Economic Crisis and Crisis Theory

Paul Mattick Jr.

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000161212
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Keynesian economics claimed to have overcome the problem of economic depressions. However, as Mattick argues that crises are inherent within capitalism and that neither the market nor Keynesianism can stop "the steady deterioration of the economy". Written in 1974, Economic Crisis and Crisis Theory is one of Mattick's most valuable contributions to the Marxist critique of political economy and radical theory in general.

Part I

But a great period of world history never expires as quickly as its heirs would hope, and perhaps must hope, if they are to be able to attack it with the necessary force.

Franz Mehring

1

Bourgeois Economics

The progressive development of the capitalist economy was from the start a process punctuated by setbacks. There were good and bad times, and for this an explanation was sought. That social production was at first still dominated by agriculture made it possible to find the cause of economic distress in the inconstancy of nature. Bad harvests could be blamed for the general scarcity of goods. In addition, the low productivity of agricultural labor, in the context of a growing population, awakened the fear that the development of capitalist production would run up against natural limits, indicating the inevitability of a stationary state. Bourgeois political economy was colored by a deep pessimism, which was overcome only with the accelerating growth of capital.

Although in classical economics social relations were regarded as “natural,” this did not stop the classical theorists from explaining the distribution of income specifically in terms of these relations. And, while in classical theory the equilibrium of different interests was guaranteed by the exchange process, because the latter was regulated by the quantities of labor contained in the commodities exchanged, this character of exchange was called into question by the theory of distribution, and with it the equilibrium based on it. A purely formal consideration of exchange relationships, that is, together with the assumption of free competition, makes individual interests appear to coincide with that of society as a whole, and the economic law of the exchange of equivalents appears to ensure the system’s justice. But recognition of the class-defined distribution of the social product between rent, wages, and profit implied that the formal model of the exchange process was not a legitimate abstraction from reality.

The labor theory of value propounded by the classical economists examined the conditions of the time and their future development from the standpoint of capital and, therefore, from the standpoint of capital accumulation. With few exceptions, although with different arguments, the classical theorists hypothesized that capitalist accumulation would have definite limits that would manifest themselves in a decline of profits. According to David Ricardo, accumulation would inevitably be limited by the decreasing productivity with which the soil could be cultivated. An increasing difference between the returns from industry and agriculture would raise wage costs and lower profit rates to the benefit of rents.

This theory obviously reflected the relationship between the landowners and capitalists of Ricardo’s time and had nothing to do with developmental tendencies inherent in value production. As Marx put it, it was Ricardo’s inability to explain the developmental laws of capital on the basis of the nature of capitalism itself that caused him to flee “from economics into organic chemistry.”¹ Nevertheless, Marx saw in the English economists’ concern over the decline of the rate of profit a “profound understanding of the conditions of capitalist production.” What worried Ricardo, for example, was

that the rate of profit, the stimulating principle of capitalist production, the fundamental premise and driving force of accumulation, should be endangered by the development of production itself…. It comes to the surface here in a purely economic way—i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself—that it has its barrier, that it is relative, that it is not an absolute, but only an historical mode of production corresponding to a definite limited epoch in the development of the material requirements of production.²

If the tendency of profits to fall was first explained by increasing competition and by increasing rents (in connection with population growth), it was not long before wages were also seen as conflicting with the profit requirements of accumulation. On the other hand, the extension of wage labor as a social institution suggested, to those who analyzed value in terms of labor time, questions about the origin of profit—questions answered by the producers’ demand for the full proceeds of their labor. Like profit itself, accumulated capital came to be understood to be accumulated unpaid labor. To refute the accusation of capitalist exploitation thus demanded abandonment of the labor theory of value. Moreover, the problem of accumulation could simply be forgotten, as earlier apprehensions appeared to be false. Accumulation did not decline but increased, and capital unmistakeably dominated the whole society. Wage labor and capital now represented the fundamental antagonistic classes that determined the further metamorphoses of bourgeois economics.

The increasingly apologetic nature of economics did not, to be sure, require a conscious effort on the part of the bourgeois economists. For them, convinced as they were that the capitalist economy was the only possible one, every criticism of it was an unjustified and subjective distortion of the real facts of the matter. Apologetics appeared as objective, scientific knowledge, which no demonstrable shortcoming of the system could shake. Of course, the generalization of the capitalist economy as a model for all social systems required an ahistorical approach and the conversion of the categories of political economy into general laws of human behavior.

As the past can only be conceptualized in terms derived from the present, for Marx also the bourgeois economy provided a key to the understanding of earlier forms of society, “but not at all in the manner of the economists, who smudge over all historical differences and see bourgeois relations in all forms of society.”³ There are general, abstract categories applicable more or less to all forms of society, but for the analysis of any particular system they must be given a content corresponding to that system alone. Money as a means of exchange and money as capital express different social relationships, and the means of production utilized in the past are not to be equated with capital or self-expanding value. The capitalist economy cannot be explained on the basis of abstract general categories of human behavior; the attempt to do so arises either from ignorance of real social interrelations or from the wish to escape the problems they involve.

According to Marx, the classical theory of value rested on a confusion between the natural and the economic senses of production. Taking labor as a starting point, it thought of capital as a thing, not as a social relationship. However, “to develop the concept of capital it is necessary to begin not with labor but with value and, precisely, with exchange value already developed in the movement of circulation.”⁴ It is on the difference between the exchange value and the use value of labor power that the existence and the development of capitalist society depend, a distinction that presupposes the separation of the worker from the means of production. Labor itself has no value, but the commodity labor power generates, when consumed, a surplus value in addition to its own value. This surplus value divides into the various economic categories of the market economy, like price, profit, interest, and rent—categories that at the same time conceal their origin as shares of surplus value.

The Marxian critique of bourgeois economics was therefore a double one. On the one hand, it consisted in the rigorous application of the labor theory of value to the study of capitalist development, which it analyzed in terms of the system’s own fetishistic economic categories. On the other hand, it exposed these categories as expressions of the class and exploitation relations specific to capitalist commodity production. Marx achieved what the classical economists could not—namely, an explanation of capital’s growing difficulties by the contradiction, specific to capitalism, between exchange-value and use-value production. In this way he succeeded in showing that the limits of capital are set by capital itself. And since the economic categories mask real class relations, the economic contradictions characteristic of capitalism are at the same time real antagonisms of interest, which can therefore be abolished only by revolution.

Because it refused to observe the class conflict between labor and capital to which capitalism gave birth, classical economics saw itself as an unbiased science. It did not, however, fall into pure positivism, since at the same time, from its normative side it indulged itself in proposals for the redress of persisting or newly emerging grievances. The harmony of interests expected to characterize market society was held to be delayed by the retrograde efforts of mercantilist monopoly and monetary policy. At the same time, however, doubts arose that universal competition would be a cure-all for economic injustice. The obvious pauperization of the workers led John Stuart Mill, for instance, to suggest a modification of the economic consequences of capitalist production by a more just distribution of income, to be achieved by political means. For Marx the relation of production to distribution was determined by the class relations of production. From this point of view Mill only shows his “fatuity” when he “considers the bourgeois relations of production as eternal, but their forms of distribution as historical, [and thereby] shows that he understands neither the one nor the other.”⁵ The normative elements of classical economics expressed only an insufficient understanding of the capitalist economy.

In general the political economy that arose along with capitalism was still the idealized representation, from the bourgeois point of view, of commodity production in which exchange enabled the possessors of the means of production to realize profits. The practical critique of political economy represented by the workers’ struggle for better living conditions remained within the same conceptual framework, seen from the workers’ side. The content of political economy was thus the struggle between labor and capital disguised in economic categories. So long as the bourgeoisie adhered to the labor theory of value, in its own way it recognized objective realities, even if it passed over in silence the fact of exploitation. By abandoning this theory it deprived itself of the possibility of objective knowledge of economic relations and relinquished to its Marxian critique the scientific investigation of bourgeois society.

It would be incorrect, however, to explain the bourgeoisie’s abandonment of the labor theory of value solely by the desire to deny the fact of exploitation. To begin with, the real significance of this theory—the dual character of labor power, at once an exchange value and a use value—was not correctly understood. In addition, the labor theory had no practical importance for the bourgeoisie. In the business world we encounter not labor-time values but the prices derived from them and established through competition. This need not have prevented the classical theorists from establishing the validity of the value theory, since their starting point was the society as a whole, and indeed they put a great deal of effort into the matter. But the solution of the theoretical difficulties connected with the labor theory of value was left to Marx. Their inability to overcome them thus surely had a role in the economists’ abandonment of the law of value.

Be that as it may, to account for profit, interest, and rent on the basis of the law of value could only make it clear that the workers produce a surplus value, in addition to the value of their labor power, which the nonproducing layers of society appropriate. The idea that labor alone creates value had to be dropped if income in the form of profit, interest, and rent was to be justified. This move was not only necessary but also plausible, for under capitalist conditions the workers can no more produce without capital than capital without workers. As the workers’ lack of property is the presupposition of capitalist production, so capitalist possession of property is the presupposition of the existence of a proletariat. Since labor is as necessary as capital, and people do live on the earth, we can speak of three factors of production—land, labor, and capital—that play equal parts in production. Thus the labor theory of value gave way, to begin with, to a theory of the determination of production costs by these three factors.

Although incompatible with the law of value, the cost-of-production theory remained an “objective” conception of value (in contrast with the later derivation of value from the subjective evaluations of consumers) in that it acknowledged the role of various putative contributions to social production and represented their value. In this theory the value of commodities was determined not only by the labor directly expended in their production but also by the conditions of production without which this labor would be impossible. Interest, often not distinguished from profit, was explained as arising from the “productivity of capital.” “Pure” profit (distinguished from interest) was explained as the payment to the entrepreneur on whose activity another portion of the total social value was supposed to depend. The cost-of-production approach, however, was unsatisfactory both from the theoretical and from the practical point of view. Moreover, the idea of property ownership as per se creative of value also was rather questionable. But the identification of the market price of labor power with its value (so that the worker seemed to be paid the full value of his labor) permitted the illusion that the gains obtained on the market were not based on exploitation. The problems of bourgeois economics seemed to disappear as soon as one ignored production and attended only to the market. This exclusive concentration on the market led to the transformation of the objective concept of value into a subjective one.

The plausible idea that the value of a commodity derives from its utility for the purchaser had also not been foreign to the classical economists. Thus Jean-Baptiste Say had already tried to explain value on the basis of utility only to come to the conclusion that the latter could not be measured. It was measurable only by the quantity of labor which a person would be willing to perform in order to purchase a commodity. For Marx, too, the exchange value of commodities presupposed their having a use value. But capitalism is based not on the exchange of products of labor for the satisfaction of individual needs but on the exchange of some use value, playing a role as exchange value, for a greater quantity of exchange value in its gold or commodity form. For such an exchange to be possible as an exchange of labor-time equivalents, there must be a commodity whose use value is greater than its exchange value in an objectively measurable sense—i.e., in value terms. The commodity labor power—whose use value is labor itself—fulfills this condition. But if, like the economists, we disregard this real basis of capitalism, exchange indeed appears to serve the satisfaction of individual needs, and the valuation of commodities seems to be determined by the multiplicity of subjective human preferences.

Viewed apart from production, the price problem can be dealt with purely in terms of the market. If the supply of commodities exceeds the demand for them, their price falls; in the opposite case it rises. The movement of prices, however, cannot explain the phenomenon of price itself, as a property of products. Even if the objective concept of value is given up, some other concept of value must be maintained to say more than that prices determine prices. The “solution” to this problem was found in a move from economics to psychology. Prices, economists began to claim, are based on consumers’ individual evaluations as represented by their demand for goods. Prices are then explained by the scarcity of the goods in question relative to the demand for them. It did not take long for this subjective treatment of value, in the form of “marginal utility theory,” to become almost universally accepted within bourgeois economics.

With the marginal utility theory the idea of political economy lost its sense and was abandoned for that of “pure” economics. Marginalism was not different in method from classical economics, but it applied this method no longer to social problems but to the behavior of individuals with respect to the goods available to them and to the consequences of this behavior for ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Part I
• Part II
• About the Author