Economic crises are phases of the capitalist cycle, which forcibly restore the main reproduction proportions disrupted as a result of the capitalist economic development. Economic crises are manifested in a slump of production, a reduction of capital investments, rising unemployment, an increased number of bankruptcies, a drop in the value of securities, and other economic upheavals.
The reason for economic crises is the main contradiction of capitalism between the social nature of production and the private appropriation of its products. The division of labor, production specializations, and production co-operation ties capitalist enterprises together into a unified economic mechanism, whose proper functioning requires – within the framework of the entire economy – proportionality between lines of production, manufacture of the means of production and manufacture of consumer commodities, capital accumulation and consumption. But the prevalence of private ownership, ensuing anarchy of production as well as severe competition and exploitation of labor by capital cause a constant disruption of reproduction proportions. Some of these disruptions are resolved spontaneously, others get accumulated and reinforced.
Since the production of goods expands beyond the boundaries of the population’s solvent demand, economic crises assumes the form of over-production of goods and over-accumulation of capital. An economic crisis finishes one capitalist cycle and paves the way for the next one by correcting the disrupted proportions between capital accumulation and consumption as well as manufacture of the means of production and manufacture of consumer commodities. Economic crises aggravate class antagonisms since the workers end up bearing the brunt of crises. This results in an intensified class struggle, which leads to improved self-consciousness of the working class, its co-operation and unity.
Economic crises cause major economic losses in a society because, as a result of crises, a substantial part of industrial equipment remains idle and hundreds of thousands of workers lose their jobs.
The timing of crises, their depth and duration depend mostly on the degree of disruption of major reproduction proportions during economic booms. Besides, economic crises can be self-generating since diminished purchasing power of the workers (due to higher unemployment and working time reduction) further exacerbate realization of goods and do not allow the temporary balance between capital accumulation and consumption to be restored.
Economic crises clearly indicate the profound inconsistency of the capitalist mode of production, which "... is compelled, one the one hand, to develop productive forces as if no social basis hinders their development, while, on the other hand, the limits of that social basis are the only determining factors of this development. This is the innermost reason for crises bursting through in the bourgeois mode of production, which develops within the framework of these crises, those being an obvious indicator of the transient historical nature of capitalism” (Karl Marx, Friedrich Engels)
Even though the cause of economic crises is the same, each crisis has its own features determined by specific historical conditions, within which it develops. Crises are influenced by peculiarities of a historical epoch, the level of capitalist development, and the entire complex of economic and political factors of a specific country at a particular time.
The first periodic crisis was the crisis of 1825 in Great Britain where the capitalist mode of production had developed before anywhere else. The next crisis was in 1836 and covered both the US and UK, which are tightly connected economically. The next crisis of 1847 covered almost all European countries and was very close to being worldwide in its nature.The first world crisis occurred in 1857 and was the deepest one for all countries that had ever embraced capitalism. Cast iron production in the US dropped 20% while consumption of cotton dropped 27%. In Great Britain, shipbuilding was the most adversely affected by falling 26%. Cast iron consumption in Germany fell by 25%. In France, cast iron production and cotton consumption fell 13%. In Russia, cast iron production fell 17% with cotton industry falling 14%.The next crisis in 1866 was very harsh in the UK, but barely affected other countries. The next world crisis began in 1873 in Austria and Germany. That was the longest one in the history of capitalism – it was over in 1878, when the UK became affected by it. The crisis of 1882 mainly covered the US and France. Germany, the US and France were mostly affected by the next crisis of 1890.
The crisis of 1900-1903 became, in a sense, a borderline between the epoch of free market capitalism and the epoch of imperialism. The US and Germany suffered the most while the UK and Germany experienced an impact of smaller magnitude. That crisis was especially severe in Russia, where it coincided with a poor harvest.
The bourgeois ideologists hoped that the emergence of capitalist monopolies that planned their economic activities would cause economic crises to disappear or at least grow less severe. But that did not happen. The first imperialist crisis occurred in 1907 and was just as devastating. The US economy was mostly affected. In his article “Marxism and revisionism”, Vladimir I. Lenin wrote that the crisis of 1907 was striking evidence that crises became an inevitable part of capitalism. He also noted that in imperialism “…forms, sequence and pattern of crises had undergone a significant change...” .
The economic crisis of 1920-1921 mainly covered the US and UK. In 1929, the most severe world crisis broke out. It lasted until mid-1933 and shook the very foundation of capitalism. In the US, the industrial production slumped 46%, in the UK 24%, in Germany 41%, in France 32%. In the US, stocks of industrial companies plummeted 87%, in the UK 48%, in Germany 64%, in France 60%. Unemployment reached enormous proportions. Officially, 32 capitalist countries in 1933 the unemployed amounted to 30 million people, the US accounting for 14 million of them. The world crisis of 1929-1933 clearly showed that the opposition between the social nature of production and private appropriation of its results had grown so acute that the capitalist economy could no longer function. This necessitated state intervention into the economy as well as governmental control over chaotic economic processes of capitalism in order to avoid further upheavals. This facilitated the development of monopolistic capitalism into corporate state capitalism.
The long-term governmental planning presently implemented in many capitalist countries after WW2 of 1939-1945 as well as operational business cycle regulations had a stabilizing effect on the development of those countries. However, development of another economic crisis became apparent in the US, the UK, Canada, FRG, and Italy. In the majority of other countries, the resolution of the accrued contradictions of the extended capitalist reproduction assumed the form of slumps in economic activity combined with a reduction of manufacture of means of production and decelerated accumulation of capital. Crises have been the most frequent in the US: 1948-1949, 1953-1954, 1957-1958, 1960-1961, 1969-1971 and 1973-1975. The industrial production fell 17%, 9%, 13%, 7%, 8% and 13% respectively.
The first post-war world crisis started in 1957 and lasted until mid-1958. It covered the US, the UK, Canada, Belgium, the Netherlands and other capitalist countries. The industrial output in developed countries dropped 4%. The unemployment reached almost 10 million people.
The relatively stable economic development of certain capitalist countries in the 1950-1960s contributed to bourgeois and revisionist theories that claimed a possibility of crisis-free development of capitalism by means of improved state regulation of economic processes. But the capitalist reality soon disproved those theories. In the early 1970s the capitalist system saw a series of disruptions of the reproduction process, which caused another worldwide crisis. It started in the US in late 1973, and filled the entire capitalist world in 1974 and 1975. The width, depth, duration and adverse effect of this crisis exceeded those of 1957-58 and were in some aspects similar to those of 1929-1933. During the crisis, industrial production in the US dropped 13%, in Japan 20%, in the FRG 22%, in the UK 10%, in France 13%, in Italy, 14%. From December of 1973 until December of 1974, stocks fell 33% in the US, 17% in Japan, 10% in the FRG, 56% in the UK, 33% in France, and 28% in Italy. In 1974, the year-on-year number of bankruptcies grew 6% in the US, 42% in Japan, 40% in the FRG, 47% in the UK, 27% in France. By mid-1975, unemployment in developed capitalist countries grew up to 15 million people. Besides, more than 10 million people were compelled to work part-time or were fired temporarily. The real income of workers in many countries dropped significantly. For example, in 1973-1975 US workers saw the total real income reduction of 6% as opposed to a 3% growth in 1950-1970.The depth and duration of the crisis in 1973-1975 can be explained by its intertwining with intense inflationary pressure in all capitalist countries as well as currency and energy crises and further aggravation of food and environment problems. The crisis of 1973-1975 clearly showed the limited nature of bourgeois regulations of chaotic economic processes and business cycle development. The capitalist governments’ inability to prevent the crisis of the 1970s and find a solution to it testifies of a crisis of governmental business cycle regulation per se. Due to concentration of production, the substantial width and depth of economic internationalization, the business cycle regulation methods and their forms developed after WW2 were no longer effective in the 1970s.
The main contradiction within the capitalist system again manifested itself in an acute form. Economic crisis indicate inconsistency between productive relations of a bourgeois society and its productive forces and testify of the transient nature of capitalism, which can only develop at the expense of recurring squander of material and human resources. This convinces workers of the need to fight for a new social order, free of crises, unemployment and exploitation, this new order being socialism.
Author: Mr. Y. N. Pokataev
Translated by Boris Anisimov