Crisis Theory - Causes of Crises

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.

Karl Marx in his many works (published and unpublished) suggested several different theories, none of them free from controversy to explain how this worked out in particular circumstances.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".

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.

• Overproduction. If the capitalists win the class struggle to push wages down and labor effort up, raising the rate of surplus value, then a capitalist economy faces regular problems of excess producer supply and thus inadequate aggregate demand.

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.