Karl Kautsky

The Capitalist Class

Chapter VIII
Industrial Crises

Great as is the uncertainty of a livelihood for all classes under the existing social conditions, the uncertainty is further increased by the crises, which are periodically brought on with the certainty of doom the moment production reaches a certain stage.

The important effect of these crises upon the body economic during the last decades, together with the general confusion of thought that prevails upon the subject, requires special attention.

The extensive modern crises, which convulse the world’s markets, arise from overproduction, which in its turn arises from the planlessness that inevitably accompanies the modern system of production.

Overproduction, in the sense of more being produced than is actually needed, may occur under any system. But such could as a matter of course, cause no injury so long as the producers produce for the satisfaction or their own wants. It, for instance, in generations gone by, a farmer’s crop of corn happened to be larger than he needed, he stored up the surplus against poorer years, and when his barn was full he would feed his cattle with the residue, or, at worst, let it lie and spoil.

Sources of Industrial Crises

It is otherwise with the modern system of production. In the first place, in its well developed form, no one produces for himself, but for someone else; every one must buy what he needs. Moreover, the total production of society is not carried on in a planful way: on the contrary, it is left to each producer to estimate for himself the quantity of the demand there may be for the goods which he produces. In the second place, just as soon as the modern system of production has outgrown its first stage, no one except the producer of coinable metals can buy before he has sold. These are the two roots out of which the crisis shoots up.

For the illustration of this fact, let the simplest example possible serve. At a market place, let there come together an owner of money, say a gold digger, with twenty dollars in gold; a wine merchant with a cask of wine; a weaver with a bundle of cotton cloth; and a miller with a load of meal. To simplify the case, let the value of each of these goods be equal to twenty dollars, and let it be assumed that each has correctly estimated the needs of the other: the wine merchant sells his wine to the gold digger, and with the twenty dollars which he receives therefor purchases the cloth in the hands of the weaver; and lastly the weaver invests the proceeds of his cloth in the purchase of the load of meal. Each will go home satisfied.

Next year these four meet again, each calculating upon the same demand for his goods as before. Let it be assumed that the gold digger is as partial now as he was last year for the wine merchant’s wine, but that the latter has either no need of cloth, or requires the money to pay a debt, and prefers wearing a torn shirt to purchasing new material. In that case the wine merchant keeps in his pocket the twenty dollars and goes home. In vain does the weaver wait for a customer; and for the same reason that he waits, the miller is also expectant. The weaver’s family may be hungry; he may crave for the meal in the miller’s hands; but he has produced cotton cloth for which there is no demand; and for the same reason that the cloth became “superfluous,” the meal also is rendered “superfluous.” Neither the weaver nor the miller has any money; neither can purchase what he wants; what they have produced now appears as excessive production; and, furthermore, the same is the case with all other goods that have been produced for their use, and which they stand in need of. To carry the illustration a little further, the table produced by the joiner and needed by the miller, the shoes produced by the shoemaker and needed by the joiner, etc., etc., all of these remain unexchanged, unused – they are “overproduced.”

Why the Crisis is Unknown in the First Stage of Production for Sale

The leading features of an industrial crisis are all present in this illustration. Of course, in reality, the crisis does not manifest itself at such a primitive stage of production. At the first stages of the production of merchandise, of production for sale, every producer produces more or less for self-consumption; production for sale constitutes, in each family, but a part of its total industry. The weaver and the miller of the illustration given above are each possessed of a patch of land and some cattle, and they can patiently wait until a purchaser turns up for their commodities. If the worst came to the worst, they could even manage to live without him.

Furthermore, in the first stages of production for sale, the market is still small; it can be easily sized up; year in year out, production and consumption, the whole social life of a community, keep on the even tenor of their ways. In our small settlements of a generation and more ago, every one knew everybody, and was well informed upon his wants and his purchasing capacity. In most cases, the industrial mechanism of such places remained substantially the same from year to year: the number of producers, the productivity of labor, the quantity of products, the number of consumers, their wants, the money at their disposal – all of these changed but slowly, and each change was promptly observed and taken into consideration.

All this takes on a different aspect with the appearance of commerce upon the stage of the world’s history. Under its influence, production for self-consumption is crowded ever more to the rear; the individual producers of goods for sale, and to a greater extent the dealers, are more and more thrown for their support upon the sale of their goods, and, what is most important, upon their quick sale. A delay in the sale of a commodity, and, worse yet, the prevention of the sale of a commodity, now becomes ever more disastrous to its owner; it may even cause his ruin. Together with this condition of things, the danger of a block in the wheels of commerce grows apace.

Relation of Modern Commerce to Industrial Crises

Through commerce, the several and distantly located markets are brought together, but thereby the general market is greatly extended, and it becomes correspondingly more difficult to control. This inconvenience is still further enhanced by the appearance of one or more middlemen, who squeeze themselves between the producers and the consumers as a requirement of trade. Finally, commerce, acting hand in hand with the development of the means of transportation, lends wings to merchandise; to-day these can be brought together in large quantities on any spot upon the slightest provocation. All these causes combined render more and more uncertain the work of estimating the demands for, and the supply of, commodities. The development of statistics does not remove this uncertainty. The whole economic life of society becomes ever more dependent upon mercantile speculation, and the latter becomes ever more risky.

The merchant is a speculator from the start; speculation was not invented at the exchange; it is a necessary function of the capitalist. By speculating, that is to say, by estimating in advance the demand for a commodity; by buying his goods where he can get them cheap, namely, where their supply is excessive; and selling them where they are dear, namely, where they are scarce, the merchant helps to bring some order into the chaos of the planless system of production carried on by individually independent concerns. But he is liable to error in his calculations, especially as he is not allowed much time to think. He is not the only merchant in the world; hundreds and thousands of competitors lie in wait to profit by every favorable opportunity; whoever first espies this carries off the prize. Under such circumstances, quickness is a necessity; it will not do to reflect long, to inquire much; the capitalist must venture; nothing venture, nothing have! Yet may he lose. As soon as there is a great demand for a commodity in any market, it flows thither in large masses, until its quantity exceeds the digestive powers of the market. Then prices tumble; the merchant must sell cheap, often at a loss, or seek another market with his goods. His losses in this operation may be large enough to ruin him.

Wherever the modern system of production for sale is well developed and prevails, any given market is either excessively or insufficiently supplied. Capitalist economists pronounce this to be a most wise and admirable provision. Common sense holds differently. However that may be, the thing is inevitable from the moment production for sale reaches a certain degree of perfection and is kept in force. But this “wise” provision may lead to the result that, in response to some extraordinary cause, the overstocking of a market becomes so excessive that the losses of the merchants may be extraordinarily heavy, and a large number of them become unable to meet their liabilities – that is to say, they “fail.” Under such circumstances, a first-class commercial crisis is on the tapia.

So long as small production was the leading form of industry, the extent and intensity of commercial crises could be but limited. Whatever the call, it was not then possible to increase rapidly the total amount of wealth at any one place. Under the rule of small industry, production is not capable of any considerable extension; it cannot be extended by the employment of a larger number of workmen. Under ordinary circumstances, it employs all the members of a community that are at all able to work. It could be extended only by making heavier the burden of toil borne by the worker – lengthening his hours of work, depriving him of holidays, etc.; but in the good old days the independent mechanic and farmer, who were not yet crowded by the competition or large production, did not banker after this sort of thing; and finally, even if they submitted to such imposition, it made little difference to production – the productivity of labor was trifling.

This changes with the rise of capitalist large production. It not only develops all the means that enable commerce to swamp any market with goods to a degree never dreamt of before, it not only expands the separate markets into a world’s market that embraces the whole globe, it not only multiplies the number of the middlemen between the producer and the consumer, but it enables production to respond to every call of the trade as well, and to extend and increase with leaps and bounds.

At present, the very circumstance that the workmen are wholly subject to the capitalist – that he can, virtually at will, lengthen their hours of work, suspend their Sundays, and eat into their night rest – enables him to increase production at a more rapid pace than it was formerly possible. But, furthermore, to-day one single hour of overwork means, with the present productivity of labor, an increase of production immensely larger than in the days of manufacture, Nor is this all. To-day, the capitalist is in a condition to extend his concern upon short notice. Thanks to credit, capital has become a very elastic quantity. A brisk trade increases confidence, draws money out upon the street, shortens the time requisite for the circulation of money, and, accordingly, increases its effectiveness. But most important of all: capital has permanently at its disposal a large reserve army of workmen – the unemployed. The capitalist is thus able at any time to expand his establishment, to employ additional workmen, to increase his production rapidly, and to profit to the utmost by every favorable opportunity.

It has been shown that under the rule of large production industrial capital steps ever more to the front, and takes control of the whole capitalist mechanism. But within the circle of capitalist production itself, special branches of industry take the lead, as, for instance, the iron and spinning industries. The moment any of these receives a special impetus – be it through the opening of new markets in China, or the undertaking of extensive railroad lines – not only does it expand rapidly, but it imparts the impetus it has received to the whole body economic. Other capitalists enlarge their establishments, start new ones, increase the consumption of raw and subsidiary materials; new hands are taken in; and, simultaneously with all these, rent, profits, and wages go up. The demand increases for all sorts of goods; all sorts of industries begin to feel the industrial prosperity; and this finally becomes general. At such times it looks as if every undertaking must prosper; confidence becomes blind; credit grows boundless; whoever has a share of the increasing profits and rent seeks to turn a portion thereof into capital. Industrial giddiness takes possession of one and all.

Mechanism of an Industrial Crisis under Capitalism

In the midst of all this, production has increased prodigiously, and the originally increased demand in the market has been satisfied. Nevertheless, production does not stop. One producer does not know what the other is about. Although, at some lucid interval, doubts and misgivings may arise in the mind of some capitalist or another, these are soon smothered by the necessity he is under of profiting by the favorable opportunity that seems at hand, and not to be left behind in the competitive chase; he knows that “the devil takes the hindmost.” In the meantime, the disposal or the increased quantity of goods becomes every more difficult, and grows slower; the stores fill up; yet the hurly-burly goes on. Then comes the moment when one of the mercantile establishments must pay for the goods which were received from the manufacturer months before. The goods are yet unsold; the creditor has the goods but n~ money; he cannot met his obligations, and fails. Next comes the turn of the manufacturer; he also has contracted debts that fall due; as his debtor cannot pay him, he, too. is done for. Thus one bankruptcy follows another; a general collapse ensues; the recent blind confidence turns into an equally blind fear; the panic grows general; and the crash is on.

At such times the whole industrial mechanism is shaken to its very center; every establishment that is not planted upon the firmest ground drops. Misfortune overtakes not the fraudulent concerns alone, but also all those which in ordinary times managed to keep their heads above water. At such seasons, the expropriation of the small farmers, small producers, small dealers, and small capitalists goes on rapidly. Nor is it the small try alone that is swept overboard; many a big fish goes along; there is hardly any one certain of not being dragged down in the general ruin. As a matter of course, those among the large capitalists who survive derive a rich booty. During a crisis two important things take place: first, the expropriation of the “small fry;” secondly, the concentration of production in fewer hands, and thereby the promotion of the accumulation of large fortunes.

As few, it any, can tell whether they will survive the crisis, all the horrors of the modern system of production are then experienced in an intensified degree; the uncertainty of a livelihood, want, prostitution, and crime reach at such times alarming proportions. Thousands perish with hunger and cold – wonderfully to say, because they have produced too much clothing, food, and other wealth! It is at such seasons that the fact becomes most glaring that the modern productive powers are becoming more and more irreconcilable with the system of production for sale, and that private ownership in the means of production is growing into a greater and greater curse for everybody – first for the class of the propertiless, and then for that of the property-holders themselves.

The Crisis Becomes Permanent

With the fuller development of the capitalist system, that is to say, with the increased concentration of all wealth into fewer and fewer hands, aided greatly by previous crises, the crisis has ceased to be a “periodical occurrence” in the strict sense in which it was so before. At one time, and that not long ago, one-quarter of the failures that now occur regularly every year would have created public consternation; to-day, a much more swollen and ever-swelling register of bankruptcies passes unperceived by the public, but they are not, therefore, the less felt by the innumerable victims; the hemorrhage is now chronic; the crisis has become permanent, and with it all its horrors.

It is probably owing to this circumstance, to wit, that the phenomenon of the crisis has ceased to be “periodical,” that some uncritical, feather-brained political economists have declared the trust would do away with the crisis. This is false.

The regulation of production by large syndicates or trusts presupposes above all things their control of all branches of industry and the organization of these upon an international basis in all countries over which the capitalist system of production stretches itself. Until now, no successful international trust has yet appeared in any leading industry; so far, the Standard Oil Trust is the nearest approach to one. International trusts are difficult to organize, and more difficult to hold together. More than forty years ago, Karl Marx pointed out that not only does competition promote monopoly, but monopoly promotes competition. The larger the profits that accrue to a trust, the greater is the danger of an outstanding and powerful capitalist setting up a competing concern to pluck some of the profits himself; and, furthermore the more business prospers, the greater is the temptation of every member of the trust concern to escape the restrictions imposed by the trust and to withdraw from it. When prices go down, the anxiety for trustification is great; when prices go up, every producer strives to improve the opportunity to his utmost, and to throw upon the market as many goods as possible. But this has its limits, and a point is finally reached when the Trust becomes permanent. The trust will in most cases tail to check overproduction. With regard to overproduction, the principal mission of the trust is, not to check it, but to shift its evil consequences from the shoulders of the capitalists upon those of the workmen and consumers. It is intended to aid the large capitalists in weathering the storm of the crisis; temporarily to restrict production; to discharge workmen, and cut down expenses all along the line, without considerably affecting profits. Within the boundaries of one country, the difficulties that beset the formation and preservation of the trust are very considerably lessened; the trust can and does flourish there; It is different, however, with an international trust.

International Trust does not Abolish the Crisis

But let it be assumed that eventually the leading industries shall have been successfully organized into international trusts, under such strict discipline that they will resist the dissolving effect of good times. What were then the result? Competition among capitalists would be removed only on one side. The more completely competition disappears among the producers in one and the same branch of industry, all the greater becomes the antagonism between them and the producers of other commodities who depend upon the products of the trust. In the measure in which hostilities cease between the producers engaged in the same branch of industry, they become bitterer between the producers and the consumers. It so happens, however, that every producer is also a consumer. The cotton mill owner, for instance, is a consumer, apart from his private and personal needs, of cotton, coal, machinery, oil, and the other requisites of a cotton mill. In short, complete, international trustification would cause the capitalist class to be divided, no longer into separate individuals, but into hostile clans, who would wage war to the knife against one another.

To-day every single capitalist is eager to produce as march as possible, to throw upon the market all the goods he can, because, other things being equal, the more goods, the more profit; only his estimate of the capacity of the market and his own capacity to enlarge his capital limit the extent to which he will produce. On the other hand, when the system of trusts shall have become general we shall not then find a better regulation of production and with that a discontinuance of the crisis, as some whitewashers of our present social order would make us believe; what we shall find is the general eagerness of each separate trust to produce as little as possible, because the smaller the supply the higher the price. The practice, formerly, and even to-day not infrequently, resorted to by merchants, of destroying a portion of their goods when the market is overstocked, with the view of securing profitable prices for the rest, would then, in a manner, become general. It is evident, however, that society could not then continue to exist. If every trust strains for underproduction, all others would strain to force those trusts whose products they need into a state of overproduction. The ways of doing this would be many. The simplest would be for a trust to retrench its own consumption more than the other trust retrenches its production; another way would be to call upon science to supply the want of the article whose production is trustified and retrenched; still a third would be for the trust concerns whose consumption is thus affected to undertake, themselves, to produce what they need.

Imagine that the copper mines are trustified, that the production of copper is thereby reduced, and that prices are run up. What would be the result? Among those producers whose business uses up copper, some will close down and await better times; others will go in search or some other metal that may take the place of copper; and still others will themselves purchase copper mines or promote their sales, and thereby free themselves from dependence upon the “Copper Ring.” The end of all this is the bursting of the trust and its bankruptcy, and then we have another crisis.

The trust does not abolish the crisis. The only influence it would have in that direction would be to give the crisis another form – but not a better one. Bankruptcies would not be at end; the only difference would be that they would extend their spheres; they would not fall upon the capitalists separately, but upon whole sets of them at once, and with them, of course, ruin the large mass whose existence is dependent upon them. Accordingly, the trust cannot do away with the crisis; what, on the contrary, it can do is to bring on such sorts of crises as will be more devastating than anything mankind has yet experienced.

Only when that point should have been reached that all trusts are joined into one, and that the whole machinery of production of all capitalist nations is concentrated into one single hand, namely, only when private property in the means of production shall have virtually come to an end, only then could the trust have for its effect the abolition of the crisis. But, contrariwise, from a certain stage on in the industrial development, the crisis, either in the “periodical,” or present “permanent,” or in some other and more aggravated term, is inevitable, so long as private property continues In the means of production. It is simply impossible to remove the shadows cast by private property in the instruments of production and yet to preserve the thing itself.


Last updated on 25.12.2003