THE MARXIAN THEORY OF CRISIS

Both the main-stream of classicism and of Marxian analysis contained a type of teleological reasoning; i.e. they saw the natural laws of economic dynamics as propelling the system toward a predestined end.

Marx offered two distinct explanations of the crisis in which the capitalist order would be destroyed. He regarded these explanations as interdependent and mutually reinforcing. They can, however, be examined separately. In fact, his conclusions follow from only one of the two sets of arguments.

His first account of the capitalist crisis was built around an elaboration of distinctions he had drawn in his portrait of the capitalist system. The essential concept in this context was the division of the economy into two 'departments': one producing the means of production, the other producing the means of consumption. The relationships between these departments were then examined under differing sets of assumptions. In the simplest case (which he described as 'simple reproduction') neither net saving nor net investment occurred and output would be unchanged from one time period to the next. His analysis of the matter took the following form. In Department I (producing the means of production) the gross value of output would be equal to labour inputs and could be represented as the sum of C1+V1 +S1. Similarly, in Department II (in which the means of consumption were produced) the gross value of output could be stated as the sum of C 2+V2+S2.

As a practical matter Marx saw that the task of achieving this balance was complicated by a number of factors. Realism demanded that a third department - one producing luxuries to satisfy part of the consumption demands of capitalists - be added. In addition, account had to be taken of the fact that a portion of the capitalist's surplus was allocated to net accumulation. The maintenance of the self-sustaining equilibrium thus became an

increasingly intricate operation and could easily be disturbed by nothing more unusual than the acquisition of assets of unequal durability - a situation which would later lead to an uneven timing of replacement requirements and to fluctuations in the demand for producer goods. Marx's treatment of this point carried overtones of Ricardo's analysis of the consequences of inequalities in the life of capital goods. But, whereas Ricardo was concerned with the implications of this problem for a labour-input theory of value, Marx attached more importance to it as a threat to the stability of capitalism. Any departure from the conditions necessary to sustain the system on an even keel during the course of the normal process of capital accumulation would frustrate producers in one of the departments, give rise to the accumulation of unwanted stocks, and provoke a price-cutting panic (or in Marx's terms, a 'realization' crisis).

Marx's analysis of the chronic instability of capitalism contained the germs of a theory of the business cycle.

Marx was correct - and ahead of his time - in emphasizing that tendencies toward instability were inherent in industrial capitalism. But it did not follow from this phase of his analysis that fluctuations would necessarily culminate in a breakdown of the system. More was required for such a demonstration. Marx thought he supplied the additional ingredients in a second theory of crisis with arguments that rested more on his philosophical presuppositions than on his economic analysis.

The process he saw at work can be summarized as follows: capitalism bred heavy accumulations of fixed capital; as these accumulations mounted in volume, the size of the reserve army of unemployed was swollen. For the working class, misery and distress were intensified. Meanwhile the ranks of the proletariat were further enlarged by recruits from the capitalist class, primarily by small entrepreneurs who had been crushed in the war of industrial giants. As Marx described these aspects of the unfolding of the system:

Along with the constantly diminishing number of magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself.

expropriators are expropriated.36

But this very process also was expected to lay the foundations for a new economic order in which the inner contradictions between the mode of production and the productive relations of capitalism would be resolved. As Marx saw this matter:

Modern Industry, on the other hand, through its catastrophes imposes the necessity of recognising, as a fundamental law of production, variation of work, consequently fitness of the labourer for varied work, consequently the greatest possible development of his varied aptitudes. It becomes a question of life and death for society to adapt the mode of production to the normal functioning of this law. Modern Industry, indeed, compels society, under penalties of death to replace the detail-worker of today, crippled by life-long repetition of one and the same trivial operation, and thus reduced to the mere fragment of a man, by the fully developed individual fit for a variety of labours, ready to face any change of production, and to whom the different social functions he performs, are but so many modes of giving free scope to his own natural and acquired powers.37

The social tensions bred by capitalism were too intense for the transition to be accomplished peacefully. Revolution was an essential part of the Marxian theory of crisis. The violent overthrow of the capitalist order, however, cannot be explained on technical economic grounds. Marx's view of the dynamics of history was an essential prop to this conclusion.