Critical Political Economy
Lecture 6
Crisis Theory
Have discussed the dynamics of CMP. Characteristics of CMP development:
Repeated industrial revolution
Continuous transformation of technology/innovation
Boom and slump
Uneven growth
Neo-classical analysis provides an equilibrium analysis but for Marx capitalism was dynamic and turbulent and he emphasised the tension and contradictions and continuous revolution. This process occurs through crisis
Relations of production become a fetter on the forces of production and this leads to crisis which is resolved by:
Destruction of productive forces
Conquest of new markets
Increase in labour exploitation
But as resolve one crisis create the causes of the next one and it is likely to be more violent. Reduce the means by which can control
Note that crisis is an integral part of capitalist growth. It is necessary, rational, in the sense that it helps produce for profit, but socially irrational -being destructive and great social cost
There are different forms of crisis depending on where the break in the circuit of capital occurs, though in reality they may occur together.
Circuits of capital:
Shouldn’t matter where start from but the first two underplay the role of money as capital and obscure the social relations. Surplus value is prominent in M - M'
see diagram
M - L is the crucial social relation, divorced from class context it is just exchange. The production of surplus values is in production
M - MP are just equivalents
At the end C' = C + c is sold for M' = M + m, so m is surplus value in money form.
It is important to note that in this circuit M is money capital and not just an intermediary/medium of exchange. For simple reproduction -no net accumulation- M is advanced again
Can be interrupted:
Appropriate quantities of L and MP may not be available
Money not advanced
Might not be able to sell
So possibilities of crisis are clear even at this point.
LP and MP are already in the hands of the capitalist so don’t have to ask how they got there
Can regard the purpose of economic activity as consumption L-M-C as the worker exchanges LP for money to buy goods and m is spent on consumption goods by capitalists. But such a view is misleading
P-Q-P circuit does not show that capital can produce surplus value. The initial and terminal may be different in composition and value, especially with changing productivity and technology, so cant really compare the beginning and end. P-P is concerned with use values
Concerned with exchange values.
Both 2 and 3 assume heterogeneous inputs available in sufficient quantities i.e. no effective demand problems
Breaks in Circuit
When introduce competitive process and the distribution of surplus value can no longer treat capital as homogeneous. Important not to remain with the same notation for inputs as for outputs
Differences in commodities used by capitalists and workers
Role of prices. Different relative prices need to be shown and need to disaggregate value and price relations to understand the transformation problem
As we have seen Marx set up:
Model of simple reproduction: to focus on non-durables and consider what the requirements were for stationary state equilibrium
Model of expanded reproduction: To show how surplus was realised and then provides for accumulation and growth. If this was a growth model there would be a lot to criticise, but Marx was not concerned with growth as such. He was attempting to show that even assuming the best possible case for bourgeois economics -an equilibrium model of a stationary or growing economy, surplus value is created in production and realised in exchanges. Thus exploitation takes place. He was also showing how restrictive and unrealistic the assumptions have to be to get a well balanced model, meaning that there is considerable scope for the system to go into crisis.
So have:
Unregulated nature of CMP development
Production for profit
Role of money as intermediary
So conditions for steady growth are unrealistic and the likelihood of crisis or breaks in the process are high. There are a number of possible areas in which this can happen.
Crisis is endemic to capitalism and plays an important role. Historically this is evident and underpinning it is the Law of the Tendency for the Rate of Profit to Fall.
Falling Rate of Profit
Important for Marx's crisis theory as it provides the backdrop. Has also been the focus of criticism of Marx' theory because of its interpretation as an iron law of the falling rate of profit . Important to see it as the Law of the Tendency for the rate of profit to fall.
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