Karl Marx, First Real Business Cycle Theorist
We see the affinity between Karl Marx and the Pain Caucus in his notes on crises in Theories of Surplus Value. Negative supply shocks and missed collective guesses on what the extent of the market will be in the future create overaccumulation and overproduction. Marx is very clear that the monetary crisis theorists--like John Stuart Mill--must be wrong, and that the system cannot run itself without crises.
In Marx this is one of the reasons why the system is abominable and must be overthrown. For the Pain Caucus the conclusion is opposite: because the system is good crises must be suffered.
Karl Marx:
Theories of Surplus-Value, Chapter 17: When speaking of the destruction of capital through crises, one must distinguish between two factors. In so far as the reproduction process is checked and the labour-process is restricted or in some instances is completely stopped, real capital is destroyed. Machinery which is not used is not capital. Labour which is not exploited is... lost production. Raw material which lies unused is no capital. Buildings (also newly built machinery) which are either unused or remain unfinished, commodities which rot in warehouses--all this is destruction of capital... their use-value and their exchange-value go to the devil.
Secondly... crises means the depreciation of values.... [This] does not cause the destruction of any use-values.... The old capitalists go bankrupt.... A large part of the nominal capital of the society... is once for all destroyed, although this very destruction... may very much expedite the new reproduction... in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists... it... will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners....
Ricardo himself did not actually know anything of crises.... Later historical phenomena... the almost regular periodicity of crises... no longer permitted Ricardo’s successors to deny the facts.... [T]hose economists... who (like John Stuart Mill) want to explain the crises by... the separation between purchase and sale [in a monetary economy]... explain the possibility of crises... [but not] their actual occurrence. They do not explain why the phases of the process [i.e., aggregate production and aggregate demand] come into such conflict that their inner unity can only assert itself through a crisis, through a violent process....
[I]t is possible for the... amount of the product... to fall as a result of bad harvests. The value of the raw material therefore rises; its volume decreases.... More must be expended on raw material... it is not possible to absorb the same quantity of labour as before.... Reproduction cannot be repeated on the same scale.... This is therefore a disturbance in the reproduction process due to the increase in the value of that part of constant capital which has to be replaced out of the value of the product.... Such a shortage of raw material may, however, occur... if an excessive portion of the surplus-value... is laid out in [purchases of new] machinery... the raw material... sufficient for the old level of production... will be insufficient for the new... [and] gives rise to exactly the same phenomena....
Now let us return to our example of calico. The stagnation in the market, which is glutted with cotton cloth, hampers the reproduction process of the weaver... affects his workers... [who] are now to a smaller extent, or not at all, consumers of his commodity--cotton cloth--and of other commodities.... [T]hey cannot buy it because they have not the means, and they have not the means because they cannot continue to produce and they cannot continue to produce because too much [calico] has been produced.... [A] large number of other producers are hit by this interruption... spinners, cotton-growers, engineers (producers of spindles, looms etc.), iron and coal producers and so on.... If over-production has taken place not only in cotton, but also in linen, silk and woollen fabrics, then it can be understood how over-production in these few but leading articles calls forth a more or less general (relative) over-production on the whole market... a superabundance of all the means of reproduction and a superabundance of all kinds of unsold commodities... bankrupt capitalists and destitute, starving workers....
[H]ow [does] over-production of these [leading-sector] articles... arise[?]... [T]he mere admission that the market must expand... is... an admission of the possibility of over-production.... [S]ince market and production are two independent factors... the expansion of one... [will in general] not correspond with the expansion of the other... the limits of the market are not extended rapidly enough for production....
[T]imes of general over-production... [are] the consequence of over-production in the leading articles... articles which can only be produced on a mass scale and by factory methods.... [U]niversal over-production in the absolute sense would not be over-production but only a greater than usual development of the productive forces....
What then does overproduction of capital mean? Over-production of value destined to produce surplus-value... over-production of commodities destined for reproduction... reproduction on too large a scale.... [T]oo much has been produced for the purpose of enrichment... not to satisfy the personal needs of its owner, but to give him money, abstract social riches and capital, more power over the labour of others, i.e., to increase this power...
