William J. Blake: An American Looks at Karl Marx
We have completed the analysis of capitalist production, accumulation, and the divisions of surplus-value. From now on it is not the anatomy of capitalism that interests Marxist theory, it is its pathology. Not that Marx views crises as accidents or diseases under capitalism. For him they are a normal part of its functioning, a necessary mode of redistributing capital and realigning class relations. They are not disasters which can be avoided under that system. To use a vulgar analogy, they are no more a blemish on the capitalist system than excretion is on the divine beauty of Man. There would be no divine beauty if he did not excrete.
But it is a disaster, not from the viewpoint of capitalism but of its victims, that is, as a human catalogue of misfortunes. For this reason, and not in its own terms, it can be considered as an excrescence.
Frequency and Long Duration of Crises
Crises are recurrent and violent. The principal world crises have been the postwar depressions of 1816, then the first true capitalist smash, that of 1825, then in 1837. The British railway panic spread everywhere in 1846, the world crash of 1857 began in the United States of America. A financial panic began with the failure of the largest bill-discounting house in the world, Overend, Gurney & Co. of London, in 1866. A six-years’ panic began in 1873 in Philadelphia and Vienna. The stagnation of 1885, the Baring Brothers crash from overextension in the Argentine that affected one country after another from 1890 to 1897, the minor panics of 1900, the American financial crash of 1907 that stagnated Europe till 1912, the terrible deflation crack of war-inflation prices in 1921, and finally the crowning event of 1929 (the worst of all, however measured). From the last there has been no complete capitalist recovery in the old sense, only a farrago of inflation, armament, and other dodges superimposed on a smaller natural comeback.
This long history of disaster has nothing to do with the progress of industry. While these panics went on their gruesome way, taking up half the time of mankind, and more recently most of it, the wealth of the world has gained at a rate never before paralleled or even suggested. What is the nature of these eruptions that leave the volcano higher and higher?
The theory of crises has ranked next after the speculations on currency and credit as the happy hunting grounds of economists and crackpots. The schools devoted to “Konjunktur” studies, as the Germans call industrial cycles, have led to the formation of institutes for their study, and these have piled up a mass of statistics that would frighten the boldest. America, under Wesley C. Mitchell, has led in the detailed study of their behavior, and in the climatological theories, such as that of H. L. Moore.1 Overproduction has its disciples, so has underconsumption, and the credit schools are populous.2 The Marxian position here is the most celebrated, despite this wealth of competitors, and it is the essence of the prophetic economic theory of Marx. It is his rationalized scheme of the Apocalypse, like the Book of Ezekiel in the Old Testament.
The Progress of a Crisis
How does a crisis act? Commerce is reduced to small proportions. Markets are glutted. Products are stocked up for they are unsalable. Everyone wants hard cash and there is none about, it is secreted. Credit becomes extinct and those who have extended too much are in trouble. The fictitious values of goods and shares of stock tumble into any abyss. Everyone is “poorer.”
Factories close down; the people are in want because there is too much around. The coal miner freezes because there is coal, the clothing worker shivers because the shops are full of suits. No one has the means of subsistence because he has produced too much. Finally there are bankruptcies and the hard-cash men buy up the effects of these poor devils for a song.
It takes years to recover. Productive forces go to waste and finally, after a long period, there is a faint and gradual revival of business, and then everyone sees the possibilities of money again and they speculate and go wild and it all happens again when the bubble bursts. This circus has been going on for one hundred and twenty years.
Every Crisis Is the Last
Every crash is the last, according to the philosophers in fashion during the succeeding boom. After 1857, everyone said that the disturbances due to sudden gold discoveries could never recur. After 1873 it was said that the railroad developments of the American West that brought on the crisis were over with, that American industry was mature.
When Baring’s crashed in 1890, it was said that the development of the Argentine represented the end of the growing pains of capitalism, the economy of the world was developed and in reasonable balance thereafter.
The panic of 1907 in America led to bank failures and a shortage of credit instruments. The Federal Reserve Bank was founded. Now all was well.
In 1921 the commodity structure of the earth came tumbling. Then from 1924 to 1929 America made a startling recovery and the values of its meanest huts were expressed as patined gold and all paper became precious. The theoreticians of the prosperity buried Karl Marx, that exploded thinker, and pointed out that Ford’s rationalization of industry had produced a permanent prosperity.
The systematized inanities of Herbert Hoover gave countenance to this recurrent illusion. The crash of 1929 finished all that.
And now, especially in England, that a series of tricks based on exhausting her historic reserves to sustain a hysterical front, has given five years of respite, the theorists in London, like mushrooms after rain, have come up to show that these manipulations are purposeful and can avoid any future disaster. They are wrong. The next panic will rival all previous ones and may even be more serious. They got deeper and deeper and the recoveries shorter-lived and less convincing.
To the honor of Marxist thought, whatever may be our opinion of its theory of crises (the attacks on it will be given in the Critical Section), it has never fallen a victim to such illusions. The prophecies of the shape and scope of crises in Marx and Engels have been fulfilled in uncanny style. Its opponents may assail their deductions of inevitable and ultimate disaster, but on the intervening phenomena Marx can stand vindicated. But this does not mean that the mechanisms he assigns are correct. That is the central theoretical issue.
How Crises Appear to Originate
Crises manifest themselves first, or rather are seen most vividly, in the sphere of money, credit, and stock speculation, and for that reason it is in the sphere of circulation and not in the inherent position of the process of production that the cause of crises is often sought. The Marxian analysis makes credit contraction or expansion a mere symptom, and the periodic changes of the industrial cycle a cause. Circulation, exchange, distribution, credit, reflect the movement of capitalist production.
Prices are the instrument by which a manufacturer knows that there is a slackened demand for his goods. Stock Exchanges are sensitive instruments, as are bankers, for ascertaining the onward movement of prices. Their discovery of something wrong in the industrial cycle is manifested in their hesitations, in their selling. Since the production crisis first appears because of their acting on their recognition of it, crises have been supposed to originate because of their behavior due to that recognition. If this were not so, the actions of capitalists would appear either as capricious or (and this is a favorite theory) as merely a mass psychosis to realize paper values, which defeats its own object, since all values are “subjective.”
Minor Crises May Be Derived from Secondary Causes
Not that there are not genuine money crises. But these are partial crises, due to overlending and overspeculation; if the industrial situation is sound they are soon rectified, leaving but little trouble in their wake. There are local crises such as land speculation smashes, as in Florida in 1926, and still this was followed by a three-years’ general boom. What we are dealing with is general, enduring, industrial crises.
Crises Caused by Relative Overproduction
Prices fall when there is a relative excess of commodities produced, that is, relative to the purchasing power of the population. Since labor receives the means of subsistence to maintain itself at a given level, any amount of surplus production could, at a certain time, surpass the possibilities of purchase. The factors of growth, such as new capital, foreign markets, etc., defer this contradiction for long periods, but it must eventuate at some time, because production is based on the antagonisms of classes, and the poor are expected to buy but not to receive proper wages with which to buy.
Crises under capitalism are brought about by relative overproduction. That is not an overproduction theory. It is an overproduction determined by the production of commodities not for wants but for profits and in a class relation based on exploitation.
The proof that it is a relative overproduction, not a physical one, is that customers everywhere languish for the want of goods that are present in abundance, in fact in more abundance than ever. Yet society acts as though there were a famine and their supplies cut off by a siege. For the Marxist this means that the conditions of capitalist production are too narrow to contain its productive possibilities.
On the contrary, in order to remedy the crisis, the productive relations themselves are diminished. Factories close down, machinery rusts, whole businesses are dissolved, superseded, scrapped. Why is this productive power lessened? Because it produces!
Capital can no longer turn its means of production into new capital. The industrial reserve army is demobilized and does nothing. Abundance prevents the transformation of means of production and subsistence into the only purpose of production, to increase accumulation. There has been too much accumulation; no one can use more. Labor-power is no longer “worth” purchasing. Where there is no transformation into capital the worker is deprived of producing for his own subsistence. The motivation of capital is not to provide his subsistence but its own self-expansion. To achieve that self-expansion it must convert its former products into money. No sales no money, no money no purchase of means of production, nor of labor-power. The crisis is on.
Once productive forces have been diminished and new markets conquered, as in colonies or backward countries or areas, and old ones are more thoroughly exploited, prosperity is restored, that is, by restoring all the conditions that led to the first crisis, but on a different and usually a more destructive basis.
Criticisms of Relative Overproduction
The Marxian thesis has been subject to a running fire. Sombart, the most encyclopedic and literary of German economists, thought that crises have never been so severe as that of 1857. But he wrote before the World War, and his last editions were before 1929.
Marx’s theories arise out of the analysis of a competitive society. Many economists have held that today the world is trustified, and that monopolies and cartels can prevent competitive breakdowns. This is another form of the theory of “organized capitalism” that gained currency before 1929. It does not appear to be so easily sustained a hypothesis at the moment. We are not here reviewing the innumerable crisis theories but the special points made against Marx.
The principal critique of Marxian theory is that it ignores the constituent element in production. That is to say, Marx speaks of a crisis in commodities as a general thing, and then measures this breakdown against the class contradictions in production, as an inherent development that can never be circumvented. But how can there be such a thing as general production? Too many shoes may be produced and too many drawing crayons and too many crops of broccoli, but what are commodities? A summary of an almost unlimited variety of goods.
Thus a crisis may arise by a want of proportion between various industries. Were these proportions planned by a national planning council, even under capitalism, there would never be disturbances in proportionate consumptions of goods and so there would be no originating price breakdowns which bring about weakness and cause general disturbances. The two most conspicuous socialist critics of Marx, the Austrian Hilferding, and the Russian Tugan-Baranowski, have maintained this type of socialist reply. For, be it noted, these critics assume the truth of the Marxian theory of surplus-value, unlike the academic opponents of Marx.
Analysis of Trades-Disproportion Theory
Let us separate goods first into their basic market appearance. They are means of production and means of consumption. But the object of means of production is to furnish means of consumption, to sell goods at a profit to consumers. Buildings are built to house workers, who in turn work in factories or shops or stores or on railroads. Every machine is produced to make some object, like chewing gum, and the persons engaged in this work buy means of subsistence.
But if a certain number of means of consumption do not find a market then the planners would switch to manufacturing ladies’ hats instead of stockings and shift the workers from stockings to hats with loss to the stocking manufacturers. Well, that is just what a crisis does anyway. Its job is to wreck the over-extended lines and by trial and error, with much rumbling, discover the profitable lines.
But the planners hope to do this without loss. Well, then, they must compensate every producer who goes wrong, so as to limit disturbances and yet make for proportionality. So, if the consumption industries, to the extent of twenty of them, are overextended, these capitalists, so as not to disturb the equilibrium, must be financed into other enterprises. The principal business of the world would soon be to enter into business in order to be compensated. And who would pay for this compensation? The solvent industries? The successful businessmen to be forever mulcted for the sake of the idiots? Stupidity to be garnished with premiums and intelligence bludgeoned with penalties?
And if this is done, what right have businessmen to a profit? No risks, why rewards?
That this nonsense imposed on socialists shows how deep is the natural desire of men not to espouse violent remedies but to seek moderate ones, even at the cost of ordered thought. Actually the important diminution of demands in the sphere of consumption must reduce the purchase of means of production and bring about a panic. There is no way out, save for short intervals, and these only postpone the crash and make it that much worse.
There are far more profound replies to trades disproportionality, but these suffice. It is not from dissenting socialists that Marx will meet his answer
Underconsumptionist Theory
Another critique has been that of the underconsumptionists. Engels’s celebrated reply is that mankind has underconsumed from the days of the Pharaohs and yet world panics began only in 1825. They are capitalist phenomena, not human misfortunes.
As a matter of fact the consumption of goods is at its height right before a crisis breaks out. More than that, employment and wages are at their best levels at the height of a boom, right before the panic begins. High wages do not stop crises; employment does not stop them; larger consumption cannot prevent them.
For Marx all consumption theories are nonsense. The production process, by its antagonisms, alone provides the mechanism of crises. Changes in consumption are a consequence of these production disturbances, but not a cause, except as a secondary cause, a consequence that reacts on its original cause.
The Positive Theory of Crises
We have not yet dealt, except by implication, with three principal points:
(a) Why do crises break out only at certain intervals?
(b) Why do they break out only under capitalism and not merely in earlier forms of commodity production?
(c) Why are they compatible with the continued growth of capitalism; what services do they perform for capitalism?
To begin with, the system of commodity production does contain the possibilities of a crisis, but only that. Since a seller need not purchase but can interrupt circulation by not re-entering the market, there is already implicit the possibility of a stoppage of trade. But that was true in 1700, and still there were no crises. Every purchase and sale creates all sorts of dependent relations; one sale determines a host of future sales and purchases.
But now let us see what happens when the seller has to wait for his money. Each seller is dependent on his buyer’s making good at a future time. He engages himself to buy goods on the assumption that he will be so paid. If that does not happen, a row of orders come tumbling down like a file of wooden soldiers. And as each cannot realize his bills, since he depended on the others, you have a crisis. It is not as simple as all that. A few canceled sales would not do this, but enough cancellations to injure the possibilities of numerous sellers would. So that the interruption of the primary commodity situation, purchase and sale cycles, is the condition without which crisis would never occur, but the credit machinery is the mode by which this possibility is carried out. But even this is a mere beginning.
Capitalism adds some new complexities. Labor-power becomes a commodity and it, like any other commodity, has to be bought and paid for. Production is split up into numerous industries, some large, some small. For all that the machinery of commodity economy, of the hiring of labor, of capitalists supplying each other, of their depositing together, and selling on credit on the bases of their mutual business, makes each of these scattered private units dependent on each other to a marked degree.
Unless wool is obtained from Wyoming, the Massachusetts woolen industry cannot go on. If the machinery company does not supply it, it cannot expand. The machinery company must receive its metal from the steel companies, and so on. Hence the mere possibility of a crisis is dangerously near to reality.
For all the producers are really partial producers of total social products. There are no producers of totalities, in the way in which even a medieval small town was self-contained (together with its surrounding countryside). This partial production is assisted by mutual dependence on credit, and on the need for money with which to acquire expanded capital, and so the possibilities of crisis are enlarged.
Productive Forces vs. Private Appropriation
For Marx the crisis begins in the collision or conflict between productive forces (for creating use-values) and production relations which are specific to capitalism. That is, goods are produced socially, appropriated privately. In early commodity production there was not the web of mutual interdependence, on a world scale.
Social labor becomes more socialized, the number of important capitalists tends to diminish, but production is all in one social stream. But each capitalist decides for himself what part he is to play in this involuntary social production.
And, since no capital can stop expanding, it follows that one has an endless chain of developments but each of these unlimited processes must jibe with other unlimited processes of other capitalists. There must be room for all, but none knows which room is wanted.
When capital is transformed into money, then that circulation can know no limits. Soon production—with every competitor driven to do his utmost to increase his profits, or even to hold his ground—expands without reference to consumer limits, until it is violently checked by finding that it has produced without being able to dispose of production.
Indispensable Prerequisites of Crises
Every capitalist determines his production by his reinvestment or accumulation and strives to increase that production by that sign. As long as he can sell he will never stop, and that goes for every competitor. Therefore, for real possibilities of crises one must have a self-expanding capitalist system, based on large purchases of labor-power and using a complex credit and selling system, and in mutual interdependence due to specialization of each, and this interdependence must embrace a wide area. These are the specific conditions required.
But this does not provide the fuse, only the bomb. The chase after profits requires more efficient techniques, that is, more refined and successful methods for getting the most out of labor-power. To increase capital one must increase profits, and for that one must augment productivity, so that, as Engels says, finally production is carried on with a frenzy that indicates that two billion new customers were just discovered in the moon.
Relative Growth of Capital to Labor-Power Purchased
But these productive forces of capital, that grow extensively and intensively, lead to a relative decline in the demand for labor-power. To the extent that each worker grows more productive, he assists in superseding the activities of his class. The increasing size of capital is accompanied by a relatively (not absolute, of necessity) smaller number of workers.
The struggle to reduce wages continues, despite the fact that wages are really much lower in terms of productivity. But even where, as in moments of boom, wages increase, that increase lags relatively more and more behind productivity.
That is why the underconsumption theories, by themselves, are meaningless. It is the contradiction of capitalism, the relative growth of capital as more than that of labor-power and of its pay, that creates the dangerous discrepancy. Hence the productive powers of capitalism are hampered by the widening space between capital growth and the lag of labor. How can the productive forces go on when this gap widens?
They cannot. That accounts for the crisis breaking out only at definite periods, that is, when all these conditions are fulfilled.
We now know why it requires a high capitalism and also why capitalism requires intervals in which to develop the discrepancies out of its own inner needs for expansion. It is because these discrepancies are the very means of its increasing capital, and that capital expansion comes to a dead stop when the volume of goods (which are to be sold to continue that expansion) cannot be disposed of. Its own meat is its own poison. It lives on the contradiction of labor, but it sickens from it.
Credit and Speculation Assist Relative Overproduction
There are subsidiary factors, too. Money is cheap during a boom. Everyone wants to lend to firms that can show increasing profits and reserves. Brokers’ offices are crowded with dopesters reading statistical cards on companies that have a curve ascending to the throne of Jupiter.
The banks lend freely, they lend all they have, and very often they are driven by their enthusiasm to grant book credits beyond their real resources. Everything is marked up in terms of everything else. They own securities and these go up as profits go up, and so they have the right to lend more on these shares, and then the share-owner uses the increased loans to buy more, and then the bank advances him still more, etc. But socially something more profound has happened.
Bank credit to a great extent ends the function of private capital. It is not the capital of Smith, Jones, and Robinson that is autonomous, it is the pooled capital of Smith, Jones, Robinson, Anderson, Wilson, MacDonald, Cohen, that is used to finance Smith, Jones, and Robinson.
Thus the contradictions of capitalism become deeper. When the selling of commodities is interrupted it is not their own capital, nor that of houses with which they do business, that is involved, but everybody’s money. Every development of capitalism is speeded up by this bank development, for it takes so much less time to accumulate and expand. It also takes less time to come to grief and a greater depth of misfortune when the evil day comes. The banker’s blessing is turned into a curse.
Thus the need for expansion, for relative surplus-value, for more expansion, on that still more extended basis, aided by bank loans and speculative investments, all go one way. The racing-car is doing a hundred miles an hour without brakes, every cylinder pouring out its full force. That is what Marx means by saying that the mode of production does not go sequentially any more but by leaps and bounds and only a shortage of raw materials and (and this is the rub) the disposal of its produce, can stop it.
Raw Materials Shortage Not the Explanation
On the score of raw materials, capitalism has as yet had no serious shortage. When madder ran low, coal-tar derivatives replaced it; when the production of silk became inadequate, rayon took over its lower uses; when gold ran low, as about 1890, the Rand and the Klondike saved the day; and the gloomy prophecies of Sir William Crookes that the population of the earth would be limited by the want of wheat, solemnly proclaimed in 1895, were made ridiculous by the sudden development of the Manitoba field.
In fact, raw materials seem to have come almost providentially. When the development of the automobile necessitated a great upsurge in rubber and neither the Congo nor Brazil sufficed, the Malay States and Sumatra saved the situation.
When petroleum, or rather gasoline, became too dear for the Ford user, the new cracking process of 1922 in effect doubled the available supply. The greater use and conversion of waste products has enabled a great many “outs” to occur, and the development of synthetic products, though on the average much too costly, has enabled countries short of foreign money to navigate difficult moments.
The new and lighter metals such as aluminum have changed the face of the world. The development too, of derivative industries, like the immense cinema expansion, has helped to take up the great numbers of persons displaced in the machine trades, and has created markets in the remotest jungles for civilized actors. If anything, the supplies of commodities like coffee and sugar have been far too copious for the narrow bounds of effective demand.
But so soon as the raw materials question is solved, so soon as the lands that produce them become reciprocally customers for manufactured goods and provide new markets, the same old expansion takes place with the same disastrous consequence. Each crisis ends with a better technical equipment inherited from the previous boom, with a greater productive capacity. Every crisis enables capital to rebuild on a basis whereby the rate of expansion of new capital must forever grow further apart from the labor consumption growth, even though that too is larger than ever.
Why Crises Are Worse and Yet Production Advances
To put it arithmetically: In crisis A, capital is 100, labor-power 80, discrepancy 20, then there is a great capital expansion to 200, but labor is 140, then a crash. Capital shrinks to 150, labor to only 110. There is a realignment but the new expansion begins at 150 for capital and not at 80. The new capital grows from 150 to 300 but labor only from 110 to 190. Capital must resolve violently the need of each capitalist to grow to the skies in a system where all must co-operate in a kind of balance and yet where the only means of each growing to the skies is to exploit labor more intensively (and usually more of it absolutely), and so increase both the size of his operations and labor, yet at the cost of a widening gap between the two. That limits consumption and so there is a panic. After that panic, the rich and powerful capitalists who have the most liquid resources remain, but not the defunct opponents. The next boom always starts with more centralized capital.
So that after ten alternations of boom and crisis, we stand as follows: Capital has risen from 100 to 1,000, labor from 80 to 600, the discrepancy has increased from 20 per cent to 40 per cent, yet there is a far greater amount of wealth and employment. Every gap as it increases causes wilder efforts to escape by passionate searches for new markets, however obtained. Every crash increases the number of capitalist victims relatively, and reduces the number of survivors, relatively also to total production.
By this shuttling process capitalism attains both its growth and its concentration, so that crises are the historic expression of its need to reconcile unlimited capital expansion with the eternal limits of relative consumption. But as each crisis, beginning with a higher proportion of constant capital, must seek to obtain a higher wealth by still further intensifying relative surplus-value devices, the truth holds that crises are both normal and disastrous for the system.
That is how the underlying contradiction of capitalism manifests itself. But it does not describe fully the underlying weaknesses in the productive apparatus itself, only the totality of its manifestations as against the limit of relative consumption.
The True Theory of Disproportionate Branches
Although capitalism must produce both means of production and consumption, and both are necessary to each other, they are separated industrially. Steel manufacturers and candymakers are rarely, if ever, united. Here the theory of a disproportion has validity. Now the means of production serve only to create constant capital. These in turn are useful in order to manufacture, ultimately, articles of consumption.3 Machines are consumed slowly in production; they cannot be used in exchange against articles of consumption which are exchanged only against income, not capital. The articles of consumption are used by the buyer: they never serve as capital when utilized, for they are consumed. Variable capital is replaced through consumption, constant capital through production.
Now this want of proportionality is not the same as in the superficial idea that one branch of industry grows faster than another. The proportion of consumption to production is a necessity since one is the means to the other and development is disastrously impeded if it (production means) cannot find its use in serving consumption goods manufacture.
The unequal development of these two mutually necessary branches is a necessity, though, of the capitalist expansion. (Could they be balanced, as they were about 1800, there would be no crises.)
Since machines are developed to economize labor, and this is the lever of capitalist expansion, it follows that investment in the means of production, of constant capital, must outstrip that of variable capital, the means of subsistence (so that the mass of profits is found there, too).
This contradiction is given in capitalism. It must achieve this, for otherwise no competitor could outdistance another manufacturer or preserve his business through not being outdistanced. Since capital flows more than ever into means of production—that is, into steel, machinery, etc., and relatively less into means of consumption —a time must come when the constant capital reaches the limit of its use, and as capital cannot stop expanding, the recoil produces the panic. The constant capital cannot be employed to make goods without the customers to take them. This is the mechanism by which crises arise.
More than that, constant capital industries themselves usually have more constant capital than others. The steel business is proverbially either a feast or a famine. Thus in upsurges, steel profits rise proportionately higher and in crises sink proportionately more than in the consumption industries. The greater instability of these industries produces a constant threat to the proportionality of means of production and consumption. The decline in grocery sales during the panic of 1929-33 was far less than the steep decline in iron and steel production. But the upsurge was less too. Here one has two interdependent branches, each required by the other, the constant dependent on the variable ultimately, and having wholly different rates of movement, by their nature under capitalism. The deduction is obvious.
NOTE: Crises can be classified as brought about by permanent and special causes. The permanent ones are characteristic of developed capitalism, the special ones are the new factors, resulting from that previous development and which, in the next crisis, have become characteristic features, if they are retained.
The permanent features are accumulation of capital, high organic composition, increase of unemployment, increased exploitation, tendential fall in the rate of profit, centralization and monopoly growth, contradiction between production and consumption, expressed as disproportion of their industries, and of the barriers in the markets to the realization of produced values, due to declining relative wages. The crisis moves from the barrier to the producers’ goods industries and soon the consumption is adversely affected by recoil.
But every crisis must be explained by its own position in the development of capitalism, as the above scheme is not progressive enough and is much too universal. In 1873, for example, the breakup of the middle-class producer was slight, in 1929 dramatic. Panics in 1873 were related to overinvestment of production goods in colonial countries; the panic of 1929 to the chronic surplus of production capital in each of the domestic countries; especially the United States and Germany. The panic of 1846 came from too rapid a development of producers’ goods at home, etc. Economically the developments that ruined Europe in 1846 proved wise, but they were too quickly done, etc. In the theory of the General Crisis (in the ensuing theory of Lenin) an important synthesis of the permanent factors, changing their respective weights and characters by interplay with their secondary factors, is the capstone of the Marxian Crisis Theory, especially in its bold concept of the General Crisis of Capitalism, an attempt to give the timbre of the “knell of the expropriators.”
In using the concept the “cause” of the crisis, we may either use the mechanisms, as they actually function because of the particular traits of present-day capitalism, or we may ask for the recurrent situations created by the capitalist need to increase capital, without reference to any social considerations. If the latter definition is used, then of course the Marxian “cause” of crises is not the disproportion between production and consumption sectors of total production, nor even the contradiction between production and consumption in any given cycle of production, but rather the contradiction between social production and private appropriation. But the best use of the term would be to say that this is the reason why crises occur: the causes are in the operation of the system, and must be given in terms of actual maladjustments.
The mechanisms of crises are given only sketchily in this study. They are worthy of large textbooks for themselves. It is a nice question how many branches of production must be stricken by a want of demand to generate a true crisis; whether it is their size or their strategic position that is the more weighty. It would be interesting to inquire why some great stock-exchange crises leave production almost unaffected and others are required to act as the alarm clocks that wake the crocodile, crisis, from his ten-year dream of prosperity. Within the framework of Marxian theory there are many possibilities for more delicate treatment, such as was shown by Lenin when he developed his theory of the general crisis as having a different economic quality than previous crises, not referable merely to greater magnitude.
The Marxian theory of crisis is closely woven and is related to the modes of growth of capitalism. It is a great deal like pediatrics, which traces the growth of a child through infantile disease. But the child does not need the disease; the system, the Marxists aver, does.
NOTE: Consult Appendix IV for special bibliography.
NOTE: Recovery from Crises
We know that nearly nine-tenths of the profit structure of capitalism is bound up with means of production, and that the manufacture of these do employ the greatest number of industrial workers. Since their decline in production is the more precipitate during a crisis, the subsequent recovery must center on how this section of production re-establishes profitability.
A crisis breaks out, roughly, in proportion as the situation is remote from the causes of the crisis. Either securities or credit first crashes. The decline in inventory values appears to generate the crisis. But the overproduction of producers’ goods for the consumption industries that cannot utilize more constant capital, because it cannot lead to realizable new value is, of course, the basic cause. How does the need for constant capital rearise; how do the consumption sections feel they can utilize profitably additional constant capital?
In the first place, the crash of prices means that constant capital is cheapened absolutely. If the fall in the price of constant capital is more profound than in consumption goods (and that it is practically always the case, though under monopoly capital it is distorted, as we shall see later), then relatively, too, constant capital becomes less costly. The rate of profit on the lower value of constant capital, might be greater, even were the rate of surplus-value not varied. But the reduction of the means of subsistence, in price, means a possibility of reducing the expenditure on variable capital by lowering wages, even assuming a fair re-employment. There are further factors, such as the actual destruction of redundant capital, thus reducing the actual amount of capital competing for the total social production.
Lower prices, lower constant capital value, lower wages, reduced production, actual destruction of use-values, numerous bankruptcies, (thus reducing the barriers to centralization) increase of monopoly—nearly all these are characteristic of the end of a period of cyclical (not general) crisis. The rate of profit is the ratio of surplus-value to total capital both constant and variable. If that total capital is reduced from 100 to 50, and a rate of profit of 4 per cent becomes possible, instead of the permanent write-downs and deficits of years of crisis, the wheels will turn again, even though the boom profits, when last seen before they exploded, were at the rate of, say 30 per cent. But no sooner is the process. started again than the requirement for reproduction forces a similar, though at first slow, enlargement of constant capital. (During the present recovery from 1933 onward this has been less in evidence, however, than previously. And that proves its different quality.)
But since the new recovery comes from a widespread destruction of individual capitalists, and with a higher organic composition than when the last recovery began, the contradictions are deeper, the possibilities of recovery less brilliant, the length of recoveries shorter, the depth of the consequent crisis increased, even though the peak point is lower, relatively considered, as against the capital employed.
The recovery from crises has been outlined here, as though the entire capitalist system were in a closed circuit obeying only its own laws. But until very recently, of course, the ability to obtain profits from primitive accumulation, or rather from conversion of noncapitalist sections of the world, or even internally, into capitalist reserves, played a part in recovery.
This is not to be identified with the theory that the recoveries within capitalism have been assisted in time and scope by this important contribution. That was the secret of Britain’s easy recoveries from her deep crises in the early nineteenth century. But this factor is becoming relatively less important, and the temporary alleviation given by the enormous capital investments of 1890-1914 are nearly over. Hence we see crises much more determined in their behavior by the reproduction of capitalism within itself and, of course, the contradictions are thereby shown as much deeper, the crises more difficult to recover from.
The Marxists always held that the General Crisis would arise when the outside “feeders” of capitalism diminished, for that would lead to monopoly within the system. But there is a difference between saying that relationship to noncapitalist areas prevented general crisis and allowed only of cyclical crises, and saying that capitalism functions only by reason of realization outside the system. (See the refutation of the Luxemburg hypothesis in the chapter on "The Accumulation Debate.")
1. H. L. Moore; see Bibliography.
2. See appendices.
3. The previous scholastic chapter completely integrates the relation of means of production and means of consumption industries.