Theory of Capitalist Economic Crisis

Marxist theory on the cyclical crises of overproduction in the process of capitalist reproduction.

Capitalist economic crises are the concentrated manifestation of the intensification of the fundamental contradiction of capitalism and also the form of resolution of the fundamental contradiction of capitalism within the scope of capitalism. After the outbreak of the first cyclical capitalist economic crisis in 1825, the question of crisis became a hot topic of concern in European and American economic circles, and also a theoretical question that Marx Engels had long been concerned with. In the 1840s, Marx investigated the question of the necessary and cyclical nature of capitalist economic crises and pointed out that the root cause of the economic crises was that the productive forces have become too powerful for the conditions of capitalist society, by which they are fettered, and described the capitalist reproduction process as a process of motion of “continuous succession through vicissitudes of prosperity, depression, crisis, stagnation, renewed prosperity, and so on”. In the 1850s, Marx made a more in-depth study of the theory of economic crisis. In the Economic Manuscripts 1861–1863, Marx further clarified the basic train of thought for the investigation of the theory of capitalist economic crisis through his critique of the theory of crisis of bourgeois political economy, represented by Say, Ricardo and others: the further development of the potential crisis has to be traced, in so far as crisis arises out of the special aspects of capital which are peculiar to it as capital, and not merely comprised in its existence as commodity and money. After 1863, in Capital, Marx made an in-depth analysis and an important exposition of the process of gradual transformation of the economic crisis from potential possibility to a real reality.

The main contents of Marx’s theory of capitalist economic crisis include: First, concerning the possibility of capitalist economic crisis. The possibility of economic crisis already exists in the conditions of simple commodity economy. With the emergence and development of commodity exchange, once money acts as a measure of value, production and consumption, purchase and sale become two separate acts in time and space, giving rise to the possibility of falling asunder of purchase and sale and occurrence of a crisis. But under the conditions of simple commodity economy, the crisis is only a possibility, and “for the development of this possibility into reality a whole series of relations is required, which do not yet exist from the standpoint of the simple circulation of commodities”. It is only under the conditions of a capitalist commodity economy that it passes from possibility into reality. Second, concerning the essence and root cause of capitalist economic crises. The essence of capitalist economic crises is overproduction, absolute overproduction rather than relative overproduction, in that social production appears to be excessive in relation to the actual demand for solvency of the working people. Relative overproduction is rooted in the fundamental contradiction of capitalism, i.e., the contradiction between the socialization of production and the capitalist private appropriation. In order to pursue more surplus-value, capitalists, on the one hand, infinitely expand the scale of production and, on the other, cruelly exploit the laborers, thus lowering the real purchasing power of the working people. During the crisis, on the one hand, a large number of surplus commodities cannot be sold, while on the other hand, a large number of unemployed workers plunge into poverty. Third, concerning the cyclical nature of capitalist economic crises. Economic crises break out every few years, and from the occurrence of one economic crisis to the next, which constitutes a cycle of capitalist reproduction, and this economic cycle is divided into four stages: crisis, depression, revival and prosperity, of which the crisis is the decisive stage of the cycle, it is the end of the previous cycle and the starting point of the next one. When a crisis occurs, enterprises close down and production is scaled back, easing the contradiction between supply and demand; after the period of depression, capitalists push the recovery of social production by renewing fixed capital and increasing the productivity of labor, gradually entering into a period of new upturn, however, behind the scene of prosperity is the beginning of a new round of crisis. Fourth, concerning the effect of economic crisis. Economic crisis has a compulsory and transitory regulatory effect, and is realized through a significant destruction of the productive forces of society and significant waste of social wealth. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium. Cyclically erupting economic crises are an economic phenomenon unique to capitalist society, which is unavoidable, and embody the historical limitations and transitional nature of the capitalist system in a concentrated manner, which shows that the capitalist mode of production is incapable to correspond to the requirements of development of socialized production, and that the development of the productive forces of society requires new relations of production corresponding to them.

The theory of economic crisis is an important component of Marxist economic theory and a powerful weapon for analyzing the laws of economic operation of capitalist society. After the World War II, due to the strengthening of the regulation and intervention of the capitalist state in economic life, coupled with the modern-day scientific and technological revolution and the continuous development of rising industrial sectors, the further expansion of the world market, etc., post-war capitalist economic crises have seen new features, such as the shortening of the crisis cycle, and the coexistence of stagnation and inflation during the crisis period, etc., which is a manifestation of the further deepening of economic crises, and has not changed the essence and root cause of the capitalist economic crisis. The Marxist theory of capitalist economic crisis remains the best theoretical weapon for analyzing, explaining and solving the modern-day capitalist economic crises.