Economic Crisis

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The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Economic Crisis


a phase in the capitalist cycle in which the basic proportions of reproduction that have been disturbed during the development of the capitalist economy are forcibly restored. Economic crises are manifested in such economic disruptions as an absolute decline in production, a curtailment of capital investment, a rise in unemployment, an increase in the number of bankruptcies, and a fall in the price of stocks.

Economic crises are caused by the basic contradiction of capitalism—the contradiction between the social character of production and the private capitalist form of appropriation of the results of production. Division of labor, specialization of production, and cooperation in industry unite capitalist enterprises in a single economic mechanism; in order for the mechanism to function normally, certain proportions must obtain between branches of the economy, between the production of the means of production and the production of consumer goods, and between the accumulation of capital and consumption. The dominance of private property, however, generates anarchy of production, fierce competition, and the exploitation of labor by capital, which result in the continual disturbance of the proportions of reproduction. Some of these disturbances pass away of their own accord, but others intensify and accumulate.

The disproportions of reproduction that arise as the economy develops are always accompanied by disturbances of the proportions between capital accumulation and consumption.

The tendency of capital toward self-expansion and the race for profits require that the growth of income and consumption of the working people slow down or even come to a halt. The resulting contradiction between production and consumption builds up pressure, reaches the bursting point, and becomes, as a rule, the direct cause of an economic crisis. “The contradiction between production and consumption that is inherent in capitalism is due to the tremendous rate at which production is growing, to the tendency to unlimited expansion which competition gives it, while consumption (individual), if it grows at all, grows very slightly. . . . The productive forces of society increase without a corresponding increase in consumption by the people, without the employment of these productive forces for the benefit of the working masses” (V. I. Lenin, Poln. sobr. soch., 5th ed., vol. 4, pp. 158–59).

Since commodity production exceeds the narrow bounds of the effective monetary demand of the population, an economic crisis assumes the character of general overproduction and an overaccumulation of capital. The economic crisis completes one capitalist cycle and paves the way for the next by equalizing the disturbed proportions between capital accumulation and consumption and between the production of the means of production and the production of consumer goods. Economic crises exacerbate class contradictions, since the misfortunes they bring with them are borne primarily by the working people. This exacerbation intensifies the class struggle, in which the working people attain greater class consciousness, organizational maturity, and solidarity.

Economic crises result in enormous economic losses to society, since a considerable part of the physical plant stands idle and hundreds of thousands or even millions of working people lose their jobs.

The onset, depth, and duration of an economic crisis depend above all on the extent to which the basic economic proportions of reproduction have been disturbed during times of economic upsurge. In addition, economic crises may become self-generating, since they are usually accompanied by a decline in the purchasing power of the working people, brought about by increased unemployment and reduced work time; this decline further complicates the sale of commodities and hinders the restoration of a temporary balance between capital accumulation and consumption.

Economic crises most graphically demonstrate the profoundly contradictory character of capitalist production, which “must, on the one hand, develop productive forces as though it were not production on a limited social basis and must, on the other hand, develop them within this limitation. This paradox is the deepest and innermost cause of crises and of the contradictions that disrupt bourgeois production. Bourgeois production must operate within the framework of these contradictions, which, even when cursorily and superficially examined, show it to be a historically transitory form” (K. Marx and F. Engels, Soch., 2nd ed., vol. 26, part 3, p. 81).

Although there is a single cause for economic crises, each crisis has its own specific features, stemming from the concrete historical conditions under which it develops. An economic crisis reflects the characteristics of the age, the level of development of capitalism, and an entire complex of economic and political factors operative in a given country at the moment the crisis occurs.

Periodic economic crises began with the crisis of 1825 in Great Britain, where capitalist production relations first developed. The next economic crisis was the crisis of 1836, which gripped Great Britain and the USA—two countries with close economic ties. Next came the crisis of 1847, which affected virtually all European countries and assumed the character of a world crisis.

The first worldwide economic crisis occurred in 1857; for nearly every country this crisis proved to be the deepest it had experienced since embarking on the capitalist road of development. In the USA, pig iron production declined 20 percent, and cotton consumption 27 percent. In Great Britain, the shipbuilding industry was hit hardest, with output dropping 26 percent. In Germany the consumption of pig iron declined 25 percent, and in France pig iron production and cotton consumption both declined 13 percent. In Russia pig iron production declined 17 percent, and the production of cotton textiles 14 percent.

The economic crisis of 1866, although rather severe in Great Britain, did not significantly affect other countries.

The next world economic crisis, which began in Austria and Germany in 1873, was the longest in the history of capitalism, reaching its greatest extent in 1878 when it spread to Great Britain.

The economic crisis of 1882 affected primarily the USA and France; in the crisis of 1890, the greatest economic upheavals occurred in Germany, the USA, and France.

The crisis of 1900–03 represents a turning point between the age of laissez-faire capitalism and the age of imperialism. The principal victims of the crisis were the USA and Germany; Great Britain and France were affected to a lesser extent. The economic situation was serious in Russia, where the crisis coincided with a crop failure.

Bourgeois ideologists hoped that with the advent of capitalist monopolies, which organized production at their enterprises in a planned fashion, economic crises would disappear or at least become less severe, but this was not to be. The first economic crisis of the age of imperialism—the crisis of 1907—proved no less destructive than its predecessors. The US economy was hit hardest. In the article “Marxism and Revisionism,” V. I. Lenin wrote that the crisis of 1907 offered striking proof that crises remained an inevitable part of the capitalist system. He also pointed out that in the age of imperialism “the forms, the sequence, the picture of particular crises changed” (Poln. sobr. soch., 5th ed., vol. 17, p. 21).

The economic crisis of 1920–21 affected primarily the USA and Great Britain.

In 1929 the world was plunged into its most serious economic crisis, which lasted until mid–1933 and shook the entire capitalist system to its very foundations. During this crisis, production declined 46 percent in the USA, 24 percent in Great Britain, 41 percent in Germany, and 32 percent in France. The value of the stocks of industrial companies declined 87 percent in the USA, 48 percent in Great Britain, 64 percent in Germany, and 60 percent in France. Unemployment reached colossal proportions. According to official data, in 1933 there were 30 million unemployed in 32 capitalist countries, including 14 million in the USA.

The world economic crisis of 1929–33 showed that the contradiction between the social character of production and the private form of appropriation of the results of production had become so acute that the capitalist economy could no longer function normally. State intervention in the economy was required, and the government found it necessary to influence spontaneous processes in the capitalist economy in order to avert upheavals; this policy accelerated the transformation of monopoly capitalism into state-monopoly capitalism.

The long-term planning of economic growth by the state that took place in many capitalist countries after World War II, as well as the efficient regulation of the economy, which was designed to forestall or mitigate cycles, had a certain stabilizing influence on the development of capitalist countries. The signs of economic crisis were nevertheless clearly apparent in this period in the USA, Great Britain, Canada, the Federal Republic of Germany, and Italy.

In most other capitalist countries, the cumulative contradictions of expanded capitalist reproduction were resolved in slowdowns of economic activity and a sharp decline in economic growth, accompanied primarily by a curtailment in the production of the means of production and a deceleration of capital accumulation. In the three postwar decades economic crises recurred most frequently in the USA, in 1948–49, 1953–54, 1957–58, 1960–61, 1969–71, and 1973–75. Industrial production declined, respectively, 17 percent, 9 percent, 13 percent, 7 percent, 8 percent, and 13 percent.

The first postwar global economic crisis, which began in late 1957 and continued until mid–1958, affected numerous capitalist countries, including the USA, Great Britain, Canada, Belgium, and the Netherlands. Industrial output in the developed capitalist countries declined 4 percent, and the army of the unemployed reached nearly 10 million.

The relatively stable economic development of several capitalist countries in the 1950’s and 1960’s fostered the development of bourgeois and revisionist theories according to which it is possible for capitalism to develop without crises by improving the techniques used in the state regulation of economic processes. Capitalist reality soon refuted these theories, however. In the capitalist system of the early 1970’s an entire series of disturbances of the process of reproduction arose, bringing on the next worldwide economic crisis, which began in late 1973 in the USA and affected virtually the entire capitalist world in 1974 and 1975.

With respect to the number of countries affected and in its duration, depth, and destructive force, the crisis of 1973–75 considerably surpassed the world economic crisis of 1957–58 and in a number of respects resembled the crisis of 1929–33. Industrial production declined 13 percent in the USA, 20 percent in Japan, 22 percent in the Federal Republic of Germany, 10 percent in Great Britain, 13 percent in France, and 14 percent in Italy. In a single year—December 1973 to December 1974–the stock market fell by 33 percent in the USA, 17 percent in Japan, 10 percent in the Federal Republic of Germany, 56 percent in Great Britain, 33 percent in France, and 28 percent in Italy. The number of bankruptcies in 1974 exceeded those in the previous year by 6 percent in the USA, 42 percent in Japan, 40 percent in the Federal Republic of Germany, 47 percent in Great Britain, and 27 percent in France. By mid–1975 there were 15 million unemployed in the developed capitalist countries. Another 10 million were either working a shorter work week or had been laid off. The real income of the working people declined everywhere. In the USA, for example, the total real income of the working people, which had grown by an average of approximately 3 percent a year between 1950 and 1970, declined by 6 percent between 1973 and 1975.

The world economic crisis of 1973–75 was unusually severe and long because it involved high rates of inflation in all capitalist countries, currency and energy crises, and a worsening of ecological and food problems. The economic crisis of 1973–75 demonstrated the limited ability of the bourgeois state to regulate spontaneous economic processes and the cyclical dynamics of the economy. The inability of capitalist governments to avert and resolve crises testifies to the crisis of state anticyclical regulation in the 1970’s. Because of the significantly higher level of socialization of production and the greater internationalization of economic life, the forms and methods of anticyclical regulation developed immediately after the war ceased to be effective in the 1970’s. The basic contradiction of capitalism was once more manifested in acute form.

Economic crises demonstrate the disparity between the production relations of bourgeois society and its productive forces and reveal the transitory nature of the capitalist mode of production, which can develop only by periodically squandering material and human resources. Economic crises convince the working people of the need to struggle for a new social order free from crises, unemployment, and exploitation—that is, the need to struggle for socialism.


Marx, K. Kapital, vols. 1–3. In K. Marx and F. Engels, Soch., 2nd ed.,vols. 23–25.
Marx, K. “Teorii pribavochnoi stoimosti” (vol. 4 of Kapital). Ibid., vol. 26.
Engels, F. Anti-Diihring. Ibid., vol. 20.
Lenin, V. I. “Po povodu tak nazyvaemogo voprosa o rynkakh.” Poln. sobr. soch., 5th ed., vol. 1.
Lenin, V. I. “K kharakteristike ekonomicheskogo romantizma.” Ibid., vol. 2.
Lenin, V. I. Razvitie kapitalizma v Rossii. Ibid.,vol. 3.
Lenin, V. I. “Zametki k voprosu o teorii rynkov.” Ibid., vol. 4.
Lenin, V. I. “Eshche k voprosu o teorii realizatsii.” Ibid.
Lenin, V. I. “Otvet g. P. Nezhdanovu.” Ibid.
Mirovye ekonomicheskie krizisy, vol. 1. Editor in chief, E. Varga. Moscow, 1937.
Trakhtenberg, I. Kapitalisticheskoe vosproizvodstvo i ekonomicheskie krizisy, 2nded. Moscow, 1954.
Mendel’son, L. A. Teoriia i istoriia ekonomicheskikh krizisov i tsiklov, vols. 1–3. Moscow, 1959–64.
Sovremennye tsikly i krizisy (collection of articles). Moscow, 1967.
Mirovaia ekonomika i mezhdunarodnye otnosheniia, 1973, nos. 6–8; 1975, nos. 4–6.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.