The Problem: Marx Didn’t Leave Us a Completed Crisis Theory

These writings are built on the foundations of “Capital,” a work that at least in Germany is becoming a bestseller once again. But “Capital” itself, though it lays the foundation, is not a book about the periodic crises capitalist production goes through. Nor is there a section within “Capital” dealing with such crises, as is generally the case with works that popularize the theories of “Capital.”

Since Marx and Engels put so much emphasis on crises in the Communist Manifesto and other works, this omission at first seems surprising. Marx had planned to crown his economic work with a book on the world market, the state, competition and crises. As is well known, Marx did not have the time to write this work. It is, of course, impossible for any other person to write the work Marx might have written if he had had the time.

Evolution of capitalism

This isn’t simply because only Marx was Marx. Since the time of Marx, capitalism has evolved from industrial capitalism, based on free competition, to monopoly capitalism, passed through the Great Depression of the 1930s, the so-called Keynesian revolution in government economic polices, the end of the international gold standard and the stagflation of the 1970s, the neoliberal reaction from the 1980s on, and now the new crisis. These events have provided a huge amount of material for crisis theory that was unavailable to Marx.

Economic crises of varying intensities break out on the capitalist world market at quasi-regular intervals, about every seven to 10 years. This pattern has been observed since the second quarter of the 19th century. These crises have survived all attempts by capitalist governments to stamp them out, though periods of violent crises have been succeeded by periods when crises were more moderate for awhile, only to be followed by even more severe crises.

Mainstream capitalist economists dismiss crises, or “recessions” as they call them, as accidental or at most secondary phenomena. In Marxist theory, however, crises play a far more important role. To understand why this is, we have to understand another aspect of Marxism that is far more basic than crisis theory—historical materialism.

Historical materialism holds that one form of human society does not give way to another until the development of the forces of production that characterize a given epoch has come into fundamental conflict with the existing social relations of production, or to use legal language, property relations. Eventually, this renders the further development of human society—and of economic production, which forms the foundation of every human society going back to the time when our species first differentiated from the rest of the animal kingdom—impossible within the framework of existing relationships of production.

There then begins a process of revolutionary transformation, which sooner or later brings not only property relations but also the ideological life, and even the religious institutions, into harmony with the new productive forces and the relationships of production or property forms that the new productive forces dictate.

For example, in the “Communist Manifesto,” written between December 1847 and January 1848 in the wake of an early worldwide capitalist economic crisis—the crisis of 1847—the young Marx explained that the root cause of the end of feudal society, with its guilds and corporations, and its replacement by capitalist society, based on free competition and “free” wage labor, was that feudal society had come into conflict with the new productive forces. The further development of these new forces of production demanded the abolition of the monopolistic restrictions of guild production and feudal-serf agricultural relations.

Feudal social and economic relations had once been sufficient for the development of new techniques in agriculture and craft production after the fall of the Roman Empire. This was true despite the fact that feudal society, with its serfdom, hierarchy, orders and clericalism, strikes us today as having been horribly unfree and unjust.

But toward the end of the Middle Ages, new methods of production were coming into conflict with the prevailing feudal relations. There began an era of revolutionary transformation that over a period of centuries banished the feudal world and gave birth to modern capitalist society with its democracy, individual freedoms, equality of all before the law (at least in theory), separation of church and state, free markets (free trade and free competition), and above all the labor market—”free” wage labor.

Up to a point, many bourgeois historians and economists are prepared to go along with Marx. But they say that now that all feudal restrictions on the development of the economy have been removed, no additional revolutions are needed. Future centuries will see the continued growth of society’s wealth on the basis of capitalist private property, competition and wage labor. But there will be no further qualitative transformations. After several hundreds of thousands of years—if we count from the emergence of biologically modern humans—human society has reached its final form. Thus, they hold, history as reached its end.

Neoliberalism

Present-day “neoliberalism” wages a struggle against all concessions that the working class over the last 200 years has wrung from the capitalist ruling class. Neoliberals claim that these restrictions on business must be removed so that the rate of economic growth can be accelerated. They claim to be continuing the progressive struggle that the original liberals waged several centuries ago against lingering feudal restrictions. They hold that their struggle against the gains won by the working class will lead to full employment and a new rise in the standard of living for all, including the working class.

The most extreme manifestation of neoliberalism was the dismantling of the planned economies of the Soviet Union and Eastern Europe by the anti-communist governments that rose to power in those countries in the 1980s and 1990s. The leaders of these new governments, many of them intellectuals with strong neoliberal views, claimed that by removing the restrictions that the planned economies placed on industry and agriculture, the resulting economic upswing would lead to a great rise in the standard of living of the entire population, the working class included.

Instead, industrial and agricultural production plunged, and except for the members of the new capitalist class and a few hangers on, the standard of living has greatly declined. Much of the population faces truly dire poverty, and whole regions have seen a collapse of modern civilization.

Marx versus liberals

In contrast to the economic liberals, Marx held that it was precisely “free capitalist relations”—that is, capital itself—that was and is the new barrier to the development of production and of human society. Therefore, according to the theory of historical materialism, capitalism cannot be the final form of society. “It is enough to mention the commercial crises,” Marx wrote in the “Manifesto,” “that by their periodical return put the existence of the entire bourgeois society on trial, each time more threateningly. … In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of over-production.”

It is not necessarily true that capitalism will be overthrown during a “commercial crisis”—to use the original name for cyclical capitalist crises—worse than any other, as the early socialist movement held a century ago—though this is, of course, a possibility. Rather, the economic contradictions that come to a head during capitalist crises prove that capitalist production is simply a phase in the history of production that must sooner or later be replaced by a higher mode of production.

An amazing man

Frederick Engels, who co-authored the “Communist Manifesto,” was an amazing man. He was a 19th-century businessman, Karl Marx’s closest friend and collaborator, and an uncompromising advocate of a world working-class revolution. Engels combined a profound theoretical knowledge of political economy with the practical experience of a businessman who had helped steer the textile firm of Engels and Erman through booms and crises that wracked the mid-19th-century world textile market. This is a resumé few can match.

In 1877, Engels wrote a polemical work known as “Anti-Duhring” against the now-forgotten German professor Eugene Duhring, who was then gathering influence in the early German Socialist Workers Party, forerunner of the German Social Democratic Party. Here, Engels gives a classic description of capitalist economic crises.

At the time “Anti-Duhring” was written, Karl Marx was still very much alive, even if his ability to work was greatly reduced by ill health. By 1877, Marx’s great economic discoveries were behind him. If the mature Marx had disagreed with his friend’s work, he would surely have let it be known. Instead, he contributed a chapter to it. Therefore, we can be confident that the following quote from “Anti-Duhring” reflects the views not only of Engels but of the mature Marx as well on the subject of cyclical crises.

“We have seen,” Engels wrote in “Anti-Duhring,” “that the ever-increasing perfectibility of modern machinery is, by the anarchy of social production, turned into a compulsory law that forces the individual industrial capitalist always to improve his machinery, always to increase its productive force. The bare possibility of extending the field of production is transformed for him into a similarly compulsory law. The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance. Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. Capitalist production has begotten another ‘vicious circle’.”

Here, Engels sees crises as collisions between two counter-posed forces—the physical ability that modern science and technology gives the industrial capitalists to expand production seemingly without limit, and the need of the same industrial capitalists to do just that due to the pressure of the mutual competition among themselves, on one side, and on the other, “the quite different laws” that govern the growth of markets. These laws dictate that markets, though they too grow both intensively and extensively, expand at a rate much slower than the ability and need of the industrial capitalists to expand production.

Since under capitalism production cannot in the long run grow faster than the market, this contradiction is periodically resolved through a massive contraction of production, destruction of existing productive forces, and massive unemployment such as we are at present once again witnessing. This resolution is only temporary. After the crisis, and after sometimes years of stagnation, production enters a new powerful expansion that leads once again to a new flooding of the market—a new crisis.

As these crises and their “side effects”—such as world wars, for example—become increasingly destructive, the replacement of capitalism with socialism becomes urgent and eventually must take place if modern society is to survive. In “Anti-Duhring”—this material can also be found in “Socialism, Utopian and Scientific,” a part of “Anti-Duhring” that has been published as a standalone pamphlet—Engels gives a masterly description of the basic contradictions of capitalist production, the contradiction between the growing socialization of production versus the continuation of individual appropriation of the product, the overall anarchy of production versus its increasingly centralized, socialized and globalized character, and the deepening conflict between an ever more wealthy capitalist class and the growing, increasingly exploited working class.

Laws governing growth of market not spelled out

But Engels does not actually formulate the laws that govern the growth and expansion of the market. While his readers have no doubt that he considers the basic contradictions of capitalism to be behind the inability of the market to grow as fast as production, Engels does not actually explain why this is and indeed must be so.

Why does the conflict between the private appropriation of wealth and the socialized nature of production; the growing anarchy of production versus the increasingly planned nature of production within the capitalist enterprise, and later the giant transnational capitalist corporations; and the growing antagonism between the capitalist ruling class and the working class lead by necessity to a situation where the growth of the market cannot keep up with the growth of production?

One hundred and thirty-one years have passed since Engels wrote “Anti-Duhring.” It might be thought that this question would be well understood by now. Yet Marxists give the most diverse, and sometimes completely contradictory, explanations of why this is so. Indeed, many—perhaps today most—Marxists largely disagree with Engels and Marx as well, and deny that industrial overproduction is the essence of the cyclical economic crises that mark the concrete history of capitalism from 1825 onwards.

I will examine the crisis theories that have been proposed by various schools of Marxists, and make some suggestions based on many decades of thought and research on how this puzzle can finally be resolved. Along the way, I will examine the attempts of capitalist governments to counteract crises and their results, and the relationship between crises, imperialism, militarism and war.

Marx’s method and his theory of crises

Why did not Marx himself leave us a complete theory of crises? I think the answer can be found in Marx’s method. Originally, “Capital” was to be only a part of a much more ambitious project entitled “A Critique of [Bourgeois] Political Economy.” In addition to the book on capital, Marx, according to his letter to Engels dated April 12, 1858, planned to write books on landed property, wage labor, the state, international trade and the world market. It was probably to be the last book, the book on the world market, that would have contained the theory of crises.

The theory of crises would have crowned the entire critique of political economy, since it is during crises that all the contradictions of capitalist production, many of them normally hidden, rise to the surface. Due to his declining health, it eventually became clear to Marx that he would almost certainly not be able to complete his project. “Capital” (all three volumes plus “Theories of Surplus Value”) was to be only one of six books according to the plan of 1858. It seems that Marx also worked into Volume III of “Capital” elements of what had, according to the original plan, been the book on landed property. Marx was not able to incorporate a complete rounded theory of crises into any part of “Capital.” The full theory of crises simply does not belong in “Capital.”

Why not? Again, it’s a matter of method. Marx always began at the abstract level, only gradually working towards the concrete. Just like crises in practice are the crown of capitalism’s basic contradictions, the theory of crises would crown the “Critique of Political Economy.” Therefore, the theory of crises would, according to Marx’s method, have to come last.

Marx’s mature economic works that were published in the author’s own lifetime—that is, the works written after Marx had worked out, at least in his head, his most important contributions to economics—consist of exactly two books: “A Contribution to the Critique of Political Economy” (1859) and Volume I of “Capital” (1867).

Other books by Marx, “The Poverty of Philosophy” and “Wage Labor and Capital,” belong to Marx’s early period, before he had worked out his theory of labor power and surplus value and many other important economic discoveries. “Value, Price, and Profit,” which can be considered as part of Marx’s mature work, was published after the author’s death as a pamphlet or small book. It was actually a part of a debate in which Marx defended trade unions at a meeting of the International Workingmen’s Association (First International) that was held in London around the time of the publication of the first volume of “Capital,” in German.

Other economic works of Marx were not published in his lifetime. The “Grundrisse,” generally considered the earliest of Marx’s mature economic work, is a series of notebooks that Marx wrote up in the winter of 1857-58, when his interest in economics was stimulated by the worldwide economic crisis of those years. It was published first in Moscow in 1939-41, and a later English version was brought out in 1973 by Martin Nicolaus. In 2008, a new version was published by Routledge, edited by Marcello Musto. The “Grundrisse” is a rich mine, but it is a series of notebooks by the author, not a work meant for publication in that form. Many ideas were just being worked out for Marx’s own self-clarification.

Volume I of “Capital” (the only part finished by Marx himself) deals with capitalist production. It explains how surplus value arises on the basis of the production of commodities that are exchanged at their values—that is, on the basis of an hour of embodied labor for one hour of embodied labor. Volume II of “Capital” deals with the circulation of capital and the problem of reproduction. The subject matter of volume III was to be capitalist production as a whole—that is, the unity of capitalist production and circulation.

Volume III introduces such crucial concepts as the equalization of the rate of profit and the transformation of values into prices of production, and the famous law of the tendency of the rate of profit to fall. Volume III also contains a section on landed property and differential and absolute ground rent, which perhaps was originally intended for the book on landed property that Marx never wrote. Volume III contains many scattered observations on credit, the money market, banking, currency, interest rates and, yes, crises. Volume III is also enriched by footnotes by Engels, many dealing with the concrete crises of the 19th century, based partially on Engels’ personal experiences as a Manchester businessman.

But volumes II and III are also a series of notebooks put together by Engels. They retain a rough, unfinished character. This is especially true of volume III. “Theories of Surplus Value,” a part of what was to be a history of economic thought, was put together from Marx’s notebooks by Karl Kautsky after Engels’ death. Later, after World War II, the Institute of Marxism-Leninism of the Central Committee of the Communist Party of the Soviet Union put out a different version. Their version contains an introduction that is very critical of Kautsky’s work.

Of the two economics books that belong to Marx’s mature period that were actually finished by Marx, the “Contribution to a Critique of Political Economy” of 1859 deals with the nature of the commodity, money and exchange rates. It is mostly known for its famous introduction; the book itself is little read. Much of its subject matter—though not all—was repeated in “much improved form,” according to Marx, in the first three, and most abstract, chapters of “Capital,” volume I.

The book that was to deal with crises, the book on the world market, was, as already mentioned, never written. Perhaps elements of it were included in “Capital,” volume III, parts of which were written not long before Marx’s death when he was becoming aware that he wasn’t going to be able to complete the original plan of his work.

Marx made some interesting observations on crises in a letter to N.F. Danielson (a Russian Populist writer) dated April 10, 1879, in which he gives a fascinating analysis of the crisis that was then hitting England. He even says that he didn’t want to publish the next volume of his book before the crisis had worked itself out.

Even at this very late stage in his life, Marx was still learning from the actual evolution of the world capitalist economy and its actual concrete crises. To the end, he was as much a student as he was a teacher. In the years after Marx’s death in 1883 until his own in 1895, Engels in letters to various correspondents has much to say about crises and the concrete development of the world capitalist economy in those years. These letters deserve careful study.

Attempts to further develop Marxist crisis theory inadequate

Since the death of Engels, many Marxists have attempted to develop Marxist crisis theory. They tend to be based on quotes from Marx’s works, published and unpublished (in Marx’s lifetime). In these essays, I will begin with an examination of these proposed solutions to the puzzle of capitalist crises. I will examine various of the most popular crisis theories put forward by various Marxist writers since the death of Engels. This examination makes no claim to be exhaustive, but it covers the most common crisis theories. All these theories are, in my opinion, interesting and contain elements of the truth but are inadequate by themselves.

I will post essays that examine questions of currency, exchange rates, credit, interest rates, banking, world trade, competition and the world market. These postings and any book or books that come out of the main manuscript these essays are based on won’t, of course, be the exhaustive work that Marx planned to write. But they will say what has to be said to support a correct theory of world market-wide periodic economic crises of capitalism. No crisis theory can in my view be correct that does not include a careful examination of these subjects.

I will also post an essay on the so-called “Law of Comparative Advantage,” which preaches to the oppressed countries that they should abolish their protective tariffs and open their markets to “free trade.” This idea is central to the arguments of the neoliberal economists. Anybody who has had the misfortune to take a college-level economics course has been exposed to this so-called law, though most people no doubt have long forgotten it, along with much else they learned in college courses.

I will trace this idea back to its Ricardian origins and show its dependency on the quantity theory of money and Say’s Law. This has great contemporary interest in light of the rise of governments in Latin America that are increasingly resisting the call for “free trade.” This resistance has, at least for now, largely taken off the agenda the Free Trade Area of the Americas, proposed by the government of the United States, which would transform the hemisphere into one gigantic free-trade area.

Another group of essays will build up a theory of crises based on the concrete conditions of credit and competition found on the world market but rooted in the basic laws of motion of capitalism that were worked out by the classical political economists and, later, Karl Marx.

Other essays will deal with the concrete history of capitalism and a question closely related to crisis theory—the controversial view accepted by some Marxists and strongly rejected by others that in addition to short-term business cycles of some seven to 11 years the capitalist economy shows a series of much longer cycles or “waves” that extend over several or more business cycles. In these postings, I will examine the period from the mid-19th century up to the outbreak of the current crisis to see what concrete evidence there is for the existence or absence of “long waves.”

Finally, I will take a look at the breakdown theory, which is closely related to crisis theory. This began as a debate between Rosa Luxemburg and the other leaders of the old German Social Democratic Party that grew out of the initial struggle against Edward Bernstein’s original “revisionism.” The debate was later continued by Henryk Grossman and Paul Mattick in the years after the Russian Revolution.

Between them, Luxemburg on one side and Grossman and Mattick on the other put forward two contradictory “breakdown” theories. The supporters of the breakdown theory, whether Luxemburg’s version or the Grossman-Mattick version, hold that capitalist production has a built-in limit beyond which it cannot go. Though formally apart from crisis theory, which deals with the periodic crises of capitalism, it is in fact in both Luxemburg’s and Grossman’s versions closely connected with each author’s crisis theory.

Current crisis vindicates Marx

The current crisis has pretty much proven that Marx was correct when he explained that periodic cyclical crises are endemic to capitalism and will never be eliminated while this mode of production exists. As this is being written, the so-called G-20 countries have met in Washington to reform the world financial system to guarantee that a global crisis such as the current one will not recur. We have heard this many times before. If Marx was right—and I am more convinced than ever that he was—these new attempts to find ways to prevent global capitalist crises, assuming they are not simply political demagoguery designed to buy time for various governments, will fail in the future just as they have always failed in the past—assuming, of course, that capitalism continues to exist.

There have been in the past, and may well be in the future—though this is by no means certain—periods, such as the recently ended “Great Moderation,” when crises become less severe for awhile for reasons we will be examining in these essays. What is certain is that the contradictions of capitalist production will keep on being reproduced in ever more extreme forms as long as capitalist production continues. Sooner or later, they will break through all the measures that capitalist governments and central banks erect to contain them.

Indeed, as crises have become an ever greater threat to capitalist society, the state has been forced to take ever stronger and more expensive financial measures in order to hold the more destructive consequences in check to a certain extent. The result has been that, as time goes on, crises increasingly involve the finances of the state itself. There have even been a few hints in the capitalist media that the bankruptcy of the federal government of the United States might be a possibility. To a much greater extent than was true of the early crises in the days of Marx, or even as late as the 1920s, the modern cyclical crises of capitalism become political crises. This trend was in full display for all to see in the fall of 2008.

But the biggest question the current crisis raises is this: If Marx was right about crises, as even the bourgeois press is being forced to half concede, doesn’t that imply that he was right about the inevitable transformation of the capitalist mode of production into a higher mode of production—what Marx sometimes called the mode production of the associated producers? The necessity for society to take over the management of the means of production is now so pronounced that even the neoliberal Bush administration found itself forced to partially nationalize the banking system, which in its current form as a system dominated by a handful of gigantic universal banks is bound to increasingly dominate industry and indeed capitalist society as a whole.

Needless to say, this doesn’t mean that Bush, or Obama for that matter, are carrying out the socialist revolution! But just as Engels already in his lifetime explained, the fact that the capitalist governments are forced to intervene increasingly in the sphere of production, while resisting it at every step, indicates that the task of socializing the means of production must be carried out sooner or later—increasingly sooner—if modern society is not to go to pieces and be reduced to barbarism.

And what about the agent of this takeover by society of the management of the means of production? Marx said it would have to be the working class, the class that actually sets the means of production into motion and produces the surplus value that is the basis of profit, the sole motive of capitalist production. Could Marx have been right about that despite the low ebb of the workers’ movement in recent decades? What other conclusion can be drawn?

Aim of this blog

So the real aim of these essays and this blog is to help provide weapons to the young generation of workers and revolutionary intellectuals to move this process along. After mastering the results of incomplete revolutions of the last century, revolutions that stopped half way and were then driven back, though not all the way back, to their starting points, a new movement of workers “ready to storm heaven” must be launched like that of the immortal Paris Commune of 1871 and then the Russian Revolution of October 1917 and the “October wave” of revolutions that followed.

This time, the storming of heaven must not stop half way. It must not stop until all of heaven’s positions are captured and secured. There is really no other choice. I hope these essays will make a modest contribution to the preparatory work by helping educate the coming revolutionary generation about the real nature of capitalist production and the need to transform this system of production into the system of the associated producers, a communist society where class rule is forever abolished.

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