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First Tremors of the Coming Slump

Marxist Analysis · 2026-05-13

Core Argument

The central thesis is that the stock market turbulence of 1997 is not a self-correcting blip but the "first tremor" of a major capitalist slump. Rob Sewell argues that the subjective optimism of policymakers and investors — exemplified by Alan Greenspan and Robert Rubin — is contradicted by objective economic realities: growing excess capacity, the build-up of fictitious capital, and the exhaustion of the post-war boom. The article insists that the boom-slump cycle has not been abolished, only postponed, and that the next downturn will be deeper than any in the post-war period precisely because of the scale of speculative capital accumulated. The political corollary is that this crisis will shatter illusions in the market economy and create the conditions for a renewed turn toward Marxism and socialism.

Theoretical Grounding

The analysis is rooted in Marx's theory of the capitalist cycle — the periodic alternation of boom and slump driven by the internal contradictions of accumulation. Sewell draws on the distinction between productive capital and fictitious capital, arguing that the stock market boom represents a speculative superstructure detached from the real economy, which must eventually crash back to earth. The argument also invokes the Marxist critique of "confidence" as a subjective category that obscures objective crisis tendencies. The article sits firmly within the Trotskyist tradition's insistence on the inevitability of capitalist crises under imperialism, and its rejection of the Keynesian or reformist view that state intervention can permanently manage or abolish the cycle. The reference to 1929 is not rhetorical but analytical: it signals that the underlying dynamic of overaccumulation and the falling rate of profit has not been superseded.

Conjunctural Relevance

The article was written in 2005 but refers to events of 1997 — the East Asian financial crisis and the stock market crash of October 1997. It situates these as the leading edge of a broader downturn that would hit the US and Britain within "a year or two." Sewell points to specific evidence: excess capacity in cars, steel, and microchips; the "organic" nature of mass unemployment even during the boom; and the austerity measures pursued by capitalist governments that have compressed markets. The article predicts that the coming slump will be deeper than post-war recessions because of the unprecedented scale of fictitious capital. Geopolitically, it forecasts that the crisis will shatter the new capitalist relations in Russia, Eastern Europe, and China, throwing the process of capitalist restoration into reverse. In retrospect, the article anticipates the 2008 global financial crisis with striking accuracy — the build-up of fictitious capital, the centrality of the US economy, and the political fallout that followed.

Where the Argument Continues

The article is introductory and leaves several questions open. It does not provide a detailed analysis of the mechanism by which fictitious capital crashes into productive constraints — that is, the precise transmission from financial crisis to industrial slump. It also does not develop the political strategy for the working class beyond a general call for the overthrow of capitalism. These threads are taken up elsewhere in the IDOM corpus: the dynamics of the 2008 crisis are analysed in depth in articles such as The Global Slump and the Tasks of Marxists and The Credit Crunch and the Crisis of Capitalism. The political implications — the turn away from reformism and the building of revolutionary parties — are developed in Against the Stream episodes and in the RCI's programmatic documents. For a fuller theoretical treatment of the tendency of the rate of profit to fall, readers should consult Alan Woods's The Law of Value and the Crisis of Capitalism.

Connections

This article should be read alongside Marx's Capital, Volume III, Part III, on the tendency of the rate of profit to fall, and Lenin's Imperialism, the Highest Stage of Capitalism for the geopolitical context. Within the Marxist tradition, it connects to the work of Henryk Grossman on the breakdown of capitalism and to Ernest Mandel's Late Capitalism. For a contemporary Marxist analysis of the 2008 crisis, see David Harvey's The Enigma of Capital and Andrew Kliman's The Failure of Capitalist Production. Within the IDOM corpus, it pairs with The Global Slump and the Tasks of Marxists and The Credit Crunch and the Crisis of Capitalism.

Key Quotes

  1. "The stock market rebound has given rise to the euphoric idea amongst economic whizkids that after this minor 'correction' its back to business as usual."

  2. "But these pundits see things very much in terms of 'confidence', of subjective feelings, when the crisis is really a reflection of the underlying objective situation."

  3. "The speculation and boom on the stock exchange is a typical characteristic of the peak of the boom years. That was the case in every boom, including 1924-29."

  4. "The next slump, given the massive amounts of fictitious capital that has been built up in the last period, is likely to be deeper that those we have experienced in the post war period."

  5. "The coming crash and the slump that will follow will have a profound political effect internationally. It will finally destroy the illusions in the market economy once and for all, and bring into question the durability of the capitalist system."

  6. "In Russia and Eastern Europe, the new capitalist relations which are emerging will be absolutely shattered. The process of capitalist restoration there and in China will be thrown into reverse."