The Capitalist Cycle, by Pavel Maksakovsky. The Netherlands: Brill Academic Publishers, 2005. $20. Pp, 150
This work is another example of those highly original early Soviet contributions of the 1920s (before the fall of the Great Silence of the 1930s). Pavel Maksakovsky is an exemplary political and theoretical ‘child’ of the October Revolution. Born in 1900 he was involved in political and underground work before and during the Revolution. He fought with the Red Army, narrowly escaped execution by the Whites, got typhous and worked subsequently as instructor in party schools, the Plekhanov Institute of the National Economy, the Institute of Red Professors and was scheduled to deliver a course at the Communist Academy. His health failed him and died on November 1928. This book – the notes of his lectures in a seminar at the Institute of Red Professors in 1927 – was published by the Communist Academy posthumously in 1929.
The subject of the book is the cycles of the capitalist economy and is a product of the path-breaking soviet debates of that era as exemplified by the works of N.Kondratiev and the Institute of Conjuncture. Kondratiev’s great contribution is that he argued that beyond the normal short-run boom-slump economic cycle capitalism is characterized by broader long-run historical fluctuations (termed ‘long-cycles’). Kondratiev, a student of Tugan-Baranovsky, was among others an excellent statistician, whose pioneering techniques of filtering data in order to discern cycles were soon adopted by western orthodox economists. He was a late convert to Bolshevism (being a Social-Revolutionary before) and very influential during the period of the New Economic Policy. He had an uneasy standing within Marxist Political Economy since his grasp of fundamental aspects of this tradition was rather superficial. Despite that and rightfully, his views were hotly debated in the communist circles and in the Communist International particularly in that era of early soviet socialist construction and also the beginnings of the Great Depression in the West. Trotsky, in a well-known short piece, criticized Kondratiev’s theory for mechanism and neglecting political elements. Others criticized more specific economic aspects of Kondratiev’s theory, which in 1927 was already in decline (himself being purged in 1930 and finally executed in 1938).
Maksakovky rejects Kondratiev’s long-cycles, considered as non-existent (p.8) and pseudo-cycles. He criticizes Kondratiev for succumbing to bourgeois methodology (use of the notion of ‘equilibrium’) and naturalism (presenting the fluctuations of the capitalist economy as a nearly natural phenomenon). He argues that the only meaningful theory of economic fluctuations is a theory of the short-run cycle (the ‘conjuncture’).
The book develops along three main analytical axes. The first is the choice of methodology. Here Maksakovsky, who was extremely knowledgeable of bourgeois economics, criticizes them very accurately for superficialism; i.e. inability to situate cycle theory within a general theory, recourse to short-term elements, downplaying the problem of economic crises and submerging it in the cycle theory and finally futile attempts to manage and even liquidate cycles and crises. He offers as an alternative an excellent dialectical methodology of the abstract and the concrete through a meticulous layering of abstractions. He argues that a Marxist theory of the cycle should begin from the general theory of capitalist reproduction and move from the more abstract to the more concrete aspects. The foundation of the cycle is the economic crisis that, more or less regularly, hit the capitalist economy (p.40). His study begins from the theory of ‘pure’ capitalism and proceeds to analyse cycles as purely capitalist phenomena (i.e. eliminate pre-capitalist elements). Thus, he filters empirical data so as to arrive at the appropriate abstract level. He also argues, contra Kondratiev, that the influence of agriculture (both capitalist and non-capitalist) should be eliminated (p.26) since it carries the burden of natural constraints which problematize the normal rhythms of a capitalist mechanized economy. Then he abstracts other influences (e.g. state intervention, monopolies (p.27)) that modify economy’s functioning. Thus he arrives at the theory of conjuncture. Subsequently, his analysis moves back from the abstract to the concrete by adding more specific elements.
The second main axis of Maksakovsky’s book is the general theory of the cycle per se. His explanation of the boom-bust fluctuations rests upon an eclectic mixture of underconsumption and disproportionality theory of crisis. During expansion, the first phase of the cycle, the following events take place. First, there is a massive increase of production (in both Dept.I and II) which derives from the massive renovation of physically and morally exhausted fixed capital (as a result of the previous depression period). Second, this leads to demand (both consumer and productive) ‘overshooting’ and thus rising faster than supply (p.63, 71). This happens because demand is more agile whereas supply lags behind because of the high level of capital’s technical composition and the subsequent lengthening of the time required for capital construction (p.86). This, for Maksakovsky, implies that market prices are greater than prices of production and, hence, even ‘normally’ functioning capitalists receive super-profits (i.e. extra profits above the average profit). This is a curious argument since ‘normal’ capitalists get, by definition, the average profit. Capitalists earning super-profits get them via a redistribution of surplus-value from ‘normal’ capitalists to them. If even ‘normal’ capitalists receive super-profits such a redistribution does not exist. To answer this Maksakovsky performs a theoretical sleigh of hands. He argues that capitalist ‘history’ is a full cycle. During the preceding previous phase of depression market prices were lower than prices of production. Hence, ‘high profits during the expansion are essentially nothing more than the realization of surplus-value that was created, but not fully realized, at the time of depression’ (p.80). Third, the deviation of market prices from prices of production disrupts the proportional reproduction of the system. This is a cumulative process as ‘the further the expansion develops, the more aggregate supply lags behind demand, and the greater the detachment of market prices from values, or from the prices of production (p.81-82). Fourth, this state of underproduction (p.83) leads to a feverish effort to cover it which is directed by the misleading (‘false and irrational’ (p.85) price indicator. Consequently, also this capitalization process ‘overshoots’ and underproduction is transformed to overproduction (p.85). This opens the next phase of the cycle: depression. First, the fall of the profit rate and of labour compensation leads to a contracting consumption and thus falling prices, which curtail output. Second, this contraction of output affects both departments of production. In Dept.II the disproportionality between supply and demand is solved more easily and quickly since demand is boosted by two processes. The fall of the wage fund causes a greater fall in the prices of products (because Maksakovsky argues that wages are ‘stickier’ because of their anchoring to the value of labour-power) and, thus, a relative increase of the purchasing power of each worker. This is supplemented by population growth and increased purchases by those with ‘fixed’ incomes. In Dept.I things are more complex. Overproduction leads to falling prices and the curtailment of fixed capital in productive use. Less competitive firms are liquidated and the technical conditions of the best-equipped firms set the predominant value (p.96). Super-profits have been wiped out and average profits rule. However, this process does not suffice to restore equality between supply and demand. A subsequent step, the technological innovation, is necessary to overcome the crisis. Moral depreciation means that several capitals perish and this open the way for those surviving to acquire strength, through the concentration and centralization of capital, and thus introduce radical technical change. The latter reinvigorates demand in Dept.I. Thus, ‘depression dialectically grows over into expansion’ (p.97).
The last axis of his work is a meticulous analysis of the role of credit in economic cycles. His main argument is that credit, while being a crucial element, does not belong to the heart of the cycle theory. Credit cannot cancel crisis tendencies and economic fluctuations but affects them critically at particular points. Hence, it is a quantitative element that has to be added afterwards. However, it becomes a qualitative element in the crisis phase (p.107). Here Maksakovsky’s preoccupation is with Hilferding’s Finance Capital (p.127). He rejects his thesis that finance capital (the merge of productive and banking capital under the dominance of the latter) creates a new capitalism that is able to manage if not liquidate crises. He also refutes similar theses about state capitalism.
There are two main problems in Maksakovsky’s theory. The first, from which other problems stem, is his underconsumption-cum-disproportionality theory of crisis. He reiterates in several places that ‘the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses’ (p.134). Consequently, the crisis is one of overproduction of commodities due to a lack of effective demand and expressed as a disproportional evolution of Dept.I in relation to Dept.II. At one point Maksakovsky criticizes Rodbertus and classical underconsumptionism but this is a superficial point. In the short chapter on crisis (p.137) he states:
‘Therefore, the fundamental ‘cause’ of the capitalist crisis is capitalist anarchy. Its real expression includes the inevitability of periodic detachments of production from consumption, whose particular expression is fully developed overproduction in the form of disproportion between Departments I and II.’
This is a highly problematic theory. In particular, there is a noticeable absence of the profit rate as an explanatory variable in Maksakovsky’s cycle theory. There is only a passing reference to falling profits in the period of depression, which derive not from the rising organic composition of capital but from market values falling below prices of production and the lack of effective demand. However, for Marxist Political Economy, the profit rate is the crucial variable determining the rate of accumulation and thus the rate of growth (and consequently booms and slumps). It is interesting to contrast Maksakovsky’s theory of cycle with that of H.Grossmann (whose Theory of Capitalist Breakdown was published also in 1929 offering the first, after Marx, concise presentation of the falling rate of profit theory of crisis). The latter argues that economic cycles derive from the very cyclical motion of the profit rate, generated by the struggle between the tendency of the profit rate to fall (due to the rising organic composition of capital) and its counter-acting tendencies.
The second major problem of Maksakovsky’s theory is – despite his accurate criticisms of aspects of Kondratiev’s analysis – the not convincingly substantiated rejection of the existence of long-term historical patterns of capitalism.
Having said all that, Maksakovsky’s work is a crucial contribution and necessary reading for those studying economic cycles but also economic methodology. Additionally, it is a fine example of the vigour and the originality of Marxist studies of capitalist macrodynamics in a period when orthodox Economics trailed back both in analytical and technical terms.
Stavros D. Mavroudeas
Department of Economics
University of Macedonia