Business cycle stabilization: Stabilization can refer to correcting the normal behavior of the business cycle. In this case the term generally refers to demand management by monetary and fiscal policy to reduce normal fluctuations and output, sometimes referred to as “keeping the economy on an even keel.”

— Wikipedia

2. The bourgeois simpleton’s view of crisis



In the first part of my series on how economists see the mode of production they are attempting to manage, I explained how the method of management focuses not on capital, i.e., the production of surplus value, but on the reflexive expressions found in exchange relations. This is sort of like attributing to a sheet of paper the words that are printed on it, rather than the pen in the hand of the writer.

From the viewpoint of labor theory, however, this approach is not surprising. A commodity producer only finds validation for the social character of his labor when trying to sell his commodity. His activity, the production of the commodity, is carried on in isolation, but only becomes a social product through exchange. This cannot be emphasized enough: The commodity producer intends to sell his commodity, but he doesn’t even know if there is a market for it.

The problem of the social character of her labor does not even confront her until she arrives at the market to sell. And, in this form, the problem appears as a defect of the mode of exchange, not of the mode of production. The result is that, as several writers have observed, production of values play no role whatsoever in the thinking of bourgeois economists. Howard Nicholas, in his book, “Marx’s Theory of Price and its Modern Rivals” puts it this way:

“What is notably missing from this account of exchange is the production/reproduction of the commodity and money. Production and reproduction of the commodity are missing because it is assumed, at least in the first instance, that individuals are naturally endowed with goods and the purpose of exchange is simply the consumption satisfaction of the parties to the exchange.”

Since the 19th century, the capitalists have been bedeviled not by the problem of production of values and surplus values but the problem of realization of this product in exchange — a problem Engels, in his book, “Socialism, Utopian and Scientific”, describes this way:

“As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilized peoples and their more or less barbaric hangers-on, are thrown out of joint about once every 10 years. Commerce is at a stand-still, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution. The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after breakneck leaps, ends where it began — in the ditch of a crisis. And so over and over again. We have now, since the year 1825, gone through this five times, and at the present moment (1877), we are going through it for the sixth time. And the character of these crises is so clearly defined that Fourier hit all of them off when he described the first “crise plethorique”, a crisis from plethora. “

In these crises, according to Engels, although it appears otherwise, the problem is a mode of production that is always pressing to go beyond the limitations imposed by exchange relations, leading Engels to argue,

“In these crises, the contradiction between socialized production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange.”

Taking a page from this description by Engels, it is not so much that bourgeois economists ignore the problem of production as it is that they are operating from its point of view. Which is to say, they are examining the problem as it appears from the standpoint of capital in which exchange relations are an impediment. I think this understanding is crucial to grasping the mindset of the bourgeois simpleton and his focus on exchange relations. Which is to say, the mindset of bourgeois economists is a valid expression of the mode of production insofar as it reflects capital itself. But more than understanding the mindset of bourgeois simpletons, this also reveals the profoundly revolutionary character of capital itself.

It is not just that bourgeois economists think the problem is one of exchange relations, it really is a problem of exchange. But the exchange relations that are the problem are themselves part of the mode of production. The capitalist mode of production rests on these very exchange relations, on the fragmentation of the total capital among individual owners. It is the fragmentation of the total capital that must be abolished, and is abolished, by development of the productive forces themselves.

I say this to warn there is nothing about the bourgeois simpleton’s approach to capitalist crisis that is itself invalid. Even in Engels time, it was already clear that this was the method of approach to the problem of overproduction of capital taken by bourgeois simpletons and by the state, as he explained, in what is perhaps the most complete integration of the theory of the state into labor theory to be found in his (and perhaps Marx’s own) writings:

“And the modern State, again, is only the organization that bourgeois society takes on in order to support the external conditions of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists.”

Thus, even in the 1880s it was already obvious to Engels that the state was progressively moving to take control of, and subordinate to itself, the relations of exchange, i.e., the external conditions of capitalist production. I could be wrong, but my reading of this passage leads me to believe the bourgeois state was even then being pulled not to directly manage production at first, but to manage exchange relations bound up with the mode of production. It was, in other words, being driven to lay hold to the reflexive expressions of the mode of production, rather than production itself.

The question we often ask about the revolving door in Washington is whether Wall Street controls the state or the state controls Wall Street. Historically, it is probably the former — Wall Street gained control over the state. But, having gained this control, we now confront a state that attempts to manage capital process of production as a whole. The state could only be employed by the same means as effectively expropriates the national capital and subordinates it to the state. Seen this way, it is a matter of historical development that brings the fascist state to manage capital by means of control of exchange. The state lays hold to exchange and tries to manage the national capital through its control over the currency that serve as money in the aftermath of the Great Depression.

However, no matter historical development the exchange relations the state controls are no more than the reflex of production relations. Moreover, these exchange relations, despite being an impediment to production, are themselves a component part of the mode of production. If labor theory is correct, the problem in any crisis is an already existing overproduction of capital. This overproduction cannot be retroactively undone by a simple change in the mode of exchange. The commodities have already been produced and lay unsold; they must, therefore, suffer a devaluation, or what is the same thing, the prices of these commodities must fall.

The commodities cannot become validated as socially useful given the limitations of (impediments created by) the mode of exchange. If they cannot be validated as socially necessary, which can only happen through exchange, the labor expended on their production is not useful (according to the premise of the mode or production itself) and has created no value.

This is not to say there has been no material wealth produced by this labor. Material wealth has indeed been produced, but this wealth does not take the form of values. Which is to say, the commodities have use value, but no exchange value, i.e., they are no longer commodities; they cannot be sold under any circumstances. The conditions for the production of useful material wealth and the conditions for the production of values are not by any means the same. The production of useful material wealth has occurred over the whole history of human society, but the production of values is only a subset of that long history.

The development of the forces of production by capital runs into the limit that the production of material wealth can no longer take the form of the production of values. This is NOT a defect of the mode of production. Rather it is the way the mode of production prepares the material conditions for communism. In Engels words, “the perfecting of machinery is making human labor superfluous.”

Mind you, capitalism is doing exactly what it is supposed to be doing: developing the forces of production to ever more ruthlessly extract surplus value from the labor of the workers. This is all capitalism exists for: the production of surplus value, the constant increase in the unpaid labor of the worker. Capitalism cannot accomplish this except by constantly reducing the labor time socially necessary on average for the production of a commodity

On the one hand it wants to extend the unpaid labor time of the worker; while, on the other hand, it must reduce the actual employment of labor power. It accomplishes the first by methods that also accomplish the second. This cannot go on indefinitely without running into a contradiction: that labor time must both increase and, simultaneously, be reduced. This condition is not one found in the typical depression prior to the Great Depression — it is unique. So long as capital has room to expand it does not run into it; but once it no longer has room to expand the crisis becomes permanent. The surplus extracted from the working class is over and above its subsistence, so this surplus must find new profitable outlets. However, once capitalism encounters the limits of its expansion within the world market, this is no longer possible.

This, of course, is how the process appears within labor theory, but we are concerned with how it appears to bourgeois simpletons, right? For the bourgeois simpleton there is no production of value or surplus value, no labor time — in short, all the things that labor theory says determines the mode of production plays no role at all in the simpleton’s analysis.

This process appears to the bourgeois economist in the contradictory form of an ever increasing tendency toward stagnation and insufficient demand. The features of this insufficient demand are familiar to us all: a long-term tendency toward contraction of GDP, of the quantity of money in circulation and of the employment of labor power for the production of surplus value.

But it also is accompanied by continuous intervention by the state to prevent this contraction — which, in the form of money prices; is called deflation; in the form of output; goes by the name depression/recession; and in the form of employment of labor power for the production of surplus value, is called unemployment. These problems only appeared periodically in the 19th century, but became more or less permanent features of the mode of production by 1929.

Two very weird things then happen — although they aren’t so weird: first, economic policy, per se, only begins starting with the 1929 depression. Second, with the beginning of the depression, superfluous labor, deflation and contraction of the quantity of money in circulation and GDP are redefined as defects of the mode of production. Which is to say, these features of the capitalist mode of production are no longer considered ‘normal’ features of the mode of production but, somehow, maladies which must be cured. It becomes the state’s role to cure these maladies, which had, previously, been considered normal periodic expressions of its operation.