{"id":11441,"date":"2023-10-19T23:37:17","date_gmt":"2023-10-20T03:37:17","guid":{"rendered":"https:\/\/www.tempestmag.org\/v01_2020\/staging\/?p=11441"},"modified":"2023-10-21T01:53:56","modified_gmt":"2023-10-21T05:53:56","slug":"why-capitalism-fails","status":"publish","type":"post","link":"https:\/\/tempestmag.org\/test02\/2023\/10\/why-capitalism-fails\/","title":{"rendered":"Why capitalism fails"},"content":{"rendered":"

T<\/span>here is little debate among mainstream, radical, and Marxian economists that periodic crises mark the history of capitalism. In the US and globally, at least forty recessions and depressions, lasting six to eight years on average, have occurred since the early nineteenth century. Each of these cycles is marked by a three-to-four-year boom in investment and production, followed by a contraction in output and investment and a wave of business bankruptcies. In addition to these cycles, there have been at least four long periods of accumulation\u20141869-1914, 1914-1965, 1965-1983, and 1982-2008.<\/p>\n

\"chart
Source, Michael Roberts (2020, February 27), Marx\u2019s Law of Profitability<\/a> at SOAS.<\/figcaption><\/figure>\n

Each of these long, accumulative waves was marked by twenty to twenty-five years of contractions, where recessions were deep and recoveries weak; and twenty to twenty-five years of expansion, where recessions were weak and recoveries strong. There is a general consensus that the capitalist world economy entered a new long period of stagnation and contraction around 2007-2008.<\/p>\n

However, there is little agreement about the causes and consequences of this recurring economic turbulence. Mainstream economists insist that the \u201cmarket economy\u201d (their euphemism for capitalism) should produce smooth and steady growth. Recessions and long-term crises are the result of unexpected and unpredictable \u201cshocks\u201d to the economy. Radical and Marxian economists, on the other hand, argue that economic downturns are a necessary feature of capitalism. As Anwar Shaik argues, <\/a>crises are \u201can absolutely normal phase of a long-standing recurrent pattern of capitalist accumulation in which long booms eventually give way to long downturns.\u201d<\/p>\n

Although radical and Marxian economists agree that capitalism is subject to periodic crises, there is no consensus on what causes crises. Today, most radical economists claim that the root of capitalist crisis is not located in the production process, but in the absence of \u201ceffective demand\u201d\u2014they are crises of \u201cunder-consumption.\u201d In the 1970s and 1980s, most critical economists saw crises rooted in the struggle between capital and labor over wages and profits. These \u201cprofit-squeeze\u201d theorists argued that some combination of wage increases or workers\u2019 successful resistance to speed-up and deskilling led to declining labor-productivity in the 1960s, reducing profits and sparking the global crisis of that era. Finally, the defenders of Marx\u2019s theory of the falling rate of profit argue that crises are a necessary result of the competitively driven process of capitalist accumulation.<\/p>\n

For many on the Left, these debates appear to be abstract, academic disputes with little relevance to political practice. In reality, different socialist strategies rest, implicitly or explicitly, on different crisis theories. This talk will review the three main radical and Marxian theories\u2014under-consumption, profit squeeze, and the falling rate of profit-to determine their theoretical consistency, factual accuracy and political implications. While there is no one-to-one correspondence between a crisis theory and political strategy, under-consumption and profit-squeeze arguments are generally associated with reformist, social-democratic politics. However, revolutionaries have also embraced these theories. We will focus on how each theory crisis defines not merely causes, but a range of possible resolutions of the crisis which then defines the concrete program a radical Left should fight for, and the social forces we rely upon.<\/p>\n

Underconsumption<\/h4>\n

Before the 1970s\u2014and again since the 2007-2008 recession\u2014the dominant crisis theory on the US and global Left is one or another variant of under-con\u00adsumption. Economists associated with the US Communist Party, the Monthly Review school of Baran, Sweezy and John Bellamy Foster, the AFL-CIO aligned Economic Policy Institute, the Democratic Party liberal Paul Krugman and the \u201cpost-modern Marxist\u201d Richard Wolf all argue that recurrent economic crises are the result of capitalism\u2019s lack of any internal mechan\u00adism to generate demand sufficient to buy-back a growing supply of goods and services. In its simplest form, the fact that workers are paid a wage that is less than the value of what they produce is said to give rise to a gap between demand and supply. Under-con\u00adsumption theories, like the profit-squeeze arguments, appeal to many on the anti-capitalist Left because the make the relationship of class forces the root cause of capitalist crisis. As capitalists pursue the greatest profits by restraining wages, they actually destroy the markets for their output, leading to crises.<\/p>\n

The revolutionary socialist Rosa Luxemburg argued that the inability of capitalist to sell their goods at \u201chome\u201d compels them to seek \u201cexternal markets\u201d abroad for their excess supply. She concluded that once the entire world became capitalist, the inability to find markets for goods and services would lead to the collapse of capitalism. Nevertheless, under-consumption theories of crises are usually mobilized to support the creation of a \u201cregulated capitalism.\u201d Many proponents of the theory argue that the \u201cgolden age\u201d of capitalism from 1940 to 1975 overcame the problem of \u2018insufficient demand\u201d through capitalist state policies that redistributed income to workers and provided incentives for capitalist investment. Today they argue that a coalition of union officials, social movement leaders, and \u201cprogressive\u201d politicians like those who lead European social-democratic parties or the US Democratic Party can secure a new \u201cwin-win\u201d solution to the crisis that would raise living standards for workers and increase profitability for capitalists. Put simply, under-consumption theories generally support the reformist claim that capitalist crises can be avoided if the state, as a \u201cneutral arbiter,\u201d can successfully balance the interests of capital and labor\u2014balancing supply and demand.<\/p>\n

Under-consumption theories rest on a fundamentally false assumption about capitalism\u2014that capitalists produce only consumer goods, and the only “market” for consumer goods are the workers who produce them. In reality, however, capitalists produce both consumer and capital goods\u2014machinery, buildings, raw materials and the like. Workers employed in an expanding consumer and capital goods sector can earn enough to buy the output of the consumer goods sector; while capitalists in both the consumer and capital goods sector can spend enough to buy the output of the capital goods sector. As long as capitalists in both the capital and consumer goods sectors are investing, supply and demand can be turbulently regulated, leading to short-term business cycles rather than long periods of growth and stagnation. Continued investment\u2014capital accumulation\u2014ultimately depends upon rising profits. When profits fall, investment slacks, employment drops, and demand for both consumer and capital goods drops\u2014leading to “over-production.” Put simply, “under-consumption” is the result, not the cause, of falling profits.<\/p>\n