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Capitalism in Crisis
Creating jobs is not the raison d’?tre nor the primary goal of a Capitalist economy. Creating profits for the purpose of Capital accumulation and expansion is the sine qua non and essential function of Capitalism.
Often larger profits can be made by increasing the productivity of workers and upping overall output. When such efforts are not possible or do not result in an increased rate of profit, some Capitalists—especially those who own and control vital resources—can limit real production, thus creating shortages of that essential product. They then raise prices without increasing production and thereby increase the profits of their particular enterprise. (Or, in the case of the US and British oil companies, they can support the creation of a foreign organization like OPEC that will cooperate in restricting output in ways that would be illegal in the US or Great Britain.) This hurts the "bottom-line" or profits of those other industries dependent upon the restricted resource; and, therefore, is not a long-run solution for correcting crises in profitability for the Capitalist system as a whole.
If profits cannot be increased through new investment in updated labor-saving technology, then those Capitalists who can may increase the hours of their workers, as well as cut their wages and benefits in order to increase company profits.
If investment in more modern plant and equipment is not deemed profitable, then Capitalists will invest their profits in things other than expanding real material production. Besides satisfying their own appetite for increased consumption of luxury goods, they turn to speculation in all forms of financial "instruments" (paper) that result in profits for the "winners" and enormous government bailouts for the so-called losers who are "too big to fail." No expansion of the real economy—i.e., no increased production of material goods, nor additional jobs—results from these high stakes gambling activities.
In sum, a rate of profit sufficient to attract investment in expanded Capital accumulation is what is necessary for increased Capitalist production in the real economy… the real economy of material production that is also the foundation for all other forms of exploitation and speculation. Increased consumption by exploited wage labor is contrary to the needs of Capitalism during periods of "economic down turns," and particularly during the global economic crisis we are experiencing today. Increasing the labor force in order to produce more "consumer" goods is not on the agenda.
Yet, the myth persists. Bourgeois theorists will insist that consumer demand of the working population is what drives Capitalist production. It is clear that after many of these well intentioned spokespersons actually believe what they are saying. (Even though they may also insist, within the same sound bite, that economic growth and stability depends upon "consumers" saving more.) The simple lay person, the professionals concede sympathetically, finds it difficult to understand often complex and contradictory theories of economics. Well, let me share with you one admittedly simple little thought that I often toy with: If a feudal lord were to have told his serf, that the sole purpose of his exploitation was to enable his lord to provide the serf with the material goods necessary to maintain an acceptable level of poverty, the serf would have thought the lord insane. Likewise, if an African slave had been told by the American plantation owner that his enslavement and low standard of living was necessary so that the plantation could produce what the slave needed to survive, she would have thought her master crazy. But for some reason, wage labor exploited by Capitalists are suppose to believe that all the accumulation of vast resources, enormous factories, state-of-the art ports, refineries, etc., etc., owned by the Capitalists are necessary for, and simply serve the purpose of producing what working people need to survive and maintain an acceptable standard of living. It is all done for us, and it all comes back to us working people. If that sounds absurd to you, maybe the following will more clearly reflect your reality:
Yes, under the Capitalist system of distribution, "consumer goods" sufficient for the the employed labor force to survive (at an acceptable standard of living), is necessary. However, Capital expansion and production of real, material "producer goods"— such as industrial machinery, factories, infrastructure, technology, planes, company limos, corporate cars, trucks, freight trains, ships, docks, commercial ports and transport of all kinds, along with the communications centers, security apparatus, administrative compounds, together with the pipelines, refineries, natural resources, raw materials and fuel to operate this enormous, global empire—make up the larger part of material production and privately-owned accumulated wealth in this nation and globally; and these tremendous means of production are neither consumed by nor owned by the workers who produce them. Under a system of Capitalist production, exploitation of a labor force that produces much more than it consumes is the essential source of real profits. It is production and expansion of the enormous, modern industrial Capitalist empire that is the aim of Capitalism (and all those who identify as successful competitive players in this deadly game), not increased consumption of goods and services for working people. The latter is the necessary "spin-off" so to speak, until those workers themselves are no longer deemed "necessary."
If Capital expansion and accumulation can be periodically accomplished profitably with a smaller workforce, then that is incentive enough for Capitalism to ignore or eliminate, directly or indirectly, the "useless eaters" and the "unproductive" members of society (that is, those who cannot contribute to the profitability of Capitalist production)—like the old, the mentally and physically disable, and others unemployable*
We have witnessed today (and throughout history) the standard methods of increasing productivity in pursuit of profits without increasing consumption or improving the standard of living of working people. Most economists now are in agreement that the average wage of the American worker has not increased in real value since 1970. During the same time period, American manufacturing jobs have gone abroad in search of better rates of profit, and major American industries like steel and auto manufacturing plants have been closed and abandoned. During times like these, the most common Capitalist remedies to falling rates of profit include (1) demanding employees work longer hours for the same or less pay; (2) raising prices without increasing production so that the value of real wages fall, workers’ are forced to consume less, and the portion of value produced that goes to the Capitalist in form of profits increases; (3) requiring increased involvement of the federal government in the process of redistributing value and resources away from the "consumer" and into the bank accounts of Capitalists.
Social programs are cut, money is made available to Capitalists at 0% interest rates (while those on fixed incomes get just about 0% interest on their retirement and savings accounts ); and public services are discontinued or privatized as for-profit programs. Witness the $500 billion cut in government funding of Medicare Advantage HMO programs. These HMO programs—the most popular Medicare programs among low-income elderly—were determined to be the most efficient and least costly of all the Medicare programs according to the 2009 and 2010 Report to Congress on Medicare Spending. Nevertheless, private insurance CEO’s agreed to Obama’s huge cut in these programs, in exchange for a much more lucrative scheme forcing all "consumers" to purchase private, for-profit, health insurance plans. As mentioned above, transferring trillions of dollars to banks for lending, interest free, to large Capitalist corporations while allowing the foreclosure on home mortgages held by poor and middle class workers, is just one more example of how the government facilitates the cut in workers’ consumption while increasing the Capitalists’ piece of the pie— all in the name of getting the economy going again. Nota Bene: It is not working this time.
The stockpiled banking and manufacturing trillions are not going into increased production and more jobs. The Obama administration complains that the banks are not making loans, and big manufacturers— rather than invest in expanded production and employment—are just sitting on top of billions in record profits. No, they are not! Guess what they are doing with it…again. (Hint: Can you sing "I’m forever blowing bubbles, pretty bubbles in the air.")
John Maynard Keynes, the sweetheart of the liberal left, made it crystal clear that the use of inflation is a much better economic tool for lowering workers real wages and consumption than direct wage cuts by employers. He explained that angry workers could be a threat to individual Capitalists, whereas employing workers in government-funded industries and projects that did not produce consumer goods would cause generalized inflation, but make it hard for workers to know whom to blame for the diminished value of their wages, their declining standard of living and lower consumption. Government transferring labor and material into war production, while rationing consumer goods for working people, was greatly facilitated in the 1930’s by nationalist propaganda justifying the US entry into WWII and patriotic sacrifices.
What a magnificent booty was gained from America’s participation in that fight for democracy and freedom overseas! And the Depression ended! The usual manner of correcting serious economic depressions is through wide-spread unemployment that lowers wages, causes bankruptcies of the less competitive companies, and facilitates the take over of devalued plant and equipment by larger corporations. This reorganization of Capitalist production on the basis of cheaper labor and cheaper materials all around, allows the surviving, enlarged and more "efficient" Capitalists to renew production at a rate of profit and Capitalist expansion of production and employment even greater than before the downward dive in the "business cycle." Prior to "the war effort," this usual process was underway but had not gotten the economy going again.
However, the riches plundered in times of war—the take over and reorganization of conquered nations’ entire material wealth, equipment, cheap labor, factories, and infrastructure—are vastly more profitable than is the process of domestic bankruptcies and economic rebuilding at home. Keynes knew this. Roosevelt (whom Keynes complained did not understand anything he told him) did not have to be told this. As FDR said, the model he followed had already been proven effective in Communist Russia, Fascist Italy, and Nazi Germany under those "command economies."
What Keynes and Roosevelt could not have anticipated is the enormity of the current global depression . This time around, government-assisted attempts at redistribution of wealth, resources and cheaper labor does not appear to be adequate to the task of increasing U.S. Capitalists profitability sufficiently to encourage investment in the expansion of real material production domestically, and certainly not sufficient to attract private investment in overhauling existing, antiquated means of production. Waging wars this time has not provided a solution, although the economy is now dependent upon production and marketing of weapons, military equipment and related technology.
China and India with large numbers of starving displaced peasants and an abundance of slave labor may be able to increase profitability sufficiently to initiate the larger Capital goods production necessary to dominate the global economy, setting off yet another round of expanded global competition, depressions and war. A more likely scenario, given the authoritarian methods increasingly used throughout the world in an attempt to control all real and imagined forms of threat to those who had fancied themselves in control of global Capitalism, would be a world-wide economic collapse that could give birth to new forms of barbarism beyond what we have known in Fascist and Nazi attempts to overcome economic collapse. Get your wheel barrels ready.**
Our solution is not to give up on demanding an end to the wars, or more jobs with good wages and benefits, universal health care, the preservation of social security, continued funding of public schools, or respect for civil rights and human rights. But our solution must address the larger context within which all these individual issues and concerns exist. When we work to "Stop Global Warming," we need to recognize that business and industry, by their own accounting, use over 80% of the energy sources that are polluting the atmosphere. And the military is the biggest polluter of all. Capitalist industries and the military are fighting globally to protect the profitability of the system that benefits and empowers them. That system is suffering a global depression. The battle to sustain it leaves no room or resources for reorganizing Capitalist production to meet the needs of sound ecological production, let alone to provide for a better standard of living and increased consumption for working people. As mad as it sounds to the average normal person, increasing profits and maintaining positions of power are more meaningful to those who benefit from the militarized economy than is survival of the planet and the human race. Our solution will require a revolution in creative thinking about what are "economic problems," who can solve them, and how.
*Elderly, mentally and physically ill hospital patients were the first victims of Hitler’s furnaces at Dachau. Children from the village laughed and shouted when they saw the bus loads of patients approaching: "You’re going to the furnaces!" they taunted. When the parents of those same children complained to local officials of the Third Reich that the stench was too much, they were to told to shut up or they themselves would soon become fuel for the fires. This plan for exterminating the "unproductive consumers" was carried out sometime before the Communists, "Marxists," dissidents, and "Jews," became targeted victims of Third Reich concentration camps, gas chambers and incinerators.
**After WWI, Germans were reported to wander streets pushing wheel barrels filled with worthless Reich currency in attempt to purchase a loaf of bread.
Economics, Politics, and the Age of Inflation, by Paul Mattick (1978)
Fascism and Big Business, by Daniel Guerin (1973)
The Coming of the Third Reich, by Richard J. Evans (2003)
Bound Upon a Wheel of Fire, by John V. H. Dippel (1996)
MARY LYNN CRAMER has dedicated over twenty-five years to low paying "applied economics," working as a bilingual child and family social worker, and more recently doing "field research" among the elderly living on social security, food stamps and subsidized housing. She has degrees in economic history, economic theory and social work. She can be reached at: firstname.lastname@example.org