The Phases of the Industrial Cycle

The crisis, sometimes called the “recession,” marks the end of one industrial cycle and the beginning of the next one. (1) Recession is characterized by a decline in industrial production and employment. The decline in employment is most severe in the industrial sector but affects many other sectors of the economy as well. The recession, or industrial crisis, ends when industrial production reaches its lowest point.

The period between the lowest point of industrial production and when industrial production again reaches the highest point of the preceding cycle is known as the “depression,” or sometimes the phase of “stagnation.”

The phase of the industrial cycle that follows the end of the depression, or stagnation stage, is called the period of “average prosperity.” There is still considerable unemployment of both workers and machines, and capital investment is still weak. Stagnation and depression conditions therefore linger longest in the industries of Department I, the sector that produces the means of production.

After the period of average prosperity comes the boom. Industry is operating as close to “full capacity” as it ever does—outside of all-out war—under the capitalist mode of production. Unemployment sinks to its lowest level of the cycle. Conditions become more favorable to the sellers of labor power. This is the most favorable point in the industrial cycle for union organization and strikes. (2)

The industries that produce the means of production, Department I, which lagged behind the consumer industries during the phase of average prosperity, now do especially well. The prices of raw materials, which are frequently low relative to their actual labor values during all the other phases of the industrial cycle, often rise well above their labor values during the boom.

It is precisely during the boom that overproduction develops. This overproduction is initially disguised by the growing inflation of the credit system and by speculation in primary and sometimes other commodities that is financed by the expansion of credit. To use a term used in Marx’s time, overproduction is accompanied by “over-trading.”

More and more of the total commodity production is being sold on credit, and less and less is sold for money. While the quantity of unsold commodities keeps growing in warehouses, the level of sales, inflated by “easy credit,” grows even faster. The capitalist media and the bourgeois economists explain that, unlike was the case with earlier booms, this one will last because the “inventory-to-sales ratio” is at “record lows” and continues to decline. (3)

In reality, the inventory-to-sales ratio reaches its lowest point just before the outbreak of the crisis. The development of over-trading fools most bourgeois economists into thinking that there is no overproduction. This elementary error is then passed along by the bourgeois media as the latest word in “economic science.”

The approach of the crisis is reflected, therefore, not in the fall in the rate, still less in the mass, of reported profits but rather in the deterioration of the “quality” of profit. (4) The percentage of debt payments on both consumer and commercial credit and bank credit that are “late” is increasing. But the boom is kept going by the banks’ “rolling over” these debts.

The banks themselves are under pressure to “roll over”—that is, to grant new loans that are used simply to pay off—the existing debts that otherwise could not be repaid. In this way, the banks hide their own losses. We certainly saw this sort of thing in the period preceding the outbreak of the current crisis.

In this atmosphere of growing overproduction, hidden by over-trading and speculation financed by “easy credit,” outright swindling and Ponzi schemes flourish. But as long as the banks continue to grant new credits to pay off old ones, the swindling remains hidden.

Eventually, the inflation of credit cannot be pushed any further. Credit suddenly dries up, the over-trading collapses revealing the previously hidden overproduction in the form of a sudden rise in the inventory-to-sales ratio. The industrial cycle has passed its peak, and the new crisis has begun. And so one industrial cycle ends and a new one begins.

Whatever happened to depressions?

There is much discussion in the media as to whether the current economic downturn should be called a depression or simply a “severe recession.” The bourgeois economists continue to insist that despite the severity of the current recession, it is still “only” a “recession” and very far from a true “depression.”

These economists “explain” that there haven’t been any depressions, at least in a major imperialist country, since the 1930s. In the United States, for example, only if the official unemployment approaches the quasi-official rate of 25 percent that occurred in March 1933 will the bourgeois press concede that the the downturn is a bona fide depression. Since government unemployment statistics are designed to minimize the reported level of unemployment, the real level would probably have to rise considerably above the levels of March 1933 before the academic economists and bourgeois media would be forced to acknowledge that the economy is truly in depression.

What the media do not tell you is that the “economic profession” has changed its definition of what a depression is. Before the 1930s, students of the business cycle, both bourgeois and Marxist, described a depression as the interval between the point where industrial production reaches the lowest point of the industrial cycle and the time when it finally exceeds the level that prevailed just before the last recession began. It didn’t matter whether the the preceding recession was severe or shallow.

For example, if we use the criteria for depression that was used by virtually all students of the industrial cycle in the early years of the last century, the current downturn is still a recession and not a depression only because industrial production is still declining. As soon as industrial production “bottoms out” and begins to increase, we will enter the depression phase of the industrial cycle.

Needless to say, this is not how the bourgeois economists and media will report this coming event. Instead, they will announce the beginning of the “expansion,” even though the official unemployment rate will probably still be rising. The recession is over, they will report, and a depression has once again been avoided! But in fact, as every unemployed worker who is trying to find a job will soon sense, while the recession will be over, the depression will just be beginning.

This falsified definition of the term “depression” enables the bourgeois media and the politicians to cover up the real extent of the unemployment crisis. They falsely claim that “depression” has been prevented and prosperity restored even while the unemployment crisis continues and even worsens. By their new definition of “depression,” not only have there been no depressions since the 1930s, there weren’t any before the 1930s either. Unfortunately, even much of the socialist media has been carried along with this false definition.

In my opinion, as we approach the lowest point of the current downturn, it would be timely for the socialist press to restore the term “depression” to its proper meaning, exposing the fraud that has been carried out by the pro-capitalist economists that dominate university economic departments.

From this point on, in these postings, I will use the word depression with a small “d” to refer to the stage in the industrial cycle between the point that industrial production has reached its lowest point and the time when it has returned to its previous peak.

To distinguish between economic depressions that occur to one degree or another in every industrial cycle from the 1930s-style debacle with all its horrible consequences in terms of breeding fascism and war, or from a possible future crisis that reaches similar or greater proportions, I will use the term Depression with a capital D. (5)

Ideal industrial cycle

No two industrial cycles, just like no two snowflakes, are exactly alike. Each industrial cycle is influenced by many factors of a non-cyclical nature. These include technological, political and military factors that are unique to each cycle. For example, new industries arise while older established industries decay and die. Horse-drawn carriages gave way to the automobile, the gasoline-powered cars are beginning to be replaced by hybrid, and maybe in the future by all-electric, cars. Pens gave way to typewriters, and typewriters gave way to desktop computers, desktop computers gave way to laptops.

In industrial production itself, the steam engine yielded to the electric motor. Analog electrical technology was replaced by digital technology. Some cycles are marked by many more “technological innovations,” both in methods of production and in the products that are produced, than others. In some cycles, there are acute shortages of raw materials just before the crisis; in other cycles, there aren’t.

The same is true of unemployment. Virtually all industrial cycles see a marked rise in unemployment during the recession phase of the industrial cycle. But sometimes unemployment is high even at the peak of the boom. Other times, acute shortages of skilled and even unskilled labor appear that enable wages to rise, especially if the workers are well organized in trade unions. Certain cycles have been greatly influenced by wars, others have unfolded in relatively peaceful times.

The policies of the governments and central banks vary in particular cycles in response to the class struggle, revolutions and counterrevolutions. In some cycles, the governments have done little to combat mass unemployment, while in others they have engaged in large-scale deficit spending in a bid to induce recovery. Some cycles have seen drastic changes in the gold value of the currencies, while others unfolded under “gold standard” conditions where the gold values of the currency have not varied at all.

There have been cycles where the phases of recession and depression are short-lived, while the boom phase is prolonged. These I will call “boom-dominated” cycles. In other cycles. the phase of crisis and depression is dominant and the boom is very short-lived. These I will call crisis-depression-dominated cycles.

Sometimes the crises are accompanied by very violent financial crises and are marked by crashing stock markets and collapsing banks and other financial institutions. This has been the case with the current crisis. Other times, there is only a period of “tight money” and only moderate declines in stock markets.

Obviously, the political consequences of the differences between concrete industrial cycles is important. Therefore, it is important to understand how and why industrial cycles differ so much. But before I can do this, I must first begin with a typical industrial cycle. with all the specific features that cause individual industrial cycles to differ to be abstracted. Only when we understand a “typical” industrial cycle will we able to explore how and why concrete industrial cycles differ from the norm.

Setting the stage

Above I have sketched out a rough description of the industrial cycle. But now I want to begin the examination of the industrial cycle in detail. At what stage in the industrial cycle should we begin?

Since the crisis marks the end of one industrial cycle and the beginning of the next one, I will begin with the conditions that prevail immediately after the crisis. The crisis has created the conditions that allow capitalist production to turn upward once again. Or what comes to exactly the same thing, I will begin at the point where the recession is ending and the depression proper begins.

Over the next few weeks, I will trace how the depression leads first to average prosperity, and then how average prosperity leads to a growing boom. I will then show how the boom breeds the crisis. As Marx explained somewhere, each successive stage of the industrial cycle leads inevitably to the next stage.

As a further abstraction, I will also assume that the world is one capitalist nation. While international factors are important in real industrial cycles and crises, they should only be introduced after the basic nature of the industrial cycle has been fully grasped.

Now let’s set the stage. Remember, the crisis or recession marked the forcible termination of the overproduction that occurred during the boom phase of the previous industrial cycle. Industrial production as well as broader measures of economic activity have contracted, and employment has declined, especially in the industrial sector. Unemployment has increased sharply. Fewer jobs are to be had absolutely than were available when the last the boom collapsed, yet the the number of people who need jobs is higher than ever due to the increased size of the working class. Therefore, since the end of the last boom, unemployment has grown faster than the decline in the number of employed workers.

Traditionally, the prices of commodities including the price of labor power dropped not only during cycles with severe crises but in cycles marked by milder recessions. This has been modified since World War II, but since I am examining a “typical” industrial cycle, I will assume that both prices and wages have declined since the peak of the preceding cycle. Later, I will examine why the general price level as measured in terms of the official currency has rarely or only very briefly declined since the end of World War II. (6) It should be noted here that raw materials prices, sometimes including agricultural prices, have still generally declined to one degree or another even in post-World War recessions.

And since the great weakening of the labor unions from the 1980s, outright wage cuts, rare in the early post-World War II years, have again become common. This despite the fact that the cost of living—with only briefs interruptions—continues to march relentlessly upward.

This change in the behavior of prices is a very important phenomenon and needs an explanation. But I can’t deal with why this has occurred before I describe a typical industrial cycle in which prices in general, including the price of labor power, fall.

The rate of interest, for reasons I touched in last week’s post, also declines during the downward phase of the industrial cycle.

At the bottom of the industrial cycle

In earlier posts, I explained that the capitalist mode of production is above all marked by expanded reproduction. According to Marx, if expanded reproduction is absent it is not capitalist production. Why then doesn’t this process of expanded production proceed in a steady way, without industrial cycles, like it does in Marx’s diagrams of expanded reproduction that appear in volume II of “Capital”?

In order to understand why capitalist production moves through the various stages of the industrial cycle rather than develop smoothly from year to year, it is necessary to remember both the process of expanded reproduction that I examined in earlier posts, as well as the basic contradictions of commodity production that I have been examining during the last four weeks. (7)

Now the stage is fully set. Production is at its lowest point and is about to turn upward. After a temporary interruption, the whole process of expanded capitalist reproduction is about to start up again. It is destined to reach new highs before it again ends in a crisis. (8) The rate of profit is very low at the bottom of the cycle. Not only has the rate of profit fallen since the collapse of the boom, so has the mass of profit.

As a result of these conditions, what the bourgeois economists call “excess capacity” is very high. A huge part of the existing productive forces cannot function as capital; they do not yield a profit for the industrial capitalists. The market prices of commodities have fallen below the value of commodities. That is, the commodities represent more abstract human labor than the abstract labor that is represented by the money for which they are exchanged. Commodities are thus only partially realizing their values in terms of money. (9)

Among the commodities that are selling below their values is the commodity labor power. In terms of the money they are paid in, the workers’ labor power is being paid a wage below the value of the labor power. This situation is somewhat compensated for by the fact that commodities that enter into the consumption of the workers are also selling below their values. This might even cause the real hourly wage to rise. However, since work is scarce—there is little overtime, and many workers are working “short hours” or only “part time”—the standard of living of most workers drops. The labor market favors the bosses and puts constant downward pressure on wages. The unions face an uphill struggle and are thrown on the defensive.

The rate of interest is low. Newly mined gold is piling up in the central bank, allowing the bank to lower its discount rate without having to fear a “run” on its gold reserve. The banks are awash in excess reserves, mostly in the form of deposits at the central bank.

Industrial and commercial firms have large amounts of liquid assets, either in the form of deposits at the commercial banks or in low-yielding, short-term government securities that can quickly be converted to cash. Money in its various forms is plentiful. The velocity of circulation, however, is low. Because of the great mass of idle cash, the economy operates to an increasing extent on a cash, as opposed to a credit, basis. Awash with cash, capitalist firms are in position to retire much of their existing debts.

Growth of money capital accelerates

An exception to the picture of depressed profits throughout industry is the gold-mining industry, the industry that produces money material. As I have explained, gold as money material measures the exchange value of all other commodities in terms of its own use value. A fall in the general price level measured in terms of money material means that the purchasing power of a given quantity of money material increases.

Unlike other industrial capitalists, the industrial capitalists that produce money material do not have to sell their commodity for money to prove that the labor that their commodities represent is indeed social labor. Their commodity is already money—the abstract social form of wealth—as soon as it is produced. As I explained in posts on money, the labor that produces money material, unlike the labor that is used to produce other commodities, is directly social.

As prices in terms of gold fall, the purchasing power of a given quantity of gold will increase. Or what comes to exactly the same thing, a given quantity of the gold that the gold capitalists produce will buy more labor power and more of the elements of constant capital. The result is that the more the general price level falls when measured in terms of gold, the more profitable the gold-mining and refining industry will become.

Even if the general price level in terms of gold does not fall, the relative profitability of gold mining will increase. During the recession, the turnover of capital declines due to slow sales, thus lowering the rate of profit throughout industry and commerce. But this does not affect the industry that produces money material. Its product can always be “sold.” (10)

So even if the profitably of gold mining does not increase absolutely, it will increase relatively. Since capital is always on the lookout for profits that will yield the highest possible rate of profit, even a relative rise in the profitably of the gold-mining industry will mean an increase in investment in gold mining, and all other things remaining equal, a rise in the production of gold. (11)

Therefore, the outbreak of a general crisis of overproduction means a reduced level of production and employment in most industries; in gold mining and refining, all other things remaining equal, the production of gold is stimulated by a crisis. The gold industry moves counter-cyclically to the rest of the economy.

Therefore, as long as the recession continues, the portion of the total capital that consists of money capital grows relative to the portion that consists of commodity and productive capital. (12) While gold production has been stimulated, both commodity and productive capital have contracted. As far as commodity capital is concerned, this reflects both the liquidation of inventories by both the industrial and commercial capitalists as well as the reduced prices of commodities in terms of prices measured in the use value of money material. Declining industrial production during the recession means that factories operate at reduced capacity or are idled altogether. These “surplus” productive forces cannot be run at a profit.

A certain amount of these productive forces are physically destroyed, while another portion is “written down” by the industrial capitalists. These productive forces are not physically destroyed as material use values, but the industrial capitalists realize that they are worth less in terms of money than they were before. They have therefore contracted in terms of exchange value. Or what comes to exactly the same thing, they represent less capital than they represented before the crisis.

A common variation of this process is the case where industrial capitalists go bankrupt. The industrial enterprises are then sold to other industrial capitalists at a loss. Stronger industrial capitalists buy up these enterprises at a fraction of their former value. The industrial capitalists who buy these productive forces at their new lower values will often then be able to run them at a profit, whereas their former owners lost their shirts. The bankruptcy process, therefore, plays an important role in restarting the fires of capitalist expanded reproduction in the wake of a crisis.

This process of the devaluation and destruction of existing capital— downsizing—reaches a peak at the bottom of the recession. It continues throughout the depression, gradually diminishing during the phase of average prosperity, and reaches its lowest point during the boom phase of the industrial cycle, though it never stops entirely.

At the bottom of the recession, excess capacity is at a very high level. From the viewpoint of the industrial capitalists, it makes no sense to carry out new large-scale productive investments. If the individual industrial capitalist did run his or her factories at anything like full capacity, much of the commodities would prove unsaleable, or would have to sold at unprofitably low prices.

Under these conditions, no fall in the rate of interest can stimulate renewed investment outside of the gold-producing industry. If the rate of profit on new investment is zero, even a zero rate of interest will mean a zero profit of enterprises. Keynesian economists call such a situation a “liquidity trap.” No matter how much interest rates are lowered, there will be very little additional investment.

The recession does not affect all industries equally, however. The consumer industries of Department II are affected less than the industries of Department I, which produce the means of production. Why is this? The purchase of necessities like food, shelter and clothing cannot be put off even in the worst of times. Even the unemployed have to eat. If capitalist society did not provide some sort of relief to the unemployed, they would starve to death.

Besides the fact that mass starvation would be politically very destabilizing, it would undermine the possibly of renewed expanded reproduction in the future. If the unemployed were allowed to actually “die off” during the period of mass unemployment and minimal demand for labor power that marks the low point of the industrial cycle, an acute labor shortage, the dreaded “absolute overproduction of capital,” would develop as soon as the demand for labor power starts to rise once again.

It is therefore in the interests of the capitalists to keep the unemployed alive, but only in the most miserable conditions. The more wages are driven down, the more the rate of surplus value will rise. And a higher rate of surplus value will translate into a higher rate of profit when it becomes possible to fully realize the value and surplus value of commodities once again. If the workers are organized both in trade unions or better yet, politically in a political party, they can force the capitalists against their will to maintain the unemployed in somewhat better conditions. But this can only be won through struggle, and can be lost through the lack of struggle.

In contrast to consumer necessities, the purchases of capital goods such as new factory construction and machinery can be put off for years or even decades if necessary. When this happens, the new money that is created by the gold-producing industry accumulates in idle hoards in the banks driving down the rate of interest to minimal levels. To the extent that production is curtailed, so will be the purchase of auxiliary and raw materials as well as purchases of the commodity labor power. Especially sensitive to recession is the sub-department of Department I that produces means of production for other Department I industries.

Though the depression is more severe in Department I, unemployment and depressed profits or outright losses in Department I, make it impossible for Department II to realize the full value of its potential commodity production. As I explained in the section on reproduction, the workers and capitalists of Department I form an important market for Department II.

In addition to perishable commodities, Department II also produces durable commodities like houses, furniture, automobiles, televisions, computers, cell phones and so on, which are more sensitive to the phases of the industrial cycle than are the industries that produce perishable necessities such food. The unemployed have to buy food, but they do not have to purchase new cars, houses, furniture, computers or smart phones. These purchases have to be put off until employment opportunities improve and wages rise.

The smaller capitalists, both money capitalists who have been hit by the decline in interest rates that form the basis of their income, as well as small industrial and commercial capitalists who experience much lower profits and frequently outright losses, are also forced to reduce their expenditures on luxury consumer goods, especially consumer durables.

This is a point often forgotten by the supporters of the underconsumption-based crisis theories, who sometimes seem to assume that the capitalist class lives on air. It is true the richest capitalists, even when they suffer great losses of capital, don’t have to curtail their personal consumption because they can live off their immense capital until profitability returns, but this isn’t true of the much more numerous small capitalists.

This is even more true of the “petty-bourgeois” strata of semi-capitalists semi-workers who depend partially on the interest yielded on their small capitals and partially through the sale of their labor power for their living. The small business people partially live off the profits on their small capitals, and partially depend on the “wages of superintendence” they earn as managers of their own businesses. (13) During good times, these “middle-class” people provide a considerable market for durable consumer luxuries, but at the bottom of the cycle their purchases of such luxuries must be postponed until better times return. (14)

Next: How the recovery develops, from depression to average prosperity.

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1 The industrial cycle is called the “business cycle” in the United States, and the “trade cycle” in Britain. However, “industrial cycle,” the term used by Marx, is preferable, because the cycle is primarily a cycle of capitalist industrial production.

2 Capitalist governments have passed laws prohibiting unions from striking except when collective bargaining contracts that run for a number of years expire. This prevents the unions from taking advantage of the most favorable conditions to organize, win wage increases and if necessary strike that arise in the course of the industrial cycle, unless by chance the expiration of contracts coincides with peak business conditions.

3 It is a long-term trend of the capitalist mode of production for the industrial capitalists to economize on inventories—commodity capital. Both idle commodity capital and idle money capital, as well as surplus raw materials, represent potential capital that could be “put to work” earning profit.

Capitalist economists periodically claim that due to increased computer controls, business is avoiding the buildup of unsold commodities that caused recessions in the past. However, the same computer technology makes possible the inflation of credit and the associated economizing of money capital as well. Eventually the point is reached where credit cannot be inflated any further, and money capital—liquidity—cannot be run down any further. Under these conditions, sales suddenly collapse. When the credit-inflated level of sales collapses, the massive overproduction of commodities that has been occurring but hidden by the credit-inflated levels of sales becomes suddenly obvious, and the industrial capitalists are forced to suddenly slash production. The events that occurred last fall provide a textbook example. The bourgeois economists then blame the “unexpected” credit contraction,” not the underlying overproduction, for their failed predictions of continued economic prosperity.

4 According to standard accounting rules, businesses are supposed to put a certain amount aside for “bad debts,” which appears as a negative asset on the balance sheet. In the early stages of the industrial cycle, when the memory of the last crisis is still fresh, business tends to be highly “conservative” when calculating how much to put aside in their “allowance for bad debts.” But as the boom proceeds, there is tendency for the “allowance for bad debts” to become unrealistically low. In effect, uncollectible debts are still treated as assets when they in reality represent losses. But this becomes obvious only when credit can no longer be expanded and the bad debts can no longer be “rolled over.”

5 There is a long history of changing the name given to the periodic crises that have marked the history of the capitalist mode of production. Originally, these crises were called “commercial crises,” the term often used by Marx and Engels. But the term “commercial crisis” took on such a sinister connotation that it was replaced by “panic” or “depression.” A depression merely implied a period of “slow business” and didn’t sound nearly as bad as “commercial crisis.” After the 1930s, the term “depression” acquired a far more sinister connotation than the original term of “commercial crisis,” so the term “recession” replaced it. A recession, after all, isn’t nearly as scary as a “depression.” More recently, the old term “panic” has been recycled, but things would have to get almost unimaginably bad before the word “depression” would again be used.

6 The development of the current crisis shows this shift. The first stage of the crisis that began in August 2007 was marked by an acceleration of inflation as the dollar plummeted against gold in expectation of a gigantic inflationary “rescue” effort by the Fed. Only home prices seemed to be falling. Even the stock market resumed its rise after the initial August 2007 panic, making a new all-time record high in October 2007. Starting last summer and accelerating last fall, not only raw material prices but even producer and, wonders of wonders, the general consumer price index began—according to official figures—to drop, though much of this decline reflected the collapse of gasoline prices.

The Fed, however, promised that it would print any amount of money necessary to prevent the cost of living from actually declining or even stabilizing. Bernanke and other Fed officials have made clear that any inflation rate of less then 1 percent is too low for them. The Fed then virtually doubled the supply of its token money within a period of a few months.

This seems to have worked, at least in the United States. Since the start of the year, the official price indices have started to creep up once again, even as the number of jobs continued its massive contraction. As long as the government and the Federal Reserve—the European Central Bank has a similar policy, which they call inflation targeting—stick to a policy of engineering inflation and meeting any even threatened fall in the cost of living with a massive increase in the quantity of the token money they issue, the unions are failing their members when they sign contracts that don’t contain automatic cost-of-living clauses.

7 In “Capital,” Marx began with the basic contradictions of commodity production and then worked up from there to explain how surplus value arises on the basis of the exchange of equal quantities of labor embodied in commodities. He almost certainly planned to deal with crises as such eventually but not in “Capital.” “Capital” was supposed to be only the first book within a much broader “Critique of Political Economy.”

This plan proved far too ambitious even for Marx. Here, in contrast, I began with the critique of various popular Marxist crisis theories, which generally ignore the basic contradictions of commodity production altogether. I explained how such crisis theories, though they contain parts of the truth, fail to grasp the contradictions of capitalist production sufficiently to explain real concrete crises. I then returned to the basic contradictions of commodity production, value, price, money, credit, competition and interest rates, since without grasping these categories I believe that crises slip right through our fingers.

From this point on, I will be building a crisis theory that takes the basic contradictions that are built into the commodity foundation of capitalism fully into account. Once this is done, I think you will see that crises and the broader phenomena of the industrial cycle emerge quite naturally out of the basic contradictions of capitalist production.

8 Capitalist production is a process of expanded reproduction. It keeps reproducing itself on an ever-larger scale. Historically, capitalist expanded reproduction is limited in time. It has an origin and an end. It cannot go on forever. I will examine these historical limits when I deal with the breakdown theory.

In examining the industrial cycle, however, I am dealing with how capitalism lives, not how it dies. Living capitalism means that while reproduction may temporarily go negative during a phase of the industrial cycle, over the cycle as a whole expanded reproduction must prevail. Each successive cycle has to reach a higher level of production than the last one. Only by understanding how it lives through expanded reproduction will we be able to understand why it must eventually die, or give way to a higher mode of production.

9 More strictly, market prices are below the prices of production.

10 Remember, gold appears to be sold for other forms of money, it appears to have a price. But in reality, the sale of gold for either convertible-into-gold banknotes, token money or credit money is simply an exchange of one form of money for another and not a true commodity sale. See the posting From Money as Universal Equivalent to Money as Currency.

11 Still, the stimulative effect on gold production, all other things remaining equal, will be considerably less than when the prices in terms of gold actually decline.

12 Remember that both the quantity of gold and the quantity of real capital are measured in terms of weights of gold, the unit that is appropriate to measure gold—or some other monetary metal—as a use value. See the section on money for further discussion on this point.

13 The economic apologists for capital frequently try to dismiss the entire profit of enterprise that the industrial and commercial capitalists earn beyond interest as the wages of superintendence. However, the two can easily be separated. Suppose I own a business that I have been running, but now I want to retire. I can hire a manager to run the business instead. Of course, I will have to pay the going wage or salary for such managerial labor. The extra profit that I will still be earning on my capital beyond interest as a business owner—but no longer a business manager—is the pure “profit of enterprise.”

14 Stock market analysts distinguish between “cyclical industries,” which are very sensitive to the stages of the industrial cycle, and non-cyclical industries, which are far less affected. During downturns, these analysts frequently recommend that their clients buy stocks in non-cyclical industries, such as food- and drug-producing industries. Stocks in cyclical industries are generally recommended only when the analyists expect—rightly or wrongly—boom conditions. These include first the basic capital goods and materials producing industries, but secondarily they include the durable consumer industries, such as the automobile industry, for example.

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