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Marxism in the Age of Financial Crises: Why Conventional Economics Can't Explain the Great Recession
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The crash and rescue of the banking system and the surge of unemployment, foreclosure, and sweeping cuts in social services over the past five years have set off a wide-ranging struggle over class relations not seen since the 1970s. As politicians and activists from Occupy Wall Street to the Tea Party denounce "crony capitalism," and as leading economists and journalists join in criticizing the harsher, finance-driven capitalist regime ushered in by Ronald Reagan and Margaret Thatcher, radical critiques of capitalism itself are gaining a new hearing.

The Marxist tradition, born in the early years of industrial capitalism in the nineteenth century, appears as vital as ever for comprehending the roots of the current crisis. Right-wing ascendance in recent decades has stripped capitalism of much of the cover provided by European social democracy and the U.S. welfare state, which had combined with anti-communism to marginalize Marxist thought after the Great Depression. The greatest crisis of capitalism since the Depression has laid bare the system's underlying instability and brutality, renewing interest in Marxist alternatives to the limits of mainstream debate.

Conventional analyses rely on stark distinctions between supposedly normal times when markets efficiently match buyers and sellers and crises when markets break down, between Wall Street and Main Street, or between the public and private sectors. Resisting such dichotomies, recent books and articles by Marxist authors view with skepticism efforts to restore a stable balance between supply and demand, between speculative finance and productive investment, or between the regulatory state and big business. They contend, by contrast, that capitalist growth actually requires recurrent crises, that capitalist industry and commerce inevitably entail escalating financial speculation, and that capitalism is founded on the union of public authority and private profit, the basis of class rule. Yet Marxist writers find cause for hope, if not optimism, in the crisis-prone connections between government, banking, and the market economy. The increasing political and economic centrality of finance, which limits the possibilities for piecemeal reform, offers a means of radically transforming capitalism by bringing the system of credit, savings, and investment under public, democratic control.

Capitalism and Crisis

Capitalism has long been characterized by the ups and downs of the business cycle and occasional deeper depressions. But its latest phase has been punctuated by an accelerating succession of booms, bubbles, and busts. From the perspective of conventional economics, crises are supposed to be temporary departures from the usual tendency of the market economy toward equilibrium, automatically adjusting prices so that the supply of commodities corresponds to the demand for them. Marxist observers, however, view the economic turbulence of our times as a manifestation of a propensity for crisis within capitalist development from the start.

Writing 150 years ago, Karl Marx identified the peculiar paradox of capitalist crises, which result from a breakdown not in the system's capacity to produce enough wealth, but in its capacity to generate enough profit. They stem not from scarcity, but from surplus. The great depression of the late nineteenth century, at the end of Marx's life, coincided with a wondrous advance in agricultural and manufacturing productivity. The problem Marx perceived was that the very labor-saving improvements making it possible to produce more coal, cotton, wheat, and steel than ever before—creating great riches for individual capitalists—were undermining the ultimate source of profits for the capitalist class as a whole in the exploitation of labor. As productivity rose, profit rates fell, increasingly leading capitalists to save their money or spend it unproductively instead of reinvesting it in further economic growth. Meanwhile, the yawning gap between rich and poor made it harder and harder for capitalists to sell the growing surplus that workers produced. The overaccumulation of capital and the overproduction of commodities led inexorably to crisis. But the devastating depression ironically saved the system from self-destruction. Like a fire in an overgrown forest, the crisis consumed much of the surplus that had kindled it, clearing the way for a new round of growth.

A new structure of corporate capitalism arose, based on giant railroad, mining, refining, and manufacturing trusts designed to control...

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