Why Must Capitalism Lead to Crisis?

By a commentator for Tjen Folket Media. Updated from an earlier version on August 15, 2019.

The bourgeois political economy does not give a scientific answer to where recessions and economic crises from from. It merely states that they exist and attempts to find an explanation on the surface of the economy, for instance by labeling crises as an «oil crisis», «debt crisis», or «finance crisis». Only Marxism could reveal the economic laws of capitalism, and thereby also the fundamental cause of the cyclic crises.

Capitalism’s Economists Must Defend Capitalism

Why is this so? Because bourgeois economic theory operates within the framework of capitalist ideology. At the basis of the bourgeois economy lies unity with the system. Thereby, they can neither reveal the exploitation of the proletariat through the capitalists’ appropriation of their surplus labour, nor reveal the cyclic crises’ true causes.

An economist on the bankroll of large banks, companies, or capitalist states can of course not conclude that the source of capital is the exploitation of the proletariat and that capitalism by necessity must create crises. It is nearly in the job description that they are to defend capitalism and attempt to solve the unsolvable, namely by finding methods of «infinite growth» or «crisis-free capitalism».

Economists must of course give up this impossible task, and end up with accepting crises as metaphysical phenomena – something that simply just happens – and must resign themselves not to resolving the problem, but instead attempting to find ways to handle it.

Marx: The Cyclic Crises are Overproduction Crises

Karl Marx and Marxism have on the other hand answered the question of why crises occur, and why they must come, as a part of capitalism’s cycle.

In a textbook on political economy issued by the Economics Institute of the Academy of Sciences of the USSR, Soviet economist have written:

Capitalist crises are crises of overproduction. A crisis shows itself first of all in the’ fact that commodities cannot be sold, since they have been produced in quantities greater than can be bought by the main consumers—the mass of the people—whose purchasing power is confined under capitalist relations of production within extremely narrow limits… The exchanges crash-the prices of shares, bonds and other securities fall headlong. A wave of bankruptcies of industrial, commercial and banking concerns sweeps forward.

The textbook maintains, on the basis of Karl Marx’s work, that pre-capitalist crises were caused by underproduction as a result of war, drought, floods, and similar, while crises under capitalism on the other hand are the result of overproduction. Not that too much is produced in general – there are poor masses of people who are today starving – but because too much is produced relatively speaking. In other words, more is produced than capitalists are able to sell. The problem is, put plainly, not that poor people do not need what is being produced, but rather that they do not have the purchasing power to buy all of the capitalists’ goods.

The Crisis Springs out of Capitalism’s Fundamental Contradiction

The Marxist economists maintain that crises in capitalism have their root in the fundamental construction in capitalism, and that «[t]hus the inevitability of crises is rooted in the system of capitalist economy itself.»

The fundamental contradiction in capitalism is the contradiction between socialized (social) production and private (capitalist) appropriation. Capitalism has made production, which in early societies was primarily private, into something social. The production of goods dominated as a form of production, and the production of goods is not only dependent on the social phenomenon of the market, where goods are bought and sold, but by a socialized production from one end to the other. From metals mined from the earth in the Congo, to the cell phone sold at the Apple Store, each phone has passed through countless hands and had a long series of stops from raw materials to finished product. And the product must finally be shipped along train lines and highways to reach the customer.

The fundamental contradiction lies within the fact that despite this socialized production, the appropriation remains capitalistic. The product is not accrued by society or the producer, but the capitalists. The capitalists’ control over the means of production gives them control of the product, which is the result of production. And this product is bought and sold in a capitalist manner, as goods. It does not belong to people who produced the product, but rather as goods to a consumer.

Here is the source of capitalism’s unsolvable problem. Not unsolvable in an absolute sense, as capitalism’s problem will be solved when capitalism is abolished, but a problem that cannot be resolved within the capitalist system.

Crises every 8 to 12 years

Further, the Marxist economists write:

Before the first world war economic crises usually occurred every 10-12 years, and only occasionally within 8 years of each other.

The last extensive crisis in capitalism was the so-called «finance crisis» of 2008. It was the largest crisis in capitalism since the 1930s and lead to enormous destruction of productive forces, increased unemployment, and need for the masses. This crisis laid the basis for the «Arab Spring» that flooded over the Middle East and North Africa, with protests and uprisings that led to the fall of governments in Tunisia and Egypt, along with the prelude to ways against Syria and Libya.

The crisis will come, sooner or later. And it will shake the world – not only in the economic foundations, but also politically and socially. It does not happen mechanically and automatically, but through dialectic exchanges between society’s material basis and the subjective forces in the people’s and proletariat’s struggle.

The General Crisis in Capitalism

Nonetheless, the cyclic crisis must not be mistaken for capitalism’s general crises, which the textbook describes as follows:

The general crisis of capitalism is the all-round crisis of the world capitalist system as a whole, characterised by wars and revolutions, by a struggle between moribund capitalism and growing socialism. The general crisis of capitalism involves all sides of capitalism, both economic and political… The general crisis of capitalism covers an entire period of history, forming part of the epoch of imperialism. As already mentioned, the law of uneven economic and political development of the capitalist countries in the imperialist epoch predetermines a variation in the time when socialist revolution becomes ripe in different countries. Lenin pointed out that the general crisis of capitalism is not an event which takes place in a single moment of time but a long period of stormy economic and political upheavals and sharp class struggle, a period of “the collapse of capitalism on its full scale, and the birth of a socialist society»… The general crisis of capitalism began in the period of the first world war and developed especially as a result of the falling away of the Soviet Union from the capitalist system. This was the first stage of the general crisis of capitalism. In the period of the second world war the second stage of the general crisis of capitalism developed, especially after the falling away from the capitalist system of the People’s Democracies in Europe and Asia.

The general crisis in capitalism is also described in the the annual May 1 statement from Maoist parties and organizations:

International Mayday 2019: Dare to struggle, dare to win!

The general crisis is a part of imperialism, capitalism’s second and last stage. The cyclical crises with 8 to 12 years bettween them have been a part of capitalism since its start.

From Economic Crisis to Social Crisis and Political Upheaval

For communists, the crises are not primarily about the fall in stock prices and debt problems for the world’s homeowners. For the world’s deepest and broadest masses, the crisis is the question of to be or not to be, of life or death. It is a question of peace and war, to eat to satisfaction, to watch one’s children grow up or to succumb to hunger and disease.

The previous crisis increased the world’s starving population by hundreds of millions. It laid the basis for the most brutal war for several decades. And all talk of finding solutions within the system are purely pipe dreams. A number of environmental protection measures also go right out the window as soon as profits are threatened.

Short put – the crises that reveal the anarchy in capitalist production have two sides. On one side, the masses’ suffering and the screeching need, and on the other is the transience of capitalism. Capitalism is neither harmonic nor stable and its escalating problems place communism on the agenda.

See also:

5 of the world’s biggest economies are at risk of recession

Low-income Britons ‘more vulnerable to recession than in 2008‘

Dette fenomenet har varslet om økonomiske kriser de siste 40 årene. Onsdag skjedde det igjen.

Appendix: Engels on the Contradiction between Socialized Production and Private Appropriation

But the socialized producers and means of production and their products were still treated, after this change, just as they had been before — i.e., as the means of production and the products of individuals. Hitherto, the owner of the instruments of labor had himself appropriated the product, because, as a rule, it was his own product and the assistance of others was the exception. Now, the owner of the instruments of labor always appropriated to himself the product, although it was no longer his product but exclusively the product of the labor of others. Thus, the products now produced socially were not appropriated by those who had actually set in motion the means of production and actually produced the commodities, but by the capitalists. The means of production, and production itself, had become in essence socialized. But they were subjected to a form of appropriation which presupposes the private production of individuals, under which, therefore, every one owns his own product and brings it to market. The mode of production is subjected to this form of appropriation, although it abolishes the conditions upon which the latter rests.

This contradiction, which gives to the new mode of production its capitalistic character, contains the germ of the whole of the social antagonisms of today. The greater the mastery obtained by the new mode of production over all important fields of production and in all manufacturing countries, the more it reduced individual production to an insignificant residuum, the more clearly was brought out the incompatibility of socialized production with capitalistic appropriation.

Friedrich Engels, Socialism: Utopian and Scientific, Part III: Historical Materialism