By the end of the 1930s, many people, including non-Marxist progressives and Marxists alike, had come to consider the Depression as the permanent state of capitalism. The idea that the Depression represented the “new normal” even received a name. It was called the theory of “secular stagnation.”
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The Super-Crisis and the Rise of the U.S. World Empire
The severity of the 1929-32/33 super-crisis in a particular country can be measured by the decline in the country’s index of industrial production from peak to trough.
Figures compiled by the League of Nations — the forerunner of the United Nations — for the super-crisis years divide countries into seven groups according to each country’s decline in industrial production. The countries in group one experienced the least decline — less than 10 percent — equivalent to an “ordinary” recession. Those in group seven experienced between 60 and 70 percent declines from peak to trough — economic disaster.
Among the major imperialist countries, rising Japan, then rapidly expanding its share of the world market, was in group one, along with Greece and New Zealand. Britain was in group two, which experienced a 10 to 20 percent decline in industrial production. Germany was in the sixth group, which experienced 50 to 60 percent declines, a position it shared with Canada and Czechoslovakia, then the most industrialized country in Eastern Europe. The United States was in group seven—declines in industrial production from peak to trough of 60 to 70 percent, an “honor” shared only with Poland.
The extreme severity of the crisis in Germany is not surprising. Germany was the biggest loser in the war, stripped of all its colonies and a significant part of its European territories. In addition, due in part to the disastrous hyperinflation of 1923, the German credit system was highly dependent on money market conditions in the United States. When credit froze up, first because of the industrial and stock market boom of 1928-29, then the Smoot-Hawley tariff of 1930, and finally the massive U.S. banking and credit collapse of 1931-32, it is not surprising that effective demand, industrial production, and employment contracted with extreme violence in Germany.
But what about the United States? After all, the United States was the big winner — perhaps the only winner — in World War I. It had the largest gold reserves in the world. Yet its economy collapsed more than that of any other major imperialist power.
Indeed, the U.S. economic collapse didn’t have the disastrous political consequences that Germany’s slightly lesser economic collapse had. Germany had suffered the terrible effects of the blockade of 1914-1918, the shock of the lost war, the abortive revolution of 1918, and the hyperinflation of 1923. The super-crisis of 1929-32 was only the final blow that pushed Germany into the fascist nightmare of the Third Reich.
But this doesn’t change the fact that in a purely economic sense, the super-crisis of 1929-33 was more extreme in the United States than in any other large capitalist country in the world. Why was this? The reason lies in the extraordinary growth of the U.S. economy in the decades preceding the super-crisis.
History of Gold Production from the ‘Gold Rush’ to 1914
The World Gold Council estimates that in the years 1840 to 1844, some 146 metric tons of gold were produced worldwide. Between 1855 and 1859, estimated gold production rose to 1,011 metric tons. This is an increase of 590 percent in 15 years. In terms of percentages, this is by far the greatest increase in gold production for which reasonable data on world gold production is available.
The reason for this amazing increase was the discovery of gold in California in 1848 and Australia in 1851. It was this mass of newly mined and refined gold that fueled the expansion of the world market — what Marx called a new 16th century — that, among other things, drowned the hopes of Marx and Engels for a revolution that would bring the working class to power in Europe during the 1850s. Instead, the massive expansion of the market caused by the gold discoveries led to a powerful surge in the development of industry on a capitalist basis.
The Place of the Great Depression in History
The Great Depression, which began in 1929 and lasted until World War II, holds a unique place in world economic history. “The Great Depression,” wrote bourgeois economist J. Bradford DeLong, “has a central place in 20th century economic history.”
The Long Semi-Cycles of Ernest Mandel
We have seen that most economic historians and economists, both bourgeois and Marxist, agree that the concrete history of the capitalist mode of production shows alternating periods of rapid expansion lasting for several decades, followed by periods of much slower growth or semi-stagnation of varying lengths. There has been much dispute about whether these alternations represent cyclical forces operating from within the capitalist economy or are caused by changes of a non-cyclical nature in the “external environment.”
Henryk Grossman and Long Cycles
Henryk Grossman was born to Jewish parents in 1881 in what is now Krakow, Poland. (1) The Austrian-Hungarian Empire ruled Krakow at the time. As a high school student, he became politically active and joined the Social Democratic Party of Galicia. The Social Democratic Party of Galicia was dominated by followers of Józef Piłsudski (1867-1935), the future nationalist dictator of Poland. Galicia is a geographic region spanning what is now southeastern Poland and western Ukraine. It is not the community in Spain of the same name.
In 1905, Grossman was part of a split of Jewish workers from the Social Democratic Party of Galicia, which formed the Jewish Socialist Party of Galicia.
After the Russian Revolution, he joined the newly formed Polish Communist Party, which sought to unite both the Polish and Jewish workers of Poland in a united revolutionary party of the working class.
One or Two or Many Cycles?
In the chapters on the “ideal” industrial cycle, I assumed that there is one capitalist economic cycle, what Marx called the industrial cycle. Furthermore, I assumed that all the contradictions of capitalist production accumulated during this cycle of about ten years are then discharged in a single crisis at the end of the cycle. If actual industrial cycles corresponded to the “ideal cycle” I described, each cycle would have a crisis, a depression, a phase of average prosperity, and a boom of more or less equal length.
Even if there were a tendency for the length of the various stages to change over time, this would be a secular process, not a cyclical one. Concrete industrial cycles differ from each other. These differences are not a matter of theory but a matter of empirical fact. Are the sometimes drastic differences observed among individual concrete cycles due to accidental forces, secular forces, or cyclical tendencies at work?
In addition to the possible existence of a long cycle, many economists have claimed that a short cycle of about 40 to 48 months exists. A complete theory of crises and capitalist economic cycles also has to account for the existence of this cycle.
To my knowledge, at least five different economic cycles within the capitalist economy have been proposed at one time or another. Perhaps readers have heard of even more.
The Long Cycle and Historical Trends
The question of whether, in addition to the industrial cycle of more or less ten years’ duration, there is a longer cycle extending over several “10-year” cycles has divided Marxists as well as bourgeois economists who have shown interest in business cycles.
Keynes and the falling rate of profit
Keynes, along with Adam Smith, Ricardo, Marx, and even the classical marginalists, believed that the long-term trend of the rate of profit was downward. However, Keynes and other marginalists gave different explanations than Marx for this tendency.
Keynes on the ‘Trade Cycle’
Keynes, throughout the “General Theory,” was concerned with explaining how his marginalist equation of “equilibrium” — marginal efficiency of capital = rate of (money) interest — could correspond to mass unemployment. The industrial cycle itself was of secondary concern for him. Nevertheless, in Chapter 22, entitled “Notes on the Trade Cycle,” Keynes does deal with the industrial cycle, or as he called it in the English manner, the “trade cycle.”
A Critique of Crisis Theory 