Marx on Credit, Agency Problems, and Crises
Laurence A. Krause
Associate Professor of Economics Politics, Economics & Law Department SUNY—The College at Old Westbury Old Westbury, NY
Please cite the paper as:
Laurence A. Krause, (2018), Marx on Credit, Agency Problems, and Crises, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
As a journalist in the 1850s, Marx studied and wrote on recessions associated with financial crises, focusing on the panics of 1847 and 1857. In later work, Marx pursed the topic. First, in the three volumes of Capital and part II of Theories of Surplus Value, Marx used his circuits to analyze the role of credit in the accumulation process and crisis. Then in part V of volume 3 of Capital, Marx added a novel approach to analyzing credit crises. Marx argued that a banking system “subordinated” to capital accumulation would produce more robust, though fragile, expansions, by exacerbating the problems of “over-speculation” and “credit swindles.” The reasons for the “purest and most colossal form of gambling and swindling” found in a modern credit system were the agency problems between rentiers and bankers, and bankers and capitalists. These agency problems arose because a “large part of the social capital is employed by people who do not own it and who consequently tackle things quite differently than the owner.” In the recession phase of the cycle, these agency problems can erupt, causing runs on the banking system by panicked rentiers, credit stops by nervous bankers, and a scramble for liquidity by those with debts coming due.