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Notes on Marx, Say’s Law and
the Interconnectedness of the
Capitalist Economy
Joseph Persky
Department of Economics, Unive...
Overview
• Say’s Law: Supply Creates its Own Demand or Commodities are Bought
with Commodities
• Keynes phrased much of hi...
Sweezy’s Distinction
• Crises Starting with Rising Input Prices and Falling Profits
• Wage squeeze
• Rising organic compos...
Raw Material Shortages
• Much overlooked, the prototype of crises caused by rising prices is the raw
material shortage
• T...
Rising Prices
• In the raw materials crisis, “the rate of profit falls because the value of
constant capital has risen as ...
Is Say’s Law Operative in these Scenarios?
• For example, Sweezy suggests the case of rising wages “assumes
throughout tha...
Crises of Realization
• Marx does on occasion suggest that crises can have their origin in
insufficient demand, even thoug...
Overproduction
• Again Marx’s examples are likely to start with one or several major
industries.
• Again profits fall; thi...
Marx and Say’s Law
• Marx shocked at Ricardo’s support for Say’s Laws
• The argument that production only undertaken with ...
The Question of Possibility
• Marx accuses Say and Ricardo of doing away with crises by “forgetting
or denying the first e...
Sources of Inevitability
• Several reading of Marx on Say (Sweezy, Shoul, Foley) reach this point and
then leave the matte...
Interconnections and Say’s Law
• Because of these interconnections, the classical statement of Say’s
Law “must always be t...
Conclusion
• From this perspective it is easier to understand Marx’s dismissal of the
classical denial of a general glut. ...
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Notes on Marx, Say's Law and the Interconnectedness of the Capitalist Economy

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Notes on Marx, Say's Law and the Interconnectedness of the Capitalist Economy

  1. 1. Notes on Marx, Say’s Law and the Interconnectedness of the Capitalist Economy Joseph Persky Department of Economics, University of Illinois at Chicago Chicago Political Economy Group
  2. 2. Overview • Say’s Law: Supply Creates its Own Demand or Commodities are Bought with Commodities • Keynes phrased much of his theory of depression in terms of an attack on Say’s Law. • Marx’s attack on Say’s Law, almost dismissive, impressionistic and multifaceted • The question of Say’s Law closely tied to Marxian Crisis Theory • Since Sweezy Marxian crisis theory divided into those approaches that preserve Say’s Law and those that attack it • The argument made here suggests this distinction is largely beside the point and an integration of the various strands of Marxian crisis theory can be based on Marx’s understanding of the interconnectedness of the capitalist economy as suggested in his Theories of Surplus Value
  3. 3. Sweezy’s Distinction • Crises Starting with Rising Input Prices and Falling Profits • Wage squeeze • Rising organic composition • Can add to these: raw material shortages • Crises of Realization • Underconsumption • Lack of Investment or capitalist consumption
  4. 4. Raw Material Shortages • Much overlooked, the prototype of crises caused by rising prices is the raw material shortage • The scenario begins with an unanticipated rise in price for raw materials in a key sector (e.g. cotton as input to calico production) • With little chance of substitution, calico producers must cut back production and employment as they put more into cotton purchases and less cotton is available. • But this shock to one sector spreads out through the economy as the calico producers reduce their purchases of all inputs and their work force reduces its consumption • From there crisis spreads as other workers are laid off up and down the supply chain • The crisis is further deepens through the financial system as individual capitalists can’t pay their debts and are forced into bankruptcy
  5. 5. Rising Prices • In the raw materials crisis, “the rate of profit falls because the value of constant capital has risen as against that of variable capital and less variable capital is employed.” • The scenario is Ricardian in spirit, even as it parallels Marx’s more general discussion of rising organic composition • Marx sees much the same pattern when capitalists in a particular branch of industry “over-produce” fixed capital and find there is insufficient raw material to feed the expanded industry, again driving up raw material prices. • Or the simplest source, the situation when expansion in leading industries runs ahead of the labor supply and the reserve army
  6. 6. Is Say’s Law Operative in these Scenarios? • For example, Sweezy suggests the case of rising wages “assumes throughout that, until the crisis actually breaks out, all commodities can be sold at their full values…[I]t assumes that the crisis is not the result but rather the cause of a shortage of effective demand,” (Sweezy 155). • But, what does it mean for the crisis to be a “cause” of a shortage of effective demand? In each case capitalists in one or another sector have pushed their production to a scale that for whatever reason they cannot maintain at expected profit rates. Their response is to reduce production and this reduction in production spreads through the system. The firms involved must certainly feel that at least for the present they have over- expanded. • And given the tendency of contractions to spread through the economy, the result is a general glut. For the large majority of producers, whatever the original stimulus, it will be experienced as a general glut.
  7. 7. Crises of Realization • Marx does on occasion suggest that crises can have their origin in insufficient demand, even though he doesn’t consistently hold to this position. • For example there is the famous quote: “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,” (V.3, Ch. 30, 1).
  8. 8. Overproduction • Again Marx’s examples are likely to start with one or several major industries. • Again profits fall; this time not because of rising input costs, but because of falling product prices. • Similarly in discussing overcapitalization, firms in key industries may be too optimistic in gaging the market. • All these cases are characterized by the crunch in leading sectors being extended to a range of industries through the interconnectedness of the economy. • And here too the financial sector will spread the crisis.
  9. 9. Marx and Say’s Law • Marx shocked at Ricardo’s support for Say’s Laws • The argument that production only undertaken with intention to purchase, Marx finds patently “apologetic.” • “In order to prove that capitalist production cannot lead to general crises, all its conditions and distinct forms, all its principles and specific features—in short capitalist production itself—are denied. In fact it is demonstrated that if the capitalist mode of production had not developed in a specific way and become a unique form of social production, but were a mode of production dating back to the most rudimentary stages, then its peculiar contradictions and conflicts hence also their eruption in crises would not exist.” (TSV, 709).
  10. 10. The Question of Possibility • Marx accuses Say and Ricardo of doing away with crises by “forgetting or denying the first elements of capitalist production.” • The capitalist economy separates sale and purchase. The capitalist can horde money rather than buy other commodities. In the capitalist mode these fundamental conditions make a general glut possible. • Marx acknowledges that J.S. Mill had recognized the possibility of a general glut, gluts—But Mill’s view is “insipid” and leaves the occurrence of crises as “merely a matter of chance” (TSV, 715) • The point is that crises are not just a matter of possibility but of inevitability.
  11. 11. Sources of Inevitability • Several reading of Marx on Say (Sweezy, Shoul, Foley) reach this point and then leave the matter largely as a contest to pick among the possible sources or causes of crises • The suggestion here is that such a search misses the central point. There is a fundamental pattern that characterizes all the scenarios touched on by Marx. • In each case there is a squeeze on profits in a leading sector or several closely related sectors. This squeeze might start on the cost side or on the demand side. Which is largely irrelevant. What is inevitable under capitalism is that capitalist calculations must often go awry. • Just as inevitably, if the initial sectors are central enough, the effects of the initial miscalculations will spread from the leading sectors back along supply chains and forward in reduced consumption spending.
  12. 12. Interconnections and Say’s Law • Because of these interconnections, the classical statement of Say’s Law “must always be taken cum grano salis,” because “in times of general over-production, the over-production in some spheres is always only the result, the consequence, of over-production in the leading articles of commerce; [it is] always only relative, i.e., over- production because over-production exists in other spheres,” (ch. XVII, section 14). • One can call this a disproportionality crisis, but once initiated, it has all the characteristics of a general crisis of over-production. As Marx puts it, “For a crisis (and therefore also for over-production) to be general, it suffices for it to affect the principal commercial goods,” (TSV, ch. XVII, section 8).
  13. 13. Conclusion • From this perspective it is easier to understand Marx’s dismissal of the classical denial of a general glut. Their apologetics turn overproduction into “its very opposite,”(14). The followers of Say’s Law had insisted that in universal overproduction “all spheres of production would retain the same relation to one another; therefore universal overproduction is proportional production which excludes over-production.”(14) • And in a rather rhetorical flourish, Marx concludes, “[I]t is alleged that actual over-production, which is precisely not this non-existent, self- abrogating overproduction, does not exist—although it only exists because it is not this,” (14) • While the presence of money makes a general glut possible and while credit must intensify the pressures put on any capitalist by a fall in profitability, it is the intense inconnectedness of the capitalist economy that guarantees disruptions in leading sectors will be spread and amplified.

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