Marxist Theories of Crisis and the Current Economic Crisis

Abstract

This paper uses data from the US economy and finds that among Marxist theories of crisis the marxian law of the falling rate of profit as a result of the increasing composition of capital explains the crisis of the 1970s and the end of the “golden age” of capital accumulation. Despite the dramatic increase in the rate of surplus value and the limited fall in the capital-output ratio profitability has not recovered sufficiently during the neoliberal period due to the survival of lagging capitals and the increasing use of unproductive labor. Financialization is one of the effects of low profitability. In the recent years financial bubbles the associated wealth effects and the significant increase in the debt of all domestic sectors raised aggregate demand and provided the stimulus for the anemic growth of the period. The break of the bubbles implies the return to the weak fundamentals of the real economy and possibly a deep and prolonged period of stagnation and crisis.