It is quite correct, as Lenin says, that distribution is a function of production, but this does not at all mean that revenues, having been distributed in accordance with the relations established in production, automatically flow back as demand for the specific use values produced! That is precisely Marx's point in his criticism of Say's Law, and of the Ricardians, as set out in Theories of Surplus Value, Chapter 20.
Lenin's comment,
“Once relations in production have been explained, both the share of the product taken by the different classes and, consequently, “distribution” and “consumption” are thereby explained.” (p 202)
is clearly wrong, because, whilst it explains distribution, it does not at all explain consumption, for the reasons Marx has described in the above quotations. Indeed, as he says, demand/consumption is determined by entirely different laws to those that determine supply.
“Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”
(The Grundrisse)
That measuring rod, is of course, the ability to meet the needs of the buyer, i.e. its utility for that buyer. Supply is determined by exchange-value, whereas demand is determined by use-value. Physical production has to be continually expanded to reduce individual value below market value, but Marx points out that just because producers supply increased physical quantities to market, consumers have no reason to consume these increased physical amounts, just because they represent the same amount of value, i.e. he understands elasticity of demand.
In fact, in pursuing this line of argument, Lenin rules out the possibility of crisis altogether, which is the position that Ricardo was in, having adopted Say's Law. As Marx says, in Capital III.
“Let us suppose that the whole of society is composed only of industrial capitalists and wage-workers...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.”
(Capital III, Chapter 30)
Lenin rules out any such disproportion, because he accepts Say's Law that supply creates its own demand, confusing value with use value.
Indeed, Lenin provides no theory of crisis, here. If we take Ricardo's position, he was only aware of financial crises of the types seen in the 18th century. Some still see this as the basis of crises, arising from a separation of the currency from gold and so on. The Miseans propose such a theory of the crack up boom. Sam Williams also has a similar theory of crisis. But, Marx shows that whilst this can be a cause of purely financial crises, it is not the cause of crises of overproduction of commodities or of capital, and rather is a symptom of them.
“These are the formal possibilities of crisis. The form mentioned first is possible without the latter—that is to say, crises are possible without credit, without money functioning as a means of payment. But the second form is not possible without the first— that is to say, without the separation between purchase and sale. But in the latter case, the crisis occurs not only because the commodity is unsaleable, but because it is not saleable within a particular period of time, and the crisis arises and derives its character not only from the unsaleability of the commodity, but from the non-fulfilment of a whole series of payments which depend on the sale of this particular commodity within this particular period of time. This is the characteristic form of money crises.
If the crisis appears, therefore, because purchase and sale become separated, it becomes a money crisis, as ‘soon as money has developed as means of payment, and this second form of crisis follows as a matter of course, when the first occurs.”
(Theories of Surplus Value 2, p 514)
“In investigating why the general possibility of crisis turns into a real crisis, in investigating the conditions of crisis, it is therefore quite superfluous to concern oneself with the forms of crisis which arise out of the development of money as means of payment. This is precisely why economists like to suggest that this obvious form is the cause of crises. (In so far as the development of money as means of payment is linked with the development of credit and of excess credit the causes of the latter have to be examined, but this is not yet the place to do it.)”
(Theories of Surplus Value 2, p 514-5)
As for economic crises, Ricardo could only see it in terms of some denouement for capitalism itself, as a consequence of Malthus' population theory, and his own theory of diminishing returns in agriculture, resulting in profits disappearing. But, on both these points, Ricardo was seriously wrong, and no such denouement was going to happen.
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