Although contradictions, inherent in the antagonistic social relationships of capitalism, cause crises in accumulation, i.e., problems for capitalists, the latter have repeatedly been able to convert such crises into solutions to those problems in ways which have permitted the restoration of continued expansion. In other words, the crises or ruptures imposed on capital (the “first moment” of crisis) by workers’ struggles or some other cause, get turned into the means of relaunching accumulation. As solution-for-capital, those means constitute the “second moment” of crisis, this time crisis-for-workers, either because their struggles have been defeated or simply because capital has emerged strengthened from its crisis. This is the phenomenon to which Marx is referring when he calls crises “momentary, violent solutions for the existing contradictions, violent eruptions that re-establish the disturbed equilibrium for the time being.”1 Because the contradictions are, above all, those between capitalists and workers; re-established equilibrium is a new balance of power that allows accumulation, i.e., the continued imposition of work and the perpetuation of the capitalist social order.
But how do capitalists accomplish this feat? Partially by actions taken in the private sector, in the direct relations between workers and capitalists or among capitalists, and partially by mobilizing the state, especially the government, to ACT on their behalf. In the private sector, one action that is taken when profits drop and crisis circulates, becoming widespread, is cutting back investment, laying off workers, and cutting wages. Imposing greater suffering on workers creates excellent opportunities to deploy the various offsetting strategies that I have outlined above. Indeed, increased unemployment is not just a symptom of crisis, it is often the first counter strategy deployed. Which other strategies are used depends on the source of the crisis. As for government interventions, they are usually designed to complement and reinforce whatever measures are being undertaken by private capitalists. For example, layoffs and rising unemployment, which increase worker poverty, have been accompanied by contractionary changes in fiscal and monetary policies and
An essential element in how such scenarios play out is the differential ability among capitalists to successfully deploy whichever strategies are chosen. Some have more resources and are better able; others have fewer and are less able. At the level of worker-management relations, greater ability means some are better able to obtain whatever concessions from workers are required to re-establish profitability. With some better able to cope and others less so, the competitive position of the latter deteriorates and, in extremis, they either go bankrupt and out of business or are taken over by those better able, with more resources, resulting in an increased “centralization” of capital, i.e., more capital in fewer hands. Along the way capital assets are devalued and, in the end, the power of capitalists as a class is strengthened vis-a-vis workers.
Whatever the methods used, where capital as a whole is successful in finding a solution to crisis, the dynamic of crisis/solution forms a moment of accumulation. The recurrent historical pattern of ruptured and successfully restored accumulation, of periodical bust and renewed boom, explains both economists’ preference for the concept of business-cycle over that of crisis and their optimism about the adaptability and longevity of the system. The optimism of Marx’s analysis, on the contrary, derives from the inability of capitalist solutions to eliminate the fundamental sources of antagonism that are inherent in the system. So, their solutions forever renew the contradictions and struggles that challenge their very survival – no matter how many times capitalists and their economists succeed in converting crisis into solution.
Let’s examine some examples of how these two moments of crisis unfold.
1 In the First Stage of the Circuit: LP – M/M – LP
… accumulation slackens as a result of the rise in the price of labor, because the stimulus of gain is blunted. The rate of accumulation lessens; but this means that the primary cause of that lessening itself vanishes, i.e., the disproportion between capital and exploitable power-power. The mechanism of the capitalist production process removes the very obstacles it temporarily creates. The price of labor falls again to a level corresponding with capital’s requirements for self-valorization.4
The rise of wages is therefore confined within limits that not only leave intact the foundations of the capitalist system, but also secure its reproduction on an increasing scale … the very nature of accumulation excludes … every rise in the price of labor, which could seriously imperil the continual reproduction, on an ever enlarging scale, of the capital-relation.5
It is these absolute movements of the accumulation of capital which are reflected as relative movements of the mass of exploitable power-power, and therefore seem produced by the latter’s own independent movement. To put it mathematically: the rate of accumulation is the independent, not the dependent, variable; the rate of wages is the dependent, not the independent variable.”6
While repeatedly cited by orthodox Marxists as limiting the potential power of wage struggles (which for them rationalized the priority of the Party’s leadership of “political” struggles), this passage seems totally one-sided. Capital accumulates and sometimes the pace of that accumulation induces increases in the demand for labor and hence increases in wages, sometimes the pace slows and induces their fall. In contemporary terms, this way of looking at the situation sees the rise and fall of wages as determined only by the changing industrial demand for labor.7
But, compare this with the discussion in Section II of Value, Price and Profit (1865). In those two lectures attacking the arguments of Owenite John Weston, Marx argued vigorously in favor of wage struggles, during both periods of
Furthermore, an objectivist interpretation of the passage on dependent and independent variables depends on a narrow interpretation of the meaning of accumulation. In the usual interpretation, accumulation is thought of one-sidedly as the reinvestment of surplus value – an act undertaken by capitalists – and any resulting growth in output. Yet only pages earlier Marx goes out of his way to emphasize that accumulation is above all the expanded reproduction of the class relation. In this light, accumulation is the expanded reproduction of all the elements of the class relation. To say that changes in wages are dependent upon accumulation is, therefore, to say that those changes are dependent on a whole complex of antagonistic class forces. Read this way, the objectivist interpretation is too narrow. Once “accumulation” is not reduced to the notion of capitalist reinvestment and growth narrowly defined, with its effect on labor demand, we retain the whole complexity of class struggle as an analytical framework for investigating both the first moment of crisis (when, for example, the working class pushes wages up faster than productivity, or otherwise disrupts the circuits) and the second moment (when capital strikes back by, for instance, wielding low investment and higher unemployment to reduce wages and restore profitable conditions).
2 In the Second Stage of the Circuit: …P…
When the causes of crisis are to be found in struggles within production – about work and the conditions of work – then the offsetting strategies capitalists
In his extended discussion of relative surplus value, Marx showed repeatedly how technological innovation, embodied in new machinery and new work organization, has been used by capital against workers’ struggles. The substitution of steam for waterpower facilitated the building of factories to enclose and control the hitherto dispersed labor of the putting-out system. Power looms not only displaced labor but also deskilled it – undermining workers’ control over the process of production and facilitating their replacement by less skilled women and children.9 This kind of reorganization, which decomposes the power of workers has also been accomplished by introducing immigrant workers, setting them against local ones, partly by paying them lower wages, partly by playing on ethnic differences (as in the case of Irish and English workers discussed in Chapter 6 above).
Similar reorganizations were carried out in both agriculture and mining, e.g., the introduction of mechanical for human reapers in fields and of steam-powered drills in mines in the nineteenth century replaced skills and reduced both the bargaining power of workers and the demand for their labor-power.10 In the United States, such moves, especially in mining, was accompanied by widespread hiring of immigrant labor – a strategy that lay the basis for the later “Red Scare” attacks on miners and widespread deportation. Such moves can occur during periods of expansion, but downturns, when existing capital is devalued, production reduced and workers laid off, provide capitalists with opportunities at precisely the same moment that workers are weakest.
A final way in which crises in production may be used by capital as an opportunity to reorganize itself to raise average profitability and restore accumulation, is the kind of industrial reorganization at the level of individual firms that Marx termed the centralization of capital. Crisis affects different firms to different degrees; some go bankrupt and disappear, others weaken, are taken over and absorbed by stronger companies. Competition, Marx says, “always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, and partly vanish completely.” It is the “expropriation of capitalist by capitalist, transformation of many small into few large capitals.”11
When capital is able to collectively take advantage of crisis in this way, through the centralization of capital, Engels added the observation, in the fourth German edition, that it “intensifies and accelerates the effects of accumulation, it simultaneously extends and speeds up those revolutions in the technical composition of capital which raise its constant portion at the expense of this variable portion, thus diminishing the relative demand for labor.”12 This in turn accentuates other contradictions of accumulation, especially the tendency of the rate of profit to fall.
This tendency, brought on by the rising organic composition of capital, which requires a larger and larger proportionate investment to put the same number of people to work, appears to capital mainly in the form of unemployment aggravated by automation. The only possible industrial responses to this problem are either the slowing down of labor displacing innovation – and this can only be temporary – or creating new opportunities to put people to work
3 In the Third Stage of the Circuit: C′ – M′
Faced with crises in their ability to sell C′ at prices equivalent to their value M′ capitalists have found various ways to convert crises into solutions to restore accumulation. Some solutions are found in the “private sector,” i.e., relations between workers and capitalists and those among capitalists, and some by mobilizing state intervention. Which solution is tried depends on the reasons why production exceeds market demand. The excess can arise from either production accelerating faster than the expansion of demand, by a contraction of the latter or some combination of both.
Let’s look first at solutions that emerge in the private sector. Where excess production is marginal and limited to a single product and market – the usual assumption of both classical and neoclassical economists – the solution comes with a fall in price that leads capitalist managers to reduce production to levels consistent with existing demand. But reduced production generates less surplus value, less investment and slows accumulation. The more general the overproduction for existing markets, the more general the crisis and the less such marginal adjustment can resolve the problem – the point made by both Malthus and Marx against Ricardo and Say.
In the eighteenth and nineteenth centuries, when industrialization and accumulation were based on a small number of industries, e.g., textiles, a crisis in those few major industries had widespread negative ramifications for all those connected to it. With textile production reduced, so too would agricultural production of raw materials for those industries, e.g., flax, wool, cotton, be forced to contract. Moreover, the financing, transportation, and sale of products, from cloth to everything made from cloth, would all be reduced. This is one reason Marx paid so much attention to the textile industry and its crises.13
In other words, the solution to overproduction involves precisely that weeding out discussed above, in which some capitalists fail and their assets are redistributed to others, with a resulting centralization of control over production. Centralization can increase oligopolistic power in that industry and convey greater control over markets – especially if a small number of oligopolists collude to form a cartel with monopolistic power to determine both prices and market shares. Regardless of how production is brought into line with market demand, capitalists are forced to adjust the other components of their circuits to the new scale of circulation. In such crises, although initially involving a reduction in surplus value, industrial reorganization provides a solution that recreates the equilibrium conditions for renewed expansion. This is true for surviving individual circuits of capital and true for the aggregate – at the level of whole industries and of the balance among industrial departments, where new arrangements reduce disproportionalities.15
Mercantilists obtained from THEIR sovereigns laws in support of expanding export markets for domestic production. The bullionists argued for net exports to bring in gold, but others understood that properly done, invested gold could bring in more gold through trade. After them, governments drew on the ideas of political economists like Adam Smith to support both export and import trade, as well as the use of force and laws to facilitate colonialization to widen markets for C′. Equally obvious have been those laws allowing the chartering of corporations such as the East India and Royal African Companies to facilitate colonial expansion and all those laws helping to protect and regulate financial services in support of trade. I have also mentioned the deployment of armies of colonial conquest and national warships to accompany convoys of merchant ships from the same country and to protect/maintain home markets, e.g., the blockade of French ports and repression of smuggling during the Napoleonic Wars. Then, once again, the Corn Laws were passed in its wake to sustain domestic grain markets – to the benefit of producers and at the expense of workers whose real wages were undermined by the higher cost of bread.
All of these efforts by the state have been financed either by borrowing – to the profit of lenders – or by taxes. This made fiscal policy as much a terrain of class struggle as monetary policy. Capitalists have sought expenditures that benefited them, and taxes mostly levied on workers where possible, e.g., customs tariffs on consumer goods, sales taxes, and income taxes, despite their negative effects on aggregate consumption demand. On the other side, workers and social reformers have pushed for state expenditures to benefit workers, e.g., Factory Acts, while seeking to make capitalists share the burden of taxation – share via progressive income taxes, e.g., the British Tax Act of 1798 that imposed higher taxes on higher income and the American Revenue Acts of 1861 and 1862 to finance the Civil War. Repealed in 1872, a progressive federal income tax in the US was reborn through the Sixteenth Amendment to the Constitution in 1909.
As for the failure of capitalist price mediation through direct appropriation, although Marx discussed the phenomenon of crime in a number of places, including working class direct appropriation, and considered it a spur to capitalist development, he never (to my knowledge) integrated these discussions
To summarize, just as the most fundamental contradiction of capitalism is between the classes, so the most fundamental role of crisis-as-solution is restoring the balance of class forces so that capital can resume its growth – that is, growth in its control over the working class and society. The predispositions to crisis show how the fundamental antagonism between the classes over each element of the class relation and each stage of the circuit of capital predisposes the system to rupture. Capital must fight in each case to maintain its control, which is never guaranteed and is repeatedly challenged. Aspects of capitalist crisis that do not appear immediately as questions of class relations, I have nevertheless revealed to be forms of those relations and their development to be a function of class struggle. For example, competition that appears solely as a relation between individual capitals, thus internal to capital and separate from the working class, we see to be an organizational form through which collective capital selects the best of its managers and discards the rest. The pattern of class struggle is reflected in the uneven success of firms, expansion or closure being two ways capital responds to working class pressure during periods of crisis.
Manuscript of 1864–1865, p. 358, Capital, Vol. 3, p. 357, or MECW, Vol. 37, p. 248.
In his On the Nature and Uses of Sabotage (1919), Veblen draws a parallel between worker attacks on equipment and such capitalist “strikes,” calling them both “sabotage” of industrial production.
This double whammy was precisely what happened in the early 1980s when Jimmy Carter and Ronald Reagan unleased Fed chairman Paul Volcker to attack wages by driving up interest rates and plunging first the United States and then the rest of the world into crisis, including the biggest increases in unemployment since the Great Depression of the 1930s. Reagan complemented this attack on wages by simultaneous attacking food stamps, expelling veterans and others from mental hospitals, trying to privatize Social Security, breaking unions (starting with the firing of PATCO workers) and rolling back regulations protecting those workers still employed. The same pattern was repeated after the financial crisis of 2006–8 when millions lost their jobs and hundreds of thousands their homes. The recent indulgence of hedge fund capitalists in speculation in the housing market has only worsened these phenomena by pricing both houses and rent beyond what existing wages can afford.
Capital, Vol. 1, p. 770, or MECW, Vol. 35, p. 614.
Capital, Vol. 1, pp. 771–772, or MECW, Vol. 35, p. 616.
Capital, Vol. 1, p. 770, or MECW, Vol. 35, p. 615.
Whatever its limitations, this argument was wielded by Marx against Malthus who was arguing the exact opposite, namely that the rise and fall of wages was due to changes in the supply of labor.
Remember, as both Marx and eventually marginalist, neoclassical economists recognized, increases in productivity make possible simultaneous increases in both profits and wages.
Besides Marx’s analysis in Chapters 12–15 on relative surplus value, see Raniero Panzieri, “Sull’uso capitalistico delle macchine nel neocapitalismo,” Quaderni Rossi 1, (1961): 53–72. In English as, “The Capitalist Use of Machinery: Marx Versus the ‘Objectivists,’” in Phil Slater, ed., Outlines of a Critique of Technology (Atlantic Highlands: Humanities Press, 1980).
The pitting of steam-power drills against workers was immortalized in American folklore legends and songs about “steel-driving man” John Henry. See, too: Doreen Chaky, “John Henry v. Charles Burleigh’s Drill,” Mining History Journal 1 (1994): 104–108.
Capital, Vol. 1, p. 777, or MECW, Vol. 35, p. 621.
Capital, Vol. 1, p. 780, or MECW, Vol. 35, p. 622.
Although the diversification of production discussed in the last section has rendered capitalist production less susceptible to the vagaries of a single industry, as recently as the “automobile age,” and the “computer” or “information” age, crises in those industries have rippled far more strongly across the economy as a whole than those in unrelated secondary industries. Some have argued that the military-industrial complex, with its array of industries building bases all over the world and churning out weapons to supply them has played a similar central role. See, James Flink, The Automobile Age (1988), Manuel Castells, The Information Age: economy, society and culture (1996), Marcel van der Linden, “Edward Sard (1913–99), Theorist of the Permanent War Economy,” Critique 46, no. 1 (January 2018): 117–130, and Michael Kidron, Western Capitalism Since the War (1970).
The most vulnerable are small farmers or peasants whose production, both for domestic consumption and for sale, has merely supported survival, never generating surplus value beyond that required for the repayment of debt. Unlike larger agribusinesses who experience these difficulties as falling profits, the bankruptcy of small farmers and peasants becomes a mechanism of renewed not-so primitive accumulation, foreclosure/enclosure and proletarianization, facilitated by the financial institutions that hitherto sucked out what little surplus value was generated in the form of interest.
Marx’s skepticism of the ability of markets to bring about smooth adjustment, as opposed to traumatic, system-wide adjustment at great human cost, was shared by state capitalists who developed planning at the aggregate level to avoid such trauma and resulting social upheaval.
In more recent times, “commodity riots” – involving widespread direct appropriation – have periodically shaken American cities, from the 1960s through the 1990s and uprisings exploded in many countries in reaction to increases in food prices imposed by International Monetary Fund’s “structural adjustment programs” during the international debt crisis of the 1980s and 1990s. Direct appropriation also deepened the crisis caused by Hurricane Katrina in 2005 along the US Gulf Coast in response to the failure of local and federal governments to either prepare for or respond to the disaster in ways benefiting workers.