THE MARXIST EXPLANATION OF
THE CAUSES OF THE CAPITALIST CRISES

Developed formula of the money conversion into capital
D -- M (Fp, Mp) -- P -- M' -- D'

This scheme represents the following situation.

The capitalists, with an x amount of money, represented by the letter M at the beginning of the formula, provide themselves with means or factors of production. Firstly they go to the market of means of labour, where they acquire what is comprised in this field: buildings, machinery, furniture, etc. which value expression is known as FIXED CAPITAL.

Afterwards they go to the market of the labour objects: raw materials for their transformation and auxiliary materials (fuel, lubricants, etc.) for productive consumption. The raw and auxiliary materials are CIRCULATING CAPITAL.

As a whole, this two parts of capital (fixed and circulating) invested in means or factors of production (means of labour, raw materials and auxiliaries) constitute CONSTANT CAPITAL (Cc), so called because during the labour process, the value or cost of these factors is transferred to the price of the new product without variation.

On the other hand, the capitalist invests in labour power or salaries, which Marx calls VARIABLE CAPITAL (Vc) because while working, the workers not only add to the product the value of their salaries but also a plus which magnitude varies according to the exploitation rate to which they are subjected by the owner of the means of production.

The exploitation rate is represented by Sv/Vc, a relation between the surplus value and the capital invested in salaries.

When the capitalist finishes investing the original amount of available money by buying the means of production(MP) and the labour power(L) -turned into constant(Cc) and variable(Vc) capital- finishes the first phase of the process of conversion of money into capital which is represented by M-C in the first part of the formula.

The second phase .........P.... begins when each capitalist mobilizes these production factors inside their factory, combining them in the most suitable way according to their possibilities and the market conditioning factors, regarding production and the surplus-value capitalization. It is here, in the production process, where surplus-value is generated which will increase the value of the bulk of money M originally invested, in this way virtually converting it into capital under the mercantile form C´.

What happens in this second phase?

While working, the worker wears out the tools which they use, transferring the value of this wear to the new product C´.

The same happens with the raw materials that they transform and the auxiliaries which they consume.

So, as much the fixed capital value that the tools lose when being worn out by the use as the components of circulating capital, when raw materials are transformed and the auxiliaries are consumed, reappear in C´.

But the worker’s activity is not limited to transferring the invested value in constant capital(Cc) into what they are producing.

At the same time that they transfer the already spent lost value of the means of production to the new product C´, they add to this two new magnitudes of value, namely, the one that corresponds to their own salary(Vc) and a plus that costs nothing to the capitalist. That is how money is transformed into capital.

In synthesis, when the three phases of the production cycle of surplus-value are fulfilled, the capitalist finds itself with a value surplus under the money form M´= M+ M that is equivalent to the difference between what they invested in the first phase of the M-C cycle and what they got at the last one C´-M´.

From this point a new accumulation cycle is restarted on an enlarged basis where the extension of the new rotation cycle depends on how much the individual capitalist subtracts from the bulk of surplus-value for their consumption.

Translation between the components of the working process and value appreciation process.

We mentioned above that:

1. The capitalists combine the production factors independently one from the other.
2. They do it driven by the common universal tendency fixed on them by the individual private ownership over the means of production.
3. Their objective consists in optimizing labour exploitation according to the maximum profit of their individual capital.

But for that they must go through the market test. It is in the moment of the general exchange where each capitalist faces the inevitable situation of having to confront their product with their colleagues’. And the market rewards the more effective capitalists, those who offer their products with the lowest costs, those who produce on the basis of the bigger relative development of the productive forces in their factories. These are the ones who are able to get the biggest coefficients of the relation MP/L, those who are able of moving the most powerful means of production with the lowest relative employment of labour power. In this is where Marx discovered the fundamental basic reason of the capitalist crises.

October 1998

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