2.4 Keynesian deficit spending.
Another important mechanism for artificially increasing
consumption is Keynesian deficit spending. Keynes (as well as others before him, including
a number of German economists and Gunnar Myrdal in Sweden) suggested that if the masses
could not buy all the commodities that are produced, then the government should hire the
unemployed for public works projects and pay them enough to buy those otherwise unsold
commodities. Keynes pointed out that, as far as spurring the economy goes, it does not
matter in the least what work is actually performed in these government
projects—even digging useless holes and then dumping the dirt back into them, he said,
would do quite nicely.2 (It would also serve just as well
to simply give people the money without requiring any work at all from them, but of
course the thought of that scandalizes the bourgeois mind!)
However, many ruling class politicians are
ideologically opposed to any public works projects—even when hard work is
involved. (They incorrectly view it as “socialism”, and a theft of investment
opportunities for private businesses.) So a more common form of Keynesianism today
is for the government to buy the unsold commodities directly. The idea here is that
if the masses cannot afford to buy all that is produced, then the government will
buy a big chunk of it. Of course production is then shifted toward the specific
commodities that bourgeois governments are most interested in buying—such as weapons
and other military materiel.
Mere government purchases of commodities don’t
necessarily spur the economy beyond what would otherwise occur; it depends on where
the government gets the money to buy those commodities. The government gets
most of its income in the form of taxes on the working class. But when the government
spends a dollar of tax money taken from a worker, that only means that the worker
has one less dollar to spend. So there is no net stimulus to the economy. Things can
sometimes be a little different when the government spends money it got from taxes
on corporations or the upper classes, who—unlike the working class—do not always
spend almost their entire income immediately. (A recent survey showed that the
wealthiest Americans currently save an average of 22% of their
income.3 But when a serious economic crisis develops,
the rich cut way back on further investment, which is the biggest part of their
“spending”.) For the most part, government expenditures only give a significant
additional boost to the economy when the money does not come from taxes at all,
but rather from either borrowing it, or from simply printing it. One or both of these
is inherent in any form of deficit spending.
Deficit spending can be arranged in two ways: 1) by
increasing expenditures beyond what the government takes in in taxes, and 2) by
cutting taxes so that expenditures exceed income that way. Either approach can in
theory be effective—provided it puts money into the hands of those who will actually
spend it. However, in the U.S. the Republicans tend to be more in favor of reducing
taxes to give the economy a fiscal boost, while Democrats—at least in the past—tended
to favor increasing expenditures for social programs. (All ruling class parties favor
huge military spending—which, insofar as this causes budget deficits, is properly
considered to be “military Keynesianism”.) But tax cuts are usually granted mostly to
the rich, who are much more likely to just save the money, especially in periods of
economic difficulty. Even the so-called “middle class” tends to “save” rather than “spend”
when the economy is in trouble.4 Therefore increasing
expenditures by hiring the unemployed for public works projects would be a significantly
more effective form of Keynesian deficit spending, if the ruling class had the sense
to use it.
But Keynesian deficit spending of any kind eventually
creates serious problems. If the government simply prints up the money, this will cause
inflation (although there are factors I won’t get into here that can delay this result).
The more it prints, the more inflation.5 Eventually, in
extreme cases, the money becomes essentially worthless. Even long before that, high
levels of inflation can themselves also lead to severe disruptions to an economy.
And if the government finances its deficit spending
by just borrowing the money, then the government debt will continue to increase without
end, and at a faster and faster rate. After a while lenders will get dubious about the
government’s ability to repay all that debt and will start demanding higher interest
on their loans to offset that rising risk.
The level of government debt does not determine the
interest rate the government pays on its debt most of the time. Thus during the
period 1980-2002, U.S. government debt rose from just under $1 trillion to over $13
trillion, while the interest rates on 10-year Treasury notes zigzagged down from the
10 to 15% range to less than 4%. But few people are yet worried about the ability of
the U.S. government to repay its debt. When such worries seriously arise, interest
rates will begin to jump up far above the prevailing market rates. We see this going
on at present with Japan, which in 2002 had its credit rating on government debt
lowered below that of desperately poor Third World countries like Botswana. In 2002
Japan’s government debt topped 140% of GDP; by the end of 2003 it topped 150%; in June
2005 it was almost 160%; and by 2007 it was estimated to be 194% of GDP.6
That’s a very rapid rate of increase which cannot possibly continue indefinitely!
Eventually, if a government’s debt grows too huge, investors will refuse to loan that
government any more money no matter what the interest rate.
So Keynesian deficit spending has definite limits.
Like consumer debt, this expanding government debt can indeed keep a capitalist economy
going for a while, but only for a while. And like consumer debt, it leads to worse
problems in the end. It is another way of making things better in the near term, and
much worse in the long term.
2.5 Monetary manipulations.
There are other ways, too, that the government tries
to keep the economy going. Most of them, however, are in the “fine tuning” category.
That is, methods of dealing with relatively superficial problems, and not the basic
contradictions of overproduction. However, many times nipping a superficial problem in
the bud is just what is needed—before that surface irregularity in the economy leads
to progressively deeper contradictions coming to a head. (Eventually they will come to
a head anyway, however, as the underlying pressures continue to build up.)
Many of these “fine tuning” methods involve monetary
manipulations by the central banks of various countries. Here is where the U.S. Federal
Reserve’s frequent adjustment of interest rates for commercial banks (and hence
indirectly for the customers of those banks) comes in. If interest rates are high,
companies are less likely to borrow money to build new factories or upgrade their
machinery, and consumers are less likely to borrow money to buy cars and houses. On
the other hand, if interest rates are too low during economic upturns, there can be
such a rapid expansion of investment and production that shortages of various
commodities develop—including skilled labor, new cars and housing—which can lead to
temporary inflation and other even more negative results (such as a huge increase in
dubious loans and investments).
The Fed tries to keep the economy on a more or less
even keel by lowering interest rates whenever there are signs of weakness in the
economy, such as when the volume of business inventories rises too much, or business
investment is relatively weak, and by raising interest rates when the economy “becomes
overheated”—when inflation is getting out of hand, or when there is a lot of
“irrational exuberance”, such as a wild speculative boom in the stock market like that
of the late 1990s in the U.S. (Ironically, however, that particular speculative boom
was to some degree engineered by the Fed on purpose in order to keep the Asian
financial crisis of 1997-98 from going world-wide.)
However, it is worth considering that even very
low interest rates do not always lead capitalists to borrow money for new investment.
Suppose that a company can expect to make a “reasonable” profit when it borrows
investment money at 6% interest. When the money is only available at 8% interest it
won’t borrow it and won’t invest. But suppose there is already such a glut of
commodities and investment that there is no prospect of being able to sell the
output of a prospective new factory for any profit at all. Then it doesn’t make
sense to borrow money even at close to zero percent interest! And in fact we see
this result in Japan today where banks cannot locate credit-worthy companies to
loan money to (and who want to borrow that money) even though they are only charging
them 1% or less! (The Keynesian term for this situation is “a liquidity trap”,
though that phrase obscures what is really going on, rather than clarifies
it.7)
Another thing central banks can do is adjust the
rate of growth of the money supply (or, actually the multiple types of money supply,
which can include things like bank deposits, savings certificates and other easily
liquidated investments, as well as actual cash).
Governments (the central bank and/or the Treasury
Department or Finance Ministry) can also try to influence the exchange rate of the
nation’s currency vis-à-vis other currencies. This, however, can go beyond
fine tuning; it is really a method of trying to dump part of the economic problems
of one country on to others. And this too has its limits, and it doesn’t help the
world capitalist economy as a whole.
2.6 The service economy.8
An ever-greater part of modern capitalist
economies—especially in the U.S. and other imperialist centers—is devoted to
providing services rather than producing goods for sale (material commodities).
Partly this is due to the actual expansion of service industries, but it is also
due to the ever-higher productivity in manufacturing, and to the shift of more
and more manufacturing to China and other “Third World” countries. As of 2007
services made up 60% of the U.S. economy, up from 55% a decade earlier and 52% a
decade before that.9
Some services are an auxiliary part of the process
of creating and marketing commodities. Merchants who sell commodities on a retail
basis are actually providing a service—the service of gathering commodities together
from a large number of producers, and making them more conveniently available to
the public. But most services today are not like this; they more typically involve
the hiring of individuals to do work which itself does not produce commodities nor
involve the marketing or distribution of commodities. This includes everything from
hiring a neighbor kid to mow your lawn, to a giant corporation hiring an investment
bank to arrange for a successful takeover of another huge company.
Since this service sector is becoming ever
larger in relation to the manufacturing sector, could this possibly provide a
solution to the inherent tendency of capitalism towards overproduction? The idea
here is that goods that cannot be sold to the workers in the manufacturing sector
(because they are paid wages equivalent to only a small portion of the value of
the goods they produce) can instead be sold to the workers in the service sector.
Part of the flaw in this notion becomes apparent
when we consider where these service workers get most of their income. If a factory
worker pays an auto mechanic $300 to tune up his or her car, the mechanic will then
have $300 more to spend, but the factory worker will have $300 less. (I’m ignoring
the small part of the money that might go for actual commodities like spark plugs.)
It is true that the factory worker gets something useful out of this change in the
ownership of that money, but the total amount of money available for the purchase of
the commodities that all the capitalist companies produce is still exactly the same.
But what about the money bags, the capitalists
themselves? Don’t they individually spend much more on services than individual
workers do? And couldn’t they spend even more than they already do, on all kinds of
services? Isn’t it conceivable that all the excess surplus value—which they
otherwise don’t know what to do with—could be used in this way, thus avoiding any
overproduction crises?
It is “conceivable” in the same sense that it is
conceivable that the capitalists might continue to build factories to build more
factories ad infinitum, and thus avoid overproduction crises that way. In other words,
while it is a logical possibility that the capitalists might spend all their excess
surplus value on an endless array of ever more exotic services, it is just never
going to happen. After even the richest capitalist has hired a dozen maids, two or
three cooks, a couple chauffeurs, a couple butlers, six gardeners, and perhaps another
100 servants just for good measure, he really has no need for any more. One of these
Rockefeller or Bill Gates types could afford to hire thousands, or maybe even hundreds
of thousands of service workers, but he has no rational reason to do so.
A deeper part of the explanation for why service
workers employed by capitalist companies cannot alieviate the overproduction
problem is that this form of service work actually generates overproduction itself! The
corporate owners of a bank or financial services company, for example, receive much more
from their customers for the services that their employees render than those employees
end up getting paid for actually rendering those services. In other words, these service
industry capitalists also extract surplus value from their workers in much the same way
that capitalists in manufacturing do, and this surplus value contributes in the same way
to the mountain of excess value that the capitalists as a whole have no idea how to
effectively (i.e., profitably) use.
So even the great expansion of the relative size
of the service sector of the economy that we have seen in recent decades cannot
possibly prevent the development of overproduction crises.
Nevertheless, it is true that this rapidly expanding
service sector can be viewed, to a considerable degree, as an “artificial construct”,
created on top of the more fundamental capitalist production of material commodities.
As such, it may serve as a partial and temporary outlet for a small portion of
the great excess of surplus value that the capitalists accumulate over time. They really
can spend a great deal of money on hiring the services of business consultants,
advertising agencies, investment banks, and many other “business services”. Much of this
is in reality largely a waste of money, which therefore negatively impacts profits. The
competition of companies which are not so wasteful, especially leaner Asian companies
in this age of “globalization”, severely limits how far the American capitalists can
go with this sort of thing.
When an overproduction crisis gets really acute,
there is always a sudden and severe contraction of previous excesses. The next time
around this will certainly include a tremendous crash in the service economy, even
greater, perhaps, than the crash that occurs in world manufacturing. The fact that
the service sector (and especially the financial service sector) is at present the
strongest part of the American economy should be taken as a major warning sign of bad
things to come.
2.7 The “casino economy”.
There is one more thing that the capitalists
themselves can do to keep the whole game going for a while—and the word ‘game’ is
carefully chosen here. Namely, they can invent more and more new investment
“instruments” and “derivatives”, and build up the speculative aspect of investment
to greater and greater heights of absurdity.
The stock market itself is basically a gambling
house, and one that is rigged. An owner of stock sometimes receives a periodic
payment of a portion of the company’s stated profits (which comes, of course, out
the much larger volume of surplus value ripped off from the company’s workers). This
used to be more common; 66.5% of companies listed on the major U.S. stock exchanges
paid dividends in 1978, but by 1999 only 20.8% of listed companies
did.10 But dividends or not, the prices of stock shares
fluctuate, and these fluctuations thus become the basis for intense gambling. The
goal, of course, is to buy low and then later sell high, and this is the real reason
most investors buy stocks—not for the dividends, even when there are any.
And, worse yet, during boom periods a pyramid-scheme
(or Ponzi-scheme) sort of atmosphere almost invariably develops, “bull markets” in
which stocks are purchased only because their price is more or less continually going
up. People buy stock primarily because of the “promise” that they can sell it later
at a big profit. Eventually all such stock market bubbles collapse, and a bunch of
suckers get stuck with “investments” in stock which are worth a whole lot less than
what they paid out.11
But over the past century, and especially in the
past couple decades, the gambling aspect of investment has gone far, far beyond this
basic gambling in stocks—so far, indeed, that even many bourgeois commentators
themselves have been calling America “the casino economy”. Of course there is the
buying of stocks “on margin” (borrowing money to buy stocks). There are “options”,
the right to buy or sell a certain amount of stock (or of some commodity) at a
given price at a given time. Then there are “puts” and “calls”, obligations
to buy or sell some specified amount of stock at a given price some time in the
future. There are also commodity “futures”—contracts to buy or sell commodities at
some future time, at some given price, whether the “seller” owns the commodities
now or not. Such things as futures contracts are justified in the business world as
a method of minimizing risk. It is true that judicious use of such contracts by a
user of that commodity can lead to this result. But if the user, or “hedger”,
minimizes his risk, it is only because the risk has been transferred to another
person, a speculator.
Besides stocks themselves, there are other
“financial futures”, including futures markets for international currencies,
treasury bonds, and even “futures” keyed to various stock market and bond market
indices. Thus it is easy these days to directly gamble on whether the S&P 500
stock index will be going up or down over the next few months. The “world’s most
heavily traded stock”, at present, is not the stock in any single company,
but rather the Nasdaq 100 Index Trading Stock, which “trades nearly 100 million
shares per day—half again as many as Intel or Microsoft”.12
All of these sorts of things—options, futures,
swaps, warrants, etc.—are collectively known as financial “derivatives” (because
they derive from real ownership shares), and there seems to be no end to the
inventiveness of the financial capitalists in creating and promoting such things.
Perhaps the ultimate (for now!) in this sort of
high-stakes, high-risk leveraged gambling comes in the recent so-called “hedge funds”
which have appeared in the U.S. in a big way over the past couple decades. During the
Asian Crisis of 1997-98 the near collapse of one of these huge speculative companies,
Long-Term Capital Management, so threatened the U.S. and international financial
system that the Federal Reserve had to intervene and arrange for the multi-billion
dollar bailout of the company.
And then there is Enron, which collapsed in late
2001. Though originally a pipeline company, Enron rapidly evolved into what was
essentially a generalized commodities hedge fund—an elaborate speculative operation
which succeeded for a time in hiding its exceedingly risky operations from public
scrutiny through “creative bookkeeping”. Enron had a capitalization of some $80
billion dollars. Was this real capital that went up in a poof of smoke? No, it was
what Marx called “fictitious” capital, that is illusory capital. (Fictitious capital
is the capitalization of promised future interest or so-called
“earnings”.)13 But fictitious capital is so pervasive
and so important in contemporary capitalism that cases of its sudden disappearance
can themselves generate or intensify crises.
Even though the collapse of WorldCom (in 2002)
and Enron were the two biggest bankruptcies in U.S. history (as of this writing!),
it does not yet signify the end of the speculative and casino economy that has been
built up to such heights in this country. The entire American economy may not be
“one big Enron”, but an amazingly large and important part of it is.
2.8 New industries.
In addition to the artificial means the
capitalists and their governments have to keep the economy going, there is one more
or less “automatic” factor that helps them to some limited degree: scientific discovery
and new technology, which from time to time leads to whole new industries. In the second
half of the 19th century these new industries included railroads, steamships,
and then at the end of the century, electric lights and motors. In the early 20th
century they included automobiles, radios, and airplanes. Later on in the 20th
century came aerospace and computers, and in the 1990s, the Internet.
The advent of new industries means whole new
areas where what would otherwise be “excess” capital can be employed. Great new
areas ripe for profitable investment are opened up. But there are also some secondary
negatives about this. Some older industries usually collapse (at least partially),
as newer industries replace them. Generally, however, there is a net positive gain
in capital investment opportunities. But this is a one-time sort of thing for each
new industry.
Another negative factor comes about because new
technologies usually allow for an increased productivity of labor. To the extent
that this increased productivity leads to higher wages, the overall market is expanded.
But higher productivity also means, by its very definition, that fewer people can do
the work that once required more people—in other words, it leads to more
unemployment—which reduces the overall market.
Moreover, under monopoly capitalism, the capitalists
themselves tend to keep a disproportionate part of the increased value produced due
to productivity improvements. This increases their rate of surplus value, and thus
(for a time) their profits. But by the same token, it then also tends to aggravate
the basic contradiction of capitalist production by increasing the amount of excess
capital available. Especially as the new industries become well-established and the
rush of new investment falls off, it turns out that they no longer ease the “excess
capital” problem, but instead now actually begin to aggravate it.
From the point of view of the rational allocation
of resources, one further problem with new industries is the tendency toward “gold rush
fever”, real manias of excessive and extraordinarily wasteful investment. While a new
industry is indeed built up, tremendous amounts of capital are typically wasted and
lost in the process. The absurd excesses of the Internet bubble of the late 1990s
certainly reaffirms the truth of this general observation. However, from the point
of view of the health of capitalism this waste—like all waste (see section
2.13 below)—is actually beneficial! In other words, new industries actually
open up more perceived investment opportunities than there actually rationally
are, which tends to mitigate (to a small degree) the fundamental problem of excess
capital.
In sum, new technology and new industries cannot
resolve the contradiction between the forced restrictions on the consuming power of
the masses and the tendency of the capitalists to keep expanding production without
limit. Initially new industries help a bit—perhaps more because of the wastefulness
of the rush of new investment than because of any rational need for new investment—but
then they go on to actually worsen the fundamental contradiction. As scientific and
technological progress continues, this negative final consequence of more and more
industries tends to dominate over the initial positive impact of each new industry. In
short, the ability of new technology to ease the plight of the capitalists progressively
loses its efficacy.
In fact, credit exists in order to facilitate
overproduction—that is, production beyond the limits under which capital can
otherwise be profitably employed. (Of course this is not the way the bourgeoisie
views things!)
Credit bubbles of one or more kinds (e.g., consumer,
business and governmental debt) are not things which can be avoided under
capitalism, but rather are things which are necessary to the functioning of
capitalism. The more that mechanisms are built up which foster the creation of such
credit bubbles, the more successful the capitalist society will be (until the bubbles
pop!). When the bubbles break and the crisis breaks out, it always seems like
there was tremendous irrationality on the part of banks, industry, consumers and
the government, in allowing such bubbles to build up in the first place. But if these
bubbles had not been “allowed” (and strongly encouraged) to build up, then the crisis
would have broken out much earlier. Indeed, if there were no credit bubbles building
up, then there would be no capitalist booms at all.
One of the reasons for the massive, and
ever-worsening stagnation which developed under the Soviet form of state capitalism
during the revisionist era (1956-1991) was that they had relatively undeveloped
mechanisms for the creation of credit bubbles. The biggest bubble they created was
in the form of state debt to foreign countries. But they had “inadequate” mechanisms
for building up consumer credit bubbles; few credit cards, and virtually no home
mortgage debt, for example. This is also why the overproduction crisis in the
revisionist Soviet Union did not take the usual form it does in the West, starting
with a credit bubble collapse and financial crisis.
2.11 Collapsing bubbles.
Modern capitalist economic crises (except under
Soviet-style state monopoly capitalism) usually start with, and always prominently
feature, financial crises. This is partly because, as I mentioned above, credit has
become a major means of temporarily overcoming the basic problem with
capitalist production—that the capitalists do not (and cannot) pay the
workers for all the value that they produce (and therefore the workers, as the
bulk of the consuming public, cannot buy back what they produce unless they are
granted continuously expanding credit).
All the major forms of debt are ordinarily
created—directly or indirectly—for the purpose of temporarily circumventing this
basic contradiction of capitalism, including not only consumer debt, but also
government debt and even a lot of business debt. In addition to this, there are
speculative bubbles (the outcome of the “casino economy”), and valuation bubbles of
similar kinds (such as real estate speculation bubbles).
There are several points which must be understood
about the collapse of such bubbles:
The collapse of one of these bubbles does not necessarily mean the
simultaneous collapse of all of them. If consumer debt collapses,
for example, this does not mean that the government credit bubble will
also collapse (or if it does, that it will collapse at the same time).
Although these bubble collapses do tend to be sudden and drastic,
the bubbles do not necessarily collapse entirely. (The U.S. stock
market bubble suffered a major collapse in 2000-2001, for example, but the
collapse was not complete. Even after this steep fall, the stock market
remained quite overvalued in historical terms (based on price/“earnings”
ratios, etc.).15
Even when they do collapse entirely, the complete collapse of a
bubble does not necessarily occur all at once. (That is, there may be a
series of collapses, possibly interspersed with partial and temporary
re-expansions of the bubble.)
All of these points are especially valid since the time of the (first) Great Depression,
when government intervention in the economy first became so extensive and important. If
events are left to themselves, then the collapse of one bubble very much threatens to
lead to the collapse of others, in another kind of economic chain reaction. But if the
government intervenes strenuously before this can happen, the chain reaction can often
be interrupted (provided the underlying contradictions have not built up to an
extreme level!).
An example of this occurred during 2001-2002. Because
of the recession and (partial) collapse of the U.S. stock market, the Federal Reserve
drastically lowered bank interest rates in 2001. This had the effect of allowing more
people to buy homes, and for those who already had homes to refinance them at lower
interest rates and/or get major new home equity loans. All of this led to a rapid
expansion of home prices—the housing bubble, and the “wealth effect” from that bubble—at
about the same time the stock market bubble was partially bursting (and decreasing the
“wealth effect” from that quarter). As The Economist recently said, “To put it
crudely: as one bubble burst, another started to inflate.”16
One further point about credit bubbles and speculative
bubbles: Contrary to what many people believe, these bubbles are not really the
“cause” of recessions or depressions. As I said earlier, credit bubbles are
actually ways of postponing recessions, depressions, and stagnation. On the other hand,
their bursting (or partial bursting) often does trip off or coincide with the beginning
of economic downturns (either primary or secondary). Contrary to the notions of many
bourgeois economists, the fundamental problem does not lie in the financial sphere, but
rather in the very nature of capitalism itself as a system of exploitation (via the
extraction of surplus value). The crises often first break out, however, in the financial
and credit spheres that were constructed as a means to try to overcome the fundamental
problem.
Folks like the author of that letter seem to imagine that people’s psychology is
all there is to economics, and that if we can just keep on a happy face all
will be well. That is in fact what people want to do, but painful reality
eventually intrudes and makes it impossible for them to continue doing so. At that
point, starry-eyed optimism can sometimes turn overnight into pessimistic gloom.
This gloom can then serve to amplify the downturn in the same way that the irrational
exuberance served to amplify the boom.
Because people’s psychology is so important in
economics, there are many important surveys which try to determine “consumer
confidence”, “business confidence” and the like. These are indeed worth paying
attention to, though they serve more to confirm the current economic trends rather
than to forecast future trends.
And because people’s psychology is so important,
during times of economic weakness bourgeois economists, the media, and the politicians
fall all over themselves to act as “economic cheerleaders”, trying to talk the economy
back into a healthy frame of mind. It’s too bad these sorts of wishes and cheers cannot
alter fundamental reality.
One final point to mention here: Because people’s
perceptions of the economy are so important, the publication of truthful economic
statistics is fraught with peril. This is why all modern capitalist countries lie so
much about the actual unemployment rate, capacity utilization figures, and so forth.
2.13 The secondary contradiction of the anarchy of the market.
We need to say a little bit more about a secondary
contradiction of capitalist production that can also contribute to economic crises, or
sometimes serve to either initiate or aggravate them to some degree.
As I mentioned in
section 1.6, this secondary contradiction is due to the
“anarchy” of the capitalist market. Recall my more formal description of this as the
contradiction between the social nature of production within each enterprise and the
anarchy of the overall market which connects all the various capitalist enterprises.
The basic problem being addressed here is that if there is no overall production
plan for all of society, then too much of some goods will be produced, and too
little of other goods. (This, like most points of economic good sense, is disputed by
bourgeois economists who glorify the market. But I’ll ignore their objections here.)
Of course, even where this sort of overall production
plan does exist, such as in a state-capitalist economy of the Soviet revisionist type,
or even in a genuine socialist society, there may still be errors in the overall plan,
or unforeseen changing circumstances, which lead to disproportionalities in any case.
No matter what the economic system, it is impossible to arrange things so that
exactly the right amount of everything is produced, and produced when and only
when it is needed.
If this economic anarchy and its resulting
disproportionalities were as important as some people seem to think, and if it were the
primary cause of economic crises, then such crises would exist under all systems
of production including socialism and communism! True, we would expect them to be less
common and less severe in socialist and communist economies, because there would be
less anarchy there (because of the existence of an overall production plan for
society). And it is certainly the case that a properly run socialist or communist
economy (with the proper balance between centralization and decentralization) provides
the best means of minimizing the economic anarchy of production.
Moreover, if this absence of an overall production
plan due to the “anarchy of many capitals” (many independent capitalist producers)
were really the basic cause of crises under capitalism, then it would seem that the
capitalists themselves could lessen or minimize such crises (though not entirely
eliminate them) through more consultation and collective planning by the separate
producers. In fact capitalists today do much more collective planning than they
did during Marx’s day. Some of this is done through the capitalist-controlled state,
though this has been much more important in some countries (such as Japan and South
Korea) than it has been in others (such as the U.S.). And this state coordination and
planning was greater still in many fascist regimes such as that of Nazi Germany and
Mussolini’s Italy.
But today the largest part of this inter-capitalist
production coordination is either voluntary by all participants or else enforced through
dictates by the largest corporations upon their suppliers. For instance, today most big
corporations generally demand that their major suppliers provide them with the products
they need on a “just in time” basis. This allows them to eliminate much of their inventory
of raw materials and to avoid most of the waste that might occur if their own production
cutbacks forced those excess raw materials to go unused. Since they demand “just in time”
shipments of raw materials, any changes they require in those shipments have to be
quickly communicated to their suppliers, and big increases in orders will have to be
communicated to them as far in advance as possible so that the suppliers will be able
to crank up production themselves to fill the orders. I.e., the corporation must
necessarily coordinate closely with those other companies. In other words, though still
independent in a legal and ownership sense, these companies are no longer truly
completely “independent” with regard to production plans. Even where individual companies
are not directly coordinating their production plans, there are today many industrial
surveys and marketing investigations which allow companies to keep a fairly close eye on
changing market demands. This amounts to an indirect (though sort of half-assed!) form of
general coordination of production.
There also should be less overall anarchy in capitalist
production today (as compared to the 19th century) simply because there has
been so much industrial consolidation. In most major industries there are now just a few
oligopolistic corporations who keep pretty close eyes on each other and the other
companies’ production plans. This is, after all, the era of monopoly capitalism and
the age of massive industrial spying.
If in fact the anarchy of production under capitalism
were the main cause of capitalist crises, then the actual fact that there is now
less overall anarchy in modern capitalist production should mean that crises are
now fewer and less frequent. This has actually been argued by some bourgeois economists
who point out that all the recessions that have occurred since the Great Depression of
the 1930s have been very mild in comparison. But do those Marxists who champion the “anarchy
theory” of crises really want to concede that capitalism has become less prone to crisis
or even that crises must never again match the seriousness of the 1930s? Actually, there
is an alternate explanation for the fact that recessions have been relatively mild over
the past two-thirds of a century: basically what has happened is that the industrial
cycle has “split in two”, with mild recessions every 5 or 10 years, but major depressions
at much longer and more irregular intervals. (See Chapter V
for an elaboration of this theory.) If this idea is correct, then the relative mildness
of recessions in the recent past in no way supports the notion that this is a result of
better overall planning and coordination by all the major capitalist enterprises.
My own view is that while the “anarchy of many capitals”
can indeed sometimes aggravate or contribute to capitalist crises of overproduction, this
is not at all the main cause of them, nor will such problems as the inevitable small
disproportionalities as may still exist in socialist or communist production be severe
enough to lead to economic crises (except conceivably in some exceedingly rare and bizarre
circumstance).
The anarchy of capitalist production, even if it is
only a very secondary crisis factor, can in fact lead to too many of some things being
produced and too few of other things. Let’s start by considering the second situation.
In any economic system (including any form of
capitalism, and also socialism), if there is a shortage of some key commodity, this
may create a bottleneck. If there is a shortage of ball bearings, for example, then
all kinds of machinery and vehicles which require ball bearings cannot be built—even
if all the other parts are readily available. This in turn may negatively impact
production in many other spheres (kindly note pun!). (Incidentally, it is now thought
that the British/U.S decision to concentrate on “area bombing” of German population
centers—i.e. mass murder of civilians in revenge for the Blitz—rather than on key
economic facilities such as ball-bearing factories and oil facilities probably
prolonged World War II in Europe by 9 months or more and thus led to the deaths of
many more people on both sides.)18
Under socialism, the production of any great
excess of some particular goods will also negatively impact the overall
production of society—since goods which were actually needed could (and should) have
been produced instead of those unneeded items. But under capitalism, the situation
is actually quite different here. Amazingly, any nominally “excess” production
under capitalism—even outright wasteful production—almost always serves to expand
the overall useful production of society beyond what it would have otherwise
been. The reason is that the productive capacity of society is limited in practice
by the lack of profitable markets (since workers are paid for only a portion of the
value they produce), and hardly ever by any misallocations caused by excess
production in another area. Even the production of useless items expands the market
for useful items, since the workers producing the trash have been paid something
(which they will then use to buy mostly necessities).
Of course this in no way indicates the “superiority”
of capitalism over socialism! On the contrary, it is additional evidence of how
irrational capitalism really is when the production of waste and trash becomes a
positive factor for the economy! Any truly rational form of economy, like socialism,
will of course benefit from a rational allocation of resources.
The “anarchy theory” of crises focuses not so much
on the occasional bottlenecks in production as it does on the more typical tendency
of the “anarchy of many capitals” towards overproduction. Most versions of
this theory do not deny that overproduction (of both commodities and capital)
occurs under capitalism, but they erroneously maintain that the primary (or maybe
even the only) cause of this overproduction is the lack of an overall production
plan for society. The adherents of this theory do not understand that most
overproduction is a direct consequence of the extraction of surplus value
from exploited workers rather than anarchic and foolish production decisions by the
capitalists.
Actually, the sort of overproduction that results
from the anarchy of many separate producers can sometimes be—as I hinted at above—a
factor which serves to slightly mitigate or help postpone overproduction
crises! How can this be? Recall that any production requires the payment of
some wages to the workers and therefore generates a market demand for a portion
of the value that the workers produce. If new workers are hired for this new production,
ones who are not already up to their neck in debt, then—since they now have jobs—they
can also be granted consumer credit for a while, and the combination of their wages and
credit just might approach the value that they produce. It is therefore conceivable, at
least, that what might otherwise be overproduction might not seem so at the time, even
to the most astute and calculating capitalist. In short, the secondary source of
overproduction from the “anarchy of many capitals” is apt to be “hidden” from the
capitalists themselves initially, and may continue to be hidden from their consciousness
for some time. And partially because it is hidden, it may help keep the economy going
for a while.
There is no doubt, however, that over time the
additional overproduction arising out of the multiplicity of capitals is a secondary,
contributing factor to the overall expansion of overproduction. But we must be very
clear that it is merely a secondary factor, and not the basic explanation for
overproduction.
Some further discussion of production shortfalls and
bottlenecks due to the “anarchy” of the marketplace is in order, however. Just how
important in practice has this proven to be in economic history? Actually, not very
important. Even when it does happen, the bottlenecks are usually overcome very soon.
One potential exception to this occurred in California
in 2001. In what was largely a conscious plan to drive up prices by energy producers
and energy speculators (including the notorious Enron Corporation), plants to produce
electricity in California and the western U.S. were not being built for several years.
By late 2000 and into 2001, there was a major electricity shortage in California. It
is conceivable that a problem like this could have caused a bottleneck that lasted a
couple years or more, and which might have severely impacted production in the state.
But as it happened, the impact was minor, partly because of the recession that led to
major cutbacks in production for other reasons. (The “dot.com” collapse, in particular,
considerably eased the demand for electricity in California. Many Internet “server
farms”, for example, which used large amounts of power, were shut down, and many
planned new ones were not brought online.)
Most of the infrequent serious economic bottlenecks
that have occurred (like the oil crisis of 1973), or which sort of occurred
(like the California electricity shortage), have not really been due to the accidental
“anarchy” of capitalist production at all, but rather to monopolistic (or cartel)
manipulations of production—i.e., due to purposeful planning on their part.
However, this sort of planning is not in the interests of the entire capitalist
economy, but only in the interests of particular groups of capitalists. So I suppose
we should say that there are really two types of capitalist “anarchy” here—the
accidental, and the purposeful.
Moreover, it is probably fair to say that the
anarchy of the marketplace, even if it usually only amounts to mild and temporary
bottlenecks here and there, can add up in the aggregate. Considered as a whole, many
little bottlenecks may indeed negatively impact the overall level of production to
some degree.
Nevertheless, it is also true that much too
much has been made of this by those Marxist writers who have unaccountably
accepted the validity of “Say’s Law”, and have failed to recognize the vastly
greater importance of the contradiction between the restricted consumption of the
masses and the tendency of the capitalists to keep expanding production without
limit. Those who don’t understand the most important contradiction at work in a
situation will have to cast about for some less important contradiction to press
into service as the supposed “basic explanation” for what is going on. This, of
course, is a failure to correctly analyze the situation, though those with
incorrect analyses always have a harder time coming to understand the truth than
those with no analysis yet at all. People become wedded to their initial ideas.
Sometimes a certain amount of economic anarchy is
brought about by major natural disasters, like hurricanes. Situations like this are
worth considering because—inexplicably, for those who imagine that capitalist
production is limited primarily by disproportionalities and the anarchy of market-based
capitalism—these events usually tend to spur the economy, more than to
impede it. Of course there is always some initial economic harm, but the
disaster then proves to be a net benefit for both the local and national economy by
opening up a wide range of new demand for products, jobs, and investment opportunities.
Thus hurricane Andrew in Florida in 1992 resulted in 214,000 new jobs in its
aftermath.19 Some capitalists have even learned to
welcome hurricanes and other disasters, for this reason. As hurricane Emily approached
in 1993 a lumber broker remarked “There was some speculation that if there was enough
serious damage to structures, you would have additional demand for wood supplies,”
in explaining why speculators ran up the price of lumber futures.20
This brings to mind the old capitalist slogan, “One man’s disaster is another man’s
opportunity.” And it really is true that while disasters are of course not good at
all for the people directly affected, they are generally good for capitalism as
an economic system.
Finally, I should note that even to the extent that
the anarchy of production exists, this is often merely a side-effect of the more
basic economic contradiction of overproduction. As one example of this, the developing
new economic crisis in 2008-2009 has already led to a number of bankrupcies of
manufacturers and many more are expected. Among these are numerous parts suppliers for
other companies. Sometimes a particular part is only made by one supplier, and if that
company goes out of business that one part is no longer available. This creates a production
bottleneck until a different company starts to produce the item (which might take months).
This is one of the reasons that as of the spring of 2009 the U.S. government is thinking
about bailouts for automotive parts suppliers as well as for big car companies like GM
and Chrysler.21