A theoretical framework for the analysis of the current global economic crisis: The financial market and the real economy

Abstract

This article argues that the current global economic crisis is an outcome of the excessive growth of the financial market over the real economy, and hence, of fictitious profits over real profits. In investigating the interrelation between the financial market and the real economy, it makes a comparative inquiry into two key assertions regarding economic crisis within Marxism: the tendency for the rate of profit to fall and overaccumulation of capital. Accepting the claim that economic crisis is inherent to capitalism, this article probes the role of countervailing tendencies in battling the tendency for the rate of profit to fall. While crisis is an outcome of both the extensive growth of fictitious profits and the tendency for the rate of profit to fall, the latter is identified as the fundamental reason for the current crisis. Labour market reforms that were implemented following the emergence of the economic crisis represent the resurgence of countervailing tendencies and are the most explicit evidence that the fundamental reason for the crisis resides in the real economy.

All science would be superfluous if the form of appearance of things directly coincided with their essence – that precisely here vulgar economics feels completely at home, these relationships appearing all the more self-evident to it, the more their inner connections remain hidden, even though they are comprehensible to the popular mind

(Marx, 1991: 956)

Introduction

This article aims to interrogate the fundamental reason for the current global economic crisis, through an analysis of the nature of economic crises in capitalism. It briefly outlines the perspectives of Keynesians and classical economists on crisis and discusses Marxist theories of economic crisis in detail. Its central focus is on an elaboration of the interrelation between the two key assertions regarding the nature of crisis in Marxism, namely, the tendency for the rate of profit to fall and the overaccumulation of capital, and it also compares these perspectives.

The purpose is to uncover the fundamental reasons (forms of existence) of economic crisis by distinguishing them from the triggering factors (forms of appearance), that is, factors playing a direct role in the appearance of the crisis but not underlying its existence. For this purpose, it undertakes an inquiry into the main tenets not only of financialisation and the growth of fictitious profit in the financial market but also into the tendency for the rate of profit to fall and the size of non-fictitious (real) profit in the real economy. It scrutinises the gap between the growth of the financial market and the real economy and between the levels of fictitious profit and real profit. The excessive growth of fictitious profit in the financial market and the falling rates of real profit in the real economy are shown to develop a gap, which necessitates an increase in the rate of real profit. For a better understanding of the strategies employed to increase the rate of profit, the article also elaborates on the countervailing tendencies that are directly related to the labour process, that is, labour market reforms.

A theoretical framework set up in the early pages is used as a basis for analysing the current global economic crisis through a comparative analysis of the growth of fictitious profits and of real profit. It is argued that the fundamental reason for the global economic crisis is falling rates of profit in the real economy, even though the crisis was triggered by the financial boom. In regard to structural reforms implemented for economic recovery, it is claimed that labour market reforms introduced during the current crisis have been designed to increase the rate of profit, and this constitutes the clearest evidence that the real economy stands as the fundamental reason for the economic crisis.

Crisis-prone nature of capitalism: the ceaseless need for profit increase

The main scholarly and political debate on the current global economic crisis questions the nature of economic crisis: is it a crisis of the management of capitalism or a crisis inherent to capitalism?

Bourgeois theorists argue that every crisis results from a different cause, which is either an external shock disrupting the presumed equilibrium between supply and demand or an internal disturbance restraining market equilibrium (Clarke, 1994: 2). For Keynesians and classical economists, insufficient institutional regulation and deficient policies create the tendency to crisis, which can be healed by institutional and policy-based reforms (Clarke, 1994: 3). Keynesians identify the mechanisms producing crisis as ranging from ‘market imperfections arising from agents’ unequal and/or unfair access to information to a plethora of non-economic causes typically grouped together as “animal spirits”’, and they promote state intervention to combat economic instability (Resnick and Wolff, 2010: 170). Neoclassical economists, on the other hand, assert that state intervention is the basis of ‘market “imperfection”’, and markets should be left to heal themselves (Resnick and Wolff, 2010: 171).

Alternative explanations to those of Keynesians and classical/neoclassical economists are offered mainly by Marxist theories, which perceive crisis as inherent to capitalism. In Marx’s work, the focus is not on the ‘crisis as catastrophic event, but [on] the inherent tendency to crisis’ underlying the ‘permanent instability of social existence under capitalism’ (Clarke, 1994: 192). Between his early writings and later manuscripts, Marx’s emphasis shifts to ‘the subordination of the production of things to the production and appropriation of surplus value’ as the ‘ultimate cause of all crises’ (Clarke, 1994: 195). At a broad glance, Marx associates crises with many different theories such as the tendency for the rate of profit to fall, overproduction, underconsumption, disproportionality and overaccumulation, not prioritising one over the other (Clarke, 1994: 8).

Following Marx’s theoretical contribution, debate on the nature of economic crisis is widespread among Marxist scholars. A range of Marxist theories explain crises in terms of tendencies for the rate of profit to fall (Paul Sweezy), overaccumulation (Otto Bauer), overproduction (Karl Kautsky, Friedrich Engels), underconsumption (Rosa Luxemburg) and disproportionality (Rudolf Hilferding), all of which reach a consensus on the ‘necessity of crisis as an essential and ineradicable feature of the capitalist mode of production’ (Clarke, 1994: 4, emphasis in original). Hence, in conformity with Marx’s own writings, Marxist theories of crisis agree that crisis is inherent to capitalism.

Among Marxist theories of crisis, two main groups can be found. In the first group, the tendencies to overproduction, underconsumption and disproportionality highlight the relationship between production and consumption and involve notions of both intervention in and regulation of the market. In the second group, the tendencies for the rate of profit to fall and towards overaccumulation emphasise the relationship between production and profit. As this article focuses on the fundamental reasons for the current global economic crisis, discussion of the link between production and consumption is not relevant, and so, we can pass over the tendencies to overproduction, underconsumption and disproportionality. The focus is rather on the interrelation between production and profit, and hence, we focus on the tendency for the rate of profit to fall and on overaccumulation of capital.

In analysing the theoretical grounds of economic crisis, this article stresses the mutual determination of the tendency for the rate of profit to fall and overaccumulation, but also prioritises the former over the latter. The capitalist mode of production is not a linear process, and the tendencies for the rate of profit to fall and towards overaccumulation are not mutually exclusive. Hence, it is important to unveil the non-linear production process and to prove the dialectical relationship between these interrelated tendencies. Scrutiny of the economic crisis discloses ‘the depths of the contradictions that have been at work in the entire process of capital accumulation’ (Callinicos, 2010: 50).

Marx makes a distinction between constant capital and variable capital, the former referring to ‘the capital used to acquire machines and means of labour’ and the latter defining ‘the capital employed for buying the use of labour-power’ (Giacche, 2011: 21). For profit accumulation to be realised, there should be a certain ratio between constant capital and variable capital. With the growth of the capitalist mode of production, investment in constant capital increases in order to retain higher amounts of relative surplus (Savran, 1988: 47). This brings a rise in the share of capital invested in machinery relative to that invested in labour power (Giacche, 2011: 21), and hence, in the organic composition of capital. Simply in the absence of countervailing tendencies that will be scrutinised in the later parts of this article (Marx, 1991: 12), the tendency for the rate of profit to fall ‘derives from a simple mathematical relationship’ between the rate of profit, the rate of exploitation and the organic composition of capital (Clarke, 1994: 65).

The basis of surplus value is not constant capital but variable capital. Therefore, the increase in the organic composition of capital creates a contradiction in the process of capitalist production (Savran, 2008). In the long run, profitability will decrease when the rise in the rate of organic composition of capital exceeds the rise in the rate of surplus value (Tonak, 2009: 33).

When the rate of surplus value declines relative to invested constant capital, this also leads to a fall in the rate of profit, which eventually results in overaccumulation of capital. In the contrary case, if the rate of profit catches up with the increase in the organic composition of capital, overaccumulation does not follow. Hence, the fall in the rate of profit is the fundamental reason for economic crisis, whereas overaccumulation of capital is initially the consequence of it. During the intricate production process, overaccumulation turns into a cause of a further fall in the rate of profit. Therefore, among a variety of Marxist theories of crisis, the tendency for the rate of profit to fall stands as the most plausible one in explaining economic crises and generating a solution.

In parallel with the theoretical argumentation, it is essential to distinguish the fundamental reason from the triggering factors and consequences in the case of the current global economic crisis (Savran, 2008). There is a need to question whether the fundamental reason of the economic crisis is the boom in the financial market or the fall in the rate of profit in the real economy. An inquiry into the economic crisis necessitates an ‘integrated view of the relations between financial phenomena and the dynamics of production’, with specific emphasis on the degree of financialisation and the rate of profit in the current context (Harvey, 2006: 325–326). To serve this purpose, the present analysis elaborates on the financial market and the real economy with specific focus on fictitious profits and real profits. It also evaluates the strategies created and implemented to increase the rate of profit and to overcome the economic crisis.

The financial market and the real economy on the knife edge: fictitious profit versus non-fictitious (real) profit

The financial market is the area for speculative and risky activity since financial instruments and financial packages promise high returns to all (Tridico, 2012: 21). It is ‘a product of financial deregulation, unrestrained competition and the marketisation of large corporations’, freeing banks and other elements of the financial market to pursue ‘whatever financial activity would bring the highest profits’ (Kotz, 2009: 307).

Finance becomes ‘extensive both in promoting capital accumulation and in intensifying its crises’ (Fine, 2009: 43). It has ‘penetrated across all commercial relations to an unprecedented direct extent’ (Fine, 2009: 43, emphasis in original). Moreover, it has extended ‘beyond the traditional to the personal and broader elements of economic and social reproduction’ (Fine, 2009: 46). This penetration and extension of finance is called financialisation, which engenders a means to cope with the difficulties of the accumulation process.

Financialisation represents an attack on traditional capitalist relations among capital holders as well as between capital and labour. It increases the mobility and velocity of capital, making it not only more profitable but also more fragile, and channels profits of the real economy to the financial market (Bonefeld et al., 1995: 39). Financial investment yields higher returns than productive investment (Bonefeld et al., 1995: 39). Capital borrows ‘more money to make up for falling profits to overcome difficulties for expanded accumulation’, but ‘earned profits [are] increasingly placed on money markets’ (Bonefeld et al., 1995: 39). That is to say, capital flees the factory and accumulates ‘wealth in the money form without a corresponding exploitation of labour-power in the factory’ (Bonefeld and Holloway, 1996: 213).

Financialisation also functions to postpone the tendencies to economic crisis in the capitalist mode of production. ‘Migration of productive capital to the unproductive sectors where individual capitalists realise higher profit rates’ not only increases the rate of profit in the financial market but also decreases the risk of the tendency for the rate of profit to fall in the real economy (Carchedi, 2011: 4). Capital transaction from the real economy to the financial market decreases the investment into constant capital, which prevents an increase in the organic composition of capital, and hence, a decrease in the rate of profit for a limited time. Put plainly, financialisation postpones the tendency for the rate of profit to fall.

Finance, however, is a sector where surplus value is not produced but only shared (Boratav, 2009: 10). Financialisation results in the excessive development of the financial market over the real economy. The financial market seeks to manipulate higher amounts of capital via borrowing and lending mechanisms. Proliferation of financial tools, such as hedge funds, repo and mortgage credits, and the enlargement of the financial market necessitate very high rates of capital accumulation to be transferred from the real economy to the financial market. In this regard, financial capital is fictitious, but the necessity for the profits in production to correspond stands as non-fictitious, that is, real.

Since the rate of profit tends to fall and restricts both capital accumulation in the real economy and capital transfer to the financial market, the rate of profit is never sufficient to compensate the transactions of fictitious capital. As Clarke argued in an interview:

The main source of profit, interest and rent is surplus-value, which limits the rate of profit. Profits above this limit are totally speculative and solely on paper, and do not have an equivalent in the real world. If capital cannot increase the level of surplus-value to make these speculative profits real, reality would impose itself and this sort of crisis would emerge inherently. (Clarke, 2009)

Hence, financialisation, which is perceived as an avenue of emancipation from both labour and the low-profit real economy, requires an increase in the rate of exploitation and profit in production. It is dependent on increasing rates of profit in the real economy.

The development of the financial market and financialisation in relation to the real economy reveals that the financial market and the real economy are tightly interconnected. A comprehensive analysis of the current global economic crisis revives the inevitability of scrutinising the capitalist mode of production with a specific focus on the rate of profit and the role of strategies implemented for increasing the rate of exploitation, that is, labour market reforms.

The countervailing tendencies: The role of labour market reforms in battling the tendency for the rate of profit to fall

In Marx (1992 [1863–67]), the rate of profit to fall is a tendency, and there are ‘countervailing tendencies, which cross and annul the effect of the general law, and which give it merely the characteristic of a tendency’ (pp. 301–302, cited in Giacche, 2011: 22). These are the strategies created and implemented not only to avoid the tendency for the rate of profit to fall, overaccumulation and over-financialisation but also to overcome economic crises inherent to capitalism. The countervailing tendencies directly related to the labour process are as follows: a rise in the rate of exploitation of labour, pushing wages below their value, decreasing the cost of constant capital, relative overpopulation, foreign trade and increase in interest-bearing capital (Giacche, 2011: 22–24). Introduction of new technology is also instrumentalised as a countertendency (Carchedi, 2011: 3). Moseley (2011) argues that these strategies are complemented by cutbacks to health insurance and retirement pension benefits, making workers work harder and faster on the job and moving production operations to low-wage areas around the world (p. 61).

The countervailing tendencies are designed to decrease the cost of production and increase the rate of surplus value by various mechanisms. These include changes to the labour process by lengthening the working day, increasing work intensity and productivity, reducing direct wages, indirect wages (social services) and deferred wages (pensions), and changing the ratio between variable and constant capital (Giacche, 2011: 22–24).

Intense implementation of these countervailing strategies started with the advent of neoliberalism. The neoliberal agenda has impelled the prevention of the tendency for the rate of profit to fall through the implementation of labour market reforms and thereimposition of capitalist discipline on labour process following the economic crisis of the early 1970s (Jessop, 2005: 57). With the increasing mobility of capital and the tendency to shift production to countries with higher labour productivity and lower unit labour cost, the aim is to transform the labour regime in order to increase the rate ofprofit (Bonefeld, 2007: 113). ‘A new organisation of work, a new “flexibility” and new discipline that is not compatible with the old trade union structures’ (Holloway, 1996: 134) are employed to increase competitiveness and attract global capital (Bonefeld et al., 1995: 30).

Labour market reforms are designed to decrease wages, production costs and public expenditure for generating an efficient, productive and profitable labour regime. Pushing wages below their value remains one of the most important ways to check the tendency of the rate of profit to fall (Marx, 1992: 305, cited in Giacche, 2011: 23). Deregulation and flexibilisation policies promote a ‘distinctive type of labour process’, combining ‘multiskilled and unskilled workers in flexible ways’ based on ‘the operation of flexible machines and flexible systems’ (Jessop, 2007: 98). New technologies decrease the need for labour and function to ‘decrease the unit value of the output … [and] the produced means of production’ (Carchedi, 2011: 3). The new relationship between labour and capital is institutionalised by the policies of deunionisation, deregulation, flexibilisation and restriction of social security rights.

Under the changing labour regime and production process, labour is compelled to accept declining conditions, work intensification and downward wage pressures as exploitation is intensified to increase the rate of profit (Bonefeld et al., 1995: 65–66). Labour is taken under control through restraints on trade union bargaining, deregulation of employment, tax and poverty policies and reductions in public expenditure (Bonefeld, 1996: 52–53). Education, health and housing rights are delegated to market forces (Bonefeld and Holloway, 1996: 219), and this serves the further expansion of the financial market. High unemployment affects the rate of profit by decreasing wages and increasing the rate of exploitation (Carchedi, 2011: 13–17). Besides unemployment, poverty and unsecured working conditions also force people into debt and homelessness, which are used as a ‘disciplinary force’ (Bonefeld and Holloway, 1996: 223). Labour is forced to pay the cost of the tendency for the rate of profit to fall.

However, the strategies employed for increasing the rate of exploitation, that is, the countervailing tendencies and the labour market reforms, have not succeeded in reversing the tendency for the rate of profit to fall. The following parts of this article, focusing on the emergence of the current global economic crisis and the recovery policies implemented during the crisis, will build the argument that economic crisis is inherent to the capitalist mode of production.

The current global economic crisis: The gap between fictitious profits and real profits

Since the economic crisis of the 1970s, the surplus value accumulated in the real economy has been shared by the financial market in order to decrease the organic composition of capital by limiting investment into constant capital and in order to achieve higher returns of profit. Real profits have been transferred to the financial market rather than being utilised in production (Tonak, 2009: 37). This capital transfer has downsized the real economy. It has circumvented the tendency for the rate of profit to fall, and hence, overaccumulation, for a certain period of time. Capital has fled from the risky and low-profit real economy to the high-profit financial market, and growing levels of financialisation have postponed and/or limited devalorisation of capital.

Financialisation has enabled capitalist accumulation to grow rapidly. The financial market has accrued profit in forms of credit, mortgage, social insurance funds, bonds and stock markets. However, despite the strategies implemented to increase efficiency and profitability in the real economy, the levels of real profit could not have compensated those of fictitious profit (Tonak, 2009: 37). In the US, financial sector profit as a share of total corporate profit has increased from an average of 17.4% in 1960 to 1984, to approximately 30% in the years 1985 to 2008, it averaged roughly 30%, reaching over 40% between 2001 and 2003 (Khatiwada, 2010: 2). To put it plainly, the growth of the financial market has not had an equivalent in the real economy. Moreover, the trade of financial capital in larger volume and higher velocity resulted in tighter integration of national financial markets. Inflow and outflow of fictitious capital has led to the occurrence of endemic and epidemic crises in national markets.

The current global economic crisis has emerged under the lasting conditions of the growth of the financial market over the real economy. According to Kotz (2009), who acknowledges the origin of the current economic crisis in underconsumption (p. 311), from 2005 onwards, the rise of fictitious profits created a large volume of financial capital that exceeds productive investment opportunities as well as real profits (p. 308). Financial capitalists searched for opportunities to lend the high amount of money accumulated, but non-financial capitalists did not have a corresponding need for borrowing (Moseley, 2011: 61). Workers, on the other hand, became eager to borrow money since labour market reforms had worsened their working and living conditions (Moseley, 2011: 61). In the United States, household debt as a percentage of disposable personal income increased from 59% in 1982 to 77.5% in 1990, 91.1% in 2000 and 128.8% in 2007 (US Bureau of Economic Analysis, 2008; Federal Reserve System, 2008, cited in Kotz, 2009: 314).

Hence, contrary to Kotz’s (2009: 311) argument that the problem of neoliberal capitalism is inadequate growth in aggregate demand, the worsening working and living conditions of the working class had already generated the necessity for borrowing before the current economic crisis. Fictitious profits have been sold as commodities in the financial market, and the working class has been the primary lender. In due course, the lending process broadened from credit-worthy workers who were qualified for prime mortgages to less credit-worthy workers who were qualified for subprime mortgages (Moseley, 2011: 61). No income–no job–no asset (NINJA) borrowers were indebted, and this further increased the risk of bankruptcy in the financial market.

The decrease in the safety of the financial market surfaced in the housing market. In the beginning, the rise in mortgage rates in the housing market was accompanied by a rise in housing prices, and borrowers were encouraged to buy new mortgages to pay the old ones (Moseley, 2011: 64). However, when housing prices started to fall, the strategy of refinancing loans could not be sustained, and borrowers could neither restructure nor pay their loans (Moseley, 2011: 64). The bursting of the housing bubble began in 2006 and escalated in 2007 and 2008 (Moseley, 2011: 62). The mortgage sector was bankrupted, creating a domino effect in the world financial market. Based on this fact, Moseley (2011) claims that the current economic crisis has resulted not from the tendency for the rate of profit to fall (as the strategies for increasing the rate of profit have succeeded), but from the decrease of the trustworthiness of borrowers, and hence, of the financial market (p. 61).

However, as Callinicos argues (2010), while the economic crisis was first manifested in the financial system, this does not mean that it was generated there. Highlighting the significance of both overaccumulation and profitability, he argues that the economic crisis ‘exposes the depths of the contradictions that have been at work in the entire process of capital accumulation’ and not merely ‘the dysfunctions of the financial markets’ (2010: 50).

Besides research on over-financialisation and the financial boom, there are a significant number of studies on the rates of profit in the United States that outline the tendency for the rate of profit to fall in the last decades. In research conducted in 2009, Mohun states that ‘the rate of profit in the US economy halved between 1965 and 1982, recovered to about its 1973 level by 1997, and thereafter fell sharply to approach its 1979–1983 levels by 2001’ (p. 1025, cited in Callinicos, 2010: 56). Kliman (2010) also shows that the average rate of profit decreased from 20.3% in the period of 1958–1980 to 14.3% in the period of 1981–2004 (pp. 25–26, cited in Giacche, 2011: 21). The average rate of profits fell from 4.3% in the seventh quarter before the start of the recession to −0.4% in the fifth quarter before the recession (Granados, 2012: 487). Dumenil and Levy (2002) affirm these arguments with the statement that ‘the value of the profit rate in 2000 is still only half of its value of 1948’ (p. 439, cited in Callinicos, 2010: 56).

This research shows that the current global economic crisis is not essentially the result of over-financialisation. The falling rates of profit also played a crucial role in the (im)balance between the profits accumulated in the real economy and the financial market. The tendency towards capital destruction manifested itself in spite of the countertendencies and was revealed in the current economic crisis (Carchedi, 2011: 12). Hence, it is plausible to argue that the crisis emerged as an outcome of both the extensive growth of fictitious profits in the financial market and the tendency for the rate of profit to fall in the real economy, the former being an endemic/epidemic characteristic of the financial market and the latter being that of the capitalist mode of production. The financial boom triggered the crisis (Savran, 2008), but the fall in the rate of profit underlay as the fundamental reason (Bahçe and Köse, 2010; Savran, 2008; Tonak, 2009).

The economic crisis occurred as the result of the excessive growth of the financial market over the real economy and of fictitious profits over real profits. The gap between fictitious profits and real profits widened with the dual effect of both the financial market and the real economy. The rate of fictitious profits increased with over-financialisation, whereas the rate of real profits decreased due to the law of the tendency for the rate of profit to fall in the capitalist mode of production. Hence, as in Marx, the crisis occurred ‘when the rate of profit is so low that corporate reserves are not sufficient to restore liquidity of the banking system’ (Stravelakis, 2012: 187).

In the reverse scenario, however, if the tendency for the rate of profit to fall had been overturned, the gap between fictitious profits and real profits would not have widened. Therefore, despite the dual effect of both markets, it is crucial to underline that the current crisis has taken place in the financial market but has its roots in the tendency for the rate of profit to fall in the real economy. This statement can also be substantiated by the analysis of the scope and content of recovery policies implemented following the emergence of the crisis.

The implementation of labour market reforms for economic recovery

The impact of the current global economic crisis on particular economies has diverged in accordance with the size of capital accumulation in the financial market and the rate of profit in the real economy, that is, the width of the gap between fictitious profits and real profits. The bigger the gap between fictitious profits and real profits, the more devastating is the effect of the crisis on an economy. Not only did the structures of the financial market and the real economy differ but so did the gap between the fictitious profits and real profits, on the basis of the scope of the countervailing tendencies implemented since the introduction of the neoliberal agenda.

During the economic crisis, neoliberal discourse on the illusionary separation of the political and the economic areas was temporarily replaced by arguments for the state’s duty to assure the sustainability of the capitalist economy. The crisis has boosted the state’s responsibility in overcoming the economic bottleneck and in restructuring the capitalist relations. Capitalist states have pursued recovery policies and implemented structural labour market reforms. In this regard, as Hay (2013) argued for the case of Britain, the firmly established crisis discourse played a paradigm-reinforcing role in policy-making and policy implementation processes (p. 23).

Following the banking crisis and credit crunch, capitalist states rescued ‘a large number of systemically significant global financial institutions’ (Hay, 2011: 1). They sought to transfer the burden of the crisis to society by providing credit and liquidity to the market, introducing reductions in interest rates and taxes to promote consumption and guaranteeing the investments of households and the nationalisation of banks. Production incentives and tax exemptions have been implemented for enhancing the comparative advantage of national industries, while financial market regulations have been introduced for increasing public revenues and decreasing public expenditure.

As the most important structural reforms in overcoming the current global economic crisis, comprehensive labour market reforms have been implemented to increase the rate of profit in production and to close the gap between fictitious profits and real profits. Labour market reforms have played a crucial role, with various restrictive measures regarding the working conditions, wages and social rights (health, education, etc.), all of which aim to intensify the exploitation of labour, and hence, to increase the rate of profit. Owing to high levels of unemployment, labour power has become available in large quantities and also for low wages (Carchedi, 2011: 13). In this regard, the economic crisis has been instrumentalised to implement further restrictions on labour and hence to increase the rate of profit in the real economy.

The recovery policies for the current global economic crisis presupposed ‘not only a greater production of surplus value percentagewise, but also the conditions for that greater production to be realised’ (Carchedi, 2011: 14). They prioritised structural labour market reforms, which aimed to increase the deregulation and flexibility of labour markets by institutionalising atypical forms of work and to decrease social expenditures by social security and pension reforms. In other words, the countervailing tendencies have been revived for the recovery of the capitalist mode of production. Accordingly, the scope and content of recovery policies have provided evidence to the fact that the fundamental reason of the economic crisis resides in the real economy.

Conclusion

The current global economic crisis has influenced the world economy. Scholarly and political debate on both the nature of economic crisis in capitalism and the fundamental reasons of the current economic crisis has become vital. In the renaissance of theories of crisis, this article has inquired into the nature of economic crisis and investigated the distinction between the fundamental reasons (forms of existence) and the triggering factors (forms of appearance) in the context of the current global economic crisis. To serve this purpose, it has briefly mentioned the perception of Keynesians and classical/neoclassical economists and evaluated the diversity in Marxist theories of crisis. It made an inquiry into two approaches in Marxism, the tendency for the rate of profit to fall and overaccumulation, and provided a comparative analysis within the intricate production process.

This article has focused on two phenomena, namely, financialisation in the financial market and the rate of profit in the real economy. It has investigated how and why the capital accumulated in production fled the factory and contributed to the accumulation of capital in the money form. Highlighting the excessive growth of the financial market over the real economy, and hence, of fictitious profits over real, this article has claimed that economic crisis is largely an outcome of the gap between fictitious profits and real profits. Therefore, the fundamental reason of economic crisis resides in the structural characteristics of the real economy, even though it might be triggered by the incidents in the financial market.

Reliance has been placed on countervailing tendencies directly related to the labour process, that is, labour market reforms, in order to battle the tendency for the rate of profit to fall in the capitalist mode of production. In line with the challenges of the accumulation of surplus value in the production process, exploitation of labour has been intensified by increasing working hours, decreasing wages and restricting social security rights. Despite the countervailing tendencies, the tendency for the rate of profit to fall and the excessive growth of fictitious profits over real profits could not be reversed.

Based on this theoretical framework, the article has scrutinised the current global economic crisis from the dimensions of the financial market and the real economy. Drawing together recent scholarly analyses, it has presented the economic crisis as an outcome of both the extensive growth of fictitious profits in the financial market and the tendency for the rate of profit to fall in the real economy, the latter being the fundamental underlying reason. The current global economic crisis was triggered by the financial boom, but it was based on the tendency for the rate of profit to fall in the real economy.

It concludes that the capitalist state has implemented recovery policies and structural labour market reforms in order to narrow down the gap between fictitious profits and real profits and also to increase the rate of profit. The economic crisis has allowedpolicy-makers to present structural reforms as a necessity for a successful recovery and depoliticised and legitimised the enactment of labour market deregulation and flexibilisation, and restrictions on social rights. In this respect, the implementation of the countervailing tendencies as instruments of economic recovery constitutes the most distinct evidence that the real economy stands as the fundamental reason for the currenteconomic crisis.