Crisis theory

Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is now generally associated with Marxist economics. Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is now generally associated with Marxist economics. Earlier analysis by Jean Charles Léonard de Sismondi provided the first suggestions of the systemic roots of Crisis. 'The distinctive feature of Sismondi's analysis is that it is geared to an explicit dynamic model in the modern sense of this phrase ... Sismondi's great merit is that he used, systematically and explicitly, a schema of periods, that is, that he was the first to practice the particular method of dynamics that is called period analysis'. Marx praised and built on Sismondi's theoretical insights. Rosa Luxemburg and Henryk Grossman both drew attention to Sismondi's work, on the nature of capitalism, and as a reference point for Karl Marx, Grossman in particular pointed out how Sismondi had contributed to the development of a series of Marx's concepts including crises as a necessary feature of capitalism, arising from its contradictions between forces and relations of production, use and exchange value, production and consumption, capital and wage labor. His 'inkling ... that the bourgeois forms are only transitory' was also distinctive. John Stuart Mill in his Of the Tendency of Profits to a Minimum which forms Chapter III of Book IV of his Principles of Political Economy and Chapter V, Consequences of the Tendency of Profits to a Minimum, provides a conspectus of the then accepted understanding of a number of the key elements, after David Ricardo, but without Karl Marx's theoretical working out of the theory that Frederick Engels posthumously published in Capital, Volume III. Marx's crisis theory was only partially understood even among leading Marxists at the beginning of the twentieth-century. His notes, 'Books of Crisis' remain unpublished and have seldom been referred to. A relatively small group including Rosa Luxemburg and Lenin attempted to defend the revolutionary implications of the theory, while others, first Eduard Bernstein and then Rudolf Hilferding, argued against its continued applicability, and thereby founded one of the mainstreams of revision of the interpretation of Marx's ideas after Marx. Although Henry Hyndman attempted to present, popularise and defend Marx's theory of crisis in lectures delivered in 1893 and 1894 and published in 1896, it was Henryk Grossman in 1929 who later most successfully rescued Marx's theoretical presentation ... 'he was the first Marxist to systematically explore the tendency for the organic composition of capital to rise and hence for the rate of profit to fall as a fundamental feature of Marx's explanation of economic crises in Capital.' Apparently entirely independently Samezō Kuruma was also in 1929 drawing attention to the decisive importance in Marx's writings and made the explicit connection between Crisis theory and the theory of imperialism. Following the extensive setbacks to independent working class politics, the widespread destruction both of people, property and capital value, the 1930s and '40s saw attempts to reformulate Marx's analysis with less revolutionary consequences, for example in Joseph Schumpeter's concept of creative destruction. and his presentation of Marx's crisis theory as a prefiguration of aspects of what Schumpeter, and others, championed as merely a theory of business cycles. '... more than any other economist identified cycles with the process of production and operation of additional plant and equipment' A survey of the competing theories of crisis in the different strands of political economy and economics was provided by Anwar Shaikh in 1978. and by Ernest Mandel in his 'Introduction' to the Penguin edition of Marx's Capital Volume III particularly in the section 'marxist theories of crisis'(p.38 et seq) where Mandel says more about the theoretical confusion on this question at that time, even among thoughtful and influential marxists, than an excursus or introduction to Marx's crisis theory. There have been attempts particularly in periods of capitalist growth and expansion, most notably in the long Post-War Boom to both explain the phenomenon and to argue that Marx's strong statements of its 'law like' fundamental character under capitalism have been overcome in practice, in theory or both. As a result, there have been persistent challenges to this aspect of Marx's theoretical achievement and reputation. Keynesian's argue that a 'crisis' may refer to an especially sharp bust cycle of the regular boom and bust pattern of 'chaotic' capitalist development, which, if no countervailing action is taken, could continue to develop into a recession or depression. It continues to be argued in terms of historical materialism theory, that such crises will repeat until objective and subjective factors combine to precipitate the transition to the new mode of production either by sudden collapse in a final crisis or gradual erosion of the basing on competition and the emerging dominance of cooperation.