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Was Marx Right About Capitalism?


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but you are putting yourself out of work everyday. once you finish a piece of work, you have one less thing to do.

if i build a house for someone, thats 1 less house that needs building tomorrow. thats the nature of work. your job is to get something, an activity, or a project, finished.

this process is also the driver of society. if it didnt happen we would be doing the same things we were doing in 1000 AD.

The long term trajectory of the free market is to destroy itself- which sounds insane but is actually entirely obvious.

Ask yourself a question- what are the two great virtues of the free market? I would describe them thus;

1) The free market creates a downward pressure on prices as firms compete for business, making more things affordable to more people.

2) The free market drives innovation and technology as firms compete to lower their costs by increasing their efficiency.

All very positive and the result has been a huge improvement in living standards for many people- even Marx had to concede that capitalism had achieved things no other system had come close to doing.

But suppose we frame those two virtues again but using different words;

1a) The free market acts to degrade the tradeable value of goods and services by maximising their availability and lowering their price.

2a) The free market drives innovation and technology in an effort to eliminate as many jobs as possible to reduce costs.

Now 1) and 1a) seem very different at first glance- but I would argue that the meaning of both is the same- all I have done is alter the value prism through which they are viewed- and the same could be said of 2) and 2a).

My point here is not to deny the virtues of capitalism- they are real and indisputable- what I am suggesting is that under the correct conditions those virtues could be transformed into vices. It's easy to see how this works on an individual basis- after all the luddites had one view of the spinning jenny, while those who took advantage of them held another view.

So to frame this debate in some binary fashion like "Capitalism is always and forever a good thing" or "Capitalism is always and forever a bad thing" is misleading.

What I think Marx was suggesting is that the very things that make Capitalism such a dynamic force were the things that would one day destroy it. He did not deny it's energy and it's powers of creative destruction- on the contrary he believed that it was precisely these things that would be it's downfall.

As I have pointed out- if we take the process of 'creative destruction' to it's logical endpoint we arrive at a place where production is so efficient that virtually all the wages and tradeable value has been squeezed out.

Picture a continuum and at the left hand end place a laboriously hand crafted artefact- and on the other place an artefact that has been produced in a matter of minutes by an automated 3D printing machine. Assume for the purposes of this thought experiment that both of these artefacts are desirable- both have a market of roughly equal demand- and that the demand can be adequately met by the level of production available.

Of the two which do you imagine would attract the highest price? Would it be the hand crafted artefact that required many man hours of labour to make- or would it be the instantly created artefact that could replicated almost at will? I think there's little doubt that all other factors being equal the hand crafted artefact would attract the higher price.

So from this we can derive a crude aphorism- the more quickly and cheaply a thing can be made, the less tradable value will arise from it's creation. So as our ability to produce goods and services gets ever more efficient, the less tradeable value we will create.

And this is not some exotic concoction I have made up- it's simply a restatement of virtues 1) and 2) above, since tradeable value= market price.

So I suggest that Marx was correct in his analysis that it will be the virtues of Capitalism that will be it's undoing- not it's vices. He foresaw-I think- a collapse in the ability of the free market to generate the wages and tradeable value required to keep it going- that at some point the ability of capital to reproduce itself without labour, plus the increasingly efficient technologies it called forth would create a systemic crisis from which even Capitalism could not recover.

Edited by wonderpup
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We can discount much just based on historical precedent.

Discounting future changes based on historical extrapolations is what gets us into trouble.

I don't think it's credible to argue that simply because something has worked well in the past that it will inevitably continue to do so in the future.

Take something as simple as eating- ask our primitive ancestors if eating as much as you can as fast as you can is a good idea and they would think you stupid- of course it's a good idea- who knows when your next meal is going to arrive-right?

Now bring to mind the studio audience of a typical american day time television show- still think eating as much as you can as fast you can is a good idea?

So to say that the free market system has worked well in the past proves that it will continue to work well for all time is not a convincing argument- the time might come when the very things we currently value about the market - it's powers of 'creative destruction' -might bring about a degree of social change that we cannot readily adapt to.

There will be an unemployment figure or an earnings level amongst the general population that is so corrosive of social cohesion that it brings down the system- to claim that this can never happen is to be the most starry eyed of idealists.

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And this is not some exotic concoction I have made up- it's simply a restatement of virtues 1) and 2) above, since tradeable value= market price.

So I suggest that Marx was correct in his analysis that it will be the virtues of Capitalism that will be it's undoing- not it's vices. He foresaw-I think- a collapse in the ability of the free market to generate the wages and tradeable value required to keep it going- that at some point the ability of capital to reproduce itself without labour, plus the increasingly efficient technologies it called forth would create a systemic crisis from which even Capitalism could not recover.

yes, the 2 are interlinked.

when we talk about wages as an asset to one person, it is also a barrier to access/acquisition for another person.

the cost of everything in the world is the total cost of labour throughout the supply chain. there is no one to pay other than humans.

if we eliminate the labour at one side of the equation we also eliminate the barrier to acquisition at the other end.

so the day there is no tradeable value for the labourer is also the day where you and i can get that thing for free because the barrier to getting something has been removed.

if getting something requires no human input at any stage, it is free for everyone.

Edited by mfp123
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The inevitable collapse of capitalism is always just about to happen, yet it survives and thrives, with the odd wobble here and there.

Capitalism and trade have made us rich, healthy and happy. Socialist theory suggests that wages will inevitably be driven downwards, as pe the OP on Chinese television manufacturers. But that appeared to be a theoretical argument which assumed Marxist theory to be correct. The reality shows that workers tend to get richer not poorer.

I'm happy to accept your argument that the collapse is not imminent. It took a few million years for the dinosaurs to die out, it might take another hundred or so before the present system falls over completely. But the demise is already baked into the pie.

As for the second argument, indeed capitalism has made some (/ many) of us rich healthy and happy. So did communism, for a while, in relative terms. The proportion of rich, healthy and happy is declining in the west and will not reach critical mass in the developing world.

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From the point of view of an efficient market humans are an irritant- they are expensive and unreliable when compared to a machine that can do the same job both cheaper and more reliably.

Progress is nice- but not if you don't get to share in it. At the moment we see rising productivity and stagnating wages- a trend that implies that the 'progress' you speak of will be enjoyed by fewer and fewer people as time goes on.

As this is the actual problem here, let's concentrate on this.

Why are the few gaining all the wealth and how can this be changed?

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yes, the 2 are interlinked.

when we talk about wages as an asset to one person, it is also a barrier to access/acquisition for another person.

the cost of everything in the world is the total cost of labour throughout the supply chain. there is no one to pay other than humans.

if we eliminate the labour at one side of the equation we also eliminate the barrier to acquisition at the other end.

so the day there is no tradeable value for the labourer is also the day where you and i can get that thing for free because the barrier to getting something has been removed.

if getting something requires no human input at any stage, it is free for everyone.

Exactly!

Edited by Traktion
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As this is the actual problem here, let's concentrate on this.

Why are the few gaining all the wealth and how can this be changed?

Thirty odd years of financial engineering. David Stockman, for instance, cites Corporate Equity Withdrawal whereby all three variations of buyout, buyback and M&A activity have been used to extract equity from the business sector. Unlike MEW, however, in which the benefits of equity withdrawal were broadly shared, the benefits of CEW are concentrated in cash distributions at the very top of the economic ladder. Financial engineering operates as an ATM for the prosperous classes.

How can it be changed? In light of events since 2008, and the evident capture of the State by the financial sector, only in default or a hyperinflation.

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when we talk about wages as an asset to one person, it is also a barrier to access/acquisition for another person.

the cost of everything in the world is the total cost of labour throughout the supply chain. there is no one to pay other than humans.

if we eliminate the labour at one side of the equation we also eliminate the barrier to acquisition at the other end.

so the day there is no tradeable value for the labourer is also the day where you and i can get that thing for free because the barrier to getting something has been removed.

if getting something requires no human input at any stage, it is free for everyone.

I could not have put this better. Argument closed.

The aticle first posted was also silly, in the first sentence the author nails the problem in the first sentence, over production (and with the next few paragrahs takes off on an abject flight of fancy).

A group of companies over producing television sets that nobody wants (probably doing so on the back of cheap credit) is nothing extraordinary, these organisations will eventually go bankrupt, and the factories and workers employed making televisions nobody wants will eventually find employment in other activities that are needed.

From the article:

Here is a real-world example. When I first visited China in 2000, there was a massive glut of television production: the capacity to manufacture TVs had expanded far beyond China's domestic demand for TVs.
Edited by GradualCringe
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I could not have put this better. Argument closed.

Well, that's the logical outcome, but the elite won't go down without a fight. Look around you. We should have seen increasing numbers of people living the life of riley over the last several decades. Why hasn't it happened?

Edited by tomandlu
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I could not have put this better. Argument closed.

The aticle first posted was also silly, in the first sentence the author nails the problem in the first sentence, over production (and with the next few paragrahs takes off on an abject flight of fancy).

A group of companies over producing television sets that nobody wants (probably doing so on the back of cheap credit) is nothing extraordinary, these organisations will eventually go bankrupt, and the factories and workers employed making televisions nobody wants will eventually find employment in other activities that are needed.

From the article:

In addition, there will be a fire sale of TVs at cut down prices in the process, which everyone else benefits from.

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Thirty odd years of financial engineering. David Stockman, for instance, cites Corporate Equity Withdrawal whereby all three variations of buyout, buyback and M&A activity have been used to extract equity from the business sector. Unlike MEW, however, in which the benefits of equity withdrawal were broadly shared, the benefits of CEW are concentrated in cash distributions at the very top of the economic ladder. Financial engineering operates as an ATM for the prosperous classes.

How can it be changed? In light of events since 2008, and the evident capture of the State by the financial sector, only in default or a hyperinflation.

Well, that's the logical outcome, but the elite won't go down without a fight. Look around you. We should have seen increasing numbers of people living the life of riley over the last several decades. Why hasn't it happened?

This isn't a result of improved efficiency (read: less labour required to create stuff). It is a problem of distribution of the spoils of improved efficiency.

I agree that this is a problem. Blaming increased efficiency for the above is ****-backwards though.

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As this is the actual problem here, let's concentrate on this.

Why are the few gaining all the wealth and how can this be changed?

1) The banking system i.e. inflation and fractional reserve.

2) Government sponsored artificial supply limits (land usage planning, licensing, regulation)

Edited by goldbug9999
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yes, the 2 are interlinked.

when we talk about wages as an asset to one person, it is also a barrier to access/acquisition for another person.

the cost of everything in the world is the total cost of labour throughout the supply chain. there is no one to pay other than humans.

if we eliminate the labour at one side of the equation we also eliminate the barrier to acquisition at the other end.

so the day there is no tradeable value for the labourer is also the day where you and i can get that thing for free because the barrier to getting something has been removed.

if getting something requires no human input at any stage, it is free for everyone.

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.

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As this is the actual problem here, let's concentrate on this.

Why are the few gaining all the wealth and how can this be changed?

The concentration of wealth is not a defect in the free market, it simply reflects the shift in power away from labour and toward capital as globalisation and automation have destroyed the ability of labour to demand a bigger share of the pie.

The reason that free markets seemed to work so well in the past was due to a balance of power between capital and labour, so that as productivity went up labour could demand a share of that increased wealth- creating an equilibrium of capacity and demand.

But that balance has been lost, so capital is taking more and more of the gains while suppressing the wages of labour. This might have led to a crisis sooner but demand was maintained by allowing labour to borrow the money it could no longer demand as wages- which meant the game went on a bit longer.

But two things have now coalesced that make the game impossible to continue much longer in it's present form. Firstly we have hit 'peak debt'- so borrowing to consume is no longer an option. Secondly the sheer volume of capital at the top seeking returns has spawned an out control financial sector that has overlaid the first problem with multiple overlapping claims in the form of derivatives that create no new wealth but simply further encumber the system with additional debt.

Marx did not- I think- anticipate the way that finance would mutate and expand as real world ROI declined- but he did have a healthy respect for the ability of capitalism to reinvent itself so it's entirely consistent with his ideas to suggest that the financialization of the economy is in some sense an attempt to adapt to the lack of real economy ROI by substituting an ersatz form of ROI based on purely abstract financial 'instruments' that allow the illusion of gain even as the real economy declines.

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You cant pick and choose which sort of technological improvements you allow. Would you rather have full employment and say no access to cancer treatment ?.

depends what you mean by cancer treatment.

the corporations don't actually have much of an interest in cures,they make more money out of "hold-me-backs"

but the nature of medicine is going to change too.

over the next few decades, we will probably see much more evidence that "accoustic therapy" works on these sort of ailments.

.....we do have to be careful,this stuff is powerful, and it can be used to either help or harm.

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1) The banking system i.e. inflation and fractional reserve.

2) Government sponsored artificial supply limits (land usage planning, licensing, regulation)

but that's the monoply end of things.

if banks themselves were subject to proper captialist mechanisms a lot of the dead wood would be cleared and we'd have much,much better deployment of useful funds.

it's precisely because the banking system has become so centralised that the world faces so many problems.

they need some proper competition to make them shape up or ship out.

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I could not have put this better. Argument closed.

The aticle first posted was also silly, in the first sentence the author nails the problem in the first sentence, over production (and with the next few paragrahs takes off on an abject flight of fancy).

A group of companies over producing television sets that nobody wants (probably doing so on the back of cheap credit) is nothing extraordinary, these organisations will eventually go bankrupt, and the factories and workers employed making televisions nobody wants will eventually find employment in other activities that are needed.

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.

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The concentration of wealth is not a defect in the free market, it simply reflects the shift in power away from labour and toward capital as globalisation and automation have destroyed the ability of labour to demand a bigger share of the pie.

The reason that free markets seemed to work so well in the past was due to a balance of power between capital and labour, so that as productivity went up labour could demand a share of that increased wealth- creating an equilibrium of capacity and demand.

But that balance has been lost, so capital is taking more and more of the gains while suppressing the wages of labour. This might have led to a crisis sooner but demand was maintained by allowing labour to borrow the money it could no longer demand as wages- which meant the game went on a bit longer.

But two things have now coalesced that make the game impossible to continue much longer in it's present form. Firstly we have hit 'peak debt'- so borrowing to consume is no longer an option. Secondly the sheer volume of capital at the top seeking returns has spawned an out control financial sector that has overlaid the first problem with multiple overlapping claims in the form of derivatives that create no new wealth but simply further encumber the system with additional debt.

Marx did not- I think- anticipate the way that finance would mutate and expand as real world ROI declined- but he did have a healthy respect for the ability of capitalism to reinvent itself so it's entirely consistent with his ideas to suggest that the financialization of the economy is in some sense an attempt to adapt to the lack of real economy ROI by substituting an ersatz form of ROI based on purely abstract financial 'instruments' that allow the illusion of gain even as the real economy declines.

If there isn't equilibrium for an extended period, it is unsustainable. That doesn't make it a paradox, it just means that a correction is inevitable. As you say, what cannot continue, will not continue.

As a practical example (as used in the OP link), it is pointless for a company to make more TVs than people can afford to buy. Sooner or later, the company will go bust, as the supply vs demand is not in equilibrium.

The debt was fuelled by centrally planned interest rates. The capital was protected by state guarantees and bailouts. Spent consumers were given handouts by the government (scrappage schemes etc) to encourage them to binge one... last... time. Government borrowing has been widening the trade gap for decades.

The market has being trying to rebalance for a long time. Where people freely choose not to trade when it is not in their favour, the state has stepped in and made the trades for them. Without the state stepping in, things wouldn't have got so out of balance in the first place.

Without using aggression - aka free association - not only is it hard to create an imbalance, it is also impossible for it to be sustained.

Efficiency isn't the bad thing here; the use of aggression is.

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You cant pick and choose which sort of technological improvements you allow.

Exactly my point- innovation is driven by the market and serves the purposes of the market- and one of those purposes is to eliminate as many jobs as possible to lower production costs.

From a free market viewpoint the creation of new jobs represent a certain kind of failure- the ideal would be to achieve the increased productivity those new jobs represent without the need to create the new jobs.

As a species we find ourselves in the curios position of plotting our own downfall- we devote massive resources to the project of making ourselves redundant. :lol:

I'm not saying that technology is a bad thing- but it will become a bad thing if we continue to try and graft onto it a 19th century social model in which the ability to thrive is totally dependant on finding a job in a world that is doing all it can to eliminate as many jobs as possible.

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Exactly my point- innovation is driven by the market and serves the purposes of the market- and one of those purposes is to eliminate as many jobs as possible to lower production costs.

From a free market viewpoint the creation of new jobs represent a certain kind of failure- the ideal would be to achieve the increased productivity those new jobs represent without the need to create the new jobs.

As a species we find ourselves in the curios position of plotting our own downfall- we devote massive resources to the project of making ourselves redundant. :lol:

I'm not saying that technology is a bad thing- but it will become a bad thing if we continue to try and graft onto it a 19th century social model in which the ability to thrive is totally dependant on finding a job in a world that is doing all it can to eliminate as many jobs as possible.

Humans don't need to labour in order to exist. Labouring doesn't provide sustenance like food and water, nor does it provide the warmth or the shelter needed to survive. Labouring is just a means to an end - to get food, drink, warmth and shelter.

If what we need to sustain ourselves can be provided without labour being required, then this makes it easier for people to survive. This efficiency - getting more with less - is what the market delivers time and time again.

Humans needing to do less isn't the problem. It really isn't.

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If there isn't equilibrium for an extended period, it is unsustainable. That doesn't make it a paradox, it just means that a correction is inevitable. As you say, what cannot continue, will not continue.

This was Marx's view-as I understand it.

As a practical example (as used in the OP link), it is pointless for a company to make more TVs than people can afford to buy. Sooner or later, the company will go bust, as the supply vs demand is not in equilibrium.

The problem was not that people could not afford to buy the TV's- the problem was that the process of making them had become so efficient that there was little or no margin to made by selling them- but this represents not a failure of the free market but an example of it's ultimate success.

The debt was fuelled by centrally planned interest rates. The capital was protected by state guarantees and bailouts. Spent consumers were given handouts by the government (scrappage schemes etc) to encourage them to binge one... last... time. Government borrowing has been widening the trade gap for decades.

The market has being trying to rebalance for a long time. Where people freely choose not to trade when it is not in their favour, the state has stepped in and made the trades for them. Without the state stepping in, things wouldn't have got so out of balance in the first place.

Without using aggression - aka free association - not only is it hard to create an imbalance, it is also impossible for it to be sustained.

The point is that some of that capital running around in search of yield would once have been paid out as higher wages- instead it was lent out at interest to those whose wages had not risen, allowing them to continue to consume. The low interest environment made this easy to do I agree- but don't overlook the vast amount of credit 'money' the private banks minted on their own behalf.

Efficiency isn't the bad thing here; the use of aggression is.

Yet you seem to regard the margin destruction on the price of TV's as a bad thing? Surely it's a good thing?

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Without using aggression - aka free association - not only is it hard to

Efficiency isn't the bad thing here; the use of aggression is.

+1

The best thing to do with these aggressive b*stards is to punch them in the face Knee them in the balls and kick them in the head when they are lay on the floor. It's the only way you will get these aggressive b*stards to lean their lesson.

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The problem was not that people could not afford to buy the TV's- the problem was that the process of making them had become so efficient that there was little or no margin to made by selling them- but this represents not a failure of the free market but an example of it's ultimate success.

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

The point is that some of that capital running around in search of yield would once have been paid out as higher wages- instead it was lent out at interest to those whose wages had not risen, allowing them to continue to consume. The low interest environment made this easy to do I agree- but don't overlook the vast amount of credit 'money' the private banks minted on their own behalf.

Loaning money carries risk in a free market. If you keep loaning money to people who are unable to service the debt, they will go bankrupt and you will lose your investment.

Yet you seem to regard the margin destruction on the price of TV's as a bad thing? Surely it's a good thing?

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

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