Marxism and theory of crises

Economics and learning from the facts


Natalia Cassidy

Martin Thomas’s book Crisis and Sequels: Capitalism and the New Economic Turmoil since 2007 is constructed around 32 interviews, discussions, and debates with left wing economists and other thinkers.

It takes the reader; mostly chronologically, along the timeline from the immediate aftermath of the crash itself in 2007-8 across the next decade, up to 2016.

Thomas offers a substantial introduction, with overviews of the debates that take place across the book between the various contributors and himself.

Luxemburg, economics, crises, and the national question


Martin Thomas

This article seeks to review and reflect on the two volumes of Rosa Luxemburg's Complete Works published so far.

Only a scattering - a much thicker scattering since the 1970s, but still a scattering - of Luxemburg's writings have been available in English until now.

Since the 1970s there has been a "Collected Works" in German. Even that misses out a lot. The new Complete Works, edited by Peter Hudis, will be fourteen volumes.

Take over the banks!

Five years ago, the demand for the public ownership of the banks was the preserve of a small minority of socialists. Today it follows logically from the exposed venality of the banking system.

There have now been three waves of banking failure in the recent past. Socialists should use these events to argue relentlessly for state ownership and democratic control of the banking system.

Socialists and crises

Recent capitalist history has thrown up sharper economic declines and higher levels of unemployment than the ones we are currently witnessing in Greece and Spain. It’s just that they haven’t occurred in nice Mediterranean countries that Britons visit for beach holidays and long weekends.

Marxist insights on crisis

A particularly interesting session at the Historical Materialism conference in London on 10-13 November 2011 heard four contributions on Marxist theories of crisis and the current crisis.

These are the abstracts supplied by three of the presenters.

Michel Husson: Towards a chaotic regulation

Antecedents and sequels of the crisis

Submitted by martin on Tue, 09/11/2010 - 10:54

This is a partial draft of an introduction to a collection of discussions with Marxist economists on the global capitalist crisis which opened in 2007, written up as a paper for the "Historical Materialism" conference of November 2010. It connects with an earlier debate, on the "epoch of decline", for which click here.

Click here to download pdf

Narratives of the global capitalist crisis that opened in 2007 differ in their accounts of the antecedents of the turmoil, and their accounts of the probable sequels.

Many writers argue that world capitalism has been in deep trouble ever since the "Golden Age" of the 1950s and 60s broke down in the 1970s. Full-scale crisis was staved off in the years running up to 2007 only by gambits which were sustainable only in a short term. The eventual large crisis took the form of a collapse of those gambits, but was essentially caused by the underlying ill-health.

Other economists see capitalism having been exceptionally dynamic - in its own terms, by its own criteria - in recent decades. If this account is right, then the accumulation of elements of crisis is a product of that exuberant dynamism of capital.

Another difference is about whether the crisis is likely to shift (or is already shifting) capital's trajectory from the dominant neo-liberal model of recent decades to a new one, or whether capitalist governments will make strenuous efforts to shape the outcome of the crisis on neo-liberal lines.

I will summarise arguments from a range of writers, and argue that the balance of evidence so far indicates that the antecedents of the crisis were those of a period of high capitalist dynamism, and that the sequels - short of revolutionary or near-revolutionary working-class struggle - are most likely to be on neo-liberal lines.


Why did a global capitalist crisis open in 2007-8? Some Marxist economists answer that world capitalism has been in deep trouble ever since the "Golden Age" of the 1950s and 60s broke down in the 1970s. Many of the conditions for a large crisis were there all along. Full-scale crisis was staved off only by gambits which were sustainable only in a short term. The eventual large crisis took the form of a collapse of those gambits, but was essentially caused by the underlying ill-health.

Thus, in discussions on the crisis with Marxist economists which I collated for the fortnightly Solidarity, we had the following comments.

Robert Brenner: "The basic source of today's crisis is the declining vitality of the advanced economies since 1973, and especially since 2000... a deep, and lasting, decline of the rate of return on capital investment... a persistent tendency to overcapacity in global manufacturing industries...

"State economic authorities have tried to cope with the problem of insufficient demand by encouraging the growth of borrowing, both public and private... [lately, asset price 'bubbles' which made] corporations and households... able to borrow on a titanic scale".

Costas Lapavitsas: "As banks and other financial institutions have made this turn [over the last 30 years] in drawing their profits, they have created gigantic and novel forms of instability which implicate broad layers of ordinary people".

Andrew Kliman: "What we’ve seen since 1973 is the management of a system which has not fully recovered... That is because there has not been a major purging of value from the system. Governments and banks have been throwing debt into the system to prevent that from happening".

Trevor Evans dissents from Brenner in stating that: "Profit rates have been recovering in the advanced capitalist countries since the early 1980s. There have been intermittent downturns, but broadly speaking profitability was re-established in the major transformation of the 1980s". But he also sees a picture quite similar to Brenner's. "In truth [government policies have been] continually displacing the problem... By pushing money into the system in 2001, the Fed prevented another deep recession, at the cost of yet a further build-up of credit bubbles".

Other economists see capitalism having been exceptionally "healthy" - in its own terms, by its own criteria - in recent decades. It would then follow that the crisis means that this exuberant "health" for capitalism simultaneously meant an accumulation of elements of crisis.

Thus Leo Panitch: "We have been living through one of the most dynamic periods in the whole history of capitalism. It has been enormously exploitative, and has created enormous insecurity around the world, including in the heart of the Empire itself, but its dynamism has been related to its ability to be exploitative and create insecurity...

"The recovery of profits... has been substantial and real, and not, as Bob Brenner usually explains it, a matter of ad hoc ways of getting out of a continuing structural crisis".

Dick Bryan: "An amazing period of growth in the last 20 years... The inventiveness of capital... A system of accumulation which is getting bigger and bigger, and in a sense also more and more efficient... The world economy [has been] booming..."

Michel Husson sees an "ambivalent configuration". "Contemporary capitalism is... a 'pure' capitalism, in the sense that it has brought together the conditions which it itself demands for an optimal functioning from its point of view...

"It has re-established a high rate of profit... But... the rate of accumulation [is low]... Add to that... the specific instability created by the weight of finance, and the fundamental imbalance which the trade deficit of the USA introduces..."

At first sight, the contributors who present the crisis as a matter of a long-term invalid finally moving from chronic to acute sickness, rather than exuberant growth suddenly overreaching itself, have the better of the argument. Those who tended to see recent capitalism as dynamic were inclined at first - in early 2008 - to see the current crisis as shallow. Panitch: "It's not impossible that this crisis will be dealt with by Band-Aid measures". Mohun: "The crisis does not look that dramatically severe to me". Bryan: "I don't see the current disturbances as a fundamental crisis".

Seeing the recent era of capital as one of relatively dynamic expansion is likely to correlate, psychologically, with scepticism in the earlier stages of the current crisis about how deep it would go. However, there is no compulsory logical correlation.


To discuss the contrasts between the "exuberance-falling-over" thesis and the "sickness-finally-moving-from-chronic-to-acute" one, it is useful first to look at the question of the relation between profit rates and crisis. There is a common assumption in Marxist discussion that crises - or, at least, serious crises, "Marxist" crises - are preceded, initiated, set off, by falls in the average rate of profit. But in fact they are not. Or not always.

In the recent discussions, not many economists have based themselves on the old Marxological "tendency of the rate of profit to fall", but that tendency has been much referred to on the activist left, and it casts a very large shadow on all discussions of the relation between profit rates and crisis.

The argument goes like this. As capital expands, the ratio of "constant capital" (machinery and materials) to "variable capital" (laid out on living workers) rises. Profit is produced only by living labour. Therefore, even as the absolute mass of profit increases, its ratio to the total stock of capital required to produce it, the profit-rate, tends to fall.

The tendency can be staved off in various ways, for example by allowing debt-financed "bubbles" in demand which allow for companies' profit-and-loss accounts to show profits some of which can in fact never be cashed in. But the tendency will eventually show itself up in reduced profit rates, and thus trigger crisis. The crisis can be resolved only by mass destruction of "constant capital" - both physical (closed factories, scrapped machines) and financial (factories and machines sold off cheap). That allows the percentage ratio of profits (which represent living surplus-labour) to rise again in ratio to the now-diminished stock on capital on companies' books.

There are several problems with this argument. Capitalist growth does generally mean more machinery and more materials per worker; but it also generates a cheapening of the machinery and materials, and an increase in the rate of exploitation (the proportion of living labour which produces profits and other forms of surplus-value, rather than just covering the cost of wages).

The cheapening of "constant capital" and the increase in the rate of exploitation tend to increase profit rates. Why shouldn't that upward push on profit rates make Marx right in conjecturing that "the law [of falling profit-rate] acts only as a tendency. And it is only under certain circumstances and only after long periods that its effects become strikingly pronounced"? In which case the general tendency cannot be at the root of the sharp fall in profits characteristic of crises? Why, indeed, shouldn't the upward push exceed the simultaneous downward push previously adduced?

Insofar as the effects of technological advance can be considered in abstraction, there is good reason to think that the upward push will indeed dominate. Take an investing, innovating capitalist. He or she introduces, for example, a more advanced method of manufacturing laptop computers.

He or she will probably have to pay out more for production equipment. He or she will also cut his or her unit costs. In general, in a period of relatively stable capitalist growth, and with the prevailing market price for laptop computers, he or she will increase his profit rate - his or her ratio of net revenues to wealth tied up in capital stock. Otherwise he or she would have no capitalist motive to make the innovation.

So: the innovating capitalist makes a higher profit rate; other capitalists are meanwhile continuing as before, on the same old profit rate.

Soon other manufacturers will pick up on and invest in the new technique. The innovating capitalist can no longer charge the old price for his or her laptops. Competition forces a low price. The innovating capitalist's profit rate falls. Eventually, his or her pioneer advantage will be entirely gone, and his or her profit rate will be the same as others'.

But how far will his or her profit rate fall? As it begins to fall, laptops become cheaper. Thus, the costs of other capitalists fall. They no longer have to pay so much for the laptops which form part of their "constant capital". All things being equal, real wages will also rise somewhat - more workers can buy laptops, or those who buy laptops have more change left after the purchase to spend on other items.

So, the rate of profit for other capitalists rises as the rate of profit for the pioneer capitalist falls. The two rates move to meet - at a rate below the innovating capitalist's pioneer rate, but above the previous general rates.

In complex real life, there are a hundred reasons why general profit rates may fall. But the argument above shows that there is no inexorable general tendency for the rate of profit to fall simply as a result of capitalist expansion and innovation in more or less stable conditions.

Empirically, it is not the case that profit rates usually drift downwards during booms (with the crisis being set off, presumably, when the downward drift passes some limit or other). Profit rates generally rise in booms. With wobbles, but they rise.

In terms of Marxology, we can note that Marx undoubtedly (like other economists of his day) assumed that the tendency of the rate of profit to fall was a statistical fact. Yet he did not mention it in any writing which he readied for publication; nor in most of the relatively sustained (though fragmentary) discussions of capitalist crises in his unfinished manuscripts.

To pick up the thread again: although none of the contributors refers to the old "tendency of the rate of profit to fall", some do see the roots of the crisis in low profit rates, or profit rates subject to strong downward pressures which had been countered by unsustainable temporary gambits. Indeed, the tracing of the origins of the crisis to previous low profit rates is seen as the hallmark of Marxist perception, or of the "Marxist" nature of the crisis itself.

Robert Brenner states: "It is a Marxian crisis in that it finds its roots in a long-term fall and failure to recover of the rate of profit".

Fred Moseley says: "I would say that the current crisis is more of a Minsky crisis than a Marx crisis". This terminology, in which a crisis is "Marxian" if rooted in a low or falling profit rate, and a "Minsky crisis" if rooted in the collapse of a financial bubble, is widespread. Though Moseley does not draw the conclusion that the crisis being "Minsky" indicates that it is less deep than a "Marxian" crisis, that implication is abroad. But is it especially "Marxist" to insist that crises are triggered by falling (or low) profit rates? In any case, is it true?


Marx's idea that the "restless never-ending process of profit-making", the "boundless greed for enrichment", the movement by which value expands or "valorizes" itself, defines capital, does imply that times of seriously falling or low profit rates are times of capitalist malfunction, and of sharper and harsher capitalist drives to push profit rates up again. In contrast, in many bourgeois accounts profit rates are left as something to be found, if at all, by intricate calculations from obscure statistical appendices.

But, for example, the US National Bureau for Economic Research (NBER)'s compilations on the business cycle in the USA - the most comprehensive such research available - indicates that profit rates generally rise almost right up to the point that the crisis breaks. There is usually an increasing number of firms with diminished profit rates in the run-up to crisis, but the overall average rate holds up. If there is a slight sag in profit rates, it is not such as clearly announces itself in advance as of a different order from a wobble such as often occurs without breaking a boom.

Profit rates certainly fall in the crisis. The NBER evidence is that they do not fall markedly in the run-up to crisis.

Is there anything in the broad theoretical scheme of Marxism to make us conclude that the NBER must be mis-presenting the facts, or alternatively that the facts prove our theoretical scheme wrong? I think not.

Marx's most sustained and comprehensive (though unfinished) discussion of crises, in Theories of Surplus Value part 2, does not indicate any rigid prediction that crises will necessarily be prepared for and triggered by falling profit rates.

His discussion of the "tendency of the rate of profit to fall" in Capital volume 3 does suggest such a sequence. A falling profit rate, suggests Marx, will eventually make smaller businesses unviable, though larger businesses can trundle along on the basis of the increased absolute mass of profit. Collapses among smaller businesses can then set off a snowball ("multiplier") effect leading to general crises.

But this suggestion, in an unfinished work, reads more like a half-thought than a solid pillar of theory. In any case, it is implausible both empirically (crises do not start with a flurry of small-firm failures) and logically (if the rate of exploitation is rising or stable, then a lower percentage profit rate is no special reason why a small firm employing a few workers should not continue to trundle along, offering its owner an income better than a worker's albeit little scope to expand).


The 1973-5 crisis was preceded by a marked decline in profit rates, from about the mid 60s. Marxists at the time identified that fall in profit rates. They stressed its importance, and argued among themselves about explanations for it (straight "tendency of the rate of profit to fall"; "wage squeeze"; exhaustion of the Fordist regime of accumulation), while bourgeois economists scarcely noticed it. The debate encouraged Marxists in the thought that they were digging down to the real roots of disorder in production itself, while bourgeois economists looked only at superficialities.

In fact that crisis was unusual, among capitalist crises, in being preceded by a marked decline in profit rates. Before 1929, for example, there was only a slight sag in profit rates, indistinguishable from a wobble within a boom. But for most Marxists writing today, the 1973-5 crisis was the archetype, the template, for all discussions of crisis. They were "formed" theoretically by involvement in the debates on that crisis at the time, or by studying those debates afterwards. The association of "Marxian crisis" with "crisis triggered by falling rate of profit" became a cultural fixture, I suggest, as a result of that experience.

Fred Moseley, with typical straightforwardness and clarity, offers an explanation of why, as he puts it, "the rate of profit is the key barometer of a capitalist economy".

First, it determines investment. The funds available for investment are, broadly speaking, regulated by previous profits, from which they have to be drawn. Firms' disposition to draw on those funds to buy new equipment, hire new workers, etc., depends on their calculations of (near) future profits.

Second, the rate of profit determines firms' ability to cover their debts.

The argument has force, but it falls short of proof that the rate of profit is a "barometer" in the sense that its fall is reliably a precursor of storms.

With a developed credit system, the link between previous profits and current availability of funds for investment becomes loose. Previous profits may not yet be cashed in; conversely, firms can draw for cash on many other sources than retained earnings. They can draw on interest, rents, and top bosses' savings from their high salaries, all of which they can find "recycled" through the financial markets, and also from workers' household savings, large chunks of which are compiled into capital by pension funds and insurance companies.

Thus, a drop in investment may come from many causes other than a previous falling profit rate. Inability to cover debts may also come from causes other than a falling profit rate.


Different criteria for calculating profit rates, and different choices of which profit rate to consider central, lead to different pictures of the evolution of profit rates in recent decades. Michel Husson has discussed this argument usefully and succinctly, concluding that: "For the USA as well as for three leading European countries [Germany, France, UK], we clearly see two periods: fall of the rate of profit until the beginning of the 1980s, rise since then..."

We can also stand back and consider broad patterns, over and above technical disputes over calculation. Much is made of the fact that global average rates of growth of GDP per head since 1973, or for that matter since the mid-1980s, are lower than in 1950-73. But they are also higher than in any other period in world history. It is arbitrary to make the period 1950-73 the standard for capitalist health or sickness, i.e. to define any period showing a lower rate of growth as sickly.

The run-up to the 2007-8 crisis was a period of capitalist exuberance. In such a period, the market in titles to future surplus-value expands. It expanded particularly fast in this last period because of the growth since the 1980s of an increasing variety and depth of global financial markets.

In the nature of capitalist economy as a competitive "boundless drive for enrichment", and especially of the "financialised" capitalism of recent times, the financial expansion tends to overshoot. Debts (and, in the last period, especially complicated and intricate forms of debt) expand faster than production. Swindles and speculations expand even faster.

This is the process which Minsky describes, in more detail - and with reference to more recent times and institutions - than Marx was ever able to. But it is not "un-Marxist", not something which Marxists are duty-bound to dismiss as superficial.

As Marx himself put it: "The real crisis can only be educed from the real movement of capitalist production, competition and credit" - i.e. not from ratios within production alone.

"The credit system appears as the main lever of over-production and over-speculation in commerce... the reproduction process, which is elastic by nature, is here forced to its extreme limits... The credit system accelerates the material development of the productive forces and the establishment of the world-market... At the same time credit accelerates the violent eruptions of this contradiction - crises - and thereby the elements of disintegration of the old mode of production".

Thus, with a developed credit system, according to Marx: "business always appears almost excessively sound [i.e. profitable] right on the eve of a crash... Business is always thoroughly sound and the campaign in full swing, until suddenly the debacle takes place".

"If we were to consider a communist society in place of a capitalist one, then money capital would immediately be done away with, and so too the disguises that transactions acquire through it. The matter would simply be reduced to the fact that the society must reckon in advance how much labour, means of production and means of subsistence it can spend [on such projects]...

"In capitalist society, on the other hand, where any kind of social rationality asserts itself only post festum, major disturbances can and must occur constantly... [As big investment projects boom] the money market is under pressure... During this time, too, there are regular business swindles, and great transfers of capital. A band of speculators, contractors, engineers, lawyers etc. enrich themselves. These exert a strong consumer demand on the market... This lasts until, with the inevitable crash, the reserve army of workers is again released and wages are pressed down once more to their minimum and below it..."

That a crisis is an organic product of capitalist prosperity does not mean that it is not serious. On the contrary: it shows that both capitalist production in general, and the current regime of capitalist economic life in particular, are unstable.


Does it follow that the crisis will impel capital to restructure itself with a new regime? Arguably, an account of the crisis on the lines of "capitalist exuberance falling over" might indicate a stronger pressure for such regime-change than one on the lines of "long-term capitalist ill-health revealed yet again by the collapse of yet another short-term offsetting expedient".

The evidence so far is of no move to a new regime. At the peak of the financial crisis, governments nationalised, bailed out, and ran budget deficits, on a huge scale: but only the fringes of manic neo-liberal dogmatism, and not the neo-liberal regime itself, had ever excluded such things in crisis. Governments remain intent on having such crisis measures serve a new neo-liberal push, rather than having them become the start of a new departure.

The new financial regulations introduced by Basel III and by Obama's legislation in the USA are tweaks and tightenings, rather than a new framework. The programme of the coalition government in Britain - more marketisation, more cuts in welfare, more privatisation, harsher pressure on labour, in short, more neo-liberalism - is not an anomaly. The German government is driving to impose a sharply neo-liberal course across Europe. The US administration is more cautious about rapidly reducing budget deficits than the European governments, but remains firmly within a neo-liberal framework.

Even if the crisis moves on to a double-dip, and, for example, the South European debt crisis moves on to defaults, break-up of the eurozone, and big losses for the French, German, and other creditor banks, there is no strong capitalist lobby for regime-change. There is an extremely strong lobby - the bosses of high finance - for patching up and continuing, indeed sharpening, neo-liberalism.

As Saad-Filho puts it, we have a "crisis in neo-liberalism" rather than a "crisis of neo-liberalism".

There is an "over-rationalistic" streak in some Marxist discussion of capitalist crises which tends to take it as axiomatic that capital will take measures to solve its crises. But capital does not always do that, except in the sense that capitalists have a series of more-or-less automatic, fumbling reactions which will, given time and lack of decisive working-class resistance, ensure that some revival follows at some point.

The revival may be weak. It may be on bases which will predictably make for another crisis on similar lines before too long. But often capital "lives with" that: there is no automatic, or even reliably vigorous, mechanism to make capitalist classes seek, identify, and implementing more serious problem-solving or even problem-displacement.

Collated discussions on the crisis:

Thousands turn out to debate revolution


Martin Thomas

Not only the scheduled lecture theatre, but also an overflow theatre connected by video link, were crammed full when David Harvey spoke at the London School of Economics on 26 April about his latest book, The Enigma of Capital, a book which analyses the current crisis and concludes with a call for "revolution" to "dispossess" the capitalist class.

Packed lecture hall for call to anti-capitalist revolution

Submitted by martin on Mon, 26/04/2010 - 23:26

Not only the scheduled lecture theatre, but also an overflow theatre connected by video link, were crammed full when David Harvey spoke at the London School of Economics on 26 April about his latest book, The Enigma of Capital, a book which concludes with a call for "revolution" to "dispossess" the capitalist class.

Harvey has been an eminent academic figure in geography since the late 1960s. In the early 1970s he became a Marxist, and started writing a series of books on Marxist theory, of which the most solid was The Limits to Capital (1982) and the most famous The Condition of Postmodernity (1990).

As far as I know, Harvey has never been involved with any activist Marxist organisation. His current political involvement, as he told the LSE audience, is with "Right to the City" in New York, a campaign "to halt the displacement of low-income people, LGBTQ, and youths of colour from their historic urban neighbourhoods". But he has consistently been an unashamed, forthright Marxist, and by his own lights a revolutionary Marxist.

The notes below are my initial comments, on reading the book - The Enigma of Capital: and the crises of capitalism (Profile Books, 2010) - and attending the 26 April lecture. I hope to follow them up with further comments.

They are critical notes. Despite the criticism, I do not think that the Sydney Workers' Liberty group made a bad choice when it selected The Enigma of Capital as the text for the new study circle it is about to start in conjunction with other socialists.

Both the strengths of Harvey's book, and, in a way, paradoxically, some of its weaknesses, make it a good text for a study-circle.

Like all Harvey's books, The Enigma is elegantly written. It reflects Harvey's intense dialogue with Marx's theory. Harvey ran a reading group on Capital volume 1 almost every year since 1971 until at least 1999 (see preface to the 1999 edition of his The Limits to Capital). He has now put his audio files from that online and published the content as a book, A Companion to Marx's Capital.

According to Andy Merrifield's account in his book Metromarxism, it was through being nudged into doing a Capital reading-circle, rather than through any more gradual approach, that Harvey first became interested in Marxism. Arriving as a lecturer at Johns Hopkins University in Baltimore, USA, in 1969, from a background of avowedly liberal or Fabian politics and strongly empiricist and quantitative methodology in his academic subject, geography, he found "a small cohort of anti-war and civil rights activists... making noise and stirring things up on campus. Some were Harvey's students, and they wanted to read Capital..." And so it started.

So here is a book about the economic crisis by someone immersed in, and constantly thinking about, Marx's broad theoretical approach. Harvey responds warmly to reality, rejecting the iciness of what he has called "a certain climate of Marxist scholasticism" (1999 preface to Limits of Capital). The last chapter strides far beyond "economic theory" to discuss how a revolutionary movement can be built in today's capitalism - to discuss it with wrong conclusions, I think, but to discuss it.

The Enigma of Capital, though short, is full of thoughtful connection-drawing between current developments and ideas from Marx.

The connection-drawing is often sketchy in the extreme. The book does not read like a rigorous theoretical essay, but more like a transcript of what a well-read Marxist, of an inquiring but digressive turn of mind, might say in a series of off-the-cuff chats, complete with false starts, uncompleted arguments, and repetitions.

Statistical graphs are included in the first chapter, but in no other chapters, as if Harvey had just got tired of graphs after the first chat (he is 75 now). The graphs often include no, or an excessively vague, indication of their sources. In some of them it is not clear exactly what is being graphed. None of them comes with any discussion of the problems of measurement which are sizeable for some of the categories involved.

Harvey's argument in the book orbits round three different accounts of the global economic crisis that opened in 2007. The three exist more or less side-by-side throughout the book, and Harvey seems tentatively to endorse all three without teasing any one through in detail.

None of the three accounts is focused inside the financial markets. In The Limits of Capital, Harvey claimed to be almost the first writer to tackle finance from a Marxist viewpoint in any detail since Hilferding in 1910 (though his bibliography acknowledged de Brunhoff and Lipietz). The Enigma describes the "financialisation" of capital in recent decades, and what has happened in financial markets during the crisis. But its focus is elsewhere.

The first account of the crisis, the one Harvey mentioned first when speaking at LSE, and to my mind the most interesting one, is that markets for property and for land, and the construction industry, are different from other markets and industries in capitalism, and yet central. (I looked up the figures for the make-up of fixed assets in the UK. In 2004, total non-financial assets in the UK were estimated at about £6000 billion. Of that total, £3427 billion was residential buildings, £624 billion commercial and industrial buildings, and only £425 billion plant and machinery).

These industries and markets are peculiarly susceptible to speculative capitalist "overproduction", and to creating depressive debt burdens on capitalism. Maybe an archetype of crisis is provided by the crash in Paris in 1868, after Haussman's building boom (on which Harvey wrote a study, "Paris 1850-1870", in his book Consciousness and the Urban Experience).

The other two arguments centre round the idea of effective demand being insufficient to allow capital the room for expansion which it needs.

One argument is that the keeping-down of wages - in absolute terms, as in the USA, or at least relative to profits, as in other countries - has led to insufficient demand. The problem was covered over, for a while, by expanding consumer credit, but was bound to explode as soon as the intricate and delicate process of credit expansion hit a blockage.

Another argument is that capital, in order to live at all, needs to expand at a rate of about three per cent a year long-term. Harvey gets the figure of three per cent from nothing more precise than a supposed "current consensus among economists and within the financial press", and keeps on repeating it, but I suppose the essential point is capital's inbuilt need to expand, its inability to stand still.

Harvey refers back to Paul Baran's and Paul Sweezy's once-famous 1966 book, Monopoly Capital, which saw the critical problem for US capitalism then as a shortage of openings to invest its plethoric surpluses.

Within a few years of Baran's and Sweezy's book being published, US and world capitalism would plunge into crises which would set all the Marxist economists talking about "profit squeezes" and "the falling rate of profit" - rather than the opposite, plethoric surpluses - but Harvey suggests that the glut-of-revenue problem does exist today.

Capital has solved similar problems in past eras, he says, by "spatial fixes" - by opening up markets and industries in new geographical areas - but in today's fully-capitalist world there are no new frontier areas to provide such "fixes".

I think the second and third of Harvey's arguments are wrong. Capital is by no means solely dependent on wage-earner demand to find markets for its products. The capitalist class, and even more so a large class of flunkeys, "professionals", and managers clustered round capital, provide large markets with their luxury consumption.

There seems to have been in recent decades a shift in how surplus-value is spent, in many countries, with a larger proportion going to consumption, and a smaller proportion to investment. The relative rise of finance capital, and the consequent siphoning of much of surplus value into the pockets of financiers who live in a world remote from industrial investment, must be a factor here. So too may be the expansion of the numbers of the pensioned-off wealthy, older people still healthy enough for large luxury consumption but retired from the world of work.

On the other hand, it seems to me that the expansion of consumer credit increases wage-earners' effective demand only to a limited extent. A big proportion of wage-income is now spent on debt-servicing and thus unavailable for buying goods and services. How much bigger is the increase in goods-and-services demand resulting from consumer credit expansion than the decrease resulting from debt-servicing payments? Maybe not very.

The critical determinant of insufficient effective demand is probably still capitalism's periodic sharp drops in demand for investment goods. Back in 2007 it looked as if this might be the first crisis in capitalism where a shrinkage in consumer demand would play a powerful independent and initiating role. Industrial profits still looked buoyant. Consumers faced a credit shrinkage. With more of their demand postponable than in eras when items like food were a big part of the household budget, they might cut back consumer spending decisively prior to any investment slump. I don't think it has turned out like that.

As for the argument about the uninvestible glut of surpluses and the lack of remaining "spatial fixes", the first point is that Harvey argues at cross-purposes. He contends that the rate of profit is too low to allow sufficient investment openings in capitalist production. But where can a plethora of surplus come from, if not high rates of profit? And were rates of profit really low, before the 2007-8 crash? I don't think so.

The "spatial fix" (overseas investment) was never really a product of domestic gluts. In Britain before World War One, for example, the peaks of overseas investment coincided with the peaks, not the troughs, of domestic investment.

Of course capital will spread geographically if it can. But it can continue to spread "upwards" even if it can't spread "outwards". A city like London, for example, has looked almost "full up" with everything capital could sell at many previous points in its history. Back in the 18th century, Adam Smith thought that capital would soon reach a "stationary state" at which society was sated. Yet capital continues to sell more and more.

There surely are ecological limits to the expansion. But not geographical. And for now capital presses on towards the ecological limits undaunted, quite ready to crash into them full-speed.

Harvey discusses ecological limits at some length in The Enigma, but tends towards an emphasis on capital's still-strong ability to circumvent and modify such limits.

The basic thesis of an uninvestible glut of surpluses gains plausibility from the observation that capitalists have been "investing" more and more in financial markets rather than in expanding production.

But there is an element of optical illusion here. If a capitalist buys bonds issued by another capitalist, rather than saving up his cash until he can buy new equipment, that means that productive investment has become roundabout rather than replaced by "purely" financial investment.

It is possible that capitalists can hoard their cash in a safe, waiting for a better time to buy new equipment. So also it is possible that the cash is caught up in a whirl of speculative exchanges - the same shares changing hands at higher and higher prices, for example - so it becomes, so to speak, "super-hoarded", without remaining static.

There are limits to that. Share prices going up mean that companies can sell more shares and thus get more cash for productive investment. Shares are only an entitlement to dividends, and dividends have to come out of profits.

It would be good to investigate empirically how much a whirl of financial transactions can keep value "super-hoarded", outside of production. But if the basic Marxist idea of new value being created in production is true, in the end all the financiers draw their revenues from value created in production. There are strict limits to what capitalists can gain from "taking in each others' washing" as distinct from going into production.

The preamble and chapter one of the book briefly survey the crisis, and argue that crises are about hold-ups in the circuit of capital. "Capital is not a thing but a process in which money is perpetually sent in search of more money". A crisis is when something "interrupts, slows down, or, even worse, suspends the flow".

Chapter two identifies "six potential barriers" which can spoil the flow - lack of money to start with, of suitable and cheap labour-power, of supplies, of adequate technology and organisation, of worker submissiveness, or of demand for the products.

Analysing these "potential barriers" in chapters two and three, Harvey shows that the "state-finance nexus" and the credit system it runs is crucial to capitalists getting their seed money. Cheap labour-power has been organised by two or three decades of neo-liberalism. Natural limits on supplies (like "peak oil") could be a problem, but Harvey concludes that capital has the flexibility to get round them for now.

Two barriers are most important. One is a problem, I guess, of "organisation", namely, disproportionality of production. In chapter 4, Harvey restates his list of "potential barriers" in the circuit of capital, and this time counts seven rather than six, citing "disproportionalities between sectors" and "unbalanced technological and organisational changes" as separate items.

With "disproportionality", I think Harvey has in mind the special role of construction booms and busts in the capitalist cycle. Most of his comment, however, is on another barrier, namely effective demand, or, as Harvey called it in his LSE lecture, "underconsumption", discussed at length in chapter four.

In using the term "underconsumption", Harvey was making a jibe at those he would call the "Marxist scholastics". As I've indicated above, on this point I think the "scholastics" have a case.

Chapter five introduces a scheme of seven "activity spheres". At first Harvey tells us that capital "revolves through" these spheres "in search of profit", but the seven items seem rather to be aspects of social development: technologies and organisational forms; social relations; institutional and administrative arrangements; production and labour processes; relations to nature; human reproduction; and mental conceptions of the world.

Harvey gets this scheme from a footnote in Capital, chapter 15. I'll discuss it in a later comment. It seems to play no part in his account of capitalist crisis, but he uses it a lot in his discussion of how to develop a revolutionary movement, in chapter 8.

In between, however, comes chapters six and seven, where Harvey expands on the paradoxical character of capitalist development. Capital becomes simultaneously more global and more geographically uneven and specialised (thus, though Harvey does not make the reference, the emergence within capitalist globalisation of "global cities" as focus points, as described in Saskia Sassen's The Global City).

And capital simultaneously becomes more hyper-mobile, and more tied down in elaborate built environments.

In the earlier chapters, Harvey sets issues in a crisp class framework - "whether we can get out of this crisis in a different way [than neo-liberalism] depends very much upon the balance of class forces" (emphasis added). He distinguishes carefully between class and populist revolt.

He recognises lucidly that much populist revolt - even revolt sincerely aimed against the bankers and business elite just as working-class socialist revolt is - can be reactionary. Unlike those who see political Islam as a progressive anti-imperialist force, he brackets "religious fundamentalism" with fascism.

There is some of that lucidity in chapter eight, too. But it fades as Harvey approaches the end of the chapter. By the last page he has come to write: "Perhaps we should just define the movement, our movement, as anti-capitalist or call ourselves the Party of Indignation, ready to fight and defeat the Party of Wall Street and its acolytes and apologists everywhere, and leave it at that". The "seven spheres" scheme becomes a basis for enthusing about diffuse activity scattered across those "spheres", and "revolution" becomes "co-revolution" - as Harvey put it at LSE, a "slow movement across the spheres".

Harvey's call for a revolutionary movement against capitalism dissolves into the sort of vague injunction he offered in reply to a questioner at the LSE - to practise "subversion" wherever you are.

A version of that approach was popular in the late 1960s, and for a while, as a teenager, I was attracted to it. Then, it was summed up in the slogan: "In fighting anywhere we are fighting everywhere".

A friend, Tony Durham, long departed from active socialist politics, did me a great service by debunking that slogan. Yes, he said, in fighting anywhere we are fighting everywhere. But... not necessarily effectively, and not necessarily even on the right side.

Marxist Theory and History

How economic crises shape politics


Leon Trotsky

The reciprocal relation between boom and crisis in economy and the development of revolution is of great interest to us not only from the point of theory but above all practically.

Many of you will recall that Marx and Engels wrote in 1851 – when the boom was at its peak – that it was necessary at that time to recognize that the Revolution of 1848 had terminated, or, at any rate, had been interrupted until the next crisis.

Engels wrote that while the crisis of 1847 was the mother of revolution, the boom of 1849-51 was the mother of triumphant counter-revolution.

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