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World stock markets in turmoil

Marxist Analysis · 2026-05-13

Core Argument

The central thesis is that the February 2007 global stock market sell-off, triggered by a Chinese capital gains tax rumour, was not a temporary "correction" but an early warning signal of a deeper deterioration in the profitability of global capitalism. Michael Roberts argues that the dominant narrative — that fundamentals are sound and the dip is merely a buying opportunity — is false. Instead, the underlying driver of capitalist health is the rate of profit, and that rate is set to fall. The article claims that much of the apparent profit recovery since 2001 is illusory, being concentrated in finance rather than productive investment, and that the conditions for a sustained slump are being assembled beneath the surface of apparent stability.

Theoretical Grounding

The analysis is rooted in the Marxist law of the tendency of the rate of profit to fall, though Roberts deploys it with nuance rather than mechanical inevitability. He distinguishes between real profits generated in production and the fictitious profits of finance capital — a distinction that draws on Marx's circuits of capital (M-C-M') and the later work of theorists like Paul Sweezy and Harry Magdoff on the financialisation of accumulation. The argument also implicitly relies on Marx's concept of overaccumulation: capital is piling up in financial channels because productive investment is not sufficiently profitable, a classic symptom of a system approaching the limits of its own expansion.

The piece sits within the tradition of Marxist crisis theory that emphasises profitability as the decisive variable, as developed by writers such as Andrew Glyn, Bob Sutcliffe, and more recently by Roberts himself in his book The Great Recession. It rejects both Keynesian demand-side explanations and neoclassical equilibrium narratives, insisting that the internal contradictions of capital accumulation — not external shocks or policy errors — are the root cause of instability.

Conjunctural Relevance

The article was written in March 2007, just months before the first tremors of the subprime crisis became visible. Roberts identifies several conjunctural features that proved prescient:

  • US economic slowdown: GDP growth in Q4 2006 was revised down to just above 2%, far below earlier estimates.
  • Housing market slump: The US housing market was already declining, a key channel through which household debt and financial fragility would later transmit crisis.
  • Rising interest rates: The Federal Reserve had been hiking rates, squeezing both corporate borrowers and mortgage holders.
  • Private equity boom: Roberts notes that huge sums were flowing into leveraged buyouts and property speculation rather than productive investment — a hallmark of fictitious capital expansion.
  • Chinese stock market volatility: The Shanghai exchange had doubled in six months, and the Chinese government's own intervention revealed the fragility of speculative bubbles even in a state-directed economy.

The article correctly identifies that the globalisation of finance means a localised shock in China can cascade through all major exchanges — a structural feature of the conjuncture that would become even more pronounced in 2008.

Where the Argument Continues

This article is an early entry in Roberts's long-running analysis of the 2007–2009 crisis and its aftermath. The argument is developed in subsequent IDOM articles tracking the profitability data, the collapse of Lehman Brothers, and the uneven recovery. Roberts's book The Great Recession: A Marxist View (2009) expands the theoretical framework and provides the empirical data on profitability trends that this article only sketches. The Against the Stream podcast episode "The Long Depression" (2016) and the later book The Long Depression (2016) extend the analysis to argue that the post-2008 period is not a recovery but a prolonged depression of profitability and accumulation.

Readers should also consult Roberts's regular updates on the rate of profit in the US and global economy, published on his blog The Next Recession and occasionally cross-posted on marxist.com.

Connections

  • Andrew Glyn and Bob Sutcliffe, British Capitalism, Workers and the Profit Squeeze (1972) — for the profit squeeze variant of crisis theory.
  • Paul Sweezy and Harry Magdoff, The End of Prosperity (1977) and later Monthly Review articles — for the financialisation thesis.
  • Michael Roberts, The Great Recession: A Marxist View (2009) — the full empirical and theoretical elaboration of the argument begun here.
  • Marx, Capital Volume III, Part III ("The Law of the Tendency of the Rate of Profit to Fall") — the theoretical foundation.
  • IDOM articles from 2008–2009 on the subprime crisis, particularly "The credit crunch and the Marxist theory of crisis" and "The slump: a Marxist analysis".

Key Quotes

  1. "The key to understanding the health of capitalism is profitability. US and global profits have rocketed up since the recession 2001. However, much of these profits are not real (they are really the profits of finance capital siphoned off the productive sectors of the economy)."

  2. "Most important, profitability is set to fall from here. US productivity growth is slowing and costs of production are rising compared to growth in sales."

  3. "Money is not going into productive investment (indeed investment into new plant and machinery is hardly growing in the US), so it is being squandered."

  4. "That a hiccup in China should ripple throughout the world's stock markets shows how globalised capitalism, particularly its finance sector, has become. Truly, chaos theory applies in the anarchy of world capitalism: when the Beijing butterfly flaps its wings, the snow falls on New York."

  5. "This current stock market fall probably won't lead to any crash and an immediate economic recession. But it is an indicator of the future deterioration of the health of global capitalism that will unfold over the next few years."

  6. "It also shows how the turn towards capitalism driven by the so-called 'Communist' leaders has exposed China's economy to the gyrations of capitalist volatility."