Marx’s Theory of Crisis
Simon Clarke
Marx’s Theory of Crisis
Simon Clarke
Introduction: Marxism and the Theory of Crisis
Political Economy and the Necessity of Crisis
Marxist Theories of Crisis
The Impasse of Contemporary Marxism
Marx and the Marxist Theory of Crisis
The Theory of Crisis in the Second International
The Marxist Heritage: Engels's Theory of Crisis
Kautsky and the Historical Tendencies of Capitalist Accumulation
Kautsky's Theory of Secular Overproduction
Kautsky's Theory of Crisis
Bernstein's Challenge –- Reform or Revolution
Tugan-Baranowsky and the Necessity of Crisis
Hilferding and the Disproportionality Theory of Crisis
Competition and the investment cycle
The investment cycle and the crisis
Stabilisation and the necessity of crisis
Rosa Luxemburg's Underconsumptionist Theory of Crisis
Crises Associated with the Falling Rate of Profit
The Reformulation of Marxist Crisis Theory in the 1970s
Class struggle and capitalist crisis
Crisis and the law of the tendency for the rate of profit to fall
Class Struggle and the Rate of Profit
Is There a Marxist Theory of Crisis?
Engels's Theory of Crisis
Marx's Early Development of Engels's Analysis
The Dynamics of Capitalist Production and the Tendency to Crisis
The Theory of Crisis in the Communist Manifesto
The Early Theory of Overproduction and Crisis
Production, Circulation and Global Crisis after 1848
The Politics and Theory of Crisis after the 1848 Revolutions
The Historical Development of Capitalist Crises
Money, Credit and Crisis in the Notebooks of 1851
The Theory of Crisis in 1853
Revolutionary Hopes and the Crisis of 1857
Production and Circulation
Money, Crisis and Currency Reform
The Money Form and the Possibility of Crisis
The Transition from Money to Capital
The Self-Expansion of Capital and Overproduction
Production and Realisation
Marx's Theory of Crisis: One Theory or Three?
Disproportionate Production and General Overproduction
Competition and Disproportionality
Underconsumption and the Tendency to Crisis
Disproportionality and the Valorisation of Capital
The Tendency for the Rate of Profit to Fall
The tendency for the composition of capital to rise
The composition of capital and the formation of a relative surplus population
The composition of capital and the tendency for the rate of profit to fall
The tendency for the tate of profit to fall and the tendency to crisis
The Dynamics of Capitalism and the Tendency to Crisis
The Methodology of the Grundrisse and the Theory of Crisis
Underconsumption Theories: Malthus and Sismondi
Overproduction and Crisis: Say and Ricardo
The production of surplus value and the possibility of crisis
Disproportionality and general overproduction
The tendency to crisis and the critique of political economy
The contradictions of capital and the possibility of crisis
Money, credit and the possibility of crisis
Capitalist production and the possibility of crisis
Capitalist Reproduction, Disproportionality and Crisis
The Falling Rate of Profit and the Tendency to Crisis
The Critique of Political Economy and the Falling Rate of Profit
Is There a Tendency for the Rate of Profit to Fall?
The tendency for the composition of capital to rise
The rate of exploitation and the rate of profit
The Falling Rate of Profit and Relative Surplus Population
The Concentration of Capital, the Rate of Profit and Crisis
Internal Contradictions of the Law
The mass of profit, the rate of profit and the tendency to crisis
The rate of profit, crisis and the depreciation of capital
The falling rate of profit and the absolute overaccumulation of capital
Overaccumulation and crisis
What is the significance of FROP?
The Theory of Crisis in Capital
Politics and the Theory of Crisis
The Theory of Crisis in the First Volume of Capital
The General Law of Capitalist Accumulation
Labour shortage, wages and crisis
Crises and the historical tendency of capitalist accumulation
The Necessity of Crisis and the Periodicity of the Cycle
Fixed Capital and the Periodicity of the Cycle
Fixed Capital and the Problem of Reproduction
Credit and the Investment Cycle
Conclusion
Bibliography
Introduction: Marxism and the Theory of Crisis
Political Economy and the Necessity of Crisis
With every boom the apologists for capitalism claim that the tendency to crisis that has plagued the capitalist system since its very beginnings has finally been overcome. When the boom breaks, economists fall over one another to provide particularistic explanations of the crash. The crisis of the early nineteen nineties was the result of the incautious lending of the nineteen eighties. The crisis of the early nineteen eighties was the result of excessive state spending in the late nineteen seventies. The crisis of the mid nineteen seventies was the result of the oil price hike and the inflationary financing of the Vietnam war … the crisis of the nineteen thirties was the result of inappropriate banking policies … … . Every crisis has a different cause, all of which boil down to human failure, none of which are attributed to the capitalist system itself. And yet crises have recurred periodically for the past two hundred years.
Bourgeois economists have to deny that crises are inherent in the social form of capitalist production, because the whole of economic theory is built on the premise that the capitalist system is self-regulating, the principal task of the theoretical economist being to identify the minimal conditions under which such self-regulation will be maintained, so that any breakdown will be identified as the result of exceptional deviations from the norm.[1]
Even the most apologetic of economists cannot fail to notice that recurrent crises occur, but, developing the traditions of classical political economy, the economists explain such crises as contingent phenomena. The normal operation of the forces of supply and demand ensures that there is always a tendency towards equilibrium. This means that crises can only arise as a result of external shocks, which temporarily disrupt equilibrium, or internal disturbances, which impede or subvert the processes of market equilibration.
Within the framework of general equilibrium theory capital moves between branches of production in response to variations in the rate of profit which arise from imbalances between supply and demand.[2] This movement of capital is the means by which competition maintains proportional relations between the various branches, so that disproportionalities which might disrupt accumulation are evened out by the smooth interaction of supply and demand. Any crisis of disproportionality, such as that of the mid nineteen seventies, is then attributed to market imperfections, in this case the monopoly powers of the oil producers.
Within neo-classical theory the overall balance of supply and demand is maintained by the interaction of the rate of interest and the rate of profit. If there is a shortfall of investment the demand for investment funds will fall, leading to a decline in the rate of interest which will stimulate renewed investment. A stable monetary policy will ensure that equilibrium is maintained. In the classical world of the gold standard a deficit on the balance of international payments provided the prime indication of overheating, the outflow of gold and currency reserves forcing the monetary authorities to tighten monetary policy to rectify the imbalance. Similarly, the onset of recession led to an inflow to the reserves which permitted a more relaxed monetary policy. In the modern world the indicators of inflationary and deflationary pressures are more complex, but the principle remains the same. A crisis of overaccumulation, such as that which struck at the end of the nineteen eighties, is then the result of lax monetary policies which have stimulated inflationary and speculative over-investment.
For all their mathematical sophistication, the explanations of crises offered by today's economists are no different from those that were being put forward at the beginning of the nineteenth century. It was always recognised that a large external shock, such as a war or harvest failure, might precipitate a temporary disruption in the relations between branches of production, or in the international economic relations of the national economy, but the cause of such a crisis lies outside the capitalist system, and it was assumed that stability would soon be restored by the normal processes of market adjustment. Apart from such external shocks, the principal cause of crises was traditionally identified as the discretionary intervention of the government in the regulation of the economy. In particular, if the government sought to stimulate the economy artificially by printing money to finance its excessive spending, it would promote over-investment, which would lead to an inflationary boom. Eventually the boom would collapse as unsound and speculative ventures failed, requiring a period of recession to purge the excesses from the system. The cyclical alternation of boom and bust which has marked the history of capitalism is not, therefore, inherent in the capitalist mode of production, but is the result of the folly and irresponsibility of politicians.[3]
Keynes questioned the stability of the classical macroeconomic adjustment mechanism, but otherwise his work remained largely within the classical framework. Keynesian theory was able to explain the cyclical alternation of boom and slump that comprised what was known as the `trade cycle' or the `business cycle', but only to explain that this cycle was by no means inherent in the capitalist mode of production, but could be remedied by appropriate government policies. The implication of Keynes's critique was that stabilisation required the more active intervention of the government in pursuing contra-cyclical fiscal and monetary policies in order to maintain a macro-economic balance, but the fundamental purpose of Keynes's critique was to re-assert the harmony of liberal capitalism in the face of the threat of communist and fascist corporatism. For Keynesians, as for the classical economists, the tendency to crisis is not inherent in the capitalist mode of production, but is a result of the inadequacy of institutional arrangements and policy responses. The tendency to crisis can accordingly be overcome by appropriate institutional and policy reforms. After Keynes, as before him, the persistence of crises is testimony not to the deficiencies of capitalism but to the ignorance and irresponsibility of politicians.
After two hundred years of repeating this nonsense one would have expected that the economists would have begun to smell a rat. The economists' explanation of crises is as if a scientist were to deny that the recurrence of the seasons was a natural phenomenon, attributing the return of spring each year to the whim of a supernatural force. The theoretical problem is not to explain the particular causes of this or that crisis, any more than the task of the scientist is to explain the precise date on which spring arrives in any particular year. The task is to explain the regular recurrence of economic crises as a normal part of the developmental tendencies of the capitalist mode of production. This has been the task that Marxism has taken upon itself, in trying to prove that crises are not merely superficial dislocations of capitalist accumulation, but that the tendency to crisis is inherent in the social form of capitalist production.
The distinctive feature of Marxist theories of crisis is their emphasis on the necessity of crisis as an essential and ineradicable feature of the capitalist mode of production, that defines the objective limits of capitalism and the necessity of socialism. Rosa Luxemburg provided the classic statement of the role of Marxist crisis theory in her reply to Bernstein. `From the standpoint of scientific socialism, the historical necessity of the socialist revolution manifests itself above all in the growing anarchy of capitalism which drives the system into an impasse. But if one admits, with Bernstein, that capitalist development does not move in the direction of its own ruin, then socialism ceases to be objectively necessary.' If reforms can `eliminate or, at least, attenuate the internal contradictions of capitalist economy, … the elimination of crises means the suppression of the antagonism between production and exchange on the capitalist basis. The amelioration of the situation of the working class … means the attenuation of the antagonism between capital and labour. … There remains only one foundation of socialism –- the class consciousness of the proletariat … [which] is now a mere ideal whose force of persuasion rests only on the perfections attributed to it' (Luxemburg, 1899/1908, 58).
It is the Marxist theory of the necessity of crisis, of crisis as a necessary expression of the inherently contradictory form of capitalist production, which marks the dividing line between `reform' and `revolution', between social democracy, which seeks institutional reforms within a capitalist framework, and socialism, which seeks to create a fundamentally different kind of society. If crises are purely contingent, or if they merely mark the transition from one phase, `regime' or `social structure', of accumulation to another (Aglietta, 1979; Bowles, Gordon and Weisskopf, 1984), then socialism has no objective necessity and the socialist movement has no social foundation. If a reformed capitalism can meet the needs of the working class, the class struggle loses its objective foundation and socialism is reduced to an ethical ideal, which has no particular connection with the needs and aspirations of the working class, expressing a particular set of moral values which have no privileged class basis and have no more validity than any other.
The theory of crisis has a central role to play in the ideology of Marxism, and cannot be understood outside that ideological context. However it is hardly sufficient to defend the Marxist theory of crisis on ideological grounds. The Marxist claim to set socialism on `scientific' foundations rests unequivocally, as Luxemburg so clearly realised, on the scientific status of its theory of crisis. If the theory cannot claim such a status, it becomes merely an ideological prop to a variant form of ethical socialism. Thus, while an understanding of the Marxist theory of crisis can never be disengaged from its ideological and political context, it is equally important that it be evaluated on strictly rational scientific grounds. This book is concerned exclusively with the scientific evaluation of Marx's theory of crisis, but in full knowledge of the political and ideological significance of the issue.
Marxist Theories of Crisis
The theory of crisis has played a central role in the Marxist tradition, but at the same time it has been one of the weakest and least developed areas of Marxist theorising. The tendency to crisis provided the starting point for the early economic studies of Marx and Engels, and it was with the problem of crisis that Marx resumed his economic studies in 1857, but nowhere in his own work does Marx present a systematic and thoroughly worked-out exposition of a theory of crisis. At various times Marx appears to associate crises with the tendency for the rate of profit to fall, with tendencies to overproduction, underconsumption, disproportionality and over-accumulation with respect to labour, without ever clearly championing one or the other theory.[4] Engels consistently referred both to the contradiction between the tendency for capitalism to develop the forces of production without limit and the limited consumption power of the mass of the population, and to the anarchy of the market, in his explanation of the crisis tendencies of capitalism.
Crisis theory played a limited role in the Marxism of the Second International until the movement was split by the revisionist debates at the end of the nineteenth century. Karl Kautsky, the leading theorist of the Second International, separated the two aspects of Engels's account to provide a theory of the secular tendency to overproduction linked to a theory of crisis based on the anarchy of the market. This theory came under challenge from Bernstein, who denied the inevitability of capitalist breakdown and argued that cartels would overcome the anarchy of the market, and Tugan-Baranovsky, who denied the necessity of underconsumption.
In response to Bernstein's challenge the Marxists of the Second International tried to set the theory of crisis on more rigorous foundations. Although most participants in the debate did little more than reassert established orthodoxies, Rosa Luxemburg and Rudolf Hilferding laid the foundations for the subsequent division of Marxists into the camps of `underconsumption theorists' and `disproportionality theorists' of crisis. Initially the two theories were not incompatible, with underconsumption being considered to be a particular, and privileged, form of disproportionality. However, the division between the two grew progressively wider through the 1920s, until by the end of the 1930s Marxist orthodoxy had become unequivocally underconsumptionist, with disproportionality theory being condemned as a social democratic reformist deviation. In the Soviet Union Varga emerged as the high priest of underconsumptionist orthodoxy.
In the West the most sophisticated exposition of orthodox Marxist crisis theory was Paul Sweezy's Theory of Capitalist Development (1942), which surveyed the earlier debates, categorised the various theories, and developed a stagnationist theory which drew on Marxist underconsumptionism. This approach was brought to fruition in Paul Baran and Paul Sweezy's Monopoly Capital (1966), which synthesized Marx and Kalecki, and linked the `Keynesian' stabilisation of Western capitalism to imperialism, militarism and waste through which the growing surplus was absorbed or destroyed.