A lot of Marxists seem confused about economic crises. Some evoke the fall in the rate of profit to explain cyclical crises, some underconsumption, some forget the law of value & sound like establishment economists, & some just forget the materialist foundations of Marx & drift into a world of subjective will powering the class struggle. So here’s an attempt to explain the nature of an abstract cyclical crisis & how it differs from breakdown.
A cyclical crisis is just over-production. An overproduction of commodities relative to the commodity that acts as the universal equivalent – money. In otherwords, production runs ahead of the market. There is a problem realising surplus value. As the law of value asserts itself commodity production falls, i.e. there’s a recession.
The big thing to remember here is money is the commodity that acts as the universal equivalent. The money commodity has to be social labour. Gold has traditionally played this role. This is because it takes a certain amount of labour time to produce gold. Hence it measures value – the socially necessary labour time invested in commodities – & becomes visible as prices – as exchange-value. Even if bits of paper are actually used in circulation & gold remains in the vaults, these bits of paper must be exchangeable into gold on demand. If they are not (as today) we have a fiat monetary system where token money can be produced with minimal labour time. This breaks its ability to act as the universal equivalent & prices in terms of paper money no longer reflect values. Exchange-value no longer equals value. This cannot persist & is resolved in a crisis where paper money – or more specifically credit – gets destroyed along with general commodity production. The capitalist survivors get constant capital at prices that are often below their values, e.g. taking over a bankrupt company. They also get variable capital – labour power – at lower wage levels than before. This enables recovery & eventually another boom, extended by credit followed by yet another bust.
It appears as a crisis originating in finance that then through a credit crunch affects the ‘real’ economy, but in reality no distinction can be made between finance & the real economy. Money cannot be divorced from capitalist production. It is why the capitalist produces. Money, overproduction & crisis are all deeply inter-related.
This is the abstract cyclical crisis. It is not directly about changes in underlying values – changes in the rate of exploitation (s/v) or the organic composition of capital (c/v). So when Marx talks about the tendential fall in the rate of profit in Volume III of Capital, he isn’t refering to the cyclical crises but the long term trend that capitalism faces. That in a world where there is no population growth there is a limit as to how much more additional absolute surplus value can be extracted. In otherwords, there’s a limit to the number of additional hours capitalists can make the fixed number of labourers work. They have to resort to increasing relative surplus value.
Remember capitalist production is based upon M-C-M’ – the end value must be more than the starting value. But if value is labour time, & labour time is fixed, where can this additional value come from? The capitalists have to steal more of the working day from the worker. So if a worker works 10 hours a day & it takes him 5 hours to produce the value he gets as a wage & the remainder goes to the capitalist, then the capitalist needs to take more of the labourer’s time, say 6 hours of the 10. Again, there’s a limit as to how much this can be done by reducing the labourers wage & so his means of subsistence. But the capitalist can introduce more machines that increase the productivity of labour so that the means of subsistence that the labourer is use to can be produced in less time. The capitalist is increasing his exploitation of the worker but the worker in use-value terms is no worse off. These increases in productivity have a positive impact on the rate of profit, but depending upon their scale & how much they affect productivity in industries that produce the means of subsistence relative to industries that produce the means of production, can result in an overall fall in the rate of profit due to an increase in the organic composition of capital. That is, the more profit producing labour is replaced with non-profit producing constant capital, all things be equal, the less profit there is. Marx clearly regarded the increase in the organic composition to more than off-set the increase in the rate of exploitation as capitalism advanced & that this would put downward pressure on the rate of profit.
It is these objective conditions that force capitalists to attack the workers; whether in the pocket, in working conditions or even by ending their employment. This is the science behind the class struggle.
It is this asymmetry in capital accumulation – in capitalism – that leads to breakdown theories. Again to emphasize, not a mechanical breakdown separate from the class struggle, but the motor that drives the struggle itself.
Today’s crisis has, it would appear, elements of both cyclical crisis & breakdown. The overproduction of commodities relative to the money commodity, gold & the accompanying credit/debt is plain to see. But are we not also seeing underlying values move against the rate of profit? As the price of energy has increased (not in token money terms but in actual labour time now that the cheap easy to get at oil is less available) so this adversely affects both the rate of exploitation (more labour time needed to produce the means of subsistence) & the organic composition of capital (oil as a raw material is part of constant capital). This is putting the squeeze on the rate of surplus value & so profit. Hence the renewed attacks on workers. The days of cheap energy appear to be over & things look like getting worse. This affects the supply-side more widely & reinforces the severity of the cyclical crisis which can be seen as essentially demand-side.
So why don’t establishment economists see this? The answer is probably to do with the fact that they don’t understand value. They had to reject the labour theory of value because this exposes the capitalists & landowners as the parasites that they are, living off the value created by workers. Their replacement theory is marginal utility. A subjective theory that is quite useful in micro-economics but is useless in the aggregate trying to explain the economy as a whole.
This is the advantage Marxists have: an objective theory based upon labour values that can explain not just capitalism’s trade cycle, but its historical limit. It’s time to push this advantage home as the demoralised economists struggle to explain just what is going on.