Socialist Studies Socialist Studies


Capitalism in Crisis - Some Misconceptions about Capitalist Crises

Outline of events 1979-2004

During the past 160 years there have been many economic crises and depressions. They have varied in depth and duration but have some features in common.

In the period of recovery from depression sales, production, profits and wages increase and unemployment falls. This phase of seemingly stable "prosperity" is suddenly interrupted by a crisis showing itself as a fall in sales in some industries. Unemployment begins to rise and production begins to fall. Profits drop sharply.

Depression sets in, production continues to fall and unemployment climbs to peaks levels. The total purchasing power of the working class falls, not so much because real weekly wages and salaries fall, but because of the big fall in the number of workers in work.

In 1979 sales in some industries were falling off in the middle of the year and unemployment began to rise in the last quarter. Total production fell by 10% between 1979 and 1981 then began to rise again, and by 1990 was 25 per cent above the 1979 level although the crises in the early 1990's saw production fall along with profitability then begin to rise until 1999 when it began to fall again. (INTERNATIONAL COMPARISONS OF COMPANY PRIFITABLILITY, L. Citron and R. Walton, Bank of England October 2002).

Average real weekly earnings did not fall in any year and in early 1990 were about 28% above the level of 1979. By 2000 they were 37% above the level of 1990 (NEW EARNINGS SURVEY 2002). Between April 2001 and April 2002 the average gross weekly pay of full-time employees in Great Britain increased by 4.6 per cent to £465 (LABOUR MARKET TRENDS December 2002)

Company profits dropped by 30% between 1979 and 1981 and then rapidly rose until the next crisis. Unemployment reached its peak of 3,341,000 in 1985 before steadily falling until May 1990, when it was about 200,000 above the level of January 1979. During the last depression, unemployment peaked in 1992 at 3,170,000 (10.3%). Today (December 2002) the unemployment figure is 1,532,000(5.2%) using ILO definition, 163,000 above the 1979 figure of 1,369,000 (4.7%). Some caution should be noted because of the changes made by successive governments in the way the unemployment figures were put together and the overall level of men and women in employment. In the meantime the number of self-employed has grown by over a million and currently is 3, 411,000 as against 25,496 employees (OFFICE FOR NATIONAL STATISTICS 2002).

Company bankruptcies trebled between 1978 and 1985 and in 1989 were still double the number in 1979. The number of bankruptcies during the crisis of 1989 and 1992 peaked at 63,500. In the current depression bankruptcies in 2002 were 7.2% higher finishing at 43,500 (INDEPENDENT, 30th December 2002).

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Frequency, depth and duration of depression

In their early writings Marx and Engels held that crises and depressions become continually more frequent and more violent, but later they modified that view.

In CAPITAL VOL 1 (18670, Marx wrote:

"The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation…Except in the periods of prosperity, there rages between the capitalists the most furious combat for the share of each in the markets. This share is directly proportional to the cheapness of the product. Besides the rivalry that this struggle begets in the application of improved machinery for replacing labour-power, and of new methods of production, there also comes a time in every industrial cycle, when a forcible reduction of wages beneath the value of labour-power, is attempted for the purpose of cheapening commodities" (Kerr edition page, 495).

Elsewhere Marx referred to "decennial cycles…complicated by irregular oscillations following each other more and more quickly" (p. 699).

As regards frequency, there has been seven periods of peak unemployment in 55 years 1945-2000.

















In the fifteen years after World War II unemployment was abnormally low because Japan and Germany had been almost out of the world market owing to the destruction of their industries in the war.

In none of those depressions, not even that 1979-85 and 1989 to 1993, was unemployment anything like as heavy as the 22% registered in 1932 (in the USA in that year it reached 25%).

As regards duration, the decline of production lasted from 1978 to 1984, while unemployment did not pass its peak and begin to decline until 1986 No depressions, before or since, has ever lasted for the 20 years of the great Depression (1875-1895) although Japan has been in depression for ten years since 1992.

The Russian economist, Kondratieff, was responsible for the theory of a 60 year cycle of deep depressions, which is naturally difficult to prove. The Socialist Party of Great Britain has never accepted it and it belongs with those curious economic theories of crises which have more to do with astrology than actually understanding capitalism.

In face of the course events have taken, and in particular the depressions of 1979-85 and 1989-1993, it is not necessary to treat seriously the claim made by the followers of Keynes that he abolished economic depressions

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World-wide effects of depression

Because every serious depression results in a fall in total world production and trade it might be expected that all countries would be equally affected. Experience shows that this is not what happens. Different countries are hit by the depression at different times, some beginning one or two years later.

The biggest difference is usually in the depth of the depression as shown by an increase in unemployment. In the depression of 1979-85 the percentage of workers unemployed was much larger in one group of countries, including Belgium, Italy, Spain and Ireland than in Britain, Germany and the USA, while in Japan and Switzerland it remained at non-depression levels.

In effect this last group, faced with a fall in world trade, was able to capture a larger share of it. The same applied in the depression 1989-1993 when the percentage of unemployed workers in the USA (7.3%) and Britain (10.8%) was higher than in Germany (4.5%), while Switzerland and Holland remained at non-depression levels. Now it is Japan and Germany who are in depression.

One reason why one country can be more seriously affected by a depression than other countries is that some industries can be more seriously affected than others, in which event the country in which these industries are largely represented will be more severely hit by the depression.

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That crises take place because wages are too low

The fallacious explanation that crises take place because wages are too low was known to Marx and answered by him in CAPITAL VOLUME II, Chapter XX Section IV).

"It is pure tautology to say that crises are caused by the scarcity of solvent consumers, or of a paying consumption. The capitalist system does not know any other modes of consumption but a paying one, except that of the pauper or of the "thief". If any commodities are unsaleable, it means that no solvent purchasers have been found for them, in other words, consumers (whether commodities are bought in the last instance for productive or individual consumption). But if one were to clothe this tautology with the semblance of a profounder justification by saying that the working class receive too small a portion of their own product, and the evil would be remedied by giving them a larger share of it, or raising their wages, we should reply that crises are precisely always preceded by a period in which wages rise generally and the working class actually get a larger share of the annual product intended for consumption. From the point of view of the advocates of "simple" common sense, such a period should remove a crisis" (page 476).

Marx went on to say that this period in which the working class get a larger share and enjoy "relative prosperity", far from removing a crisis, is itself the "harbinger of a coming crisis".

Marx's argument receives support from the fact that, largely owing to the increased effectiveness of the trade unions, the share of the national income received by wage and salary earners in recent years is considerably larger than it was when Marx wrote. But it hasn't prevented crises and depressions.

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There is not an overall shortage of purchasing power

Some writers, including Major Douglas and J.M. Keynes, have argued that there is an overall shortage of purchasing power in capitalist society and that this is the cause of crises and depressions. Douglas proposed that the government should distribute to the population a cash "national dividend" to correct the supposed shortage.

Keynes maintained that this overall shortage of purchasing power made it impossible to sell all the products of industry in the home market, hence the pressure to sell abroad. And that if home demand is increased by the adoption of his proposals pressure to export would disappear and thus remove a major cause of war.

Of course the poor lack purchasing power, but the poor and rich combined always have the purchasing power to buy all the products of industry which Marx showed in his schemes of extended reproduction. However, it must be remembered that capitalist production produces only for profit and the amount of commodities produced at any given time do not correspond with the real needs of the working class rationed, as they are, by the wages system.

The failure of some products of industry to find buyers, which produces a crisis, is not due to any overall shortage of purchasing power but it is due to the failure of capitalists to exercise their power to purchase commodities at a crucial time.

Marx dealt with it in his answer to the economist J. B. Say

J. B. Say argued that a serious depression should not take place because "every seller brings a buyer to market": by which he meant that every producer of commodities who sells his products then has the cash with which he can at once buy other products and so keep industry busy.

Marx dealt with it in CAPITAL VOL. 1, Chapter III, section 2. He accepted Say's argument with, however, one qualification. He agreed that the sellers have the cash with which they can go at once out and buy some other commodity, but he pointed out that "no one is forthwith to purchase because he has just sold".

He may choose not to do so and if the interval of time between the sale and the purchase is too great, the result is "a crisis".

The question to be answered then is why this failure to buy commodities takes place.

Say has disregarded the fact that part of capitalist expenditure which is investment (as distinct from the capitalists' purchase of necessities and luxuries for personal consumption) has as its sole purpose making a profit, and if there is no prospect that a profit can be made the capitalist refrains from buying although he has the means to buy.

When the 1979 depression began the electrical company G.E.C. had what the Media called a "cash mountain" of £1500 million. Instead of using it to produce more electrical goods G.E.C. preferred to lend it to banks and the government (some cash was returned to shareholders).

Later on, in 1984, when unemployment was 3,200,000, other companies found themselves in a similar position. The DAILY MAIL (30th Oct. 1984) reported "Companies have never had so much cash", and the Financial Times (10th Nov, 1984) said "Many companies are brimful of cash they can hardly find any use for".

Using their surplus cash to provide jobs for the unemployed is not what the capitalists are in business to do

When the economic conditions improved and there were prospects of making a profit, companies were only too willing to invest.

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Erroneous beliefs about productivity

For more than two hundred years theory about unemployment, crises and depressions has been repeatedly thrown into confusion by the belief that output per worker was about to be multiplied miraculously so that "very soon" all the needs of human beings would be satisfied by a handful of workers, or, indeed, by none at all.

The fact that "very soon" has been postponed all these years ought to have warned the believers that there must be something wrong with their belief, but hardly a year passes without some new forecast of that kind.

Early among the false prophets was Adam Smith in his WEALTH OF NATIONS (1776), telling his readers that division of labour in a pin factory would multiply output per man by 240 or perhaps by 4,800. This fairy story is still being reproduced in economics textbooks today as if it were fact.

Karl Marx, before he had studied enough to realise its absurdity, accepted as true a statement that each worker in 1840 was producing 27 times as much as in 1770. This time it was machinery that was supposed to have worked the miracle. Productivity in those 70 years had perhaps been doubled.

In 1886, after Marx's death, Frederick Engels for a time, swallowed the same hallucinating drug and put forward the theory that while markets, at best, would expand in the ratio 1,2,3,4,5…production would go up 1,2,4,8,16,…and so on. If it had been true, by the 1930's almost all the workers would have been permanently out of work.

Of course they weren't, but at that time a follower of Major Douglas told the Labour Party it must change its name because "very soon", there would be hardly any labourers; they would all be in the dole queues.

The Labour Party didn't change its name but in 1923 it published a pamphlet "TOWARDS WORLD PLENTY" which declared that developments of machinery and technology since the industrial revolution had "raised productivity a thousand fold". (The Labour Party which had just gone out of office had been urgently calling on the workers to increase their output by ten per cent!).

More recent forecasts of a stupendous increase of output "very soon" have been based on automation and computers.

In fact the present official estimates of output per worker put the increase, in favourable periods of expansion, at about 1.37% a year ( National Institute of Economic and Social Research, March 2002), showing hardly any increase over what the annual rate was a century ago.

The error made by Adam Smith and all the others, including Marx when he was at the beginning of his study of economics, was that they failed to understand what "production" entails. In everyday language a loaf of bread, for example, is said to be "produced" in the bakery; but the full production process includes all the labour involved in sowing and reaping the grain, producing the fertilisers and weed killers, the machinery and power, transporting and milling the grain, and the buildings and so on, before the bake house workers get the flour to bake into loaves. Probably the labour of the bake house workers is not even a tenth of the whole.

If now we assume that, by some costless re-adjustment in the bake house, the amount of labour needed in baking the loaf of bread is reduced to half of what it had been, the wrong calculation would present it as a hundred per cent increase in productivity, whereas in fact it would have only be about five per cent.

It was Marx, with his labour theory of value, which produced the correct method of calculating productivity.

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Fallacious meanings given to overproduction

The word overproduction has been given several meanings. One is that the amount produced at the present time is so large that it is more than enough to meet the needs of the whole human race, and that this is the cause of depressions.

Marx denied it:

"It is not a fact that too many necessities of life are produced in proportion to the existing population. The reverse is true. Not enough is produced to satisfy the wants of the great mass decently and humanly" (CAPITAL VOL. III p. 302).

Marx was right and what he said is just as true today. The purpose of capitalist production is to make a profit. The needs of the people who are so poor that they cannot pay for what they want do not come into the planned production of the capitalist. Overproduction in that sense could only happen through misjudgement on the market.

Another meaning given to the word overproduction is that capitalism places a permanent upper limit on what can be profitably produced, and that whatever total production hits that limit a depression occurs. There were people who maintained this during the Great Depression 1875-1895, which the market would not only expand again but might contract.

In fact total production has always risen to higher levels after each depression, and the number of workers in work in each boom has gone on increasing, though of course that number has not increased as much as the volume of production. Millions more workers are in work now in Britain than there were 50 or 100 years ago.

Following the fall of production and increase in unemployment in the depression of 1979-85, production rose again, and at the beginning of 1990 was some 25% above the pre-depression level. The numbers of "employees" in "employment" went back to the levels of 1979. After the last depression production at the beginning of 2000 was 38% above the pre-depression level (NATIONAL STATISTICS 2004).

A third overproduction theory relates to exports. It is argued that the population in a country can afford to buy only a part of what is produced in that country so that the only way of disposing of the unsold surplus is to export it. For Britain in 1989 the amount of goods and services exported was £118,000 million. In 2000 it was £200,000 million. If in this export took place because there was no purchasing power in Britain to buy the goods how was it possible for there to be £137,000 million of imports of goods and service in 1989 and £233,000 million in 2000? Who paid for them and how?

If the problem is looked at on a world basis the theory is shown to be wrong. The exports from one country have to be the imports into some other country. So the total of world imports is exactly the same as the total of world exports. However, Louis Boudin, in his SOCIALISM AND WAR, published in 1916 (pages 66-68) attempted to justify a version of that theory.

He argued that in developed capitalist countries "the working class produces not only more than it consumes, but more than society as a whole consumes".

There is therefore a surplus product which has to be exported to countries "of a lower order of development". Being of a lower order of development, these countries could, he said, "absorb the products absolutely" and not merely take them "in exchange for other goods of as high an industrial order".

Boudin included in his areas that could "absorb" the surplus products of the industrialised countries the backward agricultures still existing in some developed countries.

Boudin admitted that the situation as it existed at the time he formulated his theory (1914) "cannot last forever", because, as he said, inevitably the backward countries and backward agricultures themselves develop, so that every country in the world has a larger and larger surplus to get rid of and nowhere to place it. The whole trade and production of the world would come to a halt.

Nothing of this kind happened in the three-quarters of a century since Boudin made his forecast. The passage of time has proved him wrong.

All the 180 or so countries in the world now have their developed industries and agriculture. All are exporting, yet total world production and world exports are immensely greater than they were in 1914. It is not true that the working class produces more than society consumes.

What does happen is that some industries periodically produce more than their particular markets can absorb at profitable prices; but that is another matter.

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Conditions in boom periods

In his description of the trade cycle Marx mentioned the furious competition that exists between capitalists "except in the periods of prosperity", i.e. boom periods.

At those times it seems to the capitalist that there is an unlimited market for what he is selling. No longer are the capitalists competing to sell; now they are competing to buy raw materials and recruit more workers.

Such a period was the autumn of 1973 unemployment had fallen from nearly a million early in 1972 to 513,000 in December 1973. Production was rising fast and companies were complaining of the inability to buy materials they needed.

The FINANCIAL TIMES (7th Jan 1974) published a Survey of Business Opinions based on replies to questions put to companies. The general conclusion was that "production was being increasingly hampered by shortages of raw materials and components over a wide range.

The companies were asked whether they were working to full capacity and if not what were the factors affecting their production.

Only 27% gave shortage of orders as the reason they were working below capacity, while 58% replied that they were unable to meet their orders because of the inability to recruit enough skilled factory staff, and 495 reported inability to recruit "manual labour". Forty five per cent of the companies reported inability to get components and fifty-five percent shortage of raw materials.

Then the boom collapsed and two years later, in the autumn of 1976, another FINANCIAL TIMES survey reported that inability to recruit workers had almost vanished and that the number of companies not working to capacity because of order had gone up from 27% to over 70%.

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That the employers create depressions deliberately

The theory most remote from reality is that employers deliberately plan to create depressions. It is like saying that they want their profits to be lower and love going bankrupt.

The idea behind the theory is that heavy unemployment brings wages down and therefore leaves a larger profit for the capitalists.

In the real world the time when profits are highest is during booms, when unemployment is lowest. In periods of expanding production total profits and total wages go up. In depression both go down but the fall in wages is almost negligible compared to the fall in profits.

If the capitalists, or the government who act of their behalf, controlled the ups and downs of the market -which of course they don't -they would plan to make the boom and full employment permanent. The last thing they want is the cost of keeping millions of workers idle, workers they would like to see busily at work producing profits.

What happens in the real world can be seen from the depression of 1979-1985 and 1989 to 1993. The table below compares the movement of total wages and salaries of the workers in employment ("Income from employment") with the total amount of the gross trading profit of companies.

Both totals are adjusted to take out the effect of rising prices, and the indexes show how they fell below the pre-depression level of 1979.

It will be seen that while "income from employment" fell by only 4 ½% (the 1982 figure) company profits fell by 30% (the 1981 figures)


Total Income From Employment

Total Gross Trading Profits of companies






















The reverse can be seen in a boom. The table below shows the aggregates and summary of accounts for the period 1997 to 2000 before the last downturn.


Total Income from Employment

Total Income from Profits













Then there is the big increase of bankruptcies that goes with depressions. The table below shows the number of company insolvencies from 1979 to 1985 and 1990 to 1994.





































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Wages during depressions

In his VALUE, PRICE AND PROFIT (1865), Karl Marx said that wages are bound to fall in depressions.

"During the phases of sinking market prices and the phases of the crisis and stagnation, the working man, if not thrown out of employment altogether, is sure to have his wages lowered".

As it turned out Marx was mistaken. He had not foreseen the rapid growth in membership and effectiveness of the unions in the last quarter of the 19th century.

In the Great depression 1875-1895, wages and prices fell together and to the same extent between 1975 and 1980, then wages began to rise while prices went on falling. Average real wages in 1895 were actually 42% above the level of 1875.

In the depression years 1929-1934 wages fell by 5% but prices had fallen by 14%, so that average real wages in 1934 were about 10% above the level of 1929.

In the depression of 1979-1985, despite the continual exhortations of Ministers to unions not to press for "unduly" big wage increases and to employers not to grant them, average weekly earnings of all wage and salary earners increased more than prices in every year so that in 1985 average real earnings were 11% above the 1979 level and in march 1990 were 28% above the pre-depression level of 1979.

In mid 1990, after the last depression, wages were still increasing more than prices. That unions have been able to get these wage increases has been helped by a big increase of sales, production and profits, and of output per worker with some gain in British capitalism's share of the world markets in the last few years following a lengthy trade depression in Germany and Japan.

It does not follow that such increases of real wages will necessarily occur in the next depression.

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There are no permanent crises.

In every depression some economists and politicians declare that there is no prospect of recovery: the depression will be permanent, (Engels for a time, held that view during the Great Depression 1875-1895).

One argument supporting that view is the supposed enormous increase of productivity. (See Para v).

Others argue that the excess productive capacity in certain industries shown by the crisis will continue to prevent new investment and increased output because it prevents a profit being made. But, as Marx pointed our, every depression results in the destruction of much of the production plants of bankrupt companies.

The output of industry is sharply reduced when the crisis occurs and existing stocks of products are gradually got rid of. The unemployed are no longer producing but continue to be consumers though at a lower level.

In due course profitable investment prospects open up again, some of them in new products.

Marx summed it up with the words "There are no permanent crises" (THEORIES OF SURPLUS VALUE Vo II Part 2 p 269).

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Marx on disproportion as a cause of crises

In a socialist system in which there was no buying and selling, goods being produced solely and directly for consumption, the planning of production would need only to secure enough, and of sufficient variety, to meet the needs of the population. Producing more than enough would not have the disastrous consequences it has now, of throwing workers out of work, to take their place in the dole queue.

Trying to plan in capitalist society is different. It is not sufficient for the company to estimate how large the potential market for its products is. The planner also has to guess the productive capacity of rivals at home and abroad and their capacity to undersell him.

The consequence is that effective planning is impossible in capitalist society, as the Wilson government discovered with its elaborate National Plan in 1965; capitalism went its own way and hardly anything turned out as planned.

One of the many companies consulted in drawing up the National Plan was the oil group Royal Dutch-Shell. One of the questions they were asked was how large would the group's investment in oil tankers be and where. A managing director said it was impossible to answer the question.

"Its (the Group's) investment decisions are influenced by the investment decisions of others -British, Norwegian, Swedish, Dutch and Chinese ship owners for example. If these latter decide to charter at low rates Shell may build no tankers at all" (FINANCIAL TIMES 6th April 1969).

He also gave an account of the group's own forward planning on which millions of pounds were spent.

"Except in very short periods ahead, we are not really very impressed by the detailed results shown by our plans. It will be the sheerest fluke if ever we achieved them".

He listed all the important events and developments they had failed to foresee.

Which brings us to the problems thrown up by the score or more of past depressions? In each depression, the economists, politicians and capitalists study the evidence, decide what caused the crisis and declare that it will never be allowed to happen again: idle words indeed.

In particular how can capitalism secure the harmonious and parallel expansion of different branches of industry; and the full employment of the working class, without which capitalism cannot enable the whole product of industry to be continually consumed? Capitalism does not work this way. Capitalist production is without plan or order; it is "anarchic".

Each capitalist decides what and how much is to be produced, whether output should be increased, maintained, or reduced, whether output should be increased, maintained or cut down. The capitalist's decision is guided by his ability or otherwise to sell his commodities at profitable prices and his expectations of finding profitable markets in the future. Capitalists are not in co-operation with one another but in competition. Governments likewise have no knowledge of the minds of buyers from abroad who might switch from one country to another. Different countries are also in competition with one another.

What exists is the blind law of the market. "Anarchy", wrote Engels, "reigns in (capitalist) social production" (ANTI-DUHRING, p. 299 Moscow edition). Defenders of capitalism, like F.A. Hayek, claim that capitalism is spontaneous, without order and without plan. This is just another way of stating that capitalism is anarchic with the consequence of periodic high levels of bankruptcy and unemployment.

How disjointed capitalist production can be seen by the way in which leading branches of industry developed between 1970 and 1979.

While "productive industry" as a whole expanded by 14%, different parts of it ranged from a fall of 275 for motor vehicles and parts, to an increase of 1% in "investment goods", and an increase of 39% for Chemicals.

Similar disparity was shown for the period between 1979 and the depth of the depression.

Production Industry as a whole fell by 10%, motor vehicles fell by a further 28%, clothing and footwear by 18% and food, drink and tobacco by only 3%. Production levels in 1989 were "Consumer Goods" 10% above 1979 level; "Investment Goods" 23%; and what are called "Intermediate Goods", 8%.

Marx showed that in developed capitalism production no longer simply moves in response to demand but has its own independent growth.

"With the development of capitalist production, the scale of production becomes less and less dependent on the immediate demand for the product and falls more and more under the determining influence of the amount of capital available in the hands of the individual capitalist, of the instinct for the creation of more value inherent in capital, of the need for the continuity and expansion of the processes of production" (CAPITAL VOL. II p. 163).

Marx wrote of it again in CAPITAL VOL. III (p.292):

"The contradiction, generally speaking, consists in this that the capitalist mode of production has a tendency to develop the productive forces absolutely, regardless of value and of the surplus value contained in it and regardless of the social conditions under which capitalist production takes place…".

It is therefore unavoidable that periodically some industries find they have overproduced for their particular markets and are compelled to cut back production and stand workers off, with all the repercussions the increase of unemployment and curtailment of buying has on other industries.

Marx had already stated this. He wrote:

"Crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium. The contradiction, to put it in a very general way, consists in that the capitalist mode of production involves a tendency towards absolute development of the productive forces, regardless of the value and surplus value it contains, and regardless of the social conditions under which capitalist production takes place; while, on the other hand, its aim is to preserve the value of the existing capital and promote its self-expansion to the highest limit (CAPITAL VOLUME III p.244).

For Marx the accumulation of capital always entailed capitalist crisis.

"The real barrier of capitalist production is capital itself. It is that capital and its self-expansion appear as the starting and closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers" (CAPITAL VOLUME III p.245).

As a consequence of this "desire of the capitalists…to enlarge their capital" (THEORIES OF SURPLUS VALUE, VOLUME 2, p. 492) an overproduction of capital occurs and therefore an over accumulation of capital, since economic activity is being carried out in the various sectors of production without any knowledge that there will be buyers for the commodities produced and for profit to be realised.

Each capitalist anticipates a potential market for their commodity and anticipates the price at which it may be sold. But time and time again capitalists find no buyers or buyers who are not prepared to pay the necessary price. Because capitalism is one in which branches of the same industry develop independently in competition of one another, capitalists may find that in entering the market they are met by competitors who can produce at a lower price or find no buyers at all because they have decide to invest elsewhere. As Marx dryly put it, "commodities are in love with money, but "the course of true love never does run smooth" (CAPITAL VOLUME I p. 107).

J. B. Say believed there was a unity of purchase and sale. Marx attacked the idea saying that "nothing can be more childish than this dogma…If this means that the number of actual sales is equal to the number of purchases, it is a mere tautology. But its real purpose is to prove that every seller brings his buyer to the market with him. Nothing of the kind" (CAPITAL VOLUME I, p. 113). The sale of a commodity does imply that another person has bought, but this does not establish that everything which is put up for sale must be bought. Nor is it true to suggest that because a sale is completed and money has been placed in the hands of the seller that the person will always then buy.

Marx dealt in VOLUME III of Capital (p 568) with what he called "disproportionality", after first simplifying the question by setting aside price changes and speculations and assuming that society consists only of industrial capitalists and workers:

"In that case a crisis could be explained only by a disproportion of production in various branches, and by a disproportion of the consumption of the capitalists, and the accumulation of their capitals. But as matters stand, the reproduction of their capitals invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the labourers is handicapped partly by the law of wages, partly by the fact that it can be exerted only so long as the labourers can be employed at a profit for the capitalist class. The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit" (CAPITAL VOLUME III p. 472).

So, the trade cycle is explained by Marx in terms of the volatility of capital accumulation and the contradiction at the heart of capitalism itself; the restraints imposed upon the forces of production by the social relations of production. Both Marx and Engels referred to the anarchy of commodity production and exchange for profit which is a persistent feature of capitalism.

Marx did not advocate under consumption as a cause of crises. However, he was well aware that the working class were imprisoned within the wages system ("the poverty and restricted consumption of the masses") and were forcibly rationed to what they could and could not buy. Or, to put it another way, what workers needed to live worthwhile lives and what there wages bought were two entirely different things. The drive of capitalist accumulation periodically goes beyond the confines of the own social relations of production. The forces of production are reined back through economic crisis, idle machinery, destroyed commodities and mass unemployment. The real significance of economic crises under capitalism is that it demonstrates its historical redundancy as a social system.

In THEORIES OF SURPLUS VALUE Marx made two telling points about economic crises:

"The word overproduction in itself leads to error. So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of over-production of products - in the sense that the amount of products is excessive in relation to the need for them. On the contrary, it must be said that on the basis of capitalist production, there is a constant underproduction in this sense. The limits to production are set by the profit of the capitalist and in no way by the needs of the producers. But over-production of products and over-production of commodities are two entirely different things" (Part II, p 527).


"The fact that bourgeois production is compelled by its own immanent laws, on the one hand, to develop the productive forces as if production did not take place on a narrow restricted social foundation, while on the other hand, it can develop these forces only within these narrow limits, is the deepest and most hidden cause of crises, of the crying contradictions within which bourgeois production is carried on and which, even at a cursory glance, reveal it as only a transitional, historical form" (Part III, p.84).

Marx's solution for the anarchy of capitalist production and the fact that capitalism can never be run in the interests of the working class was simple: conscious and political organisation by the working class to abolish the wages system.

(this is an up-dated paper written and circulated by Hardy to Camden and North West Branches of the old Socialist Party of Great Britain just before he and other comrades were expelled for taking political action in the full name of the Party).

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Socialist Studies

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