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:

  1. Commodity Capital
  2. Productive Capital
  3. Money 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

 

  1. M - M' starts and ends with exchange. Money is only capital when advanced -it is self expanding value
  2. 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.

  3. P -P Input output circuit: basis of Leontief I-O and Sraffian/Von Neumann systems
  4. 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

  5. C' - C' similar to P -P emphasises the commodity aspects of economic activity. Start with surplus value already embodied and the start and finish may be different things

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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