Political Economy

Paul Sweezy: THE NATURE OF CAPITALIST CRISES

byVaibhav Puri

Crises and periodic cycles of modern industries. Marxian analysis lacks

assessment due to nature of crises. Themselves are complicated shaped by
economic forces. Explanation could come from real production, competition
and credit. By latter two he refers to the financial system. Crises is beyond
the abstraction. An incomplete analysis which calls for post marxists writings
into consideration.

Simple Commodity Production and Crises

Private exchange requires a stable currency system post barter mechanism
as a necessary feature to satisfy requirements. C-C of barter gets replaced
with C-M-C under simple commodity production. Money enables two
commodities, one for resources and inputs along with other one for finished
product. Within this system of simple commodity production and exchange
lies the crises of simple economy with organised labour and shared
products under single authority.
A sells a product and buys some from B, but if B fails to sell to A, it can no
longer buy some products from C and if similarly C fails to sell it cannot buy
from D later on.

This disrupts the circulation by separating purchase from sale. What emerges is
the unsatisfied wants which grow and unsold commodities. Alongside crises of
unwanted scarcity emerges the newer version called the crises of overproduction.
If we discover why A sold but failed to buy, then we can answer the cause of
crises. A capitalists by attitude or nature will not disrupt the accumulation process,
but it is rather the natural disasters, wars and catastrophes due to which it falls.
Result of this is the acute shortage. Hoarding of goods is an example of this which
is gradual and long term. Without the natural reasons, crises is hard to imagine. It
can only be countered by an equal match of money supply to nullify the effect. CM-C contains the possible crises but also shows the existence of production for
consumption. Consumption being continuous in nature its is hard to accept the
emergence of crises.

Says Law
Failure of classical economist to distinguish b/w simple and capitalist production.
Example of it lies in Says Law- Sale invariably is followed by purchase of equal
amount. Hence no interruption in C-MC and no crises and overproduction. It
regards crises of overproduction as impossibility under simple commodity
production.

Ricardo declined the possibility of overproduction: No man produces but to sell

or consume. Sale is intentional and aim is to purchase some other commodity.
He consumes own goods or purchases and consumes goods of other
producers, hence production are bought by productions and money is the only
medium of exchange.
Marx ridiculed Ricardos thought by saying that one does not purchase to sell.
Sale and purchase are separated by time and space and money is no simple
medium. If one sells and fails to buy, it is nothing but crises and overproduction.

Capitalism and Crises

M-C-M runs the capitalist system. To distinguish it from C-M-C, the two
commodities are same in the simple commodity production. The first C
possesses a smaller use value as compared to second C for which he is
producing. Hence the aim is expansion of use value and not exchange value.
M-C-M, capitalist begins with money capital which he throws in the process to
exchange labour power and means of production (C) which on transformation
results into more money. The two Ms posses nothing but exchange value and
M-M = ^M which is positive.

It becomes a subjective aim with appropriation of more wealth in abstract

becomes his sole motive. A miser of simple production withdraws money
from the process but capitalist throws it back into circulation. Hence
capitalism is production for profit and it is this reason its is susceptible to
crises and overproduction. Not to forget, C-M-C does not disappear with
emergence of capitalism. For labourers the process continues as C-M-C
where they begin with labour power of low use value and converts into
money to buy commodities of higher use value for convenience and
necessities.
This distinguishes the motive of labour. He is not dominated by profit motive
and urge to appropriate. He is more centred towards use value and is
accumulation is little through banks, savings and insurance.
The differentiated behaviour stems not from human nature but is
circumstantial in which both operate. Failure to distinguish this has resulted
in error: of supposing that everyone under capitalism is profit driven, or the
error to suppose that everyone is interested in use value.
The attention is towards ^M, as large as possible. Success or failure lies in
magnitude of ^M wrt his original capital- It is the Rate of Profit which he
wants to maximise.

For crises, any interruption in the process of circulation is sufficient to

contradict and cause overproduction which will be later reflected in
curtailment of production. Earlier the initial point to spark crises was missing
but it is visibly clear here in capitalism that anything that disrupts ^M cause
crises.
if ^M disappears or becomes negative, the incentive for capitalist is
removed to produce. He will withdraw his capital, circulation contracts and
crises is followed with overproduction. This is a clear and extreme case to
be considered.

The second obvious case is fall in ^M. Question is that supposing that rate
of profit always remains positive to motivate the capitalist, are there still
sufficient reasons to believe in crises? The answer is yes and was expressed
by Marx that it is not the question of replacing same mass of objects of
capital on same scale or larger, but of replacing the value of advance capital
to restore the usual rate of profit. Once the rate is below perceived usual, the
curtailment pitches in and begins the crises.

A capitalist choses b/w holding money or revisiting it as capital. Long run

gives no alternatives, for him to be a capitalist he must reinvest. This does not
mean immediate investment and hence also does not mean to invest in same
line of production. If the rate of profit falls below usual, the capitalist will shift
industry. But if this happens across industries, then nothing can be gained.
This becomes an unfavourable condition until the rate is back to usual or they
reconcile to new lower rates of profits.
Meanwhile the postponement would have resulted in interruption in
circulation and crises per say. Crises and depression are mechanisms to
restore profits partially or totally. Thus negative or no ^M is no condition for
crises. Even a reduction below the usual level is sufficient to induce
curtailment of circulation.
One can think that instead of holding money, he can consume when faced
with low rate of profits. If so then demand would be unaffected and no
interruptions would arise. This above argument is a fallacy against which Marx
warned: to assume capitalist at once loses interest in accumulation and
becomes amoral citizen with concern for use value is hard. It is hard to
assume that during distressed times, he seeks compensation in riotous living
Capitalist production is essentially due to urge of unceasing accumulation
motivated with expansion of surplus.

The crises due to disruption and decline of rate of profit is somewhat similar
to that of business cycle phenomena. Modern theorist regard capitalist class
has two bifurcations: entrepreneurs who organise an direct the production
process and money capitalist who supply funds through interest based
loans. Entrepreneurs find it worthy if the rate of rental capital is lower than
rate of profit. Otherwise the motive is defeated and so comes the problem.
One can say that higher interest rates are a problem but it means that rather
than to loan out own capital, he must hold it in money form. He believes that
it is hard for lower rates to last long and holds money in anticipation of
higher rates tomorrow.
Delay in rise of interest rates may make him susceptible to reconcile and
began lending again to entrepreneurs.
This is same as what marxian capitalist. In the separation of capitalist from
entrepreneurs, the former is unwilling to lend to latter if rate of interest is
below normal or usual is same as Marxian Capitalist uwilling to reinvest if
rate of profit is below usual.
In general, the capitalist class refuses to invest if rate of capital falls below
the expected normal.

This decision is also due to circumstantial behaviour and hence the crises
should not be regarded as purely interest, credit or market based
phenomena.