1972
David Yaffe - The Marxian Theory of Crisis, Capital and the State
(a) The possibility of crisis confused with its cause
There are many possibilities for disturbances and crisis-prone developments in the circulation process of commodities and capital. Marx discusses the circulation process of capital in Volume II of Capital, and many Marxists have assumed that the cause of crisis lies in the circulation process. In developing the general theory of accumulation and crisis Marx assumes that all commodities are sold at their value and that there are no disturbances in the process of circulation. Nevertheless the system is driven towards crises due to the overproduction of capital.
In his critique of Ricardo's theory of accumulation he drops the assumptions that there are no difficulties in the circulation process. He indicates the ever-present possibility of crises occasioned by the fact that the capitalist economy is not one of barter, the exchange of products against products, but one of monetary exchange. And, money is not merely a medium of exchange, but is a store of value (abstract general social labour) in its function as a means of payment.
Marx pointed to two crucial features of the exchange of commodities that contain within it the possibility of crisis. They are the separation of sale and purchase and the fact that money is used as a means of payment to bridge the separation. The commodity actually exists as a use-value and nominally exists, in its price, as an exchange-value. So it is that in the metamorphosis of the commodity the possibility of crisis exists. To realise its price, it must be sold. The possible difficulty of converting the commodity into money (C-M) of selling it, arises from the fact that the commodity must be turned into money, but the money need not be immediately turned into a commodity (M-C). Sale and purchase can be separated. No one can sell unless someone else purchases but no one need purchase because he has just sold. (Money can be hoarded.)
We now consider money as a means of payment. If a particular commodity cannot be sold for some reason or other in a particular time, the producer of that commodity might not be able to pay his debts, etc. This can mean that a whole network of mutual obligations and debts cannot be met, and therefore, the possibility of crisis exists. These are what Marx calls the formal possibilities of crisis. The first form is possible without the latter, that is to say, crises are possible without credit and without money serving as a means of payment. But the second form is not possible without the first, i.e. the separation of purchase and sale.[85] What is important for our discussion is what Marx said about these formal possibilities of crisis and how we are to regard them.
'The general possibility of crisis is the formal metamorphosis of capital itself, the separation, in time and space, of purchase and sale. But this is never the cause of the crisis. For it is nothing but the most general form of crisis, i.e. the crisis itself in its most generalised expression. But it cannot be said that the abstract form of crisis is the cause of crisis. If one asks what its cause is one wants to know why its abstract form, the form of its possibility, turns from possibility into actuality.
. . . The general conditions of crises ... must be explicable from the general conditions of capitalist production.' [86]
There are all sorts of factors that can precipitate the crisis and which appear to be their cause. Marx gave many examples such as crop failures, inadequate depreciation reserves for fixed capital replacement, changes in the turnover period of capital, changes in the channels of trade, etc. But all these factors which may precipitate a crisis and in so doing give its unique historical features are not its general cause which has to be sought in the conditions of capitalist production itself. [87]
An uninterrupted circulation process for an individual capital depends on the effectiveness of the process of capital circulation as a whole and the latter functions only under the conditions that satisfy the reproduction and self-expansion requirements of total capital. It is not possible to separate the circulation process from the capitalist production process as a whole. This is precisely the fault of the two main distorted versions of the Marxian crisis theory, namely, the disproportionality thesis and- the under-consumptionist thesis. The general features of these two positions will now be discussed.
(b) The disproportionality thesis
In discussing the reproduction schemas in Volume II of Capital Marx spoke of the fact that capitalist production in which money plays, not only a role as a means of a circulation, but also as money capital in the normal course of reproduction on either a simple or extended scale, engenders
'conditions which change into so many conditions of abnormal movements, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production' [88]
The disproportionality thesis rests upon an untenable interpretation of the reproduction schemas in the second volume of Capital. In these schemas Marx shows the necessary relationships that must hold between the two principal departments (that of means of production industries and means of consumption industries) if the process of simple and extended reproduction is to continue undisturbed. He attempts to show that the exchange relations between the two departments must be in accordance with regard to both their value and use-value side, if the equilibrium conditions of the reproduction of total social capital are to be maintained. He did not say that they could be maintained but indicated the conditions that would be necessary, in order to give a fuller understanding of the processes involved. In this sense, as Rosdolsky has put it, 'the reproduction schemas of the second volume can be regarded as a (provisional) solution to the so-called realisation problem'.[88a]
What Marx shows is that if certain conditions of proportionality in the exchange between the two departments are observed no over-production of commodities would occur and reproduction on either a simple or extended scale could carry on undisturbed. That is to say, the general cause of the capitalist crisis cannot lie in the circulation process. Neither the possibility of overproduction nor the impossibility of overproduction follows from the schemas themselves. That, in reality, there are many disturbances of equilibrium, is taken as given by Marx as we have already indicated. But these disturbances while they may appear to precipitate a crisis are not its cause. To show their cause we have to show how the possibility of crisis, how these disturbances and disproportions are turned into an actual crisis, how they become generalised for the total production process itself.
The reproduction schemas abstract from decisive elements of the capitalist production process. They are the increase in the organic composition of capital with the accompanying increase in technical progress and production of relative surplus-value. The normal progress of capitalist production will continually disturb the 'equilibrium' of proportional exchanges, and therefore, the relations between production and consumption that are indicated in the reproduction schemas analysis. What must be remembered is that these schemas are only a particular stage, represent a certain level of abstraction, in the development of Marx's theory. The production process and the circulation process, the problem of production and realisation, have to be seen within the total process of capitalist production as a whole and that means in conjunction with those contradictory tendencies of development that we have analysed earlier.
Various interpretations of the reproduction schemas have played a role in certain political struggles in the working class movement. It is interesting to see how the use (or misuse) of the schemas can have or have had, enormous political consequences. The Russian Legal Marxists, following the lead of Tugan Baranowski, as in the case of Bulgakov, and also the early Lenin, relied on these schemas in their arguments against the Narodniks. The Narodniks had claimed that due to the underdevelopment of Russia, the lack of 'internal' and 'external' markets, capitalism would not be able to develop. Against this the Legal Marxists and Lenin had argued that capitalist industrialisation was possible since a relatively faster growth of the means of production industries could be achieved by altering the proportional relationships in the two sectors. But as Rosa Luxemburg remarks
'the question was whether capitalism in general and Russian capitalism in particular is capable of development; these Marxists, however, proved this capacity to the extent of even offering theoretical proof that capitalism can go on for ever' [89]
The Russian Legal Marxists had stressed one aspect of the problem, that accumulation itself extends capitalist markets. They had in their polemic not found it necessary to argue that this development is a contradictory one, a limited possibility for a developed capitalism. But Rosa Luxemburg took her argument much too far-she denied that accumulation is 'possible' given the assumptions of Volume I and II of Capital [90]. She had failed to understand the level of abstraction of the models and had had to turn to a theory resting on `lack of non-capitalist markets' to justify, what had been a methodologically correct and revolutionary point of view.[91]
The arguments of the Russian Legal Marxists were very attractive to the German and Austro-German Social Democrats. First Hilferding, then Otto Bauer, and finally Kautsky took the reproduction schemas and suitably developed them in order to show that undisturbed accumulation can take place and that the law of the falling rate of profit would be superseded. Crisis could only be due to disproportionalities and these could be avoided by thorough planning. For example the idea of an economic breakdown of capitalism for Hilferding 'is no rational conception at all' [92] This is because 'In capitalist production both reproduction on a simple as well as on an extended scale can proceed undisturbed if only these proportions are maintained' [93].
The consequences of such views for a discussion of the role of the State in the capitalist economy are clear. A rejection of the revolutionary for the reformist view.
In Otto Bauer's model we have a rising organic composition of capital, but as Rosa Luxemburg pointed out, a constant rate of surplus-value. Despite this unlikely combination the model breaks down even according to his own assumptions. Henryk Grossman showed this in
critique of Otto Bauer's reproduction schemas. Bauer claimed that his schemas showed that undisturbed accumulation was possible but he only worked out the results of his schema for four years. Grossman continued it and showed that after a certain period, the system must break down due to lack of surplus-value [94]. What the theorists of disproportionality crises forget is that Marx shows the necessity of crises, of over-production of capital, assuming proportionality between departments. While disturbances and disproportionalities are a continual feature of the capitalist system of production they are only partial in their effect, and since they are always present, they cannot be the explanation of the crisis cycle. Before we leave this section we should mention the disturbances in the production process caused by the turnover period and renewal of fixed capital. With the progress of capitalist production, the mass of value contained in, and durability of, fixed capital increase. On the other hand, the real life-span of fixed capital is continually shortened by
'continuous revolution in the means of production, which likewise incessantly gains momentum with the development of the capitalist mode of production. This involves a change in the means of production and the necessity of their constant replacement on account of moral depreciation, long before they expire physically'[95]
Crises always form the starting point of large new investments and in that sense build a new material basis for the next turnover-cycle. This leads to an expansion that continues until the next downturn due to insufficient productivity in relation to existing capital. Though the life-span of fixed capital certainly influences the cyclical nature of capitalist production its impact clearly depends on the expansion of capitalist production generally and the tendencies that are inherent in that development.
(c) The unconsumptionist thesis
This position is really only an extreme version of the disproportionality thesis. It sees in the necessary disproportion of production and consumption the cause of capital crises. The underconsumptionist theories in their various forms have one central shortcoming in common. That is, they break the crucial connection between the production and circulation process and consider the latter independently and as the limitation of the former. Whether it is the lack of non-capitalist markets (Rosa Luxemburg), or the 'inherent tendency to expand the capacity to produce consumption goods more rapidly than the demand for consumption goods' (Paul Sweezy) or the lack of effective demand that dulls the incentive to invest (Joan Robinson and other left-Keynesians), it is the circulation process that finally is a limitation on the process of production. The last two cases either manifest themselves in a crisis (over-production of consumption goods) or in stagnation (idle productive resources are not utilised to produce additional capacity because it is realised that the additional capacity would be redundant relative to the demand for the commodities it could produce)[96].
Marx himself criticised very harshly all underconsumptionist theories known to him (especially Malthus and Chalmers). It is worthwhile examining briefly Marx's critique of Malthus because it indicates the failing of all under-consumptionist theorists to understand the nature of capitalist production. The problem derives from Malthus's theory of value. The value of a commodity is equal to the value of wages contained in the commodity plus a profit increment on advances made by the capitalist according to the general rate of profit. The latter is the price for the purchaser as distinct from the price for the producer, and the price of the purchaser is the real value of the commodity. The question is, how is this price to be 'realised', who is to pay for it? [97]. Mutual exchanges between the capitalist class do not really help and presumably additional accumulation only makes the discrepancy worse. There will be more commodities that need to be sold.[98] Malthus's solution to this problem was, of course, a growing class of unproductive consumers, 'buyers who are not sellers' who enable the capitalist to realise his profit and sell his commodities 'at their value'
'How these 'purchasers' come into possession of their means of purchase without giving any equivalent in order to buy back less than an equivalent with the means thus obtained, Mr. Malthus does not explain' (99).
Later Marx refers to this third class of purchasers as a deus ex machina as a class which transacted one phase of the circulation of commodities M-C, but not M-C-M, as a class which bought without selling [100].
Where do their financial resources come from? The critical point is out of surplus-value already produced. They are unproductive consumers and therefore increasing such consumption will detract from accumulation. The effect of increasing such expenditures considerably will therefore, accentuate the movement towards stagnation and the latent tendency of the rate of profit to fall will become an actual fall. Insufficient surplus-value will be produced to satisfy the profitability' requirements of the capital invested.
'If too large a part of surplus-labour is embodied directly in luxuries, then clearly, accumulation and the rate of reproduction will stagnate because too small a part is reconverted into capital' [101]
For Marx it is the discrepancy between material and value production. which leads to difficulties in the accumulation process. The crisis is an overproduction of capital in relation to profitability or, what amounts to the same thing, an under-production of surplus-value in relation to the growing mass of total capital.
'An overproduction of capital, not of individual commodities, signifies therefore an over accumulation of capital-although the overproduction of capital always includes the overproduction of commodities'[102]
The over-accumulation of capital is the cause of the over-production of commodities and the latter is not the limitation to the capitalist production process.
The under-consumptionists either view the capitalist system 'statically' and confuse effective demand with 'consumption' demand (wasteful or otherwise) or they view the system from its 'material' side only and we are faced with a 'potential' or 'actual' over-production of commodities. Now effective demand under capitalism is constituted by the consumption of workers and capitalists (wasteful or otherwise) the replacement of constant capital used up in the production process and by the additional surplus-value invested i.e. additional capital. It is this latter part, central to the accumulation process, that determines the capacity of the capitalist system to expand. This brings us finally back to the 'theory of the falling rate of profit' on which the explanation of declining profitability and the consequent halt in the accumulation process rests. As Marx's said so clearly in Capital:
'It must never be forgotten that the production of . . . surplus value and the reconversion of a portion of it into capital, or accumulation forms an indispensable part of this production of surplus-value-is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something which it is not, namely as production having for its immediate purpose the consumption of goods or the production of means of enjoyment, for capitalists. This would be overlooking the specific character of capitalist production . . . ' [103]
Joan Robinson's criticism of Marx in her Essay on Marxian Economics is quite consistent with her Keynesian position. She says in relation to the two famous passages in Volume III of Capital, that on superficial reading attribute to Marx an under-consumptionist position: 'Thus to clinch [Marx's?] argument it is necessary to show that investment depends upon the rate of profit and that the rate of profit depends, in the last resort, upon consuming power. It is necessary, in short, to supply a theory of the rate of profit based on the principle of effective demand.' And : 'The theory of the rate of profit is a red herring across the trail and prevented Marx from running the theory of effective demand down to earth' [104].
Where Marx differs from Keynes is precisely on the question of the falling rate of profit. It is not the propensity to consume or subjective expectations about future profitability that is crucial for Marx. It is the rate of exploitation and the social productivity of labour that are the key considerations and these in relation to the existing capital stock. While for Keynes the low marginal productivity of capital has its cause in an over-abundance of capital in relation to profit expectations [105], and therefore to a 'potential' over-production of commodities (the capitalist will not invest). For Marx the overproduction of capital is only relative to the social productivity of labour and the existing exploitation conditions. It represents an insufficient mass of surplus-value in relation to total capital. So that for Marx the crisis is, and can only be, resolved by expanding profitable production and accumulation, while for Keynes, it can supposedly be remedied by increasing 'effective demand' and this allows for government induced-production. That this has certain limitations will be part of our discussion in the next section. All that need be said here is that the increase of 'effective demand' and attempts to stimulate the 'incentive to invest' can only be successful if they lead to a 'restructuring of capital' towards a greater profitability. Whether government-induced expenditure can achieve this depends on the nature of, and effects of that expenditure in relation to the private capitalist sector. We have included the Keynesian 'effective demand' theory in our discussions of under-consumptionism because it has in common the belief that 'consumption' and therefore the circulation process are limitations on the process of production in spite of the recognition of investment as a central part of 'effective demand'. What remains in this section is to indicate that those passages in Volume III referring to the underconsumption of the masses in no way can be interpreted as an underconsumptionist theory of crisis.
The basis usually given for a `underconsumptionist theory of crisis' is Marx's statement that
'The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit' [106]
The above passage contains within it no more than a description or a restatement of the capitalist relations of production. Marx called it a tautology to explain the crisis by lack of effective consumption [107], and this supports our point. The limitation of the consumption of the masses is the precondition of the reproduction and self-expansion of capital. It is only another expression of the 'value' character of capitalist-production and is identical therefore with the contradictory basis of capitalist production, between the attempt of capital to expand itself without limit and the limited basis of that expansion, the working population. The following passage makes the point quite clear:
'Overproduction (of capital) is specifically conditioned by the general law of the production of capital : to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital without any consideration for the actual limits of the market or the needs backed by the ability to pay ; and this is carried out through continuous expansion of reproduction and accumulation and therefore constant reconversion of revenue into capital, while on the other hand the mass of producers remain tied to the average level of needs and must remain tied to it according to the nature of capitalist production' [108].
To conclude this section we end with a contribution from Engels, that perhaps makes the most incisive and clear attack on the underconsumptionist theory of crises:
'the underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes The underconsumption of the masses is a necessary condition of all forms of society based on exploitation, consequently also of the capitalist form; but it is the capitalist form of production which first gives rise to crises. The underconsumption of the masses is therefore also a prerequisite condition for crises, and plays in them a role which has long been recognised. But it tells us just as little why crises exist today as why they did not exist before' [109]
[85] Theories of Surplus Value Part II. p513-4.
[86] Ibid p515.
[87] For a similar view see Bernice Shoul op. cit. pp461-3 and Rudi Schmiede op cit, p. 166 ff.
[88] Capital Volume II p 495. See also his point about the disproportion between fixed and circulation capital - 'a favourite argument of the economists in explaining crises'-that must arise on the assumption of normal reproduction. Ibid, p 469.
[88a] Rosdolsky, op cit, p. 539
[89] Rosa Luxemburg Accumulation of Capital Routledge and Kegan Paul, 1963, p325.
[90] Rosa Luxemburg Anti-Critique in Imperialism and the Accumulation of Capital, ed K Tarbuck Allen Lane Penguin Press, 1972,p58.
[91] Thus Bukharin praised her for and showed that she had understood fully the importance of the crisis theory for the Marxist case. See N Bukharin Imperialism and the Accumulation of Capital, ibid, p268.
[92] Hilferding Das Finanzkapital 1927, p 471, cited in Rosdolsky op cit, p 574.
[93] Ibid, p318. See also Rosa Luxemburg's discussion of these positions in her Anti-Critique op cit, pp66ff.
[94] H. Grossmann op cit p99ff.
[95] Marx Capital Volume II p185.
[96] Paul Sweezy Theory of Capitalist Development op cit p 180.
[97] Marx Theories of Surplus-Value Part III p41.
[98] This kind of argument is put by Sweezy op cit pp180-2.. Also Baran and Sweezy Monopoly Capital, op cit, p. 82. Tony Cliff also argues in a similar way in his `underconsumptionist' version of the crisis. `In the final analysis all means of production are potentially means of consumption ... the relative increase in the part directed to accumulation compared with the part directed towards consumption must lead to overproduction. And this is a cumulative process'. See Tony Cliff 'Perspectives of the Permanent War Economy'. This version of the crisis becomes one of multi-causes in his Russia - A Marxist Analysis p163. Similarly Keynes implicitly held to this view. 'New capital-investment can only take place in excess of current capital-disinvestment if future expenditure on consumption is expected to `increase' and 'capital is not self-subsistent entity existing apart from consumption'. The General Theory of Employment Interest and Money, MacMillan & Co. 1964, p105-6. In all these theories overproduction and underconsumption are synonymous and this was emphatically not the case for Marx.
[99] Theories of Surplus-Value, Part III p.22.
[100] Ibid, p49-50.
[101] Ibid p.246.
[102] Capital, Volume III, p246.
[103] Ibid p.238-9 (Translation Kerr ed. P285-6)
[104] Joan Robinson op. Cit. p 50 and 51.
[105] Keynes op cit p136: 'It is important to understand the dependence of the marginal efficiency of a given stock of capital on changes in expectations because it is chiefly this dependence which renders the marginal efficiency of capital subject to somewhat violent fluctuations which are the explanation of the Trade Cycle'
[106] Capital Volume III. Moscow p.239-40 (Translation Kerr ed. p568)
[107] Capital Volume II, p410-1. See also Capital Volume III p239 where the same point is made.
[108] Theories of Surplus-Value Part II p534-5.
[109] Frederick Engels, Anti Duehring, Moscow 1969,p340-1.