DESPITE Gordon Brown’s boast to have ended “boom and bust” capitalism is — and has always been — cyclical. Periodic crises — cycles of growth and decay, of profit and loss for the owners of capital, of victories and defeats for the struggles of working people — are inherent in capitalism.

This was first recognised in the early 19th century by the French economic historian Jean Sismondi. Sismondi challenged earlier classical economists such as Adam Smith and David Ricardo who held that perfect competition would ensure smooth growth.

Sismondi, who coined the term “proletariat” to refer to the working class created under industrial capitalism, argued that cyclic mismatches of production and effective demand were caused by inequalities of income and wealth. He advocated modest state intervention to regulate working hours and progressive taxation to provide unemployment and sickness insurance and pensions. In England, his ideas were taken up by Robert Owen who argued for a form of paternalistic socialism.

Subsequent economists have proposed different types of cycles. Short “inventory cycles” of three to five years, caused by poor market information to producers on the likely demand for the goods they produce, have largely disappeared due to IT feedback systems and just-in-time systems of production.

A longer seven to 11-year cycle of investment in fixed capital (the “business cycle”) is generally related to profitability and investment opportunity in key areas of the economy though rarely articulated in Marxist terms and usually attributed to psychological factors. Longer (15 to 25-year) cycles are sometimes identified with waves of investment in infrastructure and construction and with demographic processes, including migration.

And longer cycles of between 40 and 60 years associated with the Soviet economist Nikolai Kondratiev and popularised in the 1930s by Joseph Schumpeter are primarily associated with phases of technical innovation, profitability and class struggle.

The existence of cycles, their causes and how they relate to each other are matters of research and debate. “Orthodox” economists believe in cycles, indeed, many see them not only as inevitable but even desirable.

The “business cycle” is an acknowledged stock in trade of financiers and mainstream economists alike. Arguments revolve around their occurrence (and why sometimes they appear to be synchronised across multiple market sectors) and their causes.

But none have ever been the focus of economic policy within capitalism, apart from theories of underconsumption associated with John Maynard Keynes which became popular following the Great Depression of the 1930s and which attributed economic downturns to subjective factors including “animal spirits” and the psychology of investor confidence.

Alternatively, cycles are blamed on “external” factors. Neoliberal economists argued that the scale and protracted length of the 1930s Depression were mainly attributable to the long-term effects of the first world war — high state expenditure, government debt, inflation and the stronger bargaining position of labour as a result of wartime full employment.

These all (they argued) prevented a “normal” market equilibrium. The solution was for the state to back out of the market, cut expenditure and allow the market to work “normally.”

Hitler, by contrast, blamed the Depression on Germany’s reparations following the Versailles treaty, the loss of previously captive markets and sources of raw materials, and US financiers calling in their loans to the Weimar Republic following the collapse of the New York Stock Exchange in 1929. The “solution” led to fascism — and war.

The first major post-war recession of the early 1970s was blamed on the Arab oil embargo which quadrupled energy prices. In fact, the downturn had already started before this. The financial crash of 2007 was blamed on “irresponsible” lending by the banks. Today, Brexit, the Covid pandemic and (most recently) the war in Ukraine are already being invoked as “causes” of economic crisis.

Neoliberal economics today doesn’t have a coherent explanation of crises because ideally, they shouldn’t happen. If they do happen (it is argued) it is because “free competition” has been disturbed, for example by industries joining together as cartels or workers organising in trade unions, so preventing effective “competition” in the labour market.

Hence the establishment of British and EU mechanisms to “prevent” monopoly and the imposition of anti-trades union laws — the latter conveniently increasing the power of capital and the extraction of surplus value.

Marx developed the ideas of Sismondi and others, arguing that periodic cycles of growth and stagnation were inherent in capitalism. In Capital he declares:

“The enormous power, inherent in the factory system, of expanding by jumps, and the dependence of that system on the markets of the world, necessarily beget feverish production, followed by overfilling of the markets, whereupon contraction of the markets brings on crippling of production. The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation.”

Capitalists compete and expand production to secure greater profit. In the process, some will invest — in new machinery, premises, and technology — a higher ratio of fixed costs to labour (the “organic composition of capital”) and in the process may reduce their workforce.

The result is overproduction; production is greater than demand — more goods than people can afford and prices may be forced down to their actual labour values. That leads to capital lying idle, workers being laid off, weaker firms going to the wall, the incentive for investment being reduced and the market power of those that remain increasing — and the whole cycle starts again.

These regular crises typically happen every five or six years. It was this, Marx said, that proves the labour theory of value in the same way as the collapse of a badly built house proved the law of gravity.

The labour theory of value and other aspects of Marxist economic theory including the falling rate of profit and its relationship to economic crises have been addressed in earlier answers in this series. The process is complicated and the specifics vary.

For example, in a recession there may be concentrations of wealth — “surplus capital” looking for investment opportunities. In the absence of productive outlets, investment may shift overseas, or be directed into “dead” capital — land, housing, even art — whose “value” (exchange value) therefore increases, showing a paper profit but without producing useful goods or services (use value).

Recession also means that weaker enterprises often go to the wall, leading to a concentration of ownership and production, and often to an increase in monopoly control.

Both of these processes have been a particular feature of past decades which have seen an increasing rate of corporate takeovers (often using shell companies registered in low-tax countries), shifts of production to “emerging” economies and an enormous growth in corporate profits at the same time as the rate of profit per unit production has fallen, leading to low profits for non-monopoly sectors and depressed wages and conditions (including zero-hour contracts, phoney self-employment and the gig economy) in the metropolitan heartlands.

Robert Griffiths summarises the broad outlines thus: “Capitalism’s recurring problem is that while the capitalist class constantly seeks to maximise profit, not least by exerting downward pressure on wages, this accumulation of capital outstrips the capacity of the working class to buy all that its labour power produces at a profitable price for the capitalists.

“Capital accumulates which cannot find a profitable outlet and, as a consequence, engages in ever more speculative ventures. More is being produced than can be sold at a profit. The result is that products go unsold or have to be offloaded at a loss.

“Companies cut back their production and investment plans. Some go out of business. Workers are laid off, reducing purchasing power in the economy still further. Production and investment go into a downward spiral. Economic slowdown turns into recession and, in the most severe cases, slump.

“Only when labour power and the means of production are cheap enough to return a profit do production and then investment begin to recover as the cycle begins once more.”

Crises are inherent in capitalism. Capitalism is cyclical and — as long as it remains — it will continue to be so, restructuring itself every time so that those at the top and the corporations they control, increase their wealth and power at the expense of ordinary people — the working class.

That’s why we need to replace it with something better.

The Marx Memorial Library’s rich programme of events, lectures and courses continues with a presentation on February 23 on Inflation and the Developing Economic Crisis from economist Michael Roberts. Details of this and much more are on the Library’s website www.marx-memorial-library.org.uk.

An archive of all articles in this series can be found at www.tinyurl.com/FullMarxList.