Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is associated with

Marxian critique of political economy Critique of political economy or critique of economy is a form of social critique that rejects the various social categories and structures that constitute the mainstream discourse concerning the forms and modalities of resource allocation and ...

, and was further popularised through

Marxist economics Marxian economics, or the Marxian school of economics, is a heterodox school of political economic thought. Its foundations can be traced back to Karl Marx's critique of political economy. However, unlike critics of political economy, Marxian ec ...

History

Earlier analysis by

Jean Charles Léonard de Sismondi Jean Charles Léonard de Sismondi (also known as Jean Charles Leonard Simonde de Sismondi) (; 9 May 1773 – 25 June 1842), whose real name was Simonde, was a Swiss historian and political economist, who is best known for his works on French and ...

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 Rosa Luxemburg (; ; pl, Róża Luksemburg or ; 5 March 1871 – 15 January 1919) was a Polish and naturalised-German revolutionary socialism, revolutionary socialist, Marxism, Marxist philosopher and anti-war movement, anti-war activist. Succ ...

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. 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 ''Principles of Political Economy'' (1848) by John Stuart Mill was one of the most important economics or political economy textbooks of the mid-nineteenth century. It was revised until its seventh edition in 1871, shortly before Mill's deat ...

'' 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 David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, an ...

, but without

Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...

's theoretical working out of the theory that

Frederick Engels Friedrich Engels ( ,"Engels"
''

Capital, Volume III''. Marx's crisis theory, embodied in " ... the law of profitability did not appear until the publication of apitalVolume Three in 1894. Grundrisse was not available to anybody until well into the 20th Century ... " and therefore was only partially understood even among leading Marxists at the beginning of the twentieth-century. His notes, 'Books of Crisis' otebooks B84, B88 and B91remain unpublished and have seldom been referred to. A relatively small group including

and

Lenin Vladimir Ilyich Ulyanov. ( 1870 – 21 January 1924), better known as Vladimir Lenin,. was a Russian revolutionary, politician, and political theorist. He served as the first and founding head of government of Soviet Russia from 1917 to 19 ...

attempted to defend the revolutionary implications of the theory, while others, first

Eduard Bernstein Eduard Bernstein (; 6 January 1850 – 18 December 1932) was a German Social democracy, social democratic Marxist theorist and politician. A member of the Social Democratic Party of Germany (SPD), Bernstein had held close association to Karl ...

and then

Rudolf Hilferding Rudolf Hilferding (10 August 1877 – 11 February 1941) was an Austrian-born Marxist economist, socialist theorist,International Institute of Social History, ''Rodolf Hilferding Papers''. http://www.iisg.nl/archives/en/files/h/10751012.php pol ...

, argued against its continued applicability, and thereby founded one of the mainstreams of revision of the interpretation of Marx's ideas after Marx.

Henry Hyndman Henry Mayers Hyndman (; 7 March 1842 – 20 November 1921) was an English writer, politician and socialist. Originally a conservative, he was converted to socialism by Karl Marx's ''Communist Manifesto'' and launched Britain's first left-wing p ...

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.

Max Beer Moses "Max" Beer (10 August 1864 – 30 April 1943) was an Austrian-born Marxist journalist, economist, and historian. Beer is best remembered as an early writer on the topic of imperialism and for a series of books, published in translation i ...

also asserted the centrality of Marx's crisis theory in his pedagogic contributions ''The Life and Teaching of Karl Marx'' 1925 and his ''A Guide to the Study of Marx: An Introductory Course for Classes and Study Circles'' 1924. 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 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 of Crisis theory in Marx's writings, and made the explicit connection between Crisis theory and the

theory of imperialism The theory of imperialism refers to a range of theoretical approaches to understanding the expansion of capitalism into new areas, the unequal development of different countries, and economic systems that may lead to the dominance of some coun ...

. 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 Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at H ...

's concept of

creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...

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 Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by exami ...

. "... more than any other economist arxidentified 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 Ernest Ezra Mandel (; also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter (5 April 1923 – 20 July 1995), was a Belgian Marxian economist, Trotskyist activist and theorist, and Holocaust survivor. He ...

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. 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 '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.

Keynesians Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...

argue that a "crisis" may refer to an especially sharp bust cycle of the regular

boom and bust Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examin ...

pattern of "chaotic"

capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, pri ...

development, which, if no countervailing action is taken, could continue to develop into a

recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...

or depression. It continues to be argued in terms of

historical materialism Historical materialism is the term used to describe Karl Marx's theory of history. Marx locates historical change in the rise of class societies and the way humans labor together to make their livelihoods. For Marx and his lifetime collaborat ...

theory, that such crises will repeat until objective and subjective factors combine to precipitate the transition to the new

mode of production In the Marxist theory of historical materialism, a mode of production (German: ''Produktionsweise'', "the way of producing") is a specific combination of the: * Productive forces: these include human labour power and means of production (tool ...

either by sudden collapse in a final crisis or gradual erosion of the basing on

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, ind ...

and the emerging dominance of

cooperation Cooperation (written as co-operation in British English) is the process of groups of organisms working or acting together for common, mutual, or some underlying benefit, as opposed to working in competition for selfish benefit. Many animal ...

Causes of crises

The concept of periodic crises within capitalism dates back to the works of the

Utopian socialists Utopian socialism is the term often used to describe the first current of modern socialism and socialist thought as exemplified by the work of Henri de Saint-Simon, Charles Fourier, Étienne Cabet, and Robert Owen. Utopian socialism is often de ...

Charles Fourier François Marie Charles Fourier (;; 7 April 1772 – 10 October 1837) was a French philosopher, an influential early socialist thinker and one of the founders of utopian socialism. Some of Fourier's social and moral views, held to be radical i ...

and

Robert Owen Robert Owen (; 14 May 1771 – 17 November 1858) was a Welsh textile manufacturer, philanthropist and social reformer, and a founder of utopian socialism and the cooperative movement. He strove to improve factory working conditions, promoted e ...

and the Swiss economist Léonard de Sismondi.

considered his crisis theory to be his most substantial theoretical achievement. 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 Roman Osipovich Rosdolsky ( uk, Рома́н О́сипович Роздо́льський ''Roman Osipovič Rozdol's'kyj'') (Lemberg, July 19, 1898 – Detroit, October 20, 1967) was a prominent Ukrainian Marxian scholar, historian and politica ...

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." 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

and

basic BASIC (Beginners' All-purpose Symbolic Instruction Code) is a family of general-purpose, high-level programming languages designed for ease of use. The original version was created by John G. Kemeny and Thomas E. Kurtz at Dartmouth College ...

social order The term social order can be used in two senses: In the first sense, it refers to a particular system of social structures and institutions. Examples are the ancient, the feudal, and the capitalist social order. In the second sense, social order ...

. In Marx's words, "The ''real barrier'' of capitalist production is ''capital itself''". The law of the falling rate of profit, the unexpected consequence of the

profit motive In economics, the profit motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is "to make money" - not in the sense of increasing the firm's ...

, is described by Marx as a "two-faced law with the same causes for a decrease in the rate of profits and a simultaneous increase of the mass of profits". "In short, the same development of the social productivity of labour expresses itself in the course of capitalist development on the one hand in a tendency to a progressive fall of the rate of profit, and on the other hand in a progressive increase of the absolute mass of the appropriated surplus value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both."

Crisis, or cycles? ''Alternative Marxist theories of crises''

In 1929 the Communist Academy in Moscow published "The Capitalist Cycle: An Essay on the Marxist Theory of the Cycle", a 1927 report by Bolshevik theoretician

Pavel Maksakovsky Pavel V. Maksakovsky (1900 – 2 November 1928) was a Russian and Soviet economist. Maksakovsky was born in 1900 in Ilevo, in Nizhny Novgorod Oblast.Day, Richard B. "Translator's Introduction" in Maksakovsky, Pavel ''The Capitalist Cycle'' Haymarke ...

to the seminar on the theory of reproduction at the Institute of Red Professors of the Communist Academy. This work explains the connection between crises and regular business cycles based on the cyclical dynamic disequilibrium of the reproduction schemes in volume 2 of ''Capital''. This work rejects the various theories elaborated by "Marxian" academics. In particular it explains that the collapse in profits following a boom and crisis is not the result of any long term tendency but is rather a cyclical phenomenon. The recovery following a depression is based on replacement of labor-intensive techniques that have become uneconomic at the low prices and profit margins following the crash. This new investment in less labor-intensive technology takes market share from competitors by producing at lower cost while also lowering the average rate of profit and thus explains the actual mechanism for both economic growth with improved technology and a long run tendency for the rate of profit to fall. The recovery eventually leads to another boom because the lag for gestation of fixed capital investment results in prices that continue such investment until eventually the completed projects deliver overproduction and a crash. There is a long history of interpreting crisis theory, rather as a theory of cycles than of crisis. An example in 2013 by Peter D. Thomas and Geert Reuten, "Crisis and the Rate of Profit in Marx's Laboratory" suggests controversially that even Marx's own critical analysis can be claimed to have transitioned from the former toward the latter.

Similarities (and differences) in the work of J. S. Mill & Marx

There are several elements in Marx's presentation which attest to his familiarity with Mill's formulations, notably Mill's treatment of what Marx would subsequently call counteracting tendencies: destruction of capital through commercial revulsions §5, improvements in production §6, importation of cheap necessaries and instruments §7, and emigration of capital §8. "In Marx's system, as in Mill's the falling rate of profit is a long-run tendency precisely because of the "counteracting influences at work which thwart and annul the effects of this general law, leaving to it merely the character of a tendency." These counteracting forces are as follows: (1) An increase in the intensity of exploitation (via intensification of labor or the extension of the working day); (2) Depression of wages below their value ... ; (3) Cheapening of the elements of constant capital (via increased productivity); (4) Relative overproduction (which keeps many workers employed in relatively backward industries, such as luxury goods, where the organic composition of capital is low); (5) Foreign trade (which offers cheaper commodities and more profitable channels of investment); and (6) The increase of "stock capital" (interest bearing capital, whose low rate of return is not averaged with others). Again, like Mill, Marx indicates the post-crisis waste of capital which restores profitability, but this is not mentioned specifically as a counter-tendency until the cyclical nature of the system is demonstrated. On the other hand, Mill does not refer to depression of wages below their value, relative overpopulation, or the increase in "stock capital". But on the most important counter-tendencies, that is, the effects of increasing productivity at home in cheapening commodities and of foreign trade in providing both cheaper goods and greater profits, Marx and Mill are in accord."

Application

It is a tenet of many Marxist groupings that crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the

relations of production Relations of production (german: Produktionsverhältnisse, links=no) is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism and in '' Das Kapital''. It is first explicitly used in Marx's publi ...

and the development of productive forces reach the final point of failure, determined by the quality of their leadership, the development of the

consciousness Consciousness, at its simplest, is sentience and awareness of internal and external existence. However, the lack of definitions has led to millennia of analyses, explanations and debates by philosophers, theologians, linguisticians, and scien ...

of the various social classes, and other "subjective factors". Thus, according to this theory, the degree of "tuning" necessary for intervention in otherwise "perfect" market mechanisms will become more and more extreme as the time in which the capitalist order is a progressive factor in the development of productive forces recedes further and further into the past. But the subjective factors are the explanation for why purely objective factors such as the severity of a crisis, the

rate of exploitation In Marxian economics, the rate of exploitation is the ratio of the total amount of unpaid labor done (surplus-value) to the total amount of wages paid (the value of labour power). The rate of exploitation is often also called the rate of surplu ...

, etc., do not alone determine the revolutionary upsurge. A common example is the contrast of the oppression of the working classes in France in centuries prior to 1789 which although greater did not lead to social revolution as it did once the complete correlation of forces appeared. Kuruma in his 1929 ''Introduction to the Study of Crisis'' ends by noting "... my use of the term "theory of crisis" is not limited to the theory of economic crisis. This term naturally also encompasses the study of the necessity of imperialist world war as the explosion of the contradictions peculiar to modern capitalism. Imperialist world war itself is precisely crisis in its highest form. Thus, the

must be an extension of the theory of crisis." David Yaffe, in his application of the theory in the conditions of the end of the Post War Boom in the early 1970s, made an influential link to the expanding role of the state's interventions into economic relations as a politically critical element in attempts by capital to counteract the tendency and find new ways to make the working class pay for the crisis.

Influence

Crisis theory is central to Marx's writings; it helps underpin Marxists' understanding of a need for systemic change. It is controversial; Roman Rosdolsky said "The assertion that Marx did not propose a 'breakdown theory' is primarily attributable to the revisionist interpretation of Marx before and after the First World War.

, Henryk Grossman nd Samezō Kuruma">Samezō_Kuruma.html" ;"title="nd Samezō Kuruma">nd Samezō Kurumarendered inestimable theoretical services by insisting, as against the revisionists, on the breakdown theory." More recently David Yaffe 1972,1978 and Tony Allen et al. 1978,1981 in using the theory to explain the conditions at the end of the post-war boom of the 1970s and 1980s re-introduced the theory to a new generation and gained new readers for Grossman's 1929 presentation of Marx's Crisis theory. Rosa Luxemburg lectured on the 'History of Theories of Economic Crises' at the SPD's Party School in Berlin (possibly in 1911, since the typescript includes a reference to statistics from 1911). Henryk Grossman's re-presentation of both the central importance of the theory for Marx and the working out of its elements in a partially mathematical form was published in 1929. Central to the argument is the claim that, within a given business cycle, the accumulation of surplus from year to year leads to a kind of top-heaviness, in which a relatively fixed number of workers have to add profit to an ever-larger lump of investment capital. This observation leads to what is known as Marx's law of the

tendency of the rate of profit to fall The tendency of the rate of profit to fall (TRPF) is a theory in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis ...

. Unless certain countervailing possibilities are available, the growth of capital out-paces the growth of labour, so the profits of economic activity have to be shared out more thinly among capitals, i.e., at a lower profit rate. When countervailing tendencies are unavailable or exhausted, the system requires the destruction of capital values in order to return to profitability. Hence creating the underlying preconditions for post-war boom.

Paul Mattick Paul Mattick Sr. (March 13, 1904 – February 7, 1981) was a German-American Marxist political writer and social revolutionary, whose thought can be placed within the council communist and left communist traditions. Throughout his life, Mattick ...

's ''Economic Crisis and Crisis Theory'' (published by Merlin Press in 1981) is an accessible introduction and discussion derived from Grossman's work. François Chesnais's (1984, chapter ''Marx's Crisis Theory Today'', in Christopher Freeman ed. ''Design, Innovation and Long Cycles in Economic Development'' Frances Pinter, London), discussed the continuing relevance of the theory. Andrew Kliman has made major new contributions with a thorough and trenchant philosophical and logical defence of the consistency of the theory in Marx's work, against a number of the criticisms proposed against important aspects of Marx's theory since the 'seventies. Francois Chesnais has provided an important exploration of the 'fictitious capital' or 'Finance Capital' aspects of the theory in a review of both historical and contemporary empirical research. Guglielmo Carchedi and Michael Roberts in their edited collection ''World in Crisis'' 018provide a valuable review of the empirical analyses that support and defend the thesis, with contributions from authors in the UK, Greece, Spain, Argentina, Mexico, Brazil, Australia and Japan.

Difference between Marxists and Keynesians

Keynesian Economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...

which attempts a "

middle way The Middle Way ( pi, ; sa, ) as well as "teaching the Dharma by the middle" (''majjhena dhammaṃ deseti'') are common Buddhist terms used to refer to two major aspects of the Dharma, that is, the teaching of the Buddha.; my, အလယ်� ...

" between

laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...

, unadulterated capitalism and state guidance and partial control of economic activity, such as in the French

dirigisme Dirigisme or dirigism () is an economic doctrine in which the state plays a strong directive (policies) role contrary to a merely regulatory interventionist role over a market economy. As an economic doctrine, dirigisme is the opposite of ''lai ...

or the policies of the Golden Age of Capitalism attempts to address such crises with the policy of having the state actively supplying the deficiencies of unaltered markets. Marx and Keynesians approach and apply the concept of economic crisis in distinct and opposite ways. The Keynesian approach attempts to stay strictly within the economic sphere and describes 'boom' and 'bust' cycles that balance out. Marx observed and theorised economic crisis as necessarily developing out of the contradictions arising from the dynamics of capitalist production relations. "Where Marx differs from Keynes is precisely on the question of the falling rate of profit. It is not the propensity to consume or subjective expectations about future profitability that is crucial for Marx. It is the rate of exploitation and the social productivity of labour that are the key considerations and these in relation to the existing capital stock. While for Keynes the low marginal productivity of capital has its cause in an over-abundance of capital in relation to profit expectations, and therefore to a 'potential' over-production of commodities (the capitalist will not invest). For Marx the overproduction of capital is only relative to the social productivity of labour and the existing exploitation conditions. It represents an insufficient mass of surplus-value in relation to total capital. So that for Marx the crisis is, and can only be, resolved by expanding profitable production and accumulation, while for Keynes, it can supposedly be remedied by increasing 'effective demand' and this allows for government induced-production." Yaffe noted in 1972 that "... passages in Volume III referring to the underconsumption of the masses in no way can be interpreted as an underconsumptionist theory of crisis. The citation usually given in support of an 'underconsumptionist theory of crisis' is Marx's statement that "The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit." The above passage contains within it no more than a description or a restatement of the capitalist relations of production. Marx called it a tautology to explain the crisis by lack of effective consumption ..." Other explanations have been formulated, and much debated, including: * ''The

''. The

accumulation of capital Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...

, the general advancement of techniques and scale of production, and the inexorable trend to

oligopoly An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result fr ...

by the victors of capitalist market competition, all involve a general tendency for the degree of

capital intensity Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio ...

, i.e., the "

organic composition of capital The organic composition of capital (OCC) is a concept created by Karl Marx in his theory of capitalism, which was simultaneously his critique of the political economy of his time. It is derived from his more basic concepts of 'value composition o ...

" of production to rise. All else constant, this is claimed to lead to a fall in the rate of profit, which would slow down accumulation. * ''

Full employment Full employment is a situation in which there is no cyclical or deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely structural and frictional, may remain. Fo ...

profit squeeze.'' Capital accumulation can pull up the demand for

labor power Labour power (in german: Arbeitskraft; in french: force de travail) is a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, labour power, from the physical act of w ...

, raising wages. If wages rise "too high," it hurts the rate of profit, causing a recession. The interaction between the

employment rate The Organisation for Economic Co-operation and Development defines the employment rate as the employment-to-population ratio. This is a statistical ratio that measures the proportion of a country's working age population (statistics are often ...

and the

wage share In economics, the wage share or labor share is the part of national income, or the income of a particular economic sector, allocated to wages (labor). It is related to the capital or profit share, the part of income going to capital, which is also ...

has been mathematically formalised by the Goodwin model. * ''

Overproduction In economics, overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment. The de ...

''. If the capitalists win the

class struggle Class conflict, also referred to as class struggle and class warfare, is the political tension and economic antagonism that exists in society because of socio-economic competition among the social classes or between rich and poor. The forms ...

to push wages down and labor effort up, raising the rate of

surplus value In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cos ...

, then a capitalist economy faces regular problems of excess producer supply and thus inadequate aggregate demand and its corollary the

underconsumption Underconsumption is a theory in economics that recessions and stagnation arise from an inadequate consumer demand, relative to the amount produced. In other words, there is a problem of overproduction and overinvestment during a demand crisis. The t ...

ist theory. On which Engels comments "the underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes. The underconsumption of the masses is a necessary condition of all forms of society based on exploitation, consequently also of the capitalist form; but it is the capitalist form of production which first gives rise to crises. The underconsumption of the masses is therefore also a prerequisite condition for crises, and plays in them a role which has long been recognised. But it tells us just as little why crises exist today as why they did not exist before" * The Post Keynesian economics debt-crisis theory of

Hyman Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College. His research ...

. * A variety of theories of Monopoly Capitalism have also been propounded as attempts to explain through exogenous factors, why the tendency might not become apparently manifest in periods of capital accumulation, under various historical circumstances.

Joseph A. Schumpeter Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at ...

''History of Economic Analysis'' Allen & Unwin 1954

References

External links

by Karl Marx

by MIA Encyclopedia of Marxism * Chesnais, François 984''Marx's Crisis Theory Today'' in Christopher Freeman ed. Design, Innovation and Long Cycles in Economic Development 2nd ed. 1984 Frances Pinter, London
Audio Recording of Francois Chesnais's presentation published in the above ''Marx's Crisis Theory Today''
[1983](audio .mp3)
"Economic crisis and the responsibility of socialists"
by

Rick Kuhn Rick Kuhn (born 18 September 1955) is an Australian Marxian economist, political analyst and reader at the Australian National University in Canberra. He is best known for his biographical study on Henryk Grossman, for which he won the Deutsc ...

"Crisis and Hope: Theirs and Ours"

Noam Chomsky Avram Noam Chomsky (born December 7, 1928) is an American public intellectual: a linguist, philosopher, cognitive scientist, historian, social critic, and political activist. Sometimes called "the father of modern linguistics", Chomsky is ...

, 2009
A Critique of Crisis Theory From a Marxist perspective
Current specialist blog and discussion with resources by Sam Williams from January 2009 * For a short video presentation of the theory
Cliff Bowman's video introduction to 'Marx's Theory of Economic Crisis'
Cranfield University, School of Management, posted to YouTube 2009 {{DEFAULTSORT:Crisis Theory Economic crises Marxian economics Marxist theory