One of capitalism’s most fundamental characteristics is its frequent descent into crisis. The 2008 financial crash and the Great Depression are two of the more well-known examples, but hundreds more could be listed here. Despite capitalism’s tendency to spiral into crisis, however, it still stands. The ruling capitalist class has consistently found ways to shift the cost of crises onto the working class, despite the fact that this class is never responsible for them. In this essay, I want to explore the Marxist theory of crisis so that we can better understand how capitalism functions and what needs to be done about it. The goal of Marx’s crisis theory is to “identify the forces that drive capitalism forward, but simultaneously drive it to its destruction” . The limits of capitalism must be identified as something internal to the system if we want to overthrow it.
Of course, we cannot understand how capitalism leads to crisis unless we know what crisis is. By crisis, I follow economist Anwar Shaikh, who defined it as “a generalized set of failures in the economic and political relations of capitalist reproduction” . Why do these failures occur? The basis of the capitalist system is production for the sake of profit. This profit is derived from surplus value, which is the unpaid labor of a worker. But how is this possible when all workers are paid wages? The answer, in short, is that workers are not paid the full value of what they produce. This is what Marxists mean when we talk about exploitation. It is this exploitation that is at the heart of why capitalism goes into crisis.
The working day can be split into two parts: a part of the day in which the worker produces the value of their own wages; in the rest of the working day, which is effectively unpaid, the worker produces a “surplus” of value–value that the capitalist gets for free. This surplus is then either re-invested into production, or pocketed for the consumption of the capitalist. The worker never gets to absorb surplus value in any form. This is the fundamental characteristic of surplus value .
The wage that the worker is paid gives the illusion of a decent day’s work for a decent day’s pay, but in actual fact the wage is only the amount of money needed to sustain that worker; the amount needed to feed, clothe, shelter, and educate the worker, and thus allow the continuing exploitation of labor .
The fact that capitalism produces for profit–that workers produce more value in a day than they are paid back in the form of wage-means that the wages of workers can never exceed the value produced in society. As a result, workers will never be able to buy back the full value of what they collectively produce. This is not to say that small “luxuries” like TVs, laptops, and cars can’t be bought by individual working families. As a class, though, workers cannot afford to by the sum total of the commodities they produce. Anyone that has to sell their labor power for a wage is classed as a worker, part of the working class. This class makes up the vast majority of the population, and therefore also accounts for a large part of the market for commodities. These facts alone leave the capitalist system prone to overproduction-to produce more than the market can absorb .
Each capitalist is interested in maximizing profits. The rational choice for the individual capitalist, therefore, is to reduce their labor costs in order to undercut their competitors. They can do this in a number of ways, including replacing workers with machinery, cutting wages, or lengthening the working day. Every capitalist must pursue this aim, regardless of whether their doing so is beneficial in the long term. This competition among capitalists has numerous disastrous effects for workers: wages are driven down; unemployment is created; the market for goods shrinks further .
Capitalism creates and destroys the market at the same time, by squeezing more and more surplus value out of the working class, while attempting to hold down wages to the bare minimum. “The part falling to the share of the working class (reckoned per head),” explains Engels, “either increases only slowly and inconsiderably or not at all, and under certain circumstances may even fall” . This, in turn, becomes a barrier to the expansion of the market (and therefore the realization of surplus value).
Contrary to what capitalist economists would argue, capitalism does not produce on the basis of what is needed in society, but on the basis of what is profitable. The capitalist is unable to consider the limitations of the market, which arise as a result of production for profit. In order to survive, each capitalist must make profits, and therefore an endless stream of commodities must be pumped into the market. Capitalists must overproduce to compete. Eventually, the market reaches a breaking point as it becomes saturated by commodities that cannot be sold. Therefore, the system ends up in crisis–crises of overproduction. This is why, to quote economist J. Bloom, “America expends vast resources to feed its population, producing over 590 billion pounds of food annually and simultaneously squandering between 25 and 50 percent of the food that is produced” .
Overproduction is not a mistaken outcome. It is not even an inherently negative outcome for big monopoly capitalists. Rather, it is a means by which smaller producers are forced out of the market and absorbed by larger capitalists. Overproduction is not an accident of competition, but an essential form of it. To quote economist Simon Clark, “overproduction is price that has to be paid for the development of the forces of production within the capitalist mode of production” .
Overproduction is frequently transformed by reformist theorists into “underconsumption,” the idea that the mass of workers are paid too little to buy back what they produce. This leads to the program of persuading wise managers and concerned capitalists to advance their own self-interest by paying the workers more; the workers will then be able to consume and purchase more, and thereby crises will be forestalled or dampened.
There are a number of problems with this theory. First of all, as Marx pointed out, crises arise in the wake of cyclically high wages for labor, not low. Further, much of what is produced and overproduced under capitalism is means of production, not simply commodities meant for working-class consumption: even the best-paid workers do not buy manufacturing equipment. Thirdly, the masses’ underconsumption-in the sense of their inability to afford the full range of commodities needed for a comfortable standard of living-is a constant of life under capitalism through both boom and bust. If underconsumption were the cause of crises, then crisis would not be cyclical but permanent.
Overproduction demonstrates the inherent contradictions of a system that has the potential to produce real abundance, yet under which that very potential causes a breakdown every time it builds up. In the classical age of industrial capitalism, Marx held, the cycle reflected the system’s initially progressive role. The class struggle compelled the capitalists to advance productivity, accumulate more and more means of production and therefore to produce useful commodities more cheaply. For the first time in history, scarcity-with all its endemic misery, starvation, wars and pestilence-could be overcome. However, the dynamics of capitalism (its endless pursuit of profits) mean that this abundance will never be equally distributed across the whole of society. It will continually be hoarded by an ever-decreasing number of wealthy owners .
Marx believed that crisis would inevitably result from contradictions within the capitalist system itself, and predicted that these contradictions would become more and more acute as the capitalist system evolved. Over time, Marx writes, capital takes control over the handicraft production processes and later manufacture where the workers were in control of the work process, centralizing the workers into workshops and factories. Through the process of competing for markets, some firms win and others lose, capital becomes enlarged and centralized; science and technology are consciously used to improve the productivity of the workplace, thus throwing many out of work while creating new jobs in service to the machines. In the process of competing for markets, unsuccessful capitalists fall into the proletariat. The crisis of overproduction, then, slims down the number of capitalists that exist at a given time. The crisis is dialectical: it is both the cause and the effect of the concentration of wealth and power .
Other developments also take place on an ever increasing scale. The quest for profit leads corporations to adopt ever more sophisticated technology, to reorganize labor into ever more detailed divisions for the sake of efficient production, and to squeeze wages to maximize profit. Science is more directly harnessed to the production process through the research and the development of technologies that will ever more efficiently automate production and distribution processes. Workers are stripped of their skills and, becoming mere commodities, increasingly exploited to maximize capital .
Agriculture, too, is transformed through science to become an exploitive relationship in which the crops and people are treated as commodities; millions are removed from the land as corporate farms replace the family farms of the past. In effect capital uses science and technology to transform agriculture into agribusiness, in the process not only exploiting the worker but exploiting and ultimately destroying the natural fertility of the land as well. Marx writes,
In the sphere of agriculture, modern industry has a more revolutionary effect than elsewhere, for this reason, that it annihilates the peasant, that bulwark of the old society, and replaces him by the wage laborer. Thus the desire for social changes, and the class antagonisms are brought to the same level in the country as in the towns. The irrational, old-fashioned methods of agriculture are replaced by scientific ones. Capitalist production completely tears asunder the old bond of union which held together agriculture and manufacture in their infancy. But at the same time it creates the material conditions for a higher synthesis in the future, viz., the union of agriculture and industry on the basis of the more perfected forms they have each acquired during their temporary separation. Capitalist production, by collecting the population in great centers, and causing an ever-increasing preponderance of town population, on the one hand concentrates the historical motive power of society; on the other hand, it disturbs the circulation of matter between man and the soil, i.e., prevents the return to the soil of its elements consumed by man in the form of food and clothing; it therefore violates the conditions necessary to lasting fertility of the soil. By this action it destroys at the same time the health of the town laborer and the intellectual life of the rural laborer” (Emphasis mine) .
The lack of centralized planning under capitalism results in the overproduction of some goods and the underproduction of others, thus causing economic crises such as inflation and depression, feverish production followed by market gluts bringing on contraction of industry. These booms and busts are part of the structure of capitalism itself, as it grows by fits and starts. As the economy booms, labor costs rise and profit margins are squeezed, thus causing periodic crashes. Labor becomes cheap, industry begins to recover and the cycle begins anew. As Marx puts it,
The enormous power, inherent in the factory system, of expanding by jumps, and the dependence of that system on the markets of the world, necessarily beget feverish production, followed by over-filling of the markets, whereupon contraction of the markets brings on crippling of production. The life of modern industry becomes a series of periods of moderate activity, prosperity, over-production, crisis and stagnation. The uncertainty and instability to which machinery subjects the employment, and consequently the conditions of existence, of the operatives become normal, owing to these periodic changes of the industrial cycle” .
In addition to the booms and busts of capitalism that swing wider as capitalism evolves, there is a constant churning of employment as machines replace men in one industry after another, throwing thousands out of work, thus swamping the labor market and lowering the cost of labor. In all of this the laborers suffer. Mass production, machine technology, and economies of scale will increasingly be applied to all economic activities; unemployment and misery for many workers results. Writing on unemployment, Marx said,
The instrument of labor, when it takes the form of a machine, immediately becomes a competitor of the workman himself. The self-expansion of capital by means of machinery is thenceforward directly proportional to the number of the workpeople, whose means of livelihood have been destroyed by that machinery. The whole system of capitalist production is based on the fact that the workman sells his labor-power as a commodity. Division of labor specializes this labor-power, by reducing it to skill in handling a particular tool. So soon as the handling of this tool becomes the work of a machine, then, with the use-value, the exchange-value too, of the workman’s labor-power vanishes; the workman becomes unsaleable, like paper money thrown out of currency by legal enactment. That portion of the working-class, thus by machinery rendered superfluous, i.e., no longer immediately necessary for the self-expansion of capital, either goes to the wall in the unequal contest of the old handicrafts and manufactures with machinery, or else floods all the more easily accessible branches of industry, swamps the labor-market, and sinks the price of labor-power below its value.
The expansion by fits and starts of the scale of production is the preliminary to its equally sudden contraction; the latter again evokes the former, but the former is impossible without disposable human material, without an increase, in the number of laborers independently of the absolute growth of the population. This increase is effected by the simple process that constantly “sets free” a part of the laborers; by methods which lessen the number of laborers employed in proportion to the increased production. The whole form of the movement of modern industry depends, therefore, upon the constant transformation of a part of the laboring population into unemployed or half-employed hands” .
As capitalism develops, the system must necessarily create enormous differences in wealth and power. The social problems it creates in its wake of boom and bust-of unemployment and underemployment, of poverty amidst affluence will continue to mount. The vast majority of people will fall into the lower classes; the wealthy will become richer but ever fewer in number .
All of these economic and political transformations and developments are harnessed to the economic interests of the capitalists. With this growing monopoly of economic, political and social power, the exploitation of the many for the benefit of the few grows. With its continued development, the contradictions become worse, the cycles of boom and bust more extreme. As capitalism is international in scale the people of all nations are parts of the capitalist world system with the industrial center exploiting much of the world for raw materials, food, and labor. Writes Marx, “a new and international division of labor, a division suited to the requirements of the chief centers of modern industry springs up, and converts one part of the globe into a chiefly agricultural field of production, for supplying the other part which remains a chiefly industrial field” .
Over the course of its evolution, capitalism brings into being a working class (the proletariat) consisting of those who have a fundamental antagonism to the owners of capital. The control of the state by the wealthy makes it ineffective in fundamental reform of the system and leads to the passage of laws favoring their interests and incurring the wrath of a growing number of workers. As Engels explains, “the executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie” .
Now highly urbanized and thrown together in factories and workplaces by the forces of capital, the workers of the world increasingly recognize that they are being exploited, that their needs are not being met by the present political-economic system. The monopoly of capital is preventing the production of goods and services for the many. Needed social goods and services are not being produced because there is no profit in it for the capitalists who control the means of production. Exorbitant wealth for the few amid widespread poverty for the many will become the norm. We can see this happening in the world today. According to Oxfam, the world’s wealthiest eight individuals have as much wealth as the bottom 3.5 billion poorest people combined . At the same time, “nearly half of the world’s population-more than 3 billion people-live on less than $2.50 a day. More than 1.3 billion live in extreme poverty, which is defined as having less than $1.25 a day. One billion children worldwide are living in poverty. According to UNICEF, 22,000 children die each day due to poverty” .
As the crisis mount, governments will be blocked from providing real structural change because of the dominance of the capitalists and their organization, money, and power. As a result, the proletariat will become more and more dissatisfied with their conditions. In time, the further development of production becomes impossible within a capitalist framework and this framework becomes the target of revolt. Eventually, Marx says, these contradictions of capitalism-chiefly its propensity for crisis-will drive the working class towards revolt. Crises, in a sense, beget revolutions .
However, revolution is never an organic process. The working class can never come to grasp the need for the overthrow of capitalism on its own, much less make this happen practically. This is due in large part to the pervasive influence of bourgeois (that is, capitalist) ideology on this class. It is up to socialists to organize and mold the proletariat into a disciplined force capable of running society in its own interests. Understanding the endemic nature of crisis is one step towards achieving this goal.
- Simon Clark, Marx’s Theory of Crisis. 2016. p. 74.
- Ibid, 86.
- Karl Marx and Frederick Engels, Collected Works of Karl Marx and Frederick Engels: Volume 34, p. 75-76.
- Karl Marx, Capital: Volume One, Chapter 16, Section 9.
- Quoted in Kenneth Lapides, Marx’s Wage Theory in Historical Perspectives 2007, p. 247
- Bloom, J. (2010). American wasteland: How America throws away nearly half of its food (and what we can do about it). Cambridge: Da Capo Press.
- Clark, Op. Cit, p. 85.
- See J.W. Moore, Ecology and the Rise of Capitalism
- Karl Marx, Capital: Volume Three, Chapter 15, Section 3.
- Marx, Capital: Volume Three, 1867. p. 554
- Ibid, 495.
- Ibid, 470, 694-5
- Lapides, Op. Cit.
- Marx, Op. Cit, p. 493.
- Karl Marx and Frederick Engels Manifesto of the Communist Party, Marx/Engels Selected Works, Vol. One, Progress Publishers, Moscow, 1969, p. 100
- Quoted in Gerry Mullany, “World’s Eight Richest Have As Much Wealth as Bottom Half, Oxfam Says,” New York Times, Jan. 16, 2017.
- Anup Shah, “Poverty Facts and Statistics,” Global Issues. Jan. 7, 2013.
- Karl Marx, Grundrisse, Chapter 5.