Crisis theory
공황론
Theories that try to explain why capitalist economies periodically go through overproduction, mass unemployment and bankruptcy. Marx saw crises not as accidents but as the form in which the contradictions of capitalist production break out, and in various places in Capital he dealt with the difficulty of realising, that is selling, commodities, with disproportions between branches, and with the overaccumulation of capital and the fall in the rate of profit. Because he never completed a single crisis theory, later Marxists have divided and argued over underconsumptionism (mass consumption cannot keep up with production), disproportionality theory (the proportions between branches go wrong), the falling-rate-of-profit theory (a rising organic composition of capital lowers the rate of profit) and profit-squeeze theory (rising wages squeeze profits), among others.
In depth
Why do crises arise under capitalism?
Hunger from bad harvests and war existed before capitalism. Capitalist crises, however, arise not from scarcity but from glut: unsold goods pile up in warehouses, factories stop, and workers who want to work lose their jobs. Marxist crisis theory tries to explain this strange phenomenon from the contradictions of capitalist production. The idea of periodic crises predates Marx: it goes back to the utopian socialists Charles Fourier and Robert Owen and the Swiss economist Léonard de Sismondi.
The possibility of crisis already arises with money. In barter, selling is buying; in a money economy one can sell a commodity and hoard the money instead of buying another, and when sale and purchase come apart the flow of money stops. But possibility alone does not explain why crises recur, and the branches of crisis theory divide according to where they locate the necessity. German-language literature distinguishes two broad types: realisation crises arising from disproportion between branches or from underconsumption, and crises rooted in overaccumulation.
How did Marx explain crises?
In Chapter 15 of Volume III of Capital Marx writes: "The real barrier of capitalist production is capital itself." Because the aim of production is not social need but the self-expansion of capital, capital strives to develop the productive forces without limit yet halts production when it yields no profit. What is in surplus in a crisis, he held, is capital rather than particular commodities: "Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital."
In the same chapter Marx distinguishes extracting surplus-value from realising it, that is, selling the commodities for money. "The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society." This single passage contains all three later branches: the rate of profit and overaccumulation, disproportion, and the power of consumption.
What does underconsumptionism claim?
Underconsumptionism holds that workers' wages cannot buy back all they produce, so demand falls short and crises follow. Sismondi named underconsumption and overproduction as causes of the trade cycle in his Nouveaux principes d'économie politique (1819), and John A. Hobson gave an underconsumption theory of the cycle in The Industrial System (1910). Marxists often cite a sentence from Chapter 30 of Volume III: "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."
Yet in Volume II Marx sharply criticised underconsumptionism: "It is sheer tautology to say that crises are caused by the scarcity of effective consumption, or of effective consumers." He noted that crises are regularly preceded by a period in which wages rise and workers buy more consumer goods. Engels likewise held that the underconsumption of the masses has existed in every society based on exploitation, so "it tells us just as little why crises exist today as why they did not exist before". David Yaffe, a proponent of the falling-rate theory, argued in 1972 that the Chapter 30 passage "in no way can be interpreted as an underconsumptionist theory of crisis."
What does disproportionality theory claim?
Disproportionality theory locates the cause of crises in mismatched proportions between branches of production. As the reproduction schemes show, smooth social reproduction requires the departments producing means of production and means of consumption to keep the right proportions, yet competing capitalists coordinate them consciously not at all. Mikhail Tugan-Baranovsky set out this view in Industrial Crises in Contemporary England (1894), arguing that so long as proportions are kept accumulation can continue independently of consumption. Rudolf Hilferding, Nikolai Bukharin and Otto Bauer belong to this current; Hilferding disputed Marx's theory of breakdown on the ground that the concentration of capital is actually stabilising. Rosa Luxemburg set out to refute such "neo-harmonist" readings and re-establish that capitalism has absolute limits. Here too lies the link to reformism: in German-language Marxist economics, realisation theories have counted as rather "reformist", while overaccumulation is invoked to stress that the capitalist economy cannot in principle be reformed.
What does the falling-rate-of-profit theory claim?
This current puts at the centre the law of the tendency of the rate of profit to fall, which Marx developed in Part III of Volume III. Take simple figures (assumed for illustration). Suppose a capital of 100 is at first 60c + 40v with a rate of surplus-value of 100 percent: surplus-value is 40 and the rate of profit 40 percent. If competition drives capitalists to add machinery until the composition is 80c + 20v, then at the same rate of surplus-value surplus-value is 20 and the rate of profit falls to 20 percent. Even if harder exploitation raises the rate of surplus-value to 150 percent, surplus-value is 30 and the rate of profit 30 percent, still below the start. As the rate of profit falls investment slows, and only when accumulated capital is devalued and destroyed in a crisis does profitability recover.
Henryk Grossman, in 1929, is credited as "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", and in the same year Samezō Kuruma in Japan independently stressed the importance of crisis theory and linked it to the theory of imperialism. Paul Mattick's Economic Crisis and Crisis Theory (1981); Yaffe, who explained the end of the post-war boom in the 1970s with the theory; Andrew Kliman, who defends the logical consistency of Marx's framework; and Guglielmo Carchedi and Michael Roberts, whose collection World in Crisis (2018) gathers empirical studies, continue this line. Against it, Nobuo Okishio's theorem of 1961, that with a constant real wage the introduction of cost-reducing techniques raises the general rate of profit, was widely regarded as having disproved the law.
What other branches and disputes are there?
Profit-squeeze theory holds that accumulation pulls up the demand for labour-power until wages rise "too high", lowering the rate of profit and causing a recession; the interaction between employment and the wage share has been formalised in the Goodwin model. The Bolshevik theorist Pavel Maksakovsky argued in a 1927 report that the collapse of profits after a boom is not a long-term tendency but a cyclical phenomenon arising from the cyclical disequilibrium of the reproduction schemes. The Post-Keynesian Hyman Minsky explained crises by the build-up of debt and financial instability. Keynesians see crises as boom-and-bust cycles that policy can manage, while Marxists see them as arising necessarily from the contradictions of capitalist relations of production. Anwar Shaikh surveyed the competing crisis theories of the different strands of political economy in 1978. Bound up with the breakdown debate over whether capitalism must ultimately collapse, crisis theory remains one of the most contested subjects in Marxian economics.