Marx and the “Minsky moment” liquidity crises and reproduction crises in Das Kapital

Abstract

This paper reconsiders the interaction between monetary and financial factors, on the one hand, and real factors, on the other, in Marx’s theory of crises. We propose a reconstruction of the financial instability theory contained in Book III of Capital presenting striking similarities with Minsky’s financial instability hypothesis. Regarding the link between monetary and real dimensions of crises we draw from Hilferding’s Finance Capital to link the reproduction schemes from Book II with financial instability from Book III. The natural elasticity of bank credit and financial markets exuberance ensure the emergence and enlargement of sectoral disproportions till the unavoidable crisis.

Keywords:

• Liquidity crises
• reproduction crises
• Marxian theory of crises
• financial instability

JEL CODES:

• B14
• B51
• E32
• E44

Acknowledgments

The authors acknowledge helpful comments from two anonymous referees.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Milios and Dimoulis (2002), Maniatis (2012), Dunn (2011), Kliman (2011). Moseley (2009) compared Marx to Minsky, but finally confined Marx to the real mechanisms of crises and Minsky to the financial mechanisms. The publication of Fine, Saad-Filho, and Boffo (2012) illustrates well the gaping hole in Marxian research with regard to finance and financial instability. Thomas Marois, who authored the “finance” entry of the book refers only to two concepts: finance capital and financialization. Simon Clarke, in the “crises” entry, does not refer at all to financial instability.

2 De Brunhoff (1967, 1998), Harvey (1982), Schefold (2016).

3 Meacci (1998) or De Brunhoff and Foley (2007).

4 This labour market mechanism has been formalized by Richard Goodwin (1967) as a model of purely endogenous fluctuations. It can be combined with one or the other version of “accumulation” crises, to which it offers a very elegant complement. But it is not representative of economic crisis in the sense of Marx for whom a crisis means an impossibility for the capitalist class to pursue the accumulation process. Even if it may engender social unrest and political troubles, a deterioration of the material situation of workers is not a capitalist economic crisis.

5 Although traces of this track can be found in chapter 6 of Book III, it is a vision inherited from Ricardo and found mainly in writings prior to 1857 (Mori, 2018a). Marx's writings in the NYDT concerning the 1857 crisis, using data compiled in the Books of Crisis, highlight the effects of financial mechanisms much more than a disproportion between fixed and circulating capital.

6 This expression comes from a paper by Justin Lahart in The Wall Street Journal where he wrote on 18 August 2007 “Mr. Minsky long argued markets were crisis prone; his ‘moment’ has arrived”.

7 The Hamburg monetary crisis was solved by the urgent transportation of a silver train (Geld zug) to the city.

8 We use this expression as it is nowadays commonly understood, as corresponding to whole money capital operating in financial markets, either coming from banks, other financial (non-monetary) institutions or individuals.

9 “Interest-bearing capital is personified in the MONEYED CAPITALIST, industrial capital in the INDUSTRIAL CAPITALIST, rent-bearing capital in the LANDLORD (…)”. (MECW, Vol. 32, Marx and Engels 1989, 514).

10 Throughout the Grundrisse, The Outlines of the Critique of Political Economy, the manuscript of A Contribution to the Citique of Political Economy and of the book I of Capital (contained in volumes 28–34 of MECW) he takes up this expression from Mill, Smith, Ricardo or Hume.

11 The term fictitious gives the notion a strong controversial charge. This notion has recently been taken up in a non-analytical way in analyses of the 2007 crisis by Marxian scholars like Durand (2014) or Chesnais (2016). But it is difficult to suggest another vocabulary. And after all, the high degree of securitization in contemporary finance makes it strangely realistic.

12 Guttmann (1996) and Meacci (1998).

13 Hilferding (1910) gives the same comprehensive delimitation of fictitious capital (in chapters VII to X of his Finance Capital)

14 Public bonds are a special case because they do not correspond to any productive capital: “But in all cases, the capital, as whose offshoot (interest) state payments are considered, is illusory, fictitious capital. Not only that amount loaned to the state no longer exists, but it was never intended that it be expended as capital, and only by investment as capital could it have been transformed into a self-preserving value” (MECW, Vol. 37, Marx and Engels [1894] 1998, 462–463).

15 This continuous interest in the analysis of the crises of his time for the articulation between the financial mechanisms and the real mechanisms can be found in the different notebooks on the crises of 1857 (MEGA IV/14) and 1866 (MEGA IV 18 and 19 not yet published). In particular, in the case of the 1866 crisis, the notebooks were intended to contribute to Part V of Book III on financial mechanisms and their impact on crises (Paula et al. 2015, 2016; Takenaga 2015–2016)

16 See Lapavitsas (2000) for a presentation of the four sources of hoarding in the capitalist process of accumulation and their role in the development of the credit system. However, we disagree with his interpretation of banks as only reallocating the industrial reserve funds. This interpretation, which denies the bank’s ability to create money and provide credit beyond its own reserves is inconsistent with Marx’s vision. This is also inconsistent with Hilferding’s vision that Lapavitsas (2004) analyses in the same way.

17 Gomez Betancourt and Pierre Manigat (2018) also underline Steuart's influence in Marx's anti-quantitativist perspective.

18 “But since the credits are mutual, the solvency of one depends upon the solvency of another; for in drawing his bills of exchange, one may have counted either on the return flow of the capital in a third party’s business whose bill of exchange is due in the meantime. Aside from the prospect of the return flow of capital, payment can only be possible by means of reserve capital at the disposal of the person drawing the bill of exchange, in order to meet his obligations in case the return flow of capital should be delayed” (MECW, Vol. 37, Marx and Engels [1894] 1998, 478–479).

19 In the passage from which this quotation is taken, Marx focuses on changes in the central bank's metal reserves as a function of the phase of the cycle, the movement of the interest rate and the state of credit (Marx 1894, 668–672). But the sensitivity of the bullion system is indeed that of the financial structure as a whole (the whole machinery), as he states: “We have also ignored the function of bullion as a guarantee for the convertibility of banknotes and as the pivot of the entire credit system. The central bank is the pivot of the credit system, and the bullion reserve is the pivot of the bank” (Marx 1894, 670).

20 Even if we consider the increase of the level of indebtedness at the macro level as essential for Minsky’s financial instability hypothesis, some contributions showed that this happens in most cases (Charles 2016).

21 We can suggest that Michaël Kalecki, who first introduced this notion in macroeconomics, found it in Marx’s writings.

22 “If we want to call interest the price of money capital, then it is an irrational form of price quite at variance with the conception of the price of commodities. The price is here reduced to its purely abstract and meaningless form, signifying that it is a certain sum of money paid for something serving in one way or another as a use value; whereas the conception of price really signifies the value of some use value expressed in money” (MECW, Vol. 37, Marx and Engels [1894] 1998, 352).

23 Marx describes this behavior of banks when their reserves increase in the article “Pauperism and Free Trade-The approaching Commercial Crisis” of 6 November 1852 in the New-York Daily Tribune “The banks as well as private individuals hunt up every means to invest this idle capital. Hence the present abundance of loanable capital and the low rate of interest” (MECW, Vol. 11, Marx and Engels 1979, 362).

24 Marx makes this point while commenting Lord Overstone interpretation of the 1857 crisis: “As for the high rate of interest paid in 1856, Overstone was indeed ignorant of the fact that this was partially a symptom that the credit jobbers were coming to the fore, who paid interest not from their profit, but with capital of the others; he maintained just a few months before the crisis of 1857 that “business is quite sound” (MECW, Vol. 37, Marx and Engels [1894] 1998, p. 419).

25 “A break in the boom occurs whenever short-and long-term interest rates rise enough so that attenuations and reversals in present-value relations take place. Often this occurs after the increase in demand financed by speculative finance has raised interest rates, wages of labor, and prices of material so that profit margins and thus the ability to validate the past are eroded” (Minsky 1986, 220).

26 The falling rate of profit law has been subjected to many – and rather convincing – criticisms (see Steedman (1977) and Van Parijs (1980)).

27 And with the same ambiguities. On one side, Hilferding stands along with Tooke, just like Marx does, on a clear anti-quantitativist approach; on the other side, he remains involucrate in a metallic commodity vision of money.

28 Marx also considers that the crisis erupts when bank balance sheets are shaken. “On the other hand, it is clear that as long as the credit of a bank is not shaken, it will alleviate the panic in such cases by increasing credit money and intensify it by contracting the latter” (MECW, Vol. 37, Marx and Engels [1894] 1998, 514).

29 This expression is taken from Kindelberger (1989).

30 Although Marx witnessed five crises: 1847, 1857, 1866, 1873 and 1882, he paid systematic attention only to those of 1857 and 1866 by collecting empirical data from newspapers as shown by MEGA IV/14 and soon to be published MEGA IV/18 and MEGA IV/19 (Takenaga 2015–2016). Nevertheless he also compiled some empirical and especially theoretical data on the 1847 crisis (in MEGA IV/7 to 9 and in MEGA IV/10 and MEGA IV/11 not yet published), as well as theoretical writings on money, banking, and crisis theory in the 1870s (in MEGA IV/25 not yet published) (Graßmann 2018).

31 This comment is ours. Marx comments on the 1857 crisis are mostly about the developments of the crisis in Europe and especially in Britain, where the textile industry is the most affected.

32 However, it should be noted that recent research on Marx's notebooks concerning the crisis of 1866 carried out between September 1868 and September 1869 shows that if the crisis had a purely financial appearance, Marx was also looking for its causes in the bankruptcy of the railway companies (Paula et al., 2015, 2016; Takenaga 2015–2016)

33 Marx showed a particular interest in this French episode, on which he delivered a series of articles in the New York Daily Tribune (MECW, Vol. 15, Marx and Engels 1986).