E

ecology Although Marx and Engels regard the earth. They are only its occupams, its (he enormous expansionist tendency of the beneficiaries, and like a good paterfamilias capitalist mode of production as a necessary have to leave it in improved condition to condition for the transition to . they following generations.' I ~ nonetheless stress the destrucnve violence of this mode of production. As Marxist theory Reading developed, however, the first point of view Bahro, R.lldolf 1980: Elemente einer nelU!1l Politik, was increasingly emphasiud in a o ne-sided zum Verhiiltni5 von Okologie und So~UJIt$m"$. manner, until finally Stalin saw the superiority Fet~her, Iring 1~g2: 'FortKhrimglaube und of socialism over only in the ability Okologie im Denken von "\arx und Engels'. [n of the former ro provide the optimal Vom Wohlfahrustaar ZlIr neUIm L!bemqualitiit. conditions for the growth of the productive leiss, William 1~72 : The Domrn3rron o(Natllre. forces. In The Condition of the Working Class Engels already mentions the devastating effects of the expansion of industry on the economic crises In discussing crisis theories, natural environment, while Marx observes we must distinguish genera! crises, which that 'the capitalist transformation of the involve a widespread collapse in the economic production process is al the same time the and political relations of rtproduction, from martyrdom of the produ~rs' and 'every the partial crises and business cycles which are advance in capitalist agriculture is an advance a regular feature of capitalist history. In in (he art, not only of robbing the worker, but capitalist production the individual desire for also of robbing the soil'; such progress profit periodically collides with the objective therefore leads in the long run to the 'ruin of necessity of a social division of labour. Partial the permanent sources of this fertility [of tht crises and business cycles are merely the soil], (Capital r, ch. 13 ). 'Capitalist produc­ system's intrinsic method of reintegrating the tion, therefore, only develops the techniques two. When the system is healthy, it recovers and organization of the social process of pro· rapidly from its built-in convulsions. But duction by simultaneously undennining the the unhealthier it is, the longer become its sources of all wealth: land and the worker' convalescencc:s. the more anaemic its re­ (i bid.). In Capital III (ch. 46) Marx expressly coveries, and the- greate-r the- likelihood of refers to the obligation of human beings to its entering a long phase of depression. In the­ preserve the ecological preconditions of United Statc:s, for example, though the-re have human life for future generations: 'From the been thirty-five economic cycles and crises in standpoint of a higher socio·economic the 150 yca~ fcom 1834 to tht present, only formation [i.e. socialism I individual private twO - the Great Depressions of 1873-93 and ownership of the earth will appear just as 1929-41 qualify as ge-neral criSts. The much in bad tastt as the ownership of one question which now confronts the capitalist human being by another. Even a whole world is whether or not the Great Depression society, a nation, or all contemporary socitties of the 1980s will some day be added to this taken together, are not the absolute owners of list. (Mandel 1972; Bums 1969). -.

ECONOMIC CRISES 139

In analysing the capitalist system. Marx historically detennined facton; and neassity const:lndy rders to Its 'laws of motion', For theories, based on the notion of law as the instan~. he speaks of the tendl!1lCY of the rate expression of an intrinsic dominant tendency of profit to (:Ill as a general law, while at the that subordinates counttrvailing ones, in same time presenting various counteracting which the ptriodic occurrence of general rende/laes 'which cross and annul the effects crises is inevitable (though, of COUfS(', the of the general law'. So the '1uesrion naturally sptcific form and timing is detennined, Wlthm arises: How does a 'law' emerge from limits, by historical and imtiturional factors). tendency and counter-tendency? There are Wt shall see how modem Mancis[ throries of twO basic ways to answ.:! this. One possibility crisis exemplify thtse two approaches. is to concepru31iu the various tendencies as operating on an equal footing. Capitalism Possibility Theories gives ri~ to a ~t of conflictmg tendencies, and Here we can identify two main groups: the balance of forces existing at a particular underconsumptionlstagnation [heories, and historical 'conjuncture' then detennines the wage squeeze theories. system's final direction. In this perspective, structural reform and state intervention A. Underconsumption/Stagnation Theories appear to have grca[ potential, because under In capitalist society the money value of its net the right circumstances they can rip tht product is tqual to tht sum of the wages paid balance and hence actually regulate the to workers plu! rhe profits accruing to outcomt. This gtntral ptrsp«tive, as will be capitalists. Since workers get p;lid less than the seen, underlies most modern Marxist crisis fOtal value of tht net product, their throries and has imponant political consumption is never sufficient to buy it back: implicaTions. workers' consumption generates a 'dtmand Marx, on cht other hand, had a rather gap', and the greater the share of profits to difftrtnt approach to the subject. For him, it wages in value added, the greattr thIS demand ..... as crucial to distinguish between the gap. Of course capitalists do consume a dominant ttndtncy and various subord inate porrion of their profits., and this helps to fill countervailing ones, because the latter opcratt some of the gap. Nonetheless., the bulk of their within the limits provided by .the fonner. incomt is saved, not consumed, ;lnd in Bccau5t the dominant ttndencies arise OUt of Keynesian fashion these savings are viewed as tht ver)' n::.turt of the system itself and endow a 'leakage' from demand whose ultimate basis it with a very powerful momentum, the remains the restrictccl income and con­ subordinate tendencies tffecth·tly optrate sumption of the masses. If this portion of within moving limits and are channelled, so to the demand gap corresponding to capitalists' sptak, in a ddinite dirtction. (Within thest savings wefe nor filled, pan of the product limits the subordinate tendencies may well would not be sold, or at least not at normal function as merely conflicting tendencies on prices, so that the whole system would 3n equ31 footing.) From this vantage point, contract until profits were so low that those structural rdorms, state intervenrion, capitalists would be forced to consume all and even cbss struggles which leave the basic their income - in which case, there would be nature of the system unchangccl have limited no (net) investment and hence no growth. The potential, precisely because they end by being internal econom ic logic of a capitalist subordlnatccl to the intrinsic dynamic of the economy is thus said to prcclispose it towards system. Stagn3rion. We en now identify [WO main typeS of crisis Of course the 4~eP_ can be filled nor theories, corresponding to the two differtm only by consumprion bur also by investmtnt methodologic.al approaches to cpitalist demand (the demand for plant and history: possibility theories, based on the tquipment). The grearer this demand, the notion of law as tht resultant of conflicting higher the lcvd of production and c:m­ tendencies, in which general crises occur if and ployment in tht systtm al any moment of when there is a cenain conjunction of rime, the faster it grows_ In the end, therefore, ------

140 ECONOMIC CRISES

the final motion of the system depends on the stagnation is C'xplained by thC' presence of interplay beMun the tendency towards unusually strong countC' rvailing factors: POs[­ stagnation created by the savings plans of the war US hegemony, new productS and tech. capitalists, and the countervailing tendency nologies, and military expenditures. towards expansion created by their Within such a framework, it is ob\·ious th;!.[ investment plans. Capitalisrs save because as any economic intervC'ntion which strengrhC'ns individual capitalists, they must try to grow in and directs the expansionary factors can in order to survive. But they can invest only principle overcome the thre;!.! of St;!.gnation. when the objective possibili ties exist, and , for ins(;}ncc, claims these in turn depend on two factors. chat thC' state, either through its own spending Specifically, the fOlfndotion for large scale or through its stimulation of private spending, commerce and trade is provided when the can achieve socially desired levels of outpUt hegemony of a particular capitalist narion and employment and thus determine, in the (Britain in the nineteenth centUI)' and the USA final instance, the laws of mofiOll of the in the twentieth) allows it to orchestrate and capitalist economy (see KEYNES AND MARX). enforce international political and economic The IInderconslimpfionists do not dellY this stability. And the fuel for large scale possibility. They merely claim that it is investment is provided when a critical mass of not currently practical, because modC'rn new products, new markers, and new capitalism is characterizC'd by monopoly, not technologies all happen to coincide. When : monopoly increases capitalism'S foundation and fuel coexist expansionary tendency towards stagnation; when th iS factors will be ascendant. On the other hand stagnation sets in the state COUntC'rs it by as the fuel runs out and the inter-capitalist stimulating aggregate demand; but then rivalries increasingly undermine [he founda­ monopolists respond by raising prices rather tion, at some poim the contractionary than expanding output and employment (as factors reassert themselves and stagnation would competitivC' firms ). The rC'Suiting becomes the order of the day - until, of stalemate between state power and monopoly course, a new hegemonic order (perhaps power thereby producC's stagnation.with· forged through a world war) and a new burst : 'stagflation'. (SwC'C'zy; Harman; of discoveries initiate yet another epoch of Shaikh 1978). If thC' statC' retreats from this growth. struggle and retrenches, we then get a None of this is fundamentally altered by recession or possibly a dC'pression. From this the question of monopoly power. In modem point of view the appearance of a crisis is an capitalism, a few powC'rful firms are said to essC'ntially politicaLc.'LcQ.t, due to the dominate each industry, and by restricting unwillingness of the state to tacklC' the output and raising prices they are able to monopolies. Keynesian theory claims that the redistribute income in their favour at the state has the economic capability to managC' C'xpense of workers and of smaller capitalist the capitalist system, and once this premise is firms. SincC' largC'r capitalistS save a higher accepted, both the existencC' of a crisis and (he proportion of income, total savings rise; on recovery from it are questions of the political the other hand, in ordC'r to kC'ep up prices and ends toward which this capability is applied. profits the bigger fi rms restrict invcstmC'nt in Thus one is led to conclude that a political their own industries, thus cunailing the programme of curtailing monopolies through available investment ourlC'tS. By increasing [he price controls, regulation, and forceful demand gap and simultaneously weakening economic planning will break the back of investment opporrunitics, monopolies theor­ inflation, whilC' increased social wrlfare etically make stagnation vinually unavoidable. expenditures and even higher wages will Of coursC', in practice, post·war 'monopoly benefit not only the working class but also the capitalism' has until recently 'enjoyed a capitalist system as a whole (by reducing the secular boom ... in many respects excC'C'ding dC'mand gap). The economic contradictions of anything in its earlier hisrory'. (S weezy) the system can be therefore displaced onto and And so, once again, thC' absencC' of actual resolved within thC' political sphere, providcod

- d

ECONOMIC CRISES 141

sufficient pressu re can be brought to bear on workers to get so mil itant rh;l.t their wage the sta re. dem:-.nds produce a sustained fall In the actual Sweezy himself studiously avoids drawing rale of profit, then a crisis eventuall y breaks the political conclusions inherent in his out. T ypically, the wage squeeze theory looks argumtnr, though he does warn that for real wages rising f.lster than producrivit}· capit.llists Iht'OlSdves may disco\'c:r new ways as evidence that it is labour which st3.nds to m:Jn.:Jge the system (1979, behind thr crisis. J 1.3 pp. 11-13). But others are much less For instance, the conventional mathe­ reticent. (See, for instance, Harrington 1972 matical treatment of the so-called choice eh. XII and 1979 p. 29; various issues of of technique implies a rising profit fare unless Dollars and Senses, particularly October 1979 real wage increases reverse its course (Shaikh and July-August 198 1; and Gordon et al. 1978, pp. 242-7). This is cited by most 1982 pp. 589- 91 ). modern p roponents of the wage sq ueeze, such 3.5 Roemer (1979), Bowles (1981 ), 3.nd B. Wage Squeeze Theories Armstrong and Glyn (1980). Others, such as W:lge squeeu theories attempt to link general Hodgson (1975, pp. 75-6), sim ply cite the cris("S (0 a sustained fall in the fatc of profit empirical stability of the organic composition (see H.LLl NG ). The starring 3S a fr3.ture of modem capitalism. Fin3.Ily point is the recogniti on that when real wages Kalccki (1971) is usually ci ted as the source of rise andlor the length and intensity of the the argument that state intervention rums an working day diminishes, the potential rare of underconsumption tendency into a wage profit fa lls - other things being equal. In sq uet:Ze. It should be noted that even within MarXist terms a fall in the rate of the convenrional chOlet' of technique literature produces a fall in the general rate of profit, a real wage rising relati\'e to productivity is uUrlS parlblls. However, this is simply [Qsay neither necessary nor sufficient to generate a that a rise in real wages (adjusted for the falling rate of profit. This is easily shown from length and intensity of work) lowers the rate the diagrams in Shaikh (1978a. p. 236) in of profit retatwe to its trend. If the rate o f which the maximum wage rare (the venical profit tends ro fall independently of this, then intercept) is the net product per worker. the rise in (adjusted) real w:lgt:S merely What is imponant to note here is thai exacerbates the pre~x isting fall in the rate o f because the crisis occurs o nly when workers' profit. This, as we shall see in the next section, wage incre3.SCS become 'excessive', there is is what Marx argues. But if the rate o f profit plenty of room in this theory for a vision of OIherwise tends to risc, then only a sufficiently capitalism which can deliver both rising real rapid risc in real wages can account for an wages to workersalld:-. nsing rate of profit to actual fall in the rate o f profit. This is [)'pically capitalists. From this point of \"iew, the state the claim made by the wage squeeze theorists, can in principle engineer a reCO\'ery if both who assume that in the absence of changes in workers and capit.11lstS make suffi cient con· the rcal wage, technical change tends to raise cessions, and it can prevent future crises if the rate of profit :"lnd the ratio of profits [Q both sides display some moderation. It is wages. characteristic of possibility theories in general In one \"ersion of the theory, this rising that because they end by endowing the state profit r:u e then directly fu els an investment with the power to determine the basic 13. .... '5 of boom; in the other version, which is really an motion of capitalism, both the expeaations extension of underconsum ptionlstagnarion and the promises of their proponents come ro theory, the rising profit-wage ratio and depend heavily on the norion that e"en under increasing monopoly power exacerbate the capitalism, politics can command the system. demand g:-.p :-.nd hen« the syste m's tendency If this premise is false, the'I, at the very kast, towards stagnation, but the state is able to the tactics and strategy su~mding it are offsct this and thereby sustain the boom. In open to seriOlts question. This, as we shall see dther case, if the boom lasts long enough for next, isexacrly what nrcessiry theories of crisis the market for I:-.bour to get so tight and imply.

J 142 ECONOMIC CRISES

secular fall in the rate of profit emerges as the dominant tendency. Nece55ity Theories Over a long ~riod of time, theeffecrs ofthis The principal modem necessity theory is downward trend in the rate of profit on Marx's theory of the falling rare of profit. In investment produce a 'Iong·wave' in the mass the past, even some versions of underconsump­ of total potential profit. which first tion theory (such as Luxemburg's) were aecelerates, then decelerates and stagnates. In necessity theories, bur it is generally conceded the latter phase invesnnent demand falls off that this was primarily due to a mistaken and excess capacity becomes widespread, understanding of the logic of their own argu­ while the lack of new invesnncnt slows down ment. The law of the falling rate of profit productivity growth so that real wages may attempts to explain why capitalism goes for a time rise relative to productivity. In other through long periods of accelerated growth words, both underconsumption and wage which are necessarily followed by corres­ squ~ze like ph~nomena ap~ar as effects of ponding periods of decelerated growth and the crisis of profitability. But they do not cauu eventual crises. What underconsumption general crises, beca use there are built-in theories explain through apparently external mechanisms within capitalist accumulation factors such as bursts of discove ri es. Marx which adjust capaciry to effective demand. explains through internal factors based on and which keep wage increases within the the movements of (he potential rate of profit. limits of productivity increases (Capital I, ch. The driving force of all capitalist activity is 25. sect. 1; Garegnani 1978). profit, and surplus value is its hidden basis. In Each general crisis precipitares wholesale order to extract as much surplus value as destruction of weaker capitals and intensified possible, capitalists must inc~ase the length attacks on labour. which help restore and/or intensiry of the working day, and accumulation by increasing centralization and above all increase the productivity of labour. concentration and by raising overall profit­ And in order to compete effectively against ability. These are the system's 'n:1tural' re­ other capitalists, they must simultaneously covery mechanisms. But due to the secular fall achieve lower unit production COSts. Th~ in the rat~ of profit, each succeeding 10l1g increase of fixed capital is the soll/tion to both upswing is characterized by generally lower problems. In brief, the growth of fixed capital long-term rates of profit and growth, so that in relative to labour (the mechanization of the Gapitalist dominated world the problems production) is the principal means of raising of stagnation and world-wide unemployment the productivity of labour, and the growth worsen over time. Because these problems of fixed opital rdative to output (the arise from capitalist accumulation itself and capitalization of production) is the principal not from either insufficient competition or means of reducing unit production COSts. It ~xcessive wages, they cannot be simply can be shown, however, that the growth of 'managed' away by state intervention no fix ed capital also tends to lower the rate of matter how progressive its intent. Politics profit on the more advanced methods of cannot and will not command the system production (see references cited in FALLING unless it is willing to recognize that the RATE OF PROFIT). For the individual capitalist solution to a crisis requires an atta1;k capitalists who first adopt these larger, more on the working class, and that the socialist capital-intensive methods, their lower unit solution in turn requires an attack on the costs enable them to r educ~ prices and expand system itself. As Yaffe (1976) notes, the charac­ at the expense of their competitors, thus teristic reliance of possibility theories on the offsetting the smaller fate of profit by means power of the state may be a dangerous illusion. of a larger share of the marker. But fo r the (See also CRISIS IN CAPITALIST SOCIETIES.) AS system as a whole, this causes the average rate Read ing of profit to drift do",,"wards. Though various Armstrong, P. 2nd Glyn A. 1980: 'The bw of the factors can temporarily counteract this trend, f.all ing rue of profir 2nd oligopoly: 2 commeOI on they operate within strict limits, so that the Shaikh'. ECONOM.lSM 143

Bowles, 5.1981: 'Technical Change and the Profir revolutionaries'. His pamphlet of 1902 What Rate: A simple proof of the Okishio Theorem'. is to be Done? was directed primarily againsr Bums, A. F. 1969: The Business Cycle iff a economism, made a distinction between Changing World, table l.1,pp. 16-17. (Tade unionist politics and social demo­ Garegnlni, P. 1978: 'Notes on Consumption, cratic politics, and denounced 'bowing to Investment and Effective Demand: A Reply 10 Joan spontaneity' (i.e. the notion of a spont3neous Robinson'. movement towards socialism as an outcome Harman, C. 1980: 'Theories of Crisis', of economic development). Hilferding, Rudolf, 1910 (1981): Fin;Jn~ Capir.:ll, Lenin used the term, therefore, mainly in pl. IV. the context of practical politics, and it rook its Hodgson, G. 1975: Trotsky and F/JUJlisric place in the broader framework of his ideas . about the need for a centralized and Jacoby, Russell 1975: 'The Politics of : disciplined party which would bring a Towards a Critique of Automatic Marxism 11'. developed class consciousness to the working Kalecki, M. 1943 (1971 ): 'The Political Aspects of class from outside (see lENINISM). But '. In Stlecred Essays. economism also has a thc:orericalsignificance, ~-landd, E. 1971 (1975): Llte Capitalism. as a form of Marxism which emphasizes (and R(Xmer. J. E. 1979: 'Continuing Controversy on in the vicw of its critics over-emphasizes) the the Fallmg Rate of Profit: Fixed Capital. and Other determination of social life as a whole by Issues'. the economic base (see BASE AND Shaikh, A. 1978a: 'An Introduction to the History SUPERSTRUCTURE), and in general insists of Crisis Theories'. In US. Capitalism in Crisis. upon the determinism of ~1arx's theory. - 1978b: ' and upitalism'. Gramsci (1971, part II, sect. I) begins his Sweezy, Paul 1979-82: ~adingarticles in Monthly discussion of economism by conSIdering Review 3 1(3,6),32 (5), 3] (5, 7),34 (2). its political manifestations _ identifyi ng Yaffe, O. 1976:'Hodgsonand Activist Rdonnism'. economism with syndicalism, laissez·faire liberalism, and various other fonns of 'electoral abstentionism', which all express economics. See political economy. some degree of opposition to political action and the political party. He goes on, however, to relate it to a particular theoretical economism A concept developed by Lenin in orientation in the 50.";al sciences, namely 'the several articles of 1899 (, Retrograde Trend in iron conviction that there exist objective laws Russian Social-Democracy', 'Apropos of the of historical development similar in kind to Profession de fof, erc. in Collected Works, natural laws. together with a belief in a vol. 4), which criticized some groups in the predetermined tdeology like that of a Russi3n social democratic movement for religion'. separating politic3l from economic Struggles . In rCi:ent debates, Ci:onomism has been and concentrating their efforts on the latter; mOSt strongly, though \'ery inadequately, an attitude which ltnin associaud with criticized by the srructuralist Marxists (~e 'Bernsteinian ideas' (see BERNSTEIN). 'If the STRUCTURALISM) in the course of their economic struggle is taken as something rejection of the base/superstructure model complere in itself,' he wrote 'there will be and of teleology. Poulantzas, in his study of nothing socialist in it.' In a later article (1901) the Communist International's policy towards Lenin defined 'economism' as a $eparate trend fa scism (1974), argues that the policy was in the social democratic movement, with based upon a particular kind of economism the following characteristic features: a which reduced imperialism to a purely vulgarization of Marxism which downgraded economic phenomenon (a process of linear rhe conscious element in social li fe; a striving economic evolution), explained fascism in to restrict political 3giration and struggle; a Italy by the economic backwardness of the failure to understand the need 'to es tablish a counrry, and did not expect fascism in strong and centralized organisation of Germ3ny. which had a highly industrialized,