Crisis theories: Tendential fall in the rate of profit, underconsumption and economic crises in the 21st century

Abstract

Marxist crisis theory is concerned with uncovering the underlying causes of recurring economic crises in capitalism. This paper’s contribution is to compare the theoretical assessments and implications of theories of a tendential fall in the rate of profit and underconsumptionist theories as well as to assess their relevance for recurring economic crises in a short descriptive empirical analysis of the economic crisis in 2001, the Great Recession after 2007 and the crisis of 2020. Theories of a tendential fall in the rate of profit focus on the production process, asserting that reducing the share of living labour in production through the mechanization of production eventually leads to a declining profit rate. As the profit rate is the main driver of accumulation, this leads to an interruption of accumulation, i.e. crisis. In contrast, underconsumptionist theories focus on the sphere of circulation, identifying the inevitably recurring lack of aggregate demand as the main cause of crisis. Profit rates in the U.S. fell before the crises of 2001, 2007 and 2020, while the data does not show declining consumption before the respective crises. This suggests that falling rates of profit rather than declining consumption caused the crises of 2001 and 2007. The shutdown of production due to the Covid-19 pandemic caused the 2020 crisis, but the data suggests that declining profitability was already an issue before the onset of the crisis.