How Monopoly-Finance Capital Leads to Economic Stagnation

Nearly twenty years later, Sweezy, writing with Paul Baran, published their now classic study, Monopoly Capital, which was to have a strong influence on New Left economics in the 1970s. “The normal state of the monopoly capitalist economy,” they declared, “is stagnation.” According to this argument, the rise of the giant monopolistic (or oligopolistic) corporations had led to a tendency for the actual and potential investment-seeking surplus in society to rise. The very conditions of exploitation (or high price markups on unit labor costs) meant both that inequality in society increased and that more and more surplus capital tended to accumulate actually and potentially within the giant firms and in the hands of wealthy investors, who were unable to find profitable investment outlets sufficient to absorb all of the investment-seeking surplus. Hence, the economy became increasingly dependent on external stimuli such as higher government spending (particularly on the military), a rising sales effort, and financial expansion to maintain growth. Such external stimuli, as Sweezy was later to explain, were “not part of the internal logic of the economy itself,” falling “outside the scope of mainstream economics from which historical, political, and sociological considerations are carefully excluded.”

All of these external stimuli were self-limiting, and/or generated further long-run contradictions, leading to the resumption of stagnation tendencies. Sending capital investment abroad did little to abate the problem since the return flow of profits and other business returns, under conditions of unequal exchange between global North and South and U.S. hegemony in general, tended to overwhelm the outward flow. A truly epoch-making innovation, playing the role of the steam engine, the railroad, or the automobile in the nineteenth and early- to mid-twentieth centuries, might alter the situation. But such history-changing innovations of the kind that would alter the entire geography and scale of accumulation were not to be counted on and were probably less likely under mature monopoly-capitalist conditions. The result was that the economy, despite its ordinary ups and downs, tended to sink into a normal state of long-run slow growth, rather than the robust growth assumed by orthodox economics. In essence, an economy in which decisions on savings and investment are made privately tends to fall into a stagnation trap: existing demand is insufficient to absorb all of the actual and potential savings (or surplus) available, output falls, and there is no automatic mechanism that generates full recovery.

Stagnation theory, in this sense, did not mean that strong economic growth for a time was impossible in mature capitalist economies — simply that stagnation was the normal case and that robust growth had to be explained as the result of special historical factors. This reversed the logic characteristic of neoclassical economics, which assumed that rapid growth was natural under capitalism, except when outside forces, such as the state or trade unions, interfered with the smooth operation of the market. Stagnation also did not necessarily mean deep downturns with negative growth, but rather a slowing down of the trend-rate of growth due to overaccumulation. Net investment (i.e., investment beyond that covered by depreciation funds) atrophied, since with rising productivity what little investment was called for could be met through depreciation funds alone. Stagnation thus assumed steady technological progress and rising productivity as its basis. It was not that the economy was not productive enough; rather it was too productive to absorb the entire investment-seeking surplus generated within production.