THEORIES OF CAPITALIST CRISIS.
Marxist theories of crisis have been elaborated for the industrialized capitalist system of the centre countries. There are crisis associated with the falling tendency of the rate of profit and there are realization crisis. The tendency of the rate of profit to fall as accumulation proceeds under capitalism can cause a crisis and lead to disequilibrium. On the other hand , realization crisis are associated with disequilibrium in which commodities are sell at price less than their values.
Causes of crisis:
The causes of crisis analyzed mainly in three sets of theories associated with the two types of crisis. They are,
1. falling rate of profit
2. disproportionality and
3. underconsumption.
The falling rate of profit and crisis:
According to Marx, “the falling tendency of rate of profit as the prime cause of capitalist crisis”. The endogenous fall in the rate of profit may be due to an increase in the wage rate in the short run. There is an inherent tendency of the rate of profit to fall in the long run in a capitalist economy.
Crisis associated with the fall in rate of profit derive from the operation of the law of value. They arise from the fact that with capitalist development, the organic composition of capital (c/v), tends to rise faster than the surplus value. The fall in sv is due to the rise in demand for labour which raises wages in value terms as accumulation proceeds. Technical change cause an employment of labour and to generate fluctuations in the rate of accumulation. But the increase in the demand of labour from the outstrips the labour redundance over by labour saving technical progress. Capital accumulation raises the over all demand for labour, this exerts upward pressure on wages and wage increases causes a proportionate fall in surplus labour or surplus value. When sv is capitalized, accumulation declines and the wage increase is checked. Even if all surplus value is accumulated 4m/m is fall or zero because s/v is falling. This implies that crisis usually proceeded by sharp rise in wages.
The chain of causation of crisis,
“increase in rate of accumulation → rise in volume of employment → increase in wage level → fall in profit below normal level → reduction in accumulation → crisis.”
The capitalist accumulate with a view to earning more profit but ultimately increased accumulation leads to declining rate of profit. When the profit rate falls, investment declines and this leads to business fluctuations.
Theories of disproportionality:
Another cause of crisis is the disproportional growth of different departments. This disproportion and competition of capital is due to planless anarchy of capitalism. This anarchy shows the absence of conscious regulation. Disproportionality leads to inability of some commodities to sell at their values. This implies that the relative proportion of production of commodities is wrong. There is imbalance between different branches of production. For eg. between capital and consumer goods. This leads to a crisis , because ultimately, physical limits are reached and the capital goods sector isw unable to buy inputs to satisfy its own needs. As soon as it is forced to slowdown accumulation, via the circuits of capital fluctuations in business started production under capitalism is unplanned and anarchy. Under these circumstances, disproportionality is the inevitable result.
According to Pujan Baranowskly a revisionist, if social production were organized in accordance with demand and the power to direct labour and capital from one branch to another, then the supply of commodities could never outstrip the demand. He showed that if the part of sv that is added annually to capital is not divided among the various industries and departments in the correct proportions, a crisis will be sure to arise, but that if increment to capital is divided in the in the correct proportions, there could be no crisis.
The revisionist thesis has been widely criticized and rejected.
a) Falsely claiming that the scheme of expanded reproduction can be used to prove the impossilbility of under consumption.
b) It is not possible to construct a scheme of accumulation in two departments with social consumption remaining constant because this will imply that rate of accumulation in the consumer goods departments will be zero.
The criticism of Baranowsky’s thesis is based on human consumption as an end of capitalist production. This raises the contradiction between the capitalists aim of production for exchange value and general aim of production of creating use values.
The major proponents of disproportionality apart from Baranosky, include Bulgakov, Hilfreding, Otto Bawer, Henryk Grossman and N.Bukharin. the major criticism of this disproportinality that is the relation between the production of capital goods and consumer goods can not be maintained for a long period under capitalism.
Underconsumption:
Capitalism has an inherent tendency to expand the productive capacity of consumer goods faster than the demand for consumer goods. This is because of unsaleable stock of these goods which result from the full utilization of the productive capacity for them. And the existence of the idle productive capacity which is not utilized because its output would be unsold.
Sweezy prove the under consumption based on Baur’s demonstration.
Total value = C + V + S
Sweezy divided SV in to
S = SC + ∆SC + ∆V + ∆C
S = total SV
Sc = constant capitalist consumption
∆Sc = increase in capitalist consumption
∆V = increase in variable capital for workers consumption
∆C = increase in constant capital
Then ∆C + ∆V = total accumulation
Part of accumulation (∆V) is consumed, while ∆C is invested.
The objectives of accumulation met in two ways
a) Maximization of SV or profit.
b) Maximization of accumulation from profit.
This implies that accumulation rises as a percentage of sv and investment also rises a percentage of accumulation.
Sweezy states that, the rate of change of capitalist consumption ∆SC/SC is a falling percentage of SV.
The rate of investment of wages ∆V/V is a falling percentage of total accumulation.
This implies that, the rate of increase of total consumption [∆(SC + V) / (SC + V)] falls relative to the rate of increase of means of production (∆C / C). Thus according to Sweezy,
“the ratio of the rate of growth consumption to the rate of growth of the means of production will decline”.
The chain of causation of crisis- ratio of rate of growth of output of consumer goods to rate of growth of means of production is constant → leads to an inherent tendency of consumption lag behind supply. Therefore, under consumption or over production.
Other notable contributors of under consumption theories are Rosa Luxumburg, Henryk Grossman, Lenin and Bukharin. Luxumburg tried to show that capitalist accumulation was constrained by inadequate demand which warranted the exploration of non capitalist markets.
According to Pujan Baranowskly a revisionist, if social production were organized in accordance with demand and the power to direct labour and capital from one branch to another, then the supply of commodities could never outstrip the demand. He showed that if the part of sv that is added annually to capital is not divided among the various industries and departments in the correct proportions, a crisis will be sure to arise, but that if increment to capital is divided in the in the correct proportions, there could be no crisis.
The revisionist thesis has been widely criticized and rejected.
a) Falsely claiming that the scheme of expanded reproduction can be used to prove the impossilbility of under consumption.
b) It is not possible to construct a scheme of accumulation in two departments with social consumption remaining constant because this will imply that rate of accumulation in the consumer goods departments will be zero.
The criticism of Baranowsky’s thesis is based on human consumption as an end of capitalist production. This raises the contradiction between the capitalists aim of production for exchange value and general aim of production of creating use values.
The major proponents of disproportionality apart from Baranosky, include Bulgakov, Hilfreding, Otto Bawer, Henryk Grossman and N.Bukharin. the major criticism of this disproportinality that is the relation between the production of capital goods and consumer goods can not be maintained for a long period under capitalism.
