The Great Divide in the Theory of Crisis. A Critical Survey of Accounts of the Spanish Great Recession

1. Introduction

The theory of economic crises occupies a central role in economic analysis, forming a critical component of the broader process of economic system reproduction. The study of crises is intricately intertwined with the theory of economic growth, as understanding the forces that drive growth necessitates an examination of the factors that can abruptly disrupt it, leading to recessions. Crises are significant not only because of their inherent nature but also because they provide a framework for classifying various schools of economic thought.

In this context, two primary approaches to understanding economic crises can be identified. The first comprises theories that view crises as an inherent feature of the economic structure—the logic of capital. Within these theories, crises are conceived as necessary moments in the process of capital accumulation (Shaikh 1990). From this standpoint, human intervention cannot prevent their occurrence. The existence of objective material causes underlying phenomenal forms, as argued by Cockshott (2020), implies a materialist foundation: developmental patterns or economic laws that both shape and constrain individual actions (Cullenberg 1999). ¹ In this conception, fundamental causality proceeds from objective or material aspects toward human actions, subjective or conscious roles, and ideas. Consequently, it affirms the existence of sociohistorical, tendential, and objective laws, “not only independent of human will, consciousness, and intelligence, but rather, on the contrary, determining that will, consciousness, and intelligence” (Marx 1867: 18). Crises, therefore, are recurrent phenomena that can be theorized independently of, yet conditioning, human (and state) activity (see Mateo 2018).

Within these theoretical frameworks, it is essential to distinguish between the fundamental or underlying causes of crises and their immediate or triggering factors. This distinction enables a differentiation between the content and form of crisis analysis. The essence of a crisis exists at a higher level of abstraction and corresponds to its core content—its common denominator—thereby explaining the recurrent nature of crises over time. This essence is deeply connected to the social structure. In contrast, triggering factors operate at a lower level of abstraction, representing the specific ways in which the underlying content of a crisis manifests in particular contexts. ²

This analysis is developed in Mateo (2022), which presents a materialist explanation of the Great Recession (GR) in Spain based on the generation of surplus (content) and the real-estate asset bubble (form). Briefly, the crisis erupted in the second half of 2008, after a period of expansion between 1995 and 2007, with an average annual growth rate of 3.8 percent, but followed by a six-year decline in GDP at an annual rate of −1.36 percent. The preceding phase was characterized by an underlying problem of surplus generation—manifested in a 39.4 percent fall in the profit rate, reaching 60 percent by 2013–14, while the volume of net operating surplus began to decline from 2002 onward. This process led to the formation of a real-estate bubble within the context of Spain’s entry into the monetary union, with significant implications for the specific dynamics of capital accumulation: Despite a strong expansion in non-residential investment (8.6 percent, annual), the indices of capital composition increased by less than 1 percent annually due to the rapid pace of job creation (3 percent), concentrated in labor-intensive sectors. This pattern was accompanied by stagnant productivity and real wages, as well as a large current account deficit (−9 percent in 2007–8).

This contradictory evolution has given rise to a remarkable variety of diagnoses of the crisis, belonging to the second group of crisis theories, as a possibility. In these approaches, the explanation of crises prioritizes direct or immediate factors associated with the economic conjuncture, that is, the specific circumstances of each crisis (Tapia 2018). Accordingly, crises are explained as the result of one or several historically determined factors acting in conjunction (Shaikh 1990). Beyond natural phenomena, the ultimate foundation of crises is traced to the decisions or actions of individuals. Human intervention, for clarification, includes a wide range of actors, from trade unions and employers’ associations to institutions such as the central bank, the World Bank, or the IMF, as well as the state itself (central government and ministries). ³

Fundamentally, these theories assert that the nature of human action shapes both the structure and the specific characteristics of the economy (Wolff and Resnick 2012). From the perspective of causality, this human dimension holds conceptual and explanatory primacy over the broader social framework, as it constitutes an element exogenous to an objective reality lacking any immanent drive toward crisis. In the absence of an objective logic or universal economic law, individuals or social groups (the state) are ultimately held responsible for the dynamics leading to a crisis. As such, crises are perceived as phenomena that are potentially correctable, avoidable.

This paper draws a distinction between theories of crisis as necessity and as possibility within economic thought and, on that basis, examines the literature on the GR in the Spanish economy that implicitly regards the crisis as a possibility. These analyses include those within mainstream (neoclassical) economics, as well as Austrian, Keynesian, post-Keynesian (in the Kalecki/Minsky tradition), and other schools such as behavioral economics and new institutional economics.

This research is relevant both for its methodological proposal regarding the analysis of crises across different schools of thought ⁴ and because nearly all the literature on the Spanish crisis lacks a theoretical discussion of the economic crisis. The studies are predominantly empirical, focusing exclusively on the immediate triggering factors of the economic conjuncture without reference to broader crisis theories. Despite the empirical orientation of most studies, few engage in a rigorous examination of causal direction among the principal determinants of the crisis. This article, therefore, seeks to advance the theoretical understanding of the foundations of crisis and, with reference to Spain, to systematize the literature, so as to illuminate (or not) the limitations inherent in the various approaches.

The structure of the article is as follows: The next section outlines the theoretical foundations of the conception of crises as possibility, providing a brief review of different schools of economic thought. Section 3 specifies the research objective: the analysis of the literature of the GR in Spain as a possibility. This involves identifying the general features of these accounts, including their focus on describing economic imbalances, the role of the state and economic agents, and the influence of psychological and ideological factors. The section also highlights the most common orthodox and heterodox explanations in the literature, with particular attention to two main areas: the distributive sphere, including labor markets and wages; and the financial domain, encompassing monetary policy decisions, financial incomes, and indebtedness. ⁵

2. Foundations of the Crisis as a Possibility

The major schools of economic thought—primarily neoclassical and Keynesian, along with other abovementioned currents—differ on many fronts but collectively share a conception of crisis as a possibility. Neoclassical economics, for instance, is grounded in the premises of rational agents, perfect competition, and Say’s law, while allowing for the inclusion of certain imperfections or “impure elements” at later stages. The representative individual serves as the primary unit of analysis, as human behavior (demand) is considered the determinant of prices—either entirely, following Menger’s tradition (Menger [1871] 2020), or jointly with supply (Marshall [1890] 2013). Consequently, macroeconomic outcomes are largely reduced to microeconomic foundations, with individual behavior governing aggregate phenomena (Shaikh 2016; Wolff and Resnick 2012; Yilmaz 2021). This explains the centrality of demand in determining prices, guiding production, and addressing business cycles in neoclassical frameworks, despite certain controversies (see Tsoulfidis 2024), and, as shown later, in heterodox approaches as well.

Within this theoretical framework, crises are deemed impossible under the assumption of freely operating markets. As a result, crises are only conceptually addressed in two ways (Shaikh, 1990): as part of the economic cycle, which reduces their theoretical significance by framing them as expressions of the non-linear nature of economic growth; ⁶ or by attributing them to exogenous factors, such as unexpected shocks, state intervention, trade unions, psychological influences, or political upheavals (e.g., revolutions or conflicts).

The crisis is thus treated as an accident, a mistake, or an external disruption to the economy’s otherwise “normal” dynamics, and therefore lacks substantial theoretical significance. A representative example is Marshall ([1890] 2013), who does not formulate an explicit theory of crisis but rather studies business cycles, identifying lack of confidence as the psychological factor that ultimately explains why available income is not spent. ⁷

This perspective is further reflected in later theoretical developments such as the rational expectations hypothesis, monetarism, and the Austrian School. The crisis has been linked to monetary policy, that is, to inadequate management of the money supply by the central bank (Friedman and Schwartz [1963] 1971), so that a fixed rule for monetary growth (the k-percent rule) would, in principle, eliminate the possibility of crisis. In monetarism, adaptive expectations are treated as a consequence, whereas in the rational expectations approach they are among the explanatory factors of the cycle. In this latter framework, reference is made to the use of available information; thus, crises occur in the face of unanticipated monetary policy or unexpected changes in the money supply (Lucas 1972), or as a result of unforeseen shocks. In short, crises are regarded as temporary deviations. ⁸

The Austrian School, in turn, attributes crises to monetary policy itself and, more broadly, to state intervention. Although this school characterizes crises as a systemic necessity, it describes them as “the unpleasant but necessary reaction to the distortions and excesses of the previous boom” (Rothbard [1978] 1996: 69). The problem therefore lies in a political factor, the “systematic intervention by government in the market process” (Rothbard [1978] 1996: 71), and thus, avoidable. ⁹

On the other hand, several heterodox schools begin their analyses from what can be described as imperfections within the neoclassical paradigm. These include market failures, imperfect competition, the dominance of large firms, social conflict, and the recognition that individuals (and, by extension, groups or institutions) are not perfectly rational. Even in the case of Keynes (1936), despite his structural and macroeconomic approach, aggregate outcomes are still fundamentally grounded in individual behavior.

Unlike the neoclassical perspective, these heterodox approaches incorporate elements such as uncertainty and emphasize the fallacy of composition (Harcourt 2010) to explain investment and consumption decisions. Demand is thus influenced by psychological factors: Human nature and the propensity to consume drive demand for final goods, while productive investment is shaped by the so-called animal spirits operating under conditions of uncertainty. This subjective dimension is also apparent in the definition of the marginal efficiency of capital, which reflects psychological expectations and contradicts the structural and holistic perspectives of other theoretical traditions (Wolff and Resnick 2012). ¹⁰ Consequently, the collapse of demand that triggers crises is explained by factors associated with mass psychology or, alternatively, through social aggregates like institutions or conventions, which are susceptible to intervention or correction.

Similarly, behavioral economics, drawing inspiration from Keynesian principles, emphasizes the role of psychology and introduces the concept of bounded rationality (Simon 1955)—a mode of reasoning that deviates from perfect rationality under conditions of uncertainty (Kahneman and Tversky 1979) or limited knowledge. This bounded rationality is seen as a driver of economic fluctuations and, ultimately, recessions (Akerlof and Shiller 2009).

In macroeconomic terms, the contemporary institutionalist tradition begins its analysis with political institutions, which are understood as emerging from rational choice processes within the context of transaction costs. These institutions establish the rules that shape economic operations and the incentives that drive human behavior (Acemoglu and Robinson 2012). Accordingly, crises are attributed to rent-seeking activities and the breakdown of governance arrangements designed to mitigate such behavior (Ricketts 2011). Institutions are seen as central determinants of economic dynamics, fostering either inclusive growth or enabling the dominance of extractive elites. ¹¹

In contrast, post-Keynesian and related currents emphasize the dynamics of power struggles as critical to understanding crises, and focus on the competition among firms to set prices—mark-up pricing—and the share of profits in total income (King 2013; Minsky 1992), or instead the bargaining theory of wage determination. This perspective often unfolds from the vantage point of the individual entrepreneur (Nicholas 2014), situating economic reproduction within the interplay of power relations, social conflict, and facets of human psychology. Crucially, these psychological and social elements cannot be fully captured by an objective theory of value. As a result, crises are explained through a variety of human/political factors, including investors’ animal spirits, speculative behaviors, psychological traits, risk-taking incentives, excessive borrowing or debt, and the influence of business or union groups on prices (and incomes). These factors often operate in conjunction with economic policy decisions, such as those tied to financial deregulation under neoliberal restructuring.

The centrality of power relations is evident in monopoly capitalism approaches (e.g., Hilferding, Lenin, Steindl, Baran, and Sweezy, among others). Baran and Sweezy (1966) begin from the sphere of production and argue that there exists a necessary tendency toward stagnation, an objective aspect of crisis. However, the tendency toward an expanding surplus—fundamental to the problem of effective demand—is explained by the capacity of large multinational corporations to administer prices. This is specific to the monopolistic phase of capitalism, in which profitability appears rather as a consequence of systemic contradictions. It thus advances a subjective dimension to the labor theory of value grounded in firm behavior, leading to a theory of crisis with a distinctly political dimension, owing to the state’s refusal or inability to confront monopolistic power (Shaikh 1990). Consequently, the analytical challenge becomes explaining growth cycles that temporarily offset stagnation, so this framework leaves open the possibility of a subsequent historical phase, hence the implicit tension between the possibility and the necessity of crisis (Mateo and Garzón 2013).

The Goodwin (1967) model explains the business cycle in terms of income distribution and employment. Kalecki ([1939] 2003), in turn, ultimately based his analysis on the (regressive) distribution of income as the foundation of investment demand instability, particularly insofar as it generates insufficient demand from workers (for an overview of underconsumptionist theories, see Bleaney 1976), while the profit-squeeze theory (Glyn and Sutcliffe 1972, among others) focused on excessive wages. Minsky (1992) drew on Keynes’s conception of demand to develop the financial instability hypothesis—“determined either from outside by policy (government spending) or by today’s views about the future (private investment)” (Minsky 1986: 184)—and, in the case of the modern monetary theory tradition, excessive private-sector indebtedness is highlighted as the key factor (Wray [2012] 2015).

Other heterodox approaches—such as radical political economics, post-Kaleckian, neo-Marxist theories of monopoly capitalism, and alternative interpretations of Marxism—depart from the search for a single, fundamental cause of recurring crises. ¹² Instead, they emphasize a plurality of explanatory factors, each of which plays a significant role that can vary depending on the specific crisis. These approaches frequently highlight the existence of distinct regimes of accumulation, which give rise to different forms of economic crisis. For example, radical economics examines the transition between neoliberal and social-democratic social structures of accumulation (SSA) (Wolfson and Kotz 2010), ¹³ while post-Keynesian and post-Kaleckian authors associated with the Bhaduri-Marglin model (Bhaduri and Marglin 1990) identify regimes such as wage-led, profit-led, or debt-led growth. ¹⁴ Accordingly, there are multiple underlying causes linked to the dynamic variable that drives capital accumulation in each case—ultimately determined by the demand elasticities with respect to various prices (or incomes). Nevertheless, whether conceived as a general theory or in relation to specific accumulation regimes, crisis is treated as a possibility that can be averted through appropriate state intervention aimed at restoring balance.

Ultimately, despite their theoretical diversity, these orthodox and heterodox schools of thought share a common view of capitalism’s capacity for self-reproduction over time, regarded as entirely feasible without crises, provided certain conditions are met. Crises, in this perspective, are fundamentally avoidable through appropriate human decision making and institutional governance.

3. The Crisis as a Possibility in the Explanations of the Spanish Great Recession

The factors highlighted in these theories of crises are broad and varied. In the specific case of the GR in Spain, these factors can be categorized into three key areas: (1) individual and institutional aspects, (2) the sphere of income distribution, and (3) finance. The first section of this analysis underpins the more specific causal relationships explored in subsequent sections, particularly those concerning income distribution and finance.

4. Conclusions

The first issue addressed in this genealogy of studies on the Spanish economic crisis pertains to the foundational elements shared by both orthodox and heterodox approaches. As previously explained, despite analytical differences regarding the role of individual agents or the state, their rationality or uncertainty, competition, equilibrium, or systemic turbulence, there is a notable convergence in how these approaches conceptualize the crisis within a broader theoretical framework: the theory of crisis as a possibility, wherein a fundamental human or political dimension underpins the generation of patterns in capitalist development. Consequently, these analyses explore the triggering factors behind this crisis, commonly referred to as the GR.

This shared foundation has been systematically examined in the Spanish context, revealing two noteworthy aspects. Firstly, from a methodological standpoint, many diagnoses predominantly rely on event descriptions. There is often a conflation of causes and consequences, which obscures the distinction between dependent and independent variables. This tendency is particularly evident in the enumeration of imbalances such as the housing bubble, indebtedness, or current account deficits. Notably, this pattern is consistent across all the studies examined: there is a striking absence of a clear presentation of the theoretical foundations underlying their conception of the economic crisis. Indeed, the challenge of systematizing these analyses stems from a deficiency in the provision of adequate theoretical exposition—a comprehensive theory of crises. Instead, the studies tend to just offer factual descriptions.

Secondly, these accounts can predominantly be situated within the interplay of economic policy, the distributive sphere, and finance, as economic policy is often intertwined with the latter two. Neoclassical and Keynesian (or post-Keynesian) perspectives tend to attribute economic imbalances either to what they perceive as misguided economic policies—albeit for different reasons—or to the broader context of state (de)regulation. These factors also play a role in the subsequent imbalances.

With regard to explanations rooted in distribution, it is noteworthy that wages are often held responsible for the crisis, albeit from opposing perspectives: Neoclassical approaches argue that wages rose excessively in nominal terms, while Keynesian perspectives contend that wages stagnated in real terms, ultimately culminating in the real-estate bubble. Despite their differences, both approaches begin with the premise of a politically determined fluctuation in wages. This determination is seen as central to explaining Spain’s macroeconomic evolution: the regulation of the labor market and union interference, which, according to neoclassical accounts, artificially raises wages above the equilibrium level derived from marginal productivity; or social conflict over the markup or neoliberal policies, as posited by Keynesians. However, neither approach directly addresses the absolute level of wages (a comprehensive wage theory) but focuses exclusively on their evolution over time.

Finance has also been heavily scrutinized as a cause of the crisis across various schools of thought. These analyses highlight three key issues: (1) excessively low interest rates, (2) over-indebtedness within the context of a debt-driven growth model, and (3) capital flows. Across these accounts, a common thread emerges: responsibility is frequently attributed to key actors such as authorities who determine interest rates (e.g., the ECB), architects of a Eurozone composed of nations with disparate levels of economic development, banks that extended excessive credit, and individuals or entities that assumed unsustainable levels of debt; or more broadly, those who chose to invest their capital in Spain.

This type of analysis is highly exceptional, or nearly absent, in the existing literature, despite the relevance of the crisis phenomenon. Therefore, the originality and significance of this research are evident: It not only offers an alternative classification of schools of economic thought but also allows for a comparative examination with an economy such as Spain’s, whose accumulation process exhibits features that diverge from expected patterns. Implicitly, it provides a basis for comparing approaches that I refer to as materialist, emphasizing the recurrence or necessity of crises, with those of possibility, which stress imbalance or conjunctural error. Indeed, these latter explanations ultimately converge on attributing blame to some form of human intervention, generally the state. Notably, all such imbalances could, in principle, be resolved without fundamentally transforming the core essence of the capitalist economy. As such, they represent distinct manifestations of the theoretical conception of crisis as a possibility.