Crisis in Capitalism and in Socialism as Well

Paulos Mar Gregorios

Crisis of Capitalism has by now become a disgustingly well worn cliche. Ever since Karl Marx popularized the phrase in the middle of the last century, Capitalism has in fact outlived many crises and emerged out of each one stronger than before. So much so that many capitalists, not only in the West, but also in my country, India, do sincerely believe that it is Socialism that is now in crisis and that Socialism will not outlive the present crisis. I shall certainly say a word also about the crisis in Socialism, but let me first seek to present my imperfect understanding of both the perennial and the current crisis in Capitalism, mainly in order that I may benefit from your comments.

Capitalism has, as a system, an inherent perennial crisis built into it. It has certainly faced a number of other crises as it has developed through successive stages and came to the final stage of imperialism, which has masked it for the past 200 years or more. Within that final stage of imperialism, it entered a new stage with the end of the Second World War in the second half of this century; whether or not it has now emerged from yet another crisis within neo-colonialist imperialism i.e., the crisis of the Seventies, we should examine in this lecture.

The rate of inflation cuts into the real earnings of the worker, despite all trade union activity and Government populism. The Capitalist system cannot survive unless it makes each laborer produce the surplus value necessary not only for capital investment but also for a high rate of profit on huge investments. There is no way for Capitalism to get out of this perennial crisis situation. It dooms the system itself in the long run; but so long as there is no viable alternative, the system will perpetuate itself by all sorts of means.

But Marx or Engels should not be misunderstood as having taught that under-consumption by the power sectors of society explains the perennial Capitalist crisis. That crisis has to do very specifically with the capitalist mode of production, and not just with the existence of the poor which has been here also in pre-capitalist societies
1.  Marx’s argument is that surplus value is the source of profit for the Capitalist. Increased wages reduces surplus value. So if the Capitalist in order to increase the purchasing power of the worker, so as to sell all he produces, raises his wages, would be actually cutting into his own profit margin. This is the contradiction.

The state can often intervene as a consumer to increase the level of demand; but that does not resolve the contradiction that to raise wages is to reduce profit – of course assuring that other things remain constant.

The first historical crisis of Capitalism-- the rise of the socialist state

It is interesting to observe how the Capitalist system develops a high degree of robustness by facing and overcoming crises. The way it has faced and outlived two major historical crises reveals its temporary inner strength as well as its ultimate weakness.

The first major crises in history that the Capitalist system had to face was the appearance in history of a concrete viable alternative-- the emergence of Russia as a Socialist power controlled not by the owners of private property but by the working class. Of course it was not an advanced Capitalist country like Britain or Germany that first became socialist. This shows that there is no strictly pre-determined sequence by which Capitalist societies become socialist. But the presence of Russia as a socialist power, precisely at the time when the Capitalist Nations of the West were in the throes of the First World War, soon to emerge Victorious-------------------------------

The Perennial Crisis of Capitalism

According to Karl Marx, the system of market economy Capitalism, or to use the more glorified terms, that of free enterprise and private ownership of the means of production adumbrates within itself an inherent contradiction which belongs to its very nature.

Marx has clearly shown, at least in a theoretical frame, how the capitalist producer’s primary aim is to keep the wages of the worker to the minimum possible, and to maximize his profit by simultaneously increasing the efficiency of the forces of production (say machinery, technology etc.) and keeping the wage level as low as possible. This means that the Capitalist system encourages unemployment in order that the labor market can be kept competitive so that the laborer is always under pressure to sell his labor to the producer for les than its worth. This seems fairly obvious. Marx also argued that by keeping the laborers’ wages low, the producer is reducing the purchasing capacity of the worker and thereby harming his own market. This later argument has been weakened by two developments-- the growth of trade unions and their partial success in fighting for higher wages, and the pressure under which the state which largely serves the interest of the Capitalist is forced by the exigencies of the “democratic system” to stand for a more egalitarian society. Despite much -----------------------

The reconstruction of the Capitalist countries, however, was assisted in the three decades after the First World war by the possibility of ----------------and more systematically exploiting the colonies and by the transfer, through taxation through business and trade, and also by other Colonialist methods of an enormous amount of wealth from Asia, Africa and Latin America into the industrial heartland of North-western Europe and North America.

The presence of the “red feril” acted as a “moral” justification for all sorts of openly imperialist loot and plunder, and as Stalin observed, Capitalism survived by an intensification of its imperialistic activities. A trade structure was built up which would drain the periphery of its raw materials and cheap labour and at the same time use the periphery as an expanding market for the centre’s products.


  1. Weeks, J. (1977). The Sphere of Production and the analysis of Crisis in Capitalism. Science and Society Vol XLI No. 3, pp 281….

  2. Marx, K. Capital. Vol II, pp 414-415

  3. Engel. F. (1962) anit-----------London, 1962, pp 393-3