Wikipedia has this discussion of the formula Grossman introduces in his reconstruction of Marx’s labor theory of value concerning the number of years down to what is referred to in the entry as the absolute crisis of capitalism:
Discussion of the formula
The number of years n down to the absolute crisis thus depends on four conditions:
- The level of organic composition Ω. The higher this is the smaller the number of years. The crisis is accelerated.
- The rate of accumulation of the constant capital ac, which works in the same direction as the level of the organic composition of capital.
- The rate of accumulation of the variable capital av, which can work in either direction, sharpening the crisis or defusing it, and whose impact is therefore ambivalent.
- The level of the rate of surplus value s, which has a defusing impact; that is, the greater is s, the greater is the number of years n, so that the breakdown tendency is postponed.
The accumulation process could be continued if the earlier assumptions were modified:
- The rate of accumulation of the constant capital ac is reduced and the tempo of accumulation slowed down.
- The constant capital is devalued which again reduces the rate of accumulation ac.
- Labour power is devalued, hence wages cut, so that the rate of accumulation of variable capital av is reduced and the rate of surplus value s is enhanced.
- Finally, capital is exported, so that again the rate of accumulation ac is reduced.
These four major cases allow us to deduce all the variations that are actually to be found in reality and which impart to the capitalist mode of production a certain elasticity …
Much of the remainder of Grossman’s book is devoted to exploring these “elasticities” or counter-crisis tendencies, tracking both their logical and their actual, historical development. Examples of each would include:
- Depressed interest rates, investment capital transferred to unproductive speculation, e.g. housing stock, art objects.
- Enlarged state sector bleeds value from the accumulation process via taxes. Wars destroy capital values.
- The reserve army of labour (unemployed) created to discipline wage claims.
The second section refers to four condition under which the accumulation process could continue if assumptions made by Marx were modified. The most important of these is 3., the devaluation of labor power. If wages were cuts, say the authors of this entry, the rate of accumulation of variable capital would slow and the rate of surplus value would increase.
Grossman had in mind a continuous reduction of wages below the value of labor power, with wages being cut continuously.
“I have shown that even if all conditions of proportionality are maintained and accumulation occurs within the limits imposed by population, the further preservation of these limits is objectively impossible. The system of production described in Bauer’s own scheme has to breakdown or the conditions specified for the system have to be violated. Beyond a definite point of time the system cannot survive at the postulated rate of surplus value of 100 per cent. There is a growing shortage of surplus value and, under the given conditions, a continuous overaccumulation. the only alternative is to violate the conditions postulated. Wages have to be cut in order to push the rate of surplus value even higher. This cut in wages would not be a purely temporary phenomenon that vanishes once equilibrium is re-established; it will have to be continuous. After year 36 either wages have to be cut continually and periodically or a reserve army must come into being.”
But Grossman thought this was not possible politically, because the working class would rise up in rebellion in the face of such wage reductions:
“A continuous deterioration of wages is only possible theoretically; it is a purely abstract possibility. In reality the constant devaluation of labour power accomplished by continual cuts in wages runs up against insuperable barriers. Every major cut in its conditions of life would inevitably drive the working class to rebellion.”
Unfortunately, what Grossman missed (and this is not his fault because no one could have foreseen it) is that the very same crisis that forced money wages to be reduced below the value of labor power would also force the state to debase its currency from gold (commodity money), effectively severing the currency from exchange value. In fact, what happened is that labor power was devalued, as Grossman argued, when wages were effectively reduced to zero in exchange value terms by one and the same act.
As Keynes later explained, after that debasement it was a simple matter of letting inflation eat away at the subsistence wages of the working class one or two percent a year. The Federal Reserve continues that same policy even today with its two percent inflation target.
This is the real implications of debasing the currency from gold in 1933 — the part missed by the authors of the entry.