Was Marx Right - Postcapitalism: A Guide to Our Future - Paul Mason

Postcapitalism: A Guide to Our Future - Paul Mason (2015)

Part I

Chapter 3. Was Marx Right?

In 2008 something bizarre happened to Karl Marx: ‘He’s Back!’ shouted a headline in the London Times. The German publishers of Marx’s Capital reported a 300 per cent increase in sales after a government minister declared his ideas ‘not so bad’. Meanwhile in Japan, a manga version of Capital went viral. In France Nicolas Sarkozy was photographed leafing through the French edition of Marx’s masterpiece.

The catalyst for Marx-mania was, of course, the financial crisis. Capitalism was collapsing. Marx had predicted it so he should be deemed right, or reappraised, or at least allowed some posthumous schadenfreude.

But there’s a problem. Marxism is both a theory of history and a theory of crisis. As a theory of history it is superb: armed with an understanding of class, power and technology, we can predict the actions of powerful men before they know what they’re going to do themselves. But as a theory of crisis, Marxism is flawed. If we are going to utilize Marx in the present situation, we need to understand his limitations - and the theoretical mess his followers got into as they tried to overcome those limitations.

These are not dead questions. The more Marx’s bearded face pops up in the panicked pages of mainstream newspapers, and the deeper the social catastrophe inflicted on the youth of tomorrow, the greater the chance becomes that they will try to repeat the failed experiments of Marx’s followers: Bolshevism and the forced-march abolition of the market. The premise of this book - that there is a different route beyond capitalism, and different means to achieve it - demands we deal with the Marxist theory of crisis here.

So what’s the problem?

Marx understood that capitalism is an unstable, fragile and complex system. He recognized that class gives different agents in the market unequal power. But Marxism underestimated capitalism’s capacity to adapt.

The man himself had witnessed only one global adaptation: the upswing of the second long wave in the two decades following the 1848 revolution. Tragically, by the time his followers were in the middle of the third long wave, Marxist economics had stopped evolving as an effective theory of systems.

In the end, three general features of complex adaptive systems were to challenge Marxism. First, such systems tend to be ‘open’ - that is, they thrive on contact with the world outside. Second, they respond to challenges by innovating and transforming in unpredictable ways, with each innovation producing an intricate new set of opportunities for growth and expansion within the system. Third, they generate ‘emergent’ phenomena, which can only be studied at a higher level than the workings of the system itself. For example, the behaviour of an ant colony might be a product of the ant’s genetic code, but it has to be studied as behaviour, not genetics.

Marxism was, in a way, the most systematic study ever attempted of emergent phenomena, but was constantly confused as to their nature. Only in the 1970s, when the idea of ‘relative autonomy’ arrived in Marxist economics, did the discipline begin to understand that not all layers of reality are a simple expression of the layers beneath them.

In this chapter, I will show how for the past 100 years capitalism’s adaptive nature has confused not only Marxism but the wider left. Yet the original insight of Marx’s Capital, which describes how market mechanisms lead to breakdown, remains not only valid but essential for understanding the big adaptations.

Marx’s theory of crisis, when properly understood, provides a better explanation than Kondratieff for what drives the major mutations - and why they might stop occurring. But the Marx we are concerned with here is a twenty-first-century imagination trapped in a nineteenth-century brain.


For the first eighty years of industrial capitalism, economists were pessimistic about its future. The classic economists - Smith, Say, Mill, Malthus and Ricardo - were haunted by doubts as to whether it would survive at all. The theme of their work was the limits to capital: the barriers to its expansion, the decline of profit, the fragility of stable growth.

At the centre of their disputes was the idea that human labour is the source of value and determines the average price of things. This is known as the ‘labour theory of value’, and in chapter 6 I will explain in detail how it helps us map the transition from capitalism to a non-market economy.

Marx spent his life trying to rectify flaws in the labour-theory, in order to explain the crises and breakdowns early capitalism had been plagued with. According to Marx, a fully fledged market economy creates inherent instability. For the first time in history, there is the possibility of crisis amid abundance. Things are made that cannot be bought or used - a situation that would have seemed crazy under feudalism or in the ancient world.

Marx also recognized a tension in economics between what is real and what we assume is real. The market is a machine for reconciling the two. The real value of things is dictated by the quantity of work, machinery and raw materials used to make them - all measured in terms of labour value - but this can’t be calculated in advance. Nor can we see it, because the laws of economics work ‘behind the backs’ of everybody involved.

This tension drives both the small corrections - as when the market stall has too much fruit at closing time - and the big ones, as when the US government is required to bail out Lehman Brothers. It means that when you study a crisis you have to look for what is wrong at a level deeper than the facts presented on the front page of the Wall Street Journal.

Marx argued that in fully fledged capitalism profits have a tendency to converge on the average. So managers - even as their minds tell them they are savagely competing with each other - actually create a discernible average rate of profit in each sector and in the whole economy, against which they set prices and judge performance. Then, via the finance system, they create an aggregate pool of profits into which investors can dip at fairly constant rates of return for any given level of risk. Though the finance sector was small when Marx wrote Capital, he grasped very clearly the way finance - in the form of interest - becomes the main mechanism for allocating capital rationally in response to average sectoral risks and rewards.

He also realized that the ultimate source of profit is work; specifically, the extra value coerced out of employees by the unequal power relationships in the workplace. But there is an inbuilt tendency to replace labour with machinery, driven by the need to increase productivity. Since labour is the ultimate source of profit this will tend, as mechanization spreads across the whole economy, to erode the rate of profit. In a company, sector or whole economy where increasing proportions of capital are invested in machinery, raw materials and other non-labour inputs, you are reducing the scope for labour to generate profit. Marx called this ‘the most fundamental law of capitalism’.

However, the system reacts to this threat spontaneously: it creates institutions and behaviours that counteract the tendency of the profit rate to fall. Investors switch to new markets where profits are higher; labour costs are driven down by cheapening consumer goods and food; managers search for new sources of cheap labour in foreign countries; or they produce machinery that costs less in labour-terms to make; or they move out of machine-intensive industries into labour-intensive ones; or they pursue market share (profit size) instead of margins (profit rate).

Marx identified the rise of finance as a more strategic counter-tendency: a proportion of investors begin to accept interest - rather than the outright entrepreneurial profit that comes from setting up a company and operating it - as the normal reward for owning large amounts of money. Entrepreneurs will still take one-sided risks, as private capital and hedge funds do today, but large parts of the system are geared to survive on low-risk, low-reward investments via the finance system - which Marx says allows capitalism to go on operating when profits are depressed.

We must be crystal clear on this: for Marx, these counter-tendencies operate constantly. A crisis happens only when they become exhausted or break down.1 That is, when you run out of cheap labour, or new markets fail to appear, or the finance system can no longer safely hold all the capital that risk-averse investors are trying to store there.

In summary, Marx argued that crisis is the pressure valve for the system as a whole. It is a normal feature of capitalism and a product of its technological dynamism.

It can be seen, even from this basic outline, that Marx is modelling capitalism as a complex system. Even when it looks stable, capitalism is not in equilibrium: there is a spontaneous breakdown process counterbalanced by numerous spontaneous stabilizers. Crisis theory explains when and why these stabilizers stop working.

Across the three volumes of Capital, Marx describes several forms of crisis. The first is an overproduction crisis, when too many commodities are chasing too little demand, leaving the profits generated in the production process unable to be realized by selling the goods. Marx also expected crises to emerge from the inefficient flow of capital between sectors: he lived through numerous crises where heavy industry had grown out of step with the consumer goods producing sector, leading to a recession until they rebalance. Then there is crisis triggered by the failure of the counteracting tendencies listed above, leading to a tangible collapse in the profit rate, an investment freeze, layoffs and falling GDP.

Finally, in volume III of Capital, Marx describes how financial crisis happens: credit becomes massively overextended, and then speculation and crime drive it to unsustainable limits where the bust inevitably overcorrects the boom - pushing the economy into a multi-year depression. In one evocative sentence Marx anticipated the world of Enron, Bernie Madoff and the wealthy 1 per cent. The main function of credit, he wrote, is to develop exploitation ‘to the purest and most colossal form of gambling and swindling, and to reduce more and more the number of the few who exploit the social wealth’.2 In 2008 it was the parallels between the collapse of finance and the famous passage quoted above that provoked the articles claiming Marx was right. Today, as the financial crisis recedes but real incomes stagnate across the Western world, people are once more saying ‘Marx was right’ - this time on the problem of overproduction, where profits and growth rebound but the workers’ wages do not.

However, Marx’s theory of crisis is incomplete. It contains logical flaws that took its supporters a long time to resolve, above all at the point where he tries to connect his abstract model to concrete reality. Furthermore, it is a product of its time: Marx could not take into account the major phenomena of the twentieth century - state capitalism, monopolies, complex financial markets and globalization.

In order for Marx to be right - that is, as anything more than a prophet who said ‘crisis is normal’ - we have to make the theory both internally coherent and consistent with the evidence. We have to fine-tune it so that it includes the features common to complex adaptive systems which it has struggled with: openness, unpredictable response to danger, and long cycles (which lie somewhere between a normal crisis and the final collapse). But even when thus corrected, a theory of cyclical crisis is not enough when faced with the survival-level changes we are exploring in this book.

In a famous line written in 1859, Marx predicted that ‘At a certain stage of their development, the material productive forces of society come into conflict with the existing relations of production … From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution.’3 But he never explained how the sporadic crises would - or could - create the conditions for the new system. It was left to his followers to fill that gap.

After Marx died, his supporters assumed that overproduction crises could not be alleviated for long by finding or inventing new markets. ‘There is a limit to the extension of the markets,’ wrote the German socialist leader Karl Kautsky in 1892. ‘Today there are hardly any other markets to be opened.’4 They expected short-term crises to gather momentum and snowball into total collapse. By 1898, the Polish socialist Rosa Luxemburg was predicting that, once the system ran out of new markets to exploit, there would be ‘an explosion, a collapse, at which point we will play the role of the syndic [administrator] who liquidates a bankrupt company’.5

Instead, as we know, the start of its third long cycle saw capitalism mutate. Its adaptive nature enabled it to create markets internally, even when the scramble for colonies reached a dead end. And it proved able to suppress aspects of the market for the sake of its own survival.

The doom premonitions of the Marxist left in the 1890s were proved false. They would first have to live through a massive upswing of capitalism, then through chaos and collapse in the years 1914-21. The impact would disorientate left-wing economics for the best part of a century.


By 1900 the world economy was in the grip of major change. Technologies, business models, trade patterns and consumption habits had been evolving rapidly side by side. Now they were fused into a new kind of capitalism.

What strikes us today is the audacity and speed of it all: steel replaces iron; electricity replaces gas; the telephone supersedes the telegraph; motion pictures and tabloid newspapers are launched; industrial output surges; spectacular steel-framed buildings appear in the capital cities of the world, and motor cars drive past them.

At the time, however, business leaders took all this for granted. What concerned them was the relationship between large-scale companies and market forces. If possible, they concluded, market forces should be abolished.

‘Competition is industrial war,’ wrote James Logan, the boss of the US Envelope Company, in 1901. ‘Ignorant, unrestricted competition carried to its logical conclusion means death to some of the combatants and injury for all.’6At the time, his company enjoyed near-total domination of the US market. At the same time Theodore Vail, the kingpin at Bell Telephone, warned that ‘all costs of aggressive, uncontrolled competition are eventually borne, directly or indirectly, by the public’.7 To relieve the public of such burdens, Vail himself would acquire every single telephone exchange in America.

Competition, argued the business magnates, brought chaos to production and depressed prices to the point where new technology could not be rolled out at a profit. The solutions were to be found at three levels: monopoly, price fixing and protected markets. The means to these ends were (i) mergers, fostered by aggressive new investment banks; (ii) the creation of cartels and ‘concerns’ to set prices; (iii) government-imposed restrictions on imported goods.

The United States Steel Corporation was formed in 1901 out of 138 different companies, immediately controlling 60 per cent of the market. Meanwhile, Standard Oil had 90 per cent of the USA’s refining capacity, and used its power so ruthlessly that it forced railway companies to transport oil at a loss. Bell Telephone enjoyed a total telecoms monopoly until the mid-1890s, and regained it in 1909 when JP Morgan teamed up with Vail to buy up the competition.

In Germany, where price-fixing cartels were politically encouraged and legally registered, their number more than doubled between 1901 and 1911.8 Just one of these cartels, the Rhine-Westphalia Coal Syndicate, involved sixty-seven companies, had the power to set 1400 different prices and controlled 95 per cent of the region’s energy market.9

To be absolutely clear, because it’s difficult to comprehend today, this was a system where supply and demand did not set prices: millionaires did.

By 1915, two industrial giants dominated the German electrical sector; the chemical, mining and shipping industries likewise each had just two dominant players. In Japan the whole economy was dominated by six zaibatsu, conglomerates that had begun as trading companies but evolved into industrial empires, vertically integrated around mining, steel, shipping and weapons with a powerful banking operation at the centre. By 1909, for example, Mitsui produced at least 60 per cent of Japan’s electrical engineering output.10

To create these massive companies, finance was organized in a new way. In the USA, Britain and France, the stock market and investment banks drove the process. In 1890 there were ten industrial companies quoted on Wall Street; by 1897 more than 200.11 In Japan and Germany, where industrial capitalism had been created ‘from above’ under authoritarian governments, finance was mobilized not so much through the stock market but via the banks, and even the state itself. Russia - the latecomer - would adopt a hybrid model, with much of its industry foreign-owned.

The Anglo-Saxon model and the German-Japanese model, therefore, looked very different, and that would provoke a 100-year-long debate over which was best.* But within each lay a variant of the same basic idea: finance took a controlling stake in industry, carving out monopoly positions where possible, suppressing market forces - and the state was directly allied to the whole project.

The market had, in short, become organized. Now it had to be protected. Alongside the scramble for colonies, the great powers threw up numerous tariffs on external trade, explicitly designed to promote the interests of their companies. By 1913, for example, most industrial countries were protecting their domestic industries with double-digit import taxes on manufactured goods.12 The monopolies, in return, placed key personnel inside governments. The ideology of the state as a ‘nightwatchman’, standing aloof from economic life, was dead.

The emergence of this new system was not crisis-free. In America, a mini-depression in 1893-7 accelerated the merger process; then in 1907 a financial crash corrected the over-valuation of stocks issued during the merger boom. Both Japan and Germany saw the process of concentration accelerated by short spasms of boom and bust in the 1890s.

But if we take the whole period from around 1895 through to the First World War, progress outweighed crisis: the US economy doubled in size in the decade to 1910, while Canada’s trebled.13 Even in Europe, where the boost from labour migration was not as great, Italy’s economy grew by one third in these ten years and Germany’s by a quarter.

This was the upswing of the third Kondratieff Wave. You can ‘read’ the results in the cityscapes of New York, Shanghai, Paris and Barcelona: the most enduring and beautiful public buildings - libraries, pubs, offices, even bath houses - are usually from the period between 1890 and 1914. The story they tell is clear: during the time we call the belle époque or the Progressive Era - a time of rapid growth, liberalization and cultural uplift - the world prospered not through the market but by the controlled suppression of it. Back then, this caused scant confusion for conservatives. The people it confused were the Marxists.


The task of updating Marxist economics fell to a 33-year-old Austrian doctor called Rudolf Hilferding. Hilferding was a classic intellectual of the belle époque: while studying paediatric medicine in Vienna in the late 1890s he threw himself into the economics scene, which had a stellar cast. Eugen Böhm-Bawerk, the economics professor who had written a famous critique of Marx, hosted seminars at which Hilferding would tough it out with, among others, Schumpeter, Ludwig von Mises - the founder of neoliberalism - and a Hungarian student, Jeno Varga, who would make his own spectacular impact later.

In 1906 Hilferding quit medicine and moved to Berlin to teach economics at the training centre of the German socialist party, which formed the intellectual powerhouse of the global left. In 1910 Hilferding gave the fusion of bank and industrial capital a name: ‘Through this relationship … capital assumes the form of finance capital, its supreme and most abstract expression.’14

His book, Finance Capital, would become the reference point for all left-wing debates on the future of capitalism for a century. Hilferding was the first Marxist to understand the scale of capitalism’s mutation. What is more, in the new structure many of the permanent features looked exactly like those Marx had listed as counter-tendencies to the falling profit rate: the export of capital, the export, via migration, of surplus workers to white-colonial settlements abroad, the pooling of profits via the stock market, the move away from entrepreneurship into rentier-style investing.

The finance system, which in the previous century had functioned as a puny redistribution centre for business profit and an unreliable source of capital, now dominated and controlled the business world. The counter-tendencies to crisis had become synthesized into a new, more stable system.

Hilferding argued that this new structure could suppress cyclical crisis. Big firms and big banks could survive for long periods on low or zero profits. And investors would rather accept prolonged stagnation than see a sudden crisis destroy firms like Siemens, Bell or Mitsui. As a result, crisis periods under finance capitalism would be long and stagnant rather than sharp and traumatic. Banks would suppress speculation because they understood its destructive power. Cartels would suppress the operation of market forces - and therefore crisis - for major firms, dumping the losses on less powerful sectors of the economy. Small firms would bear the brunt of any recessions, hastening their acquisition by monopolies.

For Hilferding, the forces of instability had not disappeared, but had been driven into a single sphere: the imbalance between the production and consumption-oriented sectors of the economy. He explicitly ruled out ‘under-consumption’ as a cause of crisis, pointing out that capitalism could always create new markets where old ones were exhausted, and thus go on expanding output. But the possibility remained that sectors would expand at different rates. Hence the need for state intervention to prevent such an imbalance.

Hilferding’s book was a massively influential reality-check for the left. It dispensed with the thesis of the ‘snowballing crisis’ as the trigger for social change; it introduced concepts and terms that Marxism would share with mainstream economics. And it said - earlier than Schumpeter - that the main driver of innovation was now the big company using applied science, not the entrepreneur tinkering in his workshop.15

But Hilferding’s book steered left-wing economics into a dead end. Though he described finance capital as only the ‘latest stage’ of the system, the implication was that it would be the last. A system in which finance capital dominates, he wrote, is the ‘supreme and most abstract’ form of capitalism and it can go no further:

The socializing function of finance capital facilitates enormously the task of overcoming capitalism. Once finance capital has brought the most important branches of production under its control, it is enough for society, through its conscious executive organ - the state conquered by the working class - to seize finance capital in order to gain immediate control of these branches of production.

Hilferding was a moderate socialist and would become more moderate as time went on. He believed capitalism would gradually evolve into socialism. His ideas, however, influenced reformists and revolutionaries alike. Both wings of the labour movement became wedded to the belief that socialism could be introduced by taking control of the state and the organized market. Finance capital was, as Lenin later put it, ‘moribund capitalism, capitalism in transition to socialism … already dying capitalism’.16 All that the socialists differed on was the kind of action needed to make it die.

What’s important is that Hilferding not only tied socialism to a project of state-led transition, but also that he effectively ruled out any further mutation of capitalism beyond the model established in the 1900s. And his basic theory remained influential well into our lifetime. As late as the 1970s you could argue that, though capitalism had survived longer than expected, it was still essentially a state-directed, heavily monopolized and national system. Left-wing workers could rationally believe that a world of state-owned airlines, steel mills and auto companies was stage two of the progression: free markets -> monopoly -> socialism.

This was the idea that died after 1989, with the collapse of the Soviet bloc, the rise of globalization and the creation of the fragmentary, marketized and privatized economy we see today. The progression Hilferding imagined, which had implicitly guided socialism for eighty years, has been broken and indeed reversed.

While it lasted, though, the doctrine of an inevitable linear transition - from Standard Oil to socialism - was all-powerful.


By 1910, when Hilferding’s book came out, social-democracy was influential in every advanced country. Its acknowledged nerve-centre was Berlin, and the work of its German-speaking leaders would be translated and discussed in the factories of Chicago, the gold mines of New South Wales and clandestine cells aboard Russian battleships. But even as workers digested Hilferding’s message, something rang false. Mass strikes were in progress, from the New York garment workers to the streetcar drivers of Tokyo and all points between. There was a war brewing in the Balkans. For a system that had supposedly become crisis-free, politically and socially there was turmoil.

Rosa Luxemburg, who had now replaced Hilferding at the Berlin socialist training school, began work on a massive book that would refute his stability thesis. Luxemburg had promoted mass strikes and attacked militarism - indeed, attacked Lenin for his elitist conception of revolutionary politics. Now she attacked Hilferding.

Luxemburg’s 1913 book, The Accumulation of Capital, was written with twin purposes: to explain the economic motivation for the colonial rivalry between the big powers, and to show that capitalism was doomed. In the process she produced the first modern theory of under-consumption.

By reworking Marx’s calculations she proved, to herself at least, that capitalism is in a permanent state of overproduction. It is forever beset by the problem of too little spending power among the workers. So it is forced to open up colonies, not just as sources of raw material but as markets. The military costs incurred while conquering and defending colonies have the added benefit of soaking up excess capital. It is, said Luxemburg, akin to waste or luxury consumption: it drains off excess capital.

Since colonial expansion was the only pressure valve in a system prone to crisis, Luxemburg predicted that once the entire globe had been colonized, and capitalism introduced across the colonial world, the system must collapse. Capitalism, she concluded, is ‘the first mode of economy which is unable to exist by itself, which needs other economic systems as a medium and soil. Although it strives to become universal … it must break down because it is immanently incapable of becoming a universal form of production.’17

Her book was immediately torn to shreds - by Lenin and by most of the socialist professors she had worked with. They argued, correctly, that any mismatch between production and consumption was temporary, and would be solved by capital investment moving from heavy industry to consumer goods. In any case, new colonial markets were not the only escape valve from crisis.

But Luxemburg’s book went on to become hugely significant. It introduced the idea of ‘final crisis’ into left-wing economics. It expressed the intuition felt by many activists that monopoly, finance and colonialism were, even amid the peace and prosperity of the 1900s, storing up an almighty final catastrophe. By the 1920s, under-consumption became the left’s main theory of crisis and - once things calmed down - provided its common ground with Keynesian economics for the next fifty years.

Luxemburg remains relevant because she identified something critical to the debate on postcapitalism today: the importance of an ‘outside world’ for systems that successfully adapt.

If we ignore her obsession with colonies and military spending, and instead simply say that ‘capitalism is an open system’, then we are nearer to acknowledging its adaptive nature than those who had followed Marx in trying to model it as a closed one.

What irked the socialist professors about Luxemburg was precisely this insight: that, throughout its entire history and as part of its essence, capitalism must interact with an outside world that is not capitalist. Once the immediate outside world is transformed - indigenous societies annihilated, peasants cleared from the land - it has to find new places to repeat the process.

But Luxemburg was wrong to limit this to the possession of colonies. New markets can also be created at home, not just by boosting the workers’ spending power, but by transforming non-market activities into market ones. And it is curious that Luxemburg missed this, for just such a transformation was going on all around her.

Even as she worked on her book, the first cars were coming off the Ford production line at Highland Park, Detroit. The Victor Gramophone Company was selling 250,000 machines a year in the USA. When she started writing in 1911, Berlin had just one dedicated movie theatre; by 1915 there would be 168.18 The spectacular upswing of the third long wave (1896-1945) was unfolding, above all, as the expansion of a new consumer market among the lower-middle class and skilled workers. Leisure, the ultimate non-market activity in the nineteenth century, was becoming commercialized.

Luxemburg had ignored the fact that new markets are formed in a complex way, interactively, and that they can be created not only in colonies but within national economies, local sectors, people’s homes and indeed inside their brains.

The real question posed by Luxemburg’s insight is not ‘what happens when the whole world is industrialised’, but what happens if capitalism runs out of ways to interact with an outside world? On top of that, what happens if it can’t create new markets within the existing economy? As we’ll see, this is exactly the problem information technology poses for capitalism today.


In January 1919 Rosa Luxemburg was murdered by a right-wing militia, her body thrown into a canal, following a failed insurrection in Berlin. Rudolf Hilferding died - either by suicide or torture - in a Gestapo cell in Paris in 1941. Between these two events, the economics of anti-capitalism were to become seriously disorientated.

Luxemburg had always opposed Bolshevism, predicting that if Lenin’s party took power in Russia it would end up ruling autocratically. But by the mid-1920s, with supreme irony, her theory had become the state doctrine of the Soviet Union. To understand why, and how the consequences still haunt the left, we have to understand what people lived through in the early 1920s - which was chaos.

The years 1919-20 saw the sharpest boom-bust cycle in history. Rampant inflation was followed by sudden hikes in interest rates, which produced a stock market crash reverberating from Washington to Tokyo. Mass unemployment and giant factories lying idle kept output levels well below those of 1914.

Amid this came events most socialists hadn’t dared dream of. The 1917 Revolution in Russia was just over a year old when workers’ republics sprang up in Bavaria and Hungary. Germany headed off a socialist revolution only through far-reaching reforms at the outset of the Weimar Republic, including the promise to ‘socialize’ the economy. The year 1919 saw the seizure of factories in Italy, strike action bordering on insurgency in both France and Scotland, general strikes in Seattle and Shanghai. All across the Western world, mainstream politicians had to face the possibility of revolution.

By now the left had more than just Luxemburg’s book to go on. During the war, both Lenin and the Bolshevik theorist Nikolai Bukharin had produced works inspired by Hilferding, each drawing the conclusion that finance-dominated capitalism was proof of the system’s imminent doom. Lenin called this new, declining model ‘imperialism’, and defined it as ‘capitalism in transition’. The scale of organization - by vertically integrated corporations, cartels and the state - meant that the economy was actually becoming socialized under capitalism: ‘Private property relations,’ Lenin wrote in Imperialism (1916), ‘constitute a shell which no longer fits its contents, a shell which must inevitably decay if its removal is artificially delayed, a shell which may remain in a state of decay for a fairly long period … but which will inevitably be removed.’19

Bukharin’s pamphlet, written in an all-night library in New York in 1915, went further. He asserted that, because nation states had become aligned with the interests of their dominant industrial companies, the only form of competition left was war.20

If these pamphlets were venerated on the left for decades it was because, though written by amateur economists, they told a story coherent with the data. Monopoly led to colonial conquest; that in turn led to total war - and war led to revolution. Financial dominance led to organized capitalism, which was ripe for takeover by the working class to run on socialized lines.

Both Lenin and Bukharin spent considerable time demolishing the idea that any new kind of capitalism could emerge, in which transnational cooperation could exist. It was the moderate German socialist Kautsky who’d had this brainwave on the eve of the First World War: he envisaged the creation of a single world market dominated by transnational corporations. But by the time his article ‘Ultra-imperialism’ was published, the war had begun and the whole issue might have seemed academic.21

But the Bolsheviks understood that Kautsky’s ultra-imperialism thesis was a major challenge to them. Their attack on it spelled out in clear terms that capitalism had reached its limits, that seizure of power at the first opportunity was necessary, and that all talk of the working class needing ‘more time’ to become better educated and more politically mature was wrong.

There was, in the Bolsheviks’ eyes, a clear dialectical progression - from free market to monopoly, from colonization to global war. Once this had taken place, their philosophical scheme could brook no further evolution: capitalism could not progress except to its own destruction.

By now, the whole far left had effectively accepted one of Luxemburg’s key proposals: crisis theory should describe the finality of capitalism - not its cyclical movement.

Between 1917 and 1923 both wings of socialism got to test out the idea that workers could use state power to socialize capitalism.

In January 1919, Hilferding joined the German government’s socialization commission in Berlin, which for four months attempted to nationalize and plan the economy. But the project collapsed at the design stage, after obstruction by moderate socialists and liberals in government. In Austria - a new country formed from the ruins of the Austro-Hungarian Empire - socialization was more successful. The Socialist-Christian coalition government pushed through a law allowing the nationalization of failing firms, but a socialist plan to take over the banking system was rejected. In the end, Austria was left with three significant state enterprises: a shoe factory, a pharmaceuticals plant and the arsenal of the Austro-Hungarian Empire, which the government tried to convert into a diversified manufacturing company. The fate of this project is best summed up by the man who tried to run it: ‘The problem before the newly founded corporation was to employ its men and machines in producing goods for which a market had yet to be created.’22

In Hungary, during the brief Soviet republic of 1919, Jeno Varga, a one-time acolyte of Hilferding in the Vienna seminars, became finance minister. He decreed that all businesses with more than twenty workers should be nationalized. All large shops were closed to prevent the middle classes buying luxury goods and using them as investments. Land was nationalized. Soon the Hungarian workers’ republic faced another problem. Factories needed managing, but the workers could not manage. Varga outlined the problem frankly:

The members of the works committees endeavoured to evade productive labour. In the capacity of controllers, they all sat round the office table … they sought to win the favour of the workers, through concessions in discipline, in the amount of work exacted, and in wages, to the detriment of the general interest.’23

The works committees, in other words, acted in the interest of workers and not of the commissars.

In Russia, the Bolsheviks had overcome such problems by introducing military discipline into the factories and abolishing workers’ control. Now they had a bigger problem: the economy was collapsing under the strain of industrial chaos, shortages and the refusal of peasants to supply grain to the cities.

In 1920 Bukharin outlined a solution: a detailed plan to move rapidly from this improvised system, known as ‘war communism’, to a permanent one of central planning across the entire economy. Lenin scrapped this a year later, as starvation and chaos forced the Bolsheviks to switch to a crude form of market socialism.

For decades, the leaders of pre-war social-democracy had insisted it was pointless to outline a plan for what they would do if they gained power. This was something everybody from the Bolsheviks to the moderates who ran the British Labour Party agreed on: their entire mindset had been created in opposition to utopian socialism, with its doomed experiments and dreams. They recognized that technological progress and business reorganization were so rapid in the run-up to 1914 that any plan locked in the drawer at the party HQ would be outmoded by the time it was needed. They knew they had to control or nationalize the finance system; they knew there would be a conflict between the needs of farmers and urban consumers, as you can’t satisfy both at once. But they showed very little forethought about the problem that would take down both the reformist and revolutionary versions of socialization: namely, the independent action of workers, pursuing their own short-term interests, and its conflict with the need for technocratic management and centralized planning.

From Varga’s recalcitrant works committees in Budapest to the Russian workers who insisted on self-control, or the Fiat workers in Milan who even tried to produce cars without the help of managers, this problem - workers control vs planning - would hit the socialist leaders as a total surprise.

If these early attempts at socialism failed, it is worth remembering that capitalist attempts at stabilization also failed. The peace deal of 1919 condemned Germany’s recovery to stall under the stranglehold of reparations. ‘In continental Europe,’ wrote a distraught John Maynard Keynes, shortly after storming out of the British delegation at Versailles, ‘the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or “labour troubles”; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilization.’24

With hindsight, we can see 1917-21 as a near-terminal social crisis, but as an economic crisis it was not inevitable; it was the result of poor policy decisions. For Germany it was the outcome of unpayable war reparations; in Britain and the USA it was caused by central banks setting interest rates too high, to choke off the 1919 boom. In Austria and Hungary it was the result of being hung out to dry at Versailles, with huge debts and no more empire to pay for them.

After 1921, the situation began to stabilize. Kondratieff, as we’ve seen, described 1917-21 as just the first crisis in a long downswing. But stabilization left the Marxists who had embraced the sequence ‘monopoly-war-collapse’ with nowhere to go. Capitalism, they assumed, remained on life support simply due to the immaturity of the proletariat, the unwillingness among workers to take power - plus tactical mistakes by socialist parties. Lenin allowed for the possibility of growth spurts in this or that sector, but not for the entire system’s survival.

But by 1924 Lenin was dead, Trotsky had been sidelined and Stalin was in control; Varga, who’d fled Hungary for Moscow, was his chief economist. Stalin did not need a theory to explain complexity - he needed a theory of certainty. The certainty of capitalism’s eventual collapse would justify the attempt to build what all left-wing economists said was impossible: ‘socialism in one country’ - and an extremely backward country at that. The basis for a theory of catastrophe had been laid in Luxemburg’s book but it needed more, and this was supplied by Varga.

‘Varga’s Law’ predicted the constant decline of workers’ real incomes. This, he wrote, ‘is the economic basis for the general crisis of capitalism … the absolute impoverishment of the working class comes to the fore’.25 Varga was explicit: the downward trend of mass consumption was a non-cyclical, general feature of the twentieth century and would, given time, destroy all support for reformist and liberal politics among workers. Instead of growth there would be, in Varga’s phrase, ‘decumulation’.

It’s hard to remember now how powerful such ideas became once they were spread by word of mouth across the kitchen tables of the working class. In the 1920s and 30s, Varga’s Law was a phrase routinely used by labour movement activists. It made sense of their own experience: wasn’t the whole strategy of British and French governments in the 1920s to enforce wage cuts? And when the collapse occurred, in 1929, didn’t the American government make things worse on purpose, in an attempt to drive down wages? Though completely wrong, the prestige of under-consumption theory soared.

Varga himself produced work of some subtlety in the 1930s. As a follower of Luxemburg, he remained aware that conditions in the world beyond the developed economies could impact on crisis dynamics - so he placed a heavy emphasis on the failure of agriculture in the colonial world as a factor suppressing economic revival in the West. As a result, the ‘authorized version’ of Marxist economics - inevitable and imminent collapse - was plausible. Even the Trotskyists, hounded by Stalin, were convinced of capitalism’s doom by the late 1930s, their leader insisting that ‘the productive forces stagnate’.26

In a global labour movement now dominated by the Moscow variant of Marxism, no possibility other than collapse was allowed.

Marx had tried to describe capitalism in the abstract: to use a minimum number of general concepts and work upwards from that towards an explanation of the complex, surface reality of crisis. So in Marx, the falling profit rate produces counter-tendencies at many levels of abstraction, both in the pure world of aggregated profits and the dirty world of colonies and exploitation. For Marx, while every real crisis has a concrete cause, the aim is to explain the deep process at work behind all crises.

But the first major structural mutation of capitalism could not be contained within this framework. Finance capitalism created a new reality.

In the 1900s, the attempt to understand finance capitalism inevitably pulled Marxist theory towards concrete phenomena: to questions of sector mismatches and low consumption, to the multi-sector economy, to real prices rather than the abstract amounts of labour Marx dealt in.

This focus on the ‘real’ led Hilferding to conclude the cyclical crisis was over, Luxemburg to move crisis theory to the terrain of collapse, Lenin to assume the irreversibility of economic decline. With Varga, we move from rationality to dogma: the least sophisticated of all the crisis theories becomes the unchallengeable doctrine of a merciless state, every communist party in the world becomes its emissary, and every left-wing intellectual for a generation gets taught utter rubbish.

Throughout the whole debate, the participants were haunted by its political implications in a way no social scientist should be. If Hilferding is right, said Luxemburg, then socialism is not inevitable. It becomes a ‘luxury’ for the working class. They can just as easily choose to coexist with capitalism, and - given their political consciousness - probably will. So Luxemburg was driven to search for an objective rationale for breakdown.

However, all forms of under-consumption theory have an Achilles heel: what if capitalism does find a way of overcoming the low spending power of the masses? By 1928, Bukharin was struck by the intuition that it had done so. Capitalism, he claimed, had stabilized in the 1920s - not temporarily, nor partially - and unleashed a new surge of technical innovation. The cause of this surge, he said, was the emergence of ‘state capitalism’ - a fusion of monopolies, banks and cartels with the state itself.27

With this, crisis theory had come full circle, back to the possibility that organized capitalism could suppress crisis. Bukharin’s misfortune was to say it on the eve of the Wall Street Crash, amid a factional dispute with Stalin. He was expelled from the party leadership and, despite an uneasy decade trying to coexist with Stalin and publicly recanting his former views, was executed like Kondratieff in 1938.


It was not until the 1970s that a solid body of academic work began linking the disparate parts of Marx’s theory into a usable whole. Despite the achievements of economists from the New Left generation in clarifying and rescuing the real Marx, the fundamental problem remains: to understand the fate of capitalism, and its major mutations, crisis theory is not enough.

There is, as Marx suggested, a process whereby labour is expelled by machinery; the result is a tendency for the profit-rate to fall. There is an equal tendency for falling profits to be offset by adaptation (the counteracting tendencies), and a cyclical crisis is what happens when these adaptations break down.

But Kondratieff shows us how at a certain point - when crises become frequent, deep and chaotic - a more structural adaptation is triggered. Because their economic model could not accommodate structural adaptation, Marxists in the early twentieth century had to describe this in terms of historical ‘epochs’, or philosophical categories such as parasitism, decay and transition.

In fact, the moment of mutation is fundamentally economic. It is the exhaustion of an entire structure - of business models, skill-sets, markets, currencies, technologies - and its rapid replacement by a new one.

It happens - in systems terminology - at the ‘meso’ level, between micro- and macro economics. Its scale locates it somewhere between the credit cycle and the doom of the entire system. Once the mutations are understood as likely and regular events, then any model of capitalism that treats them as accidental or optional is going to be wrong.

There is no form of crisis theory that can contain the whole phenomenon of system mutation, but crisis theory can describe what causes it in each specific case.

Modern crisis theory has to be macro-economic, not abstract. It can use abstractions to locate fundamental market mechanisms, as Marx does, but you cannot ignore the state as an economic force, organized labour, monopolies, currencies or central banks. Nor can you ignore the finance system as an accelerator of crisis, and - in the present context - the effects of financialized consumer behaviour, the instabilities injected by fiat money, which allows credit expansion and speculation on a scale nineteenth-century capitalism could not have withstood.

In this sense Hilferding, Luxemburg and the rest were not ‘bad Marxists’ when they began to move away from abstractions and towards the concrete facts: they were being good materialists. Their mistake was to assert that monopolized state capitalism is the only pathway to a postcapitalist system. We can be certain today that it is not.

Marxist economists have made perceptive contributions to our understanding of what happened in 2008. The French economist Michel Husson and New School professor Ahmed Shaikh have both demonstrated how neoliberalism restored profit rates from the late 1980s onward. But these show a sharp fall in the final years before the 2008 financial crisis.28 Husson argues, correctly, that neoliberalism ‘solves’ the problem of profitability - for both individual firms (by suppressing labour costs) and for the system as a whole (by massively expanding financial profits). But alongside higher profits, the overall rate of investment after the 1970s is low.

This conundrum of rising profits alongside falling investment should be the real focus for modern crisis theory. But there is a fairly clear explanation: in the neoliberal system, firms use profits to pay dividends rather than to reinvest. And in conditions of financial stress - obvious after the Asian crisis of 1997 - they use profits to build up cash reserves as a buffer against a credit crunch. They also relentlessly pay down debt, and in the good times buy back shares as a kind of windfall profit distribution to their financial owners. They are minimizing their exposure to being financially exploited, and maximizing their own ability to play in the financial markets.

So while Husson and Shaikh successfully demonstrate a ‘falling profit rate’ prior to 2008, the crisis is a result of something bigger and more structural. Its cause (as Larry Summers suggested in his work on secular stagnation) is the sudden disappearance of factors that had compensated for inefficiency and low productivity for decades.29

The determination to trace crises in general to one abstract cause, ignoring the structural mutation that was actually going on, was the original source of confusion in Marxist theory. This time around we have to avoid it. The account must be concrete: it must include the real structures of capitalism: states, corporations, welfare systems, financial markets.

The crisis that broke out in 2008 was not the result of a breakdown of this or that counteracting factor, or due to a short-term fall in the profit rate. It was the breakdown of an entire system of factors supporting the profit rate, called neoliberalism. Neoliberalism was neither a great boom nor, as some claim, a hidden period of stagnation. It was a failed experiment.


In the next chapter I will explain what led to this experiment. I will describe in detail how the fourth Kondratieff Wave unfolded between 1948 and 2008; what disrupted it and what prolonged it. I will propose that the impact of technology, and the sudden availability of a new outside world, created a break in the long-term pattern.

First we must establish - as a mental tool - a model of a normal wave. Kondratieff was right to warn that each wave, building on the next, creates a new version of the pattern. But only by distilling the essence of the first three waves can we see how the fourth diverged.

What follows is my ‘normative’ restatement of long-cycle theory, merged with what is rational about the Marxist understanding of crisis:

1. The start of a wave is usually preceded by the build-up of capital in the finance system, which stimulates the search for new markets and triggers the rollout of clusters of new technologies. The initial surge sparks wars and revolutions, leading at some point to the stabilization of the world market around a new set of rules or arrangements.

2. Once the new technologies, business models and market structures begin to work in synergy - and the new ‘technological paradigm’ is obvious - capital rushes into the productive sector, fuelling a golden age of above-average growth with few recessions. Since profit is everywhere, the concept of allocating it rationally between players becomes popular, as does the possibility of redistributing wealth downwards. The era feels like one of ‘collaborative competition’ and social peace.

3. Throughout the whole cycle, the tendency to replace labour with machines operates. But in the upswing, any fall in the profit rate is counterbalanced by the expanded scale of production, so overall profits rise. In each of the up cycles, the economy has no trouble absorbing new workers into the workforce even as productivity increases. By the 1910s, for example, the glass-blower displaced by machinery becomes the projectionist in a cinema, or the worker on a car production line.

4. When the golden age stalls, it is often because euphoria has produced sectoral over-investment, or inflation, or a hubristic war led by the dominant powers. There is usually a traumatic ‘break point’ - where uncertainty over the future of business models, currency arrangements and global stability becomes general.

5. Now the first adaptation begins: there is an attack on wages and an attempt to de-skill the workforce. Redistribution projects, such as the welfare state or the public provision of urban infrastructure, come under pressure. Business models evolve rapidly in order to grab what profit there is; the state is urged to organize more rapid change. Recessions become more frequent.

6. If the initial attempt to adapt fails (as it did in the 1830s, 1870s and 1920s), capital retreats from the productive sector and into the finance system, so that crises assume a more overtly financial form. Prices fall. Panic is followed by depression. A search begins for more radical new technologies, business models and new supplies of money. Global power structures become unstable.

At this point we need to factor in the concept of ‘agents’: social groups pursuing their own interests. A problem with the Schumpeter-inspired version of wave-theory is its tendency to obsess about innovators and technologies, and not see classes. When we look closely at social history, each ‘failed adaptation’ phase happens because of working-class resistance; each successful one is organized by the state.

During the first long wave, roughly between 1790 and 1848 in Britain, you have an industrial economy trapped within an aristocratic state. A prolonged crisis begins in the late 1820s, characterized by the factory owners’ determination to survive by de-skilling the workforce and cutting wages, and also by chaos in the banking system. Working-class resistance - the Chartist movement culminating in the General Strike of 1842 - forces the state to stabilize the economy.

But in the 1840s a successful adaptation takes place: the Bank of England gains a monopoly over the issue of banknotes; factory legislation ends the dream of replacing the skilled male workers with women and children. The Corn Laws - a protective tariff favouring the aristocracy - are abolished. Income tax is levied and the British state finally begins to function as a machine for the ruling industrial capitalists, not as a battleground between them and the old aristocracy.

In the second wave - which starts with Britain, Western Europe and North America but pulls in Russia and Japan - the downswing begins in 1873. The system tries to adapt through the creation of monopolies, with agrarian reform, an attack on skilled wages and by pulling in new migrant workers where possible as cheap labour. Countries move on to the Gold Standard, form currency blocs and impose trade tariff measures. But sporadic instability still plagues growth. The 1880s see the first mass workers’ movements. Though the movements themselves are often defeated, skilled workers succeed spectacularly in resisting automation, while unskilled workers benefit from the beginnings of a social welfare system. Only in the 1890s, as monopolies become fused with banks or backed by a liquid financial market, does a strategic change take place. A cluster of radically new technologies is deployed and - as in the 1840s - there is a step change in the economic role of the state. The state - whether in Berlin, Tokyo or Washington - becomes indispensable to maintaining optimum conditions for big monopoly companies through tariffs, empire expansion and infrastructure building.

Once more, it is working-class resistance that prevents the system adapting on the cheap, without technological innovation.

For the third wave, if we take 1917-21 as the start of the downswing, the system adapts by tightening state control of industry, and by trying to revive the Gold Standard. In most countries there is an attack on wages during the 1920s but they do not fall fast enough to solve the crisis. Then, once the Depression begins, fear of social unrest pushes each major country to pursue a competitive exit route: destroying the Gold Standard, creating closed trading blocs, using state spending to boost growth and reduce unemployment.

In emphasizing this, I am making what I consider a crucial addition to wave-theory: in each long cycle, the attack on wages and working conditions at the start of the downswing is one of the clearest features of the pattern. It sparks the class warfare of the 1830s, the unionization drives of the 1880s and 90s, the social strife of the 1920s. The outcome is critical: if the working class resists the attack, the system is forced into a more fundamental mutation, allowing a new paradigm to emerge. But in the fourth wave we found out what happens if the workers do not successfully resist.

The role of the state in creating the new paradigm is equally clear. The 1840s see the triumph of the Currency School economists, who impose sound money on British capitalism by insisting the Bank of England has a monopoly on issuing notes. In the 1880s and 90s, there is the rise of state intervention. In the 1930s, it is outright state capitalism and fascism.

The history of long cycles shows that only when capital fails to drive down wages and when new business models are swamped by poor conditions is the state forced to act: to formalize new systems, reward new technologies, provide capital and protection for innovators.

The role of the state in major transformations has been well understood. By contrast, the importance of class has been underplayed. Carlota Perez’s work on long cycles deals with workers’ resistance as a sub-set of the more general problem of ‘resistance to change’. For me workers’ resistance plays a crucial role in shaping the next long wave.

If the working class is able to resist wage cuts and attacks on the welfare system, the innovators are forced to search for new technologies and business models that can restore dynamism on the basis of higher wages - through innovation and higher productivity, not exploitation. In general, for the first three long cycles, working-class resistance did force capitalism to reinvent itself on the basis of existing or higher consumption levels (although the flipside was that imperial powers then sought ever more brutal ways to extract profits from the periphery).

In Perez’s account of long waves, resistance to the death of the old system is cast as futile. A line is drawn ‘between those who look back with nostalgia, trying to hold on to past practices, and those who embrace the new paradigm’.30

However, once you factor in class, wages and welfare states, working-class resistance can be technologically progressive; it forces the new paradigm to emerge on a higher plane of productivity and consumption. It forces the ‘new men and women’ of the next era to promise and find ways of delivering a form of capitalism that is more productive and which can raise real wages.

Long cycles are not produced by just technology plus economics, the third critical driver is class struggle. And it is in this context that Marx’s original theory of crisis provides a better understanding than Kondratieff’s ‘exhausted investment’ theory.


Marx’s theory effectively describes where the energy that creates the fifty-year wave comes from. If we strip away the false additions made by his followers, we can understand what was right about Marx, and where it fits with the fifty-year mutations we’ve described.

The falling profit rate and its counteracting tendencies can be assumed to operate throughout the fifty-year cycle. Breakdowns happen when the counter-tendencies become exhausted. In the immature capitalism of the nineteenth century, they were frequent - but always more frequent in the decline phase. Marx, for example, underestimated the possibility that working-class resistance to wage cuts could be a factor in triggering profit crises. However, the falling profit rate - fundamental as it is - now operates beneath layer upon layer of social practice designed to counteract it.

Kondratieff’s account - which said that the fifty-year cycles were driven by the need to renew major infrastructure - was far too simplistic. Better to say each wave generates a specific and concrete solution to falling profit rates during the upswing - a set of business models, skills and technologies - and that the downswing starts when this solution becomes exhausted or disrupted. The most effective forms of the solution during the upswing are the ones Marxist theory describes at a deep level within the production process: increased productivity, cheaper inputs, a rising mass of profits. Once the wave inverts and the solution’s downturn begins, it is the more contingent surface factors that tend to kick in. Can new markets be found outside the system? Will investors take a reduced portion of profit in the form of dividends?

The tendency of the rate of profit to fall, interacting constantly with the counter-tendencies, is a much better explanation of what drives the fifty-year cycle than the one Kondratieff gave. And once you meld the two, long-cycle theory becomes a much more powerful tool than the orthodox Marxist left suspected.

Put simply: fifty-year cycles are the long-term rhythm of the profit system.

An arrangement that allows for the rapid replacement of labour by machinery works for a while, generating expanded profits, and then breaks down. This is my alternative to Kondratieff’s ‘exhaustion of investment’ thesis.

As to financial crisis, it is always possible during the up phase of the long cycle (for example in the US panic of 1907) - but virtually certain during the down phase. As capital flows out of the troubled productive sector and into finance, it destabilizes the latter, leading to speculative boom-bust cycles. And across the first three long cycles capital became more financially sophisticated and complex overall.

A final observation concerns the need for capitalism to interact with a world outside to search for new markets for goods and a new labour supply. This is a crucial consideration in systems theory but is underplayed by Marxist crisis theory with its focus on closed and abstract models.

During the nineteenth century there was a ready internal market waiting to be developed within most capitalist countries provided that the agrarian economy could survive the shock of disruption. Likewise, an ample labour supply was on hand. But after 1848, adaptation also involved the search for external markets.

By the start of the twentieth century, the internal supply of labour was constrained - in part by the working-class resistance to child and female labour, in part by the birth-rate. As for new markets, by the 1930s virtually the whole world was cordoned off into closed trading blocs.

With the fourth wave, a substantial part of the world outside is initially closed off. Once the Cold War starts, about 20 per cent of the world’s GDP is being produced outside the market.31 After 1989 the sudden availability of new markets and a new labour force plays an important part in prolonging the wave; so does the West’s new freedom of action to shape markets in neutral countries that were formerly off-limits.

In other words, between 1917 and 1989 capitalism’s full potential for complex adaptive behaviour was suppressed. After 1989 it experienced a sugar-rush: labour, markets, entrepreneurial freedom and new economies of scale. On this basis, 1989 must - on its own - account for some of the phase-distortion story I am about to tell. But it cannot account for all of it.

The long-wave pattern has been disrupted. The fourth long cycle was prolonged, distorted and ultimately broken by factors that have not occurred before in the history of capitalism: the defeat and moral surrender of organized labour, the rise of information technology and the discovery that once an unchallenged superpower exists, it can create money out of nothing for a long time.