Friday, 1 April 2016

Capital III, Chapter 30 - Part 7

Marx then sets out his theory of crisis in summary. He says, assume there are only workers and capitalists; ignore accidental effects, such as fluctuations in market prices, due to temporary changes in supply and demand. This latter is not insignificant because with the high degree of interrelatedness of the economy, especially as developed by credit, any fluctuation in market prices in one sphere, that prevents the reproduction of capital, or causes a disproportion and misallocation of capital, can have a consequence for the whole economy. But, Marx, having noted this discards it to show how the very process of production leads to crisis. He also discounts the effects of all the frauds and swindles previously outlined, which credit also facilitates.

“Then, a crisis could only be explained as the result of a disproportion of production in various branches of the economy, and as a result of a disproportion between the consumption of the capitalists and their accumulation. But as matters stand, the replacement of the capital invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class. The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” (p 484)

What does this mean? In Theories of Surplus Value, Marx cites Ricardo, who described a situation of glut arising from an increase of profits. The idea is basically this. The capitalists increase profits by squeezing wages, so the workers have less to spend, so consumption falls. At the same time, prompted by these higher profits, capitalists themselves devote a larger portion of their profits to investment in additional production, rather than they do to increasing their own consumption. This doesn't mean capitalists absolute consumption levels fall, only the relative proportion.

The consequence is that more goes into investment, in additional production, at the same time that workers have relatively less to spend, and when capitalists choose to spend relatively less on consumption. In other words, the supply of consumption goods rises, as the demand for consumption goods falls, or at least relatively. Marx concludes,

“This is indeed the secret basis of glut.”

(Theories of Surplus Value, Part 3)

Unlike in the past, therefore, where crises arose because of the inability to produce enough to meet society's needs, capitalist crises are almost never the consequence of being unable to produce enough. They are nearly always a consequence of producing more than can be bought at prices that reproduce the capital consumed in their production, given the distribution that naturally results from capitalist production. Millions of people do not starve in the world because there is insufficient food, but because they cannot afford to buy the food that is available at prices that would produce profits, whilst millions more do not demand that food, even at those or lower prices, because they already have more than enough, and often waste what they have. Thousands of people, in Britain, are unable to buy a house, not because there are too few houses, but because their incomes are not sufficient to buy the houses that are for sale at current prices, whilst others have more than enough wealth or income to be able to bid the prices of houses up to these levels, and to own more than one house, to hold on to land and houses in a speculation of being able to sell later at an even higher price.

“A real lack of productive capital, at least among capitalistically developed nations, can be said to exist only in times of general crop failures, either in the principal foodstuffs or in the principal industrial raw materials.” (p 484)

In other words, then, if we consider the economy in terms of the two department model set out by Marx in Capital II, capital attempts to increase its profits by squeezing wages, thereby reducing I(v) and II(v), and consequently the demand for Department II output. It could compensate for this if demand for consumer goods from I(s) and II(s) rose proportionately. But, as Marx has set out in the quote above, and on previous occasions, the purpose of capitalist production is not to increase the consumption of capitalists, but to increase profits and accumulation.

Capitalists, rather than increasing their unproductive consumption, increase their investment in Department I goods. So, demand from I(s) and II(s) for consumption goods do not rise, at least by as much as I(v) and II(v) falls. In the meantime, I(c) and II(c) rises, as the additional funds are invested in accumulation. But, the only purpose of expanding the production of capital goods, ultimately, is to produce more consumer goods. There is no point investing capital in producing more cotton, no matter how high the rate of profit on cotton production might be, unless there is an increased demand for yarn, cotton cloth and cotton textiles, because the increased supply would find no demand, thereby lowering the market price for cotton, and reducing the realised profit.  When capitalists do undertake such investment, because of a high rate of profit, the consequence is this kind of glut, a fall in market prices, and the kind of sharp collapse in profits and the rate of profit, that Marx describes in Chapter 15.  The collapse in the oil price, and of the profits of oil companies over the last year is a good example of that process.

The consequence then, as Marx describes, is that a crisis must arise “... as the result of a disproportion of production in various branches of the economy, and as a result of a disproportion between the consumption of the capitalists and their accumulation.” (p 484)

This is the heart of all capitalist crises, as capital drives to increase profits, so as to increase accumulation, which means an increased production of constant capital, which simultaneously involves a relative decrease in the demand for the consumption goods that constant capital is destined to produce.

Capital attempts to expand production without limit, without regard for the fact that the market that production is destined for, can only grow within limits, determined by capitalist distribution itself.

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