The Expansion And Contraction Of Credit

What made many people forget about the failures of capitalism were the rapid periods of economic expansion that occurred after both the Great Depression of the 1930s and the “Great Recession” of 2007. These periods of economic expansion were mostly stimulated by what caused the initial crises: the expansion of credit. In Capital, Vol. 1, Marx says, “the expansion and contraction of credit … is a mere symptom of the periodic changes of the industrial cycle.” This has been demonstrated throughout the 20th and 21st century. When people didn’t have money, the banks made it easier for their customers to borrow, knowing that these individuals would not be able to pay back their debts. In the 1970s, capitalism had revitalized itself following World War II. There were reconstructions in infrastructure across the country, time had waned memories of the Great Depression, and people began to reaffirm their faith in the capitalist system. This gave way to the rise of the neoliberal capitalist era, in which restrictions on the capitalist system that had been imposed post-Depression era, were removed. In turn, capitalists were able to look for new innovations and loopholes to exploit profits away from individuals. As economist Richard Wolff argues in his article Democracy at Work: A Cure for Capitalism, regulation is essentially useless: it can only be effective for a limited period of time as capitalists can always look for loopholes to get around regulations.

Karl Marx recognized the problems with capitalism that led to these cycles of crises. He evaluated the contradiction between production and consumption in causing crises. He theorized that all crises resulted from an overproduction of commodities and capital. When there is a decline...

... middle of paper ...

...he study, “the top 10% of earners in 1928 received 49.29% of total income. In 2007, the top 10% earned a strikingly similar percentage: 49.74 percent.” This data may serve as an indication of the role of inequality in leading to financial crises. When the wealthiest individuals in society are in control of the money, they act irresponsibly, which leads to financial collapses, as experienced during the Great Depression and the recession in 2008.

Overall, Marx’s theories identify several aspects of capitalism that inherently cause oscillations between crises and periods of economic expansion. During times of crisis, unemployment remains high and wages remain low. Regardless of the setting or the time period, capitalism inevitably leads to crises as illustrated by the similarities between the Great Depression in the 20th century and the recession that began in 2008.