long depression

An understanding of capitalist crisis needs to make use of all parts of Marx’s theory, including the declining rate of profit, argues Dominic Alexander


Michael Roberts, The Long Depression: How It Happened, Why It Happened, and What Happens Next (Haymarket 2016), 347pp.

It is now almost ten years since the beginning of the crash of 2008, which quickly acquired the title, the ‘Great Recession’. It has been clear for some time that the present period is comparable to the other two extended crises of capitalism, the Long Depression of 1873-1897, and the Great Depression of the 1930s. History shows that crisis, whether temporary or extended, is an ineradicable part of the capitalist system. Even during the periods of its greatest stability, capitalism has suffered from regular downturns that modern economics refer to as recessions, during which the size of the economy actually contracts.

Recession and depression

The period whereby total economic production declines can be relatively short; the technical definition of a recession is two successive quarters of contraction in GDP. The recessions that began the Long Depression and the Great Depression were much longer than that at 65 and 43 months respectively (p.9). Yet, what is even more significant than length is whether the slump is followed by a rapid recovery into a new period of strong growth, or whether the downturn continues.

Roberts usefully defines a depression as when there is a prolonged period during which growth is lower than the previous period and below the long-term average (p.4). Simple recessions, as they are now called, were historically severe enough to appear as crises, and are certainly hardest on the people with the least economic resources. Thus, the 1840s, while not a period of major depression as presently defined, were known in Britain at the time as ‘the hungry forties’. These ‘minor’ crises have been enough in themselves to call into question the viability of capitalism as an economic system, and the elementary justice of any society based on it.

The first two great depressions, alongside the current one, therefore pose even greater existential questions for the system, and according to orthodox economists, should not have happened in any case. The extent to which the great crises disturb bourgeois economic theory is illustrated by the fact that there have been attempts by to deny that the Long Depression of the late nineteenth century actually occurred at all, on the basis that some statistical measures show substantial growth in the American economy, for example (p.33). Michael Roberts’ precise and very readable analysis is able to debunk this exercise in crisis denial quite clearly. Over the economies of the whole world the period of the 1870s through the 1890s saw significantly lower growth than the previous period:

‘German industrial production growth was 33 percent slower between 1873 and 1890 than between 1850 and 1873. It was 30 percent slower than after 1890 up to World War I. In the United Kingdom it was 45 percent slower than before and 15 percent slower than afterward. The United States was 25 percent than before and 15 percent slower than afterward …’ (p.36).

It could be added that despite modern economists, it was at the time perceived as a depression, originally being called the ‘Great Depression’ itself, before the crisis of the 1930s laid claim to that description.

For mainstream economists, capitalism is a system of equilibrium, where the free market acts to unite buyers and sellers, demand and supply, to harmonious results, despite the odd moment of imbalance which should automatically correct itself. As a result, major downturns have to be seen as ‘random events’ caused by some shock from outside the system itself, or by mere chance (p.2). Anyone paying attention to the historical reality should be able to spot the erroneous assumptions here, but, notoriously, modern economics is not a historical discipline. In contrast, Marx’s analysis of capitalism was fully rooted in a historical understanding of its development and its patterns. These regularly recurring great crises, or depressions, vindicate Marx’s understanding of capitalism as inherently unstable, and tending towards crisis.

While there is agreement thus far, among Marxists, the question remains however, why capitalist economic crisis happens, and how capitalist is able to recover. Marx produced a rich and complex analysis in Capital and the associated notebooks and writings, but there are still many disagreements about what should be the Marxist explanation of crisis. Sometimes it is lamented that Marx did not leave a ‘complete’ theory of crisis, but even if he had fully completed Capital itself, the historically developing nature of capitalism would have required the ‘theory’ to be ‘completed’ once again in every new economic period.

The problem of profitability

Michael Roberts’ The Long Depression is an analysis of the three great crises that puts one strand of Marx’s economics at the centre of explanations for the causes of depressions, their severity and the nature of recovery. This aspect of crisis theory is the tendency for the rate of profit to fall. The tendency is rooted in the very nature of capitalist competition, which drives capitalists to seek to make production ever more efficient through the use of machinery and automation. However, as classical economics knew, although it has been forgotten since Marx, only human labour is capable of producing surplus value that can be appropriated by the capitalist. Surplus value is the difference between the value of the work that a labourer does, and the value the capitalist expends in wages. If all goes well for the capitalist and the product of the work is sold, that surplus value becomes realised as profit.

Put in simplified terms, the long-term problem for capitalism is this. The more capitalists invest in machinery, the higher the value of the means of production becomes compared to the labour involved in the production process. As a result, over time the ‘organic composition of capital’ rises, and if the rate by which the capitalist extracts surplus value remains the same, the rate of profit will decline. That is to say, the more capital that needs to be invested in the means of production (which is called constant capital), the more the ratio of profit compared to investment will decline. The absolute mass of profit can still increase, but it is requiring an ever-higher proportion of capital investment to secure that mass.

This is then the law that as capitalism develops there is a general tendency for it to become less profitable. If this was a simple linear process, then it is clear that capitalism would already have collapsed entirely, but the tendency is offset by many other factors. The counter-tendencies enable capitalists to restore the rate of profit despite the growing organic composition of capital. Firstly, the rate of surplus value can be increased. This can be done via a range of mechanisms. Workers can be made to be more productive by increasing the pace of work, for example, or their wages can be forced downwards.

In addition, technology itself can increase productivity and therefore the rate of surplus value; for example, the ‘dotcom’ boom of the late 1990s cheapened constant capital so reduced the organic composition of capital (p.61). Similarly, when certain processes of production for essential materials become more efficient, then the cost of capital investment further down the production chain can also be reduced, thereby restoring profitability (p.17). Periods of depression (and war), however, are effective in themselves, as they are deeply destructive of large amounts of capital. This process is particularly important for restoring the profitability of the remaining capital:

‘What the story of the Great Depression and World War II shows is that once capitalism is in the depth of a depression, there must be a grinding and deep destruction of all that capitalism had accumulated in value in previous decades before a new era of expansion becomes possible’ (p.58).

Profitability and depression

Despite the many counter-tendencies, Roberts argues, ultimately the declining rate of profit exercises the long-term determining effect upon capitalism. It is his argument that the three major crises of capitalism, and other moments such as the ‘stagflation’ of the 1970s, were caused in each case by a crisis of profitability. The statistics he provides appear to back up his case very robustly that the recessions which began the major depressions, were preceded by significant falls in the rate of profit in the major economies.

Different measures of the rate of profit appear to show the same pattern, so Roberts has a good case that the tendency of the rate of profit to fall is indeed ‘validated by extensive empirical analysis’ (pp.24-5). This is not to say that profitability on its own causes the major crises; a crisis of profitability has to coincide with several other cycles in the metabolism of capitalism, such as saturation in the take-up of new technologies, or a cycle of construction and infrastructure development coming to an end (p.5). Nonetheless, a ‘crisis or slump in production is necessary to correct and reverse the fall in the rate and eventually the mass of profit’ (p.17).

The downturn in profitability is eventually solved within each period of crisis through various possible mechanisms, including the downward pressure on wages, and increasing intensity of work and therefore exploitation. Importantly, in addition, a certain number of capitalists go out of business during a slump, which allows the survivors to buy up ‘the means of production, raw materials, semi-finished products’ of the bankrupts at lower prices, which thus reduces the value of existing capital, allowing the rate of profit to rise. Yet, since

‘capitalists must compete by introducing labor-shedding and productivity-increasing means of production (given that they tend to replace labor with assets), the downward cycle is the tendency and the upward cycle is the countertendency’ (p.18).

The crises of capitalism, in this view, are generated by this single internal dynamic of the rise and fall of profitability, which generates its cycles from within its own mechanisms. The same process which is the cause of depression, is also capitalism’s way out of it.

Other explanations of crisis

Lying alongside this argument about the tendency for the rate of profit to fall, is a dismissal of other arguments about the internal reasons for capitalist crisis, among them both the tendency towards overproduction, and the distinct problem of underconsumption. The two are separate explanations, even though clearly dialectically connected. Overproduction occurs when capital flows into an area of high profitability, but competing capitalists will produce too much of the same product for it all to be realised as profit.

The opposing problem is the fact that all capitalists attempt to pay their workers the least possible, but need the workers of other capitalists to be able to buy their goods. Capitalism cannot rely on the luxury consumption of the capitalist class itself to absorb all its potential production, and hence Roberts quotes Marx as saying that ‘the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses’ (p.19).

Yet here, and throughout the book, Roberts insistently dismisses ‘underconsumptionism’ as a cause of crisis, despite it being supported by a range of Marxist theorists. It is true that many leading Marxists, such as David Harvey, have been dismissive of the falling rate of profit as an significant part of Marxist economic theory, so Robert’s rehabilitation of its validity is very important. Nonetheless, it is equally problematic to dismiss ‘underconsumptionism’ in reaction.

Roberts points to Marx’s emphasis on the tendency for the rate of profit to fall in the Grundrisse and the third volume of Capital, but his opponents could equally point to the importance of overproduction and underconsumption in the first volume of Capital. The answer is not to trade quotations from Marx, rather, it should be recognised that his analysis of capitalism is complex and multi-layered. Marx does not attempt to reduce capitalism to a single determining mechanism, but rather unravels the different layers of causation, and the dialectical interchanges of capitalism’s many contradictory processes.

The politics of crisis theory

Roberts insistence on the primacy of profitability in the nature of capitalist crisis and recovery contains, however, a political agenda. He sees other explanations as offering the possibility that a way can be found to make the system balance and avoid these catastrophic collapses. Thus, he argues that the ‘Great Recession’ of 2008 was not simply financial in nature but strongly connected to a decline in the rate of profit:

‘What flows from this is that the capitalist system cannot be “repaired” to achieve sustained economic growth without booms and slumps – it must be replaced’ (p.29).

Roberts is careful not to fall into the old trap for Marxists who foresaw a great and final crisis of capitalism as always being on the horizon. One problem with this approach is that each time capitalism recovers, in despite of predictions of the ultimate collapse, this discredits the ‘revolutionary’ Cassandras. Another even more serious problem is that such an approach encourages a sort of fatalism that capitalism will implode by itself, and the working class will automatically arise to take its place in history and rid itself of the exploitative system.

Yet capitalism is capable of recovery, sometimes through very brutal methods: without conscious organisation, no victory for the working class is likely to result from any crisis of capitalism, however serious it may be. As Rosa Luxembourg famously said, humanity faces a choice between socialism or barbarism.

While avoiding the lure of fatalistic prophecy, Roberts’ position that the tendency for the rate of profit to fall is the only real central cause of crisis, does contain political problems. It is, in effect, an all or nothing approach. There is nothing that can be done to alleviate the crises of the capitalist system, which will lurch from crisis to crisis as the cycles of profitability mercilessly wreak havoc with human life. The only thing to be done is to replace the system with something else; ‘underconsumptionist’ theories ‘lend themselves to a “cure” that does not require ending the capitalist mode of production’ (p.19).

While, among Marxists, it can be agreed that this is the goal, a practical approach to building the revolution cannot rely on telling people that nothing can be done in the immediate term. People want their lives to improve in the present, not in what most will dismiss as an idealistic dream at best. Unless revolutionary politics can prove itself to be of use in the present it will not gain wide traction. There needs to be a mediating economic analysis and strategy, which can build working-class consciousness, and a movement capable of wresting concessions from the system in the short term. Only this will make a revolutionary argument more convincing to wider layers of the proletariat.

Depression and state intervention

The nature of Robert’s insistence on the profitability theory is therefore a source of weakness, in terms of both theory and politics, for related reasons. Firstly, as part of his dismissal of ‘underconsumptionism’, Roberts collapses the later wholesale into Keynesianism. While it is true that Keynes’ conception of ‘effective demand’ has an affinity with the Marxist analysis of underconsumption, there are other aspects which are clearly distinct, as Roberts himself points out in a very useful appendix which critiques Keynes (pp.277-80). Keynes certainly intended his unorthodox economics as a saviour for capitalism; to reform its workings in order to stabilise the system.

Keynes advocated the state taking measures to boost demand in times of crisis, to make up for the lack of natural demand in the economy, however, the way in which such measures are secured, and their precise nature, can be quite various, and may impact the strength and success of the labour movement in significantly different ways. Nonetheless, whatever the disagreements might be about Keynesianism, a recognition that workers’ standard of living has something essential to do with the workings of the system has surely something to recommend it both in terms of economics and politics.

During a recession, or the greater depressions, government spending on welfare, on social investment, or infrastructure projects, for example, all help to boost or stabilise economic activity. They provide employment, or a minimal standard of living. Whatever the impact on capitalist profitability might be, such spending does something useful for the lives of most workers, and such programmes are therefore worthwhile objects for which the labour movement should fight. The implication of Roberts’ anti-Keynesian polemic is that such concessions from the system are not worth the effort, because they only postpone revolution, and they do not work anyway.

Roberts argues that Keynesian approaches simply cannot work, as capital spent by the state simply removes the total share due to capitalists (p.93). Whether or not this stands up in terms of economic theory, the argument opens the door to the argument for austerity: profitability must be restored to save the economy, and therefore, for their own good workers must accept pay cuts, the slashing of public services, and so forth. As Roberts puts it: ‘So capitalism needs more government saving, not more dissaving’ (p.93). Of course, the issue should be whether particular policies benefit workers, rather than their impact on capitalism. Yet, in absence of an actually revolutionary situation, it is more difficult to argue for measures that would be of immediate benefit to the mass of people, if the analysis simultaneously holds that the policies in question would be actively damaging for the capitalist economy.

In terms of the history of state intervention and investment, Roberts’ case can be only partially sustained. It is true that the American economy did not fully recover from the depression of the 1930s until war production took the lead (pp.55-6). Yet what drove war production except government spending? Roberts emphasises the separation of the categories of war production and consumption, but, in context, this seems to be an artificial division. Government investment was the key.

Moreover, the New Deal programmes certainly improved the situation somewhat for American workers during the 1930s; a more ambitious agenda might have achieved more. The contrasting example highlights the dangers in the situation. In Germany, Chancellor Brüning’s extreme austerity policies in the early 1930s led in large part to the rise of the Nazis, as it made a terrible slump worse, and caused desperation among many people. Meanwhile, the Communist Party of Germany’s ‘all or nothing’ ultra-left stance of that period resulted in disaster.

The right kind of state intervention into the economy, driven by the demands of an organised and radical labour movement can be the stepping stone to more fundamental change. If revolutionaries stand back and simply tut that there is no solution but to replace the system in its entirety, then that hands the political initiative to other forces. Whichever wing of the ruling class can produce a coherent alternative, will become dominant, whether that be relatively benign reform, such as Roosevelt’s New Deal, or the catastrophe of Fascism.

On a theoretical level, it seems clear that ‘underconsumption’ intersects with the profitability cycle at several moments. There is always the problem of how surplus value can be realised as profit; this requires products to be sold. At one level, the tendency for capitalists to replace labour with machinery, the root of the profitability problem, also means that at points in the cycle, and perhaps in the long term as an overall phenomenon, the proportion of employment relative to available labour in the economy will decline. This surely means that there are fewer consumers of capitalist produce, with the result that it is more difficult to realise surplus value as actual profit.

A full analysis of capitalist crisis cannot either discard the tendency for the rate of profit to fall, or rule out other contradictions and tendencies having a causal impact on the emergence of major crises. The analysis should be properly historical, understanding that the causes and nature of one depression will not be quite the same as another, as capitalist cycles have a directional quality, changing the very nature of the economy and society. This would not be an ‘eclectic approach’ (p.25), but a dialectical one. A complete Marxist analysis of crisis would be able to offer a viable political strategy as well as a historical understanding of the specifics, as well as the generalities, of each major crisis. Roberts’ analysis of the problem of profitability is a valuable contribution to understanding, but does not complete our theory of crisis.

Dominic Alexander

Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire books, The Limits of Keynesianism (2018) and Trotsky in the Bronze Age (2020).