What comes to mind when you think of an economic crisis? Bad times? Great strife? High unemployment? If you guessed any of the above, you’re correct. Economic crises usually portend bad times for the majority of us. But the offered definitions, while technically correct, don’t get to the root of the problem. They are effects, not causes. More importantly, when we speak of these crises, it’s often in isolation from other ones. When we discuss American political economy, we think of the great crises of the 20th and 21st centuries—the Great Depression, the ’70s stagflation, and the 2008 Great Recession—primarily as merely times of great strife. There are hints of structural problems, but much of the time these are hand-waved away as a cabal of greedy men who just couldn’t be satisfied with what they have.
This complacency will not do if our goal is to understand and explain. Anybody off the street can tell us that a tanking economy is a crisis. It’s an explanation replete with effects albeit no cause is ever found. We need a reframing.
In “Questions of Theory,” Stuart Hall and Bill Schwarz provide a far more useful definition of crisis: “Crises occur when the social formation can no longer be reproduced on the basis of the pre-existing system of social relations.” This definition of crisis provides a root cause for the past three great crises of capitalism—a failure of the economic order to reproduce itself. Even better, this definition reframes each crisis not as isolated deviations from the norm but as structural outcomes immanent to the capitalist mode of production. A narrative develops centering around internal and external pressures connecting these crises together. At each point reform and reconstruction were necessary to relieve these immanent pressures and for the continued existence of the capitalist economy. The three crises of 20th and 21st century American economy—the Great Depression, the Stagflation of the Seventies, and the Great Recession—were all periods when the system could not reproduce itself and thus demanded reconstitutions of the social order for the circuit of capital to continue.
These reconstitutions arose during periods of interregnum where factions of the capitalist class and working-class contested over the contours of the new order while the old order wilted away. But the “solution” only works for a limited time, as each new social order brings with it new contradictions even as it smothers old ones. Even more importantly, what makes today unique is that, unlike previous interregnums, there appears to be far less room for capital to maneuver, displace its contradictions, and metamorphosize into something new. It is only by reframing our understanding of the capitalist crisis in this way can we truly appreciate the stakes tied to the present moment.
Now, there are ways a capitalist economy can escape a crisis. These methods involve displacing or ameliorating the contradictions of capital. Such were the solutions for each of the great economic crises of the 20th and 21st centuries. The “solution” that “fixes” the problem is then lauded as the economic orthodoxy that finally figured out the key to slaying the dragon of a looming crisis. But none of these solutions, whether Keynesianism or monetarism, are ever permanent. Though the capitalist order reforms and adapts itself so that it can expand itself, the most these “solutions” can do is postpone the crisis to a later date.
The Great Depression witnessed a financial meltdown followed by a colossal economic slowdown. The New Deal solution was to jumpstart the economy through deficit spending, jobs programs, and later the formation of the modern military industrial complex. After a decade of governmental experiments with limited success, the economy finally kicked into high gear after America’s entrance into World War II. Demands of the war effort electrified the economy as the need for heavy industry shot through the roof. Built-up consumer demand from wartime rationing then exploded after America’s victory and, helped along by access to cheap oil and being the only economic power untouched by war, led to unprecedented growth and super-profits. The Bretton-Woods international order made the dollar the world reserve currency and affirmed America’s position as unquestioned hegemon of the West. America’s economy was so profitable that it could afford to give reformist elements of the labor movement a seat at the bargaining table and thus marginalize the more radical demands of the communists and the influence of the “red” unions on the wider working-class. American workers in the metropole thus put revolution aside in favor of reform in the hopes of a finally perfected capitalism.
Yet, the New Deal wasn’t without its own contradictions. For one thing, the new social order could not include every worker. While white ethnics moved to new suburbs supported and subsidized by the federal government, Blacks were denied low-interest rate loans and were thus confined into the worst parts of the inner-city. The Deep South maintained an apartheid regime that ensured a cheap, reserve army of Black labor at the same time as the Sun Belt prospered from the migration of factories and military spending from the north. Blacks who escaped north to cities like Detroit found that they often were the last hired and the first fired as the factories began the decades-long movement from the north to the south. Blacks’ dissatisfaction for the raw deal of the New Deal coalesced into the Civil RIghts movement for not just the recognition of formal equality, but also economic equity in the form of grassroots efforts such as the Poor People’s Campaign and even revolutionary organizations such as the Black Panther Party.
But dissatisfaction with the New Deal wasn’t only reserved to people of color. The petit bourgeoisie were becoming a pressure cooker of explosive reaction. Small businessmen were now not only being squeezed by unionizing workers and huge corporations but also by a new and oppressive regulatory regime wrought by the Roosevelt and Truman administrations. Rick Perlstein chronicles in Before the Storm how the squeeze from all sides fomented a paranoia among the small business class that made them the vanguard for the budding conservative movement. It was this class in which anti-communist and anti-New Deal organizations like the John Birch Society found their mass base.
Here we see how the solution to one crisis in the social order sows the seeds for another crisis. While the New Deal order built a new Labor Aristocracy less inclined toward socialist revolution, it was unable to bring Black America into the fold and thus accelerated Black resistance to the social order as well as to the Jim Crow South. While the New Deal created new government agencies to ensure that Big Business and Wall Street could not engage in the profligate speculation and heinous exploitation that led to the Great Depression, the new regulatory regime radicalized small business owners as they lacked the profit margins to simultaneously accommodate collective bargaining and adhere to a million and one regulations.
The late-sixties and early-seventies spelled the beginning of the New Deal crack-up. It was no coincidence that around that point in time the average rate of profit for the main capitalist economies began a precipitous decline, putting the American economy and thus American workers on uncertain footing. The New Deal order began to buckle as marginalized constituencies pressed against its limits. Millions of Black Americans marched in the streets for equality. Mexican farmworkers in California, denied the right to collective bargaining, went on the offensive and fought for the right to unionize. Hundreds of thousands of college students protested against the brutal war waged by America on the Vietnamese. White southerners flocked to the Republican party under Richard Nixon’s party line of Law and Order. While the New Deal was eroding from the inside, forces from the outside were beating at the door. Cars lined up for blocks on end as gas prices skyrocketed due to the OPEC oil crisis. Inflation and unemployment, two things believed by economists of the time to be inversely correlated, rose in tandem. The seventies global profitability crisis had arrived.
This was a crisis in its truest sense. The American social order could no longer reproduce itself. The New Deal displaced the contradictions of American capitalism through a careful restructuring of the global financial order, a liquidity machine in the form of the military-industrial complex, and a co-equal alliance of Big Labor, Big Business, and Big Government. But it could only maintain this temporarily. The new social order fostered even more contradictions, which would become too numerous and intense to ameliorate.
And so a new bargain was struck. By no means did it appear overnight, mature and developed. During a fifteen-year interregnum where the old order was dying but everybody, even those at the top, were unsure of what would come next, this new bargain gestated during the chaotic last days of the New Deal and was not birthed until the appointment of Paul Volcker as Federal Reserve chairman by Democratic President Jimmy Carter. In 1979, explaining why he needed to raise interest rates, Volcker announced: “The standard of living of the average American has to decline. I don’t think you can escape that.”
With Volcker came a neoliberal arrangement that brought an end to the New Deal era. Neoliberal literally meant a new revival (neo-) of the old classical liberal order: the government’s only role would be to facilitate the smooth functioning of the markets—little more. Austerity, speculation, and coercion would define this new era. Though manufacturing firms had long roamed the country in search of cheap, docile labor, this process was accelerated by the new deregulatory regime as the prohibitions on capital movement were rescinded and new technologies such as shipping containers made longer and more global supply chains possible. The government thanked the old business unions like the AFL and the UAW for diffusing revolutionary sentiments among the rank-and-file by kneecapping them with the three baseball bats of financialization, deregulation, and outsourcing. While Volcker was busy putting the nation into a sharp recession through a retraction in the money supply, Reagan juiced the economy by opening up new markets for speculation. The state transformed itself in parallel to the metamorphosis of the economy. Now, only the most coercive appendages of the state would be visible to the average American. The War on Poverty was replaced by the War on Crime as prisons bloomed like flowers across the country and work requirements for welfare benefits were instituted.
While many of the carrots that dangled before labor during the New Deal were replaced with sticks, one sweet treat remained: cheap consumer goods. It was fortuitous timing that Deng Xiaoping began slowly opening the door to foreign capital through the establishment of Special Economic Zones in Chinese cities like Shanghai and Beijing while the West was in agony over its profitability crisis. American manufacturers, seeing dollar signs in the almost endless sea of cheap labor, jumped at the opportunity. While the prospect of a decent, well-paying, blue collar job was wrested from most Americans, their stagnating incomes were somewhat offset by the deluge of incredibly low-cost consumer goods thanks to super “competitive” labor abroad. Even Black Americans, who—tragically—wrested formal but not economic equality could at least buy Chinese goods.
When contradictions make it impossible for one social order to reproduce itself, a new one arises bloody and fetid from the carcass of the old. But, for now, the American economy found its way out of the wilderness. By the mid-eighties the economy recovered. The occasional recession appeared but was never world-ending. It seemed that the problem of political economy was finally solved.
But capital could not run forever. Almost thirty years after Volcker’s great announcement, the global economy suffered a financial meltdown the likes of which had not been experienced since the Great Depression. The housing market collapsed. Tens of millions lost their jobs. Though the apex of the immediate crisis is over, we are still in an interregnum similar to that of the seventies. Growth has been painstakingly slow and, while profit rates are sky-high in speculative corners of the economy like finance and tech, most industries have only been treading water.
The old order is having a harder and harder time reproducing itself: its over-financialized profligacy somehow cannot procreate. We are living in a crisis. But we seem to be in uncharted waters. During the seventies capital could evacuate to Mexico and China to save its profits, but there are few refuges for escape now. Firms have already financialized and out-sourced themselves to the nth degree. It seems that there are no more tricks left in the financial playbook. There isn’t another China waiting in the wings to absorb a mass shift in investment. Furthermore, cheap consumer goods, which at one time consolidated the workers arrested of their high incomes and secure standards of living enjoyed under the New Deal, now mean less and less in the face of rising healthcare and housing costs. Bigger and better flatscreens can only mean so much when one’s paycheck is eaten up by rising hospital bills and rents.
Crisis isn’t new. Crisis is a structural feature of capitalism. While this interregnum is similar to others in that nobody knows what’s going to happen, it is difficult to imagine how our present capitalist economy will dig itself out of the current crisis. America got out of the Great Depression through deficit spending in the form of the military-industrial complex and careful regulation of the economy; it got out of the 1970s profitability crisis by tearing down those same regulations, allowing firms to speculate to their hearts’ content, and tearing away the concessions labor won in the New Deal. Butc what makes the present moment so ominous is that it feels as though there’s nowhere else to go. In the decade since the 2008 Financial Crisis, the only things our leaders thought they could do was deregulate, financialize, and liquidate—the same playbook from the seventies, from the stagnant wages to the monetary policies. But we no longer live in the seventies: the same tricks are not going to work again.
However, there are upsides to interregnums. The window of historical possibility is more open now than it was prior. We are currently living through a renaissance in the fields of Marxist and heterodox study of political economy. Even conservatives are now forced to talk about political economy and ape concern over economic inequality. While the American Left is a shell of what it was many decades ago, the fact that a self-proclaimed Democratic Socialist ran a respectable campaign for the Democratic Party nomination for President is praiseworthy. Two years ago, America experienced one of the most tremendous large-scale protest movements in its history. Nothing is inevitable and everything is possible.
But there is as much, if not more, room for reaction than for revolution. The New Right in the Republican Party is gaining strength. The answer from the conservative segments of elites to the Great Stagnation has been shrinking unemployment benefits and cracking the whip on American workers. And the conservative rank-and-file? Trump may have offered platitudes about material issues such as “bringing the jobs back,” but a cross-section of the white working-class and small business class reveals a simmering stew of reactionary discontent less inclined towards social democratic policies. Social issues such as critical race theory are of higher priority than broadly popular material policies such as universal healthcare. It’s a seedbed of social upheaval all right, but likely not the kind socialists or left-sympathetic observers are hoping for.
Nevertheless, it is at least clear that whatever new social order comes into being, it will not permanently displace the contradictions of capitalism. Crisis is the failure of the social order to reproduce itself. So far, new social forms of capitalism have only ousted these contradictions temporarily, much of the time onto marginalized populations in the metropole and impoverished countries in the Global South. Right now, capital is backed into a corner—things might get ugly.
Stuart Hall with Bill Schwarz, “State and Society: 1880-1930,” in Hall, The Hard Road to Renewal: Thatcherism and the Crisis of the Left (New York: Verso, 1988): 95-122, 96. ↩︎
“The evidence is clear that the rate of profit fell from 1965 to 1982 in nearly all the major economies…the period of 1965-82 was a classic profitability crisis.”
Michael Roberts, Marxism and the Global Crisis of Capitalism (Chicago: Haymarket Books, 2016), 60. See also Esteban Ezequiel Maito, “The historical transience of capital The downward trend in the rate of profit since XIX century” (2014), Working Paper, available online. ↩︎