In every growth, supporters of capitalism claim that crisis tendency causing trouble in capitalist system is overcome. However, when growth is interrupted, economists fall out with each other to make explanations about the issue. The general conclusion drawn from explanations of capitalist system supporters is the fact that every crisis has a different reason reduced to human error, but not affiliated with internal dynamics of capitalism. Bourgeois economists are required to refuse that crisis is specific to the social structure of capitalist production, because all economy theory is established on the basis of following three points:
- Capitalist system arranges itself (it shall be balanced under any condition and situation)
- Main task of theoretical economist is to define the best conditions under which self-organization can be sustained.
- By this way, it will be possible to define any collapse as a consequence of exceptional deviations from norm.
Normal processing of supply and demand powers always guaranties a tendency towards general balance. This means that crisis may emerge as a result of external shocks or internal disturbances preventing and collapsing market balance process.
In the framework of general balance theory, capital acts between production branches as a respond to changes within profit rate arisen due to imbalance between supply and demand. This capital movement is a means for sustainability of rated relation between various branches of competition and correction of disproportions preventing accumulation by smooth relation between supply and demand.
All supply and demand balance in neo-classic theory is provided by mutual relations between interest rate and profit ratio. If any investment deficiency is in question, demand for investment funds shall decrease due to decrease in interest rate re-stimulating the investment. Stable money policy shall guaranty sustainability of this balance. In case of excessive price explosion causing inflation, tight money policies of money authorities are applied to eliminate this situation; whereas, in case of shrinkage (decrease in production, deflation ...), reserve entries applying loose money policies are permitted. Despite overall mathematical details, crisis explanations presented by today’s economists are not different than those introduced in the beginning of 19th century. Regular continuity of economical crisis should be explained and analyzed as a normal part of development tendencies of capitalist production style. This is the task undertaken by Marxism while trying to prove that the crises are specific to the communal structure of capitalist production. Distinguishing feature of Marxist crisis theories is their emphasis on crisis requirements defining objective limits of capitalism and necessity of socialism and representing basic and indestructible features of capitalist production style.
If crises have a contingency nature or they state transition from an accumulation stage, regime or communal structure to any other stage or structure, objective necessity of socialism and communal base of socialist movement do not exist. In this sense, historical materialism theory of Marx is refused. If a reformed capitalism meets needs of labor class, class struggle loses its objective basis. Socialism is reduced to ethical ideal defining set of moral values not having special relation with needs and aims of labor class, not having privileged class base and not having more moral validity than any other capitalist theory. Crisis theory has a central role in Marxism ideology and cannot be understood out of ideological scope. However, it is not sufficient to support Marxist crisis theory on the basis of ideological bases. In this context, it is required to analyze criticisms and seasonal necessities of crisis consisting of capitalist production style in which Marx is considered in general sense without explaining details in a more practical framework. While achieving this, it is important to benefit from theories of philosophers coming after Marx, who analyzed scientific socialism and dynamics of crisis. Crisis theory of Engels and Kautsky, explanation of Tugan Baranowsky regarding crisis necessity, deficient consumer crisis theory, crisis theories about declining profit rate of Rosa Luxemburg and finally, excessive consumption and explanations about crisis are the main theories required to be considered. In following section, these theories shall be described and by this way, internal irregularity of capitalism shall be understood:
Kautsky and Crisis Theory
Excessive production theory was considered as tangible tendency of capitalist development by Kautsky and its base was deficient consumers, although it was not developed well. He reinforces this theory with following statement: “Large scaled modern crisis shaking world markets arise due to excessive production and deficient consumption”. But significant point is relating this statement to market anarchy, not consumption. Kautsky approaches crisis as a side of commercial cycle sustained by successive invention of new markets and their saturation. Kautsky states that only limit of capital accumulation finds markets for raw material supply and products and continuous, as well as excited impulse regarding opening of new markets to provide new buyers emerges accordingly. According to his point of view, source of crisis tendency is lack of information on producers’ side regarding demand for their products as “estimation task of demand for their products is left to their responsibility”. Supply and demand imbalance in any branch of production causes crisis when complex buying and selling network collapses. The reason is anyone does not have buying power, except for producers of metals on which money is printed. Increasing complexity of mutual dependency means increasing risk of crisis. Finally, credits providing unmatched promotion to capitalist development increases possibility of crisis. Kautsky does not propose a deficient consumer or excessive production theory regarding crisis, but proposes a business cycle theory not having distinctive Marxist features (In this scope, it seems similar to Keynesian approach). Flexibility and expandability of modern production means obtainment of credit flexibility and large scaled secondary labor group and rapidly responding a stimulus in which capital increases production and gains profit. According to Kautsky, as opening of new markets triggers explosion of renewed capitalist activities providing new peaks to capitalist production, commercial cycle plays a significant role in sustainability of capitalist accumulation against tangible excessive production trend. Therefore, alternative of trade cycle is not balanced and sustainable economical growth, but it is chronic recession as market limit restricts capital accumulation consistently. This necessity conditions of crises and deepening of successive crises point mandatory collapse of capitalist system and necessity of socialism.
Tugan Baranowsky and Inevitability of Crisis Theory
The most effective commentator of deficient consumption crisis theory is Tugan Baranowsky, who is not actually Marxist, but who uses re-production schemas of Marx developed within second volume of Capital. These schemas are developed to invent mutual relations between production and consumption as to define source of demand for increasing product corresponding with increasing positive values captured by capitalists. Marx showed that source of increasing demand was purchasing of production means and workforce by capitalists in order to increase their capital by re-investing. Conclusion drawn by Tugan is any obstacle may not be in question in front of expanded product, if appropriate proportional relations between various branches of production are sustained. If production branches producing source of income of labors grow more than limits of consumption demand of labor class, crisis may occur. However, this case was a special disproportion case causing not due to limited consumption of labor class (how this can be achieved at subsistence wage level), but due to extraordinary growth of income means. Tugan states that only possible reason of crises is disproportion between production branches and concludes that sustainable accumulation can only be achieved by continuity of proper proportional relation between various branches of production. Tugan believed that commensurateness shall be achieved, because market anarchy means that proper distribution of new investments between various branches of production is not guarantied. Accumulation may continue for a certain period due to credit increase, despite increasing disproportions; but credit cannot sustain these disproportions for an infinite time period. Tugan’s criticism highlights that result of excessive production is not deficient consumption, but disproportion arises when some production sectors grow faster than others. Therefore, crisis arises together with the possibility of generalization of collapse as a chain reaction at a certain branch where production reaches excessive production limits. Disproportion theory of Tugan does not emphasize a tangible tendency theory regarding increasing deficient consumption, but emphasizes a business cycle theory as crises re-establish proportionality and secure new accumulation conditions. As Tugan affiliates disproportion with excessive production tendency, his theory explains that investment planning and proper credit arrangement may improve or destroy seasonal tendencies of accumulation in principle. Most Marxists represent their criticisms by claiming that consumption may provide driving force of capitalist accumulation. To illustrate, Kautsky does not refuse basic issues, but re-interprets orthodox theory by highlighting that disproportionality of deficient consumption is a coincidental feature and necessary tendency of capitalist development. Hilferding states that Tugan analyzes economical categories of capitalist production style of Marx, which was an irrelevant issue, but caused arise of a unusual production system concept for production. Criticisms of Tugan created a gap between those highlighting deficient consumer orthodoxy and those utilizing objections of Tugan to improve disproportion approach.
Rudolf Hilferding and Disproportionate Crisis Theory
Hilferding repeated deficient consumption criticism of Tugan based on the idea that deficient consumption is a special condition of disproportionality. He developed a crisis theory arisen due to disproportionate. His theory is based on trust and cartels, credit and finance institutions. According to Hilferding, new period of capitalism is defined as dominancy of financial capital stating integration of banks and industrial capitals under leadership of banks. This improvement is identified with increase in importance of fixed capital blocking large amounts of capital for a long time period. This decreased mobility of capital and flexibility to respond given to economical fluctuations and disproportinalities. According to Hilferding, this obstacle in front of equalization of supply and demand was a source of crises. Tendency of financial capital is not adjust production with respect to social needs, but it was establishment of central control of banks on production to maximize profits. According to Hilferding, source of this disproportionate was existence of fixed capital. His finance capital theory might be used to reinforce explanation of Engels regarding disproportionate trend; because, it is expected that as role of fixed capital increases, investment decisions shall be more dependent on production conditions and less dependent on temporary imbalances within the market. Hilferding states that crises arise due to unsuccessful mechanisms providing sustainability of complex proportionate relations required to be available in production. Failure of this proportionality causing emergence of crises highlights that proportionality is specific to advanced finance capital stage, not capitalist production style. In general, crisis appears together with emergence of general excessive production. Hilferding states that this has not a relation with missing consumption, but arises due to a decrease following decrease in profit rate of investment. He seems to relate decrease in profit rate with increase in organic composition of capital, but he also adds his pre-crisis observations regarding long welfare period during which prices and profits are high. Hilferding presents a rich cycle statements including deficient consumption, decreasing profit rate, disproportinality and production anarchy. He also criticizes each of these theories. In addition, Hilferding accepts central role of money and credits within the cycle and states that money movements reflect real accumulation conditions. He claims that increase in interest rates before crisis and requirement to secure credit shows suppression of explosion by money deficient suppresses. He also criticizes each of these theories unilaterally. Besides, Hilferding accepts role of money and credit within central cycle and states that money movements reflect real accumulation conditions. He claims that increase in interest rates before crisis and requirement to secure credit shows suppression of explosion by money deficient suppresses. In conclusion, disproportionate theory is excluded by orthodox Marxists in a reformist manner, as it states that failures of capitalism arise only due to market anarchy and may be eliminated by an advanced level of coordination.
Deficient Consumer Crisis Theory of Rosa Luxemburg
While Hilferding develops his disproportionate crisis theory on the basis of Tugan’s deficient consumption criticisms, Rosa Luxemburg attempts to establish deficient consumption theory on the basis of a solid base. He utilized reproduction schemas of Marx to highlight impossibility of capital accumulation in case of non-availability of external markets. Main significance of Luxemburg’s claim is shifting orthodox theory of Kautsky towards a pure deficient consumer theory. This deficient consumption was used to explain imperialist attempts trying to expand the market by destroying production in worldwide before capitalism and to define limits identifying inevitable collapse of capitalism. Luxemburg initiated his works by sharply separating tangible tendencies of capitalist accumulation and its cyclic shape. He explained cyclic accumulation structure as a coincidental consequence of market anarchy, but he claimed that efforts presented to eliminate reproduction problem as a feature of seasonality of crises were a means of coarse economy. Problem highlighted by Luxemburg is what the source of demand is regarding increasing product of capital corresponding with added value increased. This was not a matter for theorists thinking that capital accumulation has its own dynamics, because competition enforces producers to strengthen their powers regardless of market limits as a result of which excessive demand arises due to other capitalists purchasing production means and employing more workers until markets are saturate and crisis emerges. However, Luxemburg claims that if a final market for increase of consumption meta produced by these production means is available, other capitalists shall employ more workers and demand more production means as a result of which investment anticipates an ordinary increase in consumption. When Luxemburg defines consumption as a driving force of capitalist production, it shall be problem to explain how capitalism arises, not how capitalism collapses. Analysis of Luxemburg generally is generally criticized as a misunderstanding of reproduction schemas of Marx. He accepts utilization of reproduction schemas to establish structural possibility of capitalist reproduction of Tugan, but claims that the main problem is dynamic of the impact causing expansion of reproduction of capital.
Crisis Theory of Engels
Economy politics criticism of Engels focuses on economical and ethical malice arisen due to competition. Competition is explained as a consequence of private ownership of production means and as a base of class awareness and periodical crises on which capitalism criticism of Engels is based. Crisis theory of Engels is mainly based on market anarchy. Producers have no knowledge about consumer needs being realized by increase and decrease in prices. Increase and decrease in prices not causes soft balance arrangements of economists, but causes successive depressions arisen due to excessive production and price decreases manipulated by price increases. However, Engels highlights another basic factor that also emerges as a base of crisis tendency. Capitalism is identified with excessive production tendency triggered by competition pressure, which makes crisis tendency systematic, not random. Crises are the most dramatic sign of dynamism of capitalism and tangible excessive production tendency representing the source of historical limits of capitalism. Engels defines displacement of effort within replacement of seasonal growth and depression as a main mechanism making proletariats a reformist class. Economy politic criticism of Engels was an attempt to show that private ownership was the reason of badness of capitalist system. Base of his effort was confliction of economical interests arisen due to private ownership. Private ownership does not only establish the community on the basis of confliction of interest, but also it identifies permanent imbalance between supply and demand. First explanation of Engels regarding this imbalance and crises was presented in terms of instability of arrangement phase occurred due to unawareness of economic actors. Supply is larger or fewer as not to stand up to demand; because, nobody knows size of demand or supply in case of lack of knowledge. Although Engels explains periodical crisis in terms of ignorance of economic actors, it becomes then obvious that supply and demand imbalance is systematic and causes due to continuous tendency towards excessive production as a mandatory consequence of competition. Struggle of capital against capital, effort against effort and land against land makes production excessive downwarding all natural and rational relations. Engels does not explain why excessive growth of production under pressure of competition causes excessive production, but he states that capitalists, labors or land owners consider themselves as unnecessary, as stronger wins and weaker is excluded.
Hobson and Crisis Theory
Reaction against Say Law lies on the basis of objections of Hobson derived of empirical realities, not intangible theoretical base. Consequence of objections and criticisms of Hobson was mobbing of opposite side in associated period during which marginalist cult took the place of classical economy policy and was depending on a point of view perceiving importance of crises less on the basis of principle about effective functioning of market. He claimed that excessive saving in economy cause deficient consumption and accordingly, crises (Hobson was a liberal and Keynes respected his views and included his ideas in his General Theory named book). In his articles, Hobson emphasizes that economy science prioritizes analysis of production process and evaluates consumption as a passive role in terms of production. He highlights that realization of production to perform production activity only cannot be imagined in any community. He also states that economists acknowledge that main objective of production is consumption and meeting final products of community and marginalist cult prioritizing consumption after classical economical policy is not different than classical cult in this sense. Hobson presented relation between development of modern industry and deficient consumption regularly and as a matter of excessive saving and he also presented this claim in same style with Keynes, which increased his importance. According to Hobson, tight competition during free competition period causes emergence of various monopolies and trusts and less accumulation of capital (Monopoly). Expenditure level of this extremely rich group was not as high as their increasing income. Therefore, this group was automatically causing an extraordinary saving increase. Investing these savings to other industrial branches caused facilitation of same centralization in these branches and similar consequences were arising here. Rapid population increase and increase in consumption standards of the community was eliminating consumption deficiency against these savings and investments at certain level, but size of savings were remaining inadequate when techniques using capital in much more efficient way were considered. During last period, Hobson stated that monopolies prevented decrease in prices, as well as increase of consumption. Excessive investment during free competition period was causing excessive production crises and large scaled price decreases caused bankruptcy of many companies as a result of which crisis were emerging. However, while monopolies were realizing capital savings on the basis of more efficient methods, they were creating added capital required to be reinvested by monopoly profits, but preventing decrease in prices and increase in consumption. As a consequence, seasonal crises were arising as their effort regarding investment of their increasing profits in domestic market caused troubles for other investors. According to Hobson, all imperialist policies were harmful not only for weak countries and colonies exposed to crises, but also for countries applying imperialist policies. These imperialist policies in fact consist of methods not creating profit for the community and imposing all loads to taxpayers, increasing power of community classes, not producers, as well as causing social recession. Hobson states that the reason of excessive saving is excessive imbalance in income distribution. He also adds that if income level of workers or working class increases and if more balanced income distribution is achieved, excessive saving and deficient consumption shall be prevented in the community. In conclusion, it was the first time that Hobson presented an analysis of deficient consumer theory explained on the basis of excessive saving. Although his claims, such as saving-investment balance supporting that saving are converted to investment making therefore investments excessive remain in the scope of old classical frame, he presented basis of views of Keynes while interpreting crises.
The Law for the Tendency of Rate of Falling Profit
Law for the tendency of rate of profit to fall can be considered both as the oldest and newest crisis theory. This theory is emphasized as one of the largest internal conflictions of capitalist accumulation limiting itself and its relation with crisis was identified before Marx, by Adam Smith and Ricardo. Such that, economists have no doubt about decline of profit rates as capital accumulation progresses. These cults also include “declining efficiency law” and tendency to initialization of profit rates in economical profit sense. This profit in neo-classical economy is an extra profit remaining after distribution of share of each production factor. However, Marx explains law for the tendency of rate of profit differently under light of capitalist crises. In general sense, average profit rate in a community declines, because it increases as ratio of fixed capital in production to live effort, in other words, as stated by Marx, as organic composition of capital increases. That is, more capital matches with unit effort. However, according to value theory of Marx, live effort materialized in a product creates added value during production process. Idle effort can only transfer live effort amount materialized in it during its production stage to a new product. Residual value increasing value of outputs against inputs in production and representing the main objective for realization of production is created by live efforts. According to Marx, capitalists always direct towards new techniques to decrease costs due to pressure of competition. These techniques are generally create labor saving. In other words, labors are replaced by machines. By this way, rate of dead labor increases against live effort within a product. This also means increase of labor efficiency. Increase of labor efficiency can also be interpreted as more meta production by a unit effort; but this means materialization of less labor force within each product, whether they are live or dead. Therefore, price of products shall decrease and decrease in live effort shall cause decline in profit rate on the basis of certain residual value (rate of exploitation). It is obvious that objective of capitalist accumulation is profit. Accumulation is made to gain profit; if profit rate decreases, accumulation (capital accumulation) decreases. Accordingly, Marx supports that real limit of capitalism is not external matters like competition and natural resources, but it is internal logic, as stated by Ricardo and Smith. Marx sees how temporal is capitalism as a historical production style. According to his point of view, main importance of law for tendency of the rate of profit lies in this statement. This interpretation causes strengthening of his claims about end of capitalism. However, Marx states that this law is not absolute, but it is based on tendencies. In other words, tendencies functioning contrary to this law are also available. Real progression of profit rate consists of power balance between this tendency and opposite tendency. Marx states that this law is balanced by opposite tendencies and new cycles are initiated by events, such as crises. Marx indirectly developed his crisis theory on the basis of law for decline of profit rate; but he perceived the theory as a proof for end collapse, as he acknowledged capitalism as a finite community structure.
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