A Marxist Guide to Capitalist Crises

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Marx planned to crown his critique of political economy with a book on the world market, competition, and crises — but never had the time to write it. Since then, Marxists have proposed diverse and often contradictory theories to explain the periodic economic crises that have marked capitalism’s concrete history since 1825. A Marxist Guide to Capitalist Crises takes up the unfinished task.

Based on the blog Critique of Crisis Theory, the book examines the most influential crisis theories put forward since Engels’ death, from Rosa Luxemburg’s underconsumptionism to the breakdown theories of Henryk Grossman and Paul Mattick. It traces the evolution of capitalism from the era of free competition through monopoly capitalism, the Great Depression, the Keynesian era, the end of the international gold standard, and the neoliberal reaction — up through the crisis of 2007–09 and its aftermath.

Along the way, Williams takes up currency, credit, banking, interest rates, exchange rates, world trade, the law of comparative advantage, and the disputed question of long waves. The result is a crisis theory rooted in the basic laws of motion Marx worked out, but grounded in the concrete conditions of competition and credit on the world market.

The book is free to download as a PDF.

From Surplus Value Producers to Associated Producers of the World

Many books on Marxist economic theory end with the author describing what a future socialist – or communist – society will look like. Inevitably, these portraits of the future society reflect the author’s personal views and often contain bourgeois prejudices. We are all, Marxists included, products of the society we were born in and live in. This means that our ability to transcend the bourgeois society we were born and raised in, and our imagination, is not unlimited. The present author does not claim to be an exception.

Can the World Market Ever Become Exhausted?

Around the turn of the 20th century, the belief that the world market was headed for eventual exhaustion was widely accepted among the left wing of the Social Democracy, especially in the German-speaking world. But the refutations of Rosa Luxemburg’s “Accumulation of Capital” and her “Anti-Critique,” based on Marx’s Volume II models of capitalist reproduction, pretty much discredited the idea that the world market could ever face a situation of permanent exhaustion.

Otto Bauer’s Critique of Rosa Luxemburg’s ‘Accumulation of Capital’

Of all the Social Democrats who criticized Rosa Luxemburg’s “Accumulation of Capital,” the most important contribution was Otto Bauer’s. Bauer was a leader of the Austrian Social Democratic Party and became the party’s top leader in 1918.

The Long Cycle — Summary and Conclusions

In the preceding chapters, we examined whether the capitalist economy experiences cycles considerably longer than the industrial cycles of approximately ten years. As we saw, it has been proposed by various economists — both bourgeois and Marxists — over the last 100 years that, in addition to the 10-year industrial cycles and shorter inventory cycles, there also exists a long cycle of approximately 50 years’ duration.

The ‘Great Moderation’ and Financialization

The “Great Moderation” brought with it only moderate economic growth. However, it was accompanied by a credit inflation that was anything but moderate. With the unprecedented growth of the credit system came a considerable increase in the role of interest-seeking loan capital.

The Reagan Reaction and the Coming of the ‘Great Moderation’

After World War II, the Keynesian reformers took unjustified credit for the postwar economic upswing. During the reactionary 1980s, it was the turn of the extreme right-wing governments that had come to power in Britain in 1979 and the United States in 1981 to take unjustified credit for the end of the protracted economic crisis of 1968-1982.

The ‘Volcker Shock’ and Start of the Neoliberal Era

As we saw in the previous chapter, the devaluation of the U.S. dollar in terms of gold had temporarily halted by the end of 1974. After peaking at $195.25 an ounce on December 30, 1974, the dollar price of gold fell to $104.00 on August 31, 1976.

As a result, during 1975, the rate of U.S. inflation, as measured by the government producer price index, was “only” about 4.4 percent. Still, the index rose more in the recession-depression year of 1975 than in the inflationary boom year of 1965. This was despite a slump that was considerably worse than that of 1957-58.

The Industrial Cycle and the Collapse of the Gold Pool in March 1968

Industrial cycles normally last about ten years — give or take a year or two. The second industrial cycle after World War II began with the 1957-58 global recession. Given that the industrial cycle lasts about ten years, we normally expect the next global downturn to occur around 1967. Indeed, 1966-67 saw a credit crunch and a “mini-recession” in the United States, as well as a recession in West Germany from 1966 to 1967.

Boom of the 1960s: The Flood Tide of Keynesianism

Thanks to the economic crisis of 1957-61, the U.S. economy entered the decade of the 1960s with high levels of unemployment and excess capacity. The millions of unemployed workers and idle plants and machines meant that industrial production could rapidly increase in response to rising demand.