Archive for the 'capitalism' Category

Class, Capital and Crisis

Australian economist John Quiggan (“Commentary on Australian & world events from a social-democratic perspective”) has written the first of three blogs about the Marxist themes of Class, Capital and Crisis: Marxism without revolution: Class


And for now, the ruling 1 per cent has managed to turn the anger generated by their failures to their own political advantage. But, far more than in the 1980s and 1990s, or even the first decade of the 2000s, the opening is there for a radical alternative. Even within the dominant class, faith in the beneficience of markets in general and financial markets in particular, has largely dissipated. What remains is a grimly determined class view that “what we have we hold”

The marxist theory of crisis

karl marx

Marxist Theory of Overaccumulation and Crisis (1990) by Simon Clarke (21 pages)

The purpose here in writing a brief review is to generate enough interest in Simon Clarke’s essay, so that people will read it. This in turn may lead to reading Clarke’s more comprehensive book, Marx’s Theory of Crisis (1994)

At the start, Clarke somewhat mysteriously refers to orthodox Marxist theories as underconsumptionist. Don’t be put off by this. In section 3 (pp. 6-7) he stresses that overproduction is the Marxist tradition and presents an incisive explanation of the deficiencies of underconsumptionist theories.

Clarke’s goal is to explain that capitalist crisis is necessary, that it can’t be avoided. In this respect efforts to reform capitalism are a waste of time.

Various dodgy theories which have been advanced in the name of Marx are briefly described and critiqued.

The theory of the tendency of the rate of profit to fall is not a sufficient explanation for the cause of crisis. The falling rate of profit may intensify but cannot explain the necessity of crisis. Bad theories lead to bad policies, the idea that crises can be resolved by wage restraint and the transformation of work practices to restore the rate of profit.

So, what is Clarke’s understanding of the Marxist theory of crisis? This:

“The source of crisis lies neither in the ‘anarchy of the market’, nor in the immediate process of production, but in the relation between the two , in the ‘circulation process which is in itself also a process of reproduction’ “ (1)

The tendency of capitalism is to develop the productive forces without limit. However, the ability of the working (and unemployed) population to consume without limit is restricted. This creates the possibility of crisis at a point in between production and consumption.

But underconsumption and overproduction are not opposite sides of the same coin, as claimed by Sweezy.

Production and consumption cannot be neatly separated. They constitute a dialectic, both united and separate at the same time (2). For example, when the capitalist buys means of production and puts them to work that is both consumption and production combined – productive consumption.

Another misconception is to look at consumption as the ultimate goal of capitalist production. The real goal of capitalist production is to produce surplus value. For that to happen products made have to be sold. But that is not a smooth process. The strength of Marx’s analysis is his ability to articulate all the difficulties and contradictions along the way in between the categories of money, means of production, labour power, the production process and the exchange of the new commodities produced.

From experience of recessions and depressions it is obvious that not everything produced is automatically sold. Say’s law which states that production creates its own consumption is wrong. The market does not magically solve this issue.

Moreover, capitalists produce both means of production (Department 1) and consumer goods (Department 2). Underconsumptionist theories focus just on Department 2 consumer goods, the essential requirements to keep the working class (and capitalist class) ticking over. So, the unconsumptionist analysis is one sided in this respect as well.

However, unevenness and disproportionality in production and circulation can’t be avoided due to the tendency of capitalist production to expand without limit. A theory of inevitable disproportionality has far more credibility than a theory of inevitable generalised underconsumption.

It is necessary to study Marx’s circulation and reproduction schemes (Volume 2) to achieve more clarity about this.

Do crises arise from the ignorance of capitalists? Could a more centralised co-ordination of capitalist production avoid crises?

Before answering these questions we need to ask another: Why is there overproduction?

Capitalists may lust for more profit but why doesn’t the more rational, smarter capitalist anticipate the results of overproduction and gracefully withdraw to a more in demand productive sector, thus preventing disproportionality between sectors arising?

Various theories have been developed to explain the alleged general irrationality of capitalists. Unwarranted optimism. Erroneous expectations. The lure of creative innovation. Unwarranted credit expansion by irresponsible governments. Monopoly distortion of the market. Immobility of fixed capital. These theories are critiqued by Clarke.

Clarke demystifies the market by outlining the many contradictions that lie beneath its surface.

Competition for raw materials, means of production, labour power, credit etc. confront the capitalist as a barrier to further expansion and realisation of surplus value– a barrier which each capitalist must strive to overcome. The successful capitalist will develop the productive forces without regard to the limits of the market. Ultimately the only way to realise more surplus value is to produce more commodities as economically as possible and throw them onto the market. Capitalism is a dynamic, expansive system by its nature.

Competition inevitably leads to an uneven development of the forces of production as capitalists struggle for a competitive advantage. It is inevitable that this will lead to imbalances between production and consumption. Clarke traces out this immanent tendency of capitalism in more detail.

Eventually capitalism hits a wall. A crisis of accumulation means that capital exists which cannot be realised, cannot be used. This capital can be in the form of money which has no where to go, means of production which are not utilised (over capacity) or unsold commodities. The crisis can only be resolved by the destruction of this unrealised capital and then starting over again.

What is the role of credit in the capitalist system? As stated above competition for raw materials, means of production, labour power, credit etc. confront the capitalist as a barrier to further expansion and realisation of surplus value. To break through this barrier the capitalist needs money and may not have enough. Credit fills this gap for the capitalist.

At the other end of the chain the customer needs money to buy commodities. Once again credit can make up for a short fall here.

Can credit be used to overcome the tendency of capitalism to crisis?

Credit can delay and smooth the process but does not resolve the underlying contradictions. During a boom optimism prevails and credit is cheap and easily available. This stimulates further overaccumulation, uneven development and disproportionalities. If credit continues to expand in this context then this will lead to inflation.

Sooner or later, the boom turns to bust, a destructive downward spiral, where “the over accumulation of capital suddenly appears in the form of a mass of worthless debt and an enormous overproduction of commodities”, etc

This cycle of overaccumulation and crisis has been going on for over two hundred years.

Mainstream economics explains it as a monetary phenomena whose ultimate causes are psychological or political. But despite various theories the crises still continue. To explain them we need to return to Marx who looked below the surface to how capitalism really functions.

Recurring economic crisis is not just economic crisis. If it cannot be avoided then it is social crisis. It has to be dealt with.

The purpose of this summary is to encourage further critical study of authors such as Simon Clarke who do appear to have understood the Marxist theory of crisis amongst the swirl and confusion of many other interpretations.
(1) Clarke provides reference to three sources in Marx’s original writings to support the claim that his interpretation is the real deal. Here are the links:
Capital volume 3, pp. 351-2, Penguin, 1981 beginning with “Given the necessary means of production” in the online translation

Grundrisse, pp. 410-11, Penguin, 1973. beginning with “But from the fact”

Theories of Surplus Value, Volume 2, p. 513-517, Progress Publishers, 1968, 1971, beginning with “On the Forms of Crisis”

In section 2: THE GENERAL RELATION OF PRODUCTION TO DISTRIBUTION, EXCHANGE, CONSUMPTION, Marx presents a mind blowing account of the interrelations between these categories, which anticipates his more detailed treatment in Volume 2.

Hans Rosling’s fast forward history

You Tube version

Stunning video by Hans Rosling, the Director of the Gapminder Foundation which shows how much the wealth of the world has increased in the past 200 years.

brown – Europe
red – Asia
green – Middle East
blue – Africa
yellow – Americas

Most of the commentaries on the web praise this video to the skies. It deserves praise for its overall assessment of the progress of capitalism but there is also a tendency to fast forward through the bad times.

In 1810 the wealthiest countries were the UK and the Netherlands. The average life expectancy of every country was below 40.

Enter the industrial revolution and the wealth and life expectancy begins to dramatically improve for the countries which do industrialise. This is true although there is no mention of the appalling working conditions, the very long working hours, the child labour in the emerging factories of Britain and elsewhere. The birth pangs of capitalism  led to major upheavals in 1848, the shortening of the working day, the Factory Acts, etc.

As the wealth of countries increases then so does the gap between rich and poor countries. Rosling does mention this (at 2:35). It also needs to be emphasised that the scale he is using on the horizontal wealth axis is logarithmic, showing the per annum categories of $400 (roughly one dollar per day), $4000 ($10 per day) and $40,000 ($100 per day). If he had used a linear scale then the gap between rich and poor countries would be far more pronounced. The gap between the richest and poorest countries taken from  the closing and opening screens of this video is at least 100 times today compared with less than 10 times in 1810 (1)

He does mention the catastrophe of WW1 but then fast forwards through The Great Depression and WW2. It is far easier to fast forward through the bad times than live through them or explain them.

His focus is on post 1948, the boom years of capitalism.

By 1985 even in the poorest country, Mozambique on just $366 per year, the average lifespan was three years higher than Britain in 1810.

Wealth has increased but so has inequality. Rosling visually extracts Shanghai out of China towards the end, showing that it is similar in wealth to Italy. Then he extracts the poor inland province, Guizhou, and compares it to Pakistan. Finally, he shows how the even poorer rural part of Guizhou has a wealth index similar to Ghana, Africa. Certainly in this section there is no brushing over the real world problem of inequality in China.

He finishes on an optimistic note. The gap between the rest and the west is now closing. In the future it is possible that everyone can make it to the healthy and wealthy corner with more aid, trade, green technology and peace. Rosling slips into an optimistic version of political correctness in this parting message. This is far more welcome than the prevailing doom and gloom about the future but is still political correctness.

If we assess Rosling’s state of the world against the three criteria outlined in my earlier article, The Achilles Heel of Capitalism, then how does he go?

standard of living has increased dramatically – correct

inequality has increased too – covered well in places, but the logarithmic wealth scale distorts the huge and growing gap here

capitalism is an unstable system which can’t avoid economic crisis – Rosling fast forwards through the bad times

(1) The dynamics of the gap between rich and poor countries is further discussed in Bill Warren’s book, Imperialism Pioneer of Capitalism (1980)

the achilles heel of capitalism

Tyler Cowen The Inequality That Matters

Capitalism has delivered an increased standard of living to those it exploits, which explains its longevity. Although Bill Gates is far, far wealthier than the average joe this in itself will not create a huge problem for the system, provided average joe feels that his or her lot is improving as well. Tyler Cowen’s article compares living standards today with 1911 and concludes correctly that most people feel that capitalism has delivered more prosperity over time.

At the same time, social inequality has increased. But people may put up with increasing inequality as long as their standard of living is not threatened. Once again the statistical facts are clear on increasing inequality and the social fact is clear that overall people put up with it, they don’t take it as sufficient reason to rebel. In practice the moral outrage argument put forward by free market anarchist Kevin Carson (1) (Damning Corporate Capitalism With Faint Praise) is not sufficient for most people to change their outlook. As long as the system delivers for most it is safe.

However, finally, it is the inability of capitalism to avoid economic crisis that is its real achilles heel. Tyler Cowen concludes on a pessimistic note:

“We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are … Is the overall picture a shame? Yes. … Will it again bring our economy to its knees? Probably”

So, after arguing that increasing inequality doesn’t really create a threat to the system, Tyler Cowen concludes that the system is still under threat simply because we don’t understand how it works. Indeed, we don’t yet understand how it works …

(1) See Carson’s Mutualist blog for his own perspectives. In his homebrew manifesto Carson argues that big is bad and advocates resilient neighbourhood, backyard, desktop technologies as a progressive substitute. He has also published a significant study of political economy (Studies in Mutualist Political Economy) Many of Carson’s articles are published at Center for a Stateless Society. I noticed an article there attacking political environmentalism (Green Rising: The Dangers of Political Environmentalism) because extreme Greens value the earth more than humans. Carson and the free market anarchists deserve an extended footnote because these sorts of positions are well worth further discussion.

prognosis for 2011

global economic crisis

Sheldon Filger who maintains a regular commentary on the current economic crisis (Global Economic Crisis) provides this prognosis for 2011:

Among the many clouds on the horizon regarding the global economic outlook for 2011, here are three:

1. Greek sovereign debt crisis not cured by the massive Eurozone and IMF bailout. Knowledgeable observers have pointed out that mathematically, it is not possible for the Greek state to deflate its economy in line with deficit reduction commitments required under terms of the bailout package, while simultaneously engineering a miraculous return to robust economic growth at a level sufficient to service the exploding public debt. There is already word being leaked to the Greek press by government officials that after the current bailout package expires in 2013, Athens will seek to restructure its sovereign debt.

2. Irish banking crisis far from over. After receiving a staggering level of bailout assistance from the EU and IMF to cover the country’s insolvency due to guaranteeing the obligations of Anglo Irish Bank ( along with all other banking institutions in Ireland), the Dublin authorities were forced to inject nearly $5 billion into Allied Irish Banks, another bankrupt institution. As with Greece, it seems almost a certainty that Ireland will eventually seek to restructure its public debt.

3. China, the one ray of hope in the global economy due to massive government injections of liquidity that have led to high levels of supposed growth during the global economic crisis, is now beginning to raise interest rates in a frantic effort aimed at reining in burgeoning levels of price inflation. This could lead to a tightening in the Chinese economy, combined with a catastrophic deflation in the Chinese real estate market. Any downturn in China will reverberate with dire impact on the overall global economy.