A useful article explaining how economic crises occur, using Karl Marx. What is an economic crisis and how does it occur?
About one hundred and fifty years ago, Karl Marx predicted that as the end of capitalism approached, more and more people would become proletarians due to the concentration of capital, capital owners would create more and more complex commercial relations in order to keep the wealth in their hands, and crises would become more frequent. However, Marx did not highlight complexity and crises as an opportunity or a fundamental reason for the collapse of the system, nor did he imply that capitalism would collapse on its own.
It is known to everyone around the world and in our country that the circulation system has become increasingly complex as the evolution of capitalism has reached today, and the ongoing conflicts between the physical circulation of goods and the values on paper that should be a reflection of this have become increasingly inextricable. Karl Marx wrote his work called Das Kapital, the word portfolio only means wallet, forfeiting, swap, hedging etc. We have come to this day from the times when financial instruments did not exist yet, crises did not occur so frequently and were not so permanent. In the same process, the imperialist exploitation mechanism, as in the past, has also been affected by the “fine adjustments” and occupations carried out through monetary and fiscal policies in order to get rid of the dilemmas it has been in, and the wars it has commissioned by its subcontractors when necessary, and the luxurious living conditions of the system and the minority at the expense of causing mass death and destruction of people. He tried every way to continue.
Today, in our country and in the world, the general crisis of capitalism and the crises of the capitalist production system as a component of it lead us to the misconception that, at first glance, they arise only from the intertwined state of the financial system and the complexity or depth of the market. Indeed, with the financial crisis of 1986, which was one of the first crises in which it was understood that the stocks in circulation in the American stock exchanges were much higher than their real values, the first sign of the last phase of world capitalism that it is currently in emerged, and accordingly, it was thought in some circles that capitalism would one day collapse on its own. expectation has occurred.
An economic crisis is a change in the prices of goods and services and the value of money faster than expected and more than expected, accompanied by a general and noticeable slowdown or cessation of production activities. There may be many factors that trigger the final and general economic crisis. These are generally public debt crisis, financial crisis, raw material crisis, agricultural crisis, etc. Although it manifests itself as many intermediate components, in fact the most fundamental cause of the crisis is the same as the fundamental contradiction of the production system: the law of uneven development of capitalism.
The expectation of a crisis is very often confused with the phenomenon of “recession”. Crisis and recession are interconnected but different phases of capitalist growth. Since the frequency and length of capitalist development waves, which occur in periodic cycles consisting of four basic stages: revival, expansion, stagnation and collapse, constantly change depending on the evolutionary development of the capitalist production system, it is not possible to predict when crises will occur. It is always known in advance that the crisis will explode one day and even how this will happen, but since it is a dialectical process rather than a regular and mechanical course, it is never possible to give a date in advance as to when it will occur.
The law of uneven development of capitalism brings about the centralization and concentration of capital under the control of certain rich people over time. This situation, called the concentration of capital, is a product of the class contradictions of capitalism; Depending on the conditions of the mixed economy, there is a monopolization process in which large companies absorb small ones and complex financial partnerships emerge. In fact, it is not just about capital and company relations; On the one hand, although the total amount of goods and services increases due to growth, on the other hand, the wealth resulting from this is increasingly concentrated in the hands of a smaller minority. The law of unequal development of capitalism arises due to the fact that the proletarians who produce do not receive the full value in return for the value they produce, but it penetrates into every particle of the capitalist society and presents a general appearance of inequality; Although total wealth increases as a result of production, in capitalism this situation occurs at the expense of someone losing and someone else gaining. Thus, although the total amount of output actually increases, the incomes of those who produce goods and services by directly contributing to its production are not compensated for the labor they spend to produce, so the growth that occurs as the amount of goods and services increases and the prices that arise due to the increasing income are the same as the relative increase in the general level. does not increase at that rate. This is precisely why, in capitalism, from the total income increase that occurs as a result of the production activity that takes place in every period, due to the unequal social structure, everyone cannot receive a share from this income in the same proportion as the labor they actually spend, that is, their contribution, and again due to the same law of unequal development. Since the total income tends to be concentrated in the hands of a smaller minority, goods and services whose production increases in total cannot be sold after a certain point because the income of the majority of the society does not increase at the same level. This situation first manifests itself as stagnation.
As in all production systems based on commodity production, capitalism generally produces two types of goods: production goods and final consumption goods. The situation that is specific to capitalism and causes economic crises is that production is never carried out for final consumption but only for profit, and it is nothing other than the distorted and unfair distribution relationship between the bourgeoisie, that is, the capitalists, who own the means of production, and the workers who rent their labor power to the capitalists at the point of evaluating the means of production and exchange. It is not.
Let’s explain the flaws in the circulation and distribution relations of the capitalist production system with the example of textile production. Let’s assume that a worker in a textile factory alone produces one hundred pieces of clothing per day. These clothes are sold to a store for 20 lira each. In this case, the total income from a day’s production of clothing produced by a worker will be 2000 lira. However, since the capitalist maintains his existence based on profit, he pays 40 liras a day to the worker who produces the product. If we assume that 5 lira is spent per unit as a raw material cost for the production of the garment, a total daily production cost of 540 lira is obtained, together with the raw material cost of 500 lira for 100 sweaters in one day and the wage of 40 lira paid to the worker for this one day’s production. In this case, the daily net income the capitalist receives from the production of a worker is 1460 lira. If the capitalist uses a certain part of it, for example half of it, to open a new factory, he will use the other half to maintain his own luxurious life. Of course, unlike our assumption here, not a single worker but hundreds of workers work in the factory, each worker undertakes a certain part of the production of goods, and all this means that the capitalists earn much more total daily income.
The whole economy must be taken into consideration to see how this situation led to the crisis. Let’s say that the period when a hundred clothes are sold per day is the boom period of the economic cycle; Hypothetically, daily goods stocks will melt quickly during this period. Of course, meanwhile, the production of other goods is also carried out within the same framework. Let’s take refrigerator production. Since there was growth during the breakthrough period, it means that the country’s income in general also increased. The increase in national income will increase, for example, the sales of motor vehicles and white goods, as well as the use of electricity and fuel. Because in addition, every factory, no matter what goods it produces, needs to use electricity, use motor vehicles to transport them, and in this context, needs fuel. Considering the fact that production generally cannot immediately respond to sudden increases in demand, the increase in the general demand for electricity and fuel causes their prices to increase. In addition, capitalists have to order more of the machinery and materials used in the production process, that is, production goods, in order to sell more by increasing the production of electrical goods, motor vehicles and textile goods and thus earn more profit. Thus, production goods, that is, machines, vehicles, etc. used in factories. Since there will be a sudden increase in demand, their prices will also increase. All of these will lead to an increase in the general level of prices, that is, inflation. because other factories will also increase the prices of their own goods and reflect this new cost increase to the consumer.
<< Often times, crises are preceded by a general inflation of the prices of goods of capitalist production. Therefore they all participate in the subsequent depression and, at their old prices, cause a glut in the market. The market may absorb a greater portion at falling prices, at prices falling below its cost price, than it could at previous prices. Commodity surplus is always relative; In other words, a surplus is an excess at certain prices. The prices at which the commodities are subsequently absorbed are devastating for the producer or merchant.>>*`:Marx, Karl Theories of Surplus Value, Book 2, p. 485, left publications, 1999`
Since the main investment and management criterion of factory owners is profitability, workers’ salaries will not be increased at the same rate as the general price increase. As the prices of goods increase, workers working in factories whose salaries do not increase at the same rate with the prices of goods will be able to shrink their shopping baskets and will no longer be able to buy some goods that are luxury for them, as they have to meet only their basic needs such as bread, water and coal. Or even if workers’ salaries increased at the same rate as the general level of prices, this increase would be reflected in the prices of goods by the capitalists in the following period as an increase in variable costs, so indirectly the general level of prices would rise in the opposite case. In both cases, for example, a worker will not be able to replace the sweater or shoes he has been wearing for years. The consumption of workers and laborers, who constitute the majority of society, will gradually decrease. Realizing that he cannot sell his goods after a certain point, the profits earned by the textile boss will begin to decrease proportionally, and he will cover the cost of this by laying off the workers he employs. Thus, the textile, white goods, automotive, electricity, distribution sectors, etc., became deprived of a regular income. Many workers-labourers working in these areas will be unable to purchase many more products. In addition, the textile boss who reduces production in the factory will cancel orders for weaving machines, which are production goods. Thereupon, the production of the factory producing weaving machines will decrease and layoffs will begin here as well. As machinery production decreases, the iron-steel and metallurgy sector will shrink. In other words, even if the owner of the factory that produces refrigerators does not overproduce, other sectors will overproduce. Similarly, some other businesses will be unable to pay the loans they previously received for investment because they cannot sell their goods. Thus, banks that cannot repay the loans they made to share in the profits of some capitalists will go bankrupt and a financial crisis will occur. Then, the state, which exists to protect the property of the capitalists, will finance the losses of the capitalists whose profits are decreasing, and in addition, as the number of unemployed increases, the tax revenues needed to finance public expenditures will decrease, the public income-expenditure balance will be disrupted, and thus, a public debt crisis will occur in the following period.
The criterion of this expansion of production is capital itself, the level of existing conditions of production; It is the unlimited desire of capitalists to enrich themselves and expand their capital. but it is not consumption in any way. Since the majority of the population, working people, can expand their consumption within very narrow limits, and since the demand for labor, although growing in absolute terms, decreases relatively with the development of capitalism, consumption has been hindered from the very beginning. Moreover, all balancings are random, and although the capital ratios used in separate areas are equalized by an ongoing process, the never-ending existence of this process shows that there is a constant disproportion in the same way.>>*`:marks, karl. Theories of surplus value, second book, p. 473, left publications, first edition, Ankara 1999`
In addition, the days when capitalist development consisted of four-stage cycles are now over, and periods of revival and breakthrough have begun to intertwine with periods of stagnation and collapse. In fact, during Marx’s lifetime, that is, xix. It was known that the monopolization processes that emerged as a result of the concentration of capital in the 19th century brought about the phenomenon of “faulty market”. Depending on the price competition among the bourgeoisie, the average overlap between production values and market prices throughout each cycle period could not be observed in certain areas and in certain periods. This situation leads to the appearance of a production system in which the nominal value and real value of some products are quite different, some products are not produced because they are not profitable, competition is observed only between certain monopolies in certain periods, and accordingly the market mechanism cannot fulfill the function of determining the value. The financial crisis and the public debt crises that affect the whole world are generally a result of overproduction crises. In addition, the economic integration that has been gradually deepening over time among capitalist countries around the world, national markets have become interconnected clusters of a single world market with an increasingly dense network of relations, and the crisis conditions of even countries that are geographically distant from each other have become passively global and intertwined. .