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Report on the World Economic Crisis and the New Tasks of the Communist Internati

Marxist Perspectives · 2020-10-02

Core Argument

Trotsky's central thesis is that the post-First World War capitalist world has not restored genuine equilibrium, despite appearances of bourgeois recovery. He argues that the war inaugurated an epoch of permanent revolutionary crisis, not a temporary disruption followed by normalisation. The apparent restoration of bourgeois confidence and state authority between 1919 and 1921 is a superficial phenomenon masking a deeper, organic crisis of the system.

The argument proceeds through a systematic demolition of the reformist claim that capitalism is re-establishing itself on new foundations. Trotsky distinguishes between cyclical fluctuations (booms and crises inherent to capitalism at any stage) and the secular trend of capitalist development. The post-war boom of 1919-20 was not a genuine recovery but a speculative, fictitious expansion sustained by further destruction of basic capital, inflation, and state subsidies. The crisis that followed is not a normal cyclical downturn but the beginning of a prolonged epoch of depression, during which capitalism will be forced to level downwards — compressing Europe's productive capacity to match its most ruined sectors.

The decisive structural shift is the transfer of the centre of gravity of world capitalism from Europe to the United States. Europe has been impoverished, its productive apparatus degraded, its international trade crippled. America has experienced an unprecedented but unsustainable flowering, built on a war market that has now vanished. The contradiction between American overproduction and European underconsumption cannot be resolved within capitalist relations. Every step the bourgeoisie takes toward restoring economic equilibrium — wage cuts, currency stabilisation, state bankruptcy — necessarily disrupts the fragile social equilibrium between classes, intensifying the class struggle.

Theoretical Grounding

Trotsky's analysis is grounded in Marx's theory of capitalist crisis and the tendency of the rate of profit to fall, though he deploys these concepts through concrete historical and statistical demonstration rather than abstract deduction. The key theoretical innovation is the distinction between the primary movement of capitalist development (the secular trend) and the secondary movement of cyclical fluctuations. This allows Trotsky to argue that capitalism can still experience booms and crises even while in secular decline — the character of the cycles, not their mere existence, reveals the system's health.

The concept of fictitious capital is central. Trotsky shows how war loans, paper currency, and state debt create a phantom wealth that masks the real destruction of productive capital. The poorer Europe becomes, the thicker the layers of paper values encasing it. This is not merely a financial phenomenon but a political one: fictitious capital allows the bourgeoisie to postpone the reckoning by buying social peace, but only at the cost of deepening the eventual crisis.

The analysis of class equilibrium draws on the Marxist understanding that capitalist reproduction requires not only economic proportionality but also a stable relation of forces between capital and labour. The social-democratic parties and trade union bureaucracies were the key mechanism maintaining this equilibrium before the war. Their betrayal of the working class during and after the war has permanently weakened this mechanism, even as the labour aristocracy retains privileges.

Trotsky's treatment of the uneven and combined development of world capitalism is implicit throughout. The war simultaneously threw Europe back decades economically while concentrating capital and proletarianising the population more intensively than ever. Germany is economically at a pre-war level but socially thirty years older. This contradiction — declining national income combined with heightened class polarisation — is the material basis for revolutionary possibilities that do not exist in periods of simple stagnation.

The argument sits firmly within the Marxist tradition of analysing the epoch of wars and revolutions inaugurated by imperialism. Trotsky explicitly links his method to Marx and Engels's analysis of 1848-51, where they recognised that the crisis of 1847 was the mother of revolution but the boom of 1849-51 was the mother of counter-revolution — because that boom rested on the expansion of capitalist relations after the revolution had cleared away feudal fetters. No such expansion is possible today.

Conjunctural Relevance

The article was written for the Third Congress of the Communist International in June-July 1921, at a moment when the revolutionary wave that followed the First World War had clearly receded without achieving proletarian victory outside Russia. The bourgeoisie had recovered its nerve; the Kapp Putsch had been defeated by a general strike that then failed to overthrow the republic; the Italian factory occupations had ended in betrayal; the March 1921 uprising in Germany had been crushed.

Trotsky's analysis of the conjuncture is remarkably concrete. He provides detailed statistics on coal production, agricultural output, national debt, currency depreciation, and trade balances for the major powers. The key data points include:

  • Europe's national wealth reduced by at least one-third; Germany's by more than half
  • US share of world coal production at 45%, iron at 40%, oil at 66-70%
  • US gold reserves at nearly half the world total
  • European trade deficit of catastrophic proportions — France's two-year deficit of 27 billion francs
  • World tonnage increased by one-fifth while world trade collapsed
  • Five to six million unemployed in the United States

The geopolitical analysis is equally sharp. Trotsky identifies the central contradiction of the post-war order: the United States has displaced Britain as the dominant capitalist power, but the world market is too constricted to accommodate either. The Anglo-American antagonism is the coming axis of world conflict. France must loot Germany to survive; Germany cannot accept permanent subjugation; Britain must prevent any Franco-German combination that would threaten its position. The League of Nations is a sham. Militarism has intensified, not diminished: 18 million soldiers under arms compared to 7 million before the war.

For the contemporary reader, the relevance is striking. The analysis of a world economy in which overaccumulation in one region confronts impoverishment in another, where fictitious capital masks real destruction, where every attempt at stabilisation intensifies class struggle — this speaks directly to the post-2008 conjuncture, the pandemic crisis, and the current inflationary spiral. The shift of the centre of gravity from Europe to America has now been followed by a further shift toward Asia, but the underlying logic of uneven development and inter-imperialist rivalry remains.

Where the Argument Continues

This article is a foundational text for understanding the Marxist theory of capitalist crisis and revolution in the epoch of imperialism. The argument continues in several directions:

  • Trotsky's later writings on the 1930s depression, particularly The Death Agony of Capitalism and the Tasks of the Fourth International (1938), which develops the theory of the epoch of wars and revolutions further and introduces the concept of the permanent arms economy as a temporary stabiliser.

  • The debate within the early Comintern on the nature of the post-war crisis, including Lenin's Report on the Tax in Kind and the discussions around the New Economic Policy, which Trotsky references.

  • The analysis of fascism as the bourgeoisie's response to revolutionary crisis when normal bourgeois democracy fails — developed in Trotsky's writings on Germany 1930-33.

  • The theory of state capitalism and the degenerated workers' state, which emerged from the later experience of the USSR and the post-war settlement.

Within the IDOM corpus, this article is regularly cited in analyses of the 2008 crisis, the COVID-19 economic collapse, and the current inflationary crisis. The concepts of fictitious capital, the distinction between cyclical and secular crisis, and the analysis of inter-imperialist rivalry are continually deployed.

Connections

  • Marx, Capital Volume III, Part III on the tendency of the rate of profit to fall and Part V on fictitious capital
  • Engels, Revolution and Counter-Revolution in Germany (1851-52) — the analysis of 1848-51 that Trotsky explicitly references
  • Lenin, Imperialism, the Highest Stage of Capitalism (1916) — the theoretical foundation for the analysis of inter-imperialist rivalry
  • Bukharin, Imperialism and World Economy (1915) — on the world market and the tendency toward state capitalism
  • Varga, The Economic Problems of the Proletarian Dictatorship (1920) — Trotsky references Varga's pamphlet on the speculative character of the post-war boom
  • Keynes, The Economic Consequences of the Peace (1919) — Trotsky references Keynes's description of Europe as a madhouse, though from a bourgeois perspective
  • Grossmann, The Law of Accumulation and Breakdown of the Capitalist System (1929) — develops the theory of capitalist breakdown that Trotsky here sketches

Key Quotes

  1. "Capitalism thus possesses a dynamic equilibrium, one which is always in the process of either disruption or restoration. But at the same time this equilibrium has a great power of resistance, the best proof of which is the fact that the capitalist world has not toppled to this day."

  2. "The poorer this economy becomes, all the richer is the image reflected by this mirror of fictitious capital. At the same time, the creation of this fictitious capital signifies, as we shall see, that the classes share in different ways in the distribution of the gradually constricting national income and wealth."

  3. "We thus have two processes of development. National wealth and national income keep falling, but the development of classes continues therewith not to regress but to progress. More and more people are becoming proletarianized, capital is being concentrated in fewer and fewer hands, banks keep merging, industrial enterprises become concentrated in trusts. As a result, the class struggle inevitably becomes sharper on the basis of a declining national income."

  4. "Every step toward the restoration of capitalist economy is bound up with boosting the norm of exploitation and will therefore unfailingly provoke resistance on the part of the working class. In other words, every effort by the bourgeoisie to restore the equilibrium in production or in distribution or in state finances must inescapably disrupt the unstable equilibrium between the classes."

  5. "The revolution has three sources which are interconnected. The revolution's first source is the decline of Europe... The second source of the revolutionary struggle is in the severe spasms of the entire economic organism of the United States... The third source of revolutionary struggle is the industrialization of the colonies, above all, India."

  6. "We do not as yet have the majority of the working class throughout the world; but a much larger section of the proletariat is with us today than a year or two ago. After we have actually analyzed the existing situation... we must say to ourselves: The struggle will perhaps be long and we shall not advance at so feverish a pace as we should like to. The struggle will be very harsh and will exact many sacrifices."