An important goal of many progressive political activists is replacing the capitalist economic system. The problems with capitalism are well known. It generates enormous and increasing economic inequality. It is addicted to unregulated growth, which currently threatens the global environment. It requires unemployment to constrain the price of labor. It has severe and lengthy economic crises. Capitalism in the United States suffered major economic crises in 1825, 1847, 1873-1894 (Great Depression of the 19th century), 1929-1939 (Great Depression of the 20th century), 1969-1982 (Great Stagflation), and 2007-2015 (Great Recession).
Why does capitalism experience economic crises? Marxism provides the most comprehensive theory of capitalist crises. Although each capitalist crisis is unique and depends upon the institutional structure of society, modern Marxism posits three basic causes for capitalist economic disasters: profit squeeze, underconsumption and financial dysfunction.
Consider profit-squeeze crises. The wages of labor and the profits of capital are inversely related in a capitalist economy: the higher the wages, the lower the profits, and vice versa. The median wage rate, on the other hand, is regulated by the amount of unemployment. If unemployment gets too low, the median wage rate surges and profit levels plummet causing investment decline and economic crisis. The Great Stagflation of 1969-1982 was primarily (but not entirely) a profit-squeeze crisis.
Consider underconsumption crises. These happen because the middle and working classes do not receive enough income to purchase all the commodities that a capitalist economy can produce. This leads to chronically insufficient demand and a condition of permanent economic stagnation. Military spending is largely an effort to counter such protracted stagnation. The Great Depression of 1929-1939 was largely an underconsumption crisis.
Consider financial dysfunction crises. These crises happen because monetized profit-oriented economies evolve complex financial systems that make extensive use of credit. This leads to a proliferation of debt and an eventual default avalanche. The Great Recession of 2007-2015 was mainly a financial dysfunction crisis.
The weakness of Marxist crisis theory has been the implicit assumptions that no remedies are available for capitalist crises and that they will eventually destroy a capitalist system. But capitalism also has powerful recuperative capacities and has weathered many serious economic and political crises. The material pain of a capitalist crisis can usually be off-loaded onto the working class. More importantly, political leaders in a capitalist society habitually feel compelled to rescue a beleaguered capitalist class for fear of precipitating an even larger economic disaster.
Although individual economic crises may not signify the end of capitalism, they do provide valuable opportunities for progressive change. However, such change requires a strong, well-organized progressive movement with a clear sense of what to accomplish. No single crisis and no single set of structural reforms will abolish capitalism. But a series of crises with a concomitant sequence of profound institutional transformations that are piloted by a durable, politically enlightened progressive movement could have this result.
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