4; THE FORM OF AUTOCENTRIC ACCUMULATION: FROM CYCLE TO CONJUNCTURE

Fluctuations in the conjuncture — whether they take cyclical form (as was the case until the Second World War) or not, as has been the case since then — are manifestations of the inherent contradiction between capacity to produce and capacity to consume, which is characteristic of the capitalist mode of production, a contradiction that is continually being overcome through extending the capitalist market ever wider and deeper.

The historical law of this inherent contradiction of the capitalist mode of production is that it tends to get worse, as was shown by the exceptional scale of the crisis of the 1930s. But this tendency does not lead to a “spontaneous catastrophic collapse” of the system, because the latter can always react by organizing monopolies and bringing in the state to absorb the increasing surplus. The historical conditions within which accumulation on the world scale proceeds are of vital importance from this standpoint. The scientific and technical revolution of our time, together with the gradual integration of Eastern Europe into the world capitalist system, will probably modify to a considerable extent the conditions sur­rounding this accumulation on the world scale. The extension of j capitalism to the periphery, the adjustment of the structure of the ^! periphery to the requirements of accumulation at the center (i.e., the forms assumed by “international specialization” between the, center and the periphery) must also be accorded importance in j analyzing the conjuncture.

The cyclical form assumed by accumulation became very early the subject of economic study. For a long time, however, because current economic theory had made an article of faith out of the “law of markets” (according to which investment of savings that have succeeded in assuming the money form, through which they are obliged to pass, takes place automatically thanks to the finance market), the “cause” of the cycle was sought in money, the psychology of the entrepreneur, or the technical conditions of production — in other words, in what have been called “external” or “independent” variables. This view was inevitably a superficial one. It gave rise to an efflorescence of “theories” about the cycle — with Malthus, Sismondi, and (above all) Marx as three impressive exceptions. But the validity of the “law of markets” was so little questioned that Marx’s analyses remained uncom­prehended, wrongly interpreted, and rejected without real exam­ination by marginalist critics, who defined the value of money by its purchasing power.

At the end of last century Wicksell was obliged to challenge the dogmatic status of the “law of markets,” as a result of his study of general price movements and his attempt to discover the reasons why total supply and total demand can be unequal. Myrdal, from 1930 onward, and Keynes already from 1928 onward, but especially in 1936, carried further this critique of the “law of markets.” Thereafter, study of the cycle could rise above psycho­logical and monetary commonplaces to engage in study of the mechanisms that adjust the saving derived from total income to the investment required for economic growth.

The historical development of capitalism has not proceeded along a regular upward path. Rather it has followed the line of a series of cyclical fluctuations accompanying a general upward tendency. The possibility of continuous growth in a capitalist economy without an “external” outlet was proved by Marx, and then again by Lenin, arguing against Rosa Luxemburg.

But the essential claim made by the “law of markets” is mistaken. Investment can create its own market —but it can also fail to create it. The special function of the theory of the cycle is, precisely, to determine the conditions under which investment does not succeed in creating its own market.

! Money certainly gives flexibility to the economic system, but it ■ also makes it possible for the system to break down owing to an ⅛ imbalance between total supply and total demand. By enabling the act of saving to be separated from the act of investment, money creates the possibility of crises. Does this mean that, it is solely responsible for them? If this were so, it would have to be explained why this imbalance is a periodic and not a chronic phenomenon, why it is overcome on each occasion, and why the phenomenon of the cycle is distinctive of the capitalist mode of production alone, and not of other modes of production that use money, such as simple commodity economy. In fact, if the cycle is a “monetary” phenomenon in the capitalist mode of production, it is so no more and no less than all other economic phenomena.

The “Pure Theory” of the Cycle: The Monetary Illusion

Keynes’s analysis has been described as “metastatic.” In The General Theory, the volume of investment determines, through the multiplier, the level of national income. The volume of this investment itself depends on two independent variables: the rate of interest, on the one hand, and, on the other, the marginal efficiency of capital. There is no reaction from income to invest­ment — or, more precisely, investment, is proportional only to income, not to the growth of income. The result is that the equilibrium established at the level of the national income at which saving and investment are equal is a stable equilibrium.

The General Theory does indeed contain a sketch for a theory of the cycle. A sudden fall in the marginal efficiency of capital is accompanied by a rise in the rate of interest, because it leads to an increase in liquidity preference. Investment suddenly slumps, and with it total demand: the national income shrinks to the point at which the amount of saving derived from this income no longer exceeds the diminished amount of investment. This analysis does not, however, take the theory of the cycle any further, because the sudden fall in the efficiency of capital remains unexplained.

Keynes turns to psychology, implying the impossibility of men entertaining indefinitely optimistic expectations where future return on capital is concerned.

At most, accidental “historical” causes might from time to time produce a psychological crisis, and so a contraction in total income. But the regularity of the cycle calls for an explanation rooted in the mechanism of the economic dynamic itself.

Abandoning Keynes’s assumption of stable values of the pro­pensities to save and to invest, Kaldor, Kalecki, and others have constructed models that take account of the possible generation of fluctuation in total income. Harrod, perhaps, is the writer who has best analyzed, up to now, the logical sequence linking all the factors that connect national income with investment, and vice versa. According to him, the imbalance in economic growth arises frorh the basic antinomy between actual saving, which essentially depends on the level of real income, and desirable saving, which essentially depends on the rate of growth of real income. In The Trade Cycle Harrod constructs a model of the cycle by making the multiplier and the accelerator function in the following way. An initial investment engenders an increase in national income, which itself determines a secondary investment (acceleration). The -boom continues until the multiplier has lost magnitude sufficiently to annul the action of the accelerator. This is indeed what happens during prosperity: propensity to consume diminishes in proportion as income decreases, since the share of this income taken by profit increases faster than the share taken by wages.

There is no special chapter in Capital that brings together all the elements of a theory of the cycle, but, nevertheless, Marx revealed the essence of the process through his examination of the phenomena known today as the “multiplier” and the “acceler­ator.” In Chapter 21 of Volume II he showed that it was possible for investment to create its own market through the spreading and deepening of capitalism.

When examining the replacement of fixed capital, he had suggested that an increase in ultimate demand might in some circumstances (those that are found together precisely at the end of a depression) engender a sudden investment, which in turn, through the distribution of income it entailed, would create new possibilities for the investment of fixed capital. But Marx immedi­ately denied that this phenomenon of replacement of fixed capital, analogous to the accelerator, owes its existence to the technical requirements of production: the need to build a machine that will last a long time, in order to respond to any increase, even a temporary one, in ultimate production. He ascribed this phenom­enon to the essential laws of the capitalist mode of production. An increase in demand, even a slight one, due to the opening up of a new market (internal, in the case of a demand connected with technical progress, or else external) at the end of the depression, causes a possible investment in fixed capital to seem a profitable prospect once again. All hoarded saving therefore suddenly moves into such investment. The new production engenders a distribution of income that makes this investment profitable indeed. Marx thought that in a planned economy these constraints of technique would be reflected in fluctuations in the amount of reserve stocks but that they would in no way determine the level of investment, which would be freed from its present dependence on immediate profitability.

Marx’s analysis is in reality more complex in that, besides analyzing the antinomy between “multiplier” and “accelerator,” it deals with the secondary problem of the cyclical fluctuations in wages, and also in that it is grafted upon the theory of the tendency of the rate of profit to fall. During prosperity the amount of unemployment declines, real wages rise, and more intensive use is then made of machinery. During depression an opposite movement takes place. These two mechanisms intensify the duration of both depression and prosperity periods. Dobb attaches an importance to this phenomenon, examined in Volume I of Capital, which, in my opinion, is false to Marx’s thinking. However, the tendency of the rate of profit to fall shows itself by way of the cycle. At the beginning of the period of prosperity, the “counter-tendencies” are stronger than the general tendency. At the end of this period, the counter-tendencies are exhausted: the increase in the rate of surplus value, which conceals the effect of the increase in the organic composition of capital, slows down. The rate of profit slumps. But although this law manifests itself through the cycle, it is not the cause of the cycle, which lies in the combined effect of the evolution of the capacity to consume, which does not increase as does the capacity to produce (owing to the increasing share of income taken by profit), and of the immediate prospect of profitability, which guides investment and which, thanks to the accelerator, delays the baneful effect of the diminution of the multiplier.

If, then, Harrod arrives, in his study of the cycle, at a de­scription that seems correct, this is because he breaks with the Keynesian analysis on an essential point. Harrod has linked pro­pensity to invest directly to income, without going through the double intermediary of the marginal efficiency of capital and the rate of interest. He has taken as the starting point for his con­struction simply the antinomy between capacity to produce (linked with the saving derived from previous production) and capacity to consume (linked with the distribution of income that production engenders). He completely ignores interest, which he considers incapable of seriously affecting investment. He also ignores psy­chological phenomena, which he sees as-dependent variables.

Hicks, like Harrod a post-Keynesian but much more attached to the traditional rate of interest, has sought to throw a bridge between Harrod’s analysis based on the mechanism that links propensity to invest with total income, and the Keynesian analysis based on the antinomy between interest and the marginal efficiency of capital. In his view, a fall in the rate of interest (if the marginal efficiency of capital remains stable) entails an increase in investment, and thereby in income. But an increase in income increases the volume of money required for transactions. If the supply of money remains'fixed, and if liquidity preference remains unchanged, the increase in the demand for money for transactions will in its turn bring about a rise in the level of interest. The development in time of these mechanisms, given schematic form in the two curves of liquidity and of the equivalence between saving and investment, is nothing other than the cycle.

Are we not here back in Hawtrey’s utopia? An adequate injection of money, together with the increase in income, would apparently make it possible, allowing for a stable level of liquidity preference, to satisfy the growing need for money for transactions without raising the rate of interest. Prosperity would be continuous, unless, of course, the efficiency of capital were to decline — something that would then have to be explained, as Harrod and Marx have explained it, exclusively by an imbalance between capacity to produce and capacity to consume.

Hicks accepts the Keynesian hypothesis that the point has been reached at which, whatever the amount of-money injected, the- rate of interest is already at such a low level that it cannot sink any lower. No monetary measures can then avert the crisis. This analysis is unable, however, to account for the cycle in the more general case, that of the nineteenth century, when the average rate of interest stood at a higher level than today. One could, of course, invoke the marginal efficiency of capital: the cycle would then be seen as engendered by the independent movement of this variable, with the level of interest remaining situated relatively stably at its lowest point throughout the whole process. Here, however, one would stumble over that very difficulty from which one had started out, namely: what is the origin of the sinusoidal “psychological” movement?

The Theory of Maturity and the Theory of the Surplus in Present-Day Monopoly Capitalism:

From Cycle to Conjuncture

For a century the cycle thus constituted the necessary form assumed by the development of capitalism. The cyclical imbalance between investment and saving was dictated by the mechanism of growth, by the functioning of the accumulation of saving that periodically became too plentiful in. relation to possibilities for investment. The outcome of cyclical development was growth. There was no superimposing of one phenomenon upon another, different in kind — the cycle, on the one hand,-and, on the other, the century-long general tendency. Construction of a “pure” model of the cycle in which the end point would be the same as the starting point is a fantasy. The starting point of the movement — the sudden investment in fixed capital — is incomprehensible outside of the setting of technical progress.

In the absence of the opening of an external market, only the introduction of new techniques enables the market to be expanded. And even the conquest of an external market does not resolve the imbalance between supply and demand on the world scale. In order to explain world recovery, we must therefore analyze the effects of the implementation of new' techniques. In a period of depression, the general stagnation furnishes a strong motive for technical improvements, for the enterprise that takes the initiative in introducing innovations recovers its lost profitability. The new method comes into general use and, since progress is usually ex­pressed in the more intensive employment of machinery, a new demand appears. Production starts up again, thanks to the sudden investment called for by the production and installation of the new machines. The subsequent development then takes cyclical form, but at the end of this movement the national income stands at a level higher than at the beginning. Something new has happened: a new technique has become general. Consequently, the volume of production has increased. The capitalist market is constantly expanding by this means, and the cycle is thus a feature that inevitably runs all through the upward trend.

However, independent of the mechanism of cyclical imbalance between saving and investment there are real causes that tend to make these two overall quantities more or less easily “adjustable” in the long run. In this sense, the long-term tendency retains a reality of its own, even though this reality manifests itself only through the cycle. If the imbalance between saving and investment becomes chronic, this is reflected, during the cycle, in a longer period of depression and a shorter period of prosperity. If, on the contrary, equilibrium is easy to achieve, this is reflected in a shorter period of depression and a longer one of prosperity.

What are these real reasons that cause equilibrium between saving and investment to be either easier or less easy? Much was said, in the years following the Great Crisis, about “chronic stagnation” and about the “maturity” of capitalism. Keynes dis­covered at that time the possibility of chronic underemployment. In fact, the analysis of maturity made from a Keynesian stand­point is ultimately monetary in character. It is impossible to accept the thesis of the blocking of growth for purely monetary reasons. This being so, must it be admitted that since Marx study of the development of capitalism has been given up for good? At the beginning of the nineteenth century Ricardo thought he could prophesy a “stationary era” on the basis of diminishing returns operating on a historic scale. Any conception of a stationary state is entirely alien to Marxism. The law of the tendency of the rate of profit to fall merely signifies that the contradiction between the capacity to produce and the capacity to consume must necessarily get worse and worse. The ultimate reason for the overall imbalance remains the contradiction between the division of income between wages and profit (and thereby the division of income between consumption and saving), on the one hand, and, on the other, the division of production between the production of capital goods and the production of consumer goods. A certain volume of ultimate production necessitates a certain volume of intermediate production. This latter quantity is merely a way of looking at the volume of investment required to produce the desired volume of ultimate goods. Harrod, by abandoning monetary analyses of the rate Ofinterest and psychological analyses of the marginal efficiency ofcapital, in order to concentrate directly on the capital-output ratio (measuring the capital-intensity of production, that is, the ratio between the production of capital goods and that of ultimate goods), on the one hand, and on the division of total income between consumption and saving, on the other, comes remarkably close to Marx’s analysis.

In the nineteenth century, the youth of capitalism, the huge possibilities offered by the breakup of the precapitalist economies were collected in a tendency favorable to adjustment between saving and investment. Depressions were then less deep-and less prolonged than the one that occurred in the 1930s. But then, just at the moment when the theory of maturity was forecasting the “end of capitalism’’ and “permanent stagnation,” at the very moment when a simplified version of Marxism was adopting, Underthe title of “the general crisis of capitalism,” an apocalyptic vision that was in fact alien to Marxism, the rate of growth of Western capitalism became faster, and, furthermore, growth lost its cyclical character.

Marxist analysis brought up to date provides the only explana­tion of this development. Baran and Sweezy have begun such an analysis by examining in a new way the “law⁷ of the increase of the surplus” and the forms whereby this surplus is absorbed. At the same time, moreover, the theory of monopoly capitalism explains why the cycle has disappeared. The cycle was due only to the inability of capitalism to “plan” investment. Now, monopoly capital­ism can do this, in a certain sense and within certain limits, given the active help of the state. As soon as capitalism is liberated from the uncontrolled effects of acceleration, the cycle is no more, and all that remains is a conjuncture that is followed and observed, with the action taken by the state and the monopolies (the former in the service of the latter) to mitigate its fluctuations.

It may be asked why the cycle in its classical form should disappear, to give place to Conjunctural oscillations that are close together, irregular, and of smaller dimensions, only after the Second World War, whereas the monopolies had already come into being at the end of the last century; and why the crisis of the 1930s was the most violent in the history of capitalism, if the capitalism of the monopolies is capable of “planning” investment better than com­petitive capitalism was able to do. The answer must be sought in the way that the international system functions. The monopolies are indeed able to “plan” investment up to a certain point, on condition that the monetary system lends itself to this being done, which presupposes that convertibility into gold has been abandoned and that the monetary’ authorities, together with the entire economic policy of the state, work in this direction. The “concerted economy” — planning, Western-style — means nothing more than awareness of this new possibility. Now, not only has this awareness, like all awareness, lagged behind reality, but also, and above all, the framework within which it can be translated into action is national. The international system has remained, long after the formation of the monopolies, regulated by “automatic mechanisms.’* On the international plane, therefore, no “concerting” is possible. The attempt made by Great Britain and France, after the war of 1914- 1918, to re-establish the gold standard in external relations, although it had been finally given up in the internal economy, reflected this hiatus between the internal and the international orders. By making practically impossible any concerted internal policy, the international automatisms were largely responsible for the exceptional gravity of the crisis of the 1930s. The monopolies, which make possible a Conjunctural economic policy on the national plane, also cause the fluctuations of the cycle to be aggravated if this policy is not followed. Keynes understood this. The maintenance of external controls after the Second World War was to make national economic policies effective for the first time; and it was at that time that there began, for example, France’s “concerted planning.” The subsequent prosperity, with the Common Market and the liberal­izing of external relations that has accompanied this prosperity, now jeopardize the effectiveness of these policies. This is why the ∣ question of the international order is again on the agenda. The ' “order” that was established after the war, symbolized by the International Monetary Fund, is not an order at all, for it remains 4 based upon confidence in automatic mechanisms. This “confidence” I plays into the hands of the most powerful country, the United States, which is why a world economic policy is almost impossible. This flaw in the system expresses a new contradiction that has matured between the demands of the economic order, which can no longer be secured by way of national economic policy alone (because capitalism now possesses an essential world dimension) and the still-national character of institutions and structures. If this contradiction is not overcome, it is impossible to rule out the possibility of extremely grave “conjunctural accidents.”