>>> Rakesh Bhandari <bhandari at Princeton.EDU> 02/28/00 08:06PM >>>
Charles wrote:
>Also, underconsumption is rooted in PRODUCTION. Why ? It is the fact that
>workers in PRODUCTION are not paid the full value of what they produce
>that there is not effective demand for all that is produced. So,
>underconsumption is directly rooted in production.
>
>***************
No. Due to an insufficiency of surplus value vis a vis accumulation requirements, it's not capitalized as additional constant and variable capital. The workers are impoverished and their consumption restricted as a result. Capital is idled as well. What's the cause of this absurd juxtaposition of idle people and idle capital? Underconsumption? No. This will not allow you to understand what Marx underlines somewhere in Capital 2: Accumulation resumes with the consumption share falling even further vis a vis accumulated capital (Keynes himself clearly recognized this though Joan Robinson denied it)!
*****************
CB: Perhaps it would be better to term it "underpayment" rather than "underconsumption". The reason that workers as a whole are unable to consume all of the commodities ( the means of consumption commodities) that they produce is that they are not PAID the full value of what they produce. This follows directly from Marx's basic analysis of exploitation and surplus value.
What you say is true, but what I say is true at a more fundamental level of Marx's analysis, that is the very beginning of Vol. I , where he defines what exploitation is. The failure to capitalize as additional constant and variable capital is further along in the production process. The initial exploitation is at the very first part of production. And at that very initial exploitation, the "underconsumption" is already set and inevitable, because by definition, an exploited workers have not been paid the full value of the commodities they produce. And of course the exploiting capitalist only consumes a limited amount of means of personal consumption.
The fact that accumulation starts again while consumption is still falling is merely a lag time phenomenon, and due to the drastic measures that the capitalists take in destroying capital ( creative destruction) to readjust the c/v ratio. ****************
Inexplicable on the basis of an underconsumption theory which can't explain as well the alternation between prosperity and depression since according to that theory it's incomprehensible why capitalism is not haunted perpetually by serious realization difficulties as workers are *always* paid less than the value of their product (I didn't think a Black Bolshevik like you would forget Lenin's critique of the populists!)
*************
CB: The reason capitalism is not haunted perpetually by serious realization difficulties is that in a depression , in creative destruction, they take drastic measures to destroy capital, and to readjust the c/v ratio, including cutting production, so they don't have so much to sell, i.e. to realize. That's what a recession/depression is: a drop in production, no ?
Lenin agrees with me on this. In _The Development of Capitalism in Russia_ he says, quoting Marx:
"For capitalism, therefore, the growth of the home market is to a certain extent "independent" of the growth of personal consumption, and takes place mostly on account of productive consumption. BUT IT WOULD BE A MISTAKE TO UNDERSTAND THIS "INDEPENDENCE" AS MEANING THAT PRODUCTIVE CONSUMPTION IS ENTIRELY DIVORCED FROM PERSONAL CONSUMPTION: THE FORMER CAN AND MUST INCREASE FASTER THAN THE LATTER (AND THERE ITS "INDEPENDENCE" ENDS), BUT IT GOES WITHOUT SAYING THAT, IN THE LAST ANALYSIS, PRDUCTIVE CONSUMPTION IS ALWAYS BOUND UP WITH PERSONAL CONSUMPTION. MARX SAYS IN THIS CONNECTION: "...WE HAVE SEEN (BOOK II, PART III) THAT CONTINUOUS CIRCULATION TAKES PLACE BETWEEN CONSTANT CAPITAL AND CONSTANT CAPITAL..."(MARX HAS IN MIND CONSTANT CAPITAL IN MEANS OF PRODUCTION , WHICH IS REALISED BY EXCHANGE AMONG CAPITALISTS IN THE SAME DEPARTMENT). "IT IS AT FIRST INDEPENDENT OF INDIVIDUAL CONSUMPTION BECAUSE IT NEVER ENTERS THE LATTER. BUT THIS CONSUMPTION DEFINITELY LIMITS IT NEVERTHELESS, SINCE 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 " (DAS KAPITAL, III, 1, 289, RUSS. TRANS., P242; OR MOSCOW 1959 P.299-300)
Also, on the cause of crises, later on in this section on Marx's theory of realisation, Lenin quotes Marx:
"The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of captialist production to develop the productive forces as though only the absolute consuming power of society constituted their outer limit " (Capital vol. III, Moscow, 1959, pp. 472-73) ; quoted in The Development of Capitalism in Russia.
****************
Under Marx's theory which Grossmann and Mattick best understood, realization difficulties *result* from a disproportionality that develops in the course of accumulation between the rate of exploitation and the value composition of capital.
**************
CB: The simple answer is that it is "both". The disproportionality analysis is Marx's. But so is the underconsumption/underpayment analysis. The two actually fit together. The realization difficulties do not so much "result" from the disproportionality. They are right there in the logic of exploitation at the beginning of Vol. I. As soon as you say workers are not paid the full value of the commodities they produce ( and this is the most basic discussion of production), since the workers are the mass demand of society, they are not paid enough to buy all of the commodities they produce. So, the inadequate mass demand is set at that very beginning point of production. The problem arising out of the Organic Composition of Capital, derives later on in the analysis.
****************
It has taken protracted depressions and wars to achieve the forcible readjustments that are needed for accumulation to be undertaken. After WWII, this could no longer be tolerated. That accounts for the acceptance of the mixed economy that was bound to go up in stagflationary ashes. And not just because capitalists and rentiers in particular would find some sophist economists to talk the government down from full employment.
**************
CB: The "forcible readjustments" are aimed at reductions in spending on c , in order to bring down the ratio of c to v, because v is the only source of surplus value.
I am not sure that "forcible readjustments" didn't continue after WWII, if in a blunted form. Keynes' whole thing was based on the underconsumption/underpayment dimension of Marx's analysis. By getting the government to increase effective demand, he was targetting underconsumption to lessen the crises.
**************
Really Kalecki gives way too much credit to Friedman and his ilk. The mixed economy or govt ordered production was bound to come to crisis because it represented in value terms the same destruction of capital that we usually associate with depressions. The only difference was that this destruction showed up as production in the interim while leaving the public debt on which the Masstrict covergence criteria (to take one example) are focused as its legacy.
***************
CB: I don't disagree that Keynes' thumb in the dike was only a temporary measure, a reform. The only full solution to the capitalist business cycle is socialism. Not a mixed economy, but a socialist economy.
>
>CB: Yes, but it is just as legitimate to call the workers' inability to
>buy everything as a fundamental explanation , because it is based upon
>Marx's most fundamental analysis of commodity production in Vol. l. The
>inability of the workers to buy all the commodities they produce follows
>directly from exploitation, i.e. workers only being paid for a fraction of
>the values they produce. So, I think underconsumption is a fundamental
>explanation based in Vol. 1 where the actual theory of surplus value is
>laid out. In other words, underconsumption follows directly from the
>nature of surplus value.
>
>***************
Again Charles this cannot make sense of the crisis cycle since workers are always paid less than the value of their product. Where does the effective demand come from in boom times then? And it can't explain how crises are actually overcome.
**************
CB: The tendency of the rate of profit to fall is always operating too. So the same could be said of your explanation. See above. What happens is that in the bust part of the cycle some businesses fail. Those businesses have total failure of realization. In the boom, the businesses left standing after the shakeout realize their profits based on the consumption that would have gone to the businesses that failed.
CB