Does Capitalist Production Have a Long Cycle? (pt 4)

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

“The Great Depression,” wrote bourgeois economist J. Bradford DeLong, “has central place in 20th century economic history.” He explained: “In its shadow, all other depressions are insignificant. Whether assessed by the relative shortfall of production from trend, by the duration of slack production, or by the product—depth times duration—of these two measures, the Great Depression is an order of magnitude larger than other depressions: it is off the scale. All other depressions and recessions are from an aggregate perspective (although not from the perspective of those left unemployed or bankrupt) little more than ripples on the tide of ongoing economic growth. The Great Depression cast the survival of the economic system, and the political order, into serious doubt.”

The economic crisis of 1929-33 though it was in some ways just another cyclical crisis of overproduction clearly involved other factors that converted a “normal” cyclical economic crisis into something quite different. What was it? In order to distinguish the crisis of 1929-33 from normal capitalist cyclical crises, I will call it the super-crisis.

The Great Depression of the 20th century

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

The Ideas of John Maynard Keynes

The ideas of the English economist John Maynard Keynes, 1883-1946, achieved their greatest influence during the 1960s and early 1970s. In those days, Keynes was widely credited by his followers among the economists for saving capitalism itself.

The story told by the Keynesian economists went something like this. In the dark days of the Depression of the 1930s, capitalism to all appearances was approaching the end of its road. When the Depression began, the traditional liberal economists, who had long dominated the economics profession, claimed that capitalism would quickly recover from depression without government intervention. Therefore, these economists urged the government to do virtually nothing to encourage economic recovery.

After all, the traditional economists argued, this had always worked in the past. Recovery had always followed recession. But the Depression of the 1930s, the story goes, was different. The economy was showing no signs of recovering on its own. As a result, many young people, including a certain number from the ruling capitalist class itself, were turning toward Marxist ideas. The replacement of capitalism by socialism seemed increasingly likely in the near future.

The Phases of the Industrial Cycle

The crisis, sometimes called the “recession,” marks the end of one industrial cycle and the beginning of the next one. Recession is characterized by a decline in industrial production and employment. The decline in employment is most severe in the industrial sector but affects many other sectors of the economy as well. The recession, or industrial crisis, ends when industrial production reaches its lowest point.

The period between the lowest point of industrial production and when industrial production again reaches the highest point of the preceding cycle is known as the “depression,” or sometimes the phase of “stagnation.”

The phase of the industrial cycle that follows the end of the depression, or stagnation stage, is called the period of “average prosperity.” There is still considerable unemployment of both workers and machines, and capital investment is still weak. Stagnation and depression conditions therefore linger longest in the industries of Department I, the sector that produces the means of production.

After the period of average prosperity comes the boom. Industry is operating as close to “full capacity” as it ever does—outside of all-out war—under the capitalist mode of production. Unemployment sinks to its lowest level of the cycle. Conditions become more favorable to the sellers of labor power. This is the most favorable point in the industrial cycle for union organization and strikes.

Crisis Theories: Unconsumption (cont’d)

Ricardo, Say and the liberal answer to Sismondi and Malthus

The French economist J.B. Say, who lived between 1767 and 1832, is famous for his “law of markets,” which allegedly proved that a general overproduction of commodities was impossible. Some authorities credit James Mill, the father of John Stuart Mill and a friend of Ricardo, for discovering this so-called law. The law, however, is generally known as “Say’s Law.” So that’s how I will refer to it here.

How did Say “prove” the impossibility of a general overproduction of commodities? He argued that while money makes the exchanges of commodities much easier, it is by no means absolutely necessary for commodity exchange. Commodity exchange can proceed, at least in principle, without money.

Therefore, Say abstracted away money. If money is left out, commodity exchange is the exchange of one commodity for another. The totality of these commodity exchanges makes up the market. Thus, the means of purchasing commodities are commodities themselves.

Crisis Theories: Underconsumption

The most popular explanations for economic crises advanced by Marxists since the death of Engels in 1895 are underconsumption, profit squeeze and disproportionality. The theory of underconsumption explains crises by the inability of the working class to “buy back” the full product it produces.

Profit squeeze theories can be be divided into two sub-theories. One version puts the blame for crises on a decline in the rate of surplus value caused by the fall in unemployment that occurs during a boom. The other sub-theory, in contrast, sees the rise in the organic composition of capital causing a fall in the rate of profit. The fall in the rate of profit leads to the crisis.

The theory of disproportionality can also be divided into two sub-theories. One puts the emphasis on the anarchy of production. For example, raw materials might be produced in insufficient amounts as industrial production expands leading to an economic crisis. The other sub-theory puts the emphasis on the relationship between the two great departments of production, the one that produces means of production (called Department I by Marx) and the one that produces consumer goods (called Department II by Marx). It is asserted that either Department I produces too much relative to Department II or Department II produces too much relative to Department I and that this leads to a general economic crisis.