From International Socialism 2 : 107, Summer 2005.
Copyright © International Socialism.
Downloaded with thanks from the International Socialism Website.
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Pavel V. Maksakovsky
The Capitalist Cycle
Brill, Historical Materialism book series, 2004, Euro 59
There was a flourishing of Marxist intellectual life in the Russia of the mid-1920s that was wiped out with the final triumph of Stalinism in 1928–1929. Maksakovsky, a working class revolutionary in 1917 and a Bolshevik activist in the civil war of 1918–1921, was part of it, trying to clarify Marxist economic understanding in critical confrontation with non-Marxists like Kondratev (best known for his still fashionable notion of ‘long waves’). This is the only book he completed before he died of natural causes in 1928 (almost all the other participants in the debates were victims of Stalin’s Terror).
Maksakovsky’s concern was with what he called the ‘conjuncture’, meaning the concrete development of the capitalist boom-slump cycle. Marx, he argued, never turned his fragmented insights into a single account of the cycle, while bourgeois economists looked at it only in a superficial manner.
Maksakovsky insists on the need to abstract from immediate appearances so as to locate the fundamental features of the capitalist economy in the operation of the law of value.
Under capitalism, the rate at which goods exchange with each other and for money (their ‘exchange value’) is determined by the amount of labour required to produce them using the average level of techniques and skill operating in the system as a whole (‘abstract labour’). But their production involves concrete human labour bringing physical objects (‘use values’) into interaction with each other. The correct relations between different exchange values and different use values must exist for production to take place.
The more industry develops, the more complicated these relations become. Cars cannot be produced without steel; steel without iron ore and coal; coal without cutting machinery, winding gear and so on. But the chains of physical interactions depend on a chain of buying and selling, in which coal firms sell to steel firms, steel firms to car firms and car firms to consumers – people who get wages or profits to spend from other firms so long as they can sell their goods.
Such long, intertwined chains linking acts of production to final consumption only function if two completely different conditions are fulfilled. There have to be the correct physical relations between things that go to produce other things, determined by the laws of physics, chemistry and biology. But, at the same time, each act of production has to expand the amount of value (i.e. the amount of average abstract labour) in the hands of the owners of the particular firm. The physical organisation of the production of use values has somehow to correspond with the capitalist determination of prices by exchange values.
That is not all. Production will not take place at all unless capitalists think they can sustain themselves in competition with other capitalists by getting a rate of profit at least equal to the average in the system as a whole. To guarantee this they have repeatedly to reorganise production, using more advanced techniques so as to increase productivity per worker. But as all the capitalists try to do this, they continually reduce the average amount of labour needed to produce goods – and therefore the value of the goods. The physical quantity of goods produced by the system will tend to rise, but the value of each individual goods to fall. The two things necessary for the system to function, the physical organisation of production and the flows of value through the system, both change repeatedly – but without there being any automatic compatibility between the changes taking place.
Firms undertake production by buying physical equipment (machines, buildings, computers and so on) at prices dependent on the average amount of labour needed to produce them at a particular moment in time. But even as production is taking place, increases in productivity elsewhere in the system are reducing the value of that equipment and of the goods the firm is producing with it. The firm’s profitability calculations were based on the amount it had to spend on this equipment in the past, not on what its present value is (attempts to refute Marx’s arguments by people like Okishio and Steedman do not grasp this simple point): it is its initial investment that the firm has to make a profit on.
Not only do the values of goods keep changing, but, Maksakovsky shows, the reaction of capitalists to these changes leads to calculation in terms of prices to diverge from those in terms of values. As profits fall, some firms stop new investments for a period. This reduces the demand for other firms that supplied them previously; they try to maintain their sales by cutting their prices below the levels as determined by value considerations, and to protect their profits by sacking workers and cancelling their own investments. A wave of contraction goes through the economy, and with it a general reduction of prices below values.
The contraction does not last forever. Some firms go bankrupt, allowing other firms to buy new plant and equipment on the cheap and to cut the wages which workers are prepared to accept. Eventually, a point is reached where they can expect to get higher than average profits if they embark on a new round of investment; other firms to sell them goods they have stockpiled; a new wave of expansion to take off as capitalists rush to take advantage of the better business conditions. Competition leads firms to undertake levels of investment which, temporarily, exceed the existing output of new machinery, components and raw materials. The ‘overproduction’ of the downturn is replaced by ‘underproduction’ in the upturn, and just as prices before were below values, now they are above values.
But this only lasts until all the new plant and machinery passes into operation, increasing output at the same time as cutting values, making some investment unprofitable and giving rise in time to yet another downturn.
Maksakovsky’s central point is that the cycle is not a result of mistaken decisions by individual capitalists or their governments, but of the very way value expresses itself in prices. This takes place through a continual oscillation, with prices rising above and falling below values, not through some continuous equilibrium.
This cannot be grasped without starting with the objective contradictions expressed in the notion of value. Only by dialectically drawing out these contradictions was Marx able to provide an overview of the system’s dynamic.
There is only one fault in Maksakovsky’s reasoning on these matters. He sees overproduction in relation to demand as precipitating the crisis, rather than overaccumulation of capital in relation to the surplus value, as Marx does in Volume Three of Capital. Overaccumulation expresses itself on the one side as a fall in the rate of profit; on the other side as the production of more goods than consumers can afford to buy. Hence the difficulties of getting out of the crisis in the short term. Attempts to raise the rate of profit by the classic means of wage-cutting reduce consumer demand still more and deepen the crisis; attempts to increase demand (through Keynesian-type measures) cut into profits and also deepen the crisis. Not until some firms have gone broke, leaving room for other firms to resume profitable expansion, can such measures be effective.
Maksakovsky recognises that the capitalist state or bankers can prolong the phase of expansion through controls on credit although, he insists, only to make the eventual eruption of crisis more profound. He argues against economists who believed that state capitalism was doing away with crises in the 1920s by pointing to the international character of the system: ‘State capitalism, on the scale of capitalist production in its totality and transcending “national limitations”, is historically impossible.’ He could not, of course, foresee conditions in the aftermath of the crisis of the 1930s when a collapse of international trade and historically massively high levels of arms expenditure enabled states to intervene to prevent overaccumulation (and ‘underproduction’) precipitating a slide into slump. Not until the mid-1970s in the West and the late 1980s in the USSR did they find themselves unable to intervene.
There are some gems in Maksakovsky’s analysis. His devastating onslaught on Kondratev’s long waves theory is still relevant today when many economists, influenced by Ernest Mandel, somehow see this theory as part of Marxist common sense.
The work limits itself to the cycle and so does not look at the long term trends in the system: the impact of increased investment per worker (the ‘rising organic composition of capital’) on profit rates, and the impact of the concentration and centralisation of capital on the crisis – questions which are important for anyone trying to understand present-day capitalism. It is, however, very useful within this limitation-and a reminder of how alive Soviet Marxism was before Stalin strangled it.
Last updated on 12 January 2017