Crisis

Crisis is an elusive term, as the controversy surrounding its causes and cures have always been unsettled among the constituents of a society. Despite its elusive nature, acknowledgment of a crisis is based on a shared view among the constituents of a system that the existing economic system cannot be reproduced without substantial reforms or displacement of the existing system. Crises thus provide society with critical junctures for progressive development as they loosen up existing negative lock-ins within the system. Recurring economic crises since the 1990s and unsettled debates over their causes and cures have presented us with opportunities to reflect on the future trajectories of capitalism as well as the substantial challenges to face with regressive aspects of the global society.

Understanding the discursive nature of the crisis diagnosis is critical as it determines the ways in which constituents respond to the crisis and address necessary steps to fix the problem. Mainstream neoclassical/institutional economics and Marxist economics differ substantially in terms of both their understanding of the crisis and their spatial and temporal implications. Mainstream economists attribute crisis to temporal failures in the localized system (e.g., moral hazards in financial markets resulting from Asian crony capitalism in the 1997 crisis) or to partial malfunction of the financial system (e.g., the credit crunch and failures of financial institutions due to defaulting of subprime loans in the U.S. housing sector). Resolution of the crisis, thus, would involve either reform of the localized system or reinforcement of supervision in the failing segments of the economic system so that natural market mechanisms could be restored. Ironically, mainstream resolution of crises has been more dependent on the workings of the state, including nationalization of failing financial firms or injection of public funds into failing financial firms, than on self-restoring market mechanisms.

In contrast, Marxist crisis theories suggest that capitalism is prone to long-term crises because of the fundamental contradictions in capital-labor relations. There have been variants of Marxist crisis theory, each of which attributes ruptures in capitalist accumulation to different causes. Among contemporaries, the overaccumulation theory of crisis (the first cut theory below) is the most widely accepted.

In The Limits to Capital, David Harvey pioneered a geographical explanation of the capitalist crisis dynamics. Harvey's view of crises consists of three theories, which are not sequential but are rather connected via complicated dynamics. The first theory examines the ways in which the falling rate of profit à la Marx drives capitalists’ quest for surplus value-producing technologies, following the capitalist credo of “accumulation for accumulation's sake,” and thus breaks the balance between accumulated capital and opportunities for employing capital. To fix this imbalance requires the devaluation of a portion of surplus capital and displacement of the laborer and his powers. The capitalist inner contradiction between the development of production capacity and the necessary devaluation of capital and labor, thus, supports recurring crises.

The second theory examines the ways in which the capitalist crisis tendency in production is relieved by the power of the credit system that allows investment booms in fixed capital and consumption fund formation in sales of various equities to absorb overaccumulated capital. At the same time, the power of the credit needs to be disciplined by state fiscal and monetary policies [Page 610]to ensure an expanded reproduction of capital. While the disequilibrium in production is, thus, temporarily contained by finance capital, guided through the state apparatus, new forms of instability and internal dynamics emerge as part of a new capitalist evolution.

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