A Characterisation of Economic Romanticism, Chapter 1 - Part 40

VII – Crises 

This is the weakest section of Lenin's exposition, reflecting his lack of access to Marx's Theories of Surplus Value, in which he sets out his theory of crises (Chapter 17) in contradistinction to those of earlier economists. The distinction in Marx's analysis of crises comes from his distinction between the value composition of capital and the technical composition of capital, and his derivation of the organic composition of capital, based on changes in the latter (rising productivity) rather than the former. The changes in the value composition lead to crises, whereas it is to respond to such crises that capital introduces new technologies that bring about changes in the technical composition, and thereby organic composition. It is changes in the latter that are the foundation of the Law of the Tendency for The Rate of Profit to Fall, whereas the earlier economists saw the temporary squeezes on profits from changes in the value composition as its cause. This is why rather than the Law of the Tendency for the Rate of Profit to Fall being the cause of crises, it is the means by which they are resolved. 

Marx sets out at length the nature of the changes in the value composition of capital in Theories of Surplus Value, Chapters 12 and after, and their effects on the rate of profit, and in causing crises. The value composition of capital rises, when the prices of the commodities comprising constant capital rises. This can be due to a fall in social productivity, or simply a change in market prices. It causes a tie-up of capital, which cannot now be used for accumulation, and it also causes a fall in the rate of profit. Likewise, a fall in social productivity that causes the prices of wage goods to rise, will cause wages to rise and profits to fall. It causes a squeeze on profits, and fall in the rate of profit. A rise in the price of materials, does not reduce surplus value, but, as Marx sets out in Capital III, Chapter 6, it can cause a squeeze on profits, because it may not be possible to pass on the increased costs in to final prices, so that some of the cost has to be born from profits. 

This is what causes the periodic squeezes on profits identified by Smith and Ricardo. It is a symptom of an overproduction of capital, which manifests in periodic crises. Its in response to this that capital engages in technological revolutions, both to reduce the value of materials, and machines, and to reduce wages. This causes social productivity to rise, which is the fundamental aspect identified by Marx behind the Law of the Tendency for the Rate of Profit to Fall. It leads to a rise in the technical and thereby organic composition of capital. The consequence creates the conditions beneath the long-term tendency, whilst bringing crises to an end, by reversing the short term squeeze on profits caused by the rise in the value composition of capital. It reduces the value of materials, and also reduces the value of fixed capital (including a growing fixed capital stock) via moral depreciation; it reduces wages by creating a relative surplus population. By these means it both releases capital, making it available for accumulation, and raises the rate of profit. 

As Marx sets out in Theories of Surplus Value, Chapter 9, periodically, capital must engage in large-scale capital investment. It must open new lands for agricultural production, for new mines and quarries etc. It has to advance large amounts of fixed capital for associated infrastructure. The nature of this investment is tied to the periodicity of the long wave cycle, for the reasons Marx sets out in Chapter 9, and, indeed, in that chapter, Marx sets out the movement of agricultural prices over a 50 year cycle. This is probably the first analysis of the long wave undertaken. This investment in new lands is driven by the inability of existing production to meet demand from industrial production, as a new expansion gets underway, which causes spikes in primary product prices, as seen after 1999, for example. But, capital invests in new technologies so as to increase productivity of existing primary production, and to reduce waste in the use of primary products too. 

Similarly, as demand for labour-power, relative to supply causes wages to rise, and squeezes profits, this promotes innovation in new labour-saving technologies. These create a relative surplus population, which causes wages to fall and profits to rise. It results in a moral depreciation of the fixed capital stock, which causes the rate of profit to rise, thereby, ending the crisis of overproduction of capital. This rise in productivity, and the technical composition is the basis of his Law of the Tendency for the Rate of Profit to Fall. But, as Marx says, this tendency is only very small, if it exists at all. Any such fall is only in relation to its long-term average trend, not to these short term movements. In the short-term, the rise in productivity that creates the conditions for any long-term tendency to fall, is the means by which the immediate rate of profit is increased.

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