Crisis theory, concerning the causes"The causes of crises" in Rudolf Hilferding Finance Capital. A Study of the Latest Phase of Capitalist Development. Part IV. Finance capital and crises. and consequences of the tendency for the rate of profit to fall in a capitalist system, is associated with Marxian critique of political economy, and was further popularised through Marxist economics.
History Earlier analysis by Jean Charles Léonard de Sismondi provided the first suggestions of the systemic roots of Crisis.Isaac Illyich Rubin 'Sismondi as a Critic of Capitalism', Chapter 37 in A History of Economic Thought, InkLinks, LondonJ. C. L. Sismonde de Sismondi 'New Principles of Political Economy: Of Wealth in Its Relation to Population Trans. Richard Hyse 1991 Transaction Publishers, Rutgers - The State University, New Brunswick, New Jersey' "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".Joseph A. Schumpeter History of Economic Analysis Allen & Unwin 1954 p.494–496 Marx praised and built on Sismondi's theoretical insights.Rick Kuhn Introduction: Grossman and His Studies of Economic Theory in Henryk Grossman Capitalism's Contradictions: Studies in Economic Theory before and after Marx Haymarket, Chicago
Rosa Luxemburg and Henryk Grossman both subsequently drew attention to both 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.Henryk Grossman Simonde de Sismondi and His Economic Theories (A New Interpretation of His Thought) orig. in french Warsaw English translation in Grossman Capitalism's Contradictions: Studies in Economic Theory before and after Marx Haymarket, ChicagoRick Kuhn Introduction: Grossman and His Studies of Economic Theory in Grossman p.5
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 theoryKarl Marx Marx's Economic Manuscript of 1864–1865 ed. Fred Moseley tran. Ben Fowkes Haymarket 2017, p.320-375 that Frederick Engels posthumously published in Capital, Volume III.
Marx's crisis theory, embodied in " ... the law of profitability did not appear until the publication of [Capital] Volume Three in 1894. Grundrisse was not available to anybody until well into the 20th Century ... "Roberts, Michael Marx 200 - a review of Marx's economics 200 years after his birth and therefore was only partially understood even among leading Marxists at the beginning of the twentieth-century. His notes, 'Books of Crisis' [Notebooks B84, B88 and B91]Lucia Pradella .160 notes 'To be published in MEGA2 IV/14 (Krätke 2008b: 170–4). In the first book, '1857: France' [B84], Marx, collected excerpts from newspapers on the crisis in France, Italy and Spain. In the second book, 'Book of the Crisis of 1857' [B88], he gathered information on the British money market, and the trends in German and Austrian stock markets. The third, 'The Book of the Commercial Crisis' [B91], is devoted to the commercial crisis in Britain, the US, China, India, Egypt and Australia.' remain unpublished and have seldom been referred to.Lucia Pradella 'Globalisation and the Critique of Political Economy: New Insights from Marx's writings'Routledge p126, 160n3 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,Jonas Zoninsein 'Monopoly Capital Theory: Hilferding and Twentieth-Century Capitalism' Greenwood argued against its continued applicability, and thereby founded one of the mainstreams of revision of the interpretation of Marx's ideas after Marx.Kuhn, Rick Economic Crisis and Socialist Revolution: Henryk Grossman's Law of accumulation, Its First Critics and His Responses
Henry Hyndman had written a short history of the crises in the 19th century in 1892, attempting to present, popularise and defend Marx's theory of crisis in lectures delivered in 1893 and 1894 and published in 1896.H.M.Hyndman The Economics of Socialism: Being a series of seven Lectures on Political Economy 4th Edition 1909, The Twentieth Century Press p.146 Lecture V Industrial Crises & p.180 Lecture VI Rent, Interest, and profit Max Beer also asserted the centrality of Marx's crisis theory in his pedagogic contributions The Life and Teaching of Karl Marx 1925Beer, Max The Life and Teaching of Karl Marx (Translated T.C. Partington & H.J. Stenning, and revised by the author) N.C.L.C. Publishing Society Limited, London and his A Guide to the Study of Marx: An Introductory Course for Classes and Study Circles 1924.Beer, Max A Guide to the Study of Marx: An Introductory Course for Classes and Study CirclesThe Labour Research Department, London https://www.marxists.org/archive/beer/1924/guide-study-marx.pdf In the late 1920s and early 30s, Max Beer worked at the Institut fur Sozialforschung and was a friend of Henryk Grossman.
It was Henryk Grossman in 1929 who later most successfullyRick Kuhn 'Henryk Grossman and the Recovery of Marxism' University of Illinois 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.'Rick Kuhn 'Economic Crisis and Socialist Revolution: Henryk Grossman's Law of accumulation, Its First Critics and His Responses', originally published in Paul Zarembka and Susanne Soederberg (eds) Neoliberalism in Crisis, Accumulation, and Rosa Luxemburg's Legacy Elsevier Jai, Amsterdam Research in Political Economy, 21, 2004 pp. 181–221. (series). .Rick Kuhn 'Henryk Grossman on Imperialism' paper for Historical Materialism Conference 2006 Apparently entirely independently Samezō Kuruma was also in 1929 drawing attention to the decisive importance of Crisis theory in Marx's writings, and made the explicit connection between Crisis theory and the theory of imperialism.Samezō Kuruma (1929)|https://www.marxists.org/archive/kuruma/crisis-intro.htm
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 destructionJoseph A. Schumpeter Capitalism, Socialism & Democracy, Routledge, LondonBernice Shoul 'Similarities in the Work of John Stuart Mill and Karl Marx' in Science and Society 29 (3) Summer 1965 pp 270-295 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 cycle. "... more than any other economist [Marx] identified cycles with the process of production and operation of additional plant and equipment".Joseph A. Schumpeter History of Economic Analysis Allen & Unwin 1954 p.1131
A survey of the competing theories of crisis in the different strands of political economy and economics was provided by Anwar Shaikh in 1978Shaikh, Anwar An introduction to the History of Crisis Theories in U.S. Capitalism in Crisis, URPE, New York 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 it appears that Mandel says more about the theoretical confusion on this question at that time, even among thoughtful and influential Marxists, than offering an excursus or introduction to Marx's crisis theory.Karl Marx Capital: A Critique of Political Economy Volume Three Introduced by Ernest Mandel. Translated by David Fernbach, Penguin Books
There have been attempts particularly in periods of capitalist growth and expansion, most notably in the long Post-War BoomBullock, Paul and Yaffe, David 1975 Inflation, the Crisis and the Post-War Boom RC 3/4 November 1975, RCG to both explain the phenomenon and to argue that Marx's strong statements of its 'lawlike' 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.Shaikh, Anwar Keynesians 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.Schumpeter, Joseph A., Opie, Redvers (1983) . The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. New Brunswick, New Jersey: Transaction Books. . Translated from the 1911 original German, Theorie der wirtschaftlichen Entwicklung.
It continues to be argued in terms of historical materialism theory, that such crises will repeat until objective and subjective factors combine to precipitate a resolution of the underlying class struggle in a social 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.
Causes of crises
The concept of periodic crises within capitalism dates back to the works of the Utopian socialists Charles Fourier and Robert Owen and the Swiss economist Léonard de Sismondi. Karl Marx considered his crisis theory to be his most substantial theoretical achievement.Roman Rosdolsky The Making of Marx's 'Capital p.381Joseph A. Schumpeter History of Economic Analysis Allen & Unwin 1954 p.651Guglielmo Carchedi & Michael Roberts eds. World in Crisis: A Global Analysis of Marx's Law of Profitability Haymarket Books, Chicago, Illinois p.vii He presents it in its most developed form as Law of Tendency for the Rate of Profit to Fall combined with a discussion of various counter tendencies, which may slow or modify its impact." Roman Rosdolsky observed that "Marx concludes by saying that the law of the tendency of the rate of profit to fall is in every respect the most important law of modern political economy ... despite its simplicity, it has never before been grasped and even less consciously articulated ... It is from the historical standpoint the most important law."Roman Rosdolsky 'The Making of Marx's 'Capital p.381.[fn. corrected Marx 1973 Grundrisse p.748]Kliman, Andrew The Great Recession and Marx's Crisis Theory. American Journal of Economics and Sociology, 74: p.241. A key characteristic of these theoretical factors is that none of them are natural or accidental in origin but instead arise from systemic elements of capitalism as a mode of production and basic social order. In Marx's words, "The real barrier of capitalist production is capital itself"."Ch. 15 Vol 3 of Capital". marxists.org