Why Capitalism Goes Into Crisis And How?

By Fisher 

Capitalism goes into crisis because there is a contradiction between production, which never stops growing, and the limits of consumption. Engels and Marx explain that, while capitalist industry expands a lot, markets cannot absorb all of this production. Capitalists always want to increase production to make more profit, but this leads to overproduction crises because the working class, who are the ones who truly create value, do not have enough money to consume everything that is produced. Since their wages are low, their purchasing power is limited, and this creates a lack of demand. People may even desire the goods, but they do not have enough money to buy them. This happens because, in capitalism, wealth is concentrated in the hands of a few (the capitalists), while the vast majority (the working class) receives low wages. So, even though there is an enormous production of goods, most people cannot buy everything that is produced, and this creates an imbalance that leads to overproduction crises and economic stagnation.

This overproduction phenomenon is unique to capitalism because, unlike ancient societies where production was aimed at directly meeting people's needs, in capitalism production is made for the market. That is, the goal is not to meet people's needs but to generate profit. The contradiction between collective labor (which is done by everyone) and individual appropriation (which is done by capital owners) creates an imbalance: the market cannot consume everything that is produced. What should be an excess of goods ends up becoming a crisis, where sales fall, production stops, and recession and unemployment arise.

The system tries to resolve this temporarily by separating the economy into two sectors: one that manufactures consumer goods (those used by people in everyday life) and another that produces capital goods (machines and equipment used to produce more goods). However, this ends up creating a vicious cycle. The increase in production capacity generates more goods, but these goods cannot be sold, leading to new crises. As a consequence, capitalism ends up going through a series of periods of growth and recession, and the contradictions of the system become more and more intense.

Wrapping it up here, capitalism goes into crisis because it cannot control production and distribution effectively, so this creates imbalances between what is produced and what can be consumed. This results in cycles of overproduction (producing more than the market can absorb), underconsumption (people do not have the purchasing power to consume what is produced), and economic stagnation (when the economy stops growing, leading to recession and unemployment).