f Compare for this the statement of Engels in the preface to the second volume of Capital. Generally 76 passage of this second volume, which had been written by 1870, the periodic character of crises — which is approximately a ten-year cycle of production — is brought into conjunction with the length of the turnover of fixed (laid out in machinery, etc.) capital. The development of capitalistic production has a tendency on the one hand to extend the bulk of value and the length of life of fixed capital, and on the other to diminish this life by a constant revolution of the means of production. Hence the "moral wearing outM of this portion of fixed capital before it is "physically spent. " Through this cycle of connected turnovers comprehending a series of years in which capital is confined through its fixed portion, arises a material cause for periodic crises in which the business passes through periods following one another of ex- haustion, medium activity, precipitancy, crisis.* The periods for which capital is invested are certainly very diverse and do not coincide, but the crisis always forms the starting point of a great fresh investment and therewith — from the standpoint of the whole community — a more or less new material foundation for the next cycle, t This thought is taken up again in the same volume in the chapters on the reproduction of capital, and it is there shown how even with reproduction on the same scale and with un- changed productivity of labour, differences in speaking the second volume contains the latest and ripest results of Marx's work of research.
77 the length of life of the fixed capital which appear temporarily (if, for example, in one year more constituent portions of fixed capital decay than in the previous year) must have as a con- sequence crises of production. Foreign trade can indeed help out, but so far as it does not remove these differences it only transfers ' ' the conflicts to a wider sphere and opens to them a greater scope. M A communistic society could prevent such disturbances by continued relative over-production which in its case would be 11 only the control of the community over its own means of production M; but in a capitalistic society this over-production is an anarchical element. This example of disturbances merely through the differences of length of life of fixed capital is striking. Want of proportion in the production of fixed and circulating capital is one of the favourite arguments of the econo- mists for explaining crises. It is something quite new to them to hear that such a want of proportion can and must arise from the simple maintenance of fixed capital; that it can and must arise with the assumption of an ideal normal production and the simple reproduction of the social capital already in use.* In the chapter on ' 'Accumulation and Reproduction on a larger scale,' ' over-production and crises are only mentioned cursorily as self-evident results of possibilities of combination which follow from the process depicted. Yet here again the idea of " over-production M is very vigorously main- tained. " If," we find on page 499, " Fullarton, 7» for example, will know nothing of over-produc- tion in the ordinary meaning of the term, but only of the over-production of capital — that is, pecuniary capital — that only shows again how very little even the best bourgeois economists understand the mechanism of their system.0 And on page 524 it is shown that if, as can occasionally happen even with capitalistic accumulation, the constant part of the portion of capital destined for the production of the means of consumption, is greater than wages capital plus the surplus value derived from the portion of capital destined for the creation of the means of production, this would be over- production in the former sphere and " would only be adjusted by a great commercial crash. M The thought above developed, that the open- ing out of markets would extend the conflicts of capitalistic economy to wider spheres, and therefore increase them, is in the third volume applied by Engels on different occasions to the newer phenomena. The notes on page 97 in the first part of this volume, and on page 17 in the second part, are much the most worthy of notice. In the latter note, which recapitulates and completes what is writen in the former, he mentions the enormous extension, since the time when Marx wrote, of the means of traffic, which has really made the whole world a market, particularly the entry of ever fresh industrial countries into competition with England, and the unlimited extension of the region for the investment of surplus European capital. All these are, according to him, factors which have 79 set aside or greatly weakened " most of the old incubators of crises and opportunities for the formation of crises.' ' But after characterising the Kartels and Trusts as a means for limiting competition in the inner market, and the pro- tective duties with which the non-English world surrounds itself, as M armour for the final, uni- versal industrial campaign which is to decide the government of the world market," he ends: * * Thus each of the elements which strives against a repetition of the old crises conceals in itself the seed of a more powerful future crisis. M Engels raises the question whether the indus- trial cycle which in the infancy of world-wide commerce (181 5-1847) used to last about five years, and from 1847 to 1867 ten years, has not undergone a new extension, and whether we do not * * find ourselves in the preparatory period of a new world-crash of unheard-of violence M; but he also leaves this alternative open, that the acute form of the periodic process with its hitherto ten-year cycle may have yielded to a "more chronic rotation allotted to different lands at different times of relatively shorter, feebler improvement of trade, with a relatively long, indecisive depression.0 The time that has elapsed since this was written has left the question unanswered. Signs of an economic world-wide crash of unheard-of violence have not been established, nor can one describe the improvement of trade in the inter- vals between the crises as particularly short- lived. Much more does a third question arise which after all is partly contained already in 8o the second — namely: (i) whether the enormous extension of the world market, in conjunction with the extraordinary shortening of time necessary for the transmission of news and for the transport trade, has so increased the possi- bilities of adjustment of disturbances; and (2) whether the enormously increased wealth of the European states, in conjunction with the elasticity of the modern credit system and the rise of industrial Kartels, has so limited the reacting force of local or individual disturbances that, at least for some time, general commercial crises similar to the earlier ones are to be regarded as improbable.
This question, raised by me in an essay on the " Socialist Theory of a Catastrophic Develop- ment of Society,' ' has experienced all kinds of opposition.* Among others it has caused Rosa Luxemburg to lecture me in a series of articles published in the Leipzig Volkszeitung of September, 1898, on the nature of credit and the possibilities of capitalism in regard to adaptation. As these articles, which have also * The essay criticised the opinion laid down in a reso- lution of the International Socialist Congress of 1896 that we were on the eve of a great catastrophic crisis that would produce a total revolution of social conditions. The said resolution ran thus: "The economic and indus- trial development is going on with such rapidity that a crisis may occur within a comparatively short time. The Congress, therefore, impresses upon the proletariat of all countries the imperative necessity of learning, as class- conscious citizens, how to administer the business of their respective countries for the common good." I gladly recognised the usefulness of the final recommenda- tion, but I boldly disputed the truth of the premise. This occasioned some violent attacks, to which I replied in the letter reprinted in the preface of this book.
8i 8i passed into other socialist papers, are true examples of false dialectics, but handled at the same time with great skill, it appears to me to be opportune to examine them here.
Rosa Luxemburg maintains that the credit system, far from working against crises, is the means of pushing them to an extremity. It first made possible the unmeasured extension of capitalistic production, the acceleration of the exchange of goods and of the cyclic course of the process of production, and in this way it is the means of bringing into active conflict as often as possible the differences between production and consumption. It puts into the hand of the capitalist the disposal of the capital of others, and with it the means of foolhardy speculation, and if depression sets in it intensifies the crisis. Its function is to banish the residue of stability from all capitalist conditions, to make all capitalist forces in the highest degree elastic, relative, and sensitive.
Now all that is not exactly new to anyone who knows a little of the literature of socialism in general and of Marxist socialism in par- ticular. The only question is whether it rightly represents the real facts of the case to-day, or whether the picture has not another side. According to the laws of dialectic evolution to which Rosa Luxemburg so much likes to give play, it ought certainly to be the case; but even without falling back upon these, one should realise that a thing like credit, capable of so many forms, must under different conditions work in different ways. Marx treats credit by 82 82 no means from the point of view that it is only a destructive agent in the capitalist system. He assigns to it, amongst other things,* the function of " creating the form of transition to a new modus of production/ p and with regard to it he expressly brings into prominence " the double-sided characteristics of the credit system.* ■ Frau Luxemburg knows the passage referred to very well; she even reprints the sentence from it where Marx speaks of the mixed character, "half swindler, half prophet,' ' of the chief promulgators of credit (John Law, Isaac Pereire, etc.). But she refers exclusively to the destructive side of the credit system, and mentions not a word of its capacity for establishing and creating, which Marx expressly includes. Why this amputation, why this noteworthy silence with respect to the "double- sided characteristics"? The brilliant dialectical fireworks by means of which the power of the credit system is represented as a means of adaptation in the light of a " one-day fly," end in smoke and mist as soon as one looks more closely at this other side which Frau Luxemburg passes by so shyly.
That the credit system makes speculation easier is an experience centuries old; and very old, too, is the experience that speculation does not stop production when industrial circum- stances are far enough developed to suit it. Meanwhile, speculation is conditioned by the relation of the knowable to the unknown circumstances. The more the latter predominate 83 the more will speculation flourish; the more it is restrained by the former, the more the ground is cut from under its feet. Therefore the maddest outbursts of commercial speculation come to pass at the dawn of the capitalistic era, and speculation celebrates its wildest orgies usually in the countries where the capitalistic develop- ment is youngest. In the domain of industry speculation flourished most luxuriantly in new branches of production. The older a branch of production is under modern forms — with the exception of the manufacture of mere articles of fashion — the more does the speculative momentum cease to play a decisive part in it. The conditions and movements of the market are then more exactly foreseen and are taken into consideration with greater certainty.
Nevertheless, this certainty is only relative, because competition and technical development exclude an absolute control of the market. Over-production is to a certain extent unavoid- able. But over-production in single industries does not mean general crises. If it leads to such an one, either the industries concerned must be of such importance as consumers of the manufactures of other industries, as that their stagnation also stops these industries, or indeed they must take from them, through the medium of the money market — that is, through the paralysis of general credit — the means of carrying on production. But it is evident that there is always a lessening probability of this latter result. The richer a country is, the more developed its credit organisation — which 84 84 is not to be confused with a more widely spread habit to produce with borrowed capital. For here the possibilities of adjustment multiply in an increasing measure. In some passage, which I cannot find at the moment, Marx said once — and the correctness of the sentence can be proved by the most abundant evidence — that the contractions in the centre of the money market are much more quickly overcome than in the different points of the circumference. But the change of the means of communication brought about in the meantime has more than neutralised the consequences of great distances in this respect.* If the crises of the money market are not quite banished from the world yet, as far as concerns us here, the tightenings of that market by vast commercial undertakings controlled with difficulty are very much reduced.
The relations of financial crises to trade and business crises are not yet so fully explained that one can say with any certainty when both happen together that it was the trade crisis — * Engels calculates that America and India have been brought nearer to the industrial countries of Europe, by means of the Suez Canal, steamer transport, etc., by 70 to 90 per cent., and adds "that owing to this the two great incubators of crises from 1825 to 1857 lost a great part of their destructive power" (Capital, Vol. III., Part I., p. 45). On p. 395 of the same volume, Engels maintains that certain speculative business formed on risky schemes of credit, which Marx pictures as factors of crises in the money market, have been brought to an end through the oceanic cable. The correcting parenthesis of Engels on p. 56 of the second part of Vol. III. is also worthy of notice for its criticism on the development of the credit system.
«5 i.e., over-production — which directly caused the money crisis. In most cases it was quite clear that it was not actual over-production, but over- speculation, which paralysed the money market, and by this depressed the whole business. That is proved from the isolated facts which Marx mentions in the third volume of Capital, taken from the official inquiries into the crises of 1847 and 1857, as well as from the facts which Pro- fessor Herkner adduces on these and other crises in his sketch of the history of trade crises in his Handwörterbuch der Staatswissenschaf- ten. Frau Luxemburg deduces on the basis of the facts adduced by Herkner that the crises hitherto have not at all been the right crises, but that they were only infantile illnesses of the capitalistic economy, the accompanying phe- nomena not of narrowing but of widening the domain of the capitalistic economy — that we "have not yet entered upon that phase of perfect capitalistic maturity which is presumed in the Marxist scheme of the periodicity of crises." According to her we find ourselves " in a phase where crises no longer accompany the rise of capital nor yet its decline. M This time will only come when the world market is fully developed and can be enlarged by no sudden extensions. Then the struggle between the productive powers and the limits of exchange will become continually sharper and more stormy.
To that one must observe that the formula of the crises in and for Marx was no picture of the future, but a picture of the present day which it was expected would recur in the future in 86 always sharper forms and in greater acuteness. As soon as Frau Luxemburg denies to it the significance which Marx imputed to it for the whole epoch lying behind us, and sets it up as a deduction which did not yet correspond with reality, but was only a logical forecast based on the existence of certain elements in an embryonic state, she immediately questions the whole Marxist prediction of the coming social evolu- tion, so far as this is based on the theory of crises. For if this was not based on experience at the time when it was set up, and has not become manifest in the interval between then and now, in what more distant future can one place its formula as coming true? Its relegation to the time when the world market has been fully developed is a flight into the next world.
No one knows when the world market will be fully developed. Frau Luxemburg is not ignorant of the fact that there is an intensive as well as an extensive broadening of the world market, and that the former is to-day of much greater importance than the latter.
In the trade statistics of the great industrial countries exports play by far the greatest part in regard to the countries longest occupied. England exports to the whole of Australasia (all the Australian colonies, New Zealand, etc.) values less in amount than to a single country, France; to the whole of British North America (Canada, British Columbia, etc.) not so much as to Russia only; to both colonial territories together, which are indeed of a respectable age, not so much as to Germany. Its trade with all 87 87 its colonies, including the whole of the immense Indian Empire, is not a third of its trade with the rest of the world; and as regards the colonial acquisitions of the last twenty years, the exports thither have been ridiculously small. The extensive widenings of the world market are accomplished much too slowly to allow sufficient outlet for the actual increase of production, if the countries already drawn into it did not offer it an increasing market. A limit to this increasing and intensive amplifying of the world market, along with the extension of its area, cannot be set up ä priori. If the universal crisis is the inherent law of capitalistic produc- tion, it must prove its reality now or in the near future. Otherwise the proof of its inevitable- ness hovers in the air of abstract speculation.
We have seen that the credit system to-day undergoes less, not more, contractions leading to the general paralysis of production, and so far, therefore, takes a minor place as a factor in forming crises. But so far as it is a means of a hothouse forcing of over-production, the associations of manufacturers meet this inflation of production in separate countries, and even internationally here and there, ever more frequently, by trying to regulate production as a Kartei, a syndicate, or a trust. Without embarking in prophecies as to its final power of life and work, I have recognised its capacity to influence the relation of productive activity to the condition of the market so far as to diminish the danger of crises. Frau Luxemburg refutes this also.
88 First she denies that the association of manu- facturers can be general. She says the final aim and effect of such associations are, by excluding competition within a branch, to increase their share of the total amount of profit gained in the market of commodities. But, she adds, one branch of industry could only attain this at the cost of another, and the organisation could not possibly, therefore, be general. " Extended into all branches of production it would itself put an end to its effect. M This proof does not differ by a hair's-breadth from the proof, long ago abandoned, of the uselessness of trades unions. Its support is even immeasurably more fragile than the wages fund theory of blessed memory. It is the pre- sumption unproven, unprovable, or, rather, proved to be false, that in the commodity market only a fixed amount of profit is to be divided. It presumes, amongst other things, a fixing of prices independently of the movements in the cost of production. But even given a fixed price, and, moreover, a fixed technological basis of production, the amount of profit in a branch of industry can be raised without thereby lessening the profits of another — namely, by the lessening of unproductive expenses, the ceasing of cutting competition, better organisation of production, and the like. That the association of manufacturers is an effective means towards this is self-evident. The problem of the division of profits is the last obstacle of all which stands in the way of a general union of associations of employers.
8g 8g It stands somewhat better with the last objection of Frau Luxemburg. According to it the Kartels are unsuitable for preventing the anarchy of production because the Kartels of manufacturers as a rule obtain their higher profit rate on the home market, because they use the portion of capital that cannot be applied to this for manufacturing products for foreign countries at a much less profit rate. The consequence is, increased anarchy on the world market — the opposite to the object aimed at.
"As a rule" this manoeuvre can only be upheld where a protective duty affords the Kartei protection, so as to make it impossible for the foreign country to repay it in like coin. Mean- while we are concerned here neither with deny- ing the harmful effects of the present simple and high protectionist system, nor with an apology for the syndicates of manufacturers. It has not occurred to me to maintain that Kartels, etc., are the last word of economic development, and are suited to remove for ever the contradictions of modern industrial life. I am, on the contrary, convinced that where in modern industrial countries Kartels and trusts are supported and strengthened by protective duties, they must, in fact, become factors of the crises in the industry concerned — also, if not at first, in any case finally, for the ' ' protected ' ' land itself. The question only arises how long the people concerned will be content with this arrange- ment. Protective tariffs are in themselves no product of economy, but an encroachment on economy by the political power seeking to secure go economic results. It is otherwise with the industrial Kartei. It has — although favoured by protective tariffs — grown out of the economic soil, and is a national means of adapting production to the movements of the market. That it is, or can be, at the same time the means of monopolist exploitation is another matter. But it is just as much beside the question that in the former capacity it means an increase of all earlier remedial measures for over- production. With much less risk than the individual undertaking, it can, in times of a glut on the market, temporarily limit production. Better than this, it is also in a position to meet foreign cutting competition abroad. To deny this is to deny the superiority of organisation over anarchic competition. But we do so, if we deny on principle that Kartels can work as a modifying influence on the nature and frequency of crises. How far they can do so is for the present a matter for conjecture, for we have not sufficient experience to allow of a conclusive judgment in this respect. But still fewer conclusive facts can be given under these circumstances for anticipating future general crises as they hovered before Marx and Engels, repetitions on a larger scale of the crises of 1825, 1836, 1847, J^57y J^73- The mere fact that whilst for a long time socialists generally believed in an increasing contraction of the industrial cycle as the natural consequence of the increasing concentration of capital — a development in the form of a spiral — Friedrich Engels in 1894 found himself driven to question whether a new