2. Overproduction of Capital
2.3 Cyclicality of Crises
Crises are cyclical because of the operation of the Long Wave Cycle.
- The Summer Phase
In the Summer Phase of the cycle, economic activity picks up further. The investment in primary production undertaken at the start of the Spring Phase now comes on stream. It results in sharp falls in the prices of primary products. As these form the constant capital of manufacturing industry, this results in a release of capital, and rise in the rate of profit that further stimulates accumulation. In addition, as employment has risen, the increased mass of wages results in rising demand for wage goods, and some formerly luxury goods, and competition between producers forces them to invest further in these areas of production. Now, 25 years on from the peak of the previous innovation cycle, the technologies that raised productivity in the previous period have become the norm, so that productivity growth slows down. Increased output results in proportionately greater growth of employment. The potential to increase absolute surplus value has become exhausted during the Spring Phase, and relative surplus value can only be increased following a new technological revolution. Instead of relative surplus value rising, therefore, during this period, it falls, as the rising demand for labour-power enables workers to shorten the individual working-day, to obtain additional paid holidays, to obtain improvements in the social wage, and to raise hourly wage rates. This is the situation that arises in the 1960's, and into the 1970's as described by Glyn and Sutcliffe (Workers and The Profits Squeeze) in relation to the profits squeeze in Britain, and by Thirlwall and others in relation to other advanced economies (See here).
The rise in wage share, during this period, does not result in generalised crises of overproduction, because although profit is “squeezed” it starts from a high level. The mass of profit continues to expand, but does not expand proportionate to the capital advanced, because the rate of surplus value falls. Again this is the diametrically opposite condition to that described by Marx in relation to his Law of the Tendency for the Rate of Profit to Fall, in which the rate of surplus value rises, as a result of rising social productivity, which reduces the value of labour-power, and creates a relative surplus population, which causes wages to fall.
The squeeze on the rate of profit caused by a rising wage share, at a time when economic activity is accelerating, itself partly driven by this rising wage share, and increased growth in demand for wage goods, and some formerly luxury goods, by workers, means that the supply of money-capital from realised profits falls relative to the demand for money-capital to finance capital accumulation. This causes the rate of interest to rise from its previous low levels. This rise in interest rates causes previously inflated asset price bubbles to burst. Over this period, asset prices grow more slowly, and even decline in real terms. That can be seen in relation to the real terms decline in the Dow Jones Index between 1965-1982.
Given the artificially low level that yields on financial assets had been driven to between 1990 to 2008, as a result of central bank intervention to boost asset prices, even a small absolute increase in interest rates in 2007, was sufficient to have the same kind of effect, sparking the 2007-8 financial crisis.
By the end of the Summer Phase, the kind of condition described by Marx in Capital III, Chapter 15 exists, whereby any increase in capital accumulation represents an overproduction of capital, because it causes the demand for labour-power to rise, and to push up wages to levels which result in the mass of surplus value falling. It can only be resolved via crises, and by a new technological revolution, which raises productivity, reduces the value of labour-power, so as to raise relative surplus value, which creates a relative surplus population, so that wages are reduced, and which, in the process also reduces the value of fixed capital and circulating constant capital, via moral depreciation, so that capital is released, and the rate of profit is raised.
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