Tuesday, August 23, 2016

Marxism Made Easy - Part 4: Crisis

“The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” — Marx, Das Kapital, Vol. III, Ch. 30.

So, in our previous article we discussed capitalist exploitation. Based on this, and other previous articles, we can so far conclude that:

1. Inequality in the form of social classes results from competition in society over a perceived scarcity of resources.

2. This inequality, under capitalism, takes the form of exploitation of the worker by the owner.

Thus, capitalism is inherently based on inequality, and on that ground alone, we should be looking to build a better way of doing things. However, Marx, in his exhaustive analysis, was able to go much further to demonstrate why the capitalist system is always falling into crisis after crisis, and further, why we are faced either with ending capitalism globally or letting it destroy us.

Marx, like all economists, recognized that capitalism moves through periodic crises, what capitalists call the "business cycle" or the "boom-bust cycle." He also looked deeper into the causes not merely of such short term crises but looked much more over the long term and identified a number of different but linked deeper issues. They are as follows.

1. The Tendency for the Rate of Profit to Fall: we have already established in previous articles that the value of a commodity comes from the labor time needed to produce it. Now, take a given industry, such as shoe making, in the old days a cobbler produced shoes by hand, one at a time. It was slow, necessary labor, so the individual value of a shoe was quite high and consequently a new pair of shoes was often a rare treat, the kind of thing one might get from one's parents for Christmas if one was very lucky. However, what happens when I build a machine that can allow one man to make ten such shoes? How much labor value is in each of these new shoes? Clearly not as much, as I have produced a greater amount but the value is divided among multiple shoes. So, each pair of shoes is actually worth less. So, the price I can get for each shoe will also tend to reflect this to the point where now almost everyone in developed countries has multiple pairs of shoes. The productivity of the shoemaker has increased quite a bit, but the rate of profit now gleaned from each product has fallen.  Take an example from the modern world. In 1982, the price of a 5 MB hard drive could reach upwards of $2000; whereas, today, the price of a 1TB external hard drive is not likely to exceed $100.

So, technological innovation creates huge gains in productivity, which is a positive for anyone that can afford it, but of course, machines cost money, and workers continue to want the same, if not greater pay, for their time on those machines. Yet, the rate of profit for each product produced continues to fall, eating away at the owners profitability unless certain things are done to counteract this tendency.

This means that in order to keep profits up, the owner will try to cut wages or fire workers making fewer workers do a greater amount of work. If he can't do these things maybe because the workers have unionized, for example, he may even move his factories to other countries where he can produce ever cheaper products in sweatshop conditions.  The owner may also seek to cut corners. He will cut budgets, wherever possible, sometimes even sacrificing safety standards.

Basically, there are many thing the capitalist can do to hold off the falling rate of profit, which is why Marx calls it a tendency and not a law, but the capitalist can only do so in the short term. What we do tend to see when we look at economies, though, is that capitalists are quite good at holding the tendency at bay, even managing to post record short term profits within major economies. So, if we want to find evidence of the tendency, we have to look at the long term; and yes, we find exactly what we are looking for. Below is a data chart gathered by G. Carchedi, which looks at the average rate of profit in the US industrial sector, per annum.

As you can see, the grey line covers the rate of profit, and despite short term spikes, it does indeed fall.

It is class interest and the resulting struggle that drives this process. Humans are inventive creatures, and workers are humans who want to work less and spend more time with their families, while still enjoying life. To this end, they invent ways to work more efficiently while boosting productivity at the same time. The capitalist is all too happy to use the new innovations to boost productivity and hopefully drive his competitors out of the market, leaving him with a greater mass of wealth and power. Ultimately, this makes for such major gains in productivity and technology that most people in first world countries enjoy historically unprecedented wealth, and it is this wealth and the privileges that go along with it that defenders of capitalism point to as proof of capitalism's effectiveness. The only problem with this is that this wealth basically comes at the expense of everyone else in the world, and drives the world into repeated financial crises.

2. Concentration of Capital: "The rich get richer, the poor get poorer." We have all heard that phrase, and it is inevitable under capitalism. If you've ever played a competitive game with multiple players, Monopoly being a superb example; you know what happens when people compete, players get gradually pushed out and some players pull ahead until finally only one player remains and wins. Capitalism is the real life version of this, except the game doesn't end, the losers stay on the bottom, and the winners continue to get more obscenely wealthy over time. More and more players find themselves pushed out of business, as a few businesses gradually merge and buy each other out.  The corporate media is a great example. Most news media you are exposed to, via TV, internet, newspaper, radio, etc, are owned now by only a handful of companies. 

This concentration of wealth pushes crises, and as inequality grows public, unrest grows with it. If left unchecked, rioting and rebellion are often the result. So, capitalists have a strategy for this as well. They use a fraction of their ridiculous profits to buy off the workers closest to the owners, and use racial identity, sexism, and religion to keep the masses divided against themselves.

3. Proletarianization:  More and more of the populace becomes part of the working class as time goes on, while the few get richer and gain more control. This process continues, and the few become fewer in number, but as this process continues, more and more of the basic functions of society are performed by the workers themselves, making those few owners more and more useless or more and more unnecessary to the actual functioning of society. Where owners used to also be organizers and managers they, increasingly, have workers doing that work. as well.  Essentially, the capitalists are training their replacements, and digging their own graves in the process. What happens when the workers realize this fact?

4. Crisis of Realization: The value of a product comes from the labor put into it, but that value is only realized when the product is bought. If the commodity can't be sold, the value goes to waste. Anyone who has ever worked in the food industry knows how much perfectly good food ends up in the garbage; all the while, people are starving. Doesn't make much sense does it?  Capitalism produces huge surpluses, and is quite good at producing much more of a product than we need. This is because capitalists aren't driven by, and don't plan based on actual needs, they plan based on profit. This is because distribution is based on price, and resources go unequally to those that can most afford them, not to those who most need them. 

So, capitalism creates a situation where it is constantly trying to push wages down to keep profits up, but the people producing the goods are also the people who are supposed to buy them. If the buyers can't afford to buy or don't want all of what is being produced, one has a crisis of overproduction. This a crisis of realization because all the value being produced can't be "realized." This results in huge waste, which again eats into profitability, as the owner has to account for the lost profit on his investment. He is forced to lay off workers, cut investment, and crisis ensues yet again.

5. Imperialism: Capitalism has to grow to survive, as it is wealth in motion, and profitability as we have seen, must be maintained at all costs. This requires new markets to sell to, which in the old days drove settlers around the world, colonizing and conquering their way across the globe until every tract of land was bought up. However, what happens when you run out of new lands to conquer or colonize? Where do you get growth when there is nowhere else to grow?

The answer is imperialism. The capitalists in the biggest nations start recarving up the existing markets, liquidating old wealth, and destroying the old markets to make room for new ones. All of the wars of the 20th and 21st centuries are basically wars of this type. This is why capitalism drives warfare. It needs to grow. Big business needs the investment opportunity that war provides, and this is why war is always good for business. Is is why the defense industry, or the, "military industrial complex," is so big and so terrible. 

Of course inside the capitalist nation, a similar process occurs. Neighborhoods are knocked down for new investment, and their inhabitants are driven out. Large sections of the population are imprisoned for profit, and police are increasingly militarized to keep anyone from considering armed resistance.

6. Collapse of Credit:  A collapse of credit occurs when a wave of bankruptcies sweeps through a market. When the demands of profitability outgrow the amount of real wealth available, people and governments often use "fictitious capital," or credit, to continue their gains. In other words going into debt, to invest on the promise of future gains. A solid 98% of modern financial transactions are essentially based on this fictitious form of capital. What happens when all of this debt accumulates What happens when the ability to pay these mass debts back doesn't materialize?  History has shown us exactly what happens. Collapses, like the Great Depression that hit Wall Street in October of 1929, or the 2008 housing and mortgage crisis, which is now called the "Great Recession," are the result.

7. Environmental Devastation: Modern Marxists have encountered a problem that Marx never really had to deal with in his time. This problem is global climate change. As we have seen, the drive for profits requires infinite growth, which must be fed by infinite resources. However, we plainly live on a finite planet, and many resources are just not sufficiently capable of covering the ever increasing demands of market forces. At the same time, cost cutting measures frequently result in environmental abuses. Capitalism, in other words, as it consumes every resource available, is devouring our life support system along with them. Is there a bigger crisis caused by capitalism than this? Can there be a bigger reason to destroy it than that the fact that it threatens our very existence and that of countless other species?  As the climate gets worse, the need for change becomes more urgent by the day, and the longer we wait, the greater will be the hardships our species will face in the future.

To Wrap Up:  I know this article sounds pretty grim. Things may seem hopeless and overwhelming in the face of an entire global system of resource extraction that is backed up by a high tech military, a sophisticated propaganda machine in the public media, and popular consent. Do not worry; though, for, there is hope, and there are effective answers to the problems we are faced with. This is what the next few articles in this series will focus on....


  1. Well written basic explanation of capitalist crises. I would add 2 things: that in the Reduction phase of capitalism (in which we now live) accumulation reaches a level that denies maintenance investment in basic infrastructure. Transport, water & sanitation, safety schemes, housing, education, all of these begin to break down. The level of accumulation is so high that sufficient funds to maintain the immense structure are not longer made available by the capitalist class. The second phenomenon of Reduction is the transformation of political systems to reflect the concentration of wealth and rate of accumulation. In short, democracy is gutted, republican systems function in a contradictory way, government policy and law not only do not accomplish basic functions, it becomes increasingly obvious that state power and the accumulated capital are working against the maintenance of society itself.

  2. I wish blogspot had a like function lol. thank you for the input!