small proportion of income and/or according to differential convenience or amenity of land. The state will gradually buy large properties that private owners no longer require for a fair price. Compensation will also be paid to anyone required to move for environmental or infrastructural reasons; and/or they will be provided with quality alternative housing, as locally as possible (unless the wish to move further afield).

➤ Empty, unowned properties will be immediately converted into homes for the homeless followed by nationwide programmes of quality, spacious, community-friendly and carbon-negative/eco-friendly house-building.

➤ If enough land owners go bust, all the land could be immediately nationalised and turned into state-run farms, etc.; if not it is vital not to drive small farmers into a powerful alliance with large land owners; huge tax breaks for the former should be offset by a high land tax for the latter. State run farms will incentivise farmers to continue running the same farms as before so as to prevent risking collapses in productivity.

➤ A democratically agreed new constitution in every country— involving all the people and implemented with their consent — enshrining the rights to democratic participation, equality, free speech, privacy, housing, work, education, health, social and child care in a people’s democratic socialist republic.

This sounds a lot different to the ‘socialism’ advocated by Corbyn and Sanders, et al?

Corbyn and Sanders are social democrats, not socialists. They advocate a moderate redistribution of wealth, but this would not solve the problem of value-creation and would in fact deepen the capitalist crisis, since private capital would be denied subsidies that would instead go to the public. (This does not mean that communists oppose redistributions of wealth to workers or other genuinely progressive reforms under capitalism.) Neither do they offer popular sovereignty for the people.

Their projects are also based on the expanded extraction-based plunder of the neo-colonies of Ireland, Africa, Latin America and Asia, which is not only morally reprehensible but suicidal for all humanity with regards to the climate crisis (see below).

But what about the Soviet Union? Socialism didn’t work?

Having inherited an undeveloped peasant-based economy decimated by the First World War and then counter-revolution, the Soviet Union faced many problems, including widespread illiteracy and cultural/social conservatism. Yet there were many phenomenal successes, including the abolition of both unemployment and economic recession, and the stunning lead the Soviet Union initially took in the space race.

But the constant aggression the Soviet Union faced from western capitalist powers forced it to spend heavily on defence at the expense of its civilian economy and again decimated its population and infrastructure during the Second World War. The situation combined with the scarcity that arose from this was bound to bring about a centralisation of power to a greater degree than desired and at times also manifested in ostensible regressive social policy (such as restrictions on abortions due to depopulation and contraception shortages).

That the Soviet Union, where it could circumvent sanctions, had to import various goods and raw materials from capitalist countries also meant it could never fully plan its economy, since it could not predict volatile foreign prices. For the same reason, nor could money be abolished. This also meant there was some logic to allowing a black market to flourish, in order to build up foreign currency (upon which it eventually became too dependent).

Combined with the denial of some technologies (which meant the domination of ‘command and control’ style planning that overlooked the finer details) and the fear of invasion, this held back the Soviet Union’s ability to transition to the higher stage of communism, resulting in relative economic stagnation and a growing pressure in the direction of capitalist reform, especially from skilled workers and intellectuals who knew they would earn more under capitalism. This latter problem understandably convinces many people that socialism cannot work because of ‘human nature’/greed, but as capitalism is now abolishing itself for good it will soon no longer exist.

Now that computing power is exponentially faster and a digital currency is viable, the problems formally associated with planning can be much more easily overcome. Stock control coding means the finer details can be planned.

And once the whole world is socialist, with capitalist competition abolished, world peace will reign, ending the need for defence spending. Furthermore, trade will be truly free, since under a socialist union of nations, no exchange of ownership takes place.

Cuba, the world’s most sustainably developing nation and with a world-class health care system, continues to show that socialism works, even in the face of the US economic blockade, which has cost the island nation more than one trillion dollars.

As outlined above, world socialism is becoming an economic necessity for the first time, and has therefore arguably not been possible before now.

What about one-party dictatorship, censorship and free speech?

Communists, like individuals in every other political tendency, have differing views on different issues.

While any government has to respond differently to different situations as they emerge — wartime and conditions of scarcity are bound to be more authoritarian and centralised then libertarian and decentralised, as we are now already experiencing — my general view (although I agree that almost everything in the capitalist media aims to keep its audience as depressed, deceived and ‘dumbed down’ as possible) is that censorship aids and inspires opposition and becomes too costly to enforce; and that reactionary views arise primarily from material conditions.

The counter-revolutionary press, however, will probably have to be censored during the revolution for reasons of self-defence. For disinformation and hate speech are not forms of free speech.

We will have to carefully decide what should and shouldn’t be censored. But we should be confident that we have the best and most persuasive arguments. Once in power, we should trust that the key to overcoming reactionary media is to provide better, more enjoyable alternatives that therefore ‘become mainstream’. Ultimately, reactionary and conservative views will wither away as living standards improve in a way that progressively eliminates inequality and socialises and communalises work, child and social care, etc.

The working class is not monolithic and so freedom of speech is important both inside and outside the party. Social policies and budgets should be voted on in democratic referenda. And there should be absolute primacy of the democratic, elected legislative power over the executive branch of government.

It should be stressed that we already live with widespread censorship, mostly by omission and through the bewildering amounts of disinformation from the billionaire-owned state and press.

On free speech laws, I would more or less keep them as they are — punish hate speech, including speech that is likely to incite violence against minorities. I would also advocate an independent judiciary, with the rights of claimants and victims balanced. But all this should be decided democratically in a new constitution.

On the party: there are actually multiple parties in Cuba and the Democratic People’s Republic of Korea; and parties do not stand in elections, members of parties do. However, the communist parties are the biggest parties because they represent the largest proportion of the population: the working class. Just as most people find it pointless to join or vote for anyone outside the Republicans or Democrats in the US (or the Conservatives or Labour in the UK), most people in communist countries don’t see the point of joining or voting for anyone outside the communist party.

Communists consider socialism to be ‘the dictatorship of the proletariat’ (as opposed to the dicatorship of capital/the bourgeoisie). But dictatorship in this phrase merely means ‘rule’.

How can the masses be convinced to fight for socialism?

Through class struggle. This starts with the capitalist class’s continual attacks on wages (including ‘benefits’ and pensions), working conditions and living standards eventually going into overdrive — up to and including sending more and more people to their deaths in wars — along with anything else that eats into profit margins or slows down the centralisation of capital into yet fewer hands (meaning that competition between capitalists also intensifies, both domestically and internationally). Most of the working class and other oppressed people will then be increasingly compelled to fight back just to survive, firstly through protests, strikes, etc.; but, probably once the economy collapses altogether, or to prevent or end wars, by building ‘dual power’ (a national network of workers’ councils (soviets), effectively a competing state.)

Every pound/dollar/euro etc. spent on the attacks on democracy and the working class is one that cannot be put towards capital accumulation, so the capitalist state will eventually exhaust its ability to go on the offensive — the economy will collapse and the state’s ability to buy fuel, or pay and feed its police, soldiers and state officials will dry up. At that point mass defections may become possible (as happened with the 1917 Bolshevik revolution, when even many high-ranking imperial officers defected). The greater the number of defections, the quicker and more peaceful revolutions will be.

When this could happen exactly is impossible to say, and there is some chance governments will be able to fire and rehire police and soldiers on reduced wages to a limited extent once states default on their debt; but there is already a long-term trend in states cutting the numbers of their police and soldiers significantly (CCTV and drones are cheaper), so this trend is likely to accelerate greatly.

Communists have to respond to spontaneous demonstrations etc. by helping to turn them into well organised movements with clear demands and capable of defending themselves. Since most workers are presently pro-capitalist to one degree or another, communists must use the ‘united front from above’ tactic of addressing reformist leaders in calls for joint action to address the members of reformist parties, supporting and fighting for reforms that improve the conditions of workers and/or minorities or at least limit the brutal and anti-democratic potential of ruling class attacks, in order to win them over by showing they are the ones willing to fight hardest for their rights and conditions. The more communists do this, the more they will expose the reformist leaderships as capitulators, and the larger their ranks will grow.

It is possible that communist parties will need to give critical support to left-wing social democrat governments (probably without entering them) at some point to show its supporters that even this solution cannot resolve the crisis in their favour. (The united front ‘from below’, where reformist leaders are not addressed, has always had far less success. Recommended reading: The Lost Revolution by Chris Harman.)

As outlined above, communist parties should also keep decent compensation packages on the table for expropriations of the last capitalists (most will have gone bust by then anyway), and allow them to keep their main houses, in order to minimise conflict as much as possible.

There is no such thing as a pure revolution and protracted wars should be avoided if possible both to save as many lives as possible and to limit the impact on the environmental and climate crises.

Speaking of which, how can socialism overcome the environmental and climate crisis if it promises even greater levels of production? Don’t we need less economic growth?

Since value-creation under capitalism is ever-more dependent on the exploitation of labour and expansion of commodities, growth under capitalism is increasingly dependent on the intensity of deforestation and intensive farming (which destroys the soil) and of mining fossil fuels and metals.

Under socialism exchange-value is created and measured according to labour’s usefulness, its utility, instead of its exploitability/profitability, meaning all labour becomes formal and productive of value, not just commodity production. (Indeed, under socialism commodities are no longer commodities, simply goods/utilities.) Socialism is therefore a higher mode of production, free of any inherent cause of economic contraction.

Because the labour intensity of extraction will no longer be absolutely necessary to create new value, this will therefore enable a transition from extractive production to, for example, hemp-based production, a green industrial revolution that is actually green. Hemp is the most prolific and versatile crop on Earth, but it has been prohibited because it threatened the more profitable extractive industries; i.e., because farming and processing hemp is not very labour intensive, and therefore relatively unprofitable.

Read more: ‘Socialism or extinction’ is a scientific fact, not just a slogan

Hemp can be turned into over 50,000 applications, including relatively clean biofuel; biodegradable bioplastic that can be made stronger than steel yet lighter than carbon fibre; paper at higher rates and quality than from trees, allowing reforestation; and computer chips and batteries that outperform graphene and lithium, seriously reducing the need for mining. Hemp grows quickly with little water, is drought resistant, heals the soil, and rapidly draws down carbon. It also sequesters that carbon indefinitely in the products it is turned into, including highly insular buildings made out of hempcrete that are carbon-negative.

A hemp-based industrial revolution would solve the plastic crisis without imposing some kind of indefinite and unenforcable asceticism on people.

This of course is only one solution. Banana peel can be made into sodium-ion batteries, for example. Scientists at MIT, meanwhile, have made solar panels from plants and grass.

Similarly to hemp, mycelium (a type of fungus) can be coaxed, using temperature, CO2, humidity and airflow, to rapidly build fibrous structures for things such as “packaging, clothing, food and construction — everything from leather to plant-based steak to scaffolding for growing organs” and even computers; all with minimal (mostly compostable) waste and energy consumption.

There is also the potential for micro-organisms to supply a near-infinite source of energy. In 2018, scientists in the US confirmed a theory first proposed by Soviet geologists when they found huge populations of bacteria living in the extreme temperatures of Earth’s crust, despite the lack of photosynthesis and nutrients, living solely from chemical reactions fuelled by geothermal energy. They estimated that up to 23 billion tonnes of micro-organisms live in this “deep biosphere”, making it the largest ecosystem on the planet and accounting for nearly 400 times the amount of carbon found in all living humans. Here lies a potential source of abundant energy (although we will have to assess whether the benefits outweigh the impacts of drilling).

Other scientists have even found that the Geobacter bacteria found in human waste can convert sewage into fresh water and produce electricity in the process. It is now thought that one day microbial fuel cells could power our phones, household appliances — and even spaceships.

Investment in microbial fuel cells will remain seriously limited, however, until value-creation is based solely on utility instead of exploitation and profit, since capital cannot exploit the labour time of microbes!

Emissions-free, energy-dense nuclear power, now one of the safest and cleanest form of energy production is also an option, although the impacts of the initial mining will again have to be carefully assessed. Increasingly unprofitable for capital, nuclear could be re-embraced to supply the abundant energy the masses need for cheap energy consumption (especially considering the rising demand for air conditioners in a warming world).

Hydroponics, permaculture and ‘carb-fixing’ (turning carbon emissions into basalt rock) are among the other practices that socialist states of the future should probably scale up. Meat, fish, leather and jewellery that is lab-grown on a mass scale will also smooth over the transition of decarbonising production and resocialising and reviving the land.

There will need to be hard limits on pollutants and fossil fuels during this transition, meaning we will have to make only what is absolutely necessary at first (rather than focusing on prohibiting consumption that is difficult and costly to enforce).

Consumption should also be made more efficient by incentivising, through tax breaks and rent reductions, a transition to communal ways of living (that embrace individuality and privacy), thereby pooling resources.

Ted Reese is author of Socialism or Extinction: Climate, Automation and War in the Final Capitalist Breakdown and The End of Capitalism: The Thought of Henryk Grossman (Zer0 Books, out May 2022).

Ted Reese is a Marxist economist and author of Socialism or Extinction (self-published) and The End of Capitalism: The Thought of Henryk Grossman (Zer0 Books)