The stagnation of bourgeois economics with respect to its content was for Marx a foregone conclusion. “Classical political economy,” he wrote,

belongs to a period in which the class struggle was as yet undeveloped. Its last great representative, Ricardo, ultimately (and consciously) made the antagonism of class interests, of wages and profits, of profits and rent, the starting-point of his investigations, naively taking this antagonism for a social law of nature, but with this contradiction the bourgeois science of economics had reached the limits beyond which it could not pass....

In France and England the bourgeoisie had conquered political power. From this time on, the class struggle took on more and more explicit and threatening forms, both in practice and in theory. It sounded the knell of scientific bourgeois economics. It was thenceforth no longer a question whether this or that theorem was true, but whether it was useful to capital or harmful expedient or inexpedient in accordance with police regulations or contrary to them. In place of disinterested inquirers there stepped hired prizefighters, in place of genuine scientific research, the bad conscience and evil intent of apologetics.

Marx’s critique of political economy is based on his theory of value and surplus value. It differs methodologically from classical economics due to Marx’s understanding of the social dialectic, which includes in its positive understanding of what exists a simultaneous recognition of its negation, its inevitable destruction; regards every historically developed form as being in a fluid state, in motion, and therefore grasps its transient aspect as well; and because it does not let itself be impressed by anything, being in its essence critical and revolutionary. Of course, as Marx prefaced these observations,

The method of presentation must differ in form from that of inquiry. The latter has to appropriate the material in detail, to analyze its different forms of development and to track down their inner connection. Only after this work has been done can the real movement be appropriately presented. If this is done successfully, if the life of the subject matter is now reflected back in the ideas, then it may appear as if we have before us an a priori construction.

His works show that in the course of time Marx increasingly freed himself from the philosophical interpretation of social development with which he had begun. It is therefore inappropriate to regard the formal dialectical method as fundamental for the understanding of capitalist reality and to maintain with Lenin that a real understanding of Marx’s Capital presupposes comprehension of Hegel’s Logic. While for Hegel philosophy was the age grasped by thought, for Marx the dialectic was the expression of the actual development of capitalism, which yielded in bourgeois philosophy only a false ideological precipitate. According to Marx it was not that Hegel’s philosophy led to a correct perception of the capitalist world but that an understanding of capitalism would make it possible to grasp the “rational kernel” of the Hegelian system.

Of course, Hegelian philosophy constituted Marx’s starting point, but it was soon overshadowed by his knowledge of the concrete capitalist social relations out of which the idealist dialectic had arisen. “What appeared to be only an object of philosophy became the object of political economy; what in the conceptual analysis appeared to be only a phantom had to be shown to be a real phenomenon of the external world.” Independent of the Hegelian logic in principle if not in fact, Marx’s economic and historical investigations revealed the dialectical nature of capitalist development. Thus the dialectic is to be found in Capital just because it is the law of motion of capitalist society, which alone justifies the dialectical method as a means to discovery of the truth.

Thanks to the inherent dynamic of the capitalist relations of production, namely the unity of the opposites capital and labor, the relatively static process of production and development characteristic of European feudalism gave way to a process of social development of previously unknown rapidity and impetuosity, a process with world-wide effects. This engendered the theories of political economy, the bourgeois revolution, and its reflection in philosophy. Every revolutionary development of society is based on the creation of new productive forces, which require corresponding relations of production for their full unfolding and utilization. Inversely, the creation of new production relations generates new productive forces, which of themselves operate on the existing production relations. Whatever stands in the way of these productive forces and remains bound to the old relations of production leads through conflicts between social classes to the political struggles that transform one social order into another. The process of development is thus at the same time a process of revolution that comprises more or less all aspects of human social existence.

The capitalist mode of production arose with the development of commodity production under the conditions of private property and presupposed the historical separation of the producers from the means of production. Labor power became a commodity and formed the basis of the conditions of the market economy. Capitalist production is social production only in the sense that commodities are produced not for personal use but for sale to other consumers. This type of social production must at the same time satisfy the profit requirement of the private owners of capital. The social division of labor is thus equally a class division. Social production serves society only insofar as it can serve the capitalists; it is social production subordinated to private interests. It can therefore be social production not directly but only indirectly, and this only when the needs of capital accidentally coincide with social needs.

The social character that capitalist production may in this sense be said to have appears in the relation between buyers and sellers on the market. The production carried out by individual firms must conform to social needs as they are defined by capitalism. In Bourgeois economics the market mechanism appears as the regulator of the relationship that must obtain between production and consumption and of the proportional distribution of social labor that underlies it. In this conception the dual character of production as the production of commodities and of profits is ignored, as the second of these is accomplished by means of commodity production and so is already covered by its laws. Although as a result of the commodity character of labor power this is actually the case, it in no way alters the circumstance that the production of commodities presupposes the making of profits and that it is this, in the first place, that determines the market and price relations. The symmetry of supply and demand found in bourgeois economics thus excludes insight into the true market relations and into the dynamic of capital they make possible and that arises from the drive for profit.

The limits of bourgeois economics are the starting point of the Marxian critique. For Marx economic relationships are the form assumed by class relationships under the conditions of capitalist production. Value and price are equally fetishistic categories for the real class relations that lie beneath them. While the classical theory of value speaks of exchange value and use value, Marx asks why the concept of value exists at all. His answer is that under the conditions of capitalist property relations, the social labor process is necessarily represented in terms of value relations. Since in such a system the class relations of exploitation have the form of exchange relations (since capitalists buy labor power from workers), the division of social production into labor and surplus labor must take on the character of value relations and appear as value and surplus value. Were society not a class society resting on exchange, there would be no exchange between the owners of the conditions of production and the propertyless workers, and the social production relations would not be value relations.

The difficulties which the classical economists had with the theory of value were due to the fact that although they considered commodities as combining exchange value and use value, they did not discover this double character in the commodity labor power. This discovery was reserved for Marx, who was thus the first to account for exchange relations as they actually exist without abandoning the law of value. The exchange of commodities on the basis of labor-time equivalence can yield no profit. The double character of the commodity labor power creates the possibility of profit. While according to the law of value the purchaser of labor power pays its exchange value, he acquires at the same time its use value, which is able to produce a value greater than its true exchange value. This is as much as to say that the price relations of the market can be understood only with reference to the value relations on which, as relations of production, they are based. The essence of the value-governed system is not the exchange of labor-time equivalents but the capitalist appropriation of unpaid surplus labor. The owners of capital do not exchange labor-time equivalents among themselves. The law of value governs the capitalist economy only in the sense that the forces of social production that exist at any moment set definite limits to the production of surplus value and that the distribution of the surplus value among capitals must be more or less adapted to social requirements if the existence and development of capital is to be secured. Because of this the exchange relations must appear not as value relations determined by labor time but as price relations deviating from them without this negating the regulation of capitalist production by the law of value.

The deviation of price from value excluded the consistent utilization of the labor theory of value by classical economics which was principally concerned with distribution. If the law of value is to be maintained, it must be shown that the actual price relations although different from value relations are nonetheless determined by the latter. While this determination of price by value cannot be read off from the prices given in the market, it can be seen in the changing prices of production, which are formed from cost prices and the average rate of profit. In the capitalist’s consciousness, as also in the reality of the market, only the prices of commodities exist. For the individual entrepreneur even production presents itself as a problem of buying and selling. He purchases means of production, raw materials, and labor power in order to produce commodities whose price on the market brings him a profit from which he can live and which preserves his invested capital and increases it. Not value and surplus value but only the costs of production and the gains obtained, expressed in prices, are meaningful for him. But this indifference to value relations, shared by all capitalists, in no way alters the fact that production costs, like profits, are only other expressions for definite quantities of labor time contained in commodities.

The total labor time expended by society yields a total social product that is divided between wages and profits. The higher the share of the total social product that falls to the capitalists, the less can fall to the workers, and vice versa. In reality neither total social production nor total labor power nor total capital is a directly observable magnitude whose interrelations could be ascertained. Capital is divided into many different capitals, which confront not the working class as a whole but smaller or larger groups of workers. As the capitals themselves differ, so do their abilities to yield surplus value. The “organic compositions”-the ratios of means of production (or constant capital) to labor power employed (or variable capital)- of individual capitals differ depending on the industries in which they are employed. According to the labor theory of value, only the living labor utilized produces surplus value. But as profit is surplus value measured against the total capital (i.e., against the sum of constant and variable capital), profits should be lower in industries with more constant than variable capital than in industries where these proportions are reversed. This, however, is not in general the case, exactly because the competition among capitalists and that of the buyers with them and with each other leads to a transformation of the true profits into socially average profits which, added to the costs of production, allow each capital to participate equally, in accordance with its size, in the total social surplus value.

If the formation of an average profit rate is explained by competition, the fact of competition does not explain the magnitude of this rate at any time. This magnitude depends on the unknown but nonetheless definitely given mass of profit yielded by the total social capital. And since the total value of the commodities conditions the total surplus value, while the latter governs the level of the average profit and thus the general rate of profit, the law of value regulates production prices.

Although the creation of surplus value by surplus labor takes place in production, the realization of profits is accomplished in the market. Though production is dominated by the accumulation of capital and realized on the market, it is its use-value side that determines the relation between supply and demand, with its influence on price relations and consequently on the division of the total surplus value among the various capitals. With the increase in demand for a particular commodity its production increases, as the decreasing demand for another diminishes its production. Thus capital moves from relatively stagnating into rapidly developing industries. The changes in the organic compositions of individual capitals resulting from this process do not affect their profitability. On the contrary, they lead to higher profits than those which fall to less productive capitals. The extra profit, in excess of the average profit, won at a given price level disappears again, however, with the influx of capital from profit-poor into profit-rich industries. The perpetual hunt for extra profit characterizes capitalist competition and leads by means of it to a higher organic composition of the social capital as a whole.

To understand changes in value relations and thus in prices, we must start from the process of accumulation. The modification of the general price level stems from capitalist accumulation as manifested in the rising productivity of labor. The general fall in commodity prices can be seen from the comparison of earlier with later production periods. Every individual commodity comes to contain less labor time than before. The decrease in value of the individual commodity is counterbalanced by the increase in the quantity of commodities, so that the profitability of capital is maintained despite falling prices. Thus the development of prices depends on the changing productivity of labor and so on the law of value. For the analysis of capitalist expansion, therefore, no particular price theory is needed, since the development of prices is already covered by the value analysis.

In the price relations effected by competition, the value designations of the individual commodities and individual firms’ profits are lost from sight, as is also the division of the social product into wages and profits. But whatever the terms of this division, it operates at any given time on quantities of commodities requiring definite amounts of labor time, in turn divided first of all into time spent on value production and on surplus-value production. The actual distribution, expressed in price terms, presupposes this first division. Hidden by the market, this basis has just as much reality as the observable world of prices and commodities. In view of the latter the value relations appear to be simplifying abstractions from the complicated phenomena of the market; while if we focus on the fundamental relations of production, the world of commodities represents only a multifaceted modification of those relations. The relations of production can be understood without reference to the market, while the market cannot be understood without reference to them. It is therefore the production relations that must form the basis for any scientific analysis of capital and alone can make the possibilities and limits of market processes comprehensible.

The theory of value based on labor time is, then, abstract relative to the market and concrete relative to the relations of production. It is a mental construction only in the sense that value categories do not relate directly to market phenomena, so that the value relations hidden behind prices can be grasped only by way of thought. The pure market theory of bourgeois economics is naturally also an abstract affair, since it excludes the capitalist relations of production from consideration. In this way it shuts itself off from insight into the totality of the actual state of affairs and hence also from an understanding of market phenomena themselves. Value analysis, in contrast, makes possible the explanatory passage from abstract to concrete, since it can demonstrate the subordination of market relations to the production relations of modern society and so first bring to light the process of the capitalist economy as a whole.

The dual character of production as the production at once of commodities and of profits excludes the adaptation of production to real social needs or an equilibrium of supply and demand in the sense of an equilibrium of production and consumption. According to Marx, demand is essentially subject to the mutual relationship of the different classes and their respective economic positions, notably therefore to, first, the ratio of total surplus value to wages, and, second, to the relation of the various parts into which surplus value is split up (profit, interest, ground rent, taxes, etc.). And this thus again shows how absolutely nothing can be explained by the relation of supply and demand before ascertaining the basis on which this relation rests.

However, due to the effort, growing out of capitalist competition, to heighten exploitation, this basis (the relations of production) is in a state of perpetual transformation, which manifests itself in changing relative prices of goods on the market. Therefore the market is continuously in disequilibrium, although with different degrees of severity, thus giving rise, by its occasional approach to an equilibrium state, to the illusion of a tendency toward equilibrium. The capitalist laws of motion exclude any sort of equilibrium, even when profit production and commodity production develop in tandem, since this very development stimulates the unfolding of a contradiction inherent in it that only further development can overcome.

Market and production, it goes without saying, form a unity and can be separated only in thought. However, market relations are governed by the production relations. The price of labor power can in general not fall below its value, i.e., the cost of reproduction of the labor force. It can never rise to the point at which it would abolish capitalist surplus value and so threaten the existence of the system. Whatever may happen in the market its effects are determined by the relations of production and the apparently autonomous operation of the market is restricted to the paths prescribed by these relations. However much the actual price relations may deviate from the value relations on which they are based the total sum of commodity values can be no greater than the quantity of labor time expended in the production of the commodities. The sum of commodity prices can indeed lie below the total value, since total value and total price are equivalent only under the assumption that all the commodities produced are sold. There may, that is, be more value and surplus value created than finds expression in commodity prices, as happens when a part of production cannot be sold and therefore loses its value character. In any case the total prices realized are equal to the total value realized. In this way an analysis of capital’s laws of motion based exclusively on value relations finds its justification.

While the phenomena investigated in Volume 1 of Marx’s Capital are those “which constitute the process of capitalist production as such,” in the third volume he attempts to “locate and describe the concrete forms that grow out of the movements of capital considered as a whole.” The configurations of capital, as Marx describes them, “thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.” But this step-by-step procedure does not negate the insights into the laws of capitalist development attained by analysis of the process of production as such. These insights remain valid for capital “considered as a whole,” although they undergo various metamorphoses in the course of its investigation. The abstractions of Volume 1 represent not a mere methodology used to approach the inscrutable world of commodities but a representation of the actual foundation on which this world is based. Only if this foundation itself is exposed to view can the dynamic of the system, from which alone the multiple configurations of capital arise, be portrayed.

If the value of labor power is given by the cost of reproducing it, the labor time in excess of this amount has the form of surplus value. The increasing productivity of labor augments its use value relative to its exchange value and in this way enlarges the mass of capital derived from the surplus value. Capital formation can thus be shown to be the development of the productivity of labor. The increasing mass of capital determines the quantity of surplus value necessary for its further utilization or valorization (capital expansion by the investment of surplus value as additional capital). However, this process at the same time reduces the labor power employed relative to a given capital and accordingly diminishes the relative quantity of surplus value. With more rapid accumulation the employed labor power of course increases in absolute terms and declines only in comparison with the growing capital. But even this relative decline, in the context of the growing capital’s increasing valorization needs, must in the course of time lead to a declining rate of accumulation. From this it follows that the accumulation of capital is constrained by definite value relations. If there is sufficient surplus value to valorize the capital already in existence, it secures its future development. If the surplus value is insufficient, then further rapid development of capital comes to an end.

The capitalist production of commodities is in reality the production of capital; the production of goods for use, that is, is only a means to the expansion of capital, and this has no subjective limits. A capital, as a sum of money invested in production, must emerge again from circulation as an enlarged capital if the conditions of capitalist production are to be met. Production is thus exclusively the production of surplus value and is governed by the latter. Since surplus value is unpaid labor time, the production of capital depends on the quantity of labor time appropriated. It is therefore of the essence of capital to increase the quantity of unpaid labor time. At a given stage of development and with a given number of workers, surplus value can be enlarged only by lengthening the time during which workers labor for the capitalists and shortening that during which they produce for themselves. Both methods face impassable objective barriers, since the working day cannot exceed twenty-four hours, and the worker’s wage cannot be reduced to zero. The accumulation of capital possible under such conditions, as the accumulation of means of production, requires additional labor power and engenders a corresponding increase of the mass of surplus value. For accumulation to advance continuously, however, the productivity of labor must increase. This is accomplished by means of the development of technology and organization of the workplace. While these depend on accumulation, both of them promote an acceleration of accumulation, leading to an alteration of the value relations that constitute the organic composition of capital.

Under the assumption of a continuous accumulation of capital an assumption in complete accord with reality the increasing productivity of labor is reflected in a shift of the organic composition of capital toward its constant component. The variable capital grows, of course, but this growth lags behind that of the capital embodied in means of production. Despite the declining number of workers relative to the means of production confronting them as capital, the surplus value increases so long as the increasing productivity of labor adequately reduces the portion of the social labor time necessary to reproduce the workers. Thus despite the changing organic composition of capital, the valorization of capital and its further accumulation can take place.

While the rate of surplus value increases with the changing organic composition of capital, the latter exerts a contradictory effect on the rate of profit, since the first is the ratio of surplus value to the variable capital, while the rate of profit compares surplus value to both parts of capital, constant as well as variable. With the more rapid growth of the constant relative to the variable capital, a given rate of surplus value must mean a declining profit rate. The rate of profit can remain unchanged despite a higher organic composition of capital only if the rate of surplus value rises rapidly. With a quick enough increase of the rate of surplus value, the rate of profit can even rise. As the rate of surplus value can increase essentially only together with the rise in the organic composition of capital that accompanies accumulation, the accumulation process turns out to be governed by the general rate of profit, the movement of which determines all other movements of capital.

On the assumption of an irresistibly continuous accumulation of capital, the mutually compensating but contradictory movements of the rate of surplus value and the rate of profit must eventually create a situation excluding further accumulation. While the rate of surplus value must be increased enormously if the fall in the rate of profit is to be halted, the variable capital still continues to decline relative to the constant, and the number of producers of surplus-value declines in comparison with the quantity of valorized capital. Ever fewer workers must create ever greater surplus value in order to produce the profits required by the capital already in existence if it is to continue to expand. Inevitably a point will be reached at which the greatest quantity of surplus value that can possibly be extorted from the diminished working class is no longer sufficient to augment the value of the accumulated capital.

This line of reasoning represents, to begin with, only the logical consequence of a hypothetical course of development. It refers to no more than the production and accumulation of capital in an imaginary system in which total capital confronts the working class as a whole thus it refers to the pure operation of the mechanism of surplus-value production and the dynamic of the accumulation process. Marx’s aim is to demonstrate the existence of a tendency, inherent in capitalist development and dominating it, by reference to which alone the real movement of capital can be explained. By this means he demonstrates that all the difficulties of capital arise from the nature of capital itself from surplus-value production and the development, governed by it, of the social productivity of labor on the basis of the capitalist mode of production.

Just as the law of value cannot be observed directly in the actual events of the market but acts through market processes to accomplish the necessities of capitalist production, so the tendency of the rate of profit to fall (and thus the effect of the law of value on the accumulation process) is not a process observable directly in reality but a drive to accumulate manifested in market phenomena, whose results bring the capitalist mode of production into always greater conflict with real social needs. “The real barrier of capitalist production,” wrote Marx,

is capital itself. It is that capital and its self-expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers. The limits within which the preservation and self-expansion of value of capital resting on the expropriation and pauperization of the great mass of producers can alone move – these limits come continually into conflict with the methods of production employed by capital for its purposes, which drive toward unlimited extension of production, toward production as an end in itself, toward unconditional development of the social productivity of labor. The means - unconditional development of the productive forces of society – comes continually into conflict with the limited purpose, the self-expansion of the existing capital. The capitalist mode of production is, for this reason, a historical means of developing the material forces of production and creating an appropriate world market and is, at the same time, a continual conflict between this its historical task and its own corresponding relations of social production.

This analysis of capitalist accumulation exclusively in terms of the production process, which reveals the tendency of the rate of profit to fall, suggests the historical limits of this mode of production, without thereby being able to determine the exact time of its final denouement. But as this tendency characterizes the system from its beginning and is responsible for its dynamic, it must at all times appear in the actual events of the market, albeit in modified forms. It will be visible not as such but in the form of the measures taken to counter it, the processes Marx calls “counteracting influences which cross and annul the effect of the general law” of the falling rate of profit. All of these countertendencies – the increasing intensity of the exploitation of labor, the depression of wages below the value of labor power, the cheapening of the elements of constant capital, relative overpopulation, foreign trade, and the increase in stock capital – are real phenomena whose function it is to improve the profitability of capital, i.e., to counteract the tendency of the rate of profit to fall. So long as they are successful and make possible the valorization of capital, the tendency of the rate of profit to fall is not observable as such and is de facto without force, although it is the cause of capital’s activities to counteract it. Only in the actual crises which break out from time to time does the fall of the profit rate show itself in its own form, since the counteracting processes are then not sufficient to secure the further valorization of capital.

Marx’s theory of accumulation is thus at the same time a theory of crisis, as it locates the origin of crisis in an insufficient valorization of capital, which in turn originates in the breakthrough of the tendency of the profit rate to fall. This kind of crisis arises directly from capital accumulation, governed by the law of value, and can be overcome only through renewed value expansion, i.e., through the reestablishment of a rate of profit adequate for further accumulation. Its basis is an insufficiency of the surplus value available in relation to the capital already accumulated; this transforms the latent fall of the profit rate into an actual profit shortage. The cessation of further accumulation constitutes the crisis situation, which Marx characterized as one of overaccumulation:

Over-production of capital is never anything more than overproduction of means of production -- of means of labor and necessities of life -- which may serve as capital, i.e., may serve to exploit labor at a given degree of exploitation; a fall in the intensity of exploitation below a certain point, however, calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of capital. It is no contradiction that this over-production of capital is accompanied by more or less considerable relative over-population. The circumstances which increased the productiveness of labor, augmented the mass of produced commodities, expanded markets, accelerated accumulation of capital both in terms of its mass and its value, and lowered the rate of profit -- these same circumstances have also created, and continuously create, a relative overpopulation, an over-population of laborers not employed by the surplus-capital owing to the low degree of exploitation at which alone they could be employed, or at least owing to the low rate of profit which they would yield at the given degree of exploitation.

In order to illustrate the concept of overaccumulation, Marx had recourse to a further, not particularly well-chosen example:

To appreciate what this overaccumulation is, one need only assume it to be absolute.... There would be absolute overproduction of capital as soon as additional capital for purposes of capitalist production equals zero. ... As soon as capital would, therefore, have grown in such a ratio to the laboring population that neither the absolute working time supplied by this population, nor the relative surplus working time, could be extended any further (this last would not be feasible at any rate in the case where the demand for labor were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus value than it did before its increase, there would be absolute overproduction of capital. ... [T]here would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus labor to necessary labor.

As this example has given rise to many misunderstandings, it is necessary to deal with it briefly. On its basis, for example, Martin Trottmann reproaches Henryk Grossmann, who explained over-accumulation in terms of insufficient value expansion of capital, for falsely identifying two different, completely contrary tendencies of capitalist accumulation as one and the same. Marx’s concept of absolute overaccumulation, according to Trottmann, signifies overproduction not as a consequence of insufficient valorization but as the consequence of a shortage of labor power leading to rising wages and declining surplus value. What Trottmann fails to see is that the end result is the same in both cases, namely the suspension of accumulation as a result of a lack of profits. It was this state of affairs that Marx wanted to emphasize, although his example is doubly unfortunate, as it contradicts not only all experience but also his own theory of accumulation itself.

On the basis of the theory of surplus value, the limit of the capitalist mode of production is to be seen in the fact that “the development of the productivity of labor creates in the fall of the rate of profit a law which at a certain point comes into antagonistic conflict with this development and must be overcome constantly through crisis.” However, there is more to the regularity of crisis than this. On the one hand, the crisis appears as the breakdown of the continually evolving accumulation of capital that faces collapse due to the tendency of the rate of profit to fall inherent in it. On the other hand, it also appears in numerous additional contradictions, born in the market, which are of course accentuated by, as well as ultimately based on, the social contradiction of the relations of production. These partial crises cannot be understood apart from the general crisis originating in the capital-labor relation, just as market events in general cannot be understood except by reference to the relations of production.

In order to understand the crisis tendency so closely bound up with the system, it is necessary always to bear in mind the dynamic character of the system, which rules out any sort of equilibrium. Against the equilibrium theorists of classical economics, who confused the process of circulation with direct barter and consequently imagined that every sale is a purchase and every purchase a sale, Marx maintained that “this gives poor comfort to the possessors of commodities who, unable to make a sale, cannot accordingly make a purchase either.” In barter one commodity is directly exchanged for another. But when exchange value is given a form independent of the object by being embodied in money, the sale of one commodity is an act distinct from the purchase of another. With this separation of purchase and sale the possibility of crisis already arises. “The possibility of crisis, which became apparent in the simple metamorphosis of the commodity, is once more demonstrated, and further developed, by the disjunction between the (direct) process of production and the process of circulation.” In this way demand and supply can fall asunder. Indeed, according to Marx, “in reality supply and demand never coincide, or, if they do, it is by mere accident, hence scientifically and to be regarded as not having occurred.”Thus an element of crisis is to be found in commodity production itself, in the contradiction, embodied in the commodity, between exchange value and use value. The contradictions and thus the potentialities of crisis already included in commodity and money circulation must however be explained on the basis of the specifically capitalist form of the circulation of commodities and money. Real crises “can only be deduced from the real movement of capitalist production, competition, and credit,”namely, in terms of the aspects of this movement peculiar to capital, not those which would follow from the nature of commodities and money as they would exist in another social system.

In the direct process of production these elements of crisis do not appear, although they are contained in it implicitly, since the process of production is that of the creation and appropriation of surplus value. The possibility of crisis appears first in the process of realization, in circulation, which is implicitly and explicitly a process of reproduction, that is, of the reproduction of the surplus-value-producing relations of production.

The circulation process as a whole or the reproduction process of capital as a whole is the unity of its production phase and its circulation phase, so that it comprises both these processes or phases. Therein lies a further developed possibility or abstract form of crisis. The economists who deny crises consequently assert only the unity of these two phases. If they were only separate, without being a unity, then their unity could not be established by force and there could be no crisis. If they were only a unity without being separate, then no violent separation would be possible implying a crisis. Crisis is the forcible establishment of unity between elements that have become independent and the enforced separation from one another of elements which are essentially one.

Although it first appears in the process of circulation, the real crisis cannot be understood as a problem of circulation or of realization, but only as a disruption of the process of reproduction as a whole, which is constituted by production and circulation together. And as the process of reproduction depends on the accumulation of capital, and therefore on the mass of surplus value that makes accumulation possible, it is within the sphere of production that the decisive factors (though not the only factors) of the passage from the possibility of crisis to an actual crisis are to be found. The crisis characteristic of capital thus originates neither in production nor in circulation taken separately but in the difficulties that arise from the tendency of the profit rate to fall inherent in accumulation and governed by the law of value.

Of course, according to Marx, “the conditions of direct exploitation, and those of realizing it, are not identical. They diverge not only in place and time but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consuming power of society.” These contradictions contain the possibility of crisis, which is the breaking up of the unity of production and circulation, and the necessity of a forceful reestablishment of this unity. Under the conditions of capital production, however, the reestablishment of this unitary reproduction process refers not simply to the overcoming of disproportionality and a strengthening of the capacity to consume as such but also to the adaptation of both production and circulation to the needs of capitalist reproduction, in other words, the need of capital for valorization. It is not that the crisis is a result of a lost proportionality of production and consumption; rather, the crisis, as a breakdown of the accumulation process due to other causes, expresses itself in disproportionality and a weakened capacity to consume.

This disproportionality and weakened consumer capacity are constant features of capitalism. It is here not a matter of more or less, not that in crisis the disproportionality is too big and consumption too small, because disproportionality and insufficient consumer power are both conditions and results of accumulation in general and are determined by it. Were this not the case, any crisis could be overcome by increasing consumption capacity and reducing the degree of disproportionality, even if this could only be done, within the framework of market relations, by the violent means of the crisis itself. Up to now however, every real crisis has been overcome without abolishing the disproportionality of production and without increasing consumption capacity in relation to production. On the contrary, the disproportionalities are reproduced as part of the system of capitalist production, and the social capacity for consumption decreases relative to the accumulated capital.

Marx’s critique of capitalism and of its economic theories is always a double one. On the one hand, he steps onto the terrain of these theories in order to demonstrate their untenability in the light of the theory of value. On the other, he takes his stance ultimately outside capitalist Society and its value categories in order to demonstrate its historically limited character. From this viewpoint production cannot be identified with the production of producer and consumer goods, since this takes place only within the framework of the production of capital (self-expanding value), and its possibilities are determined and limited by this framework. The social capacity for consumption is not simply people’s capacity to consume but this capacity as governed and necessarily limited by the requirements of surplus value production. The capitalist economy is thus not only inadequate by its own standards and afflicted with crises, but, seen from a standpoint of opposition to this society, it is a social order antagonistic to the satisfaction of actual and potential social needs. While in the framework of capitalist production the overproduction of Capital is a circumstance that generates crisis, from the standpoint of real social relations there exists no overproduction; indeed there is a lack of means of production capable of satisfying the needs and aspirations of mankind. The consuming power of Society is not only limited by surplus-value production but can only find satisfaction under other social relations. In this way Marx condemns capitalism not only on the ground of its own deficiencies but also from the standpoint of another, not yet existing social order, which alone, by the abolition of value production, will make possible the adaptation of social production to social needs.

Marx stated his double critique of capital, so to speak, in one breath: a mode of exposition which has led to misunderstandings and to interpretations of his theory of accumulation as explaining crises either by the disproportionality (or anarchy) of capitalist production or in terms of underconsumption. On the basis of these interpretations, one would expect to find capitalism in continuous situation of crisis, since surplus-value production presupposes underconsumption, for “the working people can only expand their consumption within very narrow limits, whereas the demand for labor, although it grows absolutely, decreases relatively to the same extent as capitalism develops.” If it is said that the problem is not general overproduction but the existence of a disproportion between the different branches of production, this is no more than to say that under capitalist production the proportionality of the individual branches of production springs as a continual process from disproportionality, because the cohesion of the aggregate production imposes itself as a blind law upon the agents of production, and not as a law which, being understood and hence controlled by their common mind, brings the productive process under their joint control. The proportionality of which Marx speaks here, moreover, has nothing to do with the relationship between production and consumption but concerns the proportion between surplus value and accumulation required for the reproduction of capital and so with the increasing disproportionality of the capital relations, which become visible in crises.

Of course, Marx also wrote that “the more productivness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest,” so that the contradiction is intensified “between the conditions under which ... surplus value is produced and those under which it is realized.” Thus “the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” However, these remarks provide no foundation for a theory of crisis based on underconsumption, nor can the realization of surplus value be made the principal problem of the capitalist mode of production. It goes without saying not only that the origin of crisis lies in an insufficiency of surplus-value production but also that crisis must manifest itself as a problem of the realization of surplus value and the insufficient buying power of the working population. For the very circumstances that lead to the fall of the rate of profit and with it to the restriction of the process of accumulation can be seen also on the market in the form of insufficient demand and the growing difficulty of turning commodities back into money -- in brief, in the interruption of the circuit of capital that underlies the entire process of reproduction.

In the early days of capitalist accumulation, when the organic composition of capital was low, the contradiction between production and consumption was less pronounced than it has become at a later stage of development, when the situation is the reverse. In the earlier period general poverty can be much greater than it would be at a later stage of accumulation, since with the lower rate of accumulation constant capital grows more slowly. Thus the realization of surplus value by way of capital accumulation still involves fewer difficulties than at later stage of capital expansion. These difficulties multiply together with the difficulties of accumulation, which stem from the tendency of the rate of profit to fall and come to a head in a widening discrepancy between the production and the realization of surplus value between social production and social consumption.

While it is this discrepancy alone that makes capitalist progress possible, at the same time it limits this progress since it comes into conflict with the reproduction requirements set by the law of value for the total capital, that is, at the moment when the production of surplus value no longer suffices to continue a given tempo of accumulation. Only through the improvement of surplus-value production, through the restoration of the rate of profit necessary for further accumulation, can capital again overcome the breakdown of the reproduction process. It will not thereby have overcome the discrepancy between the production and realization of surplus value. On the contrary, the overcoming of the crisis, by way of the realization of surplus value thanks to further accumulation, also reproduces the divergence between the production and realization of surplus value and that between production and consumption in the sense of the satisfaction of real social needs.

Capital realizes surplus value by means of capitalistically un-productive consumption and by capitalist accumulation. So long as the latter meets with no obstacle, there exists no realization problem. There is none just because the tendency of the rate of profit to fall requires the perpetual increase of surplus value and thus the growth of the rate of accumulation. Capitalist production exclusively serves the accumulation of capital. But this mode of production, ruled by value production, cannot really free itself from the use-value character of social production, which of course, under capitalist conditions, means that it is not free from the limitations that the use value of labor power imposes on it.

Surplus value can never be anything but surplus labor, a portion of total labor; this in itself sets certain limits to accumulation. Thus despite capital’s “accumulation for the sake of accumulation,” there can be for it no unlimited “production for the sake of production.” The rate of surplus value obtaining at any moment and the labor power profitably exploitable at that time set the limits of accumulation, which can be overstepped only through an enlarged production of surplus value. So every momentary over-production of capital must appear as a crisis that has to put an end to this overproduction. This can be accomplished only by the restoration of a lost proportionality between surplus value and the production of capital, with respect to value relations which are at the same time use-value relations, even though the latter aspect is not consciously considered. More of the social labor must fall to capital, less to the workers.

The crisis serves to accomplish this in two different ways: first, by the destruction of capital, and second, by the increase of surplus value, until both processes have produced the needed relation between the rate of profit and the amount of surplus value required for further accumulation. A new cycle of accumulation begins. Like all the preceding cycles, it too must end in the overproduction of capital, when the uncontrollable passion for surplus value again drives accumulation beyond the point at which valorization is possible. Through the crisis “a large part of the nominal capital of the society, i.e., of the exchange value of the existing capital, is once and for all destroyed, although this very destruction, since it does not affect the use value, may very much expedite the new reproduction.” The lowered exchange value lowers the organic composition of capital, raising the rate of profit even with a constant rate of surplus value. But the intensified competition provoked by the crisis leads capitalists to cut their production costs and so to take measures in the sphere of production which in themselves raise the rate of surplus value. Thus the conditions for a resumption of the process of accumulation are re-created within the crisis, and with them the further potential for the realization of surplus value by way of capitalist expansion.

If this potential did not exist, the crisis could not be overcome at all, as neither the proportionality of the different branches of production nor the abolition of the divergence between production and consumption are (as we have seen) possibilities for capitalism. The proportionality of the various branches of production is determined by accumulation and achieved by the same processes that lead to the formation of the average rate of profit.

[The] quantitative limit to the quota for social labor time available for the various particular spheres of production is but a more developed expression of the law of value in general, although the necessary labor time assumes a different meaning here. Only first so much of it is required for the satisfaction of social needs. The limitation occurring here is due to the use value. Society can use only so much of its total labor time for this particular kind of production under prevailing conditions of production.

This adjustment, which is in practical terms an adjustment to market demand, is naturally accomplished, like the formation of the average rate of profit, “only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations.” It is, however, accomplished in times of capitalist prosperity no less than in periods of depression and can therefore not be appealed to for an explanation of crisis. The divergence of production and consumption, which allegedly gives rise to crisis, not only persists during the crisis but acquires an even sharper form; nevertheless the crisis situation leads to a new upswing. So the crisis cycle cannot be explained by underconsumption.

A theory of the crisis cycle must explain prosperity as well as depression. But prosperity would be inexplicable if underconsumption and disproportionalities per se led to crisis, for then the first crisis would already have been the last. In fact capital has developed through numerous crises until the present day. This was made practically possible by the increase in the productivity of labor, which augmented surplus value by lowering the value of labor power though without negating the improvement of the proletariat’s living conditions, since a smaller exchange value can represent a greater quantity of consumer goods. Crisis must thus be understood not in terms of the observable phenomena of the market, superficial from the point of view of explanation, but in terms of the laws, directly unobservable yet fundamental to the capitalist economy, of surplus-value production. Here too Marx’s dictum holds; “All science would be superfluous if the outward appearance and the essence of things directly coincided.”

While surplus value is created in production, “the conversion of surplus value into profit ... is determined as much by the process of circulation as by the process of production.” It is this fact, which on the one hand leads to crisis, that on the other hand allows capital to escape from it. The destruction of capital that takes place in a crisis is a precondition for the powerful transformation of capital, concentrated in a short period of time, that is the prerequisite of further accumulation. The destruction of capital always accompanies capital formation, although in periods of economic prosperity, in a relatively moderate form. In the crisis the destruction of capital accelerates and accentuates this tendency, inherent as it is in the competitive concentration and centralization of capital with regard to both production and circulation. This process, together with the improvement of surplus-value production and the devaluation of capital, and despite a further increase in the organic composition of capital, leads to a restoration of the necessary rate of profit. The crisis manifests itself directly in overproduction of commodities and insufficient purchasing power. As “capital consists of commodities ... overproduction of capital implies overproduction of commodities.” From this it is not a big step to the idea that the ultimate cause of crisis is underconsumption. This idea is strengthened all the more by Marx’s statement that “constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption.” If there is insufficient social purchasing power, however, the metamorphosis of money into commodities and the retransformation of commodities into money cannot take place, and this limits the production both of commodities and of constant capital.

Although this is what really happens, it does not explain how capital escapes from its dilemma, since in itself the crisis can only worsen this situation. If, as Marx here appears to maintain, this were really only a question of underconsumption, then the crisis could not be overcome by expanding the production of commodities and constant capital beyond that achieved at the point where prosperity gave way to crisis. But in fact every new prosperity arising out of crisis leaves the previous prosperity far behind with respect to the production of commodities and means of production. Had this not been the case, there would have been no capitalist development, no continuous accumulation of capital.

Marx’s statement, then, represents either an error of judgment or unclear writing, especially since the disproportionality of the individual spheres of production and that between production and consumption are hardly contested by bourgeois economics. As the economists see it, however, the equilibrium tendencies of the market lead to the overcoming of these irregularities, i.e., the ensuing scarcity of commodities and capital restores the lost proportionality of production and consumption. If “constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption,” then Marx’s crisis theory would not be different from the bourgeois theories of the business cycle. Like them it would be a theory of the market in which the relations of supply and demand decide the extension or contraction of production.

In opposition to this, however, the Marxian theory speaks of accumulation as the factor exacerbating the contradictions of capitalism to the point of breakdown. The underconsumption theory as ascribed to Marx, which can indeed be read in some of his expressions, can be conclusively rejected on the basis of his double critique of capital. On the one hand, the overproduction of commodities and insufficient demand are characteristics of the over-accumulation of capital. On the other hand, from a position opposed to capitalism, the accumulation of capital is based on a perpetually widening divergence between production and consumption, so that the ultimate reason for all real crises remains indeed the poverty and restricted consumption of the masses even if this is only to say that the crisis belongs to capitalism.

The capitalists experience the crisis as an insufficient demand for commodities, the workers as insufficient demand for their labor power. The solution for both lies in the growth of overall demand through the resumption of capital accumulation. But how can the expanded commodity production that goes with this find a market when current production has already outstripped demand? The answer is that capitalism produces precisely not to meet consumer demand but over and above it, until the limits of surplus-value creation are reached, limits that cannot be known when the goods are produced but can only be discovered in the market. Every crisis can be understood only in relation to the prosperity preceding it, just because prosperity derives not from the consuming power of society but from the accumulation requirements, imposed by capitalist competition, of the individual capitals, which at any time are growing to produce not for an existing but for an expected market. This is due to general social development and to the elimination of less competitive capitals, which yields the more competitive a larger market, along with accumulation.

Production always precedes consumption. In capitalism, however, it advances blindly, as each capital strives not only to win the greatest share of a given market but also to enlarge it ceaselessly and so to avoid losing it. The prerequisite of this is the rapid growth of productivity, which lowers costs, and with it the accumulation of capital in the form of means of production and the changing of the organic composition of capital that accompanies this. The general competition thus leads to a more rapid growth of the constant versus the variable capital, for the individual capitals as for the society as a whole. It is this very process that makes possible the realization of surplus value by way of accumulation, without respect for the restriction of consumption this presupposes. Surplus value becomes new capital, which in its turn produces capital. This process, senseless as it is, is actually the consequence of a mode of production oriented exclusively toward the production of surplus value. All good things come to an end, however, and this same process finds its nemesis in the tendency of the rate of profit to fall. At a certain point the realization of surplus value accumulation is halted, when accumulation ceases to yield the surplus value necessary for the continuation of this process. Then it suddenly becomes apparent that without accumulation a part of the surplus value cannot be realized, since demand is insufficient to transform the surplus value lying hidden in the commodities into profit.

With respect to accumulation Marx asked why the rate of profit does not fall more quickly than it does, despite the enormous development of productivity. He answered his question by pointing to the countertendencies. The point can also be put by asking not how crises begin but how capital has been able to accumulate despite all its crises. The crisis is easier to understand than prosperity, since the phenomena of overproduction, appearing on the surface of the market, are visible. One glance is enough to see that consumption cannot absorb everything that is produced. But it is not so easy to see how capital, given its inherent contradictions, can proceed for long periods of time from prosperity to boom, periods during which supply is often smaller than demand. This is comprehensible through the historically confirmed fact that the market formed by means of accumulation is nothing other than the development of capitalist society itself.

This development includes not only the accumulation of the existing capital but also the continuous creation of new capital: the spread of the capitalist relations of production over ever broader areas. The exploitation of greater masses of workers requires additional means of production which must first be produced before they can be productively utilized a part of the surplus value transformed into capital enters directly into accumulation through the continuous circulation among constant capitals. While one constant capital moves into commodity production others withdraw commodities from circulation without at the same time producing commodities themselves. This uninterrupted process and its acceleration make it possible for the increasing quantity of commodities to find a market, as the latter is continually expanded by the process of accumulation.

Through the acceleration of accumulation, by perpetual reinvestment, the increasing production of final goods (which enter into consumption) can also find an outlet in the general circulation. Under these conditions -- when one part of capital sets a series of other capitals in motion, the capitalists can consume more, and the fully employed workers also have more to spend -- the accumulation of capital is more impeded than stimulated by the growing mass of commodities, so that the boom already bears within it the seed of crisis. Production shifts to the consumer-goods industries, which impairs the profitability of capital as a whole. The fall of the average rate of profit thereby accentuated then leads to the weakening of the prosperity and finally to crisis.

What this reveals is not simply a level of consumption too high in proportion to the requirements of accumulation but a shortage of surplus value resulting from the process of accumulation itself, which calls for the restriction of consumption if the going tempo of accumulation is to be maintained. If the amount of surplus value created in production was great enough to hasten accumulation even more, the increased consumption would be no hindrance to further accumulation but could grow together with it. The slowing of the rate of accumulation, however, reveals that the changing value relations, leading to a falling rate of profit, no longer allow the maintenance of the existing level of consumption; that is, that the organic composition of capital has reached a point at which the available surplus value is insufficient to secure both growing consumption and accumulation. On the terrain of the market, the declining rate of accumulation means the decline of new investments and its effects on production as a whole. The same process that opened the way to expansion now reverses direction, seizing on more or less all the branches of social production.

The relation between production and consumption is unaffected in an expanding capitalism, even if the production of consumer goods lags behind that of means of production. On the one hand, the growing productivity of labor makes possible the reduction of the costs of food production; on the other, rapid industrialization leads to a continuous improvement in the industrial products destined for consumption and thus an improvement in the general standard of living. Although accumulation requires the steady increase of means of production, the commodity market is at the same time continually broadened by the introduction of ever newer kinds of use values. Surplus-value allows the construction of an infrastructure that involves ever greater numbers of people in the process of capital circulation as a whole. If the world market was a precondition of capitalist production, accumulation has led to an ever more rapid capitalization of world production, which does not conflict with the concentration of capital in a few capital-intensive countries as their production is integrated into that of the world. The accumulation of capital is thus not only the prosaic production of profit but also the conquest of the world by capital, an enterprise so demanding that no mass of profit, however great, will be enough.

Capital is always suffering from a lack of profit, in depression and in prosperity. Every capital must continually accumulate in order not to be driven out of business, and accumulation depends on the supply of capital, derived either from its own profits or from those of other capitals. The market grows together with the firms, and with the growth of the market the firms also must grow if they are not to be eliminated by their competition. There has never yet been a business smothered by its own profits, and capital “as a whole” has at no time bewailed an excess of surplus value. That a period or upswing turns into its opposite can only mean, from the standpoint of capital, that profits were too low to justify the expansion of production in terms of profitability. Of course, this situation appears to the capitalists only as a phenomenon of the market, since they do not understand that the level of their own profits is governed by that of the social surplus value, and since knowing this fact, if they did know it, could be of no use at all to them, since the only reaction open to them consists in further attempts to secure or restore their individual profits by the practically possible ways.

Capitalist prosperity depends on the continuous acceleration of accumulation, and this on the expansion of the mass of surplus value. Capital cannot stand still without calling forth crisis. Every equilibrium state – that is, every situation in which production does not exceed consumption – is a state of crisis or stagnation that must be overcome by an increase in surplus value if it is not to lead to the downfall of the system. Just as the tendency of the profit rate to fall exists in latent form even when the actual rate of profit is rising, crisis is already inherent, though invisible, in every prosperity. But like every other disproportionality of the system, that between surplus value and accumulation can also be altered only in accordance with the needs of accumulation, operating through anarchic market processes – only, indeed, through the violence of the crisis. This is a matter not of the restoration of a lost state of equilibrium between production and consumption but of the restoration of the disproportionality whose content is the“proportionality” of surplus value and accumulation.

If, according to Marx, the real crisis must be explained in terms of capitalist production, competition, and credit, it must be explained in terms of accumulation, for this is the meaning of production. It is hastened by competition and credit but also made increasingly prone to crisis, since the growing demand for surplus value can exceed by far that actually attained due to the tendency of the rate of profit to fall and despite the development of the productivity of labor. If at this point of overaccumulation the quantity of surplus value can no longer be increased, a situation arises that corresponds to that in Marx’s abstract analysis, framed exclusively in terms of the production process, of an uninterrupted accumulation leading to the breakdown of the system.

However, since this process is that of the reproduction of a total capital constituted by many capitals, the surplus value is accumulated from then on only in part; not only does the process of accumulation slow down, but the potential for structural changes of capital develops, making it possible to adjust the total surplus value to the needs of further accumulation at the cost of many individual capitalists, as well as by higher rates of exploitation. In this sense the overproduction of capital is only temporary, although the tendency to overaccumulate is permanent.

Thus on the one hand capitalist prosperity depends on the acceleration of accumulation, while on the other hand this acceleration leads to the crisis of overaccumulation. For this reason capitalist development is a process shot through with, and inseparable from, crises in which the requirements of the reproduction of the capitalist mode of production assert themselves in a violent way. The reality of these crises naturally does not need to be proven, as they are directly experienced. The only question is whether they arise from the system itself and are thus inevitable, or whether they are caused by factors exogenous to the system and thus can be considered accidental, as imperfections of the system that can sooner or later be eliminated. For Marx accumulation without crisis was inconceivable. While from one viewpoint the crises sweep the difficulties to which accumulation gives birth out of the way, from another they are the surest sign of the ineluctable end of capitalist society.

The world trade crises must, according to Marx, “be regarded as the real concentration and forcible adjustment of all the contradictions of the bourgeois economy.” Even the aspects of the crisis that cannot be traced directly back to the capitalist relations of production derive from this source a particular character peculiar to capitalism. As crises of the world market affect all countries, although in different ways, and as the ultimate reason for crisis – the shortage of surplus value appears on the market in inverted form as an unsaleable excess of commodities, the conditions both of the crisis and its solution are so complex that they cannot be empirically determined. When the crisis will break out, its extent, and its duration cannot be predicted; only that there will be a crisis can be expected with certainty. Nonetheless Marx attempted to relate the periodicity of crisis to the reproduction of capital or, more exactly, to the replacement of fixed capital. As the accumulation of capital is largely a matter of the increase in the means of production, the replacement and enlargement of fixed capital should be at least a contributing factor of the periodicity of crisis.

The value invested in fixed capital is in the course of time transferred to the commodities produced and through their sale transformed into money. The re-transformation of money into fixed capital (the replacement of the used-up means of production) is governed by the service life of the latter, which in turn is determined by the particular characteristics of the various branches of production. The replacement of fixed capital is, thanks to the development of technology, at the same time its improvement. This obliges capitalists, in order to remain competitive, to renew their fixed capital before it is worn out. This “moral depreciation” of fixed capital, as well as the general effort to partake in the changing technology, generates capitalist interest in the shortening of the turnover time of fixed capital. The shorter it is, the sooner the new investments can partake in the higher productivity achieved through the continuous revolutionization of the means of production, and the lower the costs of the “moral depreciation” that precedes the physical exhaustion of capital. As the average service life of fixed capital in his day was ten years, Marx wondered whether this might be related to the ten-year crisis cycle.

Of course, the service life of fixed capital can lengthen or shorten. However, according to Marx, the issue here is not a definite number of years. This much seemed evident to him:

The cycle of interconnected turnovers embracing a number of years, in which capital is held fast by its fixed constituent part, furnishes a material basis for the periodic crises. During this cycle business undergoes successive periods of depression, medium activity, precipitancy, crisis. True, periods in which capital is invested differ greatly and far from coincide in time. But a crisis always forms the starting point of large new investments. Therefore, from the point of view of society as a whole, more or less a new material basis for the next turnover cycle.

Marx did not follow up this vague hypothesis. Although crisis leads to a temporal concentration of investments and so to a sort of “material basis for the next turnover cycle,” in the final analysis this is only to say that “a crisis always forms the starting point of large new investments,” without thereby explaining the crisis or its periodicity. And although it is true that in the meantime the capital transformed into commodities piles up in the form of money, this does not mean that it must remain in this form until the replacement of the fixed capital. Since the service lives of different capitals are different, and since they renew themselves in accordance with their respective starting points, the turnover of fixed capital is being completed throughout the whole period of upswing, along with the new investments that constitute accumulation, which bring the cyclical upswing with them. This process is reversed in crisis, when capital is at first neither replaced nor newly invested. Only as the crisis proceeds are additional funds invested in order to raise the productivity of labor. These attempts give birth to the new prosperity, which is built not only on the replacement of fixed capital but on further accumulation.

Even if the turnover time of fixed capital plays a certain contributing role in governing the production process of capital as a whole, this does not suffice to explain the particular periodicity of crisis. Since crises are, according to Marx, “the real concentration and forcible adjustment of all the contradictions of the bourgeois economy”, contradictions whose particular contributions to the crisis cannot be estimated, the periodicity of crisis also cannot be treated as due to a particular aspect of the process as a whole. From the crisis cycle that Marx observed one can only conclude that the difficulties that characterized the process of development in his time made possible the maintenance of prosperity for no more than ten years at a time, and not that capital is therefore destined to a ten-year cycle.

Friedrich Engels wrote later that:

The acute form of the periodic process with its former ten-year cycle, appears to have given way to a more chronic, long drawn out, alternation between a relatively short and slight business improvement and a relatively long, indecisive depression-taking place in the various industrial countries at different times. But perhaps it is only a matter of a prolongation of the duration of the cycle. In the early years of world commerce, 1845-47, it can be shown that these cycles lasted about five years; from 1847 to 1867 the cycle is clearly ten years; is it possible that we are now in the preparatory stage of a new world crash of unparalleled vehemence? Many things seem to point in this direction. Since the last general crisis of 1867 many profound changes have taken place. The colossal expansion of the means of transportation and communication -- ocean liners, railways, electrical telegraphy, the Suez Canal -- has made a real world-market a fact. The former monopoly of England in industry has been challenged by a number of competing industrial countries; infinitely greater and varied fields have been opened in all parts of the world for the investment of surplus European capital, so that it is far more widely distributed and local over-speculation may be more easily overcome. By means of all this, most of the old breeding-grounds of crises and opportunities for their development have been eliminated or strongly reduced. At the same time, competition in the domestic market recedes before the cartels and trusts, while in the foreign market it is restricted by protective tariffs, with which all major industrial countries, England excepted, surround themselves. But these protective tariffs are nothing but preparations for the ultimate general industrial war, which shall decide who has supremacy on the world-market. Thus every factor, which works against a repetition of the old crises, carries within itself the germ of a far more powerful future crisis.

This is to say that the periodicity of crisis also has its history and is affected by historical circumstances. If the ultimate reason for every crisis is capitalism itself each particular crisis differs from its predecessors just because of the continuous transformation of world market relations and of the structure of global capital. Under these conditions neither the crises themselves nor their duration and gravity can be determined in advance, and this all the less as the symptoms of crisis appear after the crisis itself and only bring the crisis to the attention of the population. Moreover, the crisis cannot be reduced to “purely economic events, although it arises “purely economically,” that is, from the social relations of production clothed in economic forms. The international competitive struggle, fought also by political and military means, influences economic development, just as this in turn gives rise to the various forms of competition. Thus every real crisis can only be understood in connection with social development as a whole.