The revolutionary implications in understanding capitalist crisis — part 1

History moves upward in a spiral of negations.
Georg Hegel


At its root, Marxism, or scientific socialism is a method of understanding change in complex social systems. Change is part of a constant cycle of universal motion. Of particular interest to Marxists is ?qualitative change?, which we see everywhere: water turns into vapour when it boils, a seed sprouts and is transformed into a plant, Aluminum becomes silicon and silicon becomes phosphorus as their atomic number accumulates. In biology, a caterpillar, a creature specialized for eating turns into a butterfly, a creature specialized for flying and mating.

Marxists contend that at the heart of radical change is contradiction: a duality of forces, interacting from within and without the whole. Called ?dialectical materialism? (based on a synthesis of Hegel?s dialectics and Feuerbach?s materialism) it is an idea that is increasingly being validated by science. Evolutionary biologists, such as Richard Lewontin and the late Stephen Jay Gould have employed it in their theories of punctuated equilibrium. Lewontin said:

Dialectical materialism is not, and never has been, a programmatic method for solving particular physical problems. Rather, a dialectical analysis provides an overview and a set of warning signs against particular forms of dogmatism and narrowness of thought. It tells us, ?Remember that history may leave an important trace. Remember that being and becoming are dual aspects of nature. Remember that conditions change and that the conditions necessary for the initiation of some process may be destroyed by the process itself. Remember to pay attention to real objects in time and space and not lose them in utterly idealized abstractions. Remember that qualitative effects of context and interaction may be lost when phenomena are isolated.

Radical change in society

Marxists try to apply the dialectical materialist method to the understanding of the development of society (called historical materialism) and by doing so, have come to realize the central role of the class struggle. In the Communist Manifesto Marx stated, ?the history of all hitherto existing society is the history of class struggles? (1848).

History is riddled with examples of radical change. In Europe, inner strife and opposition built up and erupted in a series of revolutions, most notably the English and French Revolutions, as a burgeoning capitalist class broke out of its Feudal constraints. It was messy and complicated but no one can deny that now, the absolute, hereditary power of Kings and Queens with wealth and power mainly rooted in land ownership and agriculture has been transferred to or replaced by the power of capital. Earlier when Greek and Roman civilization was dominant, human beings were owned outright and worked as slaves. Then, indentured serfs were beholden to work for Feudal Lords and Barons (including the work of future generations of their children). Now, under capitalism a class of free wage workers must work for a boss or face destitution.

Marxism shows us that history has changed and does change. It helps us see that societies are not permanent, and indeed, capitalism too is not permanent. Marxism tells us we can and must do better.

The ultimate aim of Marxists is to identify and harness the opportunities for change that are born from within capitalism and use them in order to replace it with a higher form of society, one without class, without waste and plenty for all. From each according to his ability to each according to his needs.

Capitalist laws of motion

Fundamental to this revolutionary task, is an understanding of the capitalist laws of motion, especially its cycle of economic expansion and contraction called the boom slump cycle. It is important to understand why capitalism goes into periodic crisis not only because of the devastating effects it has on us but because once we understand its root causes, we discover just how this particular system works and for whom it works. We come to understand why the interests of one group of society ? the working class ? are irreconcilably opposed with the interests of the other main group in society ? the capitalists. We discover that exploitation does not take place at the point of exchange (although it happens there too) but at the point of production, an exploitation endemic to the system itself and therefore it is a system that cannot be reformed but must be consciously overthrown.

Marx said the following about how his dialectical analysis of capitalism was recieved by the capitalists (the ‘bourgeoisie’ in Marxist terms):

?it is a scandal and abomination to bourgeoisdom and its doctrinaire professors, because it includes in its comprehension an affirmative recognition of the existing state of things, at the same time also, the recognition of the negation of that state, of its inevitable breaking up; because it regards every historically developed social form as in fluid movement, and therefore takes into account its transient nature not less than its momentary existence; because it lets nothing impose upon it, and is in its essence critical and revolutionary.

Marx wrote those words in Capital where you find his most thorough and brilliant application of the dialectical materialist method to the sphere of capitalist political economy. His most comprehensive theory of capitalist crisis can be found in volume 3 in the chapters entitled: The law of the tendency of the rate of profit to fall (LTRPF)[v] where the inner contradictions within the capitalist mode of production are identified and he explains how they interact upon each other to necessarily produce periodic crises.


A good starting point in trying to understand his theory of capitalist crisis is to understand that the search for profits is the main driver of capitalist production and distribution. Traditionally, capitalists take a portion of their privately owned wealth, (inherited or ?earned? from business) and invest it into production in the hope of growing their money. More often than not, their search for profits coincides with the needs of the population and commodities like housewares, foods, tools, toys, mobile phones or any other useful and desirable thing is produced for the market in order to get people to part with their hard earned money. Once they buy, the capitalists can then realize their profits at the end of the production cycle.

We are told that their profit seeking activity is the very engine of progress itself. And in one respect, they are right because as we know, when profits grind to a halt, so too does the engine! The result is a crisis.

Effects of crisis

Each crisis has an apparently different trigger and character, but over the years, a pattern has emerged that shows that each halt in capitalist economic activity is preceded by the bursting of a massive bubble[vi] of one kind or another. The Great Recession of 2007/8 started when the biggest property bubble in world history exploded. In the early 18th century a speculative craze for New World wealth caused the South Sea Bubble. Then there was the railway stock bubble of 1840, the Florida property and stock bubble that preceded the Great Depression. Later it was the Japanese asset bubble of 1980, the bubble of 2000 and many more.

Each time a bubble bursts, a massive destruction of capital and values ensues as the surviving capitalists scramble to regain profitability with devastating effects on society. Usually, the finance sector takes the first hit in a crisis (the bursting of the bubble) and then the real economy. The 1929 crash led to the wiping out of the savings of depositors in bank accounts that were uninsured as over 9000 (1/4 of all American banks) banks disappeared. In the current crisis, hundreds of banks have failed with many more pulled back from the edge by a huge state sector bail out. The banks and lending institutions hoard their wealth and refuse to lend so smaller, credit dependent companies are swallowed up by the bigger ones. Foreclosures, bankruptcies and sell-offs are the order of the day. On the way down, companies downsize, cut and a huge amount of jobs are lost and the lives of ordinary working families are destroyed from no fault of their own. Jobless, or in part-time work their purchasing power is reduced along with their standard of living further exacerbating the downward spiral of the economy.

As industry stagnates machinery is left idle and as it depreciates more values are destroyed. The over inflated value of stocks are wiped off the books. The value of stocks went from XX in 2008 to XX within xx weeks.

Money goes to money as they say and so those without it, the poorest, are hit the hardest when capitalists destroy values. We pay for the bail outs, our jobs, pensions and services are sacrificed and our standard of living goes down so their profitability can be restored and the cycle of capitalist profiteering can begin again. The cuts that are being implemented in Britain are just the tip of the iceberg of the cuts that are coming. All our services, that we fought for over years of painstaking struggle are now on the chopping block.[J1]

The role of labour in creating value and surplus value

Needless to say, if it?s profits that motivate the capitalists to produce or not then understanding where profit comes from is key. One of the most important revelations about the nature of profit came from Karl Marx who discovered that under capitalism only human labour power produces new values ie: profit (or surplus-value as it is known to Marxists).

At first, this might sound pretty dubious because we know that if a manufacturer of toasters sells his goods on the market for more than it cost to make them then a profit has been made right? True. The manufacturer has more money now than he did before. But, Marxists try to consider production in its aggregate as social production and would say that although the manufacturer has more money it is equally true that the capitalist who bought the toasters to sell in his shop has less money. He is out of pocket what he overpaid for the true value of the toaster (see Marx?s labour theory of value). No new money has been made in the process of exchange but merely transferred from the pocket of one capitalist into the pocket of another.

Ok, but what if the manufacturer buys a robot to speed up the production line and hundreds more toasters are produced day in and day out? Robots after all, don?t have to take bathroom breaks, let alone sleep. So thanks to the addition of the robot, the capitalist has accumulated many more toasters, each of which is a possible source of profit once sold on the market. It seems as if the robot has produced brand new values because the capital of the manufacturer has been increased doesn?t it?

But here again, Marxists see things differently (more realistically really, in that they consider how things interact). They understand that capital is actually comprised of two main groups: variable capital and constant capital and the robot falls into the category of constant capital which is the kind of capital that does not create new values but only transfers its own value (the price paid for it) into the products made.

The answer to the question ‘why’ is presented in the second part.

Melanie MacDonald

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