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International Socialism, July 1998


Judith Orr

Making a Comeback:
The Marxist Theory of Crisis


From International Socialism 2:79, July 1998.
Copyright © International Socialism.
Copied with thanks from the International Socialism Archive.
Marked up by Einde O’Callaghan for ETOL.


Simon Clarke
Marx’s Theory of Crisis
St Martin’s Press 1994, £15.99

The alternation of boom and slump, the coexistence of overwork and unemployment, of staggering wealth alongside devastating poverty, of concentrations of power alongside hopeless impotence is as much a feature of capitalism today as it was a century and more ago. The sense of a world beyond human control, of a world driven to destruction by alien forces, is stronger today than it has ever been. The gulf between the bland assurances of the bourgeois economist and the reality of life for the mass of the world’s population has never been wider. [1]

The dramatic collapse of the Tiger economies has made Simon Clarke’s description of modern capitalism even more apt than when it was written. So recently used as evidence that crises could be eradicated, the erstwhile miracles of South East Asia are now the best examples of Marx’s assertion that such an eradication is impossible. As a result it’s not uncommon now to see columnists in The Guardian or the Financial Times pointing out with surprise just how relevant Marx is for explaining the vagaries of the system. Clarke’s book is therefore worth examining, for if even bourgeois commentators are admitting that Marx had a point then it is important that we are clear about what Marx actually said. Also, as the quote above indicates, Clarke writes as a Marxist wanting to further understanding of Marx’s theory while raising at the same time a number of traditional criticisms to Marx which it is important to answer.

Clarke provides a useful account of what socialists after Marx have had to say on the subject of crisis and the debates that have taken place amongst Marxists at different times when the system has seemed to defy the basic theory. Although Clarke sees himself as part of the Marxist tradition, there is not much left of Marxist theory once he has finished. His main theme is that much of what Marx had to say about crisis and the system was valid but that ultimately Marx did not have a single theory of crisis but at least three:

… within the Marxist tradition three quite distinct theories of crisis have been proposed, based on rather different specifications of the underlying contradiction. These are underconsumptionist theory, which dominated the Marxism of the Second International, disproportionality theories, which became popular in the early twentieth century, and theories which associate crises with the falling tendency of the rate of profit, which have come to dominate contemporary Marxism ... in the Grundrisse, as in Marx’s later works, we apparently find all three theories coexisting ... Is this simply an indication of the undeveloped character of Marx’s theorising, or of his undoubted confusion when he comes onto discussion of these matters? [2]

Clarke goes on to answer his own question:

There is no doubt that Marx’s theorising is undeveloped, and that his discussion is often inconsistent and confused ... His theory of crisis undoubtedly contains elements of underconsumptionist, disproportionality and falling rate of profit theories, but it is not a confused or an eclectic combination of all three. There is a conceptual unity and coherence running through his discussions. [3]

Apart from the fact that this assessment is itself contradictory, on the one hand criticising Marx for being confused and on the other pointing to a ‘conceptual unity and coherence’ in his work, even at its most generous it does Marx a disservice. For although Marx did write about the various elements at play in any economic crisis, for him the key factor was that crises were endemic to the system because the contradictions from which they emerged were rooted in the central process of production. He wrote, ‘The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour. This does not mean the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self evident necessity, deriving from the nature of the capitalist mode of production itself ...’ [4] The endemic nature of crises is equally emphasised in Marx’s famous saying, ‘The true barrier to capitalist production is capital itself’. [5]

Clarke takes us through how the ideas of Marx and later Engels have been debated historically in a chapter which begins with the words:

The failure of Marxism in the 1980s was essentially the failure of the Leninist tradition which had dominated Marxism since the 1930s ... The triumph of Leninism led to the dismissal of the Social Democratic tradition of Marxism, yet this was a tradition which, for all its failures and defeats, had been forged in the experience of the crisis-riven and struggle torn development of the capitalist mode of production, by intellectuals who were neither academics nor state functionaries but were the builders of a mass movement. [6]

Yet Leninism was formed in the same circumstances, by individuals who were also builders of a mass movement but with one crucial difference; the Leninists led a successful revolution, while those who maintained the social democracy of the Second International became apologists for a savage imperialist war and in Germany allowed, and even participated in, the murder of their revolution. [7]

Despite the initial endorsement of revisionism Clarke does acknowledge and discuss problems with the analysis associated with the period writing that ‘the political weakness of the Marxism of the Second International lay primarily in the growing divergence between its analysis of the historical tendencies of historical capitalist accumulation and its political programme for the transition to socialism’. [8] The discussions and theoretical developments of the Second International are covered by Clarke in detail. He also initially sketches, and later covers in more depth, subsequent developments in the theory of crisis in the Marxist tradition right up to the 1970s.

Falling rate of profit

More interesting, however, are Clarke’s passages on Marx’s economics. He devotes a whole chapter to his critique of the theory of the tendency of the rate of profit to fall, which Marx saw as pivotal to the theory of crisis but which Clarke believes to be flawed. It flows from the theory that labour creates value. As a result commodities exchange according to the average labour time required to produce them with average technology and work intensity – Marx called this the socially necessary labour time. Like all other commodities produced under capitalism, labour is bought and sold on the ‘labour market’. And, as with other commodities, the price of labour is determined by the cost of sheltering, feeding, clothing and educating, in other words reproducing, each worker so they are fit to work. Under capitalism workers’ wages amount to less than the value that they create in the production of commodities, leaving the capitalist to accrue the surplus. This is because labour is a unique commodity. Machinery can only pass on the value that went into creating it. Workers, however, can create enough value to cover the cost of their own reproduction and then carry on working and create surplus value.

This is the picture inside each unit of capital. But, of course, in the real economy there are many units of capital. No capitalist acts in a vacuum. Each is constantly forced to compete with other capitalists. So the accumulated surplus is continually invested into new labour saving machinery and technology to try and produce commodities more cheaply, i.e. with less labour involved in them than the next factory. Because commodities exchange according to the socially necessary labour time and not according to what labour time or technology actually went into making that specific product, the first capitalist has an incentive to make them with less labour:

At first he can sell them above their price of production ... He pockets the difference between their costs of production and the market price of other commodities, which are produced at higher production costs. This is possible because the average socially necessary labour time required to produce the latter commodities is greater than the labour time required with the new method of production. His production procedure is ahead of the social average. [9]

Initially any capitalist can make good profits in this way – undercutting those making the product in a more labour intensive way – but when all capitalists get the same or even better technology there’s no advantage. In fact quite the opposite. Competition drives individual capitalists to this continual investment in new machinery designed to cut labour costs. Yet they face a contradiction because they are cutting back on the only element of production from which they can extract surplus value – labour, that is the activity of the workers. Without human intervention machines don’t create value, they themselves are the product of past labour, or as Marx called it, crystallized labour. On their own they are incapable of creating any new value for the capitalist. So the drive to increase profits leads to a tendency for the ratio of machinery (dead labour) to increase in proportion to that of living labour – the source of surplus value. Marx referred to this process as the increase in the organic composition of capital. This contradiction at the heart of production is what leads to the tendency for the rate of profit to decline. So what is beneficial for the individual capitalist in the short term, actually starts to undermine the ability of the whole capitalist class to accrue surplus labour in the longer term.

The tendency for the rate of profit to fall underlies and intensifies the cycle of boom and slump, sometimes referred to as the ‘business cycle’. Clarke refers to the business cycle but puts it all in the pot together with other aspects of crises without showing how it can form a part of an integrated theory of crisis. As production under capitalism is driven by the need to maximise profits, not to produce what might be useful, so crises may result from, for the first time in history, an overproduction of commodities, a flooding of the market. This is because with no planning every capitalist in a certain industry will try provide enough goods to fulfil any increase in demand for any commodity. So a 50 percent increase in demand for jeans, for example, will not be equally shared across all the companies which produce jeans. Instead each will try and produce all the 50 percent extra and battle in the market place to sell them. Of course there will then be far more jeans on the market than there is demand for. Some will go unsold, or some may be sold at a loss, perhaps leaving the smaller jeans companies in particular at risk of collapsing if they cannot carry the subsequent loss in return for their investment. As some companies go bust investment in the industry slows as profits decline and so the cycle of investment and expansion turns downwards into slump. Workers are left unemployed and even less able to buy commodities, which serves to increase the decline across the whole system.

This ‘underconsumption’ on the part of the consumers – workers, who may want or need the commodities but are unable to afford to buy them – has been interpreted by some as the cause of crisis. Clarke implies that Marx himself saw it as a cause. But such lack of consumption occurred long before the existence of economic crises and it is not unique to capitalism; rather than being a cause of crises it is one of the possible features of crisis. As Engels writes in Anti-Dühring, ‘The underconsumption of the masses is not a new phenomenon. It has existed as long as there have been exploiting and exploited classes ... while ... the general shrinkage of the market which breaks out in crises as the result of a surplus of production is a phenomenon only of the last 50 years’. [10]

As well as assessing different elements in Marx’s theory of crisis, Clarke points to some common criticisms of Marx’s analysis. [11] The first is that the process which results in the cheapening of commodities also cheapens the machinery which produces them, as it in turn will have had less and less labour used in its production. In terms of value, therefore, ‘we cannot assume that the composition of capital in value terms will necessarily rise’. While it is true that new technology does decrease in price as new ways of producing it are developed, it is not true that every capitalist benefits from this. Each capitalist has to make enough profits to cover the cost of what he or she actually spent on the machinery in their factory, not on what the same machinery might currently cost. So the first capitalist to make cars using robotic technology will still have to pay back the bank, for instance, the full amount plus interest paid out for the original machinery, regardless of the fact that two years later the same machinery can be bought at half the price. In fact it can intensify the drive to extract surplus value from the workers he still employs as he tries to recoup his original larger investment when the socially necessary labour time for the production of cars lessens with every new development.

This leads to the second criticism, that ‘Marx ignores the fact that the rise in the rate of exploitation may perfectly well be sufficient to counteract any increase in the composition of capital, so that the rate of profit might well rise’. Firstly it is of course true that increased investment in new means of production leads to an increase in the rate of exploitation in workers. Each worker is producing more than they did previously with the older machinery and so even if the length of the working day and wages remain the same each worker is making more surplus for the capitalist. In addition it is also true that capitalists will always try to maintain or increase their profit levels by increasing exploitation through direct attacks on workers’ pay and conditions. This can be done by imposing longer hours, lower wages or more intense labour, but this process does not have unlimited potential for increasing the extraction of surplus value. Clarke shows that Marx himself addressed this question, explaining that there is, for instance, a physical limit on how many hours a day workers can labour. There has to be time for workers to have at least some sleep and their wages have to be at least sufficient to provide for enough food to be fit enough for work. (Although to help out capitalists trying to squeeze the maximum surplus value out of their workers governments have been found willing to ‘top up’ the wages of those who don’t actually earn enough to live on. In Britain at the moment benefits such as Family Credit act as a subsidy for employers paying less than a living wage.)

The third and equally long-standing objection is one which rejects Marx’s characterisation of the system as being inherently irrational – ‘Marx ignores the fact that the capitalist will only introduce a new method of production if it provides an increased rate of profit so that faced with such a fall capitalists will continue to use the old method of production and earn the old rate of profit.’ But, as has been already been pointed out, what is profitable for an individual capitalist may not be beneficial for the system as a whole. Capitalists are not in control, they are ‘like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells’. [12] They are driven to invest and act in a certain way because survival depends on making more profits than your competitors and if they are producing, for example, pocket calculators at half the cost you can, then they can continually undercut you until you sell at a loss or go bust: ‘those capitalists who operate under the old conditions of production must sell their product below its full price of production; the value of this product has fallen, so that they need more labour time to produce it than is socially necessary. In short, and this appears as the effect of competition, they must also introduce the new mode of production which reduces the ratio of variable capital to constant’. [13] This is a point Clarke makes himself elsewhere in the book: ‘The tendency to expand production without limit is not just a matter of the subjective motivation of the capitalist, since it is imposed on every capitalist by the pressure of competition.’ There’s no room for a boss to decide, ‘I don’t want to get involved in all those new-fangled computers, I’m happy with my profits so I’ll just stick to hot-metal printing.’ It is clear that such a capitalist would not last long.

Clarke implies that he is vindicated in his criticisms of the tendency of the rate of profit to fall when he points out that Marx did not see it as a mechanical law. [14] But this is hardly an insight; Marx saw capitalism as a dynamic system and he referred to the tendency of the rate of profit to decline and acknowledged ‘counteracting influences must be at work, checking and cancelling the effect of the general law, and give it merely the characteristic of a tendency’. [15] These counteracting tendencies include, of course, crises themselves which serve to wipe out chunks of constant capital, thus temporarily reversing the increase in the organic composition of capital – ‘Crises are never more than momentary, violent solutions for the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being’. [16] If the tendency for the rate of profit to fall was a mechanical law then the system would have long since spiralled into a final collapse, much as some socialists such as Kautsky in the early 20th century said it would. Instead there is a tension and a contradiction in the system between the need for and the dangers of expansion. The way in which these contradictions are played out is not predestined. In some cases the capitalist class wins out, maintaining profits and riding out crises. This is often not just at the expense of workers but also of smaller, weaker sections of their own class.

At other times workers may refuse to accept longer hours and pay cuts, or state intervention may hold up failing capitals (though this sometimes only postpones the problem for, as has already been pointed out, the destruction of some capital can enable the system to return to profitability). But, as history has shown, as long as the system exists the underlying fault that threatens its whole basis remains. In the end Clarke renders all this discussion, and by implication his own book, irrelevant, writing:

The debate that has dominated Marxism between disproportionality theories, underconsumptionist theories and falling rate of profit theories has really been a red herring. A crisis arises when capitalists face a fall in their realised profit which can arise for all manner of reasons, but the precipitating cause of any crisis is inconsequential ... the underlying cause of all crises remains the fundamental contradiction on which the capitalist mode of production is based. [17]

Such a flippant conclusion is of no use to readers who are looking to understand Marx to explain what appears an ever more irrational world system. [18] It is crucial to socialists who see theory as a guide to action to investigate what Clarke regards as a ‘red herring’. For identifying the precipitating causes of any crisis is essential if we are to show up the impossibility of reformists’ claims to be able to tinker with the system to make it stable. But then this book is content to remain in the realms of the abstract rather than measure its ideas against the real world, historical or contemporary. Clarke has examined every scrap of paper that Marx ever wrote on the subject, seemingly with the aim of showing him to be confused, contradictory or just plain wrong. Anyone spurred into wanting to find out more about what Marx had to say on the subject should be advised to skip Clarke and go back to the writings of the man himself.


1. S. Clarke, Marx’s Theory of Crisis (St Martin’s Press 1994), p. 8.

2. Ibid., p. 137.

3. Ibid., p. 138.

4. K. Marx, Capital, vol. 3 (Penguin 1981), p. 319.

5. Ibid., p. 358.

6. Ibid., p. 14.

7. For the best account of this period, C. Harman, The Lost Revolution: Germany 1918–1923, 2nd edn. (Bookmarks 1997).

8. S. Clarke, op. cit., p. 15.

9. K. Marx, op. cit., p. 375.

10. F. Engels, Anti-Dühring (Lawrence & Wishart 1955), p. 397.

11. Ibid., p. 213.

12. K. Marx and F. Engels, The Communist Manifesto (Progress 1971), p. 41.

13. K. Marx, op. cit., p. 374.

14. S. Clarke, op. cit., p. 241.

15. K. Marx, op. cit., p. 339.

16. Ibid., p. 357.

17. S. Clarke, op. cit., p. 285.

18. Such readers will find Marx’s theory of crisis clearly explained in C. Harman, Economics of the Madhouse (Bookmarks 1995), C. Harman, Explaining the Crisis (Bookmarks 1987), A. Callinicos, The Revolutionary Ideas of Karl Marx (Bookmarks 1987), L. Huberman, Man’s Worldly Goods (Monthly Review, New York 1968) pp. 280–283.

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