Was Marx Right About Capitalism?

[goldbug9999]

But this is a free market success story- the forces of competition has squeezed both wages and margins to make TV's both abundant and cheap.

Yet to you this is a problem?

Your the only one who sees it as a problem.

And your solution to this 'problem' is to suggest that everyone move on to activities where the free market is less efficient?

An "efficient" free market naturally targets "inefficient" areas of productive capacity and drives them to improve.

The issue here is not that people don't want the TV's- it's that the process of making them has become so efficient that the margins to be made by doing so are unsustainable.

If something gets over produced then production merely scales back to the level at which it is profitable. Cant understand whats so difficult to grasp about that.

[wonderpup]

As mfp123 said pages ago, the price of stuff goes down at the same rate. How could it be any other way?

To a man with no job price is not relevant- what ever the price is he cannot afford to buy. There's also the problem that the value of your labour might decline to the point where you can just about afford the basics of life- good luck with the 'consumer economy' if too many people find themselves in that position.

Cheap labour will not reduce the cost of energy and even food- which is already more or less a mechanised process.

[wonderpup]

Yet TVs are still made and still bought. Who would have thought it?!

Making and selling things is not that hard- the problems arise when the margins shrink to the point where there's very little profit to be made by doing so. The point of the TV example was that due to increased productivity and competition the profits were being squeezed out of the process- creating a need for further productivity gains in an attempt to maintain margins.

The problem is that one man's productivity gain is another man's redundancy notice. So if we assume that technological advance does not arbitrarily cease it clear that the dynamic of the competitive market will drive innovation aimed at reducing wages and eliminating jobs- the jobs that provide the demand for which the productivity is created in the first place.

It is a good thing: Efficiency = good, aggression = bad.

Food = Good, Obesity = bad. Context matters here.

Might there be a tipping point at which production becomes so efficient that too many people find they have no way to make a living- resulting in a social implosion as the have not's decline to accept their exclusion from the abundance they see around them?

You assume that the mere fact of abundance in itself ensures that we will all share in it. Yet we know that even as we type these words people out there are starving to death. So the mere fact that abundance might exist does not guarantee that all will share in it.

[Injin]

To a man with no job price is not relevant- what ever the price is he cannot afford to buy. There's also the problem that the value of your labour might decline to the point where you can just about afford the basics of life- good luck with the 'consumer economy' if too many people find themselves in that position.

Cheap labour will not reduce the cost of energy and even food- which is already more or less a mechanised process.

It's not a problem as long as the man with no value is allowed to use the vast array of natural resources the world contains.

[wonderpup]

Your the only one who sees it as a problem.

No- the poster I was responding to clearly sees 'overproduction' to be a problem;

The aticle first posted was also silly, in the first sentence the author nails the problem in the first sentence, over production

An "efficient" free market naturally targets "inefficient" areas of productive capacity and drives them to improve.

That is what is supposed to happen yes. So the long term trajectory of this process is a productivity that drives both wages and profit margins downward- which means the more effeciant you become, the lower the wages and the profits become.

If something gets over produced then production merely scales back to the level at which it is profitable. Cant understand whats so difficult to grasp about that.

You are overlooking the fact of competition. If you 'scale back' and your competitors do not they will steal market share. You are obliged to compete in order to stay in the game.

The problem of 'overproduction' is the long term outcome of efficiency- Embedded in the DNA of Capitalism is the drive to create 'overproduction' in everything.

So in the free market you have a construct that seeks to maximise the availability of the things it sells- and one of the ways it tries to do this is by eliminating the wages of those it wishes to sell those increasingly available things to.

So the mechanics of the free market in effect seeks to maximise overproduction while eliminating demand.

This is not a stable long term arrangement when combined with a technology that is accelerating it's ability to do both.

Edited July 16, 2013 by wonderpup

[wonderpup]

It's not a problem as long as the man with no value is allowed to use the vast array of natural resources the world contains.

He is allowed to use them- as long as he can pay.

[Injin]

He is allowed to use them- as long as he can pay.

Why would he have to pay to use the worlds natural resources?

[Guest_GradualCringe_*]

But this is a free market success story- the forces of competition has squeezed both wages and margins to make TV's both abundant and cheap.

Yet to you this is a problem?

And your solution to this 'problem' is to suggest that everyone move on to activities where the free market is less efficient?

The issue here is not that people don't want the TV's- it's that the process of making them has become so efficient that the margins to be made by doing so are unsustainable.

Which is precisely what Marx was pointing out- at a certain point a hyper productive capitalism would become unsustainable as it would be driven to eliminate both workers and margins by competitive forces.

No, markets are a mechanism for finding out what people want.

No, in a market based economy it's a problem for the producers of the televisions.

No, it's simpler than that, just make and do things that there is demand for.

The falling profit margins and/or bankrupcy are a signal that televisions are being over produced, and to therefore not produce as many televisions, slapping an automation tax on the producers won't make more people buy televisions or allow these companies to pay their workers more from declining profits.

In a collectivist economy, however, over production can be a massive problem.

For example Mao, who, in the absence of the discipline of prices and proft, continued to coerce peasants to produce useless steel in their back gardens (among other silly economic pushes), until 20-40 million people starved to death.

Marx too describes the symptoms of over production (making products in the face of ever dwindling demand), confuses it with high productivity, and rather ironically goes on to advocate a collectivised economic system that rather than managing over production, causes it to become chronic and then ruinous.

[Traktion]

To a man with no job price is not relevant- what ever the price is he cannot afford to buy. There's also the problem that the value of your labour might decline to the point where you can just about afford the basics of life- good luck with the 'consumer economy' if too many people find themselves in that position.

Cheap labour will not reduce the cost of energy and even food- which is already more or less a mechanised process.

Even if this were the case*, it would be a problem of how the spoils of efficiencies are distributed, not that efficiency gains are in any way bad.

[* Which I disagree with - in a free market anyone can trade with anyone else, using any currency they wish, accessing natural resources as required, even using their social capital as needed.]

Edited July 17, 2013 by Traktion

[Traktion]

You are overlooking the fact of competition. If you 'scale back' and your competitors do not they will steal market share. You are obliged to compete in order to stay in the game.

The problem of 'overproduction' is the long term outcome of efficiency- Embedded in the DNA of Capitalism is the drive to create 'overproduction' in everything.

So in the free market you have a construct that seeks to maximise the availability of the things it sells- and one of the ways it tries to do this is by eliminating the wages of those it wishes to sell those increasingly available things to.

So the mechanics of the free market in effect seeks to maximise overproduction while eliminating demand.

This is not a stable long term arrangement when combined with a technology that is accelerating it's ability to do both.

This is such nonsense. The market is very good at not overproducing stuff, because there is no demand for it. Who is going to fund the development of stuff when no one wants or needs it?

Again, you miss that stuff getting cheaper benefits everyone, at the same time as lowering wages of those making stuff. There is a net gain here - overall, people get what they want, for less through increased efficiency.

I really don't know why you persist with this argument. It makes little sense.

[Guest_GradualCringe_*]

This is such nonsense. The market is very good at not overproducing stuff, because there is no demand for it. Who is going to fund the development of stuff when no one wants or needs it?

Again, you miss that stuff getting cheaper benefits everyone, at the same time as lowering wages of those making stuff. There is a net gain here - overall, people get what they want, for less through increased efficiency.

I really don't know why you persist with this argument. It makes little sense.

To add to your argument, some of the worst cases of over production (to the point of ruin), have happened in collectivised economies. The most ruinous example being Mao and the "Great Leap Forward" where literally millions starved.

Given the absolute litany of historical precedent clearly showing this fatal flaw of collectivised economies, I find it strange that advocates of Marx would say that "capitalism is driven to over produce, and that collectvisation is the answer" without the least hint of irony (To quote Wonderpup once more):

"The problem of 'overproduction' is the long term outcome of efficiency- Embedded in the DNA of Capitalism is the drive to create 'overproduction' in everything. So the mechanics of the free market in effect seeks to maximise overproduction while eliminating demand."

It is plain to see, that in market economy, where people have a choice of producing televisions (to use the original example), and a choice to purchase them, the chances for over production are mitigated and far less problematic, than if people are forced to produce televisions by politial command against all reason, logic, or evidence (i.e. abject lack of demand) to do so.

Finally, Marx erroneously conflated high productivity and over production.

Edited July 17, 2013 by GradualCringe

[Ah-so]

The problem is that one persons lower price is another persons lost job. I think Marx's point was that Capitalism would blow itself up before utopia arrived as the social stresses it created became unmanageable.

We are well on the way to the demonisation of the unemployed and the under employed- and this trend will continue as more jobs are automated out of existence. Rather than deal with the reality that decently paid full time jobs are now in a declining trend the political choice has been made to recast the victims of this process as the perpetrators of it.

I am sure that a Marxist has written something like this every year for the past 150 years.

'The end is nigh'. And this time it's for real.

[wonderpup]

This is such nonsense. The market is very good at not overproducing stuff, because there is no demand for it. Who is going to fund the development of stuff when no one wants or needs it?

Right- too much productivity erodes profitability due to demand constraints to the point where margins (and wages) are squeezed razor thin.

Yet competitive forces drive a constant need to improve productivity- a big part of which is to pay less wages to fewer people.

So the more productive we become the less profits we will make-assuming we have competitors.

So we have system that is driven to erode it's own profitability while eliminating the wages that are the source of it's demand.

If the real outcome of constantly improving productivity is progressively lower margins and lower demand- how can this be seen as a system in equilibrium?

Will it not eventually run out of road?

[wonderpup]

To add to your argument, some of the worst cases of over production (to the point of ruin), have happened in collectivised economies. The most ruinous example being Mao and the "Great Leap Forward" where literally millions starved.

Given the absolute litany of historical precedent clearly showing this fatal flaw of collectivised economies, I find it strange that advocates of Marx would say that "capitalism is driven to over produce, and that collectvisation is the answer" without the least hint of irony (To quote Wonderpup once more):

"The problem of 'overproduction' is the long term outcome of efficiency- Embedded in the DNA of Capitalism is the drive to create 'overproduction' in everything. So the mechanics of the free market in effect seeks to maximise overproduction while eliminating demand."

It is plain to see, that in market economy, where people have a choice of producing televisions (to use the original example), and a choice to purchase them, the chances for over production are mitigated and far less problematic, than if people are forced to produce televisions by politial command against all reason, logic, or evidence (i.e. abject lack of demand) to do so.

Finally, Marx erroneously conflated high productivity and over production.

You misunderstand- I am not arguing that Marx was right about Socialism- I am arguing that he may have been right about Capitalism.

However the point about overproduction is more subtle than it first appears.

Take the extreme example; someone invents a device that can literally create any desired object out of thin air-including itself. Its obvious that the 'products' of such a device-if we all had one- would be impossible to sell- they would not be 'worth' anything in the sense that they would have no trade value.

So abundance is the enemy of trade- the more abundant a thing becomes, the less trade value it will create.

Yet the great virtue of the free market system is that it drives ever higher productivity in an attempt to lower prices to gain a competitive edge. And let's not deny here that Capitalism has indeed created an abundance of things that would seem almost magical to our ancestors- we live in an age of abundance.

But if abundance is the enemy of trade then might there come a time when the very productivity of such a system- in particular it's ability to produce more and more with less and less need for labour- will generate such social dislocations that it implodes?

We are a trade based species- trade is the cement that binds us together. A hyper efficient Capitalism risks dissolving that cement as the twin forces of unemployment and margin compression combine in a socially toxic mixture.

[wonderpup]

I am sure that a Marxist has written something like this every year for the past 150 years.

'The end is nigh'. And this time it's for real.

150 years is not a long time. The Roman empire worked well for most of it's 500 year history- until a financial crisis finally brought it down.

Marx's point was not that Capitalism would fail- it was that it would succeed- and in doing so bring about it's own demise.

His view was that the endless drive for ever more efficient means of production would culminate in a system in which profit became ever more elusive as margins shrank and wages were squeezed leading to less demand- a vicious circle of higher productivity leading to lower profits and demand leading to a need for even higher productivity.

So to Marx it was the Capitalism's virtues that would destroy it, not it's vices.

[Traktion]

Right- too much productivity erodes profitability due to demand constraints to the point where margins (and wages) are squeezed razor thin.

Yet competitive forces drive a constant need to improve productivity- a big part of which is to pay less wages to fewer people.

So the more productive we become the less profits we will make-assuming we have competitors.

So we have system that is driven to erode it's own profitability while eliminating the wages that are the source of it's demand.

If the real outcome of constantly improving productivity is progressively lower margins and lower demand- how can this be seen as a system in equilibrium?

Will it not eventually run out of road?

In a free market, how can there not be equilibrium? How can you sell something without a buyer?

Moreover, while ever there is demand, there will be people stepping in to supply to it. It has always been thus.

Wages and prices are directly linked. There may be a problem with distribution (as mentioned previously), but not from efficiency in itself - it is a net benefit.

[Traktion]

You misunderstand- I am not arguing that Marx was right about Socialism- I am arguing that he may have been right about Capitalism.

However the point about overproduction is more subtle than it first appears.

Take the extreme example; someone invents a device that can literally create any desired object out of thin air-including itself. Its obvious that the 'products' of such a device-if we all had one- would be impossible to sell- they would not be 'worth' anything in the sense that they would have no trade value.

So abundance is the enemy of trade- the more abundant a thing becomes, the less trade value it will create.

Only you could see a machine that makes anything/everything for free as a bad thing!

When something is super abundant, you don't need a market. This should be obvious.

Yet the great virtue of the free market system is that it drives ever higher productivity in an attempt to lower prices to gain a competitive edge. And let's not deny here that Capitalism has indeed created an abundance of things that would seem almost magical to our ancestors- we live in an age of abundance.

But if abundance is the enemy of trade then might there come a time when the very productivity of such a system- in particular it's ability to produce more and more with less and less need for labour- will generate such social dislocations that it implodes?

We are a trade based species- trade is the cement that binds us together. A hyper efficient Capitalism risks dissolving that cement as the twin forces of unemployment and margin compression combine in a socially toxic mixture.

Clearly, there are plenty of things which are sufficiently scarce for trade to be advantageous.

I still can't see why you get all gloomy about this. Efficiencies are reducing scarcity every day and here you are saying it is a bad thing. I just don't get your point. Sorry!

[wonderpup]

In a free market, how can there not be equilibrium? How can you sell something without a buyer?

Moreover, while ever there is demand, there will be people stepping in to supply to it. It has always been thus.

Wages and prices are directly linked. There may be a problem with distribution (as mentioned previously), but not from efficiency in itself - it is a net benefit.

How can it be a net benefit if the distribution is broken? It will be a zero sum game in which those who are in a position to control the distribution keep it for themselves and exclude the rest.

[wonderpup]

Only you could see a machine that makes anything/everything for free as a bad thing!

When something is super abundant, you don't need a market. This should be obvious.

The problem being that you don't move instantly from where we are now to a market free utopia- what you get is a transition period during which the market system remains in force- but more and more people become excluded from it as they are replaced by technology.

Marx's point was that the social chaos that would ensue as capital became more ever more efficient at capturing the gains of production would lead to it's collapse simply because life would become increasingly difficult for those Capitalism discarded.

Unemployment is a numbers game- a few million destroyed lives here or there don't count for much- but there will be a critical mass of unemployed that will blow up the system- and we have a planet full of clever people who are constantly striving to bring this about.

Edited July 18, 2013 by wonderpup

[Traktion]

How can it be a net benefit if the distribution is broken? It will be a zero sum game in which those who are in a position to control the distribution keep it for themselves and exclude the rest.

Efficiency is a net benefit, as long as distribution is not broken.

You have asserted that efficiency is a problem in itself. I have asserted that this is false and the only problem is distribution. If you are in agreement, great - you can knock off this rubbish about efficiency gains being bad and concentrate on the real problem then (i.e. who gets the spoils from the efficiency gains).

[Traktion]

The problem being that you don't move instantly from where we are now to a market free utopia- what you get is a transition period during which the market system remains in force- but more and more people become excluded from it as they are replaced by technology.

Marx's point was that the social chaos that would ensue as capital became more ever more efficient at capturing the gains of production would lead to it's collapse simply because life would become increasingly difficult for those Capitalism discarded.

Unemployment is a numbers game- a few million destroyed lives here or there don't count for much- but there will be a critical mass of unemployed that will blow up the system- and we have a planet full of clever people who are constantly striving to bring this about.

Sure, but lets be clear: It is a problem of distribution, not of improving efficiency.

There are many ways to improve distribution, but resisting efficiency gains to avoid having to deal with this is counter productive; it's a bit like cutting your nose, to spite your face.

[northern-git]

So far as my limited understanding of Marxism extends, according to Marx capitalism contains the seeds of its own destruction. What I think he was essentially getting at is that, as Wonderpup has already explained, the endless competition between industrialist bosses would inevitably lead to a collapse of their customer base. This, in turn, would lead to civil unrest and, eventually, revolution.

The reason for the above is the need for profit. In its most essential form, profit may be defined as a situation whereby you exit an economic transaction with more resources than when you went in. In order for anyone to extract a profit, a loss must be incurred by someone, or some thing, somewhere else. Either the supplier of the raw materials makes a loss, or the manufacturer makes a loss, or the retailer makes a loss, or the customer makes a loss, or the workers all the way up the production chain makes a loss. Someone or something has to make a loss. The above leads to the paradox of a situation where the ideal for any capitalist would be to do away with all workers and automate all production since this would prove to be the most profitable arrangement. However, those workers are also their customers. Thus, in doing away with them, they have destroyed their customer base's capacity to spend money on buying their products.

Growth is the only thing that has allowed capitalism to paper over this fundamental flaw in its heart and so allow it to last for as long as it has. Which, in historical terms, is not very long at all. This is not to say that any system of human organisation would not have run up against the same resource buffers. It's just that capitalism has proved to be very efficient at getting us here. In this sense, whilst resources are available to enable growth to occur, the "loss" is incurred by the Earth itself. Now that growth is no longer physically possible due to resource constraints in the context of a world where every man and his dog (understandably) now wants a Western lifestyle, the days of win/win capitalism are over. In a static or contracting economy all profits must be balanced with losses.

Or, to put all of the above more succinctly: Capitalism does not work in a static or contracting economy unless one is prepared to accept considerable levels of bankruptcies/social unrest etc. Fractional reserve banking (FRB) stimulates and amplifies economic growth by borrowing from the future and so avoids, for a time, the inherent flaw in capitalism. The earth has finite amounts of easily accessible industrial resources eventually resulting in a situation where growth has stopped. Capitalism's inherent flaw is exposed.

I should expand, here, on a subsidiary but very important factor. That of fractional reserve banking. FRB, as I am sure many of you on here understand, is a financial process whereby if I go to a bank and borrow money from them I must pay it back with the monetary fruits of my own future productive activities. The money that the domestic bank lent to me, they also borrowed from a commercial bank. The commercial bank lent that money into existence. Or, rather, multiplied it into existence on the back of an initial injection into the system of a small amount of base money by a CB. Thus, ultimately, central banks/commercial lenders decide how much is lent into existence to you and me based on an assumption of how much productive activity will be happening in the future such that the lending can be repaid. Of course, the reality of how the credit trickles down through the system is far more tortuous and indirect than the schematic, above. But, in principle, this is how our FRB "money" supply grows.

FRB, in the above conceptualisation, may be seen as borrowing from the future. Or, if you prefer, FRB is a form of the lending of the future to today. The semantics of the description matter less than the actuality of the process. FRB has been yet another weapon in the armoury of capitalism whereby the losses incurred today can be papered over. In FRB's case, by drawing down profits from the future. Thus, economic growth is accelerated under an FRB system of money creation.

However, there is a fundamental truth we all know in our guts and which science has merely formalised. Namely, that there is no such thing as free lunch. As long as there are a large amount of resources, we can pretend, for a while, that there is. Once we hit the limits of those resources, though, FRB stops working as a consequence of the future failing to honour the FRB promises of today. At that point, we get economic collapse (the current crisis is the beginning of that collapse). From now on in, in order for profits to be maintained, someone has to lose for someone else to gain.

Perpetual economic growth is over. A money supply that is increased over time via FRB credit is over. Capitalism is over.

The future will be either some form of socialism or a return to serfdom for the majority

[little fish]

Just wanted to say thank you for all this debate - It has been informative and enlightening.

I feel a bit lazy actually as I needed some of this info for an essay, not much, but I would of had to do a serious amount of researching to get what I got here...

I doubt turn it in would accept anonymous forum posts or I would have referenced you. Your debate is much better than my essay too..