Crises in versus of Capitalism

Capitalism has generated recurring “crises” everywhere and throughout its history.  It alternates bursts of growth and prosperity with crisis periods when many workers lose jobs and homes, bankruptcies close enterprises, production shrinks, and governments reduce public services.  Growth periods almost always promote speculation, overproduction, inflation, and excess debts that crises then erase or even reverse.  As crises deepen, the increasingly desperate unemployed accept lower wages and poorer working conditions.  Business “revives” if and when lower wages and poorer working conditions provide sufficiently attractive profit opportunities for capitalists to resume production and hiring.  Crises are thereby overcome.  Growth and prosperity return to build toward the next crisis.  Capitalism’s ups and downs vary in length; their oscillating pattern remains the same.

Crises in capitalism (depressions, recessions, cyclical downturns, etc.) are neither new nor unusual.  Because capitalism works that way, its supporters came to label the more severe or protracted down periods crises because they feared that capitalism’s victims would turn against it and seek basic social change.  Capitalism’s defenders eventually developed a set of policies to manage its inherent economic instability.  They include automatic and discretionary “stabilizers” derived from Keynes‘ Depression-era writings, stimulus and bailout programs, deficit spending, and so on.  Past and present advocates of such policies have believed they would both overcome whatever crisis existed then and also prevent future crises.  No policies have ever, to date, achieved the latter goal.  Today’s global crisis proves that.  Nor is there agreement about whether these policies ever overcame a crisis.  For example, scholars continue to debate whether FDR’s economic policies ended the Great Depression or whether it passed because falling wages and business bankruptcies eventually renewed profit opportunities for new investments or because of the government’s build-up toward World War 2.

Political and cultural policies also seek to manage capitalism’s recurring crises.  FDR thus orchestrated a political New Deal and renewed nationalist cultural themes.  These focused attention away from questioning capitalism.  Similarly, Pope Benedict’s Charity in Truth encyclical, released last week, responds to today’s crisis by calling for a recommitment in business affairs to Christian values of love, charity, and truth.  Crises in capitalism have persisted across all such efforts — economic, political, and cultural — to prevent them.  So long as capitalism survives so do its recurring crises.

A crisis of capitalism is different.  It is not a recurring event.  A crisis of capitalism happens when cultural, political, and economic conditions combine to persuade many people that capitalism as a system has outlived its historical usefulness.  Seeing it as a barrier to social progress and believing that human communities can organize their economic systems in better, post-capitalist ways, these people begin to move politically.  Crises of capitalism may but need not stem from crises in capitalism.  For example, potential crises of capitalism loomed at moments in the 1930s and again in the 1960s.  The former coincided with a crisis in capitalism; the latter did not.  Neither moment had sufficiently extensive support or lasted long enough for those potentials to be realized.

One obstacle preventing crises in capitalism from becoming crises of capitalism is belief that no alternative to capitalism exists.  All enterprises are then thought to require the usual division between workers and boards of directors.  They must have shareholders electing those boards to hire and fire all employees and make key business decisions alone or with major shareholders.  Interactions among businesses, workers, and consumers must happen chiefly by market exchanges.  Only then, this belief holds, are modern civilization and standards of living possible.  This belief shapes the Obama administration’s response to the global crisis.

A more subtle obstacle is belief that an achievable and superior alternative to capitalism exists.  That alternative involves larger or smaller shifts from private enterprises to state-regulated or state-owned enterprises, from shareholder-elected boards of directors to state officials (chosen democratically or otherwise) regulating or functioning as such boards, from markets to state-planning as the mechanism to allocate resources and products.  However, that alternative largely ignores and so leaves basically unchanged the internal organization of enterprises (whether private or state), their division between the mass of productive employees and the small groups making the decisions about what, how, and where to produce and how to dispose of products and profits.  Those small groups have retained their positions either as state-regulated but still private boards of directors, or, under state ownership, as state officials running state enterprises.

Transitions from capitalism to such an alternative have often been understood as transitions to socialism or communism.  They repeatedly inspired heroic struggles by capitalism’s victims and critics.  Those struggles often yielded progressive social changes.  Today in Latin America, important voices propose such transitions in response to the global capitalist crisis.

However, such transitions to socialism and communism have serious contradictions.  They distract capitalism’s victims and critics from organizational transformations inside enterprises to focus instead on various kinds and degrees of state economic interventions.  The distraction secures capitalism’s survival in two ways.  First, those transitional movements preserve enterprises’ internal divisions between employers and employees.  Marx emphasized the centrality to capitalism of this relation between two different groups inside each enterprise; he defined “exploitation” as the relation whereby one group, productive laborers, produces a surplus appropriated and distributed by the other.  To maintain exploitation inside enterprises (private or state) keeps in place a foundational dimension of capitalism.  Second, maintaining exploitation gives the exploiters the incentive and the resources (the surplus they appropriate) to evade, weaken, and eventually eradicate whatever regulations, taxes, and other changes reformers win in responding to any crisis.  Thus, in the decades after FDR’s economic reforms, US corporate boards of directors utilized the surpluses they appropriated to roll back the New Deal.  Similarly, in the 1980s, state officials atop Soviet enterprises utilized the surpluses generated there to roll back the USSR’s 1917 transition to socialism.

Two lessons: (1) crises in capitalism will recur until a crisis of capitalism provokes a transition out of capitalism that includes ending exploitation inside enterprises, and (2) the alternative to exploitation requires workers themselves democratically and collectively to appropriate and distribute the surpluses they produce.

Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.   He is the author of New Departures in Marxian Theory (Routledge, 2006) among many other publications.  Check out Rick Wolff’s documentary film on the current economic crisis, Capitalism Hits the Fan, at  Visit Wolff’s Web site at, and order a copy of his new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do about It.