Marx saw capitalism as being subject to
swings of prosperity followed by recessions or even depressions. He was one of the first people to try to
explain the business cycle, as it is now called. There were two different explanations given
by Marx.
One of Marx’s explanations involved the
uncoordinated nature of the market (Marxists call this the anarchy
of the market.) Company
A sees a profitable opportunity. To take
advantage of it, Company A buys some new machinery or builds a new factory in
order to be able to increase production.
What it does not realize is that many other companies are doing the same
thing. When they all increase
production, there is now too much production!
This causes the period of recession.
Some companies go out of business.
Others decrease their production.
When production falls enough, the recession is over. The periodic recessions and depressions (Marx
called them “crises”) that result under
capitalism are one reason that Marxists have so strongly supported government
planning.
The second of Marx’s explanations involves
under-consumption. To Marx, capitalism acts to keep wages at the
socially-determined subsistence level so that profits can expand. But wage earners usually spend all of their
incomes while profit earners can afford to save a portion of their incomes. By transferring income from spenders to
savers, capitalism sets up a process by which companies produce goods but
consumers do not have enough income to buy them. Goods that are produced go unsold; this is
the recession (crisis). Eventually,
companies are able to eliminate their surplus inventories and the recession is
over.
One of Marx’s
important predictions was that these crises would become increasingly severe. This was a result of the increasing
concentration of capital. Early crises
may cause the failure of small companies; this would have only minor overall
effects. Later crises would cause the
financial ruin of giant companies. The
repercussions of this would be much more severe. To Marxists, the Great Depression of the
1930s seemed to prove this part of the theory.
Keep in mind that Marx’s description was
contrary to the general view of the day.
In that view, recessions could not occur for long. If recessions did occur, there were built in
forces to eliminate them quickly. (These
were falling prices, falling wages, and falling real interest rates) Everything that could be produced would be
bought! (This statement is usually
stated as “supply creates its own demand” and is called “Say’s Law”.)
Since World War II, there have indeed been
periodic recessions in the United
States .
The country went ten years without a recession (March 1991 to March
2001) but then experienced a recession in 2001 and then a most severe recession
beginning in 2008. But these recessions
have been much less severe than the Great Depression or than the “crises”
described by Marx. That they have been
less severe is partially the result of increased government intervention in the
economy, a point that was not predicted by Marx.
For more on Karl Marx and Marxism:
Marx's Dialectical Approach and Materialist Interpretation of History
Marx's Class Struggle
Marx on alienation and freedom
Marx's Value and Surplus Value theory
Marx on The Reserve Army of Labor / Unemployed
Marx's Law of Increasing Concentration of Capital
Marx on Contradictions of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology
Marx's Class Struggle
Marx on alienation and freedom
Marx's Value and Surplus Value theory
Marx on The Reserve Army of Labor / Unemployed
Marx's Law of Increasing Concentration of Capital
Marx on Contradictions of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology