Socialist Studies Socialist Studies

Reconstituted Socialist Party of Great Britain (1991) Summer School Lecture 2009 - Marx, Marxist Economics and Crisis

Lecture 2 Economic Crises: J. B. Say and Marx


During the last economic crisis associated with the Dot Com revolution, the NEW YORK TIMES published this gem from the economist Deidre MacClosky who was asked her views on the business cycle.

She said:

…(I) do not believe that economists understand the business cycle. I say to my mum, `Don't worry, there will not be another Depression,' and she says, `Why not?' And I say I don't really know why not." (08. 12. 01)

The newspaper went on to remark that Ms. McCloskey's faith — and the consensus forecast of most economists— have their origins in the writings of Jean-Baptiste Say, a French economist in the early 1800's, who popularized Adam Smith's "THE WEALTH OF NATIONS", the bible of the capitalist class, published in 1776.

A "law of markets" that bears Say's name is still the school song for free market economists who believe the economy has the capacity to stabilize itself and to ensure long term growth and universal happiness for everyone. Say himself never wrote or uttered or fully subscribed to what came to be known as Say's law, which states: "Supply creates its own demand”. In fact Marx notes that it was the French economist, Dr Quesney who stated “Every sale is a purchase” (CAPITAL VOL. 1 note 17 p. 203 Penguin)

What Say did reject was that there could be general over-production or “gluts”. In this view he was preceded by the English economist James Mill whom Marx had dealt with in A CONTRIBUTION TO A CRITIQUE OF POLITICAL ECONOMY (1859). Mills doctrine of market harmony and equilibrium was later to be held and advocated by his son, John Stuart Mill, and the political economist, David Ricardo.

Supply creates its own demand” brings us on to Marx and his theoretical confrontation with J. B. Say and others in the first volume of CAPITAL and again through a critique of Ricardo’s theory of accumulation found in the second Volume of THEORIES OF SURPLUS VALUE.

Marx was not the first or last person to criticise Say’s belief in the harmony of the market. Before Marx both the political economists, Malthus and Sismondi argued that there could be a general overproduction under capitalism. After Marx, John Maynard Keynes in the face of the Great Depression of the 1930’s attacked Say’s Law of the markert.

Keynes wrote:

Thus Say’s Law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment”.

He went on to say:

If, however, this is not the true law relating the aggregate demand and supply functions, there is a vitally important chapter of economic theory which remains to be written and without which all discussions concerning the volume of aggregate employment are futile” (GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY Chapter III Principle of Effective Demand p. 26 1936).

And that “vitally important chapter of economic theory” was to be provided by Keynes himself, the saviour of capitalism.

Keynes also critically quoted a comment made by J. S. Mill who, in his PRINCIPLES OF POLITICAL ECONOMY (Book III, ch. xiv), had set out to show no matter how much production is increased the output will always be sold.

Mill had written:

“…All sellers are inevitably, and by the meaning of the word buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should by the same stroke double the purchasing power. Everyone would bring a double demand as well as supply; everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange” (GENERAL THEORY Chapter 2 The Postulates of the Classical Economics, Section VI p. 18).

Keynes had been largely influenced by Malthus who had argued that crises occurred due to a lack of effective demand. Keynes said that in capitalism there is what he called a “liquidity trap” (see loc cit. Chapter 22 Notes on The Trade Cycle pp 313-332) where capitalists, fearing insecurity would hoard money rather than spend it. This led to a downward spiral. And Keynes’s prescriptions in his GENERAL THEORY were all to do with offering a solution out of this economic crisis.

Marx and Keynes

The defence of Say’s Law by free market economists is usually made against Keynes remarks about J. B. Say rather than those by Marx although these critics of Keynes and Marx usually conflate what they about Say’s Law into one theory. The Mises Institute, a free market think tank, for example, sells a book on its web site, called RESURRECTING SAY'S LAW (1974) by the late economist William Hutt. Hutt, addressees Keynes’ criticism of Say but not the more damaging critique of Say carried out by Marx in CAPITAL and THEORIES OF SURPLUS VALUE.

There is a completely different method of approach by Marx to the one adopted by Keynes in his GENERAL THEORY in their respective critique of Say’s Law. Marx offered a critique of capitalist economics showing that capital accumulation had a beginning and end in class struggle; Keynes largely accepted capitalist economics showing no interest in capitalism’s history; Marx showed that class exploitation lay at the core of commodity production and exchange for profit, Keynes rejected this scientific account. Marx saw capitalism facing insurmountable contradictions which needed to be resolved through the working class establishing Socialism; Keynes saw it as his job to save capitalism a task he believed was well within his remit as a very clever man “an educated, decent, intelligent son of Western Europe”.

And part of Keynes’s enterprise was to stop Marx’s CAPITAL being read by students, trade unionists and workers generally with its powerful Socialist conclusion that private property ownership of the means of production should be converted to common ownership and democratic control by all of society. In this, more than anything else, Keynes was largely successful even though his theory and the application of his theory did not stop economic crises, trade depressions and high levels of unemployment.

In a letter to G. B. Shaw Keynes remarked that he had:

…made another shot at old Karl Marx…reading the MARX-ENGELS CORRESPONDENCE” but thought it as mere “out-of-date controversializing”.

He went on to tell Shaw that he was:

…writing a book on economic theory which will largely revolutionise –not at once but in the course of the next ten years –the way the world thinks about economic problems. There will be a great change, and, in particular, the Ricardian foundations of Marxism will be knocked away” (R. F. Harrod, THE LIFE OF JOHN MAYNARD KEYNES, p. 462)

Marx is mentioned directly only three times in THE GENERAL THEORY.

The first two occasions are in a note to chapter 1 of THE GENERAL THEORY, where Keynes acknowledges the fact that Marx had given the name “The classical Economists” to Ricardo, James Mill and their predecessors (note 1). The second mention is in Chapter 3, when discussing “effective demand”, Keynes notes that a discussion was made by Marx “below the surface” and lumps him with Silvio Gessell and Major Douglas as though they all held similar views (p.32).

In the third comment by Keynes on Marx in the GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY, Keynes said “the future will learn more from the spirit of Gessell from that of Marx”. By this Keynes meant that the problems crises were resolvable in terms of money and government policy not in abolishing class relations of production. Well, Socialists would say that the future will learn more from Marx because free market economics, monetarism and Keynesianism have all failed to address the problem of economic crises and the detrimental effect it has on the working class. The real problem of crises, high levels of unemployment and their resolution was political, revolutionary and class-based.

There is no direct evidence that Keynes ever read Marx’s account in CAPITAL of Say’s Law although Keynes had described Marx’s CAPITAL as “an obsolete economic textbook, which I know to be not only economically erroneous but without interest or application for the modern world” (A SHORT VIEW OF RUSSIA published by Leonard and Virginia Woolf at the Hogarth Press in 1925 p.14 current cost £75 for 28 pages of anti-Marx bile, smugness and anti-Semitism). That statement by Keynes was made some 11 years before he published his GENERAL THEORY.

We presume that for Keynes to make this crass statement he would actually bothered to have read CAPITAL otherwise he could not have come to the conclusion that it was “erroneous”, “without interest” and “without application for the modern world”! To make this statement without having read CAPITAL would lead him facing the charge of being no more than a dilettante charlatan; a shallow and pretentious intellectual which Cambridge, in particular, seems to produce in great numbers. A recent paper published in the CAMBRIDGE JOURNAL OF ECONOMICS by John Toyle, a Professor of history at Southampton University suggested that Keynes was often arrogant and superficial, and this is clearly demonstrated in his engagement with Marx.

Keynes superficiality and arrogance is captured in his remarks about CAPITAL which he claimed not to have read. According to Anne Phillips, Professor of Politics at London Guildhall University; “Keynes once remarked that he had never found the requisite ten minutes to read CAPITAL” (TIME HIGHER EDUCATION 01.08.09). A smug and pompous remark if there ever was one. Someone cannot read the Preface of CAPITAL in ten minutes let alone the remainder of the book. Such is the conceit and pretensions of intellectuals.

Another difference between Marx and Keynes is their attitude towards the working class. In his essay, entitled POPULATION (1914), Keynes, the intellectual at Kings College, Cambridge, thought the working class stupid and boorish, that they bred too much and were not cut out for anything but manual labour as wage earners. Keynes was a lifelong member of the Eugenics Society.

Keynes had no time for the working class, unlike Marx, who saw in the working class a social force capable of making history in their own interests unaided by leaders, intellectual or political. The Socialist Party of Great Britain has never courted intellectuals. We have only been interested in having as members of the SPGB intelligent men and women of the working class capable of thinking for themselves agreeing with and working openly within the Party’s OBJECT AND DECLARATION OF PRINCIPLES.

Our late Comrade Hardy took the view that Keynes was a plagiarist of Marx’s ideas –that is using Marx’s work without acknowledging him in the text. Hardy, some twenty years ago in a lecture on Keynesian economics at Marchmont Street London, (MONETARISM, KEYNES AND MARX SPGB Education series ( said that a close reading of Keynes’s criticism of Say’s Law in THE GENERAL THEORY along with, Marx’s comments on Say shows someone who must have read CAPITAL in some detail.

Hardy said that:

Keynes expressed complete contempt for Marx’s economics as being obsolete and unscientific. He never even gave Marx the credit for having worked out a theory of inflation almost identical to Keynes’s own theory, or for having before Keynes produced a particular economic field which Keynes made his own – that is the criticism of the French economist J. B. Say who advocated the fallacious theory that there was economic harmony in the market because every seller bought a buyer to the market”.

However, it was an assertion hard to prove even though Hardy was supported in this view by the academic David Harvey who also stated, without proof, that Keynes must have read CAPITAL in some detail to make the comments he made about Say in the General; Theory (See Lecture 3 of his internet course READING MARX'S CAPITAL).

This hint of Keynes’s plagiarism of Marx’s analysis and critique of J. B. Say’ Law of the market has been given some support by the economist Lord Skidelsky.

In Skidelsky’s JOHN MAYNARD KEYNES: THE ECONOMIST AS SAVIOUR, volume II he notes that Keynes makes one complimentary reference to Karl Marx which he subsequently dropped from the GENERAL THEORY, (the reference is to be found in COLLECTED WORKS xxxix, 81-82; Rymes KEYNES'S LECTURES, 98 now published as a book “KEYNES'S LECTURES 1932-35: NOTES OF A REPRESENTATIVE STUDENT Michigan University Press 1989 at a cost of $80!!!)

Skidelsky said that in lectures Keynes gave between 1932 and 1936 before he published his GENERAL THEORY:

He (Keynes) credits Marx with having pointed out that in a capitalist economy money transactions cannot be reduced to barter transactions Businessmen pay out money in order to make more money; they don’t pay out commodities to make more commodities.” (Ch 14 p.497 1992).

Keynes, according to Skidelsky, goes on to suggest, using Marxian terminology apparently given to him second-hand that:

The problem for policy is precisely to ensure that M-C-M1 equals C-M-C1; or that the production and use of money is consistent with all currently produced output being bought (Skidelsky loc cit).

Keynes totally ignores Marx’s method and his lengthy discourse on the problems of money in a capitalist economy which precedes and comes after Marx’s discussion of Say’s Law. Another factor Keynes ignored when using Marx’s terminology in his lectures was that Marx, at this point in his critique of political economy, was dealing with simple commodity circulation not capitalism on an extended scale. Keynes may have read Marx’s CAPITAL and he may have flirted with Marx terminology but he certainly did not understand what Marx was describing.

If a reader looks-up the section in CAPITAL VOLUME I, Money, or the circulation of commodities in the section dealing with J. B. Say (The Means of Circulation pp 198-227) - a text that takes more than ten minutes to read- it is well worth making the effort to understand Marx’s argument. A comparison should then be made between what Marx wrote in CAPITAL with Keynes’s own writings on J. B. Say to bring out the difference method and analysis of the two writers.

A Largely academic exercise, some may say, but nevertheless of some interest for those who want to know the influence Marx had on Keynes. It gives the lie that Marx was some backwater commentator on capitalism. The economists who preceded Keynes and Keynes himself certainly knew what was politically at stake when confronting Marx; socialist revolution. In any case Marx and Keynes reached two completely conclusions. Marx, on the one hand, concluded that the economic crises could not be prevented that the trade cycle was cyclical although it was not permanent but that because of its social consequences should be abolished and replaced with Socialism. While on the other Keynes’s erroneously believed that crises could be anticipated by governments and various economic policies implemented to prevent high levels of unemployment leaving “the intelligentsia” to “carry the seeds of all human advancement”.

Keynes and Socialism.

Some free market fundamentalists have claimed Keynes was a Socialist. This was not true. Keynes was a Liberal, much like Lord Beveridge who proposed the so-called Welfare State reforms enacted by the 1945 Labour Government

In his book ESSAYS ON PERSUASION, Keynes wrote:

I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie” (1932 MacMillan 1972 p.297)

Keynes chided “Marxists” for becoming “orthodox economists” by taking “…the Ricardian argument to show that nothing can be gained from interference. Hence, since things are bad and mending is impossible, the only solution is to abolish [capitalism] and have quite a new system. Communism is the logical outcome of the classical theory” (Rymes, “NOS”, amalgam of notes of Bryce (C8) and Bryan Hopkins (H8-9). In short, capitalism was to be saved and it was going to be saved by Keynes.

It is doubtful if Keynes meant the Marxism of the Socialist Party of Great Britain. And by “Communism” he did not mean common ownership and democratic control of the means of production and distribution by all of society but, instead, the totalitarianism of Russian capitalism under the Bolsheviks which he derided as a combination of barbarism and Jewishness.

Keynesianism was supposed to offer full employment and render Marx’s critique of capitalism with its Socialist conclusion, obsolete. Keynes, like Gordon Brown today, thought he was the saviour of capitalism. And in his conceit added a myth about capitalism of his own.

Keynes believed that the root and branches of capitalism were essentially sound. All that was required was pruning of the branches. And the role of gardener was to be the government. This called for the engineering of demand management, deficit financing, and the loosening of fiscal and monetary restraint to boost consumer demand. And all to no avail. The roots and branches of capitalism’s tree were rotten. Keynes’s pruning failed. The rot continued. And it was Marx who had showed why with his critique of Say’s Law.

Economists were still stating that markets were self-adjusting in the 1930’s despites thousands of bankruptcies and high levels of unemployment. Faced with the Great Depression free-market economists -or at least some of them- said that the crisis would not occur if the economy had followed their economic theory. That reality was to fit economic theory was irrational and absurd. To the politicians laissez-faire was unacceptable and gave Keynes the chance to be heard.

Keynes advocated that governments should intervene in the economy by boosting the demand for commodities and services and to spend money on public works and cutting interest rates to make investment attractive. The solution Keynes put forward was adopted by most governments and capitalist political parties after the war; a policy lasting well into the 1970’s. In fact he helped to draft the government White Paper EMPLOYMENT POLICY in 1944 which was agreed to by all three capitalist parties; Liberals, Labour and Conservative.

At first the policy appeared successful. But this was in part due to the war damage needing repair after the War and that Germany and Japan had been knocked out of the world market.

From 1955 onwards, unemployment began to rise. And by the time the Labour Callaghan government lost power and in the process repudiating Keynesianism, unemployment stood at 1,600,000 million along with stagflation; a depression with high inflation to which Keynes’ economic ideas offered no solution (see SPGB QUANTITIVE EASING, KEYNES AND HYPERINFLATION ( ).

One of Keynes’s disciples, Michael Stewart, an advisor to the SDP leader David Owen, wrote in his book KEYNES AND AFTER (Penguin 1968): “Whatever the qualifications the basic fact is that with the acceptance of the GENERAL THEORY, the days of uncontrollable mass unemployment in advanced countries are over. Other economic problems may threaten; this one, at least, has passed into history” (p 254).

When Stewart wrote his 1985 edition of KEYNES AND AFTER long after Monetarism had swept Keynesianism away from government economic policy making, the optimistic passage quoted above was quietly dropped.

Rather than mass unemployment it was in fact Keynes who became history.

Marx and Say’s Law

Say's Law is the principle that supply constitutes demand. Or, in the words of the economist Jean Baptiste Say, "...a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." (A TREATISE ON POLITICAL ECONOMY, Chapter 15 in The History of Economic Thought by S. G. Medema and W. J. Samuels p,251).

Say agreed that market imbalances could occur between one or two buyers and sellers but denied general gluts. He believed the market to be self-adjusting.

If we lived in a barter economy, then Say's law would be true in a trivial sense of the word. Let us consider the butcher, the baker and the brewer found in the pages of Adam Smith’ WEALTH OF NATIONS.

Smith wrote:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.... (Book 1 Chapter 2 e-book

In short the pursuit of self interest by buyers and seller leads to the common good of all society; we are all fed and employed. Say’s celebration of the market comes out of this type of thinking about self-interest and the harmony of the market.

If a baker exchanged loaves of bread for a piece of meat with a butcher, neither commodities would remain “unsold”. This would also hold in the case where the brewer exchanged his beer for a loaf of bread. In fact in a barter society where commodities exchange for each other without money (C-C) there would be no sale and purchase.

However, once money comes into the equation the market becomes more complex and contradictory. A baker now sells his bread but decides not to buy any meat from the butcher deciding to go elsewhere in the market. The brewer sells his beer to the butcher but decides to put his money in a bank to earn interest. Marx calls this the C-M-C circuit (commodity - money - commodity). Say thought this process was identical to a barter economy (C-C) where each producer brought equivalent purchasing power into the marketplace, so all commodities would be sold.

Marx had several problems with Say’s theory. Initially in the first volume of CAPITAL he looked at Say’s law in terms of simple commodity circulation where commodities exchanged for money (C-M-C). Later in the second volume of THEORIES OF SURPLUS VALUE he dealt with the case where money as capital is invested to sell commodities for more money capital than first invested (M-C.M1 where M1 is greater than M). In the case of capitalist circulation equilibrium only holds by chance.

If Say's law was right, there would be full employment. Crisis would be absolutely impossible. Contrary to what Say's law suggests, in a money economy the sellers need not buy at once. They can hang on to their money, and hoard it. If they do so, they are depriving some other potential seller of a market.

Under capitalism where production takes place for profit it might be entirely rational for sellers to hang on to their money if the alternative is making a loss. Whichever way we look, it is the nature of capitalism as commodity production for profit that is at the root of the crisis.

Marx Critique of Say’s Law

In CAPITAL VOLUME I, Marx made this opening remark about Say’s Law that every sale is a purchase and every purchase is a sale. Marx notes the triviality of the expression “every sale is a purchase” then “every purchase means a sale” However, Marx goes on to question whether a seller of a commodity really brings with him to the market a buyer who he is prepared top do business with. He writes:

Nothing can be more foolish than the dogma that, because every sale is a purchase and every purchase a sale the circulation of commodities necessarily implies an equilibrium between sales and purchase. If this means that the number of actual sales accomplished is equal to the number of purchases, it is a flat tautology. But its real intention is to show that every seller brings his own buyer to market with him”.” (CAPITAL VOLUME I Money or the Circulation of Commodities Ch. 3 p208).

Marx went on to state that just because someone has sold a commodity he does not have to buy another commodity:

No one can sell unless someone else purchases. But no one directly needs to purchase because he has just sold” (CAPITAL VOLUME I Ch. 3 Money, or the Circulation of Commodities p. 208-209 Penguin 1990).

If the time between sale and purchase is too great then the seller of the commodity has no one to buy it and cannot realise his own money through a sale. There is a rupture ion the buying and selling process and this rupture, if prolonged, causes a crisis:

…their unity violently makes itself felt by producing – a crisis” (loc cit p. 209)

Marx said the commodity sold to receive money (C-M) and the money then spent to buy another commodity (M-C) of the equation Commodity to money to commodity (C-M-C) had the possibility of splitting into two even though they appeared as a unity. Once the commodity has been sold money need not be used to buy another commodity it could be hoarded or invested.

The possibility of a crisis is more pronounced when the analysis moves to a more general and sophisticated capitalism where money capital is invested to produce commodities for the purposes of receiving more money capital back than when first invested (M-C-M1). In the case of capitalism where the object is to invest capital to make more capital crises can move along the various circulatory links causing anarchy and capital destruction. The crisis can then spiral out from there to more and more sectors of the economy both nationally and internationally

Later, in THEORIES OF SURPLUS VALUE Part II when attacking Ricardo’s theory of accumulation Marx extended his critique against Say from simple commodity circulation to capitalist circulation in general.

He remarked:

A man who has produced does not have a choice of selling or not selling. He must sell. In a crisis there arise the very situation in which he cannot sell…(THEORIES OF SURPLUS VALUE PART II p. 503)

And Marx went on to note:

The capitalist’s immediate object is selling, is to turn his commodity,…,back into money capital and therefore realise a profit” (loc cit).

Pointing out that:

…The crisis is precisely the phase of disturbance and interruption of the process of reproduction…The immediate purpose of capitalist production is not “the possession of other goods”, but the appropriation of value, of money, of abstract wealth” (loc cit).

And Marx concluded:

Crisis is nothing but the forcible assertion of the unity of phases of the production process which have become independent of each other” (THEORIES OF SURPLUS VALUE PART II p. 509).

Marx showed that the market failed to sustain equilibrium and harmony. If there is overproduction in leading industries like car manufacturing or the construction industry they will have to sell at a loss, if they can sell at all. They may have to stockpile commodities like the tens of thousands of cars at the docks and the moth-balled housing developments up and down the country which cannot be sold.

As a result of this disturbance:

"the chain of payment obligations due at specific dates is broken in a hundred places." (CAPITAL, VOLUME III, Chapter 15, The Law of the Tendential Fall in the Rate of Profit, Section 3 Penguin edition 1990 p. 363).

In the transaction between one commodity and money is not simply an intermediary but plays a role of its own. Marx wrote of money in this respect that:

it is not only “the medium by which the exchange is effected”, but at the same time the medium by which the exchange of the product is divided into two acts, which are independent of each other, and separate in time and space” (THEORIES OF SURPLUS VALUE, Volume II –the quotation is from Ricardo p. 504).

The question to be answered then is why this failure to buy commodities takes place.

Say has disregarded the fact that part of capitalist expenditure which is investment (as distinct from the capitalists’ purchase of necessities and luxuries for personal consumption) has as its sole purpose making a profit, and if there is no prospect that a profit can be made the capitalist refrains from buying although he has the means to buy.

When the 1979 depression began the electrical company G.E.C. had what the media called a “cash mountain” of £1500 million. Instead of using it to produce more electrical goods G.E.C. preferred to lend it to banks and the government (some cash was returned to shareholders).

Later on, in 1984, when unemployment was 3,200,000, other companies found themselves in a similar position. THE DAILY MAIL (30th Oct. 1984) reported “Companies have never had so much cash”, and the FINANCIAL TIMES (10th Nov, 1984) said “Many companies are brimful of cash they can hardly find any use for”.

And look at the banks today. They too are busy building up their capital levels rather than lend to businesses at interest rates seen before the current economic crisis. Banks have been forced to build up capital reserves through huge losses of their own. Of the $600 billion in additional capital still needed by European banks, financial institutions in the 16-nation euro zone need $375 billion, followed by $125 billion in the U.K. and $100 billion elsewhere on the Continent, according to the IMF.

The IMF's figures are larger than other estimates, partly because they include all banks. In Germany, many of the so-called Landesbanks owned by individual German states are seen as needing more capital. The U.K. has injected £80 billion ($121.88 billion) of new capital into its banks and is insuring some £562 billion of bank assets under a government program aimed at putting a lid on losses (WALL STREET JOURNAL May 15th 2009).

Using their surplus cash to provide jobs for the unemployed is not what the capitalists are in business to do. The same applies to banks and the credit their loan to businesses.

According to the CBI banks are still not lending credit to businesses and lending is still at its 2000 level despite the Bank of England pumping £125 bn into the economy. Banks are also in the business to make a profit and not to give credit and long-term borrowing facilities, even to other banks, in a period of high risk and uncertainty.

When the economic conditions improve and there is a prospect of making a profit, companies will only be too willing to invest and the banks to give credit facilities to businesses.

And Marx censured writers like J. B. Say and Ricardo in the following words:

In the crises of the world market, the contradictions and antagonisms of bourgeois production are strikingly revealed. Instead of investigating the nature of the conflicting elements which erupt in the catastrophe, the apologists content themselves with denying the catastrophe itself and insisting, in the face of their regular and periodic recurrence, that if production were carried out according to the textbooks, crises would never occur” (THEORIES OF SURPLUS VALUE, Part II, Ricardo’s Theory of accumulation and a Critique of it page 501).

The argument advocated by Say and Ricardo that only particular commodities, and not all commodities in a sector of production can be overproduced, is patently wrong.

The interdependence of the various branches of production means that if one commodity cannot be sold, say a car or a house, then the circulation of all commodities in these two economic sectors is disrupted, so that the possibility of the overproduction of one commodity does imply the possibility of general overproduction.

As Marx concluded:

the life of industry becomes a series of periods of moderate, activity, prosperity, overproduction, crisis and stagnation” (CAPITAL VOLUME 1 Ch 15 p 580)

For the working class this means:

…uncertainty and instability…” and an effect on their “…living condition”. The trade cycle in its social destructiveness becomes “a normal state of affairs” leading to “a forcible reduction of wages” (loc cit p 582).

This uncertainty and instability can be seen in the current crisis and trade depression with the wage cuts, part-time working, enforced holidays and, if you are BA workers, no wages at all for a month.

All of this reasoning by Marx about why crises take place is predicated on his labour theory of value; that is the value of a commodity is made up of the necessary social labour that went into its production.

If Marx is right-and Socialists believe that he is correct both in his labour theory of value and its application to a critique of capitalism- then the alternative theories of crises offered by academic economists which lay the blame of too much credit, bankers, governments, external factors like sun spots and war are in fact no theories at all. The problem of crises is the crisis associated with the commodity, exchange, money and the market itself.

The problem for capitalist buying and selling commodities for profit is money. Purchase and sale can become independent of each other and at a given moment the supply of all commodities in one or many sectors of the economy can be greater than the demand for them. For a full account of the problem of money then it is useful to read the third chapter of Marx’s CAPITAL. (There is a very clear and lucid account of money in the third chapter of CAPITAL by Hardy on our web site

Commodities need to be exchanged for money and within a specific period of time; commodities have to realise their surplus value in money form for the capitalist to be in a position to re-invest capital again under pain of competition and to pay off his many obligations. If this does not occur and this state of affairs become general either over a particular sector of the economy, over the economy as a whole or globally then there is an economic crisis, subsequent trade depression, bankruptcy and unemployment.

The contradictions within commodity production and exchange for profit, notably the contradictions associated with the commodity and money on the one hand and between the social relations of production and the forces of production (including social labour) on the other means that capitalism is constantly being forced away from a state of equilibrium. In the normal course of events, Marx notes; equilibrium can only be achieved by accident (CAPITAL VOLUME II, ch 21: Accumulation and Reproduction on an Expanded Scale p570-571 Penguin).

The capital accumulation in depressed industries suffer, and they purchase less raw resources and machinery (constant capital) and hire less workers (variable capital) or make existing workers redundant force them to take pay cuts, part-time working or enforced holidays. All the other industries that depend on supplying these leading industries are now overproduced and cannot sell their commodities.

Marx’s critique of Say’s Law with its conclusion that an economic crisis was necessary to correct the periodic disequilibrium of buying and selling was, for adherents of the free market, anathema. The market was imperfect not perfect. Information provided by the price mechanism was not translucent but opaque. Equilibrium was accidental. And Smith’s invisible hand of the market was connected to the body of an anarchist (for a detailed study of Say’s law and Marx’s critique of it see THE LIMITS TO CAPITAL D. Harvey 2006 p 75-97 and T. Sowell; SAY'S LAW: AN HISTORICAL ANALYSIS Princeton 1972 There is also a useful account of Say’s Law in MARX'S THEORY OF CRISIS by Simon Clarke 1994 pp 187-192).

Here are a few examples of the economic bankruptcy of Say’s Law and the harmony and self-adjustment of the market as well as the inability of governments to adopt Keynesian policies to solve the crisis.

First, faced with a shortage of storage space, Japanese car manufacturer Toyota has turned to hiring a ship in the Swedish port of Malmo to store thousands of unsold cars the depressed EU car market does not want. The decision to store 2,500 cars aboard a vessel owned by car transporting specialists Wallenius Wilhelmsen was made last month when the Malmo port facility reached its limit of 12,000 unsold cars (BUSINESS WEEK 24.02.09).

Second, the number of unsold new homes is global in its impact on the construction industry. Here are a few examples of market failure. In Washington there were 17, 500 unsold new houses (REALITY TIMES 15 .05. 08). Eire had 35,000 unsold new houses (CONSTRUCTION INDUSTRY FEDERATION NEWS 14. 06. 09). One million newly constructed houses in Spain cannot be sold (HOMES OVERSEAS 29. 05. 09). And in Britain there were 426,000 unsold new homes in Britain (FINANCIAL TIMES 20. 08.08) with 8,500 unsold new houses in London in May of 2009 (BRICKONOMICS 17. 05.09). In all theses three countries there is a housing crisis where a shortage of housing sits along side unemployed construction workers 1 in 5 construction workers are unemployed in the US (MSN NEWS 03. 04.09).

And third the aircraft industry has been hit hard by the economic crises. Fewer people are flying, leading airlines to take thousands of planes out of service. No one is buying those planes at the moment because of the inability to get credit from the banks and a drop in the price of aluminum and other commodities means their scrap value is very low. So airlines are simply parking their unused planes in the Southwestern desert of the US, where the dry climate will help preserve them until the economy improves. The number of planes in storage has risen 29% in the last year. Most of these planes aren't abandoned. They still get checked and updated, and the aircraft owners hope they will eventually be returned to the air. It costs $60,000 a year to store and maintain a Boeing 747 at one Arizona facility alone. (MSN MONEY 29.04.09).

And what of the State? They are just as impotent in preventing economic crises and periodic high levels of unemployment and addressing other social problems as they impinge on the lives of the working class. 2.26 million workers are now unemployed in Britain some 7% of the workforce and over 20 million in the EC (EUROSTAT April 2009) According to the BBC NEWS (18.06.08) unemployment among 18 year olds is higher than it was when the Labour Party first came into power in 1997. And then there are other social problems like housing where thousands of workers either find their houses repossessed or lose their tenancy because they are made unemployed. Outside unemployment there is still a housing crisis. Five million people are in need of social housing. Often young families are forced to live in cramped conditions with parents. In Birmingham alone there are 35,000 such applicants who wait without hope (DAILY TELEGRAPH 15.06.09). Poor housing or no housing at all is one of the reasons for the rise of the British National party. Profit driven commodity production has come to a grinding halt while there exists simultaneous unmet social need. Such is the contradictions and failures of capitalism.

Contra free market economists Liberals like F. A. Hayek the information transmitted through markets by price signals is discontinuous, fragmented, partial and often wrong. Information is not subjective but objective. A rationally planned social system without the anarchy of price signals is possible. Men and women can organize their social affairs without markets, without commodity produce, without price signals and without employers. Rather than applaud Marx for showing capitalism to be anarchic, crises prone and unable to meet the needs of all society the cry went up from capitalism’s economists: “Get Marx”!

And for 130 years economists and politicians have been precisely doing just that.

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