End of recessions in Marxian Economics

[Desperado]

Could somebody explain this to me? I understand the basic causes of crisis in Marxian economics, however It's not so clear to me how the system recovers and growth returns.

Is it simply that there are defaults, bankruptcies and a load of wasted commodities (the paint mostly being passed to the worker), before growth returns and the falling rate of profit again begins to be displaced/slowed by outsourcing to cheaper labour, debts and technological innovations once more?

[RadioRaheem84]

Good question. I would like to know too.

I figured it would just fall on the conquest of new markets.

Yet, the main thing that was holding up most economies was massive state spending, which then shifted to the financialization of the economy.

[SocialismOrBarbarism]

The crisis itself is the mechanism that sets the stage for a new period of growth. To quote Andrew Kliman:


...this tendency of the rate of profit to fall toward its long-run level persists unless there’s sufficient “destruction of capital.” This is a key concept of Marx’s theory of capitalist crisis. By “destruction of capital,” he meant not only the destruction of physical capital assets, but also, and especially, of the value of capital assets. In an economic slump, machines and buildings lay idle, rust and deteriorate, so physical capital is destroyed. More importantly, debts go unpaid, asset prices fall, and other prices may also fall, so the value of physical as well as financial capital assets is destroyed. Yet as I noted earlier, the destruction of capital is also the key mechanism that leads to the next boom. For instance, if a business can generate $3 million in profit annually, but the value of the capital invested in the business is $100 million, its rate of profit is a mere 3%. But if the destruction of capital values enables new owners to acquire the business for only $10 million instead of $100 million, their rate of profit is a healthy 30%. That is a tremendous spur to a new boom.

[apawllo]

How slumps end

Let us now look now at what hap*pens once the cri*sis has occurred and the slump phase of the eco*nomic cycle has been entered. One of the most impor*tant fac*tors to con*sider when cap*i*tal*ism is mov*ing from one stage of its trade cycle to another is the rate of profit — or, to be more pre*cise, short to medium term fluctu*a*tions in the rate of profit (as opposed to the long-term ten*dency dis*cussed in a pre*vi*ous sec*tion for the aver*age rate of profit to fall due to the replace*ment of vari*able cap*i*tal with con*stant capital).


Dur*ing a cri*sis and at the onset of a slump the rate of profit on invest*ments will fall dra*mat*i*cally as firms are unable to sell all that has been pro*duced and so are unable to realise sur*plus value embod*ied in them. But this decline in the rate of profit is not per*ma*nent; it is part of the eco*nomic cycle, and dur*ing a slump con*di*tions even*tu*ally begin to emerge which point towards an increase in the rate of profit and renewed invest*ment. No slump is ever per*ma*nent. This is because dur*ing a slump three basic things happen.


The first is that a num*ber of enter*prises will go bank*rupt and their assets will be bought cheaply by their rivals. The result of this is a depre*ci*a*tion of the cap*i*tal invested in them lead*ing to a halt, and even*tual rever*sal, in the decline of the rate of profit. An impor*tant fac*tor in this is the decline in the value of the stocks that have built up towards the end of the boom, dur*ing the cri*sis and in the early stages of the slump.


The sec*ond thing to hap*pen in a slump is that there is the re-appearance of a large reserve army of labour which makes an increase in the rate of exploita*tion pos*si*ble. There will prob*a*bly be a halt in the growth of real wages and per*haps even a cut, which will serve to increase the rate of profit with*out, at this stage of the eco*nomic cycle, dam*ag*ing the prospects for real*i*sa*tion of sur*plus value on the mar*kets, because cap*i*tal depre*ci*a*tion and destruc*tion of stocks will have been tak*ing place and the sup*ply of com*modi*ties will have been curtailed.


The third fac*tor is inter*est rates. As the slump devel*ops, inter*est rates will tend to fall nat*u*rally as the demand for money cap*i*tal falls away. This will have a beneficial impact on the rate of indus*trial profit and, in con*junc*tion with the other two fac*tors, will improve the prospects for invest*ment and expansion.


Because of these three fac*tors — cap*i*tal depre*ci*a*tion, an increase in the rate of exploita*tion, and nat*u*rally falling inter*est rates in a slump — enter*prises will start expand*ing pro*duc*tion again as invest*ment picks up and as demand for prod*ucts grows, with more work*ers being employed again. This will lift the econ*omy out of the slump phase of the cycle, and indus*try will be in the state of grow*ing ani*ma*tion referred to by Marx that occurs before a boom. The cycle will then have come full circle.


The impor*tant thing about all this is that the cri*sis and depres*sion phases of the eco*nomic cycle do not occur because some*thing has “gone wrong” with the oper*a*tion of the cap*i*tal*ist econ*omy. On the con*trary; they are in fact an entirely nec*es*sary fea*ture of the devel*op*ment of cap*i*tal*ism, serv*ing to rid the sys*tem of its more inefficient enter*prises where returns on invest*ments are low, and thereby pro*mot*ing invest*ment and expan*sion in those enter*prises fit enough to sur*vive. Far from being an instance of cap*i*tal*ism “going wrong” in some way, slumps show that cap*i*tal*ism is work*ing nor*mally and in accor*dance with its own eco*nomic laws and mech*a*nisms of development.

http://wspus.org/in-depth/marxian-theories-of-economic-crises/

edit: not sure why it's putting the asterisks in, but i'm pretty sure it's still legible :/

[28350]

Could somebody explain this to me? I understand the basic causes of crisis in Marxian economics, however It's not so clear to me how the system recovers and growth returns.

Is it simply that there are defaults, bankruptcies and a load of wasted commodities (the paint mostly being passed to the worker), before growth returns and the falling rate of profit again begins to be displaced/slowed by outsourcing to cheaper labour, debts and technological innovations once more?

I think what Harvey says about moving the problem around is a good way of putting it. Many recoveries have come from the clay-footed Colossus shifting its weight.
qOP2V_np2c0

[Desperado]

Thanks. A lot clearer now.