Thursday, February 24, 2011

Capitalism is Inherently Unstable

One of Marx's most fundamental arguments is that capitalism is characterized by a number of inherent contradictions. Such as:

1.  Increasing investment in technology reduces the rate of accumulation of surplus value (the amount of human labor in excess of the wages actually paid), and hence, profit.  This is because technology reduces the proportion of human labor embedded in each commodity. Also, as technology develops, production cycles become ever more rapid. This means that there is a greater likelihood that any given technology will become competitively obsolete before the capitalist is able to recoup the cost of the investment (let alone profit from it).

2.  The profit motive seeks to lower wages and expand demand. In other words, workers have less purchasing power, but are expected to buy more.

As a result of these factors, capitalism is subject to continuous cycles of expansion and contraction.  Crises are inevitable.

In addition, for any person who wishes to start a capitalist enterprise, the risks and costs of initial investment become more prohibitive as capitalism develops, for the following reasons:
  • the shortening cycles of production mentioned above
  • globally organized vertical integration (to be most efficient, you must have all stages of the production process under your control)
  • following from the quickening pace of production cycles, the increasing importance of Research & Development (constantly finding new ways to out-do competitors) also raises the investment costs and potential risks (unfruitful research)
Because of the heightened difficulties of realizing surplus value and maintaining profitability, capitalist interests resort to two ultimately self-destructive strategies:  limiting competition and trying to manufacture demand (e.g. Keynesianism). According to Marx, the results of these dynamics are:

1.  Increasing centralization of capital (monopolies, huge corporate conglomerates)

2.  Expanding state interventions (subsidies, credit expansion, inflation)

3.  Increasing personal, public, and private indebtedness (since personal and public "deficit spending" is encouraged in order to prop up demand)

State interventions and debt-fueled booms (bubbles) can only slow down the decline of capitalist accumulation for so long.

Ultimately, capitalism is difficult to sustain because, while the total value (corresponding to the total number of hours of labor available) remains fixed, an increasingly small number of people are enabled to draw upon a larger proportion of the pool, thus straining the entire system.  If the pool is fixed there must be limits to the accumulation of wealth, while capitalist accumulation constantly strives to push beyond these limits. Capitalists try to sustain their profits in the face of this reality by driving unnecessary consumption and massive indebtedness:  obviously not a viable solution in the long run.

Thus, capitalism is ultimately unsustainable.

1 comment:

  1. for further reading: prof david harvey who teaches kapital wrote a book called "17 contradictions and the end of capitalism". you don't have to buy the book of course, you can also listen to various speeches, presentations and interviews of or including him. have a go!