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The Cause of the Crisis

In the two preceding articles it was shown that the fundamental cause of the crisis is not to be found in the defects of the world's monetary systems, and that the collapse of the gold standard, in this and other countries, was not responsible for the chapter of accidents but merely one of the features of the economic collapse. The real cause of that collapse has now to be determined. In discussing the depression in which the trade of the world has been floundering since the end of 1929, it is usual to relate the sequence of dismal events since then to the sharp break in general gold prices that occurred at that date.

Marx’s Financial Articles

In the critique of political economy which became his life work Marx set out, as he put it in the Preface to the first German edition of Capital, to "lay bare the economic law of motion of modern society". One of his conclusions was that the expansion of production under capitalism did not proceed at a smooth, steady pace, but was "a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation" (Capital Vol I, Pelican, p.58), in which the long-term trend was nevertheless upwards.

The crisis which marked the end of the period of boom took the form of a financial crash—that is, a collapse of credit and a strong demand to be paid in cash. This gave rise to the illusion that the crisis was simply a monetary question whereas in fact the monetary crisis was a reflection of the real overproduction that had taken place.

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