Marx’s Law of Crises and Depressions

All five of Karl Marx’s Laws of Capitalist Motion supposedly lead to economic crises and permanent depression (Ekelund & Hébert, 1990):

• Law of Accumulation and the Falling Rate of Profit
• Law of Increasing Concentration and the Centralization of Industry
• Law of a Growing Industrial Reserve Army
• Law of Increasing Misery of the Proletariat
• Law of Crises and Depressions (p. 276-278)

Each of these laws simply highlights imperfections present in pure capitalism, if such a system actually exists. Together these laws do not constitute a valid alternative to capitalism, but taken individually they offer some valid criticism -- Marx did not leave implementation instructions though.

Marx’s law of Crises and Depressions is an extension of Marx’s increasing misery doctrine. According to Marx, a crisis would ensue and a depression would take hold because of the capitalists’ never ending propensity to accumulate -- that is, pure capitalism would be pursued, without modification, no matter what the outcome.

There are several questionable assumptions behind the notion of permanence of the Law of Crises and Depression (Ekelund & Hébert, 1990):

• Technological advances have stopped. Labor is a perfect substitute for machinery and vice versa. Does a computer replace a secretary or instead make he/she more productive?
• Machinery does not require a significant number of associated workers. Does a foundry completely eliminate the role of the blacksmith or simply change the job?
• Workers do not readily adapt to displacement by machinery from old specialized jobs and therefore develop new skills. Will new skills be in demand? Is the division of labor a curse or a blessing?
• Long cycles of low wages among a mass of workers will exist.
• The capitalist’s drive for accumulation will always be unbridled and always leads to overinvestment -- information about the general level of overinvestment in other businesses supposedly would not be available, and thereby no change in behavior of individual capitalists would occur.
• Capitalists are innately blind to the plight of the workers and that pure capitalism would always be pursued regardless of the human cost.
• Class divisions are discrete and unchanging. Clearly, a democratic form of government might alter the class rigidity and social immobility that Marx described.

Perhaps the major implication of Marx’s law of Crises and Depression is that the depression would be permanent. This would result in an expanding industrial reserve army and social revolution. In practice though there is a group of persons who are unemployed, but this pool of talent is added to and drawn from as jobs are created, worker skills change, and jobs are eliminated over time. Certainly, in the West, the industrialized nations of the Far East, and the former Soviet Bloc, the law of Crises and Depression has not held a grip on an economy for long periods as Marx suggested.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1990). A history of economic theory and method (3rd ed.). New York: McGraw Hill.