Marxist economists on the crisis, 2nd round: 5. David Laibman - The Onset of Great Depression II: Conceptualising the Crisis

David Laibman

At this writing (January 2009), firms in all sectors of the U. S. economy are cutting their payrolls; unemployment and homelessness are soaring; and the working class is taking the biggest hit to living standards in several generations, raising deep doubts about the capacity of our capitalist society in the near term to ensure overall social reproduction.

Similar trends are evident around the world, reflecting a heightened degree of interconnection and transnationalisation. Mountains of debt -- consumer, business, government, offshore -- continue to accumulate, and the fragility of the international financial system becomes daily more apparent, dashing any hope of a quick recovery.

We should begin by saying, loud and clear: The Marxist understanding of the inherent instability and progressive unworkability of capitalism has been vindicated! We Marxists have, in our different ways of course, been saying that the “free world” golden age, the long boom, the “free market,” the end of history -- whatever -- are all one big myth; that capitalist accumulation, with its immanent trope toward polarisation, reckless expansion, irresponsibility and instability, is increasingly problematic from any standpoint affirming human survival and fulfillment. We have always known this, while legions of mainstream pundits and scholars have not known it, and have been incapable of knowing it. (They still are.)

Then why don’t we feel vindicated? Why do we feel helpless, like the proverbial deer in the headlights? Where is the confident projection of a future beyond capitalism, to help fuel the sort of massive democratic upsurge that secured the October Revolution of 1917, the U. S. New Deal in the 1930s, and the social wage of the advanced capitalist societies of Western Europe in the post-World War II period? Part of the problem, of course, is that Marxist predictions of crisis have often turned out to be wrong, so that when a crisis “finally” does emerge we experience it in the same way as the correct statement of a stopped clock (which is, after all, right twice a day). The old joke haunts us: “Marxists have successfully predicted ten of the last two crises to hit the U. S. economy.” We need to know: how can we use our grasp of fundamentals to produce a superior analysis of this crisis? How can we avoid succumbing either to the sterile maximalism of simply asserting that “capitalism = crisis” and vapid talk of “general crisis,” on the one hand; or joining the hoards of talking heads who spew forth endless details of sub-prime mortgages, financial derivatives, bailouts, “latest developments,” etc., with the associated anything-is-possible/nothing-is-possible chatter, on the other?

Well, we can but try. The answer won’t be found, in my view, in the form of endless empirical description, nor by means of the “Marxist econometric model” that the late David Gordon so meticulously sought. Nor will it be found in further study of Marx’s texts, although that study remains important as one source of useful insight. As always in these essays, I argue that conceptual clarification is essential, and in this instance I believe a specific conceptual gap has been a defining feature in the work of Marxist economists in capitalist countries who are systematically hostile toward the early-socialist states of the 20th century (the so-called “Western Marxists”). More on that in a moment.

Crises of capitalist accumulation have traditionally been categorised into “cyclical” and “structural.” One can, of course, deploy both concepts simultaneously, as when investigating the cyclical and structural aspects of a given crisis. Cyclical crises are the periodic, and periodically necessary, wrenching adjustments in the path of accumulation, revealing the general recurring tendency of capitalism to undermine its own conditions for further expansion. They have been sub-categorised into crises of “realisation” (based on deficiency of demand), and crises of “liquidation” (based on excessively low profit rates). Structural crisis, by contrast, occurs when a given stage of accumulation (or “social structure of accumulation”) must necessarily give way to a succeeding one. One example is capitalism’s need for a qualitatively enhanced form of state regulation, an institutional transformation of the early 2oth century that was mightily resisted by capital, even as that system’s most thoughtful representatives saw the need for it and mass working-class struggle from below brought home its necessity. Another such stage (or “stadial”) conception of crisis rests on the “social structure of accumulation” (or, in a different formulation, the “regime of accumulation”) that emerged in the post-World War II period, characterised by “Fordist” mass production, Keynesian demand management, and a capital-labor accord ensuring (relative) class peace in exchange for assured worker participation in rising productivity. The structural crisis was the stormy period of the 1970s emerging from the unraveling of this arrangement.

I would like to propose, amplifying this set of distinctions, a three-way conceptual frame, in which cyclical crisis is sub-divided into two sub-categories: accumulation, and balance-of-forces. We therefore have three crisis types: 1) accumulation-cyclical; 2) balance of forces-cyclical; and 3) stadial-structural. These can be combined to characterise a particular conjuncture. Accumulation-cyclical crises are the classical crises of overproduction, with either the realisation or the liquidation aspect in the dominant position. They embody a central capitalist contradiction: individual capitals must seek ever-higher profit rates in ways that undermine the conditions for their realisation, where these conditions involve both demand and the nature of production (mechanisation, concentration and centralisation of capital, etc.).

Stadial-structural crises (to skip over the second type for the moment) refer of course to the stadial, or stage-like, character of capitalism. The stormy transition to a more intense regime of state regulation has already been mentioned; it took the first Great Depression (GD I!) to force it through (1). Now, some seven decades later, the structural contradiction is different: capitalist units of control (firms), as a result of persistent concentration (growth in the sise and interdependence of productive units), centralisation (gathering of control into fewer and fewer hands), and the rise of information technology, have grown beyond the limits of capital’s own state regulation. In recent years the rise of “offshore” dollars (until recently the unchallenged international reserve currency) and financial centers has increasingly eroded the power of government stabilisation bodies, and even eclipsed the reach of supranational entities such as the IMF and World Bank. The potential for instability in the enormous transnational capital market, enhanced by the rise of financial derivatives whose face value is now many times world GDP, has been richly described by many, but here we place it in the framework of an immanent outcome of continuing capitalist accumulation.

The attenuation of actual and potential regulatory power on the part of governments may be seen as an instance of capitalism, in the late 20th and early 21st centuries, gradually re-asserting its characteristic elemental quality. To understand this fully, however, we must now invoke the second of the three crisis categories: balance of forces-cyclical. Of the three, this one is, I submit, the least well understood, largely because of the widespread failure on the “Western” left to appreciate the revolutionising role of the Russian Revolution and of the early socialist societies to which it gave rise.

October 1917 set in train a powerful movement from below; this movement shaped the path of accumulation throughout the world, including in the advanced capitalist countries. The emergence of a post-capitalist state, in a huge land mass, created a basis for independent political and social development of exploited and impoverished classes in all parts of the capitalist world, and gave Great Depression I its special character as a threat to capitalism as such. This, it should be noted, is true despite the material weakness and political and cultural deformation that were part of Soviet society and its development. The combined effect of the revolutions, both successful and unsuccessful, of the early 20th century and the Depression was to create a massive shift in the balance of class forces in favor of the working class and related subaltern social classes and strata. Except in the USSR and, postwar, Eastern Europe and China, this shift did not eventuate in a transfer of state power or the overthrow of the capitalist ruling classes; it did, however, result in a period in which the elemental capitalist process was repressed, attenuated, forced to function in muted fashion and to respond to popular demands. So alongside early socialist construction to the east, we have European Social Democracy, the social wage, various and sundry “capital-labor accords,” the break-up of the colonial empires, Keynesian stabilisation and regulation in the west. The history of the latter decades of the 20th century, until the present, is one of the gradual undoing of this working-class position of strength and reversion of the balance of class forces to its more normal state: a passive, apolitical working class and a healthily (from the capitalist standpoint) valorised labor-power commodity. The decline in trade union membership in the United States is a factual symbol of this history.

And standing in glaring contradiction to it is the emergence in the USA of widespread working-class home ownership after World War II. Reflecting the social advance of the working class, home ownership was also central to the subsequent ideological derailment, as was “consumerism,” the suburban life style, and much else. But the accumulation of personal wealth in the form of real estate was also a growing threat to the classical proletarian condition, and therefore an obstacle to the progressive re-emergence of unfettered capitalist class rule. What was needed -- again, from the standpoint of capital -- was nothing less than a new re-dispossession of workers on a large scale. From this standpoint, the crisis -- for capital -- is the advanced social and political position of the working class that emerged following the mobilisations related to the world wars, the Depression, the victory over fascism -- and the continued existence, and threat, of the Soviet Union. The resolution of the crisis is re-proletarianisation, much more advanced in the USA than in, say, Western Europe.

Now, with these pieces of the puzzle in place, we can briefly describe the present crisis. It is a perfect storm of crisis: a coming-together of accumulation- cyclical, balance of forces-cyclical, and stadial-structural elements.

The crisis of overproduction has been a long time in the making. But financialisation -- the enormous increase in debt of all kinds -- constitutes, as we well know, an offset. When consumer demand is restricted owing to a falling wage share of income (as has been happening since sometime in the 1970s), the gap can be papered over by installment plans, and other forms of consumer borrowing. Public debt can prop up aggregate demand. U. S. factories can ship goods to the rest of the world, and lend the world the money to pay for them. (Of course, this relationship was reversed in the 1980s and 90s, and we now borrow massively from the world, instead of lending to it.) The question, however, is: how far can this process go? How far can the rubber band be stretched, before it breaks? This writer remembers doing research into debt ratios (consumer debt to personal disposable income, overall debt to GDP, etc.) in the early 1970s, and concluding, truly and ominously, that these ratios were all then just surpassing their 1929 levels! Surely a sound basis for predicting an imminent collapse -- which, however, came along almost 40 years later. (Shades of “predicting ten out of two crises.”)

Now the question -- how much debt leverage is possible? -- seems unanswerable, unless we bring in the balance of forces cycle (the one that, as noted, many Marxists have trouble with). Why, for example, when the mortgage market showed signs of trouble last year, was a new securitisation not possible? Tension in this market has been on the rise for years, after all. The answer may well lie along these lines: Repackaging and underwriting of the bad loans was possible, in principle; it would simply have required the sort of lofty thinking and long time horizon that goes against the grain of capital -- like chimpanzees standing erect on two legs for short periods -- but can be accomplished by them through use of the state apparatus. What happened, however, is that powerful ruling circles in banking and finance (and politics) concluded that the housing crisis should not be further postponed; that it was now both necessary and politically possible. The crisis of homelessness in the U. S. working class is precisely the assertion of a central capitalist imperative: reproduction of the proletarian status of workers ultimately requires their propertylessness (2). This need not be thought of as a simple conspiracy: it is rather that the balance of forces have evolved, in what from our standpoint is an unfavorable direction, to a point at which powerful players in the financial markets, and in government, now think the consequences of saving low-income home ownership are worse than the consequences of letting that ownership slide. This may appear as nothing other than good financial decision making, but it ultimately results from a shifting world balance of class forces, in which the demise of the Soviet Union, while certainly not the only factor, was nevertheless a crucial one. And that, as they say, is where the rubber band snaps.

So. We have an accumulation-cyclical crisis in potential form, developing over time. We have a regulatory-stabilisation apparatus designed to either avert the actual economic downturn, or at least soften the blow (this is what they mean by a “soft landing”), an apparatus which however is increasingly undermined by elemental transnationalisation. Finally, the balance-of-forces chickens come home to roost: the will to offset the downturn evaporates as the political need to do so vanishes. A perfect storm.

When the sea change in working-class consciousness and organisation occurs -- notice that I say “when,” not “if” -- the ruling circles will then need enhanced forms of regulation appropriate to their own newly transnationalised world economy, and they will find that these forms are not in place! Moreover, those forms may not even, ultimately, be possible. But all that, as they say, is (yet) another story.


1. Actually, what we call the (first) Great Depression is really the second. Economic historians are familiar with the period 1870-93 (or thereabouts), a time of depressed trade and high unemployment that was well entrenched in popular consciousness, until erased by the momentous turn of the 1930s. (How quickly we forget!) The crisis of the late 1800s may be considered structural, resolved by the rise of the trusts and robber barons. I will, however, begin the count with the more recent Great Depression (GD I), as we wonder whether we are standing on the threshold of its successor.

2. Medicare and Medicaid work together as a means of re-dispossession. Medicare caps on nursing-home payouts are reached, and people then must “spend down” until they are eligible for Medicaid. They are thus divested of their homes, farms, and paper assets, and their children deprived of their inheritance. The political economy of health care and that of the “housing question” are tightly interrelated.

January 2009. David Laibman is Professor of Economics at Brooklyn College and the Graduate School, CUNY, and Editor of Science & Society. His most recent book, Deep History: A Study in Social Evolution and Human Potential, was published in 2007 by SUNY Press. He can be reached at This text will appear in the “Editorial Perspectives” section of the July 2009 issue of Science & Society. That issue will also contain a Call for Papers for a forthcoming special issue devoted to Marxist Perspectives on the Capitalist World Crisis.