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Introduction: Marxism and the Theory of Crisis

Political Economy and the Necessity of Crisis

With every boom the apologists for capitalism claim that the tendency to crisis that has plagued the capitalist system since its very beginnings has finally been overcome. When the boom breaks, economists fall over one another to provide particularistic explanations of the crash. The crisis of the early nineteen nineties was the result of the incautious lending of the nineteen eighties. The crisis of the early nineteen eighties was the result of excessive state spending in the late nineteen seventies. The crisis of the mid nineteen seventies was the result of the oil price hike and the inflationary financing of the Vietnam war … the crisis of the nineteen thirties was the result of inappropriate banking policies … … . Every crisis has a different cause, all of which boil down to human failure, none of which are attributed to the capitalist system itself. And yet crises have recurred periodically for the past two hundred years.

Bourgeois economists have to deny that crises are inherent in the social form of capitalist production, because the whole of economic theory is built on the premise that the capitalist system is self-regulating, the principal task of the theoretical economist being to identify the minimal conditions under which such self-regulation will be maintained, so that any breakdown will be identified as the result of exceptional deviations from the norm.[1]

Even the most apologetic of economists cannot fail to notice that recurrent crises occur, but, developing the traditions of classical political economy, the economists explain such crises as contingent phenomena. The normal operation of the forces of supply and demand ensures that there is always a tendency towards equilibrium. This means that crises can only arise as a result of external shocks, which temporarily disrupt equilibrium, or internal disturbances, which impede or subvert the processes of market equilibration.

Within the framework of general equilibrium theory capital moves between branches of production in response to variations in the rate of profit which arise from imbalances between supply and demand.[2] This movement of capital is the means by which competition maintains proportional relations between the various branches, so that disproportionalities which might disrupt accumulation are evened out by the smooth interaction of supply and demand. Any crisis of disproportionality, such as that of the mid nineteen seventies, is then attributed to market imperfections, in this case the monopoly powers of the oil producers.

Within neo-classical theory the overall balance of supply and demand is maintained by the interaction of the rate of interest and the rate of profit. If there is a shortfall of investment the demand for investment funds will fall, leading to a decline in the rate of interest which will stimulate renewed investment. A stable monetary policy will ensure that equilibrium is maintained. In the classical world of the gold standard a deficit on the balance of international payments provided the prime indication of overheating, the outflow of gold and currency reserves forcing the monetary authorities to tighten monetary policy to rectify the imbalance. Similarly, the onset of recession led to an inflow to the reserves which permitted a more relaxed monetary policy. In the modern world the indicators of inflationary and deflationary pressures are more complex, but the principle remains the same. A crisis of overaccumulation, such as that which struck at the end of the nineteen eighties, is then the result of lax monetary policies which have stimulated inflationary and speculative over-investment.

For all their mathematical sophistication, the explanations of crises offered by today's economists are no different from those that were being put forward at the beginning of the nineteenth century. It was always recognised that a large external shock, such as a war or harvest failure, might precipitate a temporary disruption in the relations between branches of production, or in the international economic relations of the national economy, but the cause of such a crisis lies outside the capitalist system, and it was assumed that stability would soon be restored by the normal processes of market adjustment. Apart from such external shocks, the principal cause of crises was traditionally identified as the discretionary intervention of the government in the regulation of the economy. In particular, if the government sought to stimulate the economy artificially by printing money to finance its excessive spending, it would promote over-investment, which would lead to an inflationary boom. Eventually the boom would collapse as unsound and speculative ventures failed, requiring a period of recession to purge the excesses from the system. The cyclical alternation of boom and bust which has marked the history of capitalism is not, therefore, inherent in the capitalist mode of production, but is the result of the folly and irresponsibility of politicians.[3]

Keynes questioned the stability of the classical macroeconomic adjustment mechanism, but otherwise his work remained largely within the classical framework. Keynesian theory was able to explain the cyclical alternation of boom and slump that comprised what was known as the `trade cycle' or the `business cycle', but only to explain that this cycle was by no means inherent in the capitalist mode of production, but could be remedied by appropriate government policies. The implication of Keynes's critique was that stabilisation required the more active intervention of the government in pursuing contra-cyclical fiscal and monetary policies in order to maintain a macro-economic balance, but the fundamental purpose of Keynes's critique was to re-assert the harmony of liberal capitalism in the face of the threat of communist and fascist corporatism. For Keynesians, as for the classical economists, the tendency to crisis is not inherent in the capitalist mode of production, but is a result of the inadequacy of institutional arrangements and policy responses. The tendency to crisis can accordingly be overcome by appropriate institutional and policy reforms. After Keynes, as before him, the persistence of crises is testimony not to the deficiencies of capitalism but to the ignorance and irresponsibility of politicians.

After two hundred years of repeating this nonsense one would have expected that the economists would have begun to smell a rat. The economists' explanation of crises is as if a scientist were to deny that the recurrence of the seasons was a natural phenomenon, attributing the return of spring each year to the whim of a supernatural force. The theoretical problem is not to explain the particular causes of this or that crisis, any more than the task of the scientist is to explain the precise date on which spring arrives in any particular year. The task is to explain the regular recurrence of economic crises as a normal part of the developmental tendencies of the capitalist mode of production. This has been the task that Marxism has taken upon itself, in trying to prove that crises are not merely superficial dislocations of capitalist accumulation, but that the tendency to crisis is inherent in the social form of capitalist production.

The distinctive feature of Marxist theories of crisis is their emphasis on the necessity of crisis as an essential and ineradicable feature of the capitalist mode of production, that defines the objective limits of capitalism and the necessity of socialism. Rosa Luxemburg provided the classic statement of the role of Marxist crisis theory in her reply to Bernstein. `From the standpoint of scientific socialism, the historical necessity of the socialist revolution manifests itself above all in the growing anarchy of capitalism which drives the system into an impasse. But if one admits, with Bernstein, that capitalist development does not move in the direction of its own ruin, then socialism ceases to be objectively necessary.' If reforms can `eliminate or, at least, attenuate the internal contradictions of capitalist economy, … the elimination of crises means the suppression of the antagonism between production and exchange on the capitalist basis. The amelioration of the situation of the working class … means the attenuation of the antagonism between capital and labour. … There remains only one foundation of socialism –- the class consciousness of the proletariat … [which] is now a mere ideal whose force of persuasion rests only on the perfections attributed to it' (Luxemburg, 1899/1908, 58).

It is the Marxist theory of the necessity of crisis, of crisis as a necessary expression of the inherently contradictory form of capitalist production, which marks the dividing line between `reform' and `revolution', between social democracy, which seeks institutional reforms within a capitalist framework, and socialism, which seeks to create a fundamentally different kind of society. If crises are purely contingent, or if they merely mark the transition from one phase, `regime' or `social structure', of accumulation to another (Aglietta, 1979; Bowles, Gordon and Weisskopf, 1984), then socialism has no objective necessity and the socialist movement has no social foundation. If a reformed capitalism can meet the needs of the working class, the class struggle loses its objective foundation and socialism is reduced to an ethical ideal, which has no particular connection with the needs and aspirations of the working class, expressing a particular set of moral values which have no privileged class basis and have no more validity than any other.

The theory of crisis has a central role to play in the ideology of Marxism, and cannot be understood outside that ideological context. However it is hardly sufficient to defend the Marxist theory of crisis on ideological grounds. The Marxist claim to set socialism on `scientific' foundations rests unequivocally, as Luxemburg so clearly realised, on the scientific status of its theory of crisis. If the theory cannot claim such a status, it becomes merely an ideological prop to a variant form of ethical socialism. Thus, while an understanding of the Marxist theory of crisis can never be disengaged from its ideological and political context, it is equally important that it be evaluated on strictly rational scientific grounds. This book is concerned exclusively with the scientific evaluation of Marx's theory of crisis, but in full knowledge of the political and ideological significance of the issue.