Bulletin of the Conference of • Socialist • Economists February 75 Vol. TY 1 ISSN 0305 - 8247 For contents see back cover A Itoh 1 THE FORMATION OF MARX'S THEORY OF CRISIS Makoto Itoh I TWO TYPES OF CRISIS THEORY Marx's theory of crisis in "Capital" forms a focus of his systematic critique of Classical economics in which capitalist economy is regarded as the ultimate natural order of human society. Unlike the Classical school, Marx's theory treats the law of motion of capitalistic production scientifically with its historical forms and mechanisms. Without such a systematic theory, we cannot clarify the logical necessity of cyclical crises which reveal the contradictory nature of capitalist economy in all its complex interrelations. In dealing with such complex phenomena, the level and the empirical basis of abstraction is particularly important. The crisis theory in "Capital" was dev- eloped in order to prove the inevitability of cyclical crises at the level of basic principle. And it was formed on the empirical basis of the most typical cyclical crises at the middle of the 19th century, the most suitable historical basis of abstracting the principle of crisis.. If we take as the basis of abstraction the whole history of crises, including the immature crises in the mercantilistic age, we will only recognize either too diverse concrete factors (often not exclusively economic factors, such as wars) affecting the courses and phases of crises, or too abstract formal common factors, in order to prove not the mere possibility but the logical necessity of cyclical crises. Professor Uno's systematic division of levels of research in Marxian Economics into Principle, Stages Theory, and Analysis is essential here. Studies in the historical changes of the phases and roles of economic crisis through the world history of capitalism, comprising three stages of mer- cantilism, liberalism, and imperialism, should belong to another, upper level of research as Stages Theory rather than to the basic Principle of political economy as we see in the theoretical system of "Capital". The surer the prin- ciple of crises becomes, the surer the stages theory of crises or further, the analysis of the critical situation of the recent capitalism, can be made. We must recognize even in our age the importance of Marx's crisis theory, abstract- ed from the typical cyclical crises at the middle of the 19th century, as the principle of capitalistic crisis. However, Marx's crisis theory is not fully complete. In particular, it con- tains two different types of theories which are not easily made consistent with each other. Let us call them in short 'the excess capital theory' and 'the excess commodity theory'. For instance, in the section III of Chapter XV of the third volume of "Capital", Marx tries to show that "a steep and sudden fall in the general rate of profit" due to "absolute over-production of capital" "in a ratio to the labouring pop- ulation" (K.III.S.262,p.251) 1 brings forth cyclical crises. In this context ' In this essay, I will cite pages of Marx's "Capital" in the following way, using both the German edition in Marx-Engels Werke 23-25 (1962-4) and the English edition by Progress Publishers (1965-71). K.III means the third vol. of "Cap- ital", S indicates pages in the German edition and p those in the English edition Itoh 2 excess of commodities in the market and difficulties of the realization of surplus-value are regarded as a result of the falling rate of profit caused by the excess accumulation of capita1.1 Marx's attempt in "Capital" to dev- elop a business cycle theory along this line can be observed also in his theory of capital accumulation of the first volume (K.I,S641-9,661, pp612-2, 632-3), and in his credit theory of the third volume (K.III,S529-30, pp513-14; also K.II,p415). "The conditions of direct exploitation, and those of realiz- ing it, are not identical,. .The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society". Along with the increase of production of surplus-value, "the contradiction between the,conditions under which this surplus value is produced and those under which it is realized" (K0III,S254-5, pp244-5). Also in Chapter XXX of the third volume, Marx points out that the "dispropor- tion of production in various branches" and the "restricted consumption of the masses" as opposed to development of productive power are the ultimate reason • or cause of crises (K.III,S501, p484). In these places, he considers that crises occur from the over-production of commodities beyond demand, due to either the disproportion among production branches or the restricted consump- tion of the masses. Excess Capital and the falling down of profit rate are seen as resulting from this process. Needless to say, both capital and.commodities have become generally excess in crisis periods. But it is important to discern which of them is the fundamen- tal cause of economic crises. The excess capital theory and the excess commod- ity theory are logically opposed to each other at this point. We cannot keep both theories if we seek to prove the logical necessity of economic crisis in the principle of political economy. Why do these two different types of crisis theory co-exist so uneasily in "Capital"? In which direction, and how, should Marx's crisis theory be complet- ed? I will try to give an answer to these questions by reviewing the formation of Marx's crisis theory from "Grundrisse" to "Capital". II CRISIS THEORY IN "GRUNDRISSE" In "The Chapter on Capital" in "Grundrisse" which is the first manuscript for "Capital" in 1857-58, Marx shows his theoretical studies of crisis, mainly at the beginning of Section II "The Circulation Process of Capital" and in the profit theory of Section III, "Capital as Fructiferous". At the beginning of Section II of "Grundrisse", in contrast to the second vol- ume of "Capital", Marx treats the selling process of commodity products by capital i.e. C'- M' as an important restriction on the motion of capital, say- ing for instance:- 1 P.M.Sweezy calls this type of theory 'Crises Associated with the Falling Tend- ency of the Rate of Profit' in - his Theory of Capitalist Development (1942). As I discuss below, this theory should be developed rather independently from "the law of the tendency of the rate of profit to fall". Sweezy's designation seems to be misleading on this point. However, his treatment of this theory remains one of the rare cases (in addition to Prof. Kouzo Uno and his followers' studies in Japan) in the history of Marxian crisis theory. I would also like to suggest that the name Sweezy gives to the other type of theory - "Realization Crisis" - should be changed in order to sharpen the contrast with this theory. Itoh 3 "It is forgotten, as Malthus says, 'the very existence of a profit upon any commodity pre-supposes a demand exterior to that of the labourer who has pro- duced it', and hence the demand of the labourer himself can never be an adequate demand. Since one production sets the other into motion and hence creates con- sumers for itself in the other capital's workers, it seems to each individual capital that the demand of the working class set by production itself is an 'adequate demand'. This demand which production itself sets drives production forward beyond the proportion in which it would have to produce in relation to workers; on the one hand, the production must overdrive beyond that proportion; on the other, the demand exterior to the demand of the labourer himself dis- appears or shrinks up, thus the collapse occurs." (Gr.S323,p420) 1 Marx supposes here that commodity production by capital as a whole must exceed proper proportion for consumers' demand, and emphasizes that "the final product finds its limit in direct and final consumption" (Gr.S323, p421). It must be noticed that Marx does not yet discuss clearly the logical necessity of econ- omic crises in cyclical form. He tends rather to maintain in "Grundrisse" that economic crisis is almost equivalent or leads directly to the final collapse of capitalistic production, basing it on the excess commodity theory of an under- consumption type. Marx is apparently trying here to follow and develop the crisis theory of Sis- mondi and Malthus who opposed Ricardo's classical theory. Marx contrasts Sis- mondi with Ricardo as follows:- "Those economists who, like Ricardo, conceived production as directly identical with the self-increasing of capital.. .have grasped the positive essence of capital more correctly and deeply than those who, like Sismondi, emphasized the limitation of consumption and of the existing circle of counter-values. However, the latter has better grasped the limited nature of production based on capital, its negative one-sidedness. The former more its universal tendency, the latter its particular restrictedness". (Gr. S314, p410) Surely, Sismondi or Malthus tried to show the inevitability of general over- production, and therefore the particular restrictedness of capitalist produc- tion, whereas economists like Ricardo emphasized one-sidedly the adjustment working of demand and supply on the basis of the law of value, denying the possibility of general overproduction of commodities. According to the labour theory of value of Classical economics, the value of yearly commodity products° and the revenues, such as wage, profit and rent necessary. to buy them become always equal in total, for both are determined by the total quantities of yearly social labour.