The business cycle is the term used to describe the boom and slump nature of capitalism. Sometimes there is full employment, with workplaces producing more and more goods and services, the economy grows and along with it wages. "But industry, under the influence of property, does not proceed with such regularity. . . As soon as a demand begins to be felt, the factories fill up, and everybody goes to work. Then business is lively. . . Under the rule of property, the flowers of industry are woven into none but funeral wreaths. The labourer digs his own grave. . . [the capitalist] tries . . . to continue production by lessening expenses. Then comes the lowering of wages; the introduction of machinery; the employment of women and children . . . the decreased cost creates a larger market. . . [but] the productive power tends to more than ever outstrip consumption. . . To-day the factory is closed. Tomorrow the people starve in the streets. . . In consequence of the cessation of business and the extreme cheapness of merchandise. . . frightened creditors hasten to withdraw their funds [and] Production is suspended, and labour comes to a standstill." [P-J Proudhon, What is Property, pp. 191-192]
Why does this happen? For anarchists, as Proudhon noted, it's to do with the nature of capitalist production and the social relationships it creates ("the rule of property"). The key to understanding the business cycle is to understand that, to use Proudhon's words, "Property sells products to the labourer for more than it pays him for them; therefore it is impossible." [Op. Cit., p. 194] In other words, the need for the capitalist to make a profit from the workers they employ is the underlying cause of the business cycle. If the capitalist class cannot make enough profit, then it will stop production, sack people, ruin lives and communities until such as enough profit can again be extracted from the workers.
So what influences this profit level? There are two main classes of pressure on profits, what we will call the "subjective" and "objective." The objective pressures are related to what Proudhon termed the fact that "productive power tends more and more to outstrip consumption" and are discussed in sections C.7.1 and C.7.2 . The "subjective" pressures are to do with the nature of the social relationships created by capitalism, the relations of domination and subjection which are the root of exploitation and the resistance to them. In other words the subjective pressures are the result of the fact that "property is despotism" (to use Proudhon's expression). We will discuss the impact of the class struggle (the "subjective" pressure) in this section.
At its most basic, the class struggle (the resistance to hierarchy in all its forms) is the main cause of the business cycle. As we argued in section B.1.2 and section C.2.1, capitalists in order to exploit a worker must first oppress them. But where there is oppression, there is resistance; where there is authority, there is the will to freedom. Hence capitalism is marked by a continuous struggle between worker and boss at the point of production as well as struggle outside of the workplace against other forms of hierarchy.
It is this struggle that determines wages and indirect income such as welfare, education grants and so forth. This struggle also influences the concentration of capital, as capital attempts to use technology to control workers (and so extract the maximum surplus value possible from them) and to get an advantage against their competitors (see section C.2.2).
This class struggle reflects a conflict between workers attempts at liberation and self-empowerment and capitals attempts to turn the individual worker into a small cog in a big machine. It reflects the attempts of the oppressed to try to live a fully human life, expressed when the "worker claims his share in the riches he produces; he claims his share in the management of production; and he claims not only some additional well-being, but also his full rights in the higher enjoyment of science and art." [Peter Kropotkin, Kropotkin's Revolutionary Pamphlets, pp. 48-49]
It is this struggle that determines wages and indirect income such as welfare, education grants and so forth. This struggle also influences the concentration of capital, as capital attempts to use technology to control workers (and so extract the maximum surplus value possible from them) and to get an advantage against their competitors (see section C.2.2). And, as will be discussed in section D.10 (How does capitalism affect technology?), increased capital investment results in increased control of the worker by capital plus the transformation of the individual into "the mass worker" who can be fired and replaced with little or no hassle.
Therefore, class struggle influences both wages and capital investment, and so the prices of commodities in the market. It also, more importantly, determines profit levels and it is profit levels that are the cause of the business cycle. This is because, under capitalism, production's "only aim is to increase the profits of the capitalist. And we have, therefore, - the continuous fluctuations of industry, the crisis coming periodically . . . " [Kropotkin, Op. Cit., p. 55]
A common capitalist myth, derived from the capitalist Subjective Theory of Value, is that free-market capitalism will result in a continuous boom, since the cause of slumps is allegedly state control of credit and money. Let us assume, for a moment, that this is the case. (In fact, it is not the case, as will be discussed in section C.8). In the "boom economy" of "free market" dreams, there will be full employment. But in periods of full employment, while they help "increase total demand, its fatal characteristic from the business view is that it keeps the reserve army of the unemployed low, thereby protecting wage levels and strengthening labour's bargaining power." [Edward S. Herman, Beyond Hypocrisy, p. 93] In other words, workers are in a very strong position under boom conditions.
As Errico Malatesta argued, if workers "succeed in getting what they demand, they will be better off: they will earn more, work fewer hours and will have more time and energy to reflect on things that matter to them, and will immediately make greater demands and have greater needs. . . .[T]here exists no natural law (law of wages) which determines what part of a worker's labour should go to him [or her]. . . .Wages, hours and other conditions of employment are the result of the struggle between bosses and workers. . . . Through struggle, by resistance against the bosses, therefore, workers can, up to a certain point, prevent a worsening of their conditions as well as obtaining real improvement" [Life and Ideas, p. 191-2].
If an industry or country experiences high unemployment, workers will put up with longer hours, stagnating wages, worse conditions and new technology in order to remain in work. This allows capital to extract a higher level of profit from those workers, which in turn signals other capitalists to invest in that area. As investment increases, unemployment falls, so workers are in a better position and thus resist capital's agenda, even going so far as to propose their own (e.g. demands for workers' control). As workers' power increases, profit rates decrease and capital moves, seeking more profitable pastures, causing unemployment. This can be called "subjective" pressure on profit rates.
As an example, let's consider the crisis which ended post-war Keynesianism in the early 1970's and paved the way for the "supply side revolutions" of Thatcher and Reagan. The boom period was marked by increased demands by labour, including calls for workers' control, while actual post-tax real wages and productivity in advanced capitalist countries increased at about the same rate from 1960 to 1968 (4%). But between 1968 and 1973, post-tax real wages increased by an average of 4.5% compared to a productivity rise of only 3.4%. Moreover, due to increased international competition (itself a product of the profit crisis capitalism was facing) companies could not pass on wage rises to consumers in the form of higher prices. As a result of these factors, the share of profits going to business fell by about 15% in that period.
In addition, outside the workplace a "series of strong liberation movements emerged among women, students and ethnic minorities. A crisis of social institutions was in progress, and large social groups were questioning the very foundations of the modern, hierarchical society: the patriarchal family, the authoritarian school and university, the hierarchical workplace or office, the bureaucratic trade union or party." ["The Nation-state and the Market," p. 58, Society and Nature, Vol. 3, pp. 44-45]
These processes of social struggles resulted in an economic crisis as capital could no longer oppress and exploit working class people sufficiently in order to maintain a suitable profit rate. This crisis was then used to discipline the working class and restore capitalist authority within and without the workplace (see section C.8.2).
More recently, the panics in Wall Street that accompany news that unemployment may be dropping in the USA reflect this fear of working class power. Without the fear of unemployment, workers may start to fight for improvements in their conditions, against capitalist oppression and exploitation and for liberty and a just world. Every slump within capitalism has occurred when workers have seen unemployment fall and their living standards improve -- not a coincidence.
The Philips Curve, which indicates that inflation rises as employment falls is also a strong indication of this relationship. Inflation results when there is more money in circulation than is needed for the sale of the various commodities on the market. The reason why there is too much money in circulation is that inflation is "an expression of inadequate profits that must be offset by price and money policies. . . . Under any circumstances, inflation spells the need for higher profits. . . ." [Paul Mattick, Economics, Politics and the Age of Inflation, p.19]. Inflation leads to higher profits by making labour cheaper. That is, it reduces "the real wages of workers. . . [which] directly benefits employers. . . [as] prices rise faster than wages, income that would have gone to workers goes to business instead" [T. Brecher and T. Costello, Common Sense for Hard Times, p. 120].
This does not mean that inflation suits all capitalists equally (nor, obviously, does it suit those social layers who live on fixed incomes and who thus suffer when prices increase but such people are irrelevant in the eyes of capital). Far from it - during periods of inflation, lenders tend to lose and borrowers tend to gain. The opposition to high levels of inflation by many supporters of capitalism is based upon this fact and the division within the capitalist class it indicates. There are two main groups of capitalists, finance capitalists and industrial capitalists. The latter can and do benefit from inflation (as indicated above) but the former sees high inflation as a threat. When inflation is accelerating it can push the real interest rate into negative territory and this is a horrifying prospect to those for whom interest income is fundamental (i.e. finance capital). In addition, high levels of inflation can also fuel social struggle, as workers and other sections of society try to keep their income at a steady level. As social struggle has a politicising effect on those involved, a policy of high inflation could have serious impacts on the political stability of capitalism and so cause problems for the ruling class.
How inflation is viewed in the media and by governments is an expression of the relative strengths of the two sections of the capitalist class and of the level of class struggle within society. For example, in the 1970s, with the increased international mobility of capital, the balance of power came to rest with finance capital and inflation became the source of all evil. In addition, the waves of strikes and protests that inflation produced had worrying implications for the ruling class. However, as the underlying reasons for inflation remained (namely to increase profits) inflation itself was only reduced to acceptable levels, levels that ensured a positive real interest rate and acceptable profits.
Hence anarchists argue that a continual "boom" economy is an impossibility simply because capitalism is driven by profit considerations, which, combined with the subjective pressure on profits due to the class struggle between workers and capitalists, necessarily produces a continuous boom-and-bust cycle. When it boils down to it, this is unsurprising, as "[o]f necessity, the abundance of some will be based upon the poverty of others, and the straitened circumstances of the greater number will have to be maintained at all costs, that there may be hands to sell themselves for a part only of that which they are capable of producing, without which private accumulation of capital is impossible!" [Kropotkin, Op. Cit., p. 128]
Of course, when such "subjective" pressures are felt on the system, the ruling class denounces working class "greed" and "selfishness." When this occurs we should remember what Adam Smith had to say on this subject :
"Our merchants and master manufacturers complain of the bad effects of high wages in raising the price and thereby lessening the sale of their goods at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people" [The Wealth of Nations, p. 98]
In many ways, this social struggle is the inner dynamic of the system, and its most basic contradiction: while capitalism tries to turn the majority of people into commodities (namely, bearers of labour power), it also has to deal with the human responses to this process of objectification (namely, the class struggle). However, it does not follow that, if social struggle were eliminated, capitalism would work fine. Even assuming that individuals can be totally happy in a capitalist economy, willing to sell their freedom and creativity for a little money, capitalism does have "objective" pressures limiting its development.
So while social struggle, as argued above, can have a decisive effect on the health of the capitalist economy, it is not the only problems the system faces. This is because there are objective pressures within the system beyond and above the authoritarian social relations it produces (and the resistance to them). These pressures are discussed next, in sections C.7.1 and C.7.2.
C.7.1 What role does the market play in the business cycle?
A major problem with capitalism is the working of the capitalist market itself. For the supporters of "free market" capitalism, the market provides all the necessary information required to make investment and production decisions. This means that a rise or fall in the price of a commodity acts as a signal to everyone in the market, who then respond to that signal. These responses will be co-ordinated by the market, resulting in a healthy economy. For example, a rise in the price of a commodity will result in increased production and reduced consumption of that good, and this will move the economy towards equilibrium.
While it can be granted that this account of the market is not without foundation, its also clear that the price mechanism does not communicate all the relevant information needed by companies or individuals. This means that capitalism does not work in the way suggested in the economic textbooks. It is the workings of the price mechanism itself which leads to booms and slumps in economic activity and the resulting human and social costs they entail. This can be seen if we investigate the actual processes hidden behind the workings of the price mechanism.
When individuals and companies make plans concerning future production, they are planning not with respect of demand now but with respect to expected demand at some future time when their products reach the market. The information the price mechanism provides, however, is the relation of supply and demand (or market price with respect to the market production price) at the current time. While this information is relevant to people's plans, it is not all the information that is relevant or is required by those involved.
The information which the market does not provide is that of the plans of other people's reactions to the supplied information. This information, moreover, cannot be supplied due to competition. Simply put, if A and B are in competition, if A informs B of her activities and B does not reciprocate, then B is in a position to compete more effectively than A. Hence communication within the market is discouraged and each production unit is isolated from the rest. In other words, each person or company responds to the same signal (the change in price) but each acts independently of the response of other producers and consumers. The result is often a slump in the market, causing unemployment and economic disruption.
For example, lets assume a price rise due to a shortage of a commodity. This results in excess profits in that market, leading the owners of capital to invest in this branch of production in order to get some of these above-average profits. However, consumers will respond to the price rise by reducing their consumption of that good. This means that when the results of these independent decisions are realised, there is an overproduction of that good in the market in relation to effective demand for it. Goods cannot be sold and so there is a realisation crisis as producers cannot make a profit from their products. Given this overproduction, there is a slump, capital disinvests, and the market price falls. This eventually leads to a rise in demand against supply, production expands leading to another boom and so on.
This, it should be noted, is not a problem of people making a series of unrelated mistakes. Rather, it results because the market imparts the same information to all involved and this information is not sufficient for rational decision making. While it is rational for each agent to expand or contract production, it is not rational for all agents to act in this manner. In a capitalist economy, the price mechanism does not supply all the information needed to make rational decisions. In fact, it actively encourages the suppression of the needed extra information concerning the planned responses to the original information.
It is this irrationality and lack of information which feed into the business cycle. These local booms and slumps in production of the kind outlined here can then be amplified into general crises due to the insufficient information spread through the economy by the market. However, disproportionalities of capital between industries do not per se result in a general crisis. If this was that case the capitalism would be in a constant state of crisis because capital moves between markets during periods of prosperity as well as just before periods of depression. This means that market dislocations cannot be a basis for explaining the existence of a general crisis in the economy (although it can and does explain localised slumps).
Therefore, the tendency to general crisis that expresses itself in a generalised glut on the market is the product of deeper economic changes. While the suppression of information by the market plays a role in producing a depression, a general slump only develops from a local boom and slump cycle when it occurs along with the second side-effect of capitalist economic activity, namely the increase of productivity as a result of capital investment, as well as the subjective pressures of class struggle.
The problems resulting from increased productivity and capital investment are discussed in the next section.
C.7.2 What else affects the business cycle?
Other problems for capitalism arise due to increases in productivity which occur as a result of capital investment or new working practices which aim to increase short term profits for the company. The need to maximise profits results in more and more investment in order to improve the productivity of the workforce (i.e. to increase the amount of surplus value produced). A rise in productivity, however, means that whatever profit is produced is spread over an increasing number of commodities. This profit still needs to be realised on the market but this may prove difficult as capitalists produce not for existing markets but for expected ones. As individual firms cannot predict what their competitors will do, it is rational for them to try to maximise their market share by increasing production (by increasing investment). As the market does not provide the necessary information to co-ordinate their actions, this leads to supply exceeding demand and difficulties realising the profits contained in the produced commodities. In other words, a period of over-production occurs due to the over-accumulation of capital.
Due to the increased investment in the means of production, variable capital (labour) uses a larger and larger constant capital (the means of production). As labour is the source of surplus value, this means that in the short term profits must be increased by the new investment, i.e. workers must produce more, in relative terms, than before so reducing a firms production costs for the commodities or services it produces, so allowing increased profits to be realised at the current market price (which reflects the old costs of production). Exploitation of labour must increase in order for the return on total (i.e. constant and variable) capital to increase or, at worse, remain constant.
However, while this is rational for one company, it is not rational when all firms do it, which they must in order to remain in business. As investment increases, the surplus value workers have to produce must increase faster. If the mass of available profits in the economy is too small compared to the total capital invested then any problems a company faces in making profits in a specific market due to a localised slump caused by the price mechanism may spread to affect the whole economy. In other words, a fall in the rate of profit (the ratio of profit to investment) in the economy as a whole could result in already produced surplus value, earmarked for the expansion of capital, remaining in its money form and thus failing to act as capital. No new investments are made, goods cannot be sold resulting in a general reduction of production and so increased unemployment as companies fire workers or go out of business. This removes more and more constant capital from the economy, increasing unemployment which forces those with jobs to work harder, for longer so allowing the mass of profits produced to be increased, resulting (eventually) in an increase in the rate of profit. Once profit rates are high enough, capitalists have the incentive to make new investments and slump turns to boom.
Cycles of prosperity, followed by over-production and then depression are the natural result of capitalism. Over-production is the result of over-accumulation, and over-accumulation occurs because of the need to maximise short-term profits in order to stay in business. So while the crisis appears as a glut of commodities on the market, as there are more commodities in circulation that can be purchased by the aggregate demand ("Property sells products to the labourer for more than it pays him for them," to use Proudhon's words), its roots are deeper. It lies in the nature of capitalist production itself.
A classic example of these "objective" pressures on capitalism is the "Roaring Twenties" that preceded the Great Depression of the 1930s. After the 1921 slump, there was a rapid rise in investment in the USA with investment nearly doubling between 1919 and 1927.
Because of this investment in capital equipment, manufacturing production grew by 8.0% per annum between 1919 and 1929 and labour productivity grew by an annual rate of 5.6% (this is including the slump of 1921-22). This increase in productivity was reflected in the fact that over the post-1922 boom, the share of manufacturing income paid in salaries rose from 17% to 18.3% and the share to capital rose from 25.5% to 29.1%. Managerial salaries rose by 21.9% and firm surplus by 62.6% between 1920 and 1929. With costs falling and prices comparatively stable, profits increased which in turn lead to high levels of capital investment (the production of capital goods increased at an average annual rate of 6.4%).
Unsurprisingly, in such circumstances, in the 1920s prosperity was concentrated at the top. 60% of families made less than $2000 a year, 42% less than $1000. One-tenth of the top 1% of families received as much income as the bottom 42% and only 2.3% of the population enjoyed incomes over $10000. While the richest 1% owned 40% of the nation's wealth by 1929 (and the number of people claiming half-million dollar incomes rose from 156 in 1920 to 1489 in 1929) the bottom 93% of the population experienced a 4% drop in real disposable per-capita income between 1923 and 1929.
However, in spite of this, US capitalism was booming and the laissez-faire capitalism was at its peak. But by 1929 all this had changed with the stock market crashing -- followed by a deep depression. What was its cause? Given our analysis presented above, it may have been expected to have been caused by the "boom" decreasing unemployment, so increased working class power and leading to a profits squeeze, but this was not the case.
This slump was not the result of working class resistance, indeed the 1920s were marked by a labour market which remained continuously favourable to employers. This was for two reasons. Firstly, the "Palmer Raids" at the end of the 1910s saw the state root out radicals in the US labour movement and wider society. Secondly, the deep depression of 1920-21 (during which national unemployment rates averaged over 9%) combined with the use of legal injunctions by employers against work protests and the use of industrial spies to identify and sack union members made labour weak and so the influence and size of unions fell as workers were forced to sign "yellow-dog" contracts to keep their jobs.
During the post-1922 boom, this position did not change. The national 3.3% unemployment rate hid the fact that non-farm unemployment averaged 5.5% between 1923 and 1929. Across all industries, the growth of manufacturing output did not increase the demand for labour. Between 1919 and 1929, employment of production workers fell by 1% and non-production employment fell by about 6% (during the 1923 to 29 boom, production employment only increased by 2%, and non-production employment remained constant). This was due to the introduction of labour saving machinery and the rise in the capital stock. In addition, the high productivity associated with farming resulted in a flood of rural workers into the urban labour market.
Facing high unemployment, workers' quit rates fell due to fear of loosing jobs (particularly those workers with relatively higher wages and employment stability). This combined with the steady decline of the unions and the very low number of strikes (lowest since the early 1880s) indicates that labour was weak. Wages, like prices, were comparatively stable. Indeed, the share of total manufacturing income going to wages fell from 57.5% in 1923-24 to 52.6% in 1928/29 (between 1920 and 1929, it fell by 5.7%). It is interesting to note that even with a labour market favourable to employers for over 5 years, unemployment was still high. This suggests that the neo-classical "argument" that unemployment within capitalism is caused by strong unions or high real wages is somewhat flawed to say the least (see section C.9).
The key to understanding what happened lies the contradictory nature of capitalist production. The "boom" conditions were the result of capital investment, which increased productivity, thereby reducing costs and increasing profits. The large and increasing investment in capital goods was the principal device by which profits were spent. In addition, those sectors of the economy marked by big business (i.e. oligopoly, a market dominated by a few firms) placed pressures upon the more competitive ones. As big business, as usual, received a higher share of profits due to their market position (see section C.5), this lead to many firms in the more competitive sectors of the economy facing a profitability crisis during the 1920s.
The increase in investment, while directly squeezing profits in the more competitive sectors of the economy, also eventually caused the rate of profit to stagnate, and then fall, over the economy as a whole. While the mass of available profits in the economy grew, it eventually became too small compared to the total capital invested. As expected returns (profitability) on investments hesitated, a decline in investment demand occurred and so a slump began (rising predominantly from the capital stock rising faster than profits). Investment flattened out in 1928 and turned down in 1929. With the stagnation in investment, a great speculative orgy occurred in 1928 and 1929 in an attempt to enhance profitability. This unsurprisingly failed and in October 1929 the stock market crashed, paving the way for the Great Depression of the 1930s.
The crash of 1929 indicates the "objective" limits of capitalism. Even with a very weak position of labour, crisis still occurred and prosperity turned to "hard times." In contradiction to neo-classical economic theory, the events of the 1920s indicate that even if the capitalist assumption that labour is a commodity like all others is approximated in real life, capitalism is still subject to crisis (ironically, a militant union movement in the 1920s would have postponed crisis by shifting income from capital to labour, increasing aggregate demand, reducing investment and supporting the more competitive sectors of the economy!). Therefore, any neo-classical "blame labour" arguments for crisis (which were so popular in the 1930s and 1970s) only tells half the story (if that). Even if workers do act in a servile way to capitalist authority, capitalism will still be marked by boom and bust (as shown by the 1920s and 1980s).
To take another example, America's 100 largest firms, employing 5 million persons and having assets of $126 billion, saw their average amount of assets per worker grow from $12,200 in 1949 to $20,900 in 1959 and to $24,000 in 1962. [First National City Bank, Economic Letter, June 1963]. As can be seen, the rate of increase in average assets per worker falls off over time. The initial period of high capital formation was followed by a recessionary period between 1957 and 1961. These years were marked by a sharp increase in unemployment (from 3 million in 1956 to a high of 5 million in 1961) and a higher unemployment rate after the slump than before (an increase of 1 million from 1956 figures to around 4 million in 1962). [T. Brecher and T. Costello, Common Sense for Hard Times, chart 2]
We have referred to data from this period, because some supporters of "free market" capitalism have used the same period to argue for the advantages of capital investment. This data actually indicates, however, that increased capital formation helps to create the potential for recession, because although it increases productivity (and so profits) for a period, it reduces profit rates in the long run because there is a relative scarcity of surplus value in the economy (compared to the fixed capital). This fall in profit rates is indicated by the decrease in capital formation, which is the point of production in the first place within capitalism, as well as by the increase of unemployment during that period.
So, if the profit rate falls to a level that does not allow capital formation to continue, a slump sets in. This general slump is usually started by overproduction for a specific commodity, possibly caused by the process described in Section C.7.1. If there are enough profits in the economy, localised slumps have a reduced tendency to grow and become general. A slump only becomes general when the rate of profit over the whole economy falls. A local slump spreads through the market because of the lack of information the market provides producers. When one industry over-produces, it cuts back production, introduces cost-cutting measures, fires workers and so on in order to try and realise more profits. This reduces demand for industries that supplied the affected industry and reduces general demand due to unemployment. The related industries now face over-production themselves and the natural response to the information supplied by the market is for individual companies to reduce production, fire workers, etc., which again leads to declining demand. This makes it even harder to realise profit on the market and leads to more cost cutting, deepening the crisis. While individually this is rational, collectively it is not and so soon all industries face the same problem. A local slump is propagated through the economy because the capitalist economy does not communicate enough information for producers to make rational decisions or co-ordinate their activities.
"Over-production," we should point out, exists only from the viewpoint of capital, not of the working class:
"What economists call over-production is but a production that is above the purchasing power of the worker. . . this sort of over-production remains fatally characteristic of the present capitalist production, because workers cannot buy with their salaries what they have produced and at the same time copiously nourish the swarm of idlers who live upon their work." [Peter Kropotkin, Op. Cit., pp. 127-128]
In other words, over-production and under-consumption reciprocally imply each other. There is no over production except in regard to a given level of solvent demand. There is no deficiency in demand except in relation to a given level of production. The goods "over-produced" may be required by consumers, but the market price is too low to generate a profit and so production must be reduced in order to artificially increase it. So, for example, the sight of food being destroyed while people go hungry is a common one in depression years.
So, while the crisis appears on the market as a "commodity glut" (i.e. as a reduction in effective demand) and is propagated through the economy by the price mechanism, its roots lie in production. Until such time as profit levels stabilise at an acceptable level, thus allowing renewed capital expansion, the slump will continue. The social costs of such cost cutting is yet another "externality," to be bothered with only if they threaten capitalists' power and wealth.
There are means, of course, by which capitalism can postpone (but not stop) a general crisis developing. Imperialism, by which markets are increased and profits are extracted from less developed countries and used to boost the imperialist countries profits, is one method ("The workman being unable to purchase with their wages the riches they are producing, industry must search for markets elsewhere" - Kropotkin, Op. Cit., p. 55). Another is state manipulation of credit and other economic factors (such as minimum wages, the incorporation of trades unions into the system, arms production, maintaining a "natural" rate of unemployment to keep workers on their toes etc.). Another is state spending to increase aggregate demand, which can increase consumption and so lessen the dangers of over-production. Or the rate of exploitation produced by the new investments can be high enough to counteract the increase in constant capital and keep the profit rate from falling. However, these have (objective and subjective) limits and can never succeed in stopping depressions from occurring.
Hence capitalism will suffer from a boom-and-bust cycle due to the above-mentioned objective pressures on profit production, even if we ignore the subjective revolt against authority by workers, explained earlier. In other words, even if the capitalist assumption that workers are not human beings but only "variable capital" was true, it would not mean that capitalism was a crisis free system. However, for most anarchists, such a discussion is somewhat academic for human beings are not commodities, the labour "market" is not like the iron market, and the subjective revolt against capitalist domination will exist as long as capitalism does.