Theories of Economic Crisis in the Capitalist System (Part-1)

In 2008, the world economy went through a crisis of unprecedented severity and pervasiveness, perhaps not seen since the Great Depression of 1929. The financial crisis, which started with the collapse of the mortgage market in the USA and intensified with the collapse of stock markets and gigantic banks in the most developed countries, finally affected the real economy as expected. The recession that began in 2008 in almost all developed capitalist countries, particularly in the USA, was rapidly replaced by a severe contraction. The US economy, the dominant power of the world economy, contracted by 6.2 per cent in the last quarter of 2008.

Almost all EU countries have experienced a contraction for the first time in a long time. In these countries, the number of unemployed and unemployment rates increased sharply. Undoubtedly, the crisis did not only affect the centre countries, but also the semi-periphery and periphery countries. In the last quarter of the twentieth century, a number of countries that had been called the miracles of neoliberal policies collapsed. The ‘Nordic tiger’ Iceland, the ‘Celtic tiger’ Ireland, the ‘Economic Miracle Estonia’, the former Eastern European countries Poland, Hungary, Bulgaria, the Baltic states. It is also obvious that the current crisis is different from the cyclical waves (cycles of cycles) that occur in advanced capitalist economies at intervals of 8-10 years.

The fact that such a severe and widespread ‘depression’ emerged in a period of ‘liberalisation’ in which state interventions and regulations in the economy were minimised undoubtedly makes it inevitable to question the neoliberal understanding of economics. The widespread search for the causes and ways out of the crisis outside the dominant economic view is also a part of this process. In this study, various non-Marxist crisis theories will be mentioned and theoretical explanations will be tried to be brought to the global long fluctuations of capitalism.

Crisis Theories Based on Different Causes

Some economists have attributed the crisis cycle to physical processes and even put forward very abstract causes. H. St. Jevans, for example: ‘The ten-year crisis cycle is based on meteorological oscillations of the same wave length. These fluctuations, in turn, are due to cosmic causes, which can be deduced from the frequency of sunspots, dawn and magical perturbations’ (his work; “The Sun's and Trade Activity”, London 1910). H. L. Moore: The approach of Venus to the sun every 8 years - this period - causes a cycle of the same length of weather, harvest and business cycle (‘Economic Cyeles: Their Law and Case’ New York 1914). Others attribute the sense of the crisis cycle to wobbles; A. C. Pigou (1877-1959): ‘If false optimism is introduced, it grows and spreads for two reasons. Businessmen are not only financially interdependent, but also emotionally, and if the tone changes anywhere, this has a suggestive effect on the most distant parts of the economy. Thereafter, under the sway of optimism, increased orders and a better course of trade are indeed to be expected’. J. St. Mill (1806-1873): ‘Good business behaviour breeds optimism. Optimism, in turn, leads to recklessness, and recklessness to disaster. Crisis breeds pessimism, and pessimism breeds stagnation. The upturn begins again as soon as people realise that they are not suffering as much as they thought’.

Another is the attribution of the crisis cycle to the conditions of raw material production; W. Sombart (1863-1941): ‘Production sites working with organic and inorganic raw materials have an unbalanced production rhythm. The disruptions arising from this and the restoration of economic balance cause a crisis cycle. J. A. Schumpeter (1883-1950): New combinations of factors of production emerge in waves. These waves lead to booms, which are followed by crises and stagnation.

The other is the attribution of the crisis cycle to economic institutions; S. S. Kuznets (1901-1971): The monetary economy causes fluctuations in the order situation in the production of raw materials and finished goods. These fluctuations gradually become stronger than fluctuations in the demand for consumer goods. Th. W. Mitchell: The further an economic sector moves away from consumption, the more it is subject to fluctuations. This is due to the illusion of the uncontrollability of the market. The common feature in all these theories stems from the capitalists' attempts to explain the crisis cycle by the functioning of money-credit banks, supply-demand mechanisms and institutions.

In the crisis theories of the modern period; John Maynard Keynes: ‘In predicting the chances of investment, we have to take into account the nerves and hysteria (of those who will make the investment) and even their digestion and dependence on weather conditions. For investment is often dependent on their spontaneous activity.’ (General Theory of Money, Interest and Activity). Paul Anthony Samuelson: ‘As for aggregate investment or money spending... investment may be too high for decades: This leads to chronic inflation. In other years or decades investment may be low. This leads to deflation, losses, underutilisation of capacity, unemployment and economic distress. There is no guarantee of an ‘invisible hand’ to ensure that the productive years balance out the unproductive ones, nor that our scientists will come up with the right idea in discovering sufficiently new products and methods at the right time to keep the system in balance.

The sole and decisive common feature of all these conceptions is: They seek the real cause of economic crises outside the capitalist system. For these theorists there is no such thing as the fundamental contradiction of capitalism. Precisely for this reason, they reject the objective legality of economic crises, the real cause of crises.

We can summarise the conceptions they seriously defend as the causes of economic crises as follows:

a- Looking for the cause and cycle of economic crises in natural phenomena.

b- Looking for the causes of economic crises in non-economic phenomena

c- For these two reasons, it is necessary to recognise the economic crisis as an unpreventable, insurmountable natural law and

d- Looking for the cause of economic crises in the economic outlooks resulting from economic crises and accepting these outlooks as the main cause of crises.

We can also consider the crisis theories based on these causes within the framework of historical development, i.e. the course of development of capitalism. If we consider the problem in this way:

Capitalist Crisis Theories in the Light of Historical Developments

David Ricardo (1772-1823):

The last representative of bourgeois political economy. Ricardo theoretically defended the interests of the industrial bourgeoisie and brought bourgeois scientific economic thought to its most advanced stage.

Crisis theories before the first cyclical crisis (the overproduction crisis of 1825):

The crises before industrial capitalism (the crises before 1825) were not crises of overproduction; their outbreak was due to other causes. At that time, too, the bourgeoisie pondered on the causes of these crises and put forward a number of crisis theories. But none of these were theories on the crisis of overproduction. Ricardo, the last representative of bourgeois political economy, was not in a position to explain the crises of overproduction. Because he had not experienced such crises.

Malthus, Thomas Robert (1776-1834):

Malthus, better known for his reactionary theory of population, was a priest and bourgeois economist. Malthus was the founder of ‘vulgar economics’ in England and a relentless defender of the interests of the great landed gentry and the landed aristocracy. Malthus defended the interests of the bourgeoisie to the extent that the interests of the bourgeoisie coincided with those of the landed aristocrats. Malthus developed his theory of crisis on the basis of his research on specific crises. He analysed the crisis problems in England in the period 1815-1819 and concluded that there could be a general overproduction, which could lead to a crisis.

Jean Baptiste Say (1767-1832):

According to Say, there can be no general overproduction. This is because commodities are exchanged for commodities and money only plays the role of ‘intermediary’. Unlike Malthus and Sismondi, Say investigated the first crisis of overproduction and found the causes of this crisis in the money phase (even though he saw money as a factor that only played the ‘intermediary role’ in the exchange of commodities for commodities!

Crises of Overproduction in the Free Competitive Period of Capitalism:

During this period there was no progress in the understanding of capitalist crisis theory, except for one point. In the period after the 1825 crisis, the only advance was the realisation of the periodic character of crises. Overstone, Blangui, Clarke, Wilson and Briaune tried to determine the periodicity of crises relatively precisely. Since there was no theory explaining the reality of crises in this period, crises before industrial capitalism (before 1825) are also considered to be periodic crises. In fact, those who set out to search for the causes of the periodicity of crises went beyond the limits of political economy and linked it to cosmonological causes. The increasing role of credit and banking in England forced the bourgeois crisis theorists to take a step forward, and when this step was taken, the development of the ‘Currency School’ and the ‘Banking School’ demonstrated the theoretical and practical political weakness of the bourgeoisie in this field: Both schools transfer the problem from the stage of production and consumption to the stage of money and credit. In short: ‘The foundations of bourgeois crisis theory were laid not by the forward-thinking, intelligent, insightful representatives of the rising young bourgeoisie, like the classics of bourgeois political economy, but by apologists or critics of capitalism before the outbreak of the first cyclical crisis of overproduction.

The content of the bourgeois crisis theory put forward in this period can be summarised as follows.

a) To recognise the periodicity of crises and to try to explain it, even if it is occasionally and completely wrong.

b- Describing crises or cyclicality as historical-statistical, which has nothing to do with theory.

c- To make some contribution to the explanation of the problems of money and credit movements on the basis of completely wrong theoretical ideas about money, credit and crises.

d- To make the first practical-political attempts to avoid crises or to soften them.

(To be continued)