Is it a depression or just a recession? According to the Penguin Dictionary of Economics, a recession is “an imprecise term given to a sharp slow-down in the rate of economic growth or a modest decline in economic activity”. This as distinct “from a slump or depression which is a more severe and prolonged downturn”. Government statisticians register a recession when GDP falls for two successive quarters.
On this definition Britain is not in a recession – not yet. But most economy-watchers expect that this stage will soon be reached. Gary Duncan, economics editor of the Times, even writes that this would not be such a bad thing:
“If Britain is to succumb to recession we need to remember that such periods are a virtually inescapable feature of even the most successful capitalist economies, even a necessary one to purge the system of past excesses, inefficient practices and the weakest links among businesses” (21 July).
That’s what Marx said, but it’s not what the economics textbooks teach (they still cultivate the illusion, relayed by politicians, that governments can engineer a steady growth of GDP, i.e. can avoid such periodic “purges”).
For Marx the accumulation of capital, which is the engine of economic growth, proceeded in fits and starts, a series of cycles of moderate activity, boom, crisis, slump, recovery, moderate activity, boom, crisis, etc. Booms eventually created the conditions for the next following slump while slumps created those for recovery.
One thing that happens during a slump that helps recovery is that capital is destroyed. Not just in the physical sense as when machinery is scrapped or factories pulled down but also in terms of the depreciation of capital with the physical elements in which it is embodied not being affected. This is the purge Duncan talks about. Marx explained:
“Values used as capital are prevented from acting again as capital in the hands of the same person. The old capitalists go bankrupt. If the value of the commodities from whose sale a capitalist reproduces his capital was equal to £12,000, of which say £2,000 were profit, and their price falls to £6,000, then the capitalist can neither meet his contracted obligations nor, even if he had none, could he, with the £6,000 restart his business on the former scale, for the commodity prices have risen once more to the level of their cost-prices. In this way, £6,000 has been destroyed, although the buyer of these commodities, because he has acquired them at half their cost-price, can go ahead very well once business livens up again, and may even have made a profit. A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction” (Theories of Surplus Value, Part Two, p. 496).
“This fall in the purely nominal capital,” Marx went on “State bonds, shares etc. . . amounts only to the transfer of wealth from one hand to another and 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.”
As Britain heads for a recession (in whatever sense) the parvenus are already gathering to buy up failed and failing business at bargain prices. As well as laughing all the way to the bank they can justify their unpopular activity as performing a necessary function in capitalism’s business cycle. As indeed they are.
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