In this brief intervention I wish to discuss cursorily, without source or data references, the most popular and frequent type of theories advanced by orthodox and even radical economists about capitalist economic crises. These tend to be cognate or contiguous in the sense that the one, the overproduction theory, is really the obverse of the other, the underconsumptionist. Typically, these theories regard capitalist production as a simple production of “goods”: in other words, the capitalist economy is simply a historical variant of many other preceding forms of production in that it differs merely in the way in which the social product is “distributed”. The underlying assumption is that expounded in the 1930s (before Keynes) by Michal Kalecki: capitalism is a system of production divided into capitalists and workers. The workers spend what they earn and the capitalists earn what they spend. In other words, the difference between the “classes” of capitalists, on one side, and workers on the other has nothing to do with social antagonism – with the political control over what is produced, when and how and to whom it is distributed – but rather it has to do entirely with the “distribution” of what is taken to be a “technologically-determined” process of production where technology and labour processes are entirely “external” to the capitalist system of production!
Now, we know very well that this is quite simply false. But for these so-called “radical” economists (from Kalecki to Minsky to Krugman even) what matters is not “what is produced and how”, but rather how the “product” (understood, once again, to be a “technically-given” output of production) is distributed between the social classes. It stands to reason, therefore, that the entire problem of capitalist economies – all the crises, recessions and depressions – have nothing to do with the antagonism of the wage relation – with the command of dead labour over living labour – but have all to do with how the product of labour and technology is distributed.
If capitalists “earn” too much because wages fall too low, they will be unwilling to consume the surplus earned and therefore aggregate demand will be too low to employ all workers, resulting in higher unemployment. This is called “underconsumption”. But at the same time it is also “underconsumption” because workers’ wages are insufficient to consume the whole “product”. In the alternative case, if capitalists reinvest their “excess earnings” there will be “overproduction” as a result of excessive “competition” between capitalists which workers will not be able to consume because their wages will be too low to absorb the (excess) production at a given “required” rate of profit. The resulting lower rate of profit will further remove capitalist incentives to invest unless a political entity like the State intervenes to provide the requisite aggregate demand, with a return to “equilibrium” between investment and savings and employment.
Alternatively, if workers are paid “too much” in wages due to excessive demand for “labour” or because of State labour policies, the resulting fall in the rate of profit will again cause a decline in the rate of investment with a consequent rise in unemployment. If the capitalists “save” or retain their excess profits, there will be “underconsumption” or deficient aggregate demand which will again result in a crisis that will require State intervention to restore “equilibrium” conditions.
In both these situations, it is the politically-determined or “acceptable” rate of profit and wage rates that will determine whether the capitalist economy is at equilibrium or not, and therefore whether or not there is a “crisis”. It can be seen quite readily from this very simple presentation that these widely-held opinions or “theories” of what constitutes a capitalist economy leave out the most crucial and essential element of capitalism: the social antagonism of the wage relation, of the fact that workers are not “free” to decide democratically what is produced and when and how, and then in turn what is to be done with the “pro-duct”!
We can see that in both instances the “radical” theories of capitalism presented here can oppose only a “moralistic” objection to capitalist production in terms of the “distribution” of what is uncritically and unquestioningly accepted to be “the process of production” – as if this were a “technically-given”, “scientific” process wholly devoid of political antagonism! That is why bourgeois economists are able to present “economics” as a “science” that deals merely with “quantities” or with “optimal distribution” of the “output” of production given basic “political” assumptions, choices and constraints that are “external” to economic “science” itself! Once again, we know that this is entirely false and grievously and perfidiously misrepresents and mystifies the operation of this most odious social system – the society of capital.