Marx, then, sets out how different phases of the economic cycle affect these general principles, set out above. As I have described, as that cycle goes through periods of stagnation, where productivity and relative profits rise, capital may also push the working-day beyond its normal limits, wasting labour-power, and reducing wages below the value of labour-power.
As that cycle moves into an uptrend, first of prosperity, and then of boom, and finally of crisis and overextension, these trends are reversed. As the boom phase turns to crisis, the relative shortage of labour-power causes relative wages to rise and relative profits to fall – a profit squeeze. Eventually, that squeeze is such that it manifests as a crisis of overproduction of capital. As Marx describes, in Capital III, Chapter 15, and Theories of Surplus Value, Chapter 21, any additional advance of capital causes wages to rise to an extent that no additional surplus value is produced. The capital does not act as capital, so that a crisis ensues and the rate of profit falls sharply.
This provokes capital to seek to address the shortage of labour via a new technological revolution, such as that of the 1801's/20's, 1870's/80, 1910's/20, and 1970's/80's. It creates a large relative surplus population, amidst stagnation, rising productivity, and a rising rate of profit. It creates the conditions for the next upswing. Contrary to those that believe that it is changes in the rate of profit arising from The Law of the Tendency for the Rate of Profit to Fall, which drives this cycle, it is the cycle that drives the movement, both up and down, of the rate of profit, as Marx also notes, here.
“,,, capitalistic production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, overtrade, crisis, and stagnation. The market prices of commodities, and the market rates of profit, follow these phases, now sinking below their averages, now rising above them.” (p 82)
Note that Marx says that the rate of profit follows these phases, i.e. does not precede or drive them, but moves in response to them.
“During the phases of sinking market prices and the phases of crisis and stagnation, the working man, if not thrown out of employment altogether, is sure to have his wages lowered.” (p 82-3)
But, of course, during such a period, the workers are in a poor bargaining position to resist such a fall in wages, and rise in profits. In a period of stagnation, the mass of profit may rise more slowly than in a period of prosperity or boom, for the simple reason that the period of stagnation is characterised by a slower accumulation of capital, a slower growth of employment, and consequent slower growth of new value creation. But, the period of stagnation is characterised by a faster expansion of the rate of profit, of relative profits. As Marx describes it, in Theories of Surplus Value, it is a period in which the net product grows at a faster pace than the gross product, whereas, in the expansionary phase, the opposite occurs, whilst the absolute mass of profits grows faster, along with the absolute mass of new value.
“If, during the phases of prosperity, when extra profits are made, he did not battle for a rise of wages, he would, taking the average of one industrial cycle, not even receive his average wages, or the value of his labour.” (p 83)
In other words, in the stagnation phase, wages fall below the value of labour-power, relative wages fall, and relative profits rise. In the prosperity and, particularly, boom phases, as total output and profits rise more rapidly, wages rise above the value of labour-power, relative wages grow and relative profits fall, eventually leading to a crisis of overproduction of capital, relative to the labour supply.
“It is the utmost height of folly to demand, that while his wages are necessarily affected by the adverse phases of the cycle, he should exclude himself from compensation during the prosperous phases of the cycle. Generally, the values of all commodities are only realized by the compensation of the continuously changing market prices, springing from the continuous fluctuations of demand and supply. On the basis of the present system labour is only a commodity like others. It must, therefore, pass through the same fluctuations to fetch an average price corresponding to its value.
It would be absurd to treat it on the one hand as a commodity, and to want on the other hand to exempt it from the laws which regulate the prices of commodities.” (p 83)
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