Crises of Overproduction - Part 12 of 14

2. Overproduction of Capital

2.3 Cyclicality of Crises

a) Crises are cyclical because of the operation of the Long Wave Cycle.

• The Autumn Phase 

The Autumn Phase is the phase during which crises of overproduction predominate, for the reasons previously elaborated. It is a period in which the supply of money-capital from realised profits is constrained as profits are squeezed. As businesses experience losses, they see commercial credit dry up, requiring a resort instead to bank credit. The tightening of credit conditions increases the demand for money itself for cash payment. Businesses now demand money not as money-capital for investment but purely as money as means of payment, as crises of overproduction are accompanied by what Marx calls crises of the second form, that is payments crises, as firms fail to make good on their payments for goods and services previously bought, which then causes a cascade of payments failures. This demand for money as merely currency, by firms that require it desperately to stay afloat, thereby sees interest rates reach their highest point. 

For the reasons that Trotsky also elaborates in The Curve of Capitalist Development, and Flood Tide, the initial period of this phase is also the period in which revolutionary upheavals predominate. The Autumn Phase of the second long wave cycle coincides with the US Civil War and the Paris Commune, for example. The Autumn Phase of the third long wave cycle begins around 1914-20, and coincides with the Russian Revolution, and the revolutions in Germany, Hungary, the British General Strike, and so on. The Autumn Phase of the fourth long wave cycle does not properly begin until 1974, but it is presaged by the events of May '68 in France, The Prague Spring, an upsurge of protest in the US and so on. In the 1970's, it is marked by a sharp rise in industrial disputes that become increasingly bitter and prolonged, the further into the phase they occur. The most obvious examples are the British Miners Strikes of 1972 and 1974, which succeed, and then the Miners Strike of 1984-5, that suffers a devastating defeat. Similar defeats were experienced by miners in the US, as well as by the Air Traffic Controllers, at the hands of Reagan. 

At the start of the Autumn Phase, workers are strong and confident. Their organisations have been rebuilt over the previous phases. Any crisis acts as a spark to provoke resistance by workers to attempts to make them pay for it. The only real answer to such situations is for the workers to go on to the attack, to refuse to remain within the confines of capitalism, and bargaining within the system. That is what the workers in Russia did in 1917. If the workers fail to do that, as happened with the British General Strike in 1926, or else attempt it but fail, as happened with the workers in Germany in 1918 and 1923, and in Hungary in 1918, and so on, then the conditions increasingly turn against them. 

One reason for that is that capital addresses the rise in wages and shortage of labour by engaging in research and development of new labour saving technologies. As these technologies are introduced, labour is replaced, and becomes unemployed. Competition between workers undermines their collective resistance, and acts to reduce wages. Skilled labour is replaced by semi-skilled and unskilled labour, and so on.   An example, is the new technologies introduced into the print industry in the early 1980's. It meant that Instant Print workshops sprang up across the country, using computer type setting, as well as photocopiers in place of printing presses. It was followed by the introduction of the same kinds of technologies by the newspapers, and the creation of new newspapers like Today. Despite bitter and prolonged struggles in the 1980's, the workers were already on the back foot in trying to resist such changes. The reformist and syndicalist ideologies, based upon industrial struggle were totally inadequate to deal with these changed conditions. 

As labour is replaced, and wages fall, the rate of surplus value, and rate of profit rises. The fact that labour is replaced, and the organic composition of capital rises, is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall. However, this is a long term tendency. It means only, here, that the rate of profit falls compared to its long-term average, or compared to its rate at the same point in the previous long wave cycle. It does not mean that it falls relative to what it was in the previous phase of the current cycle. Moreover, this fall is, according to Marx, very small, and, to the extent it exists at all, is usually cancelled out by countervailing factors, and the rise in the rate of turnover of capital, itself caused by the growth of capital, and rise in social productivity. 

“[It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines. This is the only question with which both Ramsay and Cherbuliez are concerned. For us, however, the main thing is: does this fact explain the decline in the rate of profit? (A decline, incidentally, which is far smaller than it is said to be.) Here it is not simply a question of the quantitative ratio but of the value ratio.” 

(Theories of Surplus Value, Chapter 23) 

Marx goes on to show that it does not, because the rise in social productivity reduces the value of constant capital, and of variable-capital. The only sphere in which that might not apply, Marx says, is that of raw materials, whose value falls, but not by as much as the rise in the mass of materials processed, as a result of the rise in productivity. However, even here, Marx notes, 

“The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.” 

(ibid) 

Its clear, therefore, that the idea that crises of overproduction are caused by Marx's Law of the Tendency for the Rate of Profit to Fall is nonsense, and has no basis in Marx's writing. Marx defines an overproduction of capital as the over accumulation of productive-capital relative to the available workforce, which causes the limit of absolute surplus value to be reached, and for the demand for labour-power to cause wages to rise reducing, rather than increasing, relative surplus value. The overproduction of capital causes the rate of profit to fall sharply, not vice versa. It is in order to respond to this situation that capital seeks to introduce labour saving technologies, so as to end this crisis of overproduction. It is the introduction of this labour-saving technology, which raises social productivity, reduces the value of labour-power, and so raises the rate of surplus value, which creates a relative surplus population, which reduces wages, and so further raises the rate of surplus value, which simultaneously causes a dramatic moral depreciation of fixed capital, and reduces the value of circulating constant capital, thereby creating a release of capital, and a rise in the rate of profit. That is what is seen in the latter part of the 1980's, and through the 1990's, as the rate of profit rises.

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