The end of the economic expansion that began in the us and the other advanced capitalist countries in the early 1990s presents an opportune moment to review Marxian theories of the business cycle. (1) Much of the orthodox discussion about whether the end of the expansion would lead to a recession has been informed by a neo-classical approach to economics, which conceives of recessions as the result of 'shocks' or 'disturbances' which lead an economy to deviate from a normal path of steady growth. In contrast, the Marxian approach sees business cycles as an intrinsic feature of the way that growth occurs in a capitalist economy.
According to this view, economic expansion occurs in protracted spurts, which lead to an accumulation of tensions, and a downturn in the business cycle is seen as the mechanism by which such tensions are eliminated, thereby creating the basis for a new period of growth.
Marx himself was, of course, one of the first people to recognise the existence of business cycles. (2) However, as has often been pointed out, there is no place in which he set out all the different elements of his approach in a consistent form. Since Marx's time, the Marxian theory of the business cycle has generated an enormous body of literature, and this received a fresh impetus in the early 1970s, when the lengthy period of relatively sustained accumulation that had begun after the Second World War came to an end. However, much of this literature is marked by having taken just one aspect of Marx's approach, and presented it as the over-arching explanation for business cycles. Furthermore, relatively little attention has been paid to financial aspects of the business cycle, even though Marx's own approach involved an interaction of real and financial factors. Indeed, because in Marx's time the downturn in a business cycle was usually associated with a dramatic monetary and financial crisis, he sometimes used the term 'crisis cycle', or even just 'crisis', when he was referring to the analysis of the business cycle. (3)
The aim of this paper is, first, to outline the basis of Marx's approach to the business cycle, and then to look at how more recent authors have attempted to use and develop this approach to understanding the modern business cycle. Marx's approach to business cycles can be viewed as consisting of three stages. The first of these is concerned to demonstrate that crises are a possibility in a monetary economy. This is considered in section 2.
The second stage is found in the course of Marx's analysis of production and circulation in a capitalist economy. Having demonstrated that a commodity economy involves the possibility of crises, Marx argues that, in a capitalist commodity economy, periods of profitable accumulation necessarily tend to undermine profitability, and that this blunts both the desire and the ability of capitalist enterprises to promote further accumulation. The different factors that Marx mentions in this connection, together with more recent interpretations by other Marxist writers, are reviewed in section 3.
The third and final stage of Marx's approach is concerned with the question of why a decline in profitability should lead not merely to a slowdown in accumulation, but to a period in which economic activity contracts. The answer has to do with the operation of the capitalist financial system, and the way it interacts with industrial and commercial capital. In order to understand this it is necessary, first, to analyse the credit system and the way the rate of interest is determined, and this is the subject of section 4. It is then necessary to examine how the availability of credit and the rate of interest impinge on the process of accumulation, and this is considered in section 5.
Marx's analysis of the financial system attaches considerable importance to institutional structures, and these have obviously changed considerably since his day. …