 Hi, this is Gerald Friedman, Department of Economics, University of Massachusetts. And we're here today to talk about Marxian theories of the economic crisis, or Marxian theories of economic crises. In Sey's law, as we've been talking about, there are no crises. I mean, there may be bad policy, there may be mistakes, but no general crisis. The economy always has a tendency, following Sey's law, towards equilibrium at full employment, where supply equals demand, and everybody's as happy as they can be given the constraints of life, technology, whatever. Marxism has a very different approach. Marxism also believes in equilibrium, oddly enough. Marx, throughout his writings, is always talking about the natural level of prices, what other economists would call the equilibrium level. But you're not always going to be there. Instead, Marx sees the economy going through cycles of boom, bust, collapse, leading to expansion. You're all kind of cycling around that equilibrium, without spending very much time there at all. So Marx has a theory of the business cycle, a theory with a business cycle. Okay, how's it worked? First of all, Marx dismisses the Ricardian or Jean-Baptiste's idea of a Robinson Crusoe world. It's not a Robinson Crusoe world. Robinson Crusoe is an independent producer, like Dan over there, the guy who's running the video. He has his own business. Beowulf, my dog, hunts. He finds water, drinks it, chases rabbits if he ever caught one, he'd eat it. And that would be the end of it. That's not the way the economy works in a capitalist world, however. In a capitalist world, Beowulf works for me. I order him to go hunt something. He hunts it, gives it back to me. I sell it to somebody, Dan maybe, or somebody else. And why do I do all this? I have Beowulf hunt for me, not because I want to eat rabbit. I can be a vegetarian. I can be a vegan. I could just not like rabbit. And I'd still hunt rabbits because it's not the rabbit that I want. It's profit. It's not even necessarily any consumption good at all. It may be that I don't like rabbit, don't like horse, don't like frog's legs. I don't know what. I may just want to accumulate money, profit. The purpose of production under capitalism is not to create use values, but to create surplus values. You hire workers not to make things you want, but to make things that you can sell to make a profit. Now, okay, so I make a profit. What happens next? I've got all that money. I've got the profit. I've got the money I started out with. I hire more workers. With the profits I made, I not only hire Beowulf again, but I hire Joey up the street. The really cute Bernese poodle cross who is the most adorable looking dog around. I hire the two of them to go hunting rabbits. They hunt rabbits. I sell the rabbits. I make profit again. I'm doing really well. I hire another dog. I hire three. I hire four. What brings it, when do I stop? Well, think about it. What's happening to the dogs in the neighborhood? They were working for me. I started running out of dogs to hire. I go to another neighborhood, I hire some more dogs. I start running out of dogs to hire, so I start raising wages, because it's not only me. If my capitalist process is working well, Michela's is working well, Dan's working Well, everybody's expanding. Profits are good. All the capitalists are happy. They're sucking up labor. They're draining what Marx calls the reserve army of the unemployed, until they're no unemployed. We started out in a recession and now we're in a boom. The economy's expanding. So I go, I bring dogs up from Dixie. I get Dixie dogs. Maybe I get dogs from Canada. You know, I start bringing them in. Then I go to my neighbors who keep their dogs inside. I say, well, will you let me hire your dog who's involved in home production, taking care of your kids and things like that. And we start drawing labor in from all the sources we can get and wages start going up. Now what's happening to my profits? I'm having trouble getting dogs. I'm raising wages. My dogs are eating well. They're getting some of the rabbit now. There's less of it to go for sale. My profits are going away. I wake up one morning and I say, wait a second, I've got lots of dogs working for me, but I'm not making any money from it. I'll fire some of the dogs. And the economy suddenly goes into a downturn because of a squeeze on profits caused by rising wages during the boom. So the economy goes down. And when I'm laying off my dogs and I'm not buying things, other people are in the same situation. Dan's laying people off. Dan's not buying things. I'm not buying things from Dan. He's not buying things from me. We're both going broke. And before you know it, you're in an economic crisis. The economy swings down until a point where wages fall, the reserve army, the unemployed is replenished, and you start the cycle again with another expansion. So Marxism has an equilibrium, a sense that there's some level of employment where everybody will be employed and you're cycling around that. Overshooting, undershooting, overshooting, undershooting, up and down as the economy cycles through a business cycle around the equilibrium level of unemployment without ever staying there. You have a prediction here. Whatever is happening, it's not gonna last. You'll keep going in one direction, then you'll go down in the other direction, then you'll reverse and go back in the first direction. You have a dynamic in Marxism. But, think to note, Marx, who read Sey and didn't like him very much and read Ricardo and did like him, is still operating within that classical sense that there is an equilibrium and things will kind of gravitate in that direction. Next, we'll talk about Keynes, who had a very different sense of the equilibrium. And until then, have a nice day. Bye-bye.