the crisis of capitalism: a socialist perspective

14 04 2013

By Eric Chester

     The global economy is mired in the worst crisis since the Great Depression of the 1930s, and yet capitalism has always been characterized by instability and insecurity. An economic system that operates without an overall plan, and in which powerful economic forces act on the basis of maximizing short-run profits, is a system that is inherently unstable. Marx predicted a collapse of capitalism leading to a revolutionary upsurge as early as the 1850s.[i] This would appear to be one of his predictions that has been contradicted by the course of history, but in fact the global economy has been plunged into one crisis after another.

EndofHistory

     The unpleasant reality we confront today is that although capitalism is constantly changing, the impact of these changes is, on balance, overwhelmingly destructive. Indeed, as capitalism grows and expands, it destroys everything in its path. As the system unravels, more and more workers become permanently displaced from the workforce; income and wealth differentials widen within the already industrialized societies, as  an increasing number of countries are added to the list of “failed” nations; and ecological catastrophe threatens the continued existence of the planet as we know it. We are at a crossroads. Either the working class acts as a class and wrests power from the capitalist class, or the system will disintegrate into a catastrophic freefall.

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the slow death of capitalism?

28 03 2013

Post World War II capitalism was able to afford social democracy, says duvinrouge. Profit rates were high after the capital devaluation & destruction of the Great Depression & war. Cheap oil enabled great advances in productivity. In Marxist terms the rate of exploitation increased. This means a larger percentage of the value created by workers was going to the capitalists. But because of the productivity increases, in material terms the workers were actually getting better off (at least in the West) even though they were being exploited more. This enabled the creation of a welfare state: state-funded healthcare, education, pensions & unemployment benefits. Western societies became more equal. With such improvements in living standards there was little reason for the workers to overthrow capitalism.

deathofcapitalism

These improvements began to be tested in the late 1960’s. In 1967 the £ was devalued & at the same time the US$ was coming under increasing pressure, eventually leading to Nixon removing the convertibility to gold in 1971. It may be that these difficulties were based upon a falling rate of profit at the time, but even if this was just a crisis of overproduction, the authorities seemed determined to avoid a re-run of the 1930’s, particularly at the height of the Cold War with the Soviet Union. Keynesian fiscal stimulus seemed to only create inflation. The Phillips Curve gave way to stagflation. With the major currencies threatened with debasement a solution was needed. Neo-liberalised seemed to offer this. Attacking trade union power was seen as the best way to deal with the ‘enemy-within’ & perceived cost-push inflation. Alongside this came the demand to end capital controls so finance capital could overcome restrictions put in place by the now ‘independent’ ex-colonies. A new phase of multi-national globalisation directed by the bankers was beginning. This renewed power of finance capital largely came from financialisation, itself a product of the new fiat currency regime. The wider provision of mortgages & the selling off of social housing, enabled those in the West who still had work, to continue to give credence to the conservative dream of a property-owning ‘democracy’. With the fall of the Berlin Wall & the collapse of the Soviet Empire, the ‘end of history’ & the triumph of capitalism was celebrated, even China was now conceding defeat & turning to capitalism. This offered the ‘masters of the universe’ the opportunity to deindustrialised the West on an even greater scale by exploiting Chinese former peasants at even lower wages. The printing of US dollars in the form of US Treasury Bills bought by rich Arabs & the Chinese keen to keep their currency competitive, enabled the West to live on credit, buying cheap goods from Asia. How could this ever go wrong?

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your money is not safe!

19 03 2013

What’s happening in Cyprus is hugely significant, says duvinrouge. Cypriots are having the money in their bank accounts taken by the government. The question people are now asking is if it can happen in Cyprus, can it happen anywhere?

your money is not safe

To understand what is happening requires an understanding of the nature of the crisis, the crisis of overproduction. Capitalism is based upon commodity production: things are produced for sale, to sell for money, not for immediate consumption. Furthermore, the price must be higher than the costs of production for a profit to be realised. Profit is the objective, not the satisfaction of human needs. But the problem with commodity production is the commodity that acts as the universal equivalent – money – must grow in line with commodity production in general for all the commodities to be sold. If money gets hoarded, e.g. capitalists refuse to invest because profit rates aren’t high enough, then we have stagnation, even a depression. This hoarding of money is what most Keynesians, and some Marxists, see as the cause of the current crisis. Hence they argue that the government must step in with fiscal stimulus until the capitalists return to their senses and start investing again. Crises due to hoarding are possible, but this is not overproduction and not the current crisis.

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underconsumption and overproduction

6 10 2012

The BBC economics editor, Stephanie Flanders, recently presented an overview of Marx & his views on capitalism & crises – http://www.bbc.co.uk/iplayer/episode/b01n6z4s/Masters_of_Money_Marx/ According to duvinrouge, she essentially described Marx as an underconsumptionist (there was just a small bit on profit-squeeze). Worse still, there was no explanation of how capital accumulation itself puts downward pressure on the rate of profit, the key part of Das Kapital.

Stephanie is a Keynesian. The Keynesian explanation of the business cycle rests upon the ‘animal spirits’ of entrepreneurs. Sometimes they don’t invest & hoard their money. This causes a deficiency in aggregate demand & the economy goes into recession. The underconsumptionist argument is similar: workers don’t get paid enough so they don’t have enough effective monetary demand to buy all the commodities produced & there is a recession. For Keynesians the solution is lower interest rates, but if there is a ‘liquidity-trap’ it doesn’t matter how low interest rates go entrepreneurs will not be persuaded to invest & the government will have to intervene directly through fiscal stimulus, e.g. building new infrastructure. For the underconsumptionists the solution is increases in real wages for workers.

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money and debt

2 10 2012

If we look at the history of money we can see that there is a very importance difference between commodity money & credit/debt, says duvinrouge.
During the days of barter being able to exchange your items for a precious metal made sense because these metals acted as a store of value. You didn’t have to decide then & there what you wanted to consume. This progress to money is simply the exchange value of all other goods in terms of the thing acting as the universal equivalent, such as a gold or silver. Goods had prices which were weights of gold (or silver or whatever).

 

But why should prices be at particular weights of gold? Why should a pair of shoes have a price say 10 times the price of a pair of socks? It’s not just supply & demand. Behind supply & demand is the labour time that goes into production. Any capital, e.g. machines, raw commodities, had to first be produced by labour, even if this is just picking the cotton. This is why Marx, & before him Ricardo & inconsistently Adam Smith, recognised labour as being behind the value expressed by prices. But Marx didn’t accept the simple view that particular commodity prices expressed the actual concrete labour time that had gone into their production. Marx recognised the market. It is the market that allocates labour time & because capitalists have to produce before they can bring their goods to the market, they may actually waste labour time producing something the market (capitalist society) doesn’t want. Hence we have the term socially necessary labour time. This is why microeconomics & the subjective theory of value called marginalism is useful at the individual commodity level but useless when in comes to modelling the economy as a whole. This is because aggregate prices is the expression of total labour value. A society only has so much labour time to allocate. Hence there is an objective foundation for value & so money & prices. This is why Marxist crisis theory is still streets ahead of modern macroeconomics in understanding the nature of capitalism & why it is prone to crisis.

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The Enigma of David Harvey

13 09 2012

Barry Biddulph reviews David Harvey’s The Enigma of Capital (2011, Profile Books, £8.99).

David Harvey is something of an enigma.  He wants to place Marx’s vision of Capitalism centre stage, yet he finds Keynes more relevant than Marx for a solution to Capitalist slumps.  He agrees with Keynes’s diagnosis of the causes of the Great Depression of the 1930s, as a problem of insufficiency of effective demand.  Moreover, Harvey states that today’s Great Recession “has placed the development of consumer and rising effective demand at the centre of the sustainability of contemporary Capitalism in ways that Marx for one would have found hard to recognise” . (1)  The relevance of Marx for Harvey is that Neo Liberalism has turned the clock back to pre Keynesian economics.

Following Keynes, Harvey regards inadequate effective demand as Capitalism’s fundamental problem.  This is why, in his preamble, he declares that  his book is about Capital flow : Capital as the life blood of the way we live.  This is an enigma. Marx  describes Capital as a vampire. In contrast, Harvey’s focus is in the market place, where Capital supplies ‘our daily bread, as well as our houses, cars, mobile phones, shirts, shoes and all other goods we to support our daily life ‘.  (2)  This is a rather mysterious emphasis, almost as if Capitalism is producing commodities directly for human need.  Harvey argues that consumption is integral to Capitalism’s dynamic.  He seems to assume that the aim of the economy is the utilization of resources to produce goods for consumption. The common sense view, to use Andrew Kliman’s phrase that “businesses ultimately have to sell stuff to people”. (3)  But in the words of Marx, “It is the rate of profit that is the driving force in capitalist production and nothing is produced save what can be produced at a profit”.  (4)

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crisis: a unifying theory?

2 09 2012

Duvinrouge puts forward a theory of crisis to unify Marxists.

There are two main Marxist explanations of crises: the falling rate of profit school & the underconsumption/realisation problem school. I think once it is recognised that there are two types of theoretical crisis, both can be seen as offering valid explanations.

The two types of crisis are cyclical & breakdown. I realise that ‘breakdown’ is an emotive word & most Marxists shy away from it. I have no problem with it because I firmly believe that capitalism is historically limited & that breakdown doesn’t refer to something totally separate from the class struggle. I see a breakdown crisis relating to a falling rate of profit within the constraints of a finite earth. Part 3 of Volume III of Marx’s Capital, ‘The Law of the Tendential Fall in the Rate of Profit’ argues capital accumulation itself (i.e. economic growth) causes the ratio of constant capital (factories, machines, raw materials, etc) to grow relative to variable capital (labour time). This is known as the rise in the organic composition of capital. There are offsetting tendencies, but all things being equal, as the ratio grows so the rate of profit falls. Now put this in the context of supply side constraints, particularly population growth & so labour time, we can see that to offset the fall in the rate of profit under conditions where there can be no growth in absolute surplus value, the capitalists have to increase relative surplus value. In otherwords, take more of the value created by labour so labourers keep even less of the value they create. Without offsetting increases in the productivity of subsistence goods the living standards of workers fall. Under such conditions the class conflict becomes more obvious & revolutionary ideas are more appealling. An actual worldwide socialist revolution becomes a real, even likely, possibility.

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why krugman is wrong

31 05 2012

Duvinrouge says many ‘socialists’ have got pleasure from seeing Krugman expose the prejudices and flaws in those advocating austerity as a solution to the crisis. He is right that austerity won’t work and is mainly being pursued for ideological purposes. However, he is wrong to believe that Keynesian fiscal stimulus can solve the crisis. He is wrong because he misdiagnoses the crisis and misunderstands the nature of value.

For Keynesians like Krugman, the problem is a lack of demand because the private sector is not investing. Without a surge in exports they argue that it is the government’s job to take up the slack and restore effective monetary demand. This would have some merit if the problem was just a lack of demand due to producers not investing and instead hoarding their money. But this ignores the mountain of debt and the reasons why there is so much debt.

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interview with andrew kliman

29 04 2012

Duvinrouge: Can you tell me what the key message of your new book, The Failure of Capitalist Production, is?

 

Andrew Kliman: The Great Recession was waiting to happen. There were unresolved problems in the system of capitalist production that had been building up over a third of a century. The rate of profit fell and never recovered in a sustained manner, which resulted in persistently sluggish investment and economic growth, which in turn resulted in rising debt burdens. And these problems induced governments to solve them or paper them over with policies that made the debt build-up even bigger.

DVR: Your book is full of statistics and as we know interpretations of statistics can be very different. It would appear that your choice of historical cost as opposed to current cost is crucial. Please can you explain the difference?

 

Accountants can value assets at their current cost or at their original cost when they were acquired. The latter is usually called their “historical cost.” Both methods have their place. But one thing you can’t do is compute the rate of profit, i.e., the rate of return on investment, by dividing profit by the current cost of the capital assets. It’s not wrong to do this; it’s impossible. What you wind up with just isn’t a rate of return on investment. What the assets are currently worth is simply not the same thing as the amount of money that has actually been invested in them. To measure the latter, you have to take their historical cost and subtract depreciation.

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the historical limits of capitalism

15 02 2012

Just as feudalism was historically limited, so too capitalism, writes duvinrouge.

The rise of capitalists and their taking power from the nobility was a reflection of the changing economic conditions as manufacturing became more important than agriculture. Looking back, it’s quite easy to understand how the increasingly economically powerful capitalists seized power. The case for the workers taking power isn’t so obvious though. Many seem to think that capitalism will continue forever unless a political party can persuade working people of a better alternative. Such a subjectivist position shows a lack of understanding of how capitalism works and what Marx was getting at in Volume III of Das Kapital.

‘The Law of the Tendential Fall in the Rate of Profit’ is part three of Volume III. To understand the importance of this requires a good understanding of how capitalism works, what value is and in particular, the difference between absolute and relative surplus value. Value is essentially labour time. Not necessarily the sum of all actual labour time that has gone into all commodities produced, but the market-determined ‘socially necessarily’ labour time; not all commodities taken to market are bought at prices that cover their costs and return a profit because the capitalist has to anticipate demand. (Don’t worry if you don’t fully grasp ‘socially necessary’ labour time, the key point is values (prices) reflect labour time).

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euro crisis is more than a euro crisis

26 10 2011

Even if there was no Euro, or even if there was the Euro and political union, there would still be a crisis. Why? Because the crisis is a crisis of value, says duvinrouge.

That’s not to understate the problem of trying to get economic convergence of divergent economies through monetary union. It cannot be done without a political union that is prepared to use regional policy and the consequent transfer of wealth from north to south. Even without the backdrop of world capitalist crisis the Euro‘s future would be in doubt. But it is the recurrent capitalist crises that bring such problems to a head. And still it is left to Marxists to explain why capitalism is crisis.

Say’s law (supply creates its own demand) does not hold because production is commodity production – things are produced to be exchanged for money, furthermore a monetary amount greater than the original outlay. This increase in value occurs in production – the amount paid to labour in wages is less than the value created by the labourer. But it’s not just about increasing value in production; there’s also the need for the effective demand – money – to be there.

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