John Milios’s strange explanation of capitalist crises

by Jehu

I have been reading this paper by John Milios, a SYRIZA party economist, “Marxist approaches to economic crises”. The paper is interesting in that Milios is trying to advance an alternative hypothesis of the cause of capitalist crises that avoids both underconsumptionist explanations of crises and the argument that they are produced by the law of the tendency of the rate of profit to fall.

Among Marxists particularly those with only passing familiarity with Capital the underconsumptionist explanation for crises is quite popular. Of late that school has been challenged by folks like Andrew Kliman and others who claim crises are caused by the tendency of the rate of profit to fall. Milios is advancing what he says is a third explanation for capitalist crises in which the crisis may be caused by any number of situations.

This theory, which I have also encountered in some of David Harvey’s writings on the crisis, argues, in the words of Milios:

“… that economic crises shall be identified neither with the law of the tendential fall in the profit rate, nor with some supposedly intrinsic underconsuption of the labouring classes. Instead, crises shall be comprehended as the outcome of the fusion of a variety of factors which suppress the rate of profit. An economic crisis can be described, therefore, as a conjunctural overaccumulation, i.e. a conjunctural production of commodities (means of production and means of consumption) in such quantities and prices, that they temporarily hinder the process of capitalist expanded reproduction. In the last instance, all categories of factors affecting the value composition of capital and the profit rate are overdetermined by class struggle, the main object of which is the (level of) exploitation of the labour force. “

Frankly, I haven’t the slightest idea what the fuck “conjunctural overaccumulation” means. It is pure and simple academic gobbledygook. The best I can come up with is that Milios wants us to believe overproduction of commodities causes their prices to fall and thus leads to a fall of capitalistic profit. This problem can be addressed by the struggle between classes.

Are crises accidental?

However it seems to me if crises can erupt for any of a number of reasons, there is no actual tendency toward crisis in capitalism. Crises, according to Milios, are at least in large part accidental events that can as much be ascribed to state economic mismanagement as to capitalist anarchy. Whatever their defects, the underconsumptionist and the law of the tendency of the rate of profit to fall hypotheses not only explain crises but have broad predictive value; both suggest crises are inevitable, although they might differ as to the cause of the crisis. I am not sure what predictive value can be found in a hypothesis that essentially states every capitalist crisis is unique.

This debate arises for one simple reason: the financial crash of 2008 apparently contradicts Marx’s own theory. According to the empirical data provided by the fascists, it appears the rate of profit was rising into the crash, not falling. This has provided new evidence for the claims of the underconsumptionists that crises are rooted in the poor consumption power of society. Marx, however, did not accept this hypothesis, as Milios explains in his paper. If the undercosumptionists are correct, Marx is wrong. It is as simple as that. On the other hand, the law of the tendency of the rate of profit to fall school has a huge problem to explain why, if the cause of crises are a fall in the rate of profit, the crash of 2008 was at least apparently different. Again, if the empirical evidence is accepted, Marx is wrong.

Things are not looking good for Marx in either case.

Although presenting his argument in contradiction to the underconsumptionist school, Milios is in fact trying to salvage their argument. He cannot, of course, argue the crisis was caused by underconsumption, since this clearly flies in the face of Marx’s own argument. But he is trying to reconcile the empirical data with Marx’s theory, which, given the data, appears to have to admit to the possibility that crises can indeed result from underconsumption. His awkward solution to this dilemma is to argue crises can be caused by any number of causes. Which means, of course, he throws Marx out completely and goes all in for Keynes.

Marx had no theory of crisis

The real problem here is that neither the underconsumptionist hypothesis or the law of the tendency of the rate of profit to fall hypothesis have a leg to stand on. This is not because they offer explanations for crises that contradict Marx’s labor theory of value; instead, they have no leg to stand on because Marx, as everyone agrees without exception, never had a theory of crisis, per se. People keep trying to suggest this was an oversight or that Marx died before elaborating one — but there is absolutely no evidence for this. Marx did not have a theory of capitalist crisis. Period. End of statement. Instead, Marx elaborated a theory of the inevitable collapse of commodity production, i.e., production on the basis of exchange value.

For Marx crises were only momentary events involving the forcible adjustment of capital necessary for its normal operation. Crises were necessary, but had no real significance in themselves, any more than fluctuations in prices of commodities. To put this another way: the fluctuation of the price of a commodity is a micro-crisis. And it is possible to think of a capitalist crisis as a massive fluctuation in prices within the world market all at once and together.

What causes prices to fluctuate? Almost anything and everything. Commodity production, (i.e., production on the basis of exchange value) could not survive for even one instant if prices could not fluctuate. In much the same way capitalism could not survive if there were no periodic crises. In other words, periodic crises can be thought of as the necessary mode of capitalist development of the forces of production. For Marxists this is a bit of a letdown because they hope for a crisis one day of such intensity it will trigger a proletarian revolution. It ain’t going to happen — which is to say, it already did and we lost. The crisis they are hoping for already happened in the 1930s and all we got out of it was 80 million dead, the holocaust and the cold war.

Crisis, profit and labor

What I like about Milios’ paper is that he shows how classical Marxists kept running into the same problem over and over again. For the moment, let’s assume that problem is the same one Marxists today face when trying to explain the 2008 financial crash. (I’m not saying it is, but let us assume it is for the purposes of this argument.)

That problem can be stated this way: Marx predicted crises would be triggered by a fall in the rate of profit. His argument for this is simple: The rate of profit is, on one hand, the goad of all capitalist production. Nothing, says Marx, is produced unless it can be produce at a profit. On the other hand, to increase their profits, the capitalists introduce new technology to improve the productivity of labor. As the use of machines increase, the amount of labor expended in production of commodities diminishes. Since labor is the source of all value and surplus value, this implies that over time both of these will fall; although not at the same rate. In any case, over a long enough period of time, the profit the capitalist realizes relative to the capital he initially advanced will tend to fall with almost mathematical precision.

According to Marx’s theory, the profit rate thus falls not because of overproduction of commodities but because always less labor is being expended in production. Since profit is the goad of production, what happens when profit falls to zero? Production, insofar as this is assumed to be capitalist production, i.e., production for profit, must halt immediately. This tendency is expressed periodically in crises, because the mode of production periodically must adjust to less labor being employed in production of commodities. But this forcible adjustment is no different than what is happening to the prices of commodities: as the labor embodied in them falls, their prices must also fall. The only difference between a crisis and the fall in prices of commodities here is that in the former case everything is forcibly readjusted all at once. Marx’s argument thus suggests that just prior to the crisis, wages should be above average along with a steep and sudden fall in profits. Mind you, the two are not directly related, i.e., profits do not fall because wages are high. Rather, both capital and labor are in high demand because of the expansion that is taking place.

Now this is the weird part: this pattern was not evident in the financial crash of 2008 — the worst crash since the Great Depression. Clues to why this might have happened, oddly enough, can be found in Milios’ review of the classical Marxist arguments — which I will turn to next.