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 Post subject: How do Capitalist crises end?
PostPosted: Fri Jul 29, 2016 4:47 pm 
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To begin with, this will be the first of (hopefully) many topics that I make with the intention of answering a question I find on a communist subreddit with a thorough Marxist answer. These topics are made here with the hopes of generating discussion on a level that reddit cannot support due to the form of reddit.

As for the question of the week it is put simply, “How Do Capitalist Crises End?” As the initiator of this question implies, it is worth knowing how capitalist crises begin in order to ask how they end, however, given that these are cyclical movements, it doesn't matter terribly much where we take our point of departure as it will inevitably be our point of return as well.


It may be well worth noting how capitalist crises do not begin, namely, they are not initiated by a falling rate of profit which can be fairly simply demonstrated and I have done so in a rudimentary way in the following thread marxist-theory-of-competition-t1304.html

Of chief interest are the following points

Broletariat wrote:
Now let us assume that producer B wishes to expand his production and create $5,000 worth of commodities, such that $12,000 worth of commodities is now produced in this sphere of production, however, the effective demand continues to remain constant at $10,000. Thus on the one hand we have commodities of a value of $12,000, and on the other a society that can only pay $10,000 for these. The producers could continue to sell their commodities at their old prices, however, in that case $2,000 of commodities would remain unsold in the hands of one or the other or a portion of some in each producer. The other option is to reduce the prices of their commodities such that the total prices of commodities once again comes out to $10,000. As Marx indicates above, in this case the component part of value that suffers is the labour-time, more specifically the surplus labour to a tune of $2,000 is lost. Either action the capitalists choose to take, they are out $2,000 of their expected income. They may either continue with the present course of production and accept a below average rate of profit, or reduce the scale of their production to resume an average rate of profit.


We will note that the producers in this scenario are confronted with a fall in the rate of their profit and that this does not condition their investment. More pointedly, if either producer A or B in the above example does decide to invest less capital than they already do, the opposite producer may now begin to realize an additional rate and mass of profit either by doing nothing at all, or by furthering their own investment. This is demonstrated below.

Broletariat wrote:
Let us assume the opposite case, such that producer B either reduces his production from $3,000 to some smaller number or drops out of production all together. We will assume he drops out completely. In that case the effective demand for the commodity remains the same, but the value of the commodities to be sold has dropped while retaining the same organic composition. In this case producer A can sell his commodities valued at $7,000 for $10,000 netting this producer an extra rate of profit above and beyond the normal. At this point producer A has the option to expand his production to produce $10,000 worth of commodities and resume the average rate of profit, or to continue producing at his current scale and enjoy the above average rate of profit. In either case, the absolute value of surplus value he extracts is the same, but in the latter case idle money capital is enabled to become productively engaged. And if producer A does not expand his production, other idle money capital may intrude upon this sphere of production until it also achieves the average rate of profit, thus reducing the absolute amount of surplus value producer A can obtain.


The ultimate point to be made is that, under a falling rate of profit, further investment by any given capitalist in a particular sphere of production (and thus capital considered as a social whole) will serve only to squeeze the rate of profit even more, but for all capitalists equally. The effect is basically the attempts of the various capitalists to squeeze each other out of the market, which happens all the time. The only point at which a falling rate of profit will negatively impact the rate of investment is when the rate of profits reaches, and drops below 0.

The initiator of this question, however, is not under the impression that the falling rate of profit initiates a crises. They state essentially that “when supply exceeds demand.” a crises will begin. And this is somewhat true, but we have already seen from the above analysis of the falling rate of profit that a mere excess of supply over demand will at best (worst?) cause a given capitalist to withdraw some capital from investment.

Nevertheless, overproduction is the cause of the capitalist crises. But it is a particular kind of overproduction that is to blame, and in order to investigate this we must use the division of production Marx sets up in volume 2 of Capital. Department 1 produces the means of production while department 2 produces the means of consumption. We will further use the division that Maksakovsky sets up in The Capitalist Cycle to divide department 1 into three sub departments; 1a which produces means of production for department 2, 1b which produces means of production for department 1, and 1c which produces raw materials to be productively consumed.

Beginning from the depression (not crises, we will return to this later), we have commodities with a market price below not just the price of production, but actually below their cost prices. This causes general ruin for all but the strongest of the capitalists, enabling the strongest to further consolidate their holdings. In other words, production undergoes serious contraction as fixed capital is unable to be replaced. Because of this consolidation, the remaining capitalists now possess the resources to invest in more technologically advanced means of production and simultaneously exploit labour to an even greater extent. This enhanced investment in greater technology is in order to produce commodities at an extremely low cost price relative to the old standards of cost price. These commodities will then serve to actually generate a profit. However, before these commodities come into existence the new means of production must be produced, so let us take a glance at department 1 and all the sub departments.

Greater investment in means of production will create demand on department 1 generally by pressing demand on 1c from 1b and 1a, demand on 1b from 1a 1c and within 1b, and demand on 1a from 2. Thus the greater demand will stimulate greater investment as per the scheme outlined above. The investments into 1a 1b and 1c result in the hiring of workers who NOW exert a demand on department 2 causing department 2 to once again exert yet even more demand on the collective whole of department 1. This growth in demand snowballs upon itself, how can we possibly leave such an expansion of production? The commodities produced in department 1 do not become ready for productive consumption immediately, typically their production takes a long time, on the scale of years, such that the demand of the workers in department 1 on department 2 can create the appearance of massive demand on all departments simultaneously.

Eventually, however, the production process in department 1 is completed, the greater technology is turned out and is able to satisfy demand. A LOT of demand. Not only that, but with the completion of production in department 1, the base of consumption has shrunk because production projects are completed and workers are no longer needed, thus eliminating their demand on department 2. The entire process of expansion is an inverted pyramid on top of a shrinking base of demand as more and more production processes in department 1 are completed.

What we're left with is a massive productive capacity that was created with extremely high prices, prices far exceeding the price of production, based on a surge in demand that no longer exists. Not only has the supply increased vastly, but the demand has shrunk as well. This leads us back to our point of departure, the depression. These commodities will mostly lie idle while some will sell at prices below the price of production or below their cost price. Demand on department 1 will shrink even further because no one is interested in expanding production. Production begins to contract in a fashion exactly opposite the one in which it expanded. The snowballing of lack of demand causes yet more lack of demand for a huge supply of commodities. But the problem isn't simply that there is a huge supply of commodities, the problem is that there is a huge capacity to produce commodities which are no longer in demand. Overproduction is never, and can never be, anything more than overproduction of the means of production as capital.

Why this overproduction is possible is based on the fact that the market and production are two different spheres, which is to say that production and consumption are not coordinated or planned. While the market is screaming for more commodities, the production sphere is already in a state of overproduction that is not yet realised because the production process is not yet completed. The law of value is like a mother that has left her teen-aged child home alone, when she returns she finds the child has completely flaunted the rules and promptly grounds them. But if the law of value is like a mother, credit is an alcoholic father that stays out late every night only to come home and beat his child with an empty beer bottle.

The original question to be answered dealt with crises, which we have explicitly not dealt with yet. This is because credit is required before an actual crises can emerge as the phase between prosperity and depression. Credit serves to lengthen the phase of prosperity, reduce the amount of time required to recover from depression, but also to cause a crises.

Starting from depression once more, credit comes in to enable capitalists to have ready access to money capital for investment into fixed capital. Once recovery has started, credit serves to reduce the amount of actual money needed to get the snowballing demand started, but once this snowball crashes, it now crashes much harder than before in the form of a crises. The crises results from the fact that production has been carried out based on credit, meaning when the production comes to a screeching halt no one is able to pay their debts to each other. The sale of commodities then becomes, not about making a profit, but about obtaining actual paper money to pay debts with. The lines of credit that were extended during the recovery and prosperity phase were, of course, based on the assumption of incredibly high profits, and while these profits existed everything was fine. Now that these high profits have dried up it becomes impossible to pay back all the credit that had been extended leading to massive foreclosures.

I hope that my answer to the question of crises and the capitalist cycle in general has been helpful. I have only skimmed over what I think is the main elements involved in the cycle. If you're interested in further elaboration I recommend checking out the book The Capitalist Cycle, which you can find in audiobook format in the following thread ( on-going-project-marxist-audiobooks-updated-7-26-16-t1293.html ). If you'd prefer a .pdf or .txt version of the book it is available on Scribd.

Feel free to ask any questions and I will do my best to answer them, also check back on the thread in case I am wrong about something, Arty will hopefully be along to set me right.

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 Post subject: Re: How do Capitalist crises end?
PostPosted: Sat Jul 30, 2016 10:49 am 
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Bro,

Can you translate the economic "theory" to the historical practice, i.e. exactly what steps were taken that, for example, ended the "crisis" 2001-2003; or that 1990-1991; or that of the double-dip 1980-1982?


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 Post subject: Re: How do Capitalist crises end?
PostPosted: Sun Jul 31, 2016 8:50 am 
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I've actually never attempted to translate the theory that directly into practice, at least not as far as taking bourgeois measures of the economy and bringing them as close to marxist categories as possible ala theplanningmotive, so I would like some direction in that regard.

I wasn't alive for the 90's crises nor the 80's ones obviously, and just barely able to spell the word politics around 2001, but I'll take a stab at the 2000's recovery.

As far as my practical experiences go and from reading your blog and seeing what indices you think are important I would hazard to say that things such as the emerging smartphone market, expanding oil production via offshore drilling, increasing international shipping capacity especially between China and others would all fit the bill of increased investment in greater technology to produce commodities cheaply enough to realise a profit even at depressed prices.

For the 80's crises I'd also like to hazard to guess that the massive opening of the ex-USSR bloc as a new base of consumption/exploitation served to prolong a phase of prosperity that had just begun to dip, but because the problem isn't under-consumption but rather overproduction the larger base of consumption only briefly prolonged the next dip.

The 90's one is a bit beyond me and I'll have to look into it more.

Thanks for making me think more about it.

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