The Fragile Machine of Capitalism: Why Depression Repeats Itself from the 19th to the 21st Century

The Fragile Machine of Capitalism: Why Depression Repeats Itself from the 19th to the 21st Century

For Marx, depression was not an accidental disaster that struck from outside capitalism, but was part of the operating principle built into the heart of capitalism. He believed that capitalism is a system of many capitals competing with each other to maximize profits, and that while this competition dramatically increases the productive forces, the same movement invariably leads to a dead end.

First, while workers are the main creators of value, their wages are suppressed as much as possible. For capitalists, the more they cut wages, the more profit they can make. At the same time, however, this means that they are also reducing their own purchasing power to buy the goods they produce. Thus, a gap slowly accumulates between the expansion of the world of commodities produced and the impoverishment of workers, or lack of effective demand. A depression, Marx believed, is a situation in which this discrepancy surfaces at once and erupts as overproduction in the form of unsold goods and piles of inventories.

Second, competition among capitalists accelerates mechanization and large-scale investment. Each company will be locked out of the market if it lags behind, so it will install more machinery, build larger and larger factories, and increase the amount of capital invested per worker. As a result, the proportion of capital fixed in buildings and machinery increases more than the portion paid in wages. Marx called this an increase in the organic composition of capital and argued that the rate of profit has a tendency to decline as a consequence.

Third, production is not always well balanced. There are differences in the allocation of investment and demand between the sectors that make factories and machinery and those that make consumer goods, between the military and civilian sectors, and so on. An unbalanced development builds up, with overinvestment in one sector and undersupply in another. Post-Marx scholars have interpreted the decline in profit margins and these sectoral imbalances as deepening the crisis.

During economic expansion, the expansion of productive forces and competition for investment push against each other, squeezing profit margins and spreading demand shortages and imbalances. However, capitalism has no mechanism for gently correcting its excesses, and the reckoning of excesses comes in the form of violent corporate bankruptcies and sharp increases in unemployment. In the process of a depression, existing capital is greatly devalued, weak capital is wiped out, and the profit margins of the remaining capital are restored, thus laying the groundwork for the next economic expansion. In this sense, the depression acts as a reset device for the value that capital creates for itself.

Furthermore, Marx believed that the development of credit and finance did not erase contradictions, but rather amplified them while postponing them. The Great Depression of the 20th century and the financial crisis of 2008 are both examples of overproduction, overaccumulation, and the squeeze on profit margins that swelled through credit and erupted in a chain reaction of collapses. The Great Depression of the 20th century and the financial crisis of 2008 are examples of excess production, excess accumulation, and profit margin pressures swelling through credit and erupting as a chain collapse.

Ultimately, capitalism is unable to control the forces it has created for mass production and profit-seeking. Demand shortages due to cheap wages, mechanization and declining profit margins due to competition, unbalanced investment, and debt accumulation. These contradictions are not resolved peacefully, but erupt in the form of periodic depressions. For Marx, depression is not a disease of capitalism, but an inevitable fever that sustains its growth and cycles.