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Draft On The Marxist Theory Of Capitalist Crisis

[A] While interpreting Marxs theory about the inevitable and insolublecapitalist crisis the Marxist-Leninist intellectuals are generally prone to focus

on three phenomena and to ascribe one among the three as the fundamental

cause behind the capitalist crisis. The three phenomena are:-- (1) Under-consumption of the masses; (2) Over-production; (3) The tendency of the rate

of profit to fall.

But a close reading of Marxs Capital reveals that he has not allotted anyseparate and exclusive space for the discussion on capitalist crisis; on the

other hand, he has repeatedly brought forward this issue in the course of his

analysis about the various aspects of the objective inner dynamics of the

capitalist productive process and he has never characterized any one of thevarious manifestations, reflections or outcomes of the inherent dynamics of

capitalism as the main or fundamental cause of capitalist crisis.. According to

him, the fundamental cause of the crisis is inherent in the totality of the

capitalist process. But this does not mean that the above three phenomenahave never found prominent places in Marxs discussion about capitalist

crisis. Rather it can be seen that in the course of his analysis about the inherentcontradictions of capitalism these three factors along with some other factors

have been included in the analysis that has reflected a totality. Marxs analysis

about capitalist crisis is spread over the whole of his Capital, more especially

over its third volume.In this respect we must keep in mind that Marx has categorically rejected the

first factor as a theory of crisis. Ridiculing the contemporary bourgeois

economists like Rodbertus who were the representatives of this theory at thattime as gentlemen of simple common sense, Marx had written in the second

volume of Capital :-- To say that the crisis comes from the absence ofconsumption in the conditions of pay, of the deficiency of solvent consumers,is to incur in a full tautology. The capitalist system only knows consumers

who can pay, except sub forma pauperis (paupers of the indigents) or one of

the rouges. That the goods are unsaleable means only that it has not foundbuyers who can pay them and therefore consumers (because the goods in fact

are bought to consume individually or collectively). But it wants to give the

tautology an appearance of profound fundamentation by saying that saying

that the working class receives a very little part of his proper product andtherefore the wrong would be remedied if he receives a bigger part of that

product or if his salary increases. But it will be enough to observe that

invariably the crises are prepared by a period when the salary increases in ageneral way and the working class gets really a bigger part of the product

destined for consumption. From the point of view of these gentlemen of

simple common sense, these periods, on the contrary, would must conjure thecrisis. It appears, indeed, that the capitalist production implicates conditions

that do not depend on the good or bad will, conditions that only tolerate

momentarily the relative prosperity of the working class, and always in the

capacity of bird of storms, announcer of the crisis. In Anti-Duhring Engels

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had also written:-- The under consumption of masses is not a new

phenomenon. It has existed, as long as there have been exploiting and

exploited classes whilethe general shrinkage of the market which breaksout in crisis as a result of surplus production is a phenomenon only of the last

50 years.

Although Marx had rejected the theory of under consumption as the theory ofthe capitalist crisis, he had stressed on this factor a number of times in the

course of his analysis about the inherent contradiction of the capitalist

production process. But this factor had not found a separate place in theMarxs analysis of the capitalist crisis, but had been included as a part of the

totality. In this context it is worthwhile to bring to notice a particular assertion

of Marx wherein he had expressed: -- The worker only can buy, incorporate

to the demand in relation to the goods that enter in the individualconsumption, because he does not value his work or get personally the

conditions of his realization, the work means and the material to work. This

eliminates the bigger part of the producers (the workers there where the

acquired its capitalist development) as consumers, as buyers. The workers donot buy primary matters, nor work means, they buy only living means (goods

which enter directly in the individual consumption). Therefore it is ridiculousto speak about identity between the producers and consumers, because in a big

amount extraordinarily big of businessthose do not devote themselves to the

articles of consumptionthe immense majority that intervene in the

consumption of production are absolutely marginalized to buy the productproduced by themselves. They are not direct consumers nor buyers of this big

part of goods in which production they intervene as salaried.

The prominent place given by Marx to the factor of over-production in hisanalysis of the capitalist crisis has been widely discussed in the Marxist-

Leninist circle. In the section entitled Accumulation of Capital & Crisis ofTheories Of Surplus-Value Marx had written that: --The condition ofoverproduction is the general law of production of capital: production

proceeds in accordance with the productive forces.. and disregarding the

existing limits of the market, effective demand besides, the mass ofproducers is limited and , because of the nature of capitalist production, must

always remain limited.. In Anti-Duhring Engels also characterized the

capitalist crisis as the crisis of overproduction. But to grasp Marxs theory

about capitalist crisis we feel that it is essential to concentrate on Marxsdiscussion about the tendency of rate of the profit to fall, because in that

discussion he had tackled the question in its totality. Before going into the

discussion it should be pointed out that apart from the above three factorsMarx had discussed about three other factors as very important constituents of

the inherent contradictions in the dialectics of capitalism. These are:--(a) the

contradiction between use-value and exchange-value where the exchange-value has a tendency to nullify use-value in its bid to dominate; (b) the

separation between the creation of surplus-value and its realization, both in

respect of time and space which disturbs the intimate connection between the

creation and realization of surplus-value and thus creates the possibility of the

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surplus- value remaining unrealized; (c) the separation between production,

circulation and accumulation which forces the three processes to move almost

as autonomous processes and creates the possibility of disruption of balancebetween the three processes which are, in reality, intimately inter-connected.

Now let us move into the question of the tendency of the rate of profit to fall.

We must remember that the rate of surplus value and the rate of profit are twodifferent things. The rate of surplus value is s/v where s= surplus value and v=

variable capital whereas the rate of profit is s/C where C= total capital and as

such = c+v where c= constant capital; so the rate of profit is s/c+v. Accordingto Marx Now we have seen that it is a law of capitalist production that its

development is attended by a relative decrease of variable in relation to the

constant capital, and consequently to the total capital set in motion. This

continual relative decrease of the variable capital vis-a vis the constant capitaland consequently the total capital, is identical with the progressively higher

organic composition of the social capital in its average. It is likewise just

another expression for the progressive development of the social productivity

of labour, which is precisely demonstrated by the fact that the same number oflabourers, in the same time, i.e. with less labour, convert an ever- increasing

quantity of raw and auxiliary materials into products, thanks to the growingapplication of machinery and fixed capital in generalEvery individual

product, considered by itself, contains a smaller quantity of labour than it did

on a lower level of production, where the capital invested in wages occupies a

far greater place compared to the capital invested in the means ofproduction.The immediate result of this is that the rate of surplus value, at

the same, or even a rising, degree of labour exploitation, is represented by a

continually falling general rate of profitThe progressive tendency of thegeneral rate of profit to fall is, therefore, just an expression, peculiar to the

capitalist mode of production, of the progressive development of the social

productivity of labour. [Capital, Vol. 3]. What is the result of this process?Thus the same development of the social productiveness of labour expresses

itself with the progress of capitalist production on the one hand in a tendency

of the rate of profit to fall progressively and on the other, in a progressivegrowth of the absolute mass of the appropriated surplus value, or profit; so

that a relative decrease of variable capital and profit is accompanied by an

absolute increase of both. This two-fold effect can express itself only in a

growth of the total capital at a pace more than that at which the rate of profitfalls. For an absolutely increased variable capital to be employed in a capital

of higher composition, one in which the constant capital has increased

relatively more, he total capital must not only grow proportionately to itshigher composition, but still more rapidly. It follows, then, that as the

capitalist mode of production develops, an ever-increasing larger quantity of

capital is required to employ the same, let alone be increased, amount oflabour-power. If the variable capital forms just 1/6 of the total capital

instead of the former , the total capital must be trebled to employ the same

amount of labour-power. And if twice as much labour- power is to be

employed, the total capital must increase six-fold. [Capital, Vol. 3]. This is

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the contradiction that the tendency of the rate of profit to fall creates.

Elaborating on this point Marx wrote A fall in the rate of profit and

accelerated accumulation are different expressions of the same process only inso far as both reflect the development of productiveness. Accumulation, in

turn, hastens the fall of the rate of profit, in as much as it implies

concentration of labour on a large scale and thus a higher composition ofcapital. On the other hand, a fall in the rate of profit again hastens the

concentration of capital and its centralization through expropriation of minor

capitalists. This accelerates accumulation with regard to the mass, althoughthe rate of accumulation falls with the rate of profit.

On the other hand, the rate of self-expansion of the total capital or the rate of

profit, being the goal of capitalist production (just as self-expansion of capital

is its only purpose), its fall checks the formation of new independent capitalsand thus appears as a threat to the development of the capitalist mode of

production process. It breeds over- production, speculation, crisis and surplus-

capital and alongside surplus population. [Capital, Vol. 3]. In the same book

he had written further that If the rate of profit falls, then follows, on theone hand, an exertion of capital in order that the individual capitalists, through

improved methods, etc. may depress the value of their individual commodity below the social average value and thereby realize an extra profit at the

prevailing market price. On the other hand, there appears swindling and a

general promotion of swindling by recourse to frenzied ventures with new

methods of production, new investment of capital, new adventures, all for thesake of securing an extra profit, which is independent of the general average

and rises above it.

The rate of profit, i.e. the relative increment of capital, is above all importantto all new offshoots of capital seeking to find an independent place for

themselves. And as soon as formation of capital were to fall in the hands of a

few established big capitals, for which the mass of profits compensates for thefalling rate of profit, the vital flame of production would altogether be

extinguished. The rate of profit is the motive power of capitalist production.

[Capital, Vol.3]It is quite clear from the above quotations that, to Marx, the falling rate of

profit is a very vital factor behind the capitalist crisis. At the same time in his

exposition about the falling rate of profit Marx had not concentrated only on

this particular factor, but had deemed it essential to extend the discussion toinclude other important factors and to show the interconnection between these

factors. As for example, while discussing about the falling rate of profit Marx

had written: -- As soon as all the surplus-labour it was possible to squeezeout has been embodied in commodities, surplus-value has been produced. But

this production of surplus value completes but the first act of the capitalist

process of productionthe direct production process. Capital has absorbed soand so much unpaid labour. With the development of the process, which

expresses itself in the drop of profit, the mass of surplus value thus produced

swells to immense dimensions. Now come the second act of the process. The

entire mass of commodities, i.e. the total product, including the portion that

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replaces the constant and variable capital, and that representing the surplus

value must be sold. If this is not done, or done only in parts, or only at price

below the prices of production, the labour has indeed been exploited, but hisexploitation is not realized as such for the capitalist, and this can be bound up

with a total or partial failure to realize the surplus value pressed out of him,

indeed with the partial or total loss of capital. The conditions of directexploitation and those of realizing it are not identical. They diverge not only

in place and time, but also logically. The first are only limited by the

productive power of the society, the latter by the proportional relation of thevarious branches of production and the consumer power of the society. But

the last named is not determined either by the absolute productive power, or,

by the absolute consumer power, but by the consumer power based on

antagonistic conditions of distribution, which reduce the consumption of thebulk of the society to a minimum varying within more or less narrow limits. It

is furthermore restricted by the tendency to accumulate, the drive to expand

capital and produce the surplus value on an extended scale. This is a law for

capitalist production imposed by incessant revolutions in the method ofproduction themselves, by the depreciation of existing capital always bound

with them, by the general competitive struggle and the need to improveproduction and expand its scale merely as a means of self-preservation and

under penalty of ruin. The market must, therefore, be continually extended, so

that its inter-relations and the conditions regulating them assume more and

more the form of a natural law working independently of the producer andbecome even more uncontrollable. This internal contradiction seeks to resolve

itself through expansion of the outlaying field of production. But the more

productiveness develops. The more it finds itself at variance with the narrowbasis on which the conditions of consumption rest. It is no contradiction at all

on this self-contradictory basis that there should be an excess of capital

simultaneously with q growing surplus of population. For while a combinationof these two would, indeed, increase the mass of produced surplus value, it

would at the same time intensify the contradiction between the conditions

under which the surplus value is produced and those under which it isrealized. [Capital, Vol.3]

In the above quoted passage we can see that Marx has brought out the inter-

connection between the falling rate of profit, overproduction and the factor of

under-consumption of the masses. He has started from the falling rate of profitand then proceeded to show how this falling rate of profit induces

overproduction and how this overproduction is related to the factor of the lack

of consumption power of the masses--- because this overproduction isdiagnosed not with respect to the requirements of the society, but with respect

to the requirements of the existing market, to the capacity of the market to

absorb all the commodities produced, to the possibility of all the commoditiesproduced to be sold, to the dichotomy between the realization, in the market,

of the surplus values and their creation in the factories. But he has not

pinpointed any single factor or contradiction as the main or fundamental cause

operating behind the capitalist crisis. He has just explained a process in which

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all the factors are inter-connected and which intensifies the contradiction

between the conditions under which the surplus value is produced and those

under which it is realized.

[B] Now we will point to a crucial analysis of Marx, which, we think, is

fundamental to the understanding of Marxs theory of crisis. In the Chapter-XV ofCapital, Vol.3 entitled Extension Of The Internal Contradiction Of

The Law (of the tendency of falling profits) there is a section with the sub-

title Conflict Between Expansion of Production & Production of Surplus-Value. In that section, while analyzing the contradiction reflected in the

conflict between the expansion of production and production of surplus value,

Marx wrote that-The contradiction, to put in a very general way, consists in

that the capitalist mode of production involves a tendency towards absolutedevelopment of the productive forces, regardless of the value and surplus

value it contains, and regardless of the social conditions under which capitalist

production takes place, while, on the other hand, its aim is to preserve the

value of the existing capital and promote its self-expansion to the highestlimit(i.e. to promote an ever more rapid growth of this value). The specific

feature about it is that it uses the existing value of capital as a means ofincreasing the value to the utmost. The method by which it accomplishes this

include the fall of profit, depreciation of existing capital and development of

the productive forces of labour at the expense of already created productive

forces.The periodic depreciation of existing capitalone of the means immanent in

capitalist production to check the fall of the rate of profit and hasten

accumulation of capital-value through of new capitaldisturbs the givenconditions, within which the process of circulation and reproduction of capital

takes place and is therefore accompanied by sudden stoppages and crises in

the productive process.

The real barrierof capitalist production is capital itself. It is that capital and

its self-expansion appear as the starting and the closing point, the motive andpurpose of production; that production is only production forcapitaland not

vice versa, the means of production are not mere means for a constant

expansion of the living process of the society of producers The limits within

which the preservation and self-expansion of the value of the capital restingon the expropriation and pauperization of the great mass of producers can

alone move--- these limits come continually into conflict with the method of

production employed by capital for its purpose, which drives towardsunlimited extension of production, towards production as an end in itself,

towards unconditional development of the social productivity of labour. The

meansunconditional development of the productive forces of the societycomes continually into conflict with the limited purpose, the self-expansion of

the existing capital. The capitalist mode of production is, for this reason, a

historical means of developing the material forces of production and creating

an appropriate world-market and is, at the same time, a continual conflict

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between its historical task and its own corresponding relations of social

production. [Capital, Vol.3]

Here we get Marxs analysis about the fundamental cause which gives rise tothe inevitable and insoluble crisis of capitalism. Capitalism creates the

possibility of unlimited production, but its aim is limited to extraction and

realization of surplus value, to production and accumulation of capital. Theconflict between the former and the latter creates barrier before the

development of capitalist production, inevitably gives birth to crises. In the

same chapter under the section with the title Excess Capital And ExcessPopulation we find the following comment of Marx: --Development of the

productive forces of social labour is the historical task and justification of

capital. [Capital, Vol.3] The continual contradiction between this historical

task of capitalism and its limited aim or purpose inevitably drags capitalisminto the whirlpool of periodic crises. Overproduction of commodities and

capital, the tendency of falling rate of profit, the contradiction between the

use-value and exchange-value, the disruption of the balance between

production, circulation and accumulation etc. are the various phenomenathrough which this main contradiction asserts itself.

[C] Now what, according to Marx, is crisis or what phenomenon Marx has

characterized as crisis? The enquiry into this question is highly important at

the present juncture, as volumes of confusion have been created in the

Marxist- Leninist circle about the definition and characteristics of crisis.In Capital, Vol.3, we find a number of categorical assertions of Marx about

crisis that leaves no doubts, whatsoever, regarding his definition of crisis.

The crises are always but momentary and forcible solutions of the existingcontradictions. They are violent eruptions which for a time restore disturbed

equilibrium. In another instance we find the following analysis of

Marx:--The limitations of the capitalist mode of production come to thesurface:

(1) In that the development of the productivity of labour creates out of the

falling rate of profit a law which at a certain point comes intoantagonistic conflict with this development and must be overcome

through crisis.

The above categorical assertions of Marx are enough to bring out the truth

that the crises do not indicate the breakdown or near breakdown of thecapitalist mode of production or the near fatal disturbance of the balance

of the capitalist economic system. On the contrary, through crises the

breakdowns or near breakdowns of the capitalist economic system areaverted, the disturbed balance is restored and this task is accomplished

forcibly, violently. How this is done? Marx was also categorical in this

question. He had written that:--How is this conflict settled and theconditions restored which correspond to the sound operation of

capitalist production? The mode of settlement is already indicated in the

very emergence of the conflict whose settlement is under discussion. It

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implies the withdrawal and even the partial destruction of capital

amounting to the full value of additional capital, or at least a part of it

But the equilibrium would be restored under all circumstances through thewithdrawal or even the destruction of more or less capital. This would

extend partly to the material substance of capital i.e. a part of the of the

means of production, of fixed and circulating capital, would not operate,not act as capital; some of the operating establishments would then be

brought to a standstill. Although, in this respect, time attacks and worsens

all means of production (except land), the stoppage would in reality causefar greater damage to the means of production. However, the main effect

in this case would be that these means of production would be disturbed

for a shorter or longer time. [Capital, Vol.3]

So the partial withdrawal or even destruction of capital, including means of production, is the forcible and violent way through which the crises

temporarily solve the inherent contradiction of capitalist mode of production

or restore the balance disturbed in the process of capitalist production.

[D] With regard to the forcible and violent character of the path of solution, a

special feature, brought into light by Marx, deserves serious attention.Speaking about the forcible and violent way of solution or restoring balance

followed during the crises, Marx wrote about the competition among the

capitalist: So long as things go well, competition effects an operating

fraternity of the capitalist class, as we have seen in the case of the equalizationof the general rate of profit, so that each shares in the common loot in

proportion to the size of his investment. But as soon as it is no longer is a

question of sharing profits, but of sharing losses, everyone tries to reduce hisown share to a minimum and to shove it upon another. The class, as such,

must inevitably lose. How much the individual capitalist must bear of the loss,

i.e. to what extent he must share in it at all, is decided by strength andcunning, and competition then becomes a fight among hostile brothers. The

antagonism between each individual capitalists interests and those of the

capitalist class as a whole then comes to the surface, just as previously theidentity of those interests operated in practice through competition

Although as the description of this conflict shows the loss is by no means

equally distributed among individual capitals, its distribution being rather

decided through a competitive struggle in which the loss is distributed in verydifferent proportions and forms, depending on special advantages or

previously captured positions, so that one capital is left unused, another is

destroyed, and a third suffers but a relative loss, or is just temporarilydepreciated, etc.. [Capital, Vol.3]

So Marxs analysis tells us that during the crisis period an antagonism

develops between each individual capitalists interests and those of thecapitalist class as a whole and that the competition between the individual

capitalists becomes antagonistic. This is a very important feature of crisis.

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[D] Following Marxs theory of crisis whose salient features have been

described above, the following conclusions can be drawn: -

(1) Crises are not the situations when the bourgeoisie are in completedisarray, hopelessly chained by their own inherent contradictions on

the contrary, crises are violent means of temporarily solving the

contradiction and this mean is destructive.(2) As crisis is a inherent feature of capitalism, so we can conclude that

the capitalisms dynamic has two opposite characteristics inherent in it

one, revolutionary, and another, destructive.(3) As crisis will always offer the opportunity to capitalist system to

temporarily solve the problem of disturbed balance of the system, so

the system will not collapse on its own.

(4) As during the crisis period antagonism develops between the interestsof the individual capitalists and those of the capitalist class as a whole,

so during the crisis period there is every possibility of the emergence

of a particular political representative of the capitalist class which

while upholding the general interests of the capitalist class will standagainst the interests of the individual capitalists and will be able to

rally the bulk of the capitalists after restoration of the balance byproving his role as upholder of the interests of the capitalist class as a

whole. [ The rise of Hitler may serve as an example in this point.]

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