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How Does Capitalism Solve This Problem?

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Back in December 2008, the former OECD economist Gerald Holtham pointed out in Prospect magazine that after exchange controls were abolished in the 1980s, labour was weakened relative to capital, as capital flowed freely to wherever it could find the highest profit – "a change reflected in the relative share of profits and wages". He added that this produced the central problem of the globalised economic system: "If profits and output rise persistently faster than wages, who will buy the output?"

Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

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Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

Profits and output can only rise faster than wages for as long as there are people to buy the output.

Once we reach the point where there is no-one left to buy the output, profits and output will fall.

This is self-correcting situation so no "policy response" is required.

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Profits and output can only rise faster than wages for as long as there are people to buy the output.

Once we reach the point where there is no-one left to buy the output, profits and output will fall.

This is self-correcting situation so no "policy response" is required.

I've an idea! - give all those on wages lots of debt and they can carry on buying! It might catch on.

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I've an idea! - give all those on wages lots of debt and they can carry on buying! It might catch on.

Unluckily for many, it has.

Luckily for some, they chose to adjust their spending to reflect changing circumstances rather than funding previous levels of expenditure with increased debt.

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Profits and output can only rise faster than wages for as long as there are people to buy the output.

Once we reach the point where there is no-one left to buy the output, profits and output will fall.

This is self-correcting situation so no "policy response" is required.

As the subsequent poster pointed out, capitalism's response to this was to increase credit, thus making a bad situation worse.

To put it another way, using your logic, death is a self-correcting treatment for pretty much any disease... besides, even if "doing nothing" didn't essentially amount to "let things get as bad as they can", it still implies that wages will only rise just enough to keep things ticking over.

Marx may have a been a bit of a dick, but isn't it also possible that the principal of profits belonging to the workforce might make sense from a capitalist POV as well as a communist one?

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Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

Henry Ford understood that the system relied on him paying his workers a good wage so they could afford to buy his products.

Someone posted a graph on here a week or so ago which showed that, over the past few decades, workers have seen their share in the value add of manufacture drop from 26 percent (or thereabouts) to 12 percent (or there abouts). Instead of providing the workers with wages, they were provided with credit cards. I presume this drop in the share in the profits created by those who do the work has lead to the increase in the gini coefficient we have seen across most western nations.

The giants of the past, the quaker businesses, and Ford, have been replaced by a lesser race of cannibalistic pygmies running amok in the ruins.

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Henry Ford understood that the system relied on him paying his workers a good wage so they could afford to buy his products.

Yep, and Marx was right in as far as he observed that the effect of this* is to raise the cost of production until someone in a place with lower labour costs can undercut you. Then the same happens to them and the cycle continues - until the eventual heat-death of capitalism.

*and of paying them enough to stop them getting all uppity, too

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As the subsequent poster pointed out, capitalism's response to this was to increase credit, thus making a bad situation worse.

To put it another way, using your logic, death is a self-correcting treatment for pretty much any disease... besides, even if "doing nothing" didn't essentially amount to "let things get as bad as they can", it still implies that wages will only rise just enough to keep things ticking over.

Marx may have a been a bit of a dick, but isn't it also possible that the principal of profits belonging to the workforce might make sense from a capitalist POV as well as a communist one?

Sticking to your death analogy, no amount of spending, regulation or legislation will change the fact that people eventually die.

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Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

Capitalism solves it by removing the monopoly on capital creation.

Theres ****** all chance of that though, for obvious bankster related reasons.

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Yep, and Marx was right in as far as he observed that the effect of this* is to raise the cost of production until someone in a place with lower labour costs can undercut you. Then the same happens to them and the cycle continues - until the eventual heat-death of capitalism.

*and of paying them enough to stop them getting all uppity, too

Which is why some form of protectionism is required. Comparative advantage is good - absolute advantage is a race to the bottom.

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As the subsequent poster pointed out, capitalism's response to this was to increase credit, thus making a bad situation worse.

To put it another way, using your logic, death is a self-correcting treatment for pretty much any disease... besides, even if "doing nothing" didn't essentially amount to "let things get as bad as they can", it still implies that wages will only rise just enough to keep things ticking over.

Marx may have a been a bit of a dick, but isn't it also possible that the principal of profits belonging to the workforce might make sense from a capitalist POV as well as a communist one?

Who/what allowed such a high level of credit to be extended in the first place?

Do you think people would have been comfortable with the banks lending out 97% of 'their' money, if they had 1. known and 2. knew there were no deposit guarantees?

Would people have borrowed so much, if interest rates had been set by the free market, with the credit supply being dictated purely by the savers' willingness to risk their money?

Without the central planners dictating monetary policy from on high, the credit would have ran out long before such imbalances would have accumulated.

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Which is why some form of protectionism is required.

Post-war social democracy was an attempt to dilute raw capitalism sufficiently that it didn't kill its host - like a virus, or maybe more like a symbiont. Remove the moderating factor and capitalism flourishes - until it kills the whole system.

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Do you think people would have been comfortable with the banks lending out 97% of 'their' money, if they had 1. known and 2. knew there were no deposit guarantees?

Yes, if the promised returns were high enough. See the Icelandic banks - anyone with half a brain could see that they were offering over-the-odds returns and a shedload of risk. It didn't stop people chucking their savings at them.

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Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

All the wealth rises to the top under capitalism until a small number of 'elite' have control.

When 98% have no quality of life they will rebel and will attempt to remove the 2%.

Hope the 2% have strong gates and high fences.....

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Once we reach the point where there is no-one left to buy the output, profits and output will fall.

no, that is not what will happen. profits will continue to be extracted by ejecting the bankrupt from monetary society and then appropriating all their remaining assets to those that caused their bankruptcy and then rehiring them for a wage of zero and bread and water diet - actual slaves, not wage slaves. The way people will be made bankrupt is by firing them from the workforce and keeping them from getting another job, and then sending the government enforcement services to appropriate their remaining assets they haven't already sold off trying to keep afloat.

This can continue as long as more non-bankrupt workers remain to be consumed in this way.

This is actual truth of the self correcting mechanism. Profits will always remain above wages no matter how low wages go. When they go to zero, those people will work for nothing.

Why give your employees the means to stop being your employees, and why stop taking more than your give if you don't have too?

I call this un-growth. Of course it can't go on very long before bloody civil war.

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Unluckily for many, it has.

Luckily for some, they chose to adjust their spending to reflect changing circumstances rather than funding previous levels of expenditure with increased debt.

Not many people did that though, and the minority who carried on living within their means have suffered because of what other consumers were doing. If somebody offered to sell you a speedboat for £10k and you said, "no thanks, that'll take me ages to save up for so I'll pass" while your neighbour said "£10k, sure, I'll just whack it on the cards" then the market price for speedboats is set at £10k. The willingness of the majority to spend using debt has driven up the cost of living for everybody whether they like it or not.

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Guest Steve Cook

All the wealth rises to the top under capitalism until a small number of 'elite' have control.

When 98% have no quality of life they will rebel and will attempt to remove the 2%.

Hope the 2% have strong gates and high fences.....

yup

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Not many people did that though, and the minority who carried on living within their means have suffered because of what other consumers were doing. If somebody offered to sell you a speedboat for £10k and you said, "no thanks, that'll take me ages to save up for so I'll pass" while your neighbour said "£10k, sure, I'll just whack it on the cards" then the market price for speedboats is set at £10k. The willingness of the majority to spend using debt has driven up the cost of living for everybody whether they like it or not.

Agreed.

The existence of debt has driven up the living costs for everyone. Some choose to live a financially sustainable, debt free lifestyle. Others choose to get the speedboat / house / 4x4 / holiday etc etc.

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Agreed.

The existence of debt has driven up the living costs for everyone. Some choose to live a financially sustainable, debt free lifestyle. Others choose to get the speedboat / house / 4x4 / holiday etc etc.

the process of ungrowth will not distinguish between these categories of consumer though.

The first to pay will be the young, the school leavers and so on who have not been responsible for either credit expansion or excess consumption.

those with STR funds and no job and no prospect of getting one will have the purchasing power of their STR fund transferred over a period of months or years to the group people who made the decision to fire them.

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yup

But if the "banks"[ bondholders rich etc] weren't bailed wouldn't that have had a diiferent effect?

Their bankruptsy would lead to a distribution of their built up resources.

EG Massive Landowner goes bankrupt, land broken up and sold.

I always thought [ did a level economics too many years ago] that capitalism is balancing?

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Profits and output can only rise faster than wages for as long as there are people to buy the output.

Once we reach the point where there is no-one left to buy the output, profits and output will fall.

This is self-correcting situation so no "policy response" is required.

Exactly.

Just look at the past centuries. Globalisation is not new. It's happening since the discoveries era. It just accelerated since the industrial revolution. Development has been spreading since. And at no cost to the previously developed nations - quite the opposite actually, the global economy growth in the next few years will help us, not hinder us.

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"Back in December 2008, the former OECD economist Gerald Holtham pointed out in Prospect magazine that after exchange controls were abolished in the 1980s, labour was weakened relative to capital, as capital flowed freely to wherever it could find the highest profit – "a change reflected in the relative share of profits and wages". He added that this produced the central problem of the globalised economic system: "If profits and output rise persistently faster than wages, who will buy the output?""

Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

Personally, I'd suggest the last is the best option - if only because it looks like the only achievable one...

Er ... the fundamental premise of the argument is wrong.

Foreign Exchange Control Regulations of the People's Republic of China (Amended in 2008)

Article 1 The Regulations are formulated with a view to enhancing foreign exchange control, promoting the imbalance of international payments, and advancing the sound development of the national economy.

(evident typo in the regulations corrected :))

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Can capitalism alone find an answer to this, or does it need a global trade-union movement, or coordinated wage-regulation across nations, or perhaps nationally-implemented protectionism?

International protectionism (trade blocs of nations with similar outlooks and levels of development) plus a military resource grab IMO.

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But if the "banks"[ bondholders rich etc] weren't bailed wouldn't that have had a diiferent effect?

but the result of not bailing the banks would be that little mom and pop savers, you know, prudent types, would have lost their savings. That's what happened in the great depression.

I always thought [ did a level economics too many years ago] that capitalism is balancing?

:lol:

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  • 146 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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