Depression | A Critique of Crisis Theory

Archive for the ‘Depression’ Category

Does Capitalist Production Have a Long Cycle? (pt 9)

August 30, 2009

Because the industrial cycles that have occurred since 1945 have unfolded in a very different political environment than those before 1945, I will devote this post to examining these extremely important political changes.

From the recession of 1937-38 to the end of World War II

The upswing in the industrial cycle—interrupted by the Roosevelt deflation—resumed by mid-1938 as the administration and Federal Reserve System quickly reversed their deflationary measures. However, the recovery that began in mid-1938 started at a much lower level than that of mid-1937 when the Roosevelt recession began. Then before the industrial cycle could reach a new boom—or even get very far into the stage of average prosperity—the war economy took over. As we have already seen, a full-scale war economy suppresses the industrial cycle by suppressing the normal process of capitalist expanded reproduction.

Does Capitalist Production Have a Long Cycle? (pt 8)

August 23, 2009

The United States hardest hit by the super-crisis

Many volumes could be written about the super-crisis of 1929-33 and the Great Depression. Among the subjects that would have to be dealt with would be the nature of European fascism and Roosevelt’s New Deal in the United States. I obviously cannot do this in these posts. I will simply highlight the most important economic events of the 1930s with special emphasis on the United States, the leading capitalist—and imperialist—country.

Of all the major capitalist nations, the United States was hardest hit by the super-crisis. Why was this? Before attempting to answer, how do I measure the relative severity of the super-crisis in individual capitalist countries?

The relative severity can be measured by the level of industrial production in 1932—the global trough of the economic cycle—as a percentage of the industrial production of 1929, which represented the peak of the 1920-1929 international industrial cycle.

Does Capitalist Production Have a Long Cycle? (pt 7)

August 14, 2009

Eightieth anniversary of start of super-crisis

To understand the policies that are being followed by the governments and central banks today as they combat the aftermath of the panic of last fall and winter, you need to understand the events of 80 years ago. The current governments and central bankers are very much haunted by the ghost of the Depression.

Several weeks ago, I explained how World I and its war economy had led to a huge divergence between prices and values. This contradiction reached it peak in the spring of 1920 and was partially resolved by the deflationary recession of 1920-21. Why then didn’t the Great Depression begin with the deflation of 1920 rather than in 1929?

Does Capitalist Production Have a Long Cycle? (pt 6)

August 7, 2009

Germany and the super-crisis of 1929-33

The super-crisis of 1929-33 is eminently bound up with events, both economic and political, in Germany. Let’s review the events that were to end with the transformation of the German Wiemar Republic into the Third Reich. The roots of these terrible events lie deep in the years before World War I.

For many decades before the outbreak of World War I, there had been a steady erosion of Britain’s industrial powerrelative to the industrial power of the other major capitalist powers, especially Germany and the United States. At a certain point, the continued financial, military and political domination of Britain was in such contradiction to the vastly reduced weight of its industry, British overlordship simply could not continue. Something had to give.

Does Capitalist Production Have a Long Cycle? (pt 5)

July 31, 2009

History of gold production from the ‘gold rush’ to 1914

In the years 1840-1844, 146 metric tons of gold are estimated by the World Gold Council to have been produced worldwide. Between 1855 and 1859, estimated gold production rose to 1,011 metric tons. This is an increase of 590 percent in a 15-year period. In terms of percentages, this is by far the greatest increase in gold production in the period that reasonable data on world gold production is available.

The reason for this amazing increase was the discovery of gold in California in 1848 and in Australia in 1851. It was this huge mass of newly mined and refined gold that drowned the hopes of Marx and Engels for a socialist revolution in Europe during the 1850s.

Does Capitalist Production Have a Long Cycle? (pt 4)

July 24, 2009

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

“The Great Depression,” wrote bourgeois economist J. Bradford DeLong, “has central place in 20th century economic history.” He explained: “In its shadow, all other depressions are insignificant. Whether assessed by the relative shortfall of production from trend, by the duration of slack production, or by the product—depth times duration—of these two measures, the Great Depression is an order of magnitude larger than other depressions: it is off the scale. All other depressions and recessions are from an aggregate perspective (although not from the perspective of those left unemployed or bankrupt) little more than ripples on the tide of ongoing economic growth. The Great Depression cast the survival of the economic system, and the political order, into serious doubt.”

The economic crisis of 1929-33 though it was in some ways just another cyclical crisis of overproduction clearly involved other factors that converted a “normal” cyclical economic crisis into something quite different. What was it? In order to distinguish the crisis of 1929-33 from normal capitalist cyclical crises, I will call it the super-crisis.

The Great Depression of the 20th century

The Great Depression that began in 1929 and lasted until World War II holds a unique place in economic history.

Does Capitalist Production Have a Long Cycle? (pt 3)

July 17, 2009

The mid-Victorian boom

The period from 1848 to 1873 is sometimes called by economic historians the mid-Victorian boom. It saw a huge expansion of industry, world trade and a generally rising price trend. The mid-Victorian boom was not crisis-free, however. A sharp if brief crisis erupted in 1857, and another occurred in 1866.

The economic crash that hit Austria and Germany hard in the spring of 1873 and spread to Wall Street that fall is generally considered to mark the end of the mid-Victorian boom and the beginning of the “Great Depression” of the 19th century. Thereafter, prices trended downwards until bottoming out in 1896.

For supporters of the long-cycle theory, the mid-Victorian boom represented an upswing in the long cycle, or for supporters of Mandel-type long waves, an expansionary long wave. Students of this episode in economic history have the advantage of being able to study the economic commentaries of Marx and Engels themselves, both in published works and private letters.

Does Capitalist Production Have a Long Cycle?

July 3, 2009

The question of whether in addition to the industrial cycle of more or less 10 years’ duration there is a longer cycle extending over several “10-year” cycles has divided both Marxists as well as those bourgeois economists who have shown interest in business cycles.

Some economists, both Marxist and bourgeois, have held that in addition to the 10-year industrial cycle that I have been examining up to now, there are other economic cycles of varying lengths that can be traced in the history of the world capitalist economy. Especially controversial has been the proposal that capitalist production is characterized by a “long cycle” that extends over periods as long as 50 or even 60 years.

Other Marxists and bourgeois economists have denied that there is any evidence to support the existence of a long cycle. The quasi-regular fluctuations of business conditions over 10-year periods is called a cycle because each phase of the cycle leads of necessity to the next phase. In my posts on an ideal industrial cycle, I examined this in some detail. But what would be the mechanism of a longer cycle as opposed to the mechanism of the 10-year industrial cycle?

The Ideas of John Maynard Keynes (pt 5)

June 19, 2009

Keynes on the ‘trade cycle’

Keynes throughout the “General Theory” was concerned with explaining how his marginalist concept of “equilibrium”—marginal efficiency of capital = rate of interest—could correspond to mass unemployment. The industrial cycle itself was of secondary concern for Keynes. But in chapter 22, entitled “Notes on the Trade Cycle,” he does deal with the industrial cycle, or as he called it in the English manner, the “trade cycle” or “industrial trade cycle.”

When he did deal with the industrial cycle, marginalism hindered Keynes at every step. Unlike the classical economists and Marx, the marginalists do not distinguish between use value and exchange value. As a marginalist, even if an unorthodox one, Keynes therefore had problems in explaining how commodities could be overproduced yet be “scarce” at the same time.

The Ideas of John Maynard Keynes (pt 3)

June 5, 2009

Ricardo and Marx versus Keynes

Ricardo, unlike Adam Smith, attempted to use the law of labor value consistently. He sensed that the law of labor value applied not only to simple commodity production but also to capitalism proper. Ricardo was not completely successful in this, but he was certainly on the right track. He realized that price is a relationship between two commodities, the commodities whose price is being measured and the money commodity—gold—in which the price of the commodity is reckoned.

According to the Ricardian law of labor value, market prices tend to fluctuate around an axis determined by the relative values of gold and the commodity whose value gold is measuring. Ricardo realized that a rise or fall in wages would affect the rate of profit but not the overall prices of commodities.

Marx developed Ricardo’s law of labor value further, resolving the contradictions that Ricardo himself was unable to overcome. However, even the Ricardian version of the law of labor value is quite sufficient to refute the claim of Keynes that wages determine prices.

As for Marx, he demonstrated in the first three chapters of volume I of “Capital” that price must always be measured in terms of the use value of the commodity that serves as the universal equivalent. Assuming gold is the money commodity, exchange value, or what comes to exactly the same thing, price, is always a certain quantity gold measured in terms of weight.

A Critique of Crisis Theory