8. Industrial Crises.

Great as is the uncertainty for all classes under our usual conditions, it is further increased by the crises which are periodically brought on, with the certainty of natural law, the moment production reaches a certain stage.

The importance which these crises have assumed during the last decades and the general confusion of thought that prevails concerning them justifies special attention.

The great modern crises which convulse the world’s markets arise from overproduction, which, in its turn, arises from the planlessness that inevitably characterizes our system of commodity production. Overproduction, in the sense of more being produced than is actually needed, may occur under any system. But it could, as a matter of course, cause no injury so long as the producers produce for the satisfaction of their own wants. If, for instance, in the generation gone by, a farmer’s crop of grain happened to be larger than he needed, he stored up the grain 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.

It is otherwise with the modern system of commodity production. In the first place, when the system is once well-developed, no one produces for himself, but for someone else; everyone must buy what he needs. Moreover, the total production of society is not carried on in a systematic way; on the contrary, it is left to each producer to estimate for himself 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 grows the crisis.

For the illustration of this fact let the simplest example 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 bale of cloth, and a miller with a sack of flour. 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 he receives for it purchases the cloth in the hands of the weaver; and, lastly, the weaver invests the proceeds of his cloth in the purchase of the sack 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 does not despise the merchant’s wine, but that the wine-merchant either has no need of the 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 disappointed. The weaver’s family may be hungry, he may crave the flour in the miller’s hands, but he has produced cloth for which there is no demand, and for the same reason that the cloth has become superfluous, the flour 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. Furthermore, the same is the case with all other goods which 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 is “overproduced.”

The essential 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 stage of production of merchandise, 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 wait patiently until a purchaser for their commodities turns up. 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 easily be estimated; year in and year out, production and consumption, the whole social life of a community, keep on the even tenor of their way. In the small settlements of the past everyone knew everybody and was well-informed as to his wants and his purchasing capacity. The industrial activity 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. Under its influence production for self-consumption is crowded ever more to the rear; the individual producers of the 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 more important, upon their prompt sale. The prevention of the sale of a commodity, or even a delay in the sale, becomes ever more disastrous to the owner; it may even cause his ruin.

Through commerce the most various and widely separated markets are brought together; the general market is greatly extended, but it becomes correspondingly more difficult to control. This inconvenience is further increased by the appearance of one or more middlemen who squeeze themselves between the producers and consumers. Simultaneously with the development of trade and the means of communication the transportation of products has been facilitated; the slightest cause is sufficient to bring them together in great quantities at any point. All these causes combined render more and more uncertain the work of estimating the demand for, and supply of, commodities. The development of statistics does not remove this uncertainty. The whole economic life of society becomes constantly 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, by estimating in advance the demand for a commodity; by buying his goods where he can get them cheap, that is, where their supply is excessive; by selling them where they are dear, that is, where they are scarce, the merchant helps to bring some order into the chaos of the planless system of production that is carried on by individually independent concerns. But he is liable to err in his calculations, and all the more as he is not allowed much time to consider his ventures. 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 it 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. Yet he may lose. So soon as there is a great demand for a commodity in any market, it flows thither in large quantities until it 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, any given market is either excessively or inadequately supplied. This may lead to the result that in response to some extraordinary cause, the overstocking; of the market becomes so excessive that the losses of the merchants may be unusually heavy and a large number of them become unable to meet their liabilities; that is, they fail. Under such circumstances we have a first-class commercial crisis.

So long as small production was the leading form of industry, the extent and intensity of commercial crises could not but be limited. Whatever the call, it was not then possible to increase rapidly the total amount of commodities at any one place. Under the regime of hand-work or small industry, production is not capable of any considerable extension. It cannot be extended by the employment of a larger number of workmen, for, under ordinary circumstances, it employs all the members of a community that are at its disposal. It can 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 of large production, had no inclination for this. Finally, even if they submitted to such imposition, it made little difference to production, for the productivity of labor was comparatively small.

This changes with the rise of capitalist large production. This system 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-market that embraces the whole globe, it not only multiplies the number of the middlemen between the producer and the consumer, it also enables production to respond to every call of trade and to extend by leaps and bounds.

At present, the very fact that the workmen are wholly subject to the capitalist – that he can, virtually at will, lengthen their hours of work, suspend their Sundays, limit their night rest – enables him to increase production at a more rapid pace than was formerly possible. Furthermore, today one single hour of overwork means, with the present productivity of labor, an increase of production immensely larger than in the days of handicraft. 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 turning over of capital 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 industrial organism. Capitalists enlarge their establishments, start new ones, increase the consumption of raw and auxiliary materials and employ new hands; simultaneously with an this, rent, profit and wages go up. The demand for goods increases, all industries begin to feel the industrial prosperity. At such times it looks as if every undertaking must prosper; confidence becomes blind, credit: grows boundless. Whoever has money seeks to turn it into capital to make it profitable. Industrial giddiness takes possession of all.

In the meantime, production has greatly increased and the originally increased demand upon the market has been satisfied. Nevertheless, production does not stop. One producer does not know what the other is about, and even if, in a lucid interval, misgivings may arise in the mind of some capitalist, they are soon smothered by the necessity of profiting by the opportunity in order not to be left behind in the competitive race. “The devil takes the hindmost.” In the meantime, the disposal of the increased quantity of goods becomes ever more difficult, the warehouses fill up. Yet the hurly-burly goes on. Then comes the moment when one of the mercantile establishments must pay for the goods received from the manufacturer months before. The goods are yet unsold; the debtor has the goods, but no money; he cannot meet 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 ruined. Thus one bankruptcy follows another until a general collapse ensues. The recent blind confidence turns into an equally blind fear, the panic grows general, and the crash comes.

At such times the whole industrial mechanism is shaken to its very center; every establishment that is not planted upon the firmest ground goes to pieces. Misfortune overtakes not the fraudulent concerns alone, but all those which in ordinary times just managed to keep their heads above water. At such times the expropriation of the small farmers, small producers, small dealers and small capitalists goes on rapidly. As a matter of course, those among the large capitalists who survive get a rich booty. For during a crisis two important things take place: first, the expropriation of the “small fry”; second, the concentration of production into fewer hands, and thereby the accumulation of large fortunes.

Few, if any, can tell whether they will survive the crisis. All the horrors of the modern system of production, the uncertainty of a livelihood, want, prostitution and crime, reach at such times alarming proportions. Thousands perish from cold and hunger because they have produced too much clothing, too much food, and too marry houses! 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 – first, for the class of the propertyless, and then for that of the property holders themselves.

Some political economists have declared that 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 extends. But international trusts are difficult to organize and more difficult to hold together; so it is seldom that a trust becomes powerful enough to regulate international trade and avert a crisis. 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 capitalists upon those of workmen and consumers.

But let it be assumed that eventually the leading industries have been successfully organized into well-disciplined, international trusts. What would be the result? Competition among capitalists would be removed in one direction only. The more completely competition disappears among the producers in one branch of industry, the greater becomes the antagonism between them and the producers of other commodities, who, as consumers, need the products of the trust, in short, complete international trustification would cause the capitalist class to be divided no longer into competing individuals, but into hostile groups, who would wage war to the knife against one another.

Only when all trusts are joined into one and the whole machinery of production of all capitalist nations is concentrated in a few hands, that is, when private property in the means of production has virtually come to an end, can the trust abolish the crisis. On the contrary, from a certain stage on in industrial development, the crisis is inevitable so long as private property in the means of production continues.