1. Crisis Theory – A Synthesis
Underlying Causes of the Crisis
• The underlying condition for crisis is the nature of capitalism, itself.
• Crisis arises out of the central contradiction of capitalism – that between the forces of
production and the social relations of production.
• It arises because the goal of capitalist production is the accumulation of capital, rather than the
satisfaction of human need.
• This situation leads to what we have come call “overproduction,” which is
• … specifically conditioned by the general law of the production of capital: to produce to the
limit set by the productive forces, that is to say, to exploit the maximum amount of labour
with the given amount of capital, without any consideration for the actual limits of the
market or the needs backed by the ability to pay…” (465)
• Within this process of exploitation, capital is able to derive “surplus value,” at the point of
production, by purchasing labor power at its (exchange) value and extracting labor power’s
use value (surplus value).
• While capital has derived the “surplus value” at the point of production; capital can only
realize this value through sale, i.e., the reproduction of capital.
• Purchase and sale do not occur simultaneously within capitalism; capitalism institutionalizes
the separation in time of the purchase (of commodities for production) and their sale (in
circulation). There is a disjuncture between the process of production and the process of
circulation. It is this disjuncture that creates the possibility for crisis, but it is not the cause of
the crisis.
• Money is not simply a medium of exchange (and of value), but it represents a material

2. condition that makes the separation possible. Credit is a material condition that can extend
the length of time that separates a purchase and a sale.
• Monetary policy has made it possible to literally “create” money (fictitious capital) with no
basis in any material entity such as gold, silver, or commodities.
• “Fictitious Capital is value, in the form of credit, shares, debt, speculation and various forms
of paper money, above and beyond what can be realised in the form of commodities.”
• So long as one and the same sum of money is loaned only once, then all that we have is
claims upon really-existing capital…However, as the class of speculators, bankers, brokers,
financiers, and so on, grows, … the bank finds that it is able to loan out far more than it has
deposited in its vaults; …Thus one and the same unit of productive capital may have to
support not just the one retired industrialist who deposited his savings with the bank, but
multiple claims on one and the same capital.
• Times of growth rely on fictitious capital to fuel that growth and develop prosperity (e.g.,
you can loan 10 capitalists $100,000 to invest and create growth, even if there is only
$100,000 that can be realized), but it is also fictitious capital that precipitates the crisis.
• “The credit system finally has its completion in the banking system. The creation of
bankers, the political domination of the bank, the concentration of wealth in these hands,
this economic Areopagus of the nation, is the worthy completion of the money system.”
• A general crisis comes into being when the problem of sale forces a whole series of defaults to
those capitalists that have provided constant capital; their failure to sell continues to
reverberate to their creditors and through the entire economy. The problem of sale can be the
inability to sell, the inability to sell at an adequate price or the inability to pay within a
reasonable period of time.
• Crises are natural processes of the capitalist system. “ Crisis is nothing but the forcible
assertion of the unity of the phases of the production process which have become independent
of each other.” (452) They may be crises of realization (underconsumption) and crises of
surplus value. Here are the underlying factors:
• The tendency of the rate of profit to fall (457): While capital will use a variety of methods to
ameliorate this tendency, and succeed at times, the increasing proportion of constant to
variable capital reduces the rate of profit (surplus value/constant + variable capital).
• That the term “overproduction” has come into common parlance for understanding
crises. This fiction gives credence to Marx’ notion that: “The ideas of the ruling class are
in every epoch the ruling ideas…,” in that there is really constant “underproduction” of
the satisfaction of human needs, the “overproduction” is of capital investment in the
goods it hoped to generate profit. “The limits of production are set by the profit of the
capitalist [commodities] and in no way by the needs of the producers [products].”
• The concentration of capital: The natural creation of immense firms within capitalism
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3. creates a situation where failure of such firms can reverberate throughout the system, and
the disappearance of small capital creates imbalance. Moreover, the power that these ‘big
capital’ can exercise through the state can enables capital to shape policy to meet their
needs, raising armies, police and rules of commerce to eliminate safeguards for the
economy. “The conditions of bourgeois society are too narrow to comprise the wealth
created by them. And how does the bourgeoisie get over these crises? On the one hand, by
enforced destruction of a mass of productive forces; on the other, by the conquest of new
markets, and by the more thorough exploitation of the old ones. That is to say, by paving
the way for more extensive and more destructive crises, and by diminishing the means
whereby crises are prevented.”
• The growth of the proletariat: As capital produces itself, it must simultaneously produce its
“gravediggers,” the proletariat. Petit bourgeois and small capital swell the ranks of the
proletariat.
• The crisis of realisation : “Contradiction in the capitalist mode of production: the labourers
as buyers of commodities are important for the market. But as sellers of their own
commodity – labour-power – capitalist society tends to keep them down to the minimum
price. People are not in a position to purchase the overproduction of goods created by
capital for the purpose of profit.
• Imperialism (war and revolution): Imperialism represents the attempt for each national
capital to expand their surplus value creating machines across the globe. The First World
War and The Second World War (WW I – Part II) were such struggles over who would
profit from colonies. Imperialism devastates the colonized and war move unevenly
through society – filling the rich with wealth and ravaging most of the rest. Imperialism
creates much unevenness within and between countries
• A catastrophic collapse of fictitious capital forms (credit, speculation): It is through the
creation of fictitious capital that the system expands, but it is through its overextension
(the inability) to service debt that it violently contracts.
The Crisis of 2008
The particular cause of the present crisis begins in the housing market – in the sub-prime loans, the
balloon mortgages and the housing bubble. Ultimately four elements came together to explain and
define this crisis:
1. The Growth of the Speculative Economy (Derivatives and Securitization): A series of
speculative bubbles 1980s-2008: Savings and Loan and the Junk bond debacles (80s); Long
Term Capital Mgmt hedge fund bailout of 1998; Asian debt crisis (98); Enron & dot-com
bubbles (99); subprime mortgage bust (03-04); spread of sub-prime crisis to other capital
markets (07-09)
2. Income inequality as a result of a regressive taxation policy (resulting in wealth for speculation
for the rich and inadequate buying power for the rest of us).
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4. 3. The combination of the culmination of the elimination of financial regulation and a monetary
policy that kept printing money.
4. A revolution in Finance (accompanied by financial restructuring) – the first truly globalized
sector of capital a proliferation of new financial structures and relations, combined with new
computer technologies, software, modeling, networking, and the Internet, further inability to
regulate and monitor finance capital.
Confronting the Crisis
• Recovery comes at a huge price: To escape from each crisis, however, the economy must
emerge at a "starting point" that is different from the "ending point" where the crisis began….
The new starting point will allow profitable capital accumulation to resume. This requires
raising the rate of profit, usually accomplished when the impact of crisis sufficiently reduces
(depreciates) the price of the inputs to the capitalist production process: constant and variable
capital. Additionally, the crisis will intensify the competition between capitalists themselves,
with each attempting to survive, and restore their accumulation, at the expense of their rivals.
In the end, laying the foundation for this subsequent expansion of production usually comes at
an enormous human and social cost.
• Examining the steps that have been undertaken by the presidents and Congress: especially the
latitude granted to financial capital with the “bailouts,” and the little to nothing that has been
done for homeowners; it would not be unreasonable to conclude that the interests of capital,
especially financial capital, translate into the practices and policies of the state, while the
interests of workers (sometimes blamed for the crisis) who lose their jobs, of workers as
consumers who can’t afford to buy what they need and of workers as homeowners who no
longer have homes will only find relief if it is important to the overall economy or their
political will can be galvanized. It appears to be especially clear in crises, that “the state
governs, and capital rules.” If the underlying condition for these crises is capitalism, and
capital seeks only to save itself, the only real solution to such crises is the end of capitalism and
its potential replacement with socialism.
RESPONSE 1: Bush and Obama “bail-outs” and stimulus: Capitalist solutions for capitalist
problems: The (capitalist) state will develop solutions that do not disrupt the structure of
capitalist social relations; these will favor the needs of capital (especially finance capital),
providing money for nothing and freedom to use the funds as individual financial institutions
wish and within the rubric of the struggle of the two party system.
RESPONSE 2: Reforms Designed to Repair the Crisis (Rasmus)
An effective economic recovery and stimulus program must be one that addresses these two
primary tasks: jobs creation-retention and housing market stabilization. The recovery
proposals that follow require a minimum of $1.5 trillion to fund a comprehensive jobs
retention and creation program that will create and retain a minimum of 13 million jobs—i.e.,
the minimum amount that is needed just to check and contain the economic collapse. The
housing program proposals that follow call for an additional $950 billion in spending,
necessary to stop the collapse of housing asset prices and to provide a major consumption
boost to the economy without reducing taxes and exacerbating budget deficits that will already
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5. exceed $1.5 trillion in 2009. The third section includes proposals to finance the $2 trillion
program. The fourth section addresses several long-term income restoration elements
associated with pensions, health care, and education that are necessary to sustain long-term
consumption demand, ensuring the recovery does not falter once again after two years.
RESPONSE 3: An Economic Democracy (Socialist) Reform Agenda - A Softer Capitalism
o Extension and Deepening of Workplace Democracy
 Public financial and technical support for producer cooperatives and for worker
buyouts of capitalist firms
 Legislation mandating or encouraging more worker participation in capitalist firms
and profit sharing
 More social control of investments
 Green taxes and other strict environmental legislation
 Regulation of transnational capital flows (tobin tax)
 Democratization and reregulation of the banking system, to make the Federal Reserve
System more accountable to the electorate and local banks more accountable to their
communities.
 Democratization of pension funds so people can have more control
 Implementation of a capital assets tax, the proceeds to be used for community capital
investment and to increase employment.
 Toward Fair Trade
 Tariff-based fair trade when there are significant wage and environmental law
differences between countries.
 All proceeds from the fair trade tariffs rebated to the poor countries
RESPONSE 4: SOCIALISM - Four simples reforms to economic democracy -- assumes leftist
political party comes to power as a result of economic crises (NOT LIKELY)
 First, we issue a decree abolishing all enterprise obligations to pay interest or stock
dividends to private individuals or private institutions.
 Second, we declare that legal authority over all businesses employing more the N full time
workers (where N is a relatively small number) now resides with those workers, one
person, one vote.
 Third, we announce that a flat rate tax will be levied on each firm’s capital assets, all the
revenue from which will go into the national investment fund.
 Fourth, we nationalize all banks. These now-public banks will be charged with reviewing
applications for new investment grants and with dispensing the funds generated by the
capital assets tax according to the double criteria of profitability and employment creation.
Responses 3 & 4 from:
David Schweikart. AFTER CAPITALISM. Lanham, Md. Rowman and Littlefield, 2002.
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6. exceed $1.5 trillion in 2009. The third section includes proposals to finance the $2 trillion
program. The fourth section addresses several long-term income restoration elements
associated with pensions, health care, and education that are necessary to sustain long-term
consumption demand, ensuring the recovery does not falter once again after two years.
RESPONSE 3: An Economic Democracy (Socialist) Reform Agenda - A Softer Capitalism
o Extension and Deepening of Workplace Democracy
 Public financial and technical support for producer cooperatives and for worker
buyouts of capitalist firms
 Legislation mandating or encouraging more worker participation in capitalist firms
and profit sharing
 More social control of investments
 Green taxes and other strict environmental legislation
 Regulation of transnational capital flows (tobin tax)
 Democratization and reregulation of the banking system, to make the Federal Reserve
System more accountable to the electorate and local banks more accountable to their
communities.
 Democratization of pension funds so people can have more control
 Implementation of a capital assets tax, the proceeds to be used for community capital
investment and to increase employment.
 Toward Fair Trade
 Tariff-based fair trade when there are significant wage and environmental law
differences between countries.
 All proceeds from the fair trade tariffs rebated to the poor countries
RESPONSE 4: SOCIALISM - Four simples reforms to economic democracy -- assumes leftist
political party comes to power as a result of economic crises (NOT LIKELY)
 First, we issue a decree abolishing all enterprise obligations to pay interest or stock
dividends to private individuals or private institutions.
 Second, we declare that legal authority over all businesses employing more the N full time
workers (where N is a relatively small number) now resides with those workers, one
person, one vote.
 Third, we announce that a flat rate tax will be levied on each firm’s capital assets, all the
revenue from which will go into the national investment fund.
 Fourth, we nationalize all banks. These now-public banks will be charged with reviewing
applications for new investment grants and with dispensing the funds generated by the
capital assets tax according to the double criteria of profitability and employment creation.
Responses 3 & 4 from:
David Schweikart. AFTER CAPITALISM. Lanham, Md. Rowman and Littlefield, 2002.
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