Crisis theory

Crisis theory is generally associated with Marxian economics. In this context crisis refers to what is called, even currently and outside Marxian theory in many European countries a "conjuncture" or especially sharp bust cycle of the regular boom and bust pattern of what Marxists term "chaotic" capitalist development, which, if no countervailing action is taken, develops into a recession or depression - see, for example, 1994 economic crisis in Mexico, Argentine economic crisis (1999-2002), South American economic crisis of 2002, Economic crisis of Cameroon, Financial crisis of 2007–2010, Great Depression, etc. In terms of historical materialism, such crises repeat until objective and subjective factors combine to precipitate the transition to the new mode of production.


Causes of crises

In Marxist terms, the economic crises are crises of overproduction and immiseration of the workers who, were it not for the capitalist control of the society, would be the determiners of both demand and production in the first place.[1][2]

Karl Marx in his many works (published and unpublished) suggested several different theories, none of them free from controversy to explain how this worked out in particular circumstances. In his mature work his theory of crisis is framed as a Law of Tendency for the Rate of Profit to Fall combined with a discussion of various counter tendencies, which may slow or modify its impact. A key characteristic of these theoretical factors is that none of them are natural or accidental in origin but instead arise from systemic elements of capitalism as a mode of production and basic social order. In Marx's words, "The real barrier of capitalist production is capital itself".[3]

These systemic factors include the classical 3:

  • Full employment profit squeeze. Capital accumulation can pull up the demand for labor power, raising wages. If wages rise "too high," it hurts the rate of profit, causing a recession.
  • The tendency of the rate of profit to fall. The accumulation of capital, the general advancement of techniques and scale of production, and the inexorable trend to oligopoly by the victors of capitalist market competition, all involve a general tendency for the degree of capital intensity, i.e., the "organic composition of capital" of production to rise. All else constant, this leads to a fall in the rate of profit, which leads to a slow-down of accumulation and attempts to remedy this either within the circuit of production or by non-production means such as the financialization based booms of the 1920s or 1990s and early 2000s. Since only real production can be the basis of sustained accumulation at the macroeconomic and international scale, the failure of such remedies can result in panic and systemic crisis.

However, as stated above, all such factors resolve to the synthetic viewpoint that all such crises are crises of over and/or misappropriated production relative to the ability and/or willingness of the workers who generate the bulk of demand to consume.


It is a tenet of many Marxists groupings that crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the mode of production and the development of productive forces reach the final point of failure, determined by the quality of their leadership, the development of the consciousness of the various social classes, and other "subjective factors".

Thus the degree of "tuning" necessary for intervention in otherwise "perfect" market mechanisms becomes more and more extreme as the time in which the capitalist order is a progressive factor in the development of productive forces recedes further and further into the past. But the subjective factors are the explanation for why purely objective factors such as the severity of a crisis, the rate of exploitation, etc. do not alone determine the revolutionary upsurge. A common example is the contrast of the oppression of the working classes in France in centuries prior to 1789 which although greater did not lead to social revolution as it did once the complete correlation of forces[4][5][6] appeared.


The place of crisis theory within Marx's theory is central and recurs throughout his writings and correspondence. This is one of the abiding and most revolutionary aspects of Marx's work. Alongside Lenin’s complementary study of the "barbarous dynamic" of capitalism,[7] this theory underpins marxists’ understanding of the enduring necessity for systemic change. Its contested treatment is therefore unsurprising, and as Roman Rosdolsky explains … “The assertion that Marx did not propose a ‘breakdown theory’ is primarily attributable to the revisionist interpretation of Marx before and after the First World War. Rosa Luxemburg and Henryk Grossman both rendered inestimable theoretical services by insisting, as against the revisionists, on the breakdown theory.”[8] More recently David Yaffe 1972,1978 and Tony Allen et al 1978,1981 in using the theory to explain the conditions of the 1970’s and 80’s re-introduced the theory to a new generation and gained new readers for Grossman's presentation of Marx's crisis theory.

An attempt was made to re-present aspects of the working out of the theory in a mathematical form in the work of Henryk Grossman. Central to the argument is the claim that, within a given business cycle, the accumulation of surplus from year to year leads to a kind of top-heaviness, in which a relatively fixed number of workers have to add profit to an ever-larger lump of investment capital. This observation leads to what is known as Marx's law of the tendency of the rate of profit to fall. Unless certain countervailing possibilities are available, the exponential growth of capital out-paces the growth in labor productivity, so the profits of economic activity have to be shared out more thinly among capitals, i.e., at a lower profit rate. When countervailing tendencies are unavailable or exhausted, the system requires the destruction of capital values in order to return to profitability.

Paul Mattick's Economic Crisis and Crisis Theory published by Merlin Press in 1981 is an accessible introduction and discussion derived from Grossman's work. François Chesnais's [1984] chapter Marx's Crisis Theory Today in Christopher Freeman ed. Design, Innovation and Long Cycles in Economic Development Frances Pinter, London, discussed the continuing relevance of the theory.

Difference between Marxists and Keynesians

Keynesian Economics which attempts a "middle way" between laissez-faire, unadulterated capitalism and state guidance and partial control of economic activity, such as in the French dirigisme or the policies of the Golden Age of Capitalism attempts to address such crises with the policy of having the state actively supplying the deficiencies of unaltered markets.

Marxists and Keynesians approach and apply the concept of economic crisis in distinct and opposite ways. The Keynesian approach attempts to stay strictly within the economic sphere and describes 'boom' and 'bust' cycles that balance out. Marxists, on the other hand, see economic crisis as part of the larger crisis of the social order they wish to supplant.[9]

There is also a Post Keynesian economics debt-crisis theory of Hyman Minsky.

See also


  1. ^ "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit." Capital, Volume III Part V Division of Profit into Interest and Profit of Enterprise. Interest-Bearing Capital § II Ch. XXX Money-Capital and Real Capital p. 484 in the New World paperback edition.
  2. ^ Money-Capital and Real Capital ¶ 20
  3. ^ "Ch. 15 Vol 3 of Capital".
  4. ^ Correlation of Forces 'A Revolutionary Legacy' Major Richard E. Porter
  5. ^ "correlation of forces", online dictionary
  6. ^ Correlation of Forces and Means: Quantifying Modern Operations
  7. ^ Lenin, Imperialism
  8. ^ Rosdolsky 1980.382 fn32
  9. ^ "'Seize the Crisis!'" Samir Amin, Monthly Review December 2009

External links

Further reading

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