With the return of capitalist crisis, there has been a renewed interest in Marxist economic theory. Even bourgeois economists have been forced increasingly to comment on Marx’s ideas, if only to dismiss them. Hardly a day goes by without some reference in the financial press to Marx. Not surprisingly, this increased interest has served to focus on Marx’s theory of crisis.
This interest has served to revive the controversy surrounding the “under-consumptionist” explanation of crisis, which, in broad terms, associates the difficulties of capitalism, especially in crisis conditions, with a lack of demand in the economy. According to this theory, capitalism has an in-built tendency to produce far more than can be absorbed by consumption. Modern “under-consumption” theory is closely identified with John Maynard Keynes, who believed that the problem of the lack of “effective” demand could be resolved by the intervention of the state through deficit financing.
Theories of “under-consumption” are often confused with Marx’s ideas. But these are not the same as Marx explained long ago. While under-consumption certainly exists for the masses, as any worker can testify, it is not the direct cause of capitalist crisis.
The idea of “under-consumption” as the cause of crisis pre-dates Keynes and even pre-dates Marx. It can be found in the writings of the great utopian socialists, such as Robert Owen. However, the best known proponents of these views were Jean Charles Sismondi (1773-1842), Thomas Malthus (1766-1834) and Johann Karl Rodbertus (1805-1875).
The most consistent and developed version of the theory, as well as the least vulgarised, was put forward by Jean Charles Sismondi. As Engels pointed out: “The ‘under-consumption’ explanation of crises originated with Sismondi, and in his exposition it still had a certain meaning.” 2 This “certain meaning” was also recognized by Marx, as can be seen from his writings on the subject.
Sismondi’s chief work, New Principles of Political Economy, was published in 1819. In this book he maintained that general crises were due to excess capacity, which in turn was due to the separation of the exchange values of commodities from the needs and wants of society. According to Sismondi overproduction of commodities did not arise from the general over-fulfillment of human needs but from the mal-distribution of income and the poverty of the masses, resulting in insufficient demand in the society. In short, the working class did not receive enough in wages to buy back the goods that they produced, which is always the case under capitalism.
Although one-sided, Sismondi was not entirely wrong in this supposition. Indeed, he made a whole number of correct observations, which also were accepted by Marx. It was Sismondi, for instance, who pointed out the error of Jean Baptiste Say (supported by James Mill and David Ricardo) that every seller meets a corresponding buyer (“Say’s Law”) and they therefore regarded generalized overproduction as impossible. According to them, the economy would always arrive at equilibrium, which was clearly not the case. This vulgar “theory” of equilibrium is the real origin of the “efficient market hypothesis”, which stated that the economy left unaided would reach an optimum state. This was the Credo of modern political economy – until its falsity was exposed by the greatest collapse of the productive forces for generations in 2008-9.
Unlike the vulgar bourgeois economists who dismissed crises, such as J.B Say, Sismondi understood that crisis was inherent in the process of commodity production. However, his understanding of the real nature of capitalist crisis, while more advanced, was limited and rather one-sided. The real nature and central contradictions of capitalism, while clearly present, nevertheless eluded him. Despite his shortcomings, Marx paid tribute to him and regarded him as an original thinker who, out of the classical economists, was striving towards an understanding of capitalism and its tendency to crisis. In this regard, he was head and shoulders above David Ricardo, the outstanding representative of bourgeois classical political economy.
“Sismondi is profoundly conscious of the contradictions in capitalist production”, wrote Marx, “he is aware that, on the one hand, its forms – its production relations – stimulate unrestrained development of the productive forces and of wealth; and that, on the other hand, these relations are conditional, that their contradictions of use-value and exchange-value, commodity and money, purchase and sale, production and consumption, capital and wage-labour, etc., assume ever greater dimensions as productive power develops.”
Marx continues: “He is particularly aware of the fundamental contradiction: on the one hand, unrestricted development of the productive forces and increase of wealth which, at the same time, consists of commodities and must be turned into cash; on the other hand, the system is based on the fact that the mass of producers is restricted to the necessities. Hence, according to Sismondi, crises are not accidental, as Ricardo maintains, but essential outbreaks – occurring on a large scale and at definite periods – of the immanent contradictions.” 3
While recognizing the great contribution of Sismondi, Marx was still well aware of his shortcomings and limitations, as with all the classical economists:
“He [Sismondi] forcefully criticizes the contradictions of bourgeois production but does not understand them, and consequently does not understand the process whereby they can be resolved. However, at the bottom of his argument is indeed the inkling that new forms of the appropriation of wealth must correspond to productive forces and the material and social conditions for the production of wealth which have developed within capitalist society; that the bourgeois forms are only transitory forms, in which wealth attains only an antithetical existence and appears everywhere simultaneously as its opposite.” 4
Thomas Malthus added nothing new to what Sismondi had already written. Malthus, the arch-vulgarizer and reactionary apologist attempted to crudely use these arguments to justify the interests of “the aristocracy, Church, tax-eaters, toadies, etc.” Marx accused Malthus of plagiarizing the weak side of Adam Smith and caricaturing Sismondi. 5
Marx developed his own ideas on capitalist crisis on the basis of a very thorough study and criticism of all the classical economists, especially its chief representatives, among others, Adam Smith and David Ricardo. While Marx did not manage to write a specific book on capitalist crisis, his theory of crisis is present throughout his economic writings, especially Capital and Theories of Surplus Value.
Rate of Profit
Some people falsely attribute the tendency of the rate of profit to decline as the real cause of capitalist crisis, but this is not correct and Marx never recognized it as such. While it is without question an important tendency under capitalism, it operates as a long-term tendency that bears down upon the system. Marx expressed himself in very precise terms that countervailing factors transformed this law into a tendency, describing it uniquely as “this double-edged law”. He went on to explain: “The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods.” 6
There have been long periods where the rate of profit was falling. That was the case towards the end of the long period of capitalist upswing that followed the Second World War. But there were also long periods when the rate of profit was rising as in the last 30 years. We therefore have to look elsewhere for an explanation of crisis, which Marx reveals in his extensive writings on political economy.
In the Theories of Surplus Value, described by Engels as volume four of Capital, Marx gives a clear outline of the fundamental contradiction facing capitalism:
“The fact that bourgeois production is compelled by its own immanent laws, on the one hand, to develop the productive forces as if production did not take place on a narrow restricted social foundation, while, on the other hand, it can develop these forces only within these narrow limits, is the deepest and most hidden cause of crises, of the crying contradictions within which bourgeois production is carried on and which, even at a cursory glance, reveal it as only a transitional, historical form.
“This is grasped rather crudely but nonetheless correctly by Sismondi, for example, as a contradiction between production for the sake of production and distribution which makes absolute development of productivity impossible.” 7
Marx stated numerous times that the ultimate cause of capitalist crisis is overproduction. But this is not overproduction in relation to what people need or want. In a market economy overproduction refers only to what can be profitably sold. “The English, for example, are forced to lend their capital to other countries in order to create a market for their commodities”, explained Marx.
“Overproduction, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits… Hence crises arise, which simultaneously drive it onward and beyond [its own limits] and force it to put on seven-league boots, in order to reach a development of the productive forces which could only be achieved very slowly within its own limits.” 8
Marx reiterates this point again and again throughout his writings. “Overproduction is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay.” 9
Again, in volume two of Capital, Marx explains, “The volume of the mass of commodities brought into being by capitalist production is determined by the scale of this production and its needs for constant expansion, and not by a predestined ambit of supply and demand, of needs to be satisfied. Besides other industrial capitalists, mass production can have only wholesale merchants as its immediate purchasers. Within certain bounds, the reproduction process may proceed on the same or on an expanded scale, even though the commodities ejected from it do not actually enter either individual or productive consumption. The consumption of commodities is not included in the circuit of the capital from which they emerge. As soon as the yarn is sold, for example, the circuit of the capital value represented in the yarn can begin anew, at first irrespective of what becomes of the yarn when sold. As long as the product is sold everything follows its regular course, as far as the capitalist producer is concerned. The circuit of the capital value that he represents is not interrupted.”
Marx then goes on to explain that this expansion allows the whole reproduction process to be completed. However, they pile up and lie unsold in the hands of retail traders and remain on the market. “One stream of commodities”, writes Marx, “now follows another, and it finally emerges that the earlier stream had only seemed to be swallowed up by consumption. Commodity capitals now vie with each other for space on the market. The late-comers sell below the price in order to sell at all. The earlier streams have not yet been converted into ready money, while payment for them is falling due. Their owners must declare themselves bankrupt, or sell at any price in order to pay. This sale, however, has absolutely nothing to do with the real state of demand. It has only to do with the demand for payment, with the absolute necessity of transforming commodities into money. At this point the crisis breaks out. It first becomes evident not in the direct reduction of consumer demand, the demand for individual consumption, but rather in a decline in the number of exchanges of capital, in the reproduction process of capital.” 10
The same point is again reiterated in volume three of Capital, where (once again) Marx emphases the fundamental contradiction of the capitalist mode of production: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” 11
Some “clever” people have tried to get round this clear explanation of crisis by claiming that this statement of Marx was an isolated phrase, a “description”, or “simply a throw away remark”. But, even the most cursory examination of his writings shows that this is not the case. Far from being an isolated and accidental remark, this explanation is, in fact, absolutely central to Marx’s theory of crisis. This is a theory based not on “under-consumption” theory, which is at best completely one-sided, but on the central contradiction of overproduction under capitalism. Marx and Engels had already alluded to this cause in the Communist Manifesto, where overproduction is described as an epidemic, “that, in earlier epochs, would have seemed an absurdity – the epidemic of over-production.”
It was none other than the revisionist Eugene Dühring who borrowed and vulgarized the “under-consumptionist” explanation of crisis, which he put forward in opposition to Marx’s theory of overproduction. Engels pointed out: “Rodbertus took it from Sismondi, and Herr Dühring has in turn copied it, in his usual vulgarizing fashion, from Rodbertus.” 12
It was left to Engels, assisted by Marx, to rebut the false ideas of professor Dühring, including the idea of “under-consumption”. The reply was so comprehensive that the series of articles published in the German party press, soon became a book entitled Anti-Dühring, which first appeared in 1878, and has become established as one of the fundamental classics of Marxist theory.
It is significant that when dealing with capitalist crisis, the explanation in Anti-Dühring contains not a single reference to the tendency of the rate of profit to fall. Yes, not one single solitary word – not even a “throw-away remark” is to be found on the subject. Some academic “Marxists” are extremely irritated by this silence. They are so irritated that have even tried to argue that Engels’ views did not coincide with those of Marx, in other words, that Engels was not really a Marxist!
Typical in this respect are Professor M.C. Howard and Senior Lecturer in Economics, J.E. King, who informed us in their History of Marxian Economics that Engels “interpreted Marx’s ideas in his own distinctive manner” and “came no closer than Marx to providing a coherent theory of economic crisis.” We are then told by these learned critics: “Indeed, by neglecting the tendency of the rate of profit to decline he renounced a major strand in Marx’s crisis theory, though he was followed in this by almost all Marxian economists before 1929.” They conclude that “Controversy still rages as to whether his [Engels] own later thought constitutes a distinct ‘Engelsism’ which, with its determinism and its application of natural scientific reasoning to the study of human history, is separate from and antagonistic towards Marx’s own philosophy and methods of analysis… It is conceivable that Engels took a conscious decision to suppress those of Marx’s writings with whose humanist orientation he had (by the 1880s) very little sympathy.” 13
These are unfounded trumped-up allegations, which have no bearing in truth but are peddled around the universities like so much cheap gossip. They are part of the academic world, which is divorced from Marxism but attempts to make its mark by manufacturing differences between Marx and Engels. They may have read all the right books, but their views are not much use to Marxists or anybody else seeking a scientific explanation.
But can it really be true, as suggested, that Engels misunderstood or misrepresented Marx’s views on economics – in this case in his classic work Anti-Dühring? No, it is not true, and for a very good reason: Although this book was written by Engels, the completed drafts were read, and approved, by Marx, who also contributed a whole section to it. Which section did Marx write? While Engels concentrated on philosophy, history and science, it was Marx himself, as Engels admitted, who wrote a long section on economic theory in Anti-Dühring.
Since this book was written more than a decade after the drafts for Capital had been completed, and since Marx died some five years after its publication, the section on economics in Anti- Dühring can be taken as Marx’s final thoughts on capitalist crisis. Certainly these are the last things he wrote on the subject.
1 Financial Times, 26 August, 2011
2 Engels, Anti-Dühring, p.341, Moscow, 1969
3 Marx, The Theories of Surplus Value, vol.3, p.56
4 Ibid, p.56
5 Ibid, pp. 62 & 53
6 Marx, Capital, vol.3, pp.326 &346, Penguin edition, our emphasis
7 Marx, Theories, vol.3, p.84, our emphasis
8 Ibid, p.122
9 Marx, Theories, vol.2, p.535
10 Marx, Capital, vol.2, pp.156-57, Penguin
11 Marx, Capital, vol.3, p.615, our emphasis
12 Engels, Anti-Dühring, p.341
13 Howard and King, A History of Marxian Economics, vol.1, p.17