A crisis of capitalism is a collapse of the capitalist system due to excessive production, marginalization of workers, and wealth inequality. Marxist theory identifies three main areas of crisis: increased employment rates, fluctuating demand, and reduced consumer demand. Notable crises include the Great Depression and the global financial crisis.
A crisis of capitalism is a chain of events in a capitalist economy that precipitates a financial depression or recession. It is a term most associated with Marxist economics, the theories put forth by political economist and philosopher Karl Marx. A crisis of capitalism is characterized by a collapse of the capitalist system that occurs gradually over a period of time. Notable crises of capitalism include the Great Depression of the 1930s, Mexico’s economic crises of the 1990s, and the global financial crisis of the late 2000s.
Marxist political economy describes Marx’s ideas about production and trade, how these acts relate to government, and how they ultimately influence a country’s distribution of wealth. The theory illustrates how a crisis results from a capitalist style of political economy. According to Marx, the period of crisis is marked by major changes in a society and more clearly defined struggles between various social classes.
Following Marx’s crisis theory, a crisis of capitalism develops when production becomes excessive and workers who are an integral part of the production process are marginalized. When a few own most of an economy’s wealth, it generates a crisis of capitalism. The system, according to him, cannot continue under the pressure of workers who have been mistreated – financially or otherwise – and a natural collapse occurs.
Marx identified three main areas of a crisis of capitalism. In the first, employment rates are increased with the demand for more goods and services. The workforce increases and so do wages. It is these factors that ultimately cause the capitalist system to fail: the rate of profit falters and the system collapses under the burden of too many workers, high wages and insufficient profitability.
The second area that Marx identified is the old theory of “what comes up must come down”. When the demand for a good or service is high, there is a need for more skilled workers and offers for better wages. The rate of profit, however, cannot remain at an all-time high, and will eventually fall, causing a crisis of capitalism.
In Marx’s third aspect of a crisis of capitalism, reduced consumer demand for a good or service becomes an issue. When profits decline, so do wages and, in many cases, the size of the workforce. This lack of demand is financially driven for the economy as a whole, and when many companies experience it, it can result in a crisis of capitalism.
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