short essay questions

Chapter 3

Recession

Thrown into disorder by the crisis, the social reproduction process spends several years in a period of recession preparing for recovery by passing through a process that organizes excess capital. According to Spiethoff, the crisis of 1825 lasted six years, until 1831; the 1836 crisis extended to 1842, also six years; the 1847 crisis spanned four years, until 1851; and the 1857 crisis lasted until 1861, passing through four years of recession before entering a new period of prosperity. The organizing of excess capital that is carried out in these definite periods is not a simple matter, however. By lowering production costs through improvements and upgrades to production methods, the organization of excess capital takes place by creating new relations between capitalists and workers. This is the sole reason why periods of recession exhibit definite durations of so many years. It is a process that proceeds by way of the tough competition between individual capitals, and by the sacrifices of workers. It is here, moreover, that loan capital plays a special role.

1. The stagnation of the reproduction process

In a period of recession that constitutes the opposite of the period of prosperity, a fall in commodity prices resulting from crisis brings about a complete end to speculative activities, and in the wake of the destruction resulting from the crisis, the reproduction process continues to contract. This hardly means, of course, that individual capitals undergo these reductions uniformly. Industries in which large increases in prices occurred in periods of prosperity will be forced to make even bigger reductions and contractions in the period of recession, but this does not necessarily mean that these contractions and reductions can be carried off easily. Rather, the opposite is true. This point sheds light on the way the heavy-chemical industries, such as iron works, developed into such large scale operations along with, and as part of, the development of capitalism. It especially sheds light on the monopolistic organizations of cartels and trusts that gave birth to the so-called mixed industries (gōdō jigyō) that produce both raw materials and semi-manufactured goods. In any case, in the period of recession, the contraction of the reproduction process of individual industries and individual capitals assumes different shapes and forms, precisely because of the resiliency and resistance of capital. Generally speaking, however, along with the stagnation of the reproduction process, the growing amount of idle capital cannot but push down the profit rate, and even for capitals that can boast of favorable conditions and an impressive resiliency, even for these capitals, the fall in prices makes the contraction of production unavoidable. But even if it has become technologically possible to improve production methods, or to introduce entirely new production methods, this does not mean that the existing production facilities can be so easily sacrificed and replaced. Quite the contrary, the facilities that were expanded and enlarged during the period of prosperity will be used for as long as possible, and not be replaced, because the fall in the price of manufactured goods—irrespective of a fall in the price of raw materials or wages—will have created difficulties for effective management. The loss of its capital value is unavoidable, and important methods by which to get through the recession are carried out: the slashing of wages due to rising unemployment or semi-unemployment, or else the intensification of labor and the cutting back on means of production.

In competition wars, large capitals that exist under favorable conditions buy up and concentrate smaller capitals existing under less favorable conditions, even to the point of managing the latter in increasingly advantageous ways. Despite this, however, the reproduction process does not move in the direction of a general expansion, for in periods of recession, competition wars appear in the form of protecting one’s own capital at the expense of other capitals, and while the essential problem is expressed in a distorted form, this distortion itself puts into action a process of preparing for the development of new social relations. Without questioning how an excess of capital came about in the first place, the capitalist single-mindedly seeks to relieve his burden on the backs of others. As Marx writes,

So long as things go well, competition effects an operating fraternity of the capitalist class, as we have seen in the case of the equalisation of the general rate of profit, so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers.[footnoteRef:1] [1: Marx, Karl. Capital, volume 3, Chapter 15, International Publishers, NY.]

In periods of prosperity, in the competitive quest for higher profits that ultimately produces an average profit, the competition between individual capitals also reveals differences in their mutual “strength and cunning”, which is why it is possible to think that capitalists can get their profits through skill and ability. Ignoring these differences would not be a good idea, of course, but these differences themselves cannot explain how “strength and cunning” is able to make profits—albeit in lesser quantities—even on inferior things. Individual profit rates may differ from each other, but the point is that the profit that is obtained generally never comes from, “strength and cunning”. Similarly, in regards to the losses incurred during periods of recession, “strength and cunning” also cannot be said to give birth to the losses themselves in periods of recession, for what they are doing with their “strength and cunning” is merely draw attention to their individual differences. Thus, even if an excess of commodities can be considered a relative matter, once it becomes a general excess, it is not something that can be cleared away by the differences between individual capitals in shouldering losses. Be that as it may, in contrast to competition in periods of prosperity, in which everyone competes for the acquisition of higher profits, competition in periods of recession are inevitably intensified as a struggle over the sharing of losses that threaten the very existence of capital.

The fall in the profit rate that we have seen, however, is now accompanied by a fall in interest rates. Compared to periods of prosperity, in which speculative activities dramatically increase the demand for funds to the point where it cannot even be covered by a rise in the supply of funds; in the period of recession, an increase in the supply of funds—and especially the supply of newly created funds—is already not only incapable of being increased, it is clearly reduced, but because demand has declined, a fall in the interest rate cannot be avoided. While it was possible in periods of prosperity to transform money capital into funds due to the expansion of commercial credit and a heightened velocity of circulation, money capital in periods of recession, when the velocity of circulation is greatly reduced, remains stuck as mere means of circulation. Even if money were made into funds, this would happen, in this case, within the crucible of a reproduction process in stagnation, and thus it cannot be viewed in the same way as the creation of new funds accompanying a revitalized process of reproduction. Moreover, financial institutions such as banks, rather than fabricating credit by anticipating the creation of funds, cannot avoid reducing interest rates because there are not enough funds that can be lent as “unemployed” capital. The reason for this is that the stagnancy of accumulation, as a lack in investments as capital, has become an accumulation stuck in the money form.

The fall in prices of raw materials and other means of production; the slashing of wages; the intensification of labor and the cutting back on means of production; and the drop in interest rates of loan capital; all of these things, in and of themselves, however, do not bring about the recovery of capital’s reproduction process. Not only is there also a fall in the price of products, but so long as the relationship between capitalists and workers—which constitutes the basic cause of excess capital exposed in crisis—is not transformed (henkaku) into a new relationship by the aforementioned reactions, recovery will not take place. Even if this should happen, however, the slashing of wages is something that begs special consideration. Of course, the slashing of wages is born out of the stagnation of the reproduction process, and while wages alone are not decreased, the commodity of labor power differs from other commodities, for its supply does not decrease simply because a demand for it decreases. Just because labor power cannot be sold as a commodity hardly means that workers do not have to live; the fall in wages is thus particularly intense and invariably dragged out. It is as if it corresponds, in an inverse way, to the rise in prices during the period of prosperity.[footnoteRef:2] [2: If, in the period of prosperity, the actual rise in the wages of workers were hindered by a rise in prices stemming from the speculative buying (omowaku kaitsuke) of merchant or commercial capital, or else from industrial capital’s merchant capital-like speculations; then it could be said, conversely, that the actual fall in wages would be ameliorated, to a certain degree, by the fall in prices in the period of recession. This would only come about, however, because wages had already fallen due to the recession, or else because wages could not be obtained due to unemployment. We should be wary, however, of ascribing too much influence on the movement of wages to mercantile speculations, for what cannot be lost sight of is how the fundamental cause of crisis is found in the very methods of capitalist production that transform labor power into a commodity. What should be considered, therefore, is how these phenomena point to the concealment, by merchant capital-like speculations, of the fundamental cause of crisis. In clarifying the general laws of capitalism on the level of fundamental principles, the workers’ wages, as the value of labor power transformed into price, are presupposed to revolve around a fixed standard of living, though in actuality, of course, we know that this standard will differ, depending on various industries and regions. Even in theoretical considerations, however, we must also recognize how, in light of each stage of the economic cycle (keizai junkan no kaku dankai), wages rise above the value of labor power at certain times, only to fall below the value of labor power at other times. That the value of labor power can be assumed, in a general inquiry, to be based on a fixed standard of living is not to deny the possibility of these fluctuations. Theoretical considerations can generally ignore the actually existing differences of industry or region that accompany the development of capitalism, and that tend to be resolved by the latter. When considering the rise and fall of wages stemming from fluctuations in the business cycle, however, it should be understood generally—without relying on the explanation of this tendency—that, in passing through the totality of the cycle, the value of labor power is paid, and that the rise or fall of wages takes place within the cycle. Of course, when we speak of a rise in prices during periods of prosperity, or of its obstruction by a fall in prices during periods of recession, or even of the way this fall is ameliorated, this in no way means that the standard of living of workers is the same throughout. Insofar as the value of labor power, as that which forms the standard for wages, is never only determined biologically but by standards of living that are determined historically and socially, it is not something that excludes these fluctuations. For this very reason, the way in which workers’ everyday lives are impacted by the slashing of their wages, or by unemployment during periods of recession, cannot be treated lightly. At the same time, however, in theoretically presupposing a capitalist society, and in abstracting (shashō) the existence of so-called independent producers such as peasants and handicraft workers, it would be wrong to understand unemployed workers as if they were all necessarily starving. While individual, concrete cases of unemployment reveal tragic and miserable conditions that are often accompanied by severe social instability, it should be presupposed generally that the unemployed population, as a weight on the employed population, is able to continue to survive. This relationship is revealed with so-called part time work, in which employment does not pay for the value of labor power for one full day, but rather for one part of that day, thus cutting back on labor time—and exhibiting one of the important means by which wages are cut. Looking at mid-19th century England, Marx discussed three forms of the relative surplus population as a so-called industrial reserve army: the floating, the latent, and the stagnant, to which he also added the sphere of pauperism. The surplus population, born by crisis and recession, bases itself on this general industrial reserve army, and even within the sphere of paupers, there are those who possess the ability to labor whose “the quantity… increases with every crisis, and diminishes with every revival of trade.” (Capital, volume 1, Chapter 25, section 4) Marx, moreover, speaks of the floating population as the part of the laboring population that is, in accordance with the fluctuations of the business cycle of modern large-scale industry, at times absorbed and at other times expelled. However, another factor to this surplus population is the way in which floating populations are formed when the absorption of younger workers expel older workers, thus pointing to a relation in which this expelled working population is thrown on top of the medium and small industrial workers who exist as a stagnant population. This population, along with the latent surplus population that springs from the agricultural sector, plays a role in which it is recruited in response to the increased demand for labor power in large-scale industry during periods of prosperity. The population that large-scale industry creates as a surplus, therefore, does not terminate, immediately or completely, as a mass or unemployed workers, and it is this relation, we should be quick to add, that generally makes the slashing of wages, during periods of recession, possible. “The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active labour-army; during the periods of over-production and paroxysm, it holds its pretensions in check. The relative surplus-population is therefore the pivot upon which the law of demand and supply of labour works.” (Capital, volume 1, Chapter 25, Section 3)]

2. Launching new accumulation by improvements in production methods

By the mere improvement to methods of labor—not to mention by the adoption of new machinery—capital is able to bring forth a fountain of “super” or “special” profit (tokubetsu no rijun) by lowering cost prices, and while capitalist management is always competing for this special profit, this practice is an especially important means of competition during times of recession. Hardly a simple problem of “strength and cunning” in the process of buying and selling, this is a matter that unfolds in the production process, constituting a positive factor that includes the reconfiguration of the worker-capitalist relation, and that therefore differs from competition in the period of prosperity.

It is a general rule for all capitals, however, that this special profit is not something that can be obtained by improvements to production methods that are carried off with relative ease, or that do not require the replacement of fixed capital—for example, through new methods of cutting back on means of production, or through the use of new raw materials that are easily obtained. Competition in periods of recession inexorably moves in the direction of making improvements to production methods that other capitals cannot easily achieve, and of adopting new methods for one’s own fixed capital that were not possible before. This possibility is brought about when both the destruction of capital, and the renewal period for portions of fixed capital from the period of crisis, pass through competition in the period of recession. Of course, divergent conditions stemming from individual capitals never make this a uniform process. Moreover, there will be differences in the period when new production methods are adopted, differences that depend on the industry, and, for example, on the degree to which mechanization has already taken place in a given industry or not. These differences are ultimately resolved, however, by a generalization of the improvements, made to production methods in the key industries, that stem from investments of new fixed capital.[footnoteRef:3] [3: In The History of Crisis in England, Tugan-Baranowsky writes the following: “From a certain perspective, the crisis of 1825 actually had a good effect on English industry. According to a testimony taken from a parliamentary committee in 1833, the manufacturer Smith noted that after the crisis steam machinery gradually came to be used in factories nationwide. Similarly, in the blast furnace industry, important improvements were implemented, and according to the manufacturer Teal, the costs of producing steel were lowered dramatically. In the face of declining profits from fallen prices, manufacturers researched various means to lower costs of production. In this way, a defining characteristic of the years following the 1825 crisis was the rapid progress of technology.” Of course, in periods of recession, improvements to production methods are not generalized immediately, but must first pass through a definite period of competition. If improvements to production methods are carried out during periods of recession, this is precisely because its impetus is found here, in this period of competition. As I have had occasion to mention here in this book, the period in which mechanization takes place, and the period in which improvements are made to machinery, differ. For example, take the cotton industries of the 1820s to the mid 1840s. In the cotton spinning process and then in the cotton weaving process, not only was there an increase in productivity due to improvements in machinery; improvements to machinery subsequently proceeded in the direction of advancing the machinery’s operating speed. (Ellison, op. cit., p69.)]

The improvement of production methods, it goes without saying, advances productivity per unit of labor, pointing to what Marx called the production of relative surplus value. The organic composition of capital thus grows by increasing the constant part of capital, invested in raw materials and other means of production, in relation to the variable part of capital that is invested in labor power. Improvements that take place during periods of recession thus proceed as an accumulation of capital in which, on the one hand, a relatively small number of workers come to be mobilized out of the already existing surplus population of unemployed workers; and in which, on the other hand, the value of capital, as the means of labor used originally by individual capitals, is destroyed, more or less. The accumulation of capital here is thus not simply an increase in the demand for workers, nor is it simply an additional investment to the original capital. Generally speaking, it serves, of course, as the basis for the development of society, but it cannot be explained merely as something that advances the productivity of labor and lightens labor. The accumulation of capital rather proceeds by way of an inverted form (gyakuten shita keitai), peculiar to capitalism, which in this case points especially to how, in periods when workers already exist in superfluity, restrictions on workers are further carried out by the adoption of methods that produce relative surplus populations; and to how, at times when the destruction of capital is ongoing, new methods are adopted that accelerate the destruction of capital value. This is a special form (tokushuna keishiki) of the development of production methods that has, as its goal, the making of profit. During the time when profits are made, the unemployed population continues to decline, but the stimulus to improve production methods that will form new surplus populations is— now, in a reversal—blunted. Capital progressively possesses such supplementary ways to accumulate. This is a tendency that is also confirmed by the maintenance and continuation of fixed capital, in the form of machinery and other means of labor. It’s safe to say that, for capitalism, it never would have become realized had this inverted relationship not existed in the advancement of general social productivity.

In this way, accumulation in the period of recession proceeds as a competition between the original capital and new capital. While the period in which the renewal of fixed capital of individual capitals varies—which necessarily implies differences in the time when new improvements are implemented—competition in the period of recession pushes more or less towards renewal on the basis of the destruction of capital value from the period of crisis. Of course, this is resisted as long as the capital invested in the original production methods is able to use its fixed capital. And if the burden on capital during periods of recession is exacerbated by the mere falling of prices stemming from the special profits obtained by new production methods, this is because the improvement of fixed capital cannot take place immediately. A significant period of time is required for the generalization of improvements to production methods to sink in. In the movement towards the concentration of large capitals, this period is shortened as much as possible as a general, though not unconditional, rule. Above all, these improvements certainly do not take place uniformly in all industrial sectors. With accumulation in the key industries, however, once this generalization is achieved within its sector, once, that is, the process of generalization itself develops on the basis of a new standard that transforms the original production relations —a standard, moreover, that does not so much introduce lowered prices stemming from the crisis than serve as a price standard that brings about the establishment of new relations between workers and capitalists[footnoteRef:4]— the fundamental cause of the stagnation of the reproductive process is removed, providing the basis for a new development of productive forces. This does not mean an immediate turn towards prosperity, but its beginnings become visible. Especially in regards to improvements to production methods, once improvements to fixed capital take place with greater frequency and speed, the basis is created for renewed production of means of production and means of consumption. [4: This problem can be seen in the following table (taken from Ellison’s analysis mentioned above), which shows a fall in the average price of manufactured cotton goods in each period of prosperity following the prosperity period of 1822-1825. Keeping in mind that the prices here are those of England’s exported manufactured cotton goods, and that these prices are influenced by the price of imported raw cotton and various other factors, the pattern that emerges is a continual fall in price below the previous period’s price. This can be considered an effect of the advance in productivity. 1822-25 1832-36 1843-47 1852-57 1862-66 Cotton thread (in pounds) 23.33 pence 16.086 12.01 10.995 23.682 Cotton weave (in yards) 10.373 pence 6.222 3.97 3.405 5.218 The rise in price in 1862-66 was caused by the dramatic rise, after 1861, in the price of raw cotton that resulted from the American civil war. The fluctuations of these prices were also likely influenced by the discovery of gold mines of the 1850s. The extent of this influence, however, is beyond the scope of this analysis. Generally speaking, however, the important points to be gleaned here are that the rise in price stemming from speculations in the period prosperity are buried and concealed by the fall in prices resulting from advances in productivity; and that prices in each period of prosperity falls below the price of the previous period of prosperity. As an additional note, the following shows the fluctuations of the annual average price of exported cotton thread between 1825 and 1858. 1825 23.57 1826 19.86 1827 18.96 1828 17.08 1829 15.53 1830 15.35 1831 14.95 1832 14.98 1833 15.98 1834 16.35 1835 16.46 1836 16.66 1837 16.13 1838 15.56 1839 15.57 1840 14.39 1841 14.15 1842 13.57 1843 12.30 1844 12.11 1845 12.07 1846 11.68 1847 11.89 1848 10.47 1849 10.76 1850 11.66 1851 11.06 1852 10.98 1853 11.22 1854 10.91 1855 10.44 1856 10.61 1857 11.81 1858 10.49]

3. The turn to prosperity

Along with a new start of accumulation, the beginnings of a resuscitated reproduction process come into sight. Yet, despite this, prices move under freshly lowered standards, and a recovery of the original prices is far from a sure thing. By the same token, this process does not immediately bring about activity for the totality of the reproduction process, for it organizes, on the one hand, the capitals that continue to resist change due to a continued reliance on older methods while implementing, on the other, new production relations for capitals that exist in a multiplicity of conditions and situations depending on the industry. In other words, it doesn’t seem possible to get out of the period of recession. Of course, the increased demand for means of production will still allow for the operation of those production facilities whose use has not been completely exhausted, thereby presenting a situation in which certain capitals will be left to suffocate beneath the weight of the recession while other capitals will have already begun new developments. What we have here is the frequent manifestation of intermediary cycles and their reactions, pointing to the period that Spiethoff called the first stage of upswing.[footnoteRef:5] Here, in a situation in which a general recovery of the profit rate has yet to take place, interest rates on loan capital indicate a certain rise. [5: Regarding the period of recession, Spiethoff describes the following: “Recession begins with an inversion of all the phenomena of prosperity: a decrease in capital investments, a fall in indirect consumption (steel), a fall in capital profits and loan interest, a slowing down of production and plummeting prices. This is the first stage, and it would be appropriate to call it a stage of decline (karaku). In the second stage, the movement and direction of a few phenomena change: the downward decline stops, and there is a turn towards a slight upward movement. In other words, the production of indirect consumption materials (kansetsu shōhizai), as well as consumption, point to this reversal, and capital investments become brisk. The transitional stage (kato dankai) of the upswing begins here. This first stage of upswing, however, is merely an isolated upswing. In the bigger scheme of things, it is unambiguously a recession. (Spiethoff, ibid., p9-10.)]

That there is, during this period, a partial recovery in the profit rate and a certain upturn in interest rates does not simply point to a turn to a period of prosperity. Only with the reorganization of the original social relations, forced to advance in a competitively disadvantageous position induced by the replacement of fixed capital, is capital finally able to gradually generalize new production relations, and a recovered profit rate. Capital commences the accumulation process on the road to prosperity. Generally speaking, however, capital is not able to immediately allocate its profits to the expanded scale of production. Industrial capital must first activate its accumulation funds and expand commercial credit, and on the level of its relations of supply and demand for funds concentrated in the banks, it presents the phenomenon of a tendency to force down interest rates. The frequent rise in interest rates in Spiethoff’s so-called first stage of upswing is thus presented in a situation in which the recovery of commodity production, developing under new production relations, occurs along with decreased, sluggish financing (kinyū kanman). As Marx also discussed, the healthy development of the movement of capital brings about, “a relative independence of commercial credit from banking credit, based on the fluidity of the returns, short-term credit, and a preponderance of operations with one's own capital.” (Vol. 3, MEW vol. 37, 492). Capital thus becomes overloaded by loan capital. Small capitals, insofar as they cannot themselves come up with and use these funds, especially entrust the creation of funds to financial institutions such as banks. The longer this situation continues, however, an increase in the demand for means of production no longer turns around the simple renewal of fixed capital. Along with additional investments of accumulation funds that expand the scale of production, the production of means of production is now freshly intensified, and as the advance of accumulation increases under capital’s composition, which has now already secured labor power, the demand for the production of means of production rises as well. No longer concerned at this point whether improvements to production methods have taken place or not, all industries—including not only the production sectors of means of production but also the production sectors of means of consumption—become enlarged. The turn from the period of recession to the period of prosperity, or what Spiethoff called the second stage of upswing, finally takes place.

The movement from recession to prosperity, therefore, is not simply the mere repetition of a periodic process. Capital sets out on a new cycle, with productive forces that are larger than before, and while fewer workers are mobilized in relation to the quantity of capital, in absolute terms they are employed in greater numbers. In this way, as the general profit rate marches on its way towards a tendential decline, the rate of surplus value rises, and the production of larger and larger profits is realized by larger and larger capitals. In this way, the recovery of the accumulation of capital proceeds with an enlarged scale of production. Already surpassing the highest point of the previous period, period cycles thus progress like waves, undulating with highs and lows.

15