Crisis Theories

[Lenina Rosenweg]

Crisis obviously have long range and short range causes. The current "financial crisis" can be traced back to financial deregulation in the US and elsewhere. This in turn is a reflection of the greater financialization of capital in the recent period. This in turn can be traced back to the crisis capitalism has been facing from the early 70s till today.

Does this summation sound correct?

What is the root cause of the current crisis? As I understand, some Marxists see this as ultimately stemming from the "tendency of the rate of profit to decline", as discussed by Marx in vol. III of Capital (which I haven't read yet). Other Marxists disagree with this. David Harvey believes the crisis ultimately stems from an oversupply of capital, desperately seeking a return. People around the Monthly Review, (as far as I understand) see this more as a crisis of over-production.

I am relatively new to Marxism and I am trying to "wrap my head" around theory and concepts.

What do people see as the ultimate cause of the current crisis? Also I would appreciate any suggestions of reading in this area. I'm currently reading "Limits To Capital" by Harvey.

[S.Artesian]

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For your reading pleasure.

[Lenina Rosenweg]

Thanks for the links. I have seen your blog, it looks fascinating. I will read it more this weekend.

[BAM]

Harvey is useful, certainly, but if I recall correctly, he argues that Marx's law of the tendency of the fall in the rate of profit does not amount to much. I disagree.

Andrew Kliman is a good place to start. He is very readable. Begin with On the Roots of the Current Crisis (http://marxisthumanistinitiative.org/2009/04/17/on-the-roots-of-the-current-economic-crisis-and-some-proposed-solutions/)

Next is Kliman's lengthier treatment of the falling rate of profit thesis, The Persistent Fall in Profitability Underlying the Current Crisis (http://akliman.squarespace.com/persistent-fall/).

On crisis theory in general, there have been plenty of different ideas put forward, some better than others. Anwar Shaikh wrote a very useful paper outlining them, An Introduction to the History of Crisis Theories (http://www.countdownnet.info/archivio/teoria/313.pdf).

The problem is, of course, that Marx never left a fully developed theory of crisis, which would have probably come in his book on the world market that he never wrote.

[vyborg]

Thanx for the reading.

I think that when you "compare" different explanation for the crisis in the marxist environment (disproportion crisis, falling rate of profit theory, overcapacity, overproduction, etc) you have basically the same economic laws playing, only with different accent on this or that phenomenon.

For instance overproduction means no sufficient demand for the supply. Well cut the prices and you will sell more..but this would imply the cut of profit rates etc.
So at the end of the day the anarchy of capitalism shows itself in a number of was but the explanation is the same

[S.Artesian]

Thanx for the reading.

I think that when you "compare" different explanation for the crisis in the marxist environment (disproportion crisis, falling rate of profit theory, overcapacity, overproduction, etc) you have basically the same economic laws playing, only with different accent on this or that phenomenon.

For instance overproduction means no sufficient demand for the supply. Well cut the prices and you will sell more..but this would imply the cut of profit rates etc.
So at the end of the day the anarchy of capitalism shows itself in a number of was but the explanation is the same


Overproduction for Marx does not mean insufficient demand for the supply. That's Keynes theory, based on economists going back to..... going all the way back.

Marx's analysis is that overproduction is always the overproduction of capital, not insufficient consumption, insufficient demand for capital, but the overproduction of capital in relation to profitability, in relation to the divergence between cost prices and the prices of production.

Although.... I do agree that regarding the different components of capitalist crisis, these are manifestations of a single "source."

[S.Artesian]

The problem is, of course, that Marx never left a fully developed theory of crisis, which would have probably come in his book on the world market that he never wrote.

That is exactly correct. He never did work through that. Kind of astounds me, given the fact that after the publication of Vol 1, and for the last ten years of Marx's life, capitalism entered the period known as the "long deflation" from 1873-1898, when the cycles and severity of capitalist downturns on the international scale where directly driven by overproduction, by the applications of technology to production, but dramatic increases in the fixed capital portion of constant capital.... and by the penetration of the "modern" capitals into the less advanced areas to a much greater degree-- i.e. US investment in Mexico's railroads and mines. British investment in Argentina.

Sometimes I wish he would have spent less time, a lot less time on the "potential" of the Russian agricultural commune, and a lot more time analyzing what was going on in the UK, US, France, Germany, Japan.

[BAM]

... for the last ten years of Marx's life, capitalism entered the period known as the "long deflation" from 1873-1898, when the cycles and severity of capitalist downturns on the international scale where directly driven by overproduction, by the applications of technology to production, but dramatic increases in the fixed capital portion of constant capital....

In one of the more complete examples we have of Marx talking about crises, Chapter 17 of Theories of Surplus Value (http://marxists.org/archive/marx/works/1863/theories-surplus-value/ch17.htm), he seems to be saying exactly that:


For if an excessive portion of the surplus-value, of the additional capital, is laid out in machinery etc, in a particular branch of production, then, although the raw material would have been sufficient for the old level of production, it will be insufficient for the new. This therefore arises from the disproportionate conversion of additional capital into its various elements. It is a case of over-production of fixed capital ...

Or they [the crises] are due to an over-production of fixed capital and therefore a relative under-production of circulating capital.

There's far more to it, of course. The chapter I linked to is a lengthy discussion of the disparities in Ricardo's theory of crisis, so a lot of the discussion is with reference to that. But we can draw some points out.

The formula for capital contains within it the very possibility of crisis, because purchase and sale are two separate acts. Also, with the development of money as a means of payment and the credit system, we get monetary crises in which whole series of payments go unfulfilled. But the problem remains trying to distinguish the causes of crises, as opposed to their very possibility. The problem is not so much identifying how a crisis could come about, but why crises occur as a result, for instance, of falling rates of profit, why they erupt so dramatically, rather than just leading to economic torpor.


The general conditions of crises, in so far as they are independent of price fluctuations (whether these are linked with the credit system or not) as distinct from fluctuations in value, must be explicable from the general conditions of capitalist production.

A crisis can arise: 1, in the course of the reconversion [of money] into productive capital; 2. through changes in the value of the elements of productive capital, particularly of raw material ...

First Phase. The reconversion of money into capital. A definite level of production or reproduction is assumed. Fixed capital can be regarded here as given, as remaining unchanged and not entering into the process of the creation of value. Since the reproduction of raw material is not dependent solely on the labour employed on it, but on the productivity of this labour which is bound up with natural conditions, it is possible for the volume, the amount of the product of the same quantity of labour, to fall (as a result of bad harvests). The value of the raw material therefore rises; its volume decreases, in other words the proportions in which the money has to be reconverted into the various component parts of capital in order to continue production on the former scale, are upset. More must be expended on raw material, less remains for labour, and it is not possible to absorb the same quantity of labour as before. Firstly this is physically impossible, because of the deficiency in raw material. Secondly, it is impossible because a greater portion of the value of the product has to be converted into raw material, thus leaving less for conversion into variable capital. Reproduction cannot be repeated on the same scale. A part of fixed capital stands idle and a part of the workers is thrown out on the streets. The rate of profit falls because the value of constant capital has risen as against that of variable capital and less variable capital is employed. The fixed charges—interest, rent—which were based on the anticipation of a constant rate of profit and exploitation of labour, remain the same and in part cannot be paid. Hence crisis. Crisis of labour and crisis of capital.

This is therefore a disturbance in the reproduction process due to the increase in the value of that part of constant capital which has to be replaced out of the value of the product. Moreover, although the rate of profit is decreasing, there is a rise in the price of the product. If this product enters into other spheres of production as a means of production, the rise in its price will result in the same disturbance in reproduction in these spheres. If it enters into general consumption as a means of subsistence, it either enters also into the consumption of the workers or not. If it does so, then its effects will be the same as those of a disturbance in variable capital, of which we shall speak later. But in so far as it enters into general consumption it may result (if its consumption is not reduced) in a diminished demand for other products and consequently prevent their reconversion into money at their value, thus disturbing the other aspect of their reproduction— not the reconversion of money into productive capital but the reconversion of commodities into money. In any case, the volume of profits and the volume of wages is reduced in this branch of production thereby reducing a part of the necessary returns from the sale of commodities from other branches of production.

I don't think this is anywhere near a complete or general picture of crises, of course. However, we do get the interplay in this account of several factors, eg disproportionality, a falling rate of profit and a decrease in aggregate demand.


Sometimes I wish he would have spent less time, a lot less time on the "potential" of the Russian agricultural commune, and a lot more time analyzing what was going on in the UK, US, France, Germany, Japan.Yeah, I often think that too. He seems to have largely abandoned the work on the critique of political economy in the 1870s when he drafted Volume II (Vols I & III were written around the same time). Maybe it was the general indifference that he was greeted with upon the publication of Capital, I don't know ...

[SocialismOrBarbarism]

Marx talks about the possibility of overproduction in the sense of insufficient demand, but he also makes it clear that this kind of overproduction is one of the ways in which the crisis, caused by the overproduction of capital, manifests itself. It is not itself the cause of crisis.


“It is sheer tautology to say that crises are caused by the scarcity of effective consumption ... That commodities are unsaleable means only that no effective purchasers have been found for them ... But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working-class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working-class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and “simple” (!) common sense, such a period should rather remove the crisis”I suggest looking at part 3 of capital volume 3 if you can't be bothered to read the whole book.

[S.Artesian]

Marx talks about the possibility of overproduction in the sense of insufficient demand, but he also makes it clear that this kind of overproduction is one of the ways in which the crisis, caused by the overproduction of capital, manifests itself. It is not itself the cause of crisis.

I suggest looking at part 3 of capital volume 3 if you can't be bothered to read the whole book.

You talking to me? I've read that volume and the other volumes several times.

As I said, as Marx said, all overproduction is the overproduction of capital; the decline in "effective demand" is simply a manifestation of the impairment of expanded reproduction; the declining profitability brought about by the already existing accumulated capital.

[vyborg]

Overproduction for Marx does not mean insufficient demand for the supply. That's Keynes theory, based on economists going back to..... going all the way back.

Marx's analysis is that overproduction is always the overproduction of capital, not insufficient consumption, insufficient demand for capital, but the overproduction of capital in relation to profitability, in relation to the divergence between cost prices and the prices of production.

Although.... I do agree that regarding the different components of capitalist crisis, these are manifestations of a single "source."

Production and consumption are dialectically connected, this is abc for marxist economic theory. What concretely "overproduction of capital" does it mean? You have too much factories? Or too much money and not many sectors to invest? This over-capacity becomes overproduction of goods vis a vis the wages of the workers. You can read it stating the wahes are not enough or profit rate are not enough etc. The result is always the same: capitalism can grow only trough crisis

[S.Artesian]

Production and consumption are dialectically connected, this is abc for marxist economic theory. What concretely "overproduction of capital" does it mean? You have too much factories? Or too much money and not many sectors to invest? This over-capacity becomes overproduction of goods vis a vis the wages of the workers. You can read it stating the wahes are not enough or profit rate are not enough etc. The result is always the same: capitalism can grow only trough crisis


It means that the cause of impaired accumulation is not "insufficient demand." Insufficient demand is an effect, a manifestation. Can't make it any simpler for you, sorry.

What it specifically does not mean is that there is an overproduction of goods in relation to workers wages. If that were the case, capitalism could never have reproduced beyond day 1, since capitalism is based on the value of the workers wages being less than the value of the commodities produced.

Marx specifically, and repeatedly, rejects this "under-consumptionist" theory.

[vyborg]

I know very well that Marx rejected the underconsumption theory (Luxemburg et alii), but I meant that overproduction always also mean underconsumption. capitalist produce too much. this can mean production of means of production (over-capacity) production of final goods (over-production). this is also always connectet to the profitability of the firms etc.

What we must stress is that underconsumption is one of many features of capitalism, not the cause of the crisis per se