Election Day
DeLong Smackdown Watch: Simon Wren-Lewis and Ann Pettifor Take Their Whacks

Comment of the Day: Rakesh Bhandari: Marx's Half-Baked Crisis Theory and His Theories of Surplus Value, Chapter 17: Hoisted from the Archives from Five Years Ago: "To compensate for a falling rate of profit, capitalists must raise the level of investment...

...and to remain competitive they must raise the organic composition of capital, i.e. the capital intensity of production.

"Consumption demand can only fall in relative terms, but this does not mean that capitalism is haunted by a permanent demand shortfall. Investment demand fills the gap. For some time. Why does the investment-led boom end? Well due to a higher overall level of investment the mass of profit does grow in spite of a falling rate of profit from the rising capital intensity of production (that is, a lower rate of profit on a bigger investment can return a bigger sum of profit than a higher rate of profit on a smaller investment).

"Still there will come at some point an absolute fall in the mass of profit. Or at the least the mass of profit won't be sufficient to continue the accumulation process. Then a crisis sets in. But the crisis leads to the devaluation of capital assets as well as worker acceptance of a higher rate of profit. Profit prospects improve. The confidence fairies come back. Accumulation resumes..."

I wrote in reply to the first time this was posted:

But Marx was not criticizing Keynesians of course. He was writing, inter alia, a critical appreciation of Sismondi--appreciation because he sensed the contradictions of capitalist production better than Ricardo had and criticism because he feared that Sismondi wanted to embed capitalist production within a feudal superstructure to avoid the overproduction brought about by ceaseless capital accumulation and also thought it would be possible to adjust consumption via the State to sop up production--that is, Sismondi did not understand that the relations of distribution were determined in the last instance by the relations of production. Some Keynesians are underconsumptionists in a tradition that goes back to Sismondi (Marx thinks Malthus was inspired by Sismondi), but Keynes himself was not. Hayek is simply wrong that Keynes was a simple underconsumptionist.

Marx is doing a lot of other important things in this section--making an analytical distinction between gross and net revenue, examining the role of the replacement of fixed capital in business cycles (I think Marx would have granted that the examples that John Hicks developed were clearer than what he says here; but also see Capital vol II), and trying to understand the nature of money.

Yes, JS Mill saw that Say's Law was false, but he, not Marx, was the minor post-Ricardian. Which means that Mill, like Ricardo, did not have a theory of money. Ricardo understood the relation between commodities and money as one of quantitative equivalence determined by labor time. But Marx points out that commodities and money are also opposed in qualitative terms. Money, in a way, opposes any and every other commodity from having a monopoly on direct exchangeability. How did gold, though arising in the world of commodities, come to be the polar opposite of all other commodities? This is a puzzle that did not even occur to JS Mill.

Moreover, showing that Say's Law can break down due to demand for money does not explain why crises of general overproduction happen only periodically.

Marx himself would never have submitted this chapter for publication without major revisions.