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Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a
capitalist system Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private pr ...
, is associated with
Marxian critique of political economy Critique of political economy or critique of economy is a form of social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resource allocation and ...
, and was further popularised through Marxist economics.


History

Earlier analysis by
Jean Charles Léonard de Sismondi Jean Charles Léonard de Sismondi (also known as Jean Charles Leonard Simonde de Sismondi) (; 9 May 1773 – 25 June 1842), whose real name was Simonde, was a Swiss historian and political economist, who is best known for his works on French and ...
provided the first suggestions of the systemic roots of Crisis. "The distinctive feature of Sismondi's analysis is that it is geared to an explicit dynamic model in the modern sense of this phrase ... Sismondi's great merit is that he used, systematically and explicitly, a schema of periods, that is, that he was the first to practice the particular method of dynamics that is called period analysis". Marx praised and built on Sismondi's theoretical insights.
Rosa Luxemburg Rosa Luxemburg (; ; pl, Róża Luksemburg or ; 5 March 1871 – 15 January 1919) was a Polish and naturalised-German revolutionary socialism, revolutionary socialist, Marxism, Marxist philosopher and anti-war movement, anti-war activist. Succ ...
and
Henryk Grossman Henryk Grossman (alternative spelling: ''Henryk Grossmann''; 14 April 1881 – 24 November 1950) was a Polish economist, historian, and Marxist revolutionary active in both Poland and Germany. Grossman's key contribution to political-economic ...
both subsequently drew attention to both Sismondi's work on the nature of capitalism, and as a reference point for Karl Marx. Grossman in particular pointed out how Sismondi had contributed to the development of a series of Marx's concepts including crises as a necessary feature of capitalism, arising from its contradictions between forces and relations of production, use and exchange value, production and consumption, capital and wage labor. His "inkling ... that the bourgeois forms are only transitory" was also distinctive.
John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to ...
in his ''Of the Tendency of Profits to a Minimum'' which forms Chapter III of Book IV of his '' Principles of Political Economy'' and Chapter V, ''Consequences of the Tendency of Profits to a Minimum'', provides a conspectus of the then accepted understanding of a number of the key elements, after
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
, but without
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
's theoretical working out of the theory that
Frederick Engels Friedrich Engels ( ,"Engels"
'' Capital, Volume III ''Capital. A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole'' (german: Das Kapital. Kritik der politischen Ökonomie Dritter Band. Buch III: Der Gesammtprocess Der Kapitalistischen Produktion), is the ...
''. Marx's crisis theory, embodied in " ... the law of profitability did not appear until the publication of apitalVolume Three in 1894. Grundrisse was not available to anybody until well into the 20th Century ... " and therefore was only partially understood even among leading Marxists at the beginning of the twentieth-century. His notes, 'Books of Crisis' otebooks B84, B88 and B91remain unpublished and have seldom been referred to. A relatively small group including
Rosa Luxemburg Rosa Luxemburg (; ; pl, Róża Luksemburg or ; 5 March 1871 – 15 January 1919) was a Polish and naturalised-German revolutionary socialism, revolutionary socialist, Marxism, Marxist philosopher and anti-war movement, anti-war activist. Succ ...
and
Lenin Vladimir Ilyich Ulyanov. ( 1870 – 21 January 1924), better known as Vladimir Lenin,. was a Russian revolutionary, politician, and political theorist. He served as the first and founding head of government of Soviet Russia from 1917 to 1 ...
attempted to defend the revolutionary implications of the theory, while others, first
Eduard Bernstein Eduard Bernstein (; 6 January 1850 – 18 December 1932) was a German social democratic Marxist theorist and politician. A member of the Social Democratic Party of Germany (SPD), Bernstein had held close association to Karl Marx and Friedr ...
and then Rudolf Hilferding, argued against its continued applicability, and thereby founded one of the mainstreams of revision of the interpretation of Marx's ideas after Marx.
Henry Hyndman Henry Mayers Hyndman (; 7 March 1842 – 20 November 1921) was an English writer, politician and socialist. Originally a conservative, he was converted to socialism by Karl Marx's ''Communist Manifesto'' and launched Britain's first left-wi ...
had written a short history of the crises in the 19th Century in 1892, attempting to present, popularise and defend Marx's theory of crisis in lectures delivered in 1893 and 1894 and published in 1896. Max Beer also asserted the centrality of Marx's crisis theory in his pedagogic contributions ''The Life and Teaching of Karl Marx'' 1925 and his ''A Guide to the Study of Marx: An Introductory Course for Classes and Study Circles'' 1924. In the late 1920s and early 30s, Max Beer worked at the Institut fur Sozialforschung and was a friend of Henryk Grossman. It was
Henryk Grossman Henryk Grossman (alternative spelling: ''Henryk Grossmann''; 14 April 1881 – 24 November 1950) was a Polish economist, historian, and Marxist revolutionary active in both Poland and Germany. Grossman's key contribution to political-economic ...
in 1929 who later most successfully rescued Marx's theoretical presentation ... 'he was the first Marxist to systematically explore the tendency for the organic composition of capital to rise and hence for the rate of profit to fall as a fundamental feature of Marx's explanation of economic crises in ''Capital''.' Apparently entirely independently Samezō Kuruma was also in 1929 drawing attention to the decisive importance of Crisis theory in Marx's writings, and made the explicit connection between Crisis theory and the theory of imperialism. Following the extensive setbacks to independent working class politics, the widespread destruction both of people, property and capital value, the 1930s and '40s saw attempts to reformulate Marx's analysis with less revolutionary consequences, for example in
Joseph Schumpeter Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at H ...
's concept of
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...
and his presentation of Marx's crisis theory as a prefiguration of aspects of what Schumpeter, and others, championed as merely a theory of
business cycle Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...
. "... more than any other economist
arx Arx, ARX, or ArX may refer to: * ARX (Algorithmic Research Ltd.), a digital security company *ARX (gene), Aristaless related homeobox *ARX (operating system), an operating system * ArX (revision control), revision control software *Arx (Roman), a ...
identified cycles with the process of production and operation of additional plant and equipment". A survey of the competing theories of crisis in the different strands of political economy and economics was provided by Anwar Shaikh in 1978 and by
Ernest Mandel Ernest Ezra Mandel (; also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter (5 April 1923 – 20 July 1995), was a Belgian Marxian economist, Trotskyist activist and theorist, and Holocaust survivor. He f ...
in his 'Introduction' to the Penguin edition of Marx's ''Capital Volume III'' particularly in the section 'Marxist theories of crisis' (p. 38 et seq) where it appears that Mandel says more about the theoretical confusion on this question at that time, even among thoughtful and influential Marxists, than offering an excursus or introduction to Marx's crisis theory. There have been attempts particularly in periods of capitalist growth and expansion, most notably in the long
Post-War Boom In Western usage, the phrase post-war era (or postwar era) usually refers to the time since the end of World War II. More broadly, a post-war period (or postwar period) is the interval immediately following the end of a war. A post-war period ...
to both explain the phenomenon and to argue that Marx's strong statements of its 'lawlike' fundamental character under capitalism have been overcome in practice, in theory or both. As a result, there have been persistent challenges to this aspect of Marx's theoretical achievement and reputation. Keynesians argue that a "crisis" may refer to an especially sharp bust cycle of the regular
boom and bust Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examini ...
pattern of "chaotic"
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
development, which, if no countervailing action is taken, could continue to develop into a
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
or depression. It continues to be argued in terms of
historical materialism Historical materialism is the term used to describe Karl Marx's theory of history. Marx locates historical change in the rise of class societies and the way humans labor together to make their livelihoods. For Marx and his lifetime collaborat ...
theory, that such crises will repeat until objective and subjective factors combine to precipitate the transition to the new mode of production either by sudden collapse in a final crisis or gradual erosion of the basing on
competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, ind ...
and the emerging dominance of
cooperation Cooperation (written as co-operation in British English) is the process of groups of organisms working or acting together for common, mutual, or some underlying benefit, as opposed to working in competition for selfish benefit. Many animal a ...
.


Causes of crises

The concept of periodic crises within capitalism dates back to the works of the
Utopian socialists Utopian socialism is the term often used to describe the first current of modern socialism and socialist thought as exemplified by the work of Henri de Saint-Simon, Charles Fourier, Étienne Cabet, and Robert Owen. Utopian socialism is often de ...
Charles Fourier François Marie Charles Fourier (;; 7 April 1772 – 10 October 1837) was a French philosopher, an influential early socialist thinker and one of the founders of utopian socialism. Some of Fourier's social and moral views, held to be radical ...
and
Robert Owen Robert Owen (; 14 May 1771 – 17 November 1858) was a Welsh people, Welsh textile manufacturer, philanthropist and social reformer, and a founder of utopian socialism and the cooperative movement. He strove to improve factory working conditio ...
and the Swiss economist Léonard de Sismondi.
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
considered his crisis theory to be his most substantial theoretical achievement. He presents it in its most developed form as ''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." Roman Rosdolsky observed that "Marx concludes by saying that the law of the tendency of the rate of profit to fall is in every respect the most important law of modern political economy ... despite its simplicity, it has never before been grasped and even less consciously articulated ... It is from the historical standpoint the most important law." 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 BASIC (Beginners' All-purpose Symbolic Instruction Code) is a family of general-purpose, high-level programming languages designed for ease of use. The original version was created by John G. Kemeny and Thomas E. Kurtz at Dartmouth College ...
social order The term social order can be used in two senses: In the first sense, it refers to a particular system of social structures and institutions. Examples are the ancient, the feudal, and the capitalist social order. In the second sense, social order ...
. In Marx's words, "The ''real barrier'' of capitalist production is ''capital itself''". The law of the falling rate of profit, the unexpected consequence of the
profit motive In economics, the profit motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is "to make money" - not in the sense of increasing the firm's ...
, is described by Marx as a "two-faced law with the same causes for a decrease in the rate of profits and a simultaneous increase of the mass of profits". "In short, the same development of the social productivity of labour expresses itself in the course of capitalist development on the one hand in a tendency to a progressive fall of the rate of profit, and on the other hand in a progressive increase of the absolute mass of the appropriated surplus value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both."


Crisis, or cycles? ''Alternative Marxist theories of crises''

In 1929 the Communist Academy in Moscow published "The Capitalist Cycle: An Essay on the Marxist Theory of the Cycle", a 1927 report by Bolshevik theoretician Pavel Maksakovsky to the seminar on the theory of reproduction at the Institute of Red Professors of the Communist Academy. This work explains the connection between crises and regular business cycles based on the cyclical dynamic disequilibrium of the reproduction schemes in volume 2 of ''Capital''. This work rejects the various theories elaborated by "Marxian" academics. In particular it explains that the collapse in profits following a boom and crisis is not the result of any long term tendency but is rather a cyclical phenomenon. The recovery following a depression is based on replacement of labor-intensive techniques that have become uneconomic at the low prices and profit margins following the crash. This new investment in less labor-intensive technology takes market share from competitors by producing at lower cost while also lowering the average rate of profit and thus explains the actual mechanism for both economic growth with improved technology and a long run tendency for the rate of profit to fall. The recovery eventually leads to another boom because the lag for gestation of fixed capital investment results in prices that continue such investment until eventually the completed projects deliver overproduction and a crash. There is a long history of interpreting crisis theory, rather as a theory of cycles than of crisis. An example in 2013 by Peter D. Thomas and Geert Reuten, "Crisis and the Rate of Profit in Marx's Laboratory" suggests controversially that even Marx's own critical analysis can be claimed to have transitioned from the former toward the latter.


Similarities (and differences) in the work of J. S. Mill & Marx

There are several elements in Marx's presentation which attest to his familiarity with Mill's formulations, notably Mill's treatment of what Marx would subsequently call counteracting tendencies: destruction of capital through commercial revulsions §5, improvements in production §6, importation of cheap necessaries and instruments §7, and emigration of capital §8. "In Marx's system, as in Mill's the falling rate of profit is a long-run tendency precisely because of the "counteracting influences at work which thwart and annul the effects of this general law, leaving to it merely the character of a tendency." These counteracting forces are as follows: (1) An increase in the intensity of exploitation (via intensification of labor or the extension of the working day); (2) Depression of wages below their value ... ; (3) Cheapening of the elements of constant capital (via increased productivity); (4) Relative overproduction (which keeps many workers employed in relatively backward industries, such as luxury goods, where the organic composition of capital is low); (5) Foreign trade (which offers cheaper commodities and more profitable channels of investment); and (6) The increase of "stock capital" (interest bearing capital, whose low rate of return is not averaged with others). Again, like Mill, Marx indicates the post-crisis waste of capital which restores profitability, but this is not mentioned specifically as a counter-tendency until the cyclical nature of the system is demonstrated. On the other hand, Mill does not refer to depression of wages below their value, relative overpopulation, or the increase in "stock capital". But on the most important counter-tendencies, that is, the effects of increasing productivity at home in cheapening commodities and of foreign trade in providing both cheaper goods and greater profits, Marx and Mill are in accord."


Application

It is a tenet of many Marxist groupings that crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the
relations of production Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in ''Das Kapital''. It is first explicitly used in Marx's publish ...
and the development of productive forces reach the final point of failure, determined by the quality of their leadership, the development of the
consciousness Consciousness, at its simplest, is sentience and awareness of internal and external existence. However, the lack of definitions has led to millennia of analyses, explanations and debates by philosophers, theologians, linguisticians, and scien ...
of the various
social class A social class is a grouping of people into a set of hierarchical social categories, the most common being the upper, middle and lower classes. Membership in a social class can for example be dependent on education, wealth, occupation, inc ...
es, and other "subjective factors". Thus, according to this theory, the degree of "tuning" necessary for intervention in otherwise "perfect" market mechanisms will become 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 In Marxian economics, the rate of exploitation is the ratio of the total amount of unpaid labor done ( surplus-value) to the total amount of wages paid (the value of labour power). The rate of exploitation is often also called the rate of surpl ...
, 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 appeared. Kuruma in his 1929 ''Introduction to the Study of Crisis'' ends by noting "... my use of the term "theory of crisis" is not limited to the theory of economic crisis. This term naturally also encompasses the study of the necessity of imperialist world war as the explosion of the contradictions peculiar to modern capitalism. Imperialist world war itself is precisely crisis in its highest form. Thus, the theory of imperialism must be an extension of the theory of crisis." David Yaffe, in his application of the theory in the conditions of the end of the Post War Boom in the early 1970s, made an influential link to the expanding role of the state's interventions into economic relations as a politically critical element in attempts by capital to counteract the tendency and find new ways to make the working class pay for the crisis.


Influence

Crisis theory is central to Marx's writings; it helps underpin Marxists' understanding of a need for systemic change. It is controversial; Roman Rosdolsky said "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 Rosa Luxemburg (; ; pl, Róża Luksemburg or ; 5 March 1871 – 15 January 1919) was a Polish and naturalised-German revolutionary socialism, revolutionary socialist, Marxism, Marxist philosopher and anti-war movement, anti-war activist. Succ ...
,
Henryk Grossman Henryk Grossman (alternative spelling: ''Henryk Grossmann''; 14 April 1881 – 24 November 1950) was a Polish economist, historian, and Marxist revolutionary active in both Poland and Germany. Grossman's key contribution to political-economic ...
nd_Samezō_Kuruma.html" ;"title="Samezō_Kuruma.html" ;"title="nd Samezō Kuruma">nd Samezō Kuruma">Samezō_Kuruma.html" ;"title="nd Samezō Kuruma">nd Samezō Kurumarendered inestimable theoretical services by insisting, as against the revisionists, on the breakdown theory." More recently David Yaffe 1972,1978 and Tony Allen et al. 1978,1981 in using the theory to explain the conditions at the end of the post-war boom of the 1970s and 1980s re-introduced the theory to a new generation and gained new readers for Grossman's 1929 presentation of Marx's Crisis theory. Rosa Luxemburg lectured on the 'History of Theories of Economic Crises' at the SPD's Party School in Berlin (possibly in 1911, since the typescript includes a reference to statistics from 1911).
Henryk Grossman Henryk Grossman (alternative spelling: ''Henryk Grossmann''; 14 April 1881 – 24 November 1950) was a Polish economist, historian, and Marxist revolutionary active in both Poland and Germany. Grossman's key contribution to political-economic ...
's re-presentation of both the central importance of the theory for Marx and the working out of its elements in a partially mathematical form was published in 1929. 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 The tendency of the rate of profit to fall (TRPF) is a theory in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis ...
. Unless certain countervailing possibilities are available, the growth of capital out-paces the growth of labour, 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. Hence creating the underlying preconditions for
post-war boom In Western usage, the phrase post-war era (or postwar era) usually refers to the time since the end of World War II. More broadly, a post-war period (or postwar period) is the interval immediately following the end of a war. A post-war period ...
. 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.
Andrew Kliman Andrew Kliman (born 1955) is an American economist and professor of Economics. He is the author of several publications on Marxian economics. His book ''Reclaiming Marx's "Capital"'' defends the Temporal Single System Interpretation of Karl Marx' ...
has made major new contributions with a thorough and trenchant philosophical and logical defence of the consistency of the theory in Marx's work, against a number of the criticisms proposed against important aspects of Marx's theory since the 'seventies. Francois Chesnais has provided an important exploration of the 'fictitious capital' or 'Finance Capital' aspects of the theory in a review of both historical and contemporary empirical research. Guglielmo Carchedi and Michael Roberts in their edited collection ''World in Crisis''
018 018 may refer to * Air Canada Flight 018, an airline flight from Hong Kong to Vancouver, Canada, illegally boarded by a Chinese man wearing a disguise in 2010 * Area code 018, a telephone area code in Uppsala, Sweden * BMW 018, an experimental turb ...
provide a valuable review of the empirical analyses that support and defend the thesis, with contributions from authors in the UK, Greece, Spain, Argentina, Mexico, Brazil, Australia and Japan.


Difference between Marxists and Keynesians

Keynesian Economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...
which attempts a "
middle way The Middle Way ( pi, ; sa, ) as well as "teaching the Dharma by the middle" (''majjhena dhammaṃ deseti'') are common Buddhist terms used to refer to two major aspects of the Dharma, that is, the teaching of the Buddha.; my, အလယ်� ...
" between
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
, unadulterated capitalism and state guidance and partial control of economic activity, such as in the French
dirigisme Dirigisme or dirigism () is an economic doctrine in which the state plays a strong directive (policies) role contrary to a merely regulatory interventionist role over a market economy. As an economic doctrine, dirigisme is the opposite of ''lai ...
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. Marx 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. Marx observed and theorised economic crisis as necessarily developing out of the contradictions arising from the dynamics of capitalist production relations. "Where Marx differs from Keynes is precisely on the question of the falling rate of profit. It is not the propensity to consume or subjective expectations about future profitability that is crucial for Marx. It is the rate of exploitation and the social productivity of labour that are the key considerations and these in relation to the existing capital stock. While for Keynes the low marginal productivity of capital has its cause in an over-abundance of capital in relation to profit expectations, and therefore to a 'potential' over-production of commodities (the capitalist will not invest). For Marx the overproduction of capital is only relative to the social productivity of labour and the existing exploitation conditions. It represents an insufficient mass of surplus-value in relation to total capital. So that for Marx the crisis is, and can only be, resolved by expanding profitable production and accumulation, while for Keynes, it can supposedly be remedied by increasing 'effective demand' and this allows for government induced-production." Yaffe noted in 1972 that "... passages in Volume III referring to the underconsumption of the masses in no way can be interpreted as an underconsumptionist theory of crisis. The citation usually given in support of an 'underconsumptionist theory of crisis' is Marx's statement that "The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit." The above passage contains within it no more than a description or a restatement of the capitalist relations of production. Marx called it a tautology to explain the crisis by lack of effective consumption ..." Other explanations have been formulated, and much debated, including: * ''The
tendency of the rate of profit to fall The tendency of the rate of profit to fall (TRPF) is a theory in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis ...
''. The
accumulation of capital Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form o ...
, the general advancement of techniques and scale of production, and the inexorable trend to
oligopoly An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result f ...
by the victors of capitalist market competition, all involve a general tendency for the degree of
capital intensity Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, ...
, i.e., the " organic composition of capital" of production to rise. All else constant, this is claimed to lead to a fall in the
rate of profit In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment. Historical cost ''vs.'' mark ...
, which would slow down accumulation. * ''
Full employment Full employment is a situation in which there is no cyclical or deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely structural and frictional, may remain. F ...
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 In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment. Historical cost ''vs.'' mark ...
, causing a recession. The interaction between the
employment rate The Organisation for Economic Co-operation and Development defines the employment rate as the employment-to-population ratio. This is a statistical ratio that measures the proportion of a country's working age population (statistics are often gi ...
and the wage share has been mathematically formalised by the
Goodwin model The Goodwin model, sometimes called Goodwin's class struggle model, is a model of endogenous economic fluctuations first proposed by the American economist Richard M. Goodwin in 1967. It combines aspects of the Harrod–Domar growth model with the ...
. * ''
Overproduction In economics, overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment. The d ...
''. If the capitalists win the
class struggle Class conflict, also referred to as class struggle and class warfare, is the political tension and economic antagonism that exists in society because of socio-economic competition among the social classes or between rich and poor. The form ...
to push wages down and labor effort up, raising the rate of
surplus value In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cos ...
, then a capitalist economy faces regular problems of excess producer supply and thus inadequate
aggregate demand In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is ...
and its corollary the
underconsumption Underconsumption is a theory in economics that recessions and stagnation arise from an inadequate consumer demand, relative to the amount produced. In other words, there is a problem of overproduction and overinvestment during a demand crisis. The ...
ist theory. On which Engels comments "the underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes. The underconsumption of the masses is a necessary condition of all forms of society based on exploitation, consequently also of the capitalist form; but it is the capitalist form of production which first gives rise to crises. The underconsumption of the masses is therefore also a prerequisite condition for crises, and plays in them a role which has long been recognised. But it tells us just as little why crises exist today as why they did not exist before" * The
Post Keynesian economics Post-Keynesian economics is a school of economic thought with its origins in '' The General Theory'' of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney ...
debt-crisis theory of
Hyman Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research ...
. * A variety of theories of
Monopoly Capitalism ''Monopoly Capital: An Essay on the American Economic and Social Order'' is a 1966 book by the Marxian economists Paul Sweezy and Paul A. Baran. It was published by Monthly Review Press. It made a major contribution to Marxian theory by shifti ...
have also been propounded as attempts to explain through exogenous factors, why the tendency might not become apparently manifest in periods of capital accumulation, under various historical circumstances. Joseph A. Schumpeter ''History of Economic Analysis'' Allen & Unwin 1954


See also

*
Capital, Volume III ''Capital. A Critique of Political Economy. Volume III: The Process of Capitalist Production as a Whole'' (german: Das Kapital. Kritik der politischen Ökonomie Dritter Band. Buch III: Der Gesammtprocess Der Kapitalistischen Produktion), is the ...
*
Tendency of the rate of profit to fall The tendency of the rate of profit to fall (TRPF) is a theory in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis ...
* Theory of Imperialism *
Criticisms of Marxism Criticism of Marxism (also known as Anti-Marxism) has come from various political ideologies and academic disciplines. This includes general intellectual criticism about dogmatism, a lack of internal consistency, criticism related to materia ...
*
Economic collapse Economic collapse, also called economic meltdown, is any of a broad range of bad economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), to a ...
*
Late capitalism Late capitalism, late-stage capitalism, or end-stage capitalism is a term first used in print by German economist Werner Sombart around the turn of the 20th century. In the late 2010s, the term began to be used in the United States and Canada t ...
* List of economic crises *
Marxism Marxism is a Left-wing politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...
*
Neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...
*
Underconsumption Underconsumption is a theory in economics that recessions and stagnation arise from an inadequate consumer demand, relative to the amount produced. In other words, there is a problem of overproduction and overinvestment during a demand crisis. The ...
*
Critique of political economy Critique of political economy or critique of economy is a form of social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resource allocation and ...


References


Further reading

* Allen, Tony et al. 978''The Recession: Capitalist Offensive and the Working Class'' RCP 3, July 1978, Junius * Allen, Tony
981 Year 981 ( CMLXXXI) was a common year starting on Saturday (link will display the full calendar) of the Julian calendar. Events Births * Abu'l-Qasim al-Husayn ibn Ali al-Maghribi, Arab statesman (d. 1027) * Giovanni Orseolo, Venetian ...
''World in Recession'' in RCP 7, July 1981, Junius * Bell, Peter and Cleaver, Harry
982 Year 982 ( CMLXXXII) was a common year starting on Sunday (link will display the full calendar) of the Julian calendar. Events By place Europe * Summer – Emperor Otto II (the Red) assembles an imperial expeditionary force at Tar ...
''Marx's Theory of Crisis as a Theory of Class Struggle'' first published in 'Research in Political Economy', Vol 5(5): 189–261, 1982 * Brooks, Mick
012 012 may refer to: * Tyrrell 012, a Formula One racing car * The dialing code for Pretoria, South Africa See also * 12 (disambiguation) Twelve or 12 may refer to: * 12 (number) * December, the twelfth and final month of the year Years * 12 BC ...
''Capitalist Crisis Theory and Practice: A Marxist Analysis of the Great Recession 2007–11'' eXpedia * Bullock, Paul and Yaffe, David [1975
''Inflation, the Crisis and the Post-War Boom''
RC 3/4 November 1975, RCG * Guglielmo Carchedi & Michael Roberts (economist), Michael Roberts eds.
018 018 may refer to * Air Canada Flight 018, an airline flight from Hong Kong to Vancouver, Canada, illegally boarded by a Chinese man wearing a disguise in 2010 * Area code 018, a telephone area code in Uppsala, Sweden * BMW 018, an experimental turb ...
''World in Crisis: A Global Analysis of Marx's Law of Profitability'' Haymarket Books, Chicago, Illinois * Chesnais, François 984''Marx's Crisis Theory Today'' in Christopher Freeman ed. ''Design, Innovation and Long Cycles in Economic Development'' 2nd ed. 1984 Frances Pinter, London * Chesnais, François [Feb 2012
''World Economy - The Roots of the World Economic Crisis''
in International Viewpoint Online magazine : IV445 * Chesnais, François [first ed 2016] ''Finance Capital Today: Corporations and Banks in the Lasting Global Slump Haymarket Books'' Chicago, IL, 2017 * Clarke, Simon [1994
''Marx's Theory of Crisis'' Macmillan
* Day, Richard B.
981 Year 981 ( CMLXXXI) was a common year starting on Saturday (link will display the full calendar) of the Julian calendar. Events Births * Abu'l-Qasim al-Husayn ibn Ali al-Maghribi, Arab statesman (d. 1027) * Giovanni Orseolo, Venetian ...
''The 'Crisis' and the 'Crash': Soviet Studies of the West'' (1917–1939) NLB * Day, Richard B. & Daniel Gaido (trans. & eds)
012 012 may refer to: * Tyrrell 012, a Formula One racing car * The dialing code for Pretoria, South Africa See also * 12 (disambiguation) Twelve or 12 may refer to: * 12 (number) * December, the twelfth and final month of the year Years * 12 BC ...
''Discovering Imperialism: Social Democracy to World War I'', Haymarket * Grossman, Henryk [1922
''The Theory of Economic Crises''
* Grossman, Henryk [1929,1992
''The Law of Accumulation and Breakdown of the Capitalist System''
Pluto Full english translation Jairus Banaji : Henryk Grossman Works, Volume 3: The Law of Accumulation and Breakdown of the Capitalist System, Being Also a Theory of Crises: 233 Edited and introduced Rick Kuhn(Historical Materialism Book)Brill 2021 * Grossman, Henryk [1941
''Marx, Classical Political Economy and the Problem of Dynamics''
* Grossman, Henryk [1932,2013
''Fifty years of struggle over Marxism 1883‐1932''
* Grossman, Henryk [2017] ''Capitalism's Contradictions: Studies in Economic Theory before and after Marx'' Ed. Rick Kuhn Trans. Birchall, Kuhn, O'Callaghan. Haymarket, Chicago * H.M. Hyndman [1892
''Commercial Crises of the Nineteenth Century''
London * H.M. Hyndman ''Economics_of_Socialism''
_The_Twentieth_Century_Press,_London *_Andrew_Kliman.html" ;"title="896
''Economics of Socialism''
The Twentieth Century Press, London * Andrew Kliman">Kliman, Andrew
007 The ''James Bond'' series focuses on a fictional British Secret Service agent created in 1953 by writer Ian Fleming, who featured him in twelve novels and two short-story collections. Since Fleming's death in 1964, eight other authors have ...
''Reclaiming "Marx's 'Capital': A Refutation of the Myth of Inconsistency'', Lexington, Lanham * Kliman, Andrew [2011] ''The Failure of Capitalist Production: Underlying Causes of the Great Recession'', London, Pluto * Kliman, Andrew
015 Fifteen or 15 may refer to: *15 (number), the natural number following 14 and preceding 16 *one of the years 15 BC, AD 15, 1915, 2015 Music *Fifteen (band), a punk rock band Albums * ''15'' (Buckcherry album), 2005 * ''15'' (Ani Lorak albu ...
''The Great Recession and Marx's Crisis Theory''. American Journal of Economics and Sociology, 74: 236–277

* Rick Kuhn, Kuhn, Rickbr>''Economic Crisis and Socialist Revolution: Henryk Grossman's Law of accumulation, Its First Critics and His Responses''
postprint, originally published in Paul Zarembka and Susanne Soederberg (eds) ''Neoliberalism in Crisis, Accumulation, and Rosa Luxemburg's Legacy'' Elsevier Jai, Amsterdam, ''Research in Political Economy'', 21, 2004 pp. 181–221 (series). * Kuhn, Rick
007 The ''James Bond'' series focuses on a fictional British Secret Service agent created in 1953 by writer Ian Fleming, who featured him in twelve novels and two short-story collections. Since Fleming's death in 1964, eight other authors have ...
''Henryk Grossman and the Recovery of Marxism'' Urbana and Chicago: University of Illinois Press. * Kuhn, Rick
007 The ''James Bond'' series focuses on a fictional British Secret Service agent created in 1953 by writer Ian Fleming, who featured him in twelve novels and two short-story collections. Since Fleming's death in 1964, eight other authors have ...
br>''Henryk Grossman Capitalist Expansion and Imperialism''
in ISR Issue 56 November–December 2007 * Kuhn, Rick [2013
''Marxist crisis theory to 1932 and to the present: reflections on Henryk Grossman's 'Fifty years of struggle over Marxism
paper to Society of Heterodox Economists Conference, University of New South Wales, Sydney, 2–3 December 2013 * Kuhn, Rick [2017] ''Introduction: Grossman and His Studies of Economic Theory'' in Henryk Grossman [2017] ''Capitalism's Contradictions: Studies in Economic Theory before and after Marx'' Haymarket, Chicago * Kuruma, Samezō [1929
''An Introduction to the Study of Crisis''
Sep. 1929 issue of Journal of the Ohara Institute for Social Research, (vol. VI, no. 1) Translated by Michael Schauerte * Kuruma, Samezō [1930
''An Inquiry into Marx's Theory of Crisis''
Sep. 1930 issue of the Journal of the Ohara Institute for Social Research, (Vol. VII, No. 2) Translated by Michael Schauerte * Kuruma, Samezō ''An_Overview_of_Marx's_Theory_of_Crisis''
first_published_in_August_1936_issue_of_'Journal_of_the_Ohara_Institute_for_Social_Research'._Translated_by_Michael_Schauerte *_ ''An_Overview_of_Marx's_Theory_of_Crisis''
first_published_in_August_1936_issue_of_'Journal_of_the_Ohara_Institute_for_Social_Research'._Translated_by_Michael_Schauerte *_Vladimir_Lenin">Lenin_V.I._[1916
Imperialism,_the_Highest_Stage_of_Capitalism
*_Rosa_Luxemburg.html" ;"title="Vladimir_Lenin.html" ;"title="936
''An Overview of Marx's Theory of Crisis''
first published in August 1936 issue of 'Journal of the Ohara Institute for Social Research'. Translated by Michael Schauerte * Vladimir Lenin">Lenin V.I. [1916
Imperialism, the Highest Stage of Capitalism
* Rosa Luxemburg">Luxemburg, Rosa [2013] (Peter Hudis ed.) ''The Complete Works of Rosa Luxemburg: Volume I: Economic Writings 1'', Verso * Karl Marx, Marx, Karl ''Marx's Economic Manuscript of 1864–1865'' Edited & introduced by Fred Moseley Translated Ben Fowkes, Haymarket 2017 * Mattick, Paul [1974
''Marx and Keynes''
Merlin * Mattick, Paul [1981
''Economic Crisis and Crisis Theory''
Merlin Press * Mattick, Paul [2008]
Review of David Harvey's ''The Limits to Capital''
in ''Historical Materialism'' 16 (4):213-224. * Norfield, Tony 016''The City: London and the Global Power of Finance'', Verso, London * Pradella, Lucia 009''Globalisation and the Critique of Political Economy: New insights from Marx's writings''. Routledge' * Michael Roberts, Roberts, Michael 2018 ''Marx 200 - a review of Marx's economics 200 years after his birth'' Lulu.com * Rosdolsky, Roman
980 Year 980 ( CMLXXX) was a leap year starting on Thursday (link will display the full calendar) of the Julian calendar. Events By place Europe * Peace is concluded between Emperor Otto II (the Red) and King Lothair III (or Lothair IV) a ...
''The Making of Marx's 'Capital Pluto * Rubin, Isaak Illich 979''A History of Economic Thought'', InkLinks, London * Shaikh, Anwar ''An_Introduction_to_the_History_of_Crisis_Theories''
in_'U.S._Capitalism_in_Crisis',_URPE,_New_York *_Schauerte,_E._Michael_007_ The_''James_Bond''_series_focuses_on_a_fictional_British_Secret_Service_agent_created_in_1953_by_writer_Ian_Fleming,_who_featured_him_in_twelve_novels_and_two_short-story_collections._Since_Fleming's_death_in_1964,_eight_other_authors_have__...
'' ''An_Introduction_to_the_History_of_Crisis_Theories''
in_'U.S._Capitalism_in_Crisis',_URPE,_New_York *_Schauerte,_E._Michael_007_ The_''James_Bond''_series_focuses_on_a_fictional_British_Secret_Service_agent_created_in_1953_by_writer_Ian_Fleming,_who_featured_him_in_twelve_novels_and_two_short-story_collections._Since_Fleming's_death_in_1964,_eight_other_authors_have__...
''Samezō_Kuruma">Kuruma,_Samezō's_Life_As_A_Marxist_Economist''_in_'Transitions_in_Latin_America_and_in_Poland_and_Syria:_Research_in_Political_Economy',_Vol_24_281-294 *_Nicholas_Shaxson.html" ;"title="Samezō_Kuruma.html" ;"title="978
''An Introduction to the History of Crisis Theories''
in 'U.S. Capitalism in Crisis', URPE, New York * Schauerte, E. Michael
007 The ''James Bond'' series focuses on a fictional British Secret Service agent created in 1953 by writer Ian Fleming, who featured him in twelve novels and two short-story collections. Since Fleming's death in 1964, eight other authors have ...
''Samezō Kuruma">Kuruma, Samezō's Life As A Marxist Economist'' in 'Transitions in Latin America and in Poland and Syria: Research in Political Economy', Vol 24 281-294 * Nicholas Shaxson">Shaxson, Nicholas 2012 ''Treasure Islands: Tax Havens and the Men Who Stole The World'' Vintage Books, London * Shoul, Bernice [1947
''The Marxian Theory of Capitalist Breakdown''
* Joseph A. Schumpeter ''History of Economic Analysis'' Allen & Unwin 1954 * Ticktin, Hillel
'A Marxist Political Economy of Capitalist Instability and the Current Crisis'
''Critique'', Vol.37. * Vort-Ronald, Pat, [1974
''Marxist Theory of Economic Crisis''
Australian Left Review, 1(43), 1974, 6-13. * Yaffe, David [1972
''The Marxian Theory of Crisis, Capital and the State''
Bulletin of the Conference of Socialist Economists, Winter 1972, pp 5–58 * Yaffe, David [1978
State and the Capitalist Crisis''
2nd ed RCG Reprint


External links



by Karl Marx

by MIA Encyclopedia of Marxism * Chesnais, François 984''Marx's Crisis Theory Today'' in Christopher Freeman ed. Design, Innovation and Long Cycles in Economic Development 2nd ed. 1984 Frances Pinter, London
Audio Recording of Francois Chesnais's presentation published in the above ''Marx's Crisis Theory Today''
[1983](audio .mp3)
"Economic crisis and the responsibility of socialists"
by Rick Kuhn
"Crisis and Hope: Theirs and Ours"
Noam Chomsky Avram Noam Chomsky (born December 7, 1928) is an American public intellectual: a linguist, philosopher, cognitive scientist, historian, social critic, and political activist. Sometimes called "the father of modern linguistics", Chomsky i ...
, 2009
A Critique of Crisis Theory From a Marxist perspective
Current specialist blog and discussion with resources by Sam Williams from January 2009 * For a short video presentation of the theory
Cliff Bowman's video introduction to 'Marx's Theory of Economic Crisis'
Cranfield University, School of Management, posted to YouTube 2009 {{DEFAULTSORT:Crisis Theory Economic crises Marxian economics Marxist theory