Recently David Harvey, the well-known writer on Marxist economics, criticized Marxist economics blogger Michael Roberts’ views on crisis theory. According to Harvey, Roberts has a “monocausal” crisis theory. What Harvey objects to is Roberts’ emphasis on Marx’s theory of the tendency of the rate of profit to fall (FRP for short) as the underlying cause of capitalist crises.

Harvey goes further than simply criticizing Roberts’ FRP-centered crisis theory. He says that he is skeptical that a tendency of the rate of profit to fall even exists. He indicates that he agrees with the views of the German Marxist economist Michael Heinrich on the invalidity of Marx’s theory of the falling rate of profit. Heinrich’s views are developed in “An Introduction of the Three Volumes of Karl Marx’s Capital” (Monthly Review Press, 2004). He elaborated them in this article.

In this work, Heinrich tries to demonstrate that Marx himself in the final years of his life moved away from his own theory of the tendency of the rate of profit to fall. Heinrich holds that an examination of Marx’s manuscripts that form the basis of Volume III of “Capital” show that Marx had moved toward a theory of crises centered on credit. Heinrich accuses Frederick Engels of editing the manuscripts in such a way as to hide Marx’s alleged movement away from an FRP-centered theory of crises to a credit-centered theory of crises.

In his defense of the falling rate of profit school from the criticism leveled by Harvey, Roberts makes an indirect reference to this blog: “… recently, one Marxist economist from the overproduction school called me a monomaniac in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organization Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014 http://links.org.au/node/4156).”

Mike Treen, a New Zealand Marxist, is indeed an organizer of the New Zealand trade union Unite (not to be confused with the U.S. trade union of a similar name, UNITE HERE, which also organizes fast food and other low-wage workers). The “overproduction school” Roberts refers to is actually the position of this blog, of which Mike is an editor. (1)

Mike as a leader of New Zealand low-wage workers has expressed concerns in our private conservations that the FRP school has a tendency to unwittingly echo the bosses’ propaganda. The bosses and their hired economists claim that the crisis of 2007-2009, as well as earlier capitalist economic and unemployment crises, were caused by wages that exceeded the “economic value” that workers produce with their labor. Unions, the (bourgeois) economists claim, prevent the poor from working and gaining experience and skills on the job that would eventually enable them to rise into the “middle class.”

Now, let’s make one thing clear. Michael Roberts, Andrew Kliman, and all other Marxists who support the modern FRP school of crisis theory want to see capitalism replaced by socialism. They are not in favor of lowering wages in order to achieve “full employment” under capitalism. On the contrary, all Marxist supporters of the FRP theory of crisis believe that what they see as capitalism’s need for lower wages—along with the massive destruction of surplus capital—proves, as Andrew Kliman puts it, the “failure of capitalist production.” (“The Failure of Capitalist Production: Underlying Causes of the Great Recession,” paperback, 2011)

Mike is not only a Marxist who wants to replace capitalism with socialism. He also has responsibilities to the membership of his union, which represents some of the most exploited workers in New Zealand. If you are a low-wage worker trying to support your family on completely inadequate wages and benefits, you can’t afford to wait for socialism to arrive and solve your and your family’s immediate problems. You need to defend and if at all possible improve your standard of living and working conditions in the here and now.

How can any trade union leader worthy of the name not be concerned with the daily struggles of the members of his or her union for decent wages and conditions? If the workers are unable or unwilling to struggle to improve their conditions in a situation that is not yet revolutionary, how will they ever be able to make the revolution that will enable them to build a new society? As Marx observed in “Wages, Prices, and Profits,” also known as “Value, Price and Profit” (2), in that case they would be little better than slaves.

With the “underconsumption school” and the “Monthly Review school,” these concerns do not arise. These radical economists even argue that the industrial capitalists—though not the money capitalists—and the workers have a common economic interest in higher wages, since higher wages will increase monetarily effective demand and counteract the stagnationist tendencies inherent in monopoly capitalism. These views can be criticized for exaggerating the possibilities of “reforming” capitalism as well as creating illusions about the possibility of forming alliances with sections of the capitalist class. But there is nothing here that discourages militant trade-union activity. On the contrary.

This blog agrees with the FRP school that surplus value must be produced before it can be realized, while also agreeing with the underconsumption/Monthly Review school that surplus value must also be realized in money form if the capitalists are to realize a profit. And it agrees with both schools that without profits capitalism cannot exist.

Unlike the underconsumption/Monthly Review school, this blog also believes that periodically there is a generalized overproduction of commodities relative to the market so that the combined purchasing power of the workers and the capitalists, as well as all possible “third persons,” including the state, is periodically insufficient to purchase the total commodity production at profitable prices.

If this blog is correct on this point, merely changing the rate of surplus value—whether upward as the bosses and their economists want in order to increase profits, or downward in hopes of increasing effective monetary demand by raising wages—cannot pull the economy out of a crisis of overproduction or prevent their future recurrence. As long as we insist on retaining capitalism, only a thoroughgoing liquidation of the overproduced commodities and means of production—surplus capital—can “clear” the market, making possible a recovery until the next inevitable crisis arrives.

If this blog is correct, it is therefore senseless for the workers to make sacrifices to avoid or get out of a crisis of overproduction once it has broken out. The position of this blog as well as the view of every informed and honest trade-union leader is that the workers must fight as hard as they can to defend and if at all possible improve their conditions. It is true that this task is much easier during the prosperity-boom phase of the industrial cycle than during the crisis/depression phase.

In economics, as is true in every other science, both social and natural, we must always search for the truth and only the truth. If the capitalist economy works the way the falling rate of profit school believes, that would have to be the starting point of workers’ struggle. We would have to explain to the workers that the trade-union struggle has very limited possibilities and that as long as capitalism exists it is the workers’ struggle itself that leads to crisis. Indeed, this is the view of the so-called class-struggle theory of crisis.

The same is true if the economy works the way the Monthly Review school and underconsumptionists believe, though in this case we would draw completely different conclusions about the possibilities and limits of the trade-union struggle than we would draw if the FRP or “class-struggle” view of crisis theory were correct.

Capitalist reproduction and its many crises

Like all systems of social production, capitalism must also be a system of reproduction. As production proceeds, the existing means of production are consumed and gradually wear out, including the most important productive force, the labor power of the workers. If the means of production are not replaced or reproduced, production will collapse. This is most evident in a war economy, where factories that normally produce means of production or means of consumption for the working class shift to the production of means of destruction. If this goes on too long, the entire system of production progressively breaks down.

Capitalist reproduction is a complex process and subject to many types of crises, both generalized and local. Indeed, neither an hour nor even a minute goes by without a crisis in the capitalist reproduction process occurring somewhere. The great majority of these crises are local, affecting a very small part of the economy. Virtually everyone who has ever held a job and experienced a disruption of work because a machine is “down” or the power is “out” has experienced a minor crisis in capitalist reproduction.

But some crises of capitalist reproduction are general, affecting virtually everybody on the planet. One type of generalized crisis in the system of reproduction is a war economy such as was experienced between 1914 and 1918 and again between 1939 and 1945.

Other types of crises that can be very far-reaching involve severe shortages of some necessary input—for example, an acute shortage of some vital raw material or source of energy. A historical example of such a crisis that occurred in Marx’s day was a cotton famine that hit the Manchester textile industry during the U.S. Civil War of 1861-1865.

A crisis in capitalist reproduction—or any system of economic reproduction, for that matter—can occur due to crop failures. A historical example I examined in this blog involved the crisis that occurred immediately after the close of the Napoleonic wars brought about by the natural climatic disaster of 1816. This was caused, it is believed, by the eruption of Mount Tambora in 1815, producing what is known as “the year without a summer.” This short-term episode of severe global cooling caused crop failures that led to severe shortages of food commodities necessary to reproduce the commodity labor power.

A type of crisis unique to capitalist reproduction

While crises brought on by wars and crop failures can affect any system of social reproduction, one type of crisis in the process of reproduction is unique to capitalism—crises of the generalized relative overproduction of commodities. In the absence of other types of major crises—wars, crop failures, depletion of raw materials—once capitalism has reached a certain stage of development, crises of generalized overproduction break out at quasi-regular intervals.

When Marx makes reference in “Capital” and other works to crises in capitalist reproduction, he may or may not be referring to crises of generalized overproduction. Marx always has to be read in context.

Indeed, a major source of error in interpreting Marx’s work is to assume that whenever he describes or refers to a crisis in the process of capitalist reproduction, he is referring to the crisis phase of the industrial cycle. However, it is true that Marx as well as Engels gave special emphasis to general crises of overproduction.

The evolution of the rate of profit in the course of capitalist development

In Marx, the rate of profit is the the total surplus value divided by the total advanced capital over a given period of time, generally a year. This should not be confused with the surplus value SV divided by the total variable capital V, or rate of surplus value. Nor should the rate of profit be confused with the surplus value SV divided by the sum of total variable capital V plus constant capital C used up in one turnover cycle of circulating capital.

Circulating capital is variable capital plus the elements of constant capital used up within a single production cycle. These include raw materials and auxiliary materials—for example, energy. Circulating capital should also not be confused with money capital that circulates commodities, another common error. Fixed capital, in contrast, is consumed over more than one cycle of production. Examples of fixed capital are machines, buildings and improved land.

At least until the World War II era, virtually all schools of political economy took for granted that the long-term tendency of the rate of profit was downward. Even the marginalists believed in the falling rate of profit, which they saw as a vital part of their apologetic case for capitalism.

The marginalists reasoned that as capital accumulated and became more plentiful, its scarcity would diminish and the rate of profit would fall. The great gap between the wages of labor and profit of capital was therefore, according them, a problem only of early capitalism when capital was scarce.

Keynes, though he was critical of some aspects of marginalism, expressed similar hopes in his “General Theory.” As profits fell relative to wages, class antagonisms would decline. Capitalism, Keynes and other bourgeois economists argued, would become not only a richer but an ever more equitable society as it developed. The recent book “Capital in the Twenty-First century,” by the French marginalist economist Thomas Piketty, has made quite a splash precisely because he has pointed out that the marginalist prediction that profit would fall relative to wages has simply not come true.

Marx’s criticism of Adam Smith on the tendency of the rate of profit to fall and crisis theory

Adam Smith was another economist who believed that the tendency of the rate of profit was downward for reasons that at bottom were the same as those advanced by the marginalists and Keynes. In the early stages of capitalist society, according to Smith, capital was scarce and profits were high. But as capital accumulated, competition among capitals would grow. This would drive their rate of profit downward until all progress ceased. Like all capitalist economists, Smith couldn’t imagine a society beyond capitalism.

Society’s progressive development would, according to Smith, end in a permanent “over-accumulation” of capital, which also implies a permanent overproduction of commodities. Smith, remember, wrote before the “discovery” of Say’s law, which supposedly proved that a general overproduction of commodities was impossible. Marx, however, rejected Smith’s theory of an approaching permanent overproduction of commodities and capital. According to Marx there are no “permanent crises.”

Marx as well as Smith knew that profits could disappear altogether and even be replaced by losses if commodities were over-produced. Indeed, Smith’s “invisible hand”—what was later to be called the “law of value”—depends on it.

Marx was aware that overproduction of commodities could occur in a particular branch of industry like we see in oil today, or there could be a generalized overproduction of commodities that would lead to the temporary collapse of the rate of profit across the board.

However, the cause of the fall or even the complete disappearance of profits as a result of overproduction arises from that fact that the value of commodities cannot be fully realized in money form. In the case of overproduction, surplus value is indeed produced but it cannot be realized as monetary profit and is thus useless to the capitalist.

Marx did not believe that a generalized overproduction of commodities relative to human needs, or absolute overproduction of commodities, was possible under capitalism. Relative to human needs, Marx believed capitalism would always produce too little, not too much. Moreover, Marx believed that a generalized overproduction of commodities relative to market demand would always be a temporary situation. Through either partial or general crises of overproduction, production in the long run would be adjusted to market demand.

Assuming that Marx was correct in holding that there is no permanent overproduction of commodities, two problems remain. The first is, how can a general as opposed to a partial crisis of overproduction occur?

Marx solved this problem by explaining that a general crisis of overproduction is actually not a general overproduction of all commodities but rather a general overproduction of commodities relative to one special commodity—the money commodity.

This leaves one remaining problem. Why from 1825 have crises of generalized overproduction occurred on a quasi-regular basis but not before? This blog is centered on exploring exactly this question.

Ricardo and the falling rate of profit

Ricardo and Marx, like virtually all other economic theorists who wrote before World War II, believed that the long-term tendency of the rate of profit was downward. And both Ricardo and Marx, as opposed to Smith and Keynes, agreed the downward trend in the rate of profit did not involve the question of the realization of the value of commodities on the market but rather the production of value embodied in commodities.

Indeed, Ricardo went further. Unlike Marx, Ricardo was a supporter of Say’s law. He did not believe that even a temporary general crisis of overproduction, or general glut, was possible, even in theory. Marx, in contrast, did. To be fair to Ricardo, he died in 1823, just before the era of generalized crises of overproduction began. Therefore, he could hardly be expected to have had anything to say about them.

Ricardo, in addition to accepting Say’s law—a major mistake—also accepted the so-called Malthusian law of population, also a mistake. This “law” claims that any increase in the means of subsistence will lead to a geometrical increase in the size of the human population.

This “law” has been disproved not only in theory but above all in practice. It is precisely in the richest countries where the means of subsistence are most available that the rate of growth of the population first slowed and more recently has become negative—in the European Union, for example. The United States would also have a negative population growth if it weren’t for the high rate of immigration.

If the Malthusian law of population was correct, the situation would be precisely the reverse. The so-called “iron law of wages” accepted by Ferdinand Lassalle (1825-1864), which claimed that the real wages of workers can never rise and that trade union activity is useless if it isn’t positively harmful, is also based on the Malthusian population “law.”

Ricardo, accepting Malthus’s so-called population law, reasoned that it would be only a matter of time before the growing human population would cause all the land capable of producing means of subsistence to be fully utilized. Once that point was reached, human society—which Ricardo could only conceive as capitalist society—would reach its absolute limit. At first, only the most fertile land but in time progressively less fertile land would be cultivated. Differential rents would rise and absorb more and more of the “net product”—surplus value—which would accrue to the landowners.

Inevitably, the value of the means of subsistence—the amount of socially necessary labor to produce them, according to the Ricardian theory of value—would increase. Assuming the value of money remained unchanged, food prices would progressively rise. As a result, money wages—but not real wages—would also rise. The rate of surplus value would fall, causing the rate of profit and surplus value to fall. (For Ricardo, the rate of surplus value and the rate of profit were identical, since like other classical economists Ricardo ignored constant capital.)

Translating Ricardo’s argument into Marxist language, the workers would work an ever longer part of the workday for themselves and a shorter part for the appropriators of surplus value—the capitalists and landlords and their hangers-on.

In reality, the course of capitalist development has been in the exact opposite direction. The value of labor power—Ricardo’s value of labor—has progressively fallen. As a result, we have seen a tremendous growth of relative surplus value. (3) As capitalism develops, therefore, the rate of surplus value rises, not falls as Ricardo expected.

Ricardo believed that the historical limits to capitalism—for him also the limits of human society—were determined by the ability of capitalism to produce ever greater of amounts of surplus value. He did not, however, see the realization of surplus value—the growth of the market—as a problem.

Marx and the falling rate of profit

Marx’s approach to the falling rate of profit was unique. He did not confuse the tendency of the rate of profit to fall with overproduction—the problem of realizing the value of commodities on the market, as Smith did. Nor did he base it on the exhaustion of the agricultural land or some natural “limits to growth” that would apply to all modes of production including socialism, like Ricardo did. In addition, unlike Ricardo, Marx did not confuse the rate of surplus value with the rate of profit.

Classical political economy argued from Adam Smith onward that constant capital could be reduced “in the final analysis” to the means of subsistence consumed by the workers. Therefore, while classical political economy did distinguish between circulating capital and fixed capital, it failed to grasp the far more important distinction between constant and variable capital. As a result of its mistake in not recognizing constant capital, classical political economy was unable to find a correct solution to the problem of the tendency of the rate of profit to fall in the course of capitalist development.

Marx divided productive capital into two main parts. One is the constant capital, which merely preserves its value—therefore the name constant—and the second is the variable capital, the labor power of the workers once it has been purchased by the capitalists, which alone produces surplus value.

Surplus value when realized in money form on the market becomes profit. As capitalism develops, Marx believed, the percentage of the total productive capital that is constant—that is, every commodity used in production to produce other commodities except labor power—grows relative to labor power. Therefore, assuming a fixed rate of surplus value—not a constant real wage—the rate of profit must fall. Here we are dealing with a permanent effect, not a temporary one such as the collapse in the rate and indeed the mass of profit we see during downturns in the industrial cycle.

Marx draws some conclusions. First, since capitalist production is motivated by profit and profit alone, the fact that the development of capitalism itself undermines the rate of profit shows that capitalist production cannot be the final form of production. Instead, according to Marx, it is a merely transitory stage in the history of production.

Second, as the rate of profit declines, the smaller capitals so critical to capitalist “innovation” are undermined. This means a tendency toward monopoly, and over time a slower rate of adoption of new forces of production that the progress of science and technology makes possible.

Therefore, it is not the “natural limits” of production but capitalist relations of production that become the main force holding back the further development of the productive forces. In addition, Marx wrote that falling rates of profit “breed” but are not identical to overproduction, speculation and crises. More on this below.

The attack on Marx’s theory of the tendency of the rate of profit to fall

Since World War II, bourgeois economists have increasingly rejected the view previously supported by virtually all schools of political economy that the historical tendency of the rate of profit was downward. The first major Marxist writer to question this view was Paul Sweezy (1910-2004) in his “Theory of Capitalist Development,” published in 1942. Sweezy was reacting to the views of Henryk Grossman (1881-1950), the founder of the modern FRP theory of crisis.

Sweezy as a strong supporter of the New Deal reforms was reacting to the implications of Grossman’s theories that such reforms were worse than useless. That is, any such concessions by the capitalists to the workers would further lower the rate of profit and make the crisis even worse.

Monthly Review magazine has continued to oppose Grossman’s successors—today’s FRP school of crisis theory. Monthly Review not only chose to translate into English and publish Michael Heinrich’s book, which contains an attack on the FRP, but has made clear its solidarity with Heinrich on this point.

Therefore, the debate on the tendency of the rate of profit to fall that began with Sweezy and Grossman continues today. This a good thing, since only through the clash of opposing views is the truth revealed.

I believe that the change in the stance of bourgeois political economy from accepting to denying an historically downward trend in the rate of profit was a consequence of the Cold War. The old view of bourgeois political economy was transformed during the Cold War into another “Communist doctrine” that had to be “refuted.”

On the other hand, the economists didn’t want to claim that the rate of profit tends to rise. If the rate of profit rises, the gap between profits and wages grows, implying increasing class antagonisms. That is another “Communist doctrine” that had to be refuted. So the economists settled on the claim that the rate of profit is more or less fixed, neither rising nor falling. This way capitalism can be passed off as the final form of production that will last forever—or at least as long as human society endures.

The connection between cyclical crises and the tendency of the rate of profit to fall

According to the falling rate of profit school, what is the relationship between the FRP and crises? This school puts great emphasis on a passage in Chapter 15, Volume III of “Capital,” where Marx describes a hypothetical crisis brought on by what he calls the absolute—not relative—overproduction of capital. I think the falling rate of profit school is missing the importance of the word “absolute” here.

In my opinion, the fact that Marx uses the word “absolute” in this passage indicates that he is not discussing the crisis phase of the industrial cycle. Instead, Marx imagines a situation where, to use everyday language, there is an acute shortage of labor. Imagine a situation where virtually all potential workers have a job—not merely those counted as “unemployed” in the official government statistics. In such a situation, competition among the workers for jobs would disappear. Everybody—not just the highly skilled or highly educated—could quit their jobs and get new ones whenever they desire.

The competition among capitalists for labor power would rise to a fever pitch. Since there is no remaining reserve army of the unemployed, the only way an individual capitalist can hire more workers is to hire workers who are already employed by fellow capitalists. And the main weapon that capitalists have in this type of competition is to offer higher wages.

Now, what happens to the rate of surplus value, the ratio of unpaid to paid labor, in this situation? To ask this question is to answer it. The rate of surplus value as well as the rate of profit would collapse, even in the absence of trade union organization. Not only the rate of profit but the mass of surplus value would shrink and even disappear altogether, because the conditions that enable surplus value to be produced would be destroyed by the absolute overproduction of capital.

A crisis of the absolute overproduction of capital

As profit vanishes due to an absolute overproduction of capital, investment collapses and many capitals are destroyed. Workers are laid off, competition among the workers for jobs rises once again while competition among the capitalists for additional labor power declines and vanishes as the reserve army of the unemployed reappears. The combination of a destruction of a portion of the industrial capital—the closing down of unprofitable enterprises—and the growth of the working-class population has resolved the crisis by restoring the conditions under which surplus value is produced.

The capitalists once again have the option of hiring unemployed workers and are not confined to hiring already-employed workers away from their fellow capitalists. In the meantime, the size of the working-class has grown due to the natural growth of the population. The rate of surplus value and rate of profit recover, investment resumes, and capitalist prosperity returns.

At first glance, we seem to have a description of the industrial cycle as it passes through crisis/stagnation and makes the turn back to prosperity and boom. But is it? When was the last time we have seen anything even remotely like the “absolute overproduction of capital” in the real world? Certainly, at least in the United States, not since World War II or for decades before World War II.

The closest to genuine “full employment” was during World War II. But this was the result of a war economy that temporarily interrupted the normal process of expanded capitalist reproduction, which was just starting up again in the wake of the super-crisis of 1929-1932 and the Roosevelt recession of 1937-1938 when the war intervened.

This is not to deny that in certain sectors that employ highly skilled workers—for example, Silicon Valley engineers—or in the construction industry in times of boom—acute shortages of highly qualified workers do occur from time to time. Indeed, if they did not occur, there would be no economic incentive for anyone to become a skilled worker—whether a computer programmer, a brain surgeon, a plumber, a carpenter, or a jeweler.

But what we do not see and have not seen for many decades past—leaving aside the World War II war economy—is a situation where unskilled labor is in short supply. Even during periods of “great prosperity,” there is always plenty of unskilled labor to go around.

When the bosses are asked why they don’t hire more people, they often explain that potential workers lack the necessary skills. However, if the bosses were facing a genuine general shortage of labor—an absolute overproduction of capital or anything close to it—they would hire any unskilled workers they could and train them on the job. That is the best way for a worker to learn new skills. Or they would find ways to replace skilled labor with less skilled or even unskilled labor.

Therefore, the crisis of 2007-2009 was not caused by an absolute overproduction of capital. Though the size of the reserve army of the unemployed was certainly smaller in 2007 just before the Great Recession began, there was certainly no indication of any general shortage of labor at that time.

In his famous description of crises in “Socialism Utopian and Scientific,” Engels stressed that crises are brought on by the difficulties of selling commodities, not the difficulties of finding additional workers. To find anything like an absolute overproduction of capital we have to go back more than a century to the “white colonies” of North America and Australia, where “free wage labor” was indeed in short supply.

Indeed, one of the reasons that the hideous institution of African slavery took root in what was to become the United States was the shortage of “free wage laborers.” As capitalism developed and ever more people were separated from their means of production, the danger to capitalism of an absolute overproduction of capital developing progressively receded. One of the most important functions of crises of the general relative overproduction of commodities—real world downturns in the industrial cycle—is that they prevent crises of the absolute overproduction of capital from ever developing.

Crises can occur at any point in the process of expanded reproduction

To further clarify this point, let’s examine the basic formula for capitalist production M—C…P…C’—M’. Reproduction consists of a series of these cycles. In the case of expanded capitalist reproduction—and capitalist reproduction can only exist in in the long run as expanded reproduction—the numbers represented by the algebraic quantities M, C, P, C’, and M’ get bigger with each successive production cycle. A crisis in the process of capitalist expanded reproduction can occur at any place in this formula, from M on the extreme left to M’ on the extreme right.

Let’s start on the extreme left. If there is not enough M available, the circuit does not even get off the ground. Historically, it was no accident that the “rosy dawn” of capitalist development, as Marx ironically called it in the chapter on the primitive accumulation of capital in Volume I of “Capital,” began with the search for gold and silver in the Americas.

The conquistadors found gold aplenty in Peru. While to the natives of Peru gold had a largely artistic use value, to the conquistadors it was money. This money material in the form of gold and silver stolen from or extracted with the labor of the enslaved natives toiling in the mines of the Americas in no small measure formed the initial M that launched the process of capitalist expanded reproduction in the first place.

Assuming enough money is available, we next come to C. The industrial capitalists must find commodities on the market to carry out the production of commodities containing surplus value. These include the elements of fixed capital—buildings and machines. In addition, the industrial capitalists must find sources for motive power, lighting in factories, and so on. These are called auxiliary materials. And they must find raw materials. If they cannot find the appropriate commodities in the necessary quantities, or adequate substitutes, capitalist (re)production will suffer a crisis.

Most importantly, the capitalists must find the commodity labor power in the form of “free wage labor,” which alone actually produces surplus value. If they cannot, capitalist expanded reproduction will suffer a crisis caused by the absolute overproduction of capital. In its earliest days, this was perhaps the biggest problem for capitalism.

All the gold and silver of the Americas would not in and of itself have made capitalism possible if the problem of finding an adequate supply of wage labor had not been solved. It was also necessary to separate the producers from their means of production. Only in this way would the producers be forced to offer their labor power to the capitalists on the market in exchange for wages.

This task was solved—not without the massive intervention of state violence and coercion. The FRP school of crisis theory believes that cyclical crises that mark the history of capitalism since 1825 occur at this point, the point where the capitalists convert or attempt to convert money into variable capital. I disagree.

We then come to P, the production of commodities that contain surplus value. It is at P that C is transformed into C’. The constant part of C transfers its value to C. The variable portion of C—labor power—replaces its own value. Most importantly, the labor power in addition to replacing its own value produces an additional value, the surplus value. C’ differs from C in two ways. One is that C’ has a different use value than C. Two, C’ has a value quantitatively larger than C. The difference, C’ minus C, is the surplus value.

Crises can and sometimes do occur at this point in the process of capitalist reproduction. For example, if there is a workers’ strike, reproduction breaks down at this point because the striking workers withdraw their labor and no surplus value is produced as long as the strike continues.

In the case of agriculture, unfavorable growing conditions or diseases might cause P to fail. Workers perform unpaid labor but the use value of C’ fails to emerge because mother nature doesn’t cooperate. For example, as sometimes happens in my native New York State, a late spring frost destroys the flowers in an apple orchard owned by a capitalist farmer. Since no apples appear on the trees, the physical use value of C’ is not produced. P has failed. And when we have no use value, we have no value.

Assuming, however, all goes well for them—and we can see this is not guaranteed—the industrial capitalists will possess C’, commodities that contain surplus value. But unless they happen to produce the commodity that serves as money material, they are not yet home free. A dangerous step lies ahead. They must find buyers with the ability to pay for the commodities that contain surplus value.

Let’s assume they do find buyers. They now posses M’, or a sum of money greater than amount of money they started with. They are now in a position to carry out another cycle of production M—C…P…C’—M’ on a yet larger scale. Expanded capitalist reproduction proceeds. But if they fail, expanded reproduction is halted at this last and most dangerous point in the cycle of capitalist expanded reproduction.

Experience had already shown by the time of Marx and Engels that it is at this last point where capitalist expanded reproduction is most vulnerable to a general breakdown or crisis. It is important not to confuse this type of crisis with other types of crisis that can and inevitably do occur at other points in capitalist expanded reproduction—and indeed in any system of economic reproduction—with this particular type of crisis unique to highly developed capitalism. This is an error that I believe the FRP theory of crisis falls into.

Let’s return to the example of the cotton crisis that hit the British textile industry as a result of the U.S. Civil War. This crisis occurred at M—C, not C’—M’. The Manchester textile manufacturers had enough M, but when they entered the market, they were unable to find enough raw cotton to produce yarn equal to the value of the M they were advancing due to the U.S. Civil War and the consequent Union blockade of the slave-owning rebel states.

The process of reproduction broke down at this point. This was a serious crisis for the capitalist system—Marx wrote that this was the most serious crisis that capitalism had experienced up to that time—but it was not a crisis of either partial or general overproduction.

The tendency of the rate of profit to fall and the historical path of capitalist production

The tendency of the rate of profit to fall operates over the entire lifespan of the capitalist mode production, a period measured in centuries. Cyclical crises operate over a period of about a year and half on average. In the extreme case of the super-crisis of 1929-1932, the crisis proper on the world market—as opposed to the post-crisis depression—did last more than three years.

Relative to the life span of the capitalist mode of production, general crises of overproduction are therefore momentary disruptions in the history of capitalist expanded reproduction.

In the early stages of capitalism, capitals are relatively small, and the rate of profit is high. There is as yet little fixed capital. In small decentralized workshops, workers still use handicraft methods passed on to young capitalism from the pre-capitalist past. Because capitals are small, the rate of profit must be very high if capitalism is to exist at all.

Suppose a capital in terms of the purchasing power of present-day U.S. dollars has a value of $25,000. Even if the annual rate of profit is 100 percent, our capitalist and his family will have to live on an income of only $25,000. They will barely be able to live on this income let alone have profit left over to “plow back into the business”—carry out expanded capitalist reproduction. We would therefore expect that despite the high rate of profit, the process of expanded reproduction proceeded extremely slowly.

Under these conditions, if the rate of profit for some reason were to fall from 100 percent to 10 percent, the capitalist and his family would have to subsist on an annual income of only $2,500, a complete impossibility. Capitalism would then collapse due to the low rate of profit. Therefore, it is young capitalism with its small capitals that absolutely requires an extremely high rate of profit.

But how was young capitalism able to realize such high rates of profit? It didn’t come from a higher rate of surplus value. Indeed, the rate of surplus value was lower in the early stages of capitalism than it is in present-day capitalism. This was not because the standard of living of the workers was higher in the days of early capitalism than it is today. Rather, it was because the productivity of labor was vastly lower than it is now.

As a result, the workers had to spend a much greater part of the workday working for themselves and a much smaller part working for the capitalists, landowners and their hangers-on. If it were otherwise, the workers would simply have died off due to starvation, cold and homelessness, and capitalism would indeed have died from an “absolute overproduction of capital.” What “saved” the day for infant capitalism and allowed it to survive until it could “grow up” was precisely the low organic composition of capital.

But as capital piles up in the form of huge factories that represent vast amounts of accumulated fixed capital, of which only a small part in the form of wear and tear is used up in a year, the annual rate of profit on the total capital falls. In addition, huge factories require huge amounts of raw material and power—auxiliary materials—all of which represent constant capital. What “saves” aging capitalism, however, is that the individual capitals swell to tremendous size, which means a tremendous expansion of the scale of production.

As a result, the capitalists can tolerate a much lower rate of profit than their predecessors in the early days of capitalism. As we saw above, it would be impossible for capitalists to subsist on a 10 percent rate of profit on a capital of $25,000. However, let’s assume capital is instead $250 million. Even if the rate of profit is a “low” 10 percent, they and their families can still enjoy an income of $25 million to spend in a given year. They can even save a considerable amount of this income for productive consumption, or expanded reproduction.

Though the rate of profit is far lower than it was in the days of early capitalism, the expanded reproduction of capital can now proceed with much greater vigor than was possible in early capitalism. Indeed, it is precisely because the rate of profit is now so much lower than it was in capitalism’s early days, that the capitalists must carry out production on a vast scale.

Falling rates of profit therefore breed, as Marx put it in Chapter 15, Volume III of “Capital” overproduction, speculation and crises. Sudden expansions in the scale of (re)production that were absolutely unthinkable in the early days of capitalism, the kind that precede general crises of overproduction, began to occur at periodic intervals. The industrial cycle was born.

Notwithstanding the relative shrinkage of the quantity of variable capital relative to the mass of constant capital, the number of workers exploited by capital still grows tremendously. This is combined with a rising rate of surplus value.

Even more, the mass of surplus value grows in terms of the use values of necessary and luxury consumer goods that represent surplus value, or once it is converted into money, profit. The living standards of the capitalist class progressively grow, despite the falling rate of profit and the rising rate of accumulation. Today, a quantum of profit measured in terms of hours of abstract human labor represents a vastly greater quantity of consumer goods in use value terms than in the days of young capitalism when the productivity of human labor was vastly lower.

The capitalist ‘heroes’ of accumulation

The capitalists are now obliged to “save” at a much higher rate than their ancestors did in the early days of capitalism, but as they do this our “heroes” of “saving” enjoy a degree of luxury undreamed of by their predecessors! No earlier system of exploitation knew anything like it! All of this is made possible by the growth of the productivity of human labor. But much more importantly, at the same time the possibility and indeed the necessity of a system of production without exploitation is being created. (4)

Changes in crises as capitalism develops

Young capitalism—capitalism before 1825—did not know cyclical crises—that is, generalized periodic breakdowns of C’—M’. But this did not mean that young capitalism was crisis free—though the crises tended to occur on the left side rather than the right side of the reproduction formula M—C…P…C’—M’.

For example, in its young days capitalism was far more subject to devastating food shortages and famines. Just like was the case in the pre-capitalist era, “hard times” did not mean a crisis of overproduction but a famine with sky-high food prices that reduced much or even most of the population to starvation.

This situation affected sales—the market—as well. When food prices were exceptionally high, workers and indeed anybody who was not rich had little money left over to purchase other commodities. This could lead to sales crises as well (C’—M’), and workers could be laid off as a result of bad business. But the C’—M’ crises were secondary crises compared to those centered in P—production itself—which failed due to unfavorable growing conditions and the still limited forces of production.

While crop failures can and do still occur, and periodic rising food prices can still affect the pace of business, their impact on general business conditions has progressively declined in the course of capitalist development. Indeed, the last great famine or “substance” crisis in the Western world—that is, the last time Western Europe (Ireland excepted) and North America experienced a general famine due to crop failures—occurred in 1816, the “year without a summer.” (5)

The tendency of the rate of profit to fall and economic crises of general overproduction

The rising organic composition of capital and resulting tendency for the rate of profit to fall goes hand and hand with the increase in the scale of production as capitalism develops. It becomes possible to rapidly increase the scale of production when there are sudden expansions of the market. As capitalist industry develops, it gains the ability to increase production on a huge scale in a brief period of time. This leads to growth of production at a rate considerably faster than the markets can expand.

This mismatch between the ability of production and markets to grow make crises of generalized overproduction of commodities at quasi-regular intervals inevitable. Capitalist reproduction periodically breaks down at C’—M’. This type of crisis was not only impossible under all previous systems of economic reproduction, it was impossible in early capitalism as well. But under modern capitalism, barely a decade can pass without such a crisis.

Credit and crises

All serious schools of crisis theory, including both the Monthly Review school and the falling rate of profit school, believe that credit plays an important role in the formation of crises. But all Marxist schools of crisis theory also search for the fundamental roots of crises in the basic contradictions of capitalism and not in the credit system, as many bourgeois economists do. All the various Marxist schools of crisis theory are therefore far superior to the superficial views that come out of the economics department of the University of Chicago, for instance.

The Monthly Review school sees the causes of stagnation—and its acute manifestations in crises—as rooted in the stagnationist tendency inherent in capitalist monopoly. In their search for profit, the Monthly Review school reasons, monopolies restrict production to maintain monopoly prices and super-profits. This restricted production represents a greater or lesser degree of stagnation that can only be overcome by either massive government spending or technological revolutions such as the development of the automobile and associated new industries. As the Monthly Review school sees it, failing revolutionary innovations and/or government intervention, including war spending, depression conditions like those of the 1930s are actually the norm for monopoly capitalism.

The falling rate of profit school believes that a too-low rate of profit leads periodically to weak investment. In their view, it is the low rate of profit that sooner or later leads to crises and stagnation. According to the FRP school, the rate of profit falls within each industrial cycle as the organic composition of capital rises, while the high demand for labor power during prosperity prevents the capitalists from increasing the rate of surplus value. The rate of profit falls and eventually so does the mass of profit. The capitalists then cut back investment, which leads to crisis/stagnation. The crisis breaks out because of the increasing difficulties of producing surplus value.

The only way out within capitalism, according th the FRP school, is the destruction of surplus capital and rising unemployment that restores favorable conditions for the production of surplus value. A sharp increase in the rate of surplus value restores the rate of profit and enables the mass of profit to grow once again, resolving the crisis.

But this process can take years if not decades. Attempts by the state to stave off a crisis by following “Keynesian” policies only postpones the inevitable day of reckoning. Likewise, any gains the workers make in struggle during these periods of low profits, crisis and stagnation only makes the crisis or stagnation worse. In the end, the FRP school believes, the only way out of each successive period of crisis-stagnation is either a socialist revolution or a massive increase in the rate of profit brought on by a massive destruction of overproduced capital combined with a major historical defeat of the working class.

Both these schools, despite their conflicting theories of crisis/stagnation, realize that credit plays a role in the actual formation of crises. Both these schools point to the fact that especially since World War II the total amount of credit outstanding has grown faster than the GDP of major imperialist countries. As a result, the total debt outstanding is now greater than the annual GDP of the major capitalist nations

Therefore, both schools, Monthly Review and the FRP, agree that credit crises such as the one that occurred in 2008—rivaled only by the credit crisis of 1932-33—arise from the failure of production to keep up with the growth in credit. (6) Both schools of crisis theory agree that it is the inability of capitalism to develop industrial production as fast as it can expand the amount of debt outstanding that is behind the transformation of stagnation into acute crises. In this sense, both the Monthly Review and FRP schools see modern capitalist crises as crises of underproduction, not crises of overproduction.

We should keep in mind that GDP does not pretend to measure the total wealth of society but rather the value of “goods and services,” as the bourgeois economists put it, sold in a given year. Very roughly, this represents in Marxist terms c + v + s, where c represents the value of the constant capital productivity consumed in a given year—not C, the total quantity of constant capital that exists—v the total amount of money spent on wages in producing the commodities that are sold over the course of a year and then spent by the workers on wage goods, and s the total surplus value incorporated in the commodities sold by the capitalists and consumed productively and unproductively by the capitalist class and their hangers-on, including the government, in the course of a given year.

The total wealth of society is actually much greater than the global world GDP, because the GDP leaves out the value of fixed capital that is not consumed—depreciated—in the course of a year. Economists rarely attempt to measure the value of this total wealth or the ratio of total outstanding debt relative to the total wealth of society rather than GDP.

I (the overproduction school) believe that the basic cause of modern generalized crises is the overproduction of commodities of all kinds relative to one special commodity, money material—gold in practice, but in principle whatever commodity serves as money. These crises of overproduction and the associated periods of stagnation/depression that follow have the effect of slowing down the development of capitalist expanded reproduction.

In the long run, this keeps the development of production within the limits of the market—that is, of capitalist relations of production. As a result, economic growth is much slower than modern science and technology would allow if the capitalist limits on production were removed.

How crises develop

Once capitalism develops to a certain point, the conflict between money’s role as a means of circulation—demand—and its role as the commodity that measures the value of all other commodities in terms of its own use value makes the periodic overproduction of commodities not only possible but inevitable. Prosperity brings with it rising prices—demand exceeds supply at existing prices, which makes the production of money material both relatively and eventually even absolutely unprofitable. The production of money sooner or later declines.

This is clearly illustrated if you examine the history of gold production. For example, gold production declined from the turn of the 21st century until 2008. But following the panic of 2008, it rose once again to record levels. This is the general pattern that is observed whenever a major crisis breaks out and is well documented by concrete statistics.

This means that any vigorous development of the system of capitalist reproduction must lead to a situation where the rate of growth of the world’s money material slows down. Therefore, whenever capitalist reproduction proceeds with enough vigor, a point is reached where the quantity of exchange value in the form of money material will grow at a slower rate than the exchange value that exists in the form of the prices of most commodities. This exchange value, just like the exchange value that exists in the physical form of money, is measured in terms of the use value of the money commodity—weights of gold. In each industrial cycle, therefore, a general relative overproduction of commodities develops relative to the commodity that serves as money.

Capitalism reacts to this general overproduction of commodities by three methods.

1) The first method is an acceleration of the velocity of the turnover of individual pieces of money. In the wake of a crisis, there is always a huge amount of idle money—potential purchasing power—that is not generating purchasing power because the capitalists who control it do not spend it. However, as a cyclical economic expansion gains momentum, the capitalists are obliged to spend their money—invest it—at an ever faster clip. As the rate and mass of profit rises due to the ability to once again realize the surplus value being produced, capitalists take advantage of this situation by investing their money at an even faster pace. The “recovery” feeds on itself.

The part of the money capital that is transformed by the capitalists into variable capital—purchased labor power—puts money back into the pockets of the previously unemployed workers allowing them to step up their purchases of commodities. As the market expands further, additional workers are hired by the capitalists causing employment to rise to record levels. When these new hires spend their wages, it further increases demand.

This is what the Keynesian economists call the accelerator effect. The more production rises the more demand grows. But only up to point. Eventually, the money supply is fully mobilized and the velocity of money cannot increase further. At the end of the day, one piece of money can only make one purchase at a time.

2) The quantity of “hard cash”—legal-tender paper money, central bank money and, in the past, metallic money—necessary to circulate the growing quantities of commodities is reduced to a minimum through clearing arrangements. Here the banking system plays the central role. A decreasing percentage of payments must be made in “hard cash” by the banks on behalf of their depositors. The banks increasingly simply transfer deposits from buyer to seller. As a result, the need for hard cash by the banks’ customers drops towards zero. It seems that a “cashless society” is emerging.

In countries where the banking system is poorly developed, a much greater quantity of cash—whether paper currency and fractional coins or in earlier times gold and silver coins—is needed than in countries with developed banking systems.

Here banking plays a truly—if unwitting—revolutionary role. It is revolutionary because it enables production to grow—not indefinitely but for considerable periods of time—way beyond the limits that capitalist relations of production would otherwise allow. And the larger and more centralized the banks become, and the more “everybody” has a bank account, the less hard cash is necessary. As we become a more “highly banked society,” the economy can operate on ever smaller amounts of cash.

3) As the banking system develops, becoming the “pivot of the credit system,” as Marx put it, credit increasingly separates the act of purchase from the act of payment. The banks not only economize the existing quantity of money, they supplement the supply of hard cash with credit money. Most of the money supply now consists of credit money created by the banking system rather than actual cash.

For example, when you open your checking account and are issued a credit card, the bank in addition to the money you deposit creates an additional imaginary balance. Nowadays, you can use the imaginary part of your bank account—through your credit card or smart phone—to purchase your morning coffee. The bank pays the coffee shop by transferring a part of your imaginary deposit to the coffee shop’s account. Then at the end of the month you reimburse the bank by canceling a portion of your imaginary account.

There, however, remains one catch in this that can never be overcome. Credit money can replace “hard cash” only so long as its owners do not actually exercise their legal right to convert their credit money into actual legal-tender cash. As long as everything is going well, few attempt to do so, since cash is less and less necessary and credit money is more convenient. And it cannot be stolen as easily

as cash can be.

On the basis of this huge mass of credit money, further credit is created. Debts instead of being paid are simply “rolled over.” It seems that the only limits on credit are the limits of production. But ultimately, the debts created by the credit system must be paid in money and not in (non-money) commodities.

The moment the owners of credit money begin to doubt that their credit money—bank accounts—can be converted into “hard cash,” the game is up. Suddenly, “cash is king” once again and the whole “artificial system of settling payments,” as Marx put it in Volume III of “Capital,” built up on the basis of credit money comes tumbling down. The crisis of generalized overproduction erupts and rises to the surface in the form of warehouses stuffed with unsaleable commodities, closed factories, workers made idle because “too much” was produced,” and declining world trade.

But isn’t there a fourth method of preventing the outbreak of a crisis? What is to prevent the “monetary authority”—the central bank—from creating enough “hard cash” in the form of legal-tender paper money and central bank money to prevent an outbreak of a crisis of overproduction in the first place? Can’t the government, working with the central bank, create any amount of monetarily effective demand necessary to absorb the total production of commodities at profitable prices?

Of course, if they create too much demand, so that demand exceeds the supply of commodities at existing prices, prices rise and there is inflation. But shouldn’t it be possible to “manage” demand so there is always enough demand to absorb the commodities being produced at profitable prices so as to maintain “near to full employment”?

If capitalist expanded reproduction breaks at C’—M’ anyway, isn’t this due to either “mistakes” made by the monetary authority or the government or because the monetary authority is deliberately trying to increase unemployment in order to hold down wages and prevent a crisis of the absolute overproduction of capital? In that case, what we need is a progressive government that really believes in full employment, which will appoint central bankers that also really believe in full employment. (7)

At bottom, this was the position of John Maynard Keynes. I think that both the Monthly Review and falling rate of profit schools by and large also accept this argument. Even if crises of general overproduction can in principle occur, can’t they easily be avoided? If they occur anyway, they must be something other than crises of generalized overproduction of commodities. It is common sense isn’t it?

That is why, despite that fact that Marx and Engels throughout their works refer to business cycle crises as “crises of overproduction,” our present-day Marxists, whether of the Monthly Review or the FRP school or other schools—with the exception of this blog’s “overproduction school,” carefully avoid describing crises like the 2007-2009 crisis as crises of the general overproduction of commodities.

At best, our modern Marxists refer to “over-accumulation” of capital but never the overproduction of commodities. This is why modern-day Marxists can write reams of pages on crisis theory without ever mentioning the overproduction of commodities.

The mistake here is that the very nature of commodity production requires that money be a commodity, not simply “legal-tender paper money.” Paper money—token money—is certainly possible but only as a representative in circulation of real money. The ability of the monetary authority to create paper money in terms of actual purchasing power is limited not by the total quantity of commodities, as modern economists both bourgeois and most present-day Marxist alike assume, but by the total quantity of money material in the form of some actual money commodity—in practice gold bullion—that exists in the world at any point in time.

When the monetary authorities allow the quantity of paper money measured in terms of U.S. dollars, pounds, euros, and so on to grow faster than the quantity of the money commodity, sooner or later the paper money depreciates against the money material. When the process progresses to a certain point, inflation eats up the very purchasing power that the monetary authorities are attempting to create “out of thin air” instead of out of solid gold produced by human labor. It is the inability to grasp this that has prevented most present-day Marxists from fully solving the riddle of modern capitalist crises.

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1 It is a considerable exaggeration to describe the views of this blog as a “school” at present, though I do hope that it will lay the foundation of such a school in the future. More properly, this blog aims at reviving the “overproduction school of crisis theory,” which I believe was the school that Marx and Engels themselves belonged to.

After all, unlike the adherents of FRP and the underconsumptionist-Monthly Review schools, Marx and Engels repeatedly right down to the end of their lives referred to cyclical capitalist crises as the general relative overproduction of commodities or just crises of overproduction for short. (back)

2 This pamphlet by Marx constitutes the classic defense of trade unionism by the founder of scientific socialism. It was originally prepared by Marx not as a pamphlet but as an address delivered orally to the General Council of the International Workingmen’s Association—also known as the First International—held in London in June 1865.

The address was an answer to the otherwise long-forgotten John Weston, who was a member of the General Council. Weston believed that the trade unions could not improve the conditions of the workers, just like most bourgeois economists claim today. According to Weston, any rise in wages would not only increase prices but would harm other branches of industry. While I wouldn’t go so far as to claim that Weston’s views are identical to the arguments of today’s falling rate of profit school of crisis theory—Marx’s views on the falling rate of profit were not to be published for many years and the debate was not about crisis theory as such—there are in my view disturbing parallels between Weston’s views and some of the arguments put forward by the FRP school of crisis theory.

After Marx’s death, the text of the oral address was found and worked into pamphlet form by Marx’s daughter Eleanor. Besides giving a remarkable preview of Volume I of “Capital,” which was then nearing publication, Marx both defends as well as indicates the limits of the trade union struggle. Despite the fact that 150 years have passed since Marx gave his address to the General Council, the pamphlet is extremely timely today and as such should be closely studied by all present-day Marxists and trade union fighters. (back)

3 Suppose the work day is eight hours and the rate of surplus value is 100 percent. The workers work four hours for themselves and four hours for the capitalists and landowners. Now without any change in the daily wage, assume the work day is extended to 10 hours. The workers will then work four hours for themselves as before but will have to work six hours for the capitalists and landowners. There would be a rise in what Marx called absolute surplus value.

Now, suppose the work day remains unchanged and daily wages in real terms remain unchanged but some invention means the means of subsistence that workers need to reproduce their labor power is now only two hours instead four. Since real wages remain unchanged, the workers will work only two hours for themselves and six hours for the capitalists and landlords, just as above. Marx called this a rise in relative surplus value.

Ricardo’s theory predicted a decline, not a rise, in relative surplus value. In reality, capitalist development since the time of Ricardo has been characterized by a tremendous growth in relative surplus value, the exact opposite of what Ricardo expected. (back)

4 This is the famous negation of negation that Marx refers to. In the early phases of human society, there were no classes. But everybody lived in poverty. Then came class society, which allowed some to escape from poverty but at the expense of the great majority who were forced to perform unpaid labor for the ruling class. This was the negation. But due to the tremendous growth of production, science and technology that occurred during the capitalist era, it becomes possible to get rid of the division of society into classes, and we have a negation of the negation. That is, there is no return to original communism with universal poverty of early human society but instead there is a communism of abundance where everybody can develop to their full potential. (back)

5 It is possible if capitalism and global warming proceeds unchecked that agricultural production could at some stage crash, leading to mass famine. Such a crisis would certainly be an extremely severe crisis of capitalist expanded reproduction but it would not be a crisis of the general relative overproduction of commodities. (back)

6 Credit crises caused by underproduction as well of overproduction can and do occur. For example, to return to our apple orchard example, the capitalist farmer can go bankrupt if “too many apples” are produced and their prices collapse, but also in the case if no apples are produced due to a late spring frost and the farmer has nothing to sell. (back)

7 Keynesian economists explain that the creation of huge amounts of “hard cash” in the form of legal-tender notes and central bank money may not be enough to assure full employment. The capitalists, after all, tend to hoard cash during the crisis and they continue to do so through the stagnation phase that follows the crisis. The answer then is for the government to borrow some this money hoarded in the banks, spend it, and thus prime the pump of recovery. However, this situation only arises once the crisis of overproduction breaks out. If through a “correct monetary policy” we avoid the crisis in the first place, stagnation will not develop and Keynesian pump priming should be unnecessary. (back)