Relating Marxist Theory with the Business Cycle in Economics
Marx question essay How does an over-abundance of goods produce an apparent “famine” (depression)? Is it possible to produce too much as Marx contends and if so, how can such overproduction be prevented? When Marx says over production causes famine he is referring to the economic/ business cycle. This is a theory which had been confirmed by the ‘the panic of 1825’a stock market crash that started in the Bank of England arising in part out of speculative investments in Latin America, including the imaginary country of Poyais.
This is how it works: The growth trend refers to potential Gross domestic Product (GDP) or simply the level of economic growth, which is desiredi. e. in which the level of unemployment neither below nor above the optimal level. The bending arrows represent the actual level of economic growth achieved or RealGross domestic Product (RGDP). This is alsocalled real output aslabeled on in the diagram.
Aggregate demand is the total amount of goods and services that all buyers in an economy want to buy at different prices, Aggregate supply is the total quantity of goods and services produced in an economy at different price levels) This happens in perpetual cycles that cannot usually be accurately predicteduntil it is too late. Governments and the market try to ease the effects of these cycles.
When Marx says “a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed” he is referring to the collapse of markets, the closure of business and the loss of jobs that happen during recessions. And when he says“famine” and “a state of momentary barbarism” he is talking of the effects of these collapses such as widespread unemployment, shortages of food, protests and riots and a general reduction in standards of living. Despite the unpredictability of the economic cycle what is certain is that a recession follows a boom.
In a boomas more is produced people earn more and spend more, as a result prices become higher, and when prices become too high people are in effect earning less and they spend less therefore then the economy goes into recession, eventually the process repeats itself. This is why it can be contended that overproduction causes this famine. In Marx’s eyes the destructive effects of the cycle become worse and worse each time it occurs and this will eventually lead to the total collapse of the system itself. The only remedy to this problem would be a complete upheaval of this system.
This is because of the way it its intrinsically structured. Marx says is“Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. ” What this means is that the system is built in such a way that production needs to keep changing and expanding; as old markets close new ones open up and this continues on in this way. This causes the fluctuations in aggregate demand and supply and consequently the cycle of boom and recession.
So while society may try to ease the effects of the fluctuations the fluctuations themselves cannot be stopped. Thus another way of providing for the needs of people needs to be developed, the bourgeoisie needs to be uprooted and a system of communism put in place. If material wealth is distributed on the basis of need there should never be over-production, there will be no need for continual exploitation of new markets and thus the economic cycle should no longer occur. Marx’s thinking makes a lot of sense especially when observing the effects of economic downturns since the panic of 1825.
Their effects have gotten increasingly worse. In latest downturns we see record high rates of unemployment and record lowstandards of living globally. However the claim that this directly arises from over-production can be disputed because of the basic principle of supply and demand. Production in a Capitalist economy is driven by demand. If people are willing to purchase goods at certain prices they will be produced by profit seeking (1) http://en. wikipedia. org/wiki/Business_cycle#Marxist_economics suppliers. If demand falls, production falls and vice versa.
Therefore one can argue that production is dependent on societies’ needs and wants so any overproduction will be an impossibility, as nothing that is not demandedwill be produced. This has the implication that the fluctuations in the economy are caused by societies’ demands. However if society were to bearranged in such a way that the means of production were commonly owned and wealth was distributed by basis of need then the fluctuations would affect everyone equally and would effectively cause no real problem.
In this situation a communist system would be essential Overall one would say that Marx’s idea seems to hold water. This is especially because of the historical evidence we have of economic crises even long after his death. Nevertheless there are some inconsistencies in what he contends and those need to be addressed for his system to work. As I stated in class there should have been more distinction between Marxist economic theory.