Help Me Understand Capitalism's Periodic Crises - Politics Forum.org | PoFo

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#14741773
I'm reading An Introduction to Marxist Economic Theory, by Ernest Mandel, and I have a question or two about what exactly causes the cyclic nature of capitalism.

Let me give my best guess. In a capitalist society, as the forces of production increase, so does the organic composition of capital, represented as the ratio of constant capital—the totality of automated labor—to variable capital—the totality of labor produced by the proletariat. When labor becomes more automated, the average rate of profit in turn declines. This is because constant capital is a longer-lasting, therefore more costly, investment than variable capital.

Now capitalists try to counterbalance the decline in their profits by increasing their surplus value rate, represented as the ratio of surplus value to variable capital. This they do by reducing variable capital—that is, by lowering wages or laying off workers. But as workers' wages decrease, so does society's purchasing power.

Of course, decline in purchasing power leads to overproduction, which leads only to more layoffs—hence periodic crises. So is increasing automation the chief reason for capitalism's cyclicality? Or could it be something else entirely?
#14741847
That is very simple. The modern capitalist complex, not necessarily capitalism itself, protects generally unproductive and unsustainable behavior that is beneficial to a selective minority.

Image

Lots of incorrect statements in your argument.

Good capitalists do not intentionally switch their modes of production to less profitable options. Automation does not necessarily lead to a decrease in profits, and almost always does the opposite. Constant capital can be less costly than variable capital. More purchasing power does not inherently lead to overproduction. Increasing surplus value does not have to result in layoffs or wage reductions.

I admit to having to look up many of the Marxist terminology you used (you could of used normal people speak). Anyways, your theory does not make any sense to me.
#14741903
I'm going to try to defend some of my earlier statements. Note I don't believe them all; I'm simply trying to understand the Marxist argument for capitalism's cyclicality.

Mercenary wrote:Good capitalists do not intentionally switch their modes of production to less profitable options.

This is not necessarily true. The prisoner's dilemma, in game theory, suggests capitalists can indeed switch to less profitable modes of production if they risk being outcompeted.

Automation does not necessarily lead to a decrease in profits, and almost always does the opposite.

Marxists, along with other proponents of the labor theory of value, contend the reverse. It's important to distinguish rate of profit from productivity. Productivity, of course, has increased exponentially owing to automation. Rate of profit hasn't, because surplus value doesn't increase with constant capital.

Constant capital can be less costly than variable capital.

Agreed. Note I was missing the point earlier, about why rate of profit decreases. It's because surplus value isn't dependent on constant capital, not because constant capital is necessarily more costly.

More purchasing power does not inherently lead to overproduction.

I was arguing the opposite. :eh:

Increasing surplus value does not have to result in layoffs or wage reductions.

Several options exist besides layoffs and wage reductions. But these are the most common.

I admit to having to look up many of the Marxist terminology you used (you could of used normal people speak).

I wouldn't have been able to, at least not very well, seeing as I don't have much of a grounding in economic theory and am just getting started. My apologies for any confusion I've caused.
#14741912
recurnal wrote:This is not necessarily true. The prisoner's dilemma, in game theory, suggests capitalists can indeed switch to less profitable modes of production if they risk being outcompeted.


Marxists, along with other proponents of the labor theory of value, contend the reverse. It's important to delineate rate of profit from productivity. Productivity, of course, has increased exponentially owing to automation. Rate of profit hasn't, because surplus value doesn't increase in proportion to constant capital.


Agreed. Note I was missing the point earlier, about why rate of profit decreases. It's because surplus value isn't dependent on constant capital, not because constant capital is necessarily more costly.

I was arguing the opposite. :eh:

I wouldn't have been able to, at least not very well, seeing as I don't have much of a grounding in economic theory and am just getting started. My apologies for any confusion I've caused.


Yes, my bad. It is true that sometimes a capitalist can be forced into pursuing a less profitable avenue.

You are leaving out an important variable. An increase in productivity can coincide with an expansion of markets. When markets expand, the value of labor is sustained, and often increases as a result. No industry has yet to operate at maximum potential.

I am having trouble understanding how that connects to profitability. Could you explain how the lack of a connection between surplus value and constant capital leads to a decrease in profitability, with a little more depth?

Less purchasing power does not inherently mean overproduction either. It usually just leads to deflation.

It's just that economics terminology is troublesome to learn in the first place, so trying to relearn it in different terminology can be frustrating.
#14741942
@Mercenary: A mathematical representation might make more sense. Let s represent surplus value; c, constant capital; and v, variable capital.

Rate of profit, then, figures as s/(c+v); that is, as the ratio of surplus value to total capital.

Now, when constant capital c increases, surplus value s does not; surplus value, in fact, consists only of a fraction of total labor hours expended. (Marx believed surplus value depends exclusively on labor hours, not on constant capital.)

In consequence, the denominator in the rate of profit formula increases, causing the rate of profit itself to fall.
#14766461
As a non communist I see the reason for capitalism's economic crises mainly in a.) human imperfection b.) inherent chaos in the system. People make irrational decisions, they lack information, tend to panic, let others scam them, exploit them. The system controls itself automatically, but since its vital parts are imperfect problems accumulate until there is a crisis.

A crisis is also a big opportunity. It allows redistribution of wealth to those who take the opportunity. You can buy houses cheaply, make stock investments if you know what you're doing.
#14766472
fokker wrote: The system controls itself automatically, but since its vital parts are imperfect problems accumulate until there is a crisis.


Marxist analysis may have its problems, but the defense of liberal capitalism has its own contradictions as well. Central in my view is the concept of The System.

The System is seen as a pre-existing state of nature arising from interactions of free markets. Nothing could be further from the truth. The System is fundamentally constrained by the specifics of its legal foundations - this legal infrastructure defends its property, capital, and profits and insulates individuals from direct legal liability. The very nature of markets themselves is constrained by their own sets of legal/regulatory properties.

A free market is a meta-stable construct; it can only exist under ideal conditions. A free market is open, transparent, and free from insider manipulation. An unregulated market automatically tends towards concentration, restriction of competition, closed insider control, and fraud - simply as a product of human nature.

An approximation of a free market can only be achieved by close regulation. Therefore, a closely-regulated system is the pre-requisite of a free market.

The dominant narrative is a false one. Unregulated markets are not the equivalent of free markets, nor does the first lead to the second.
#14766493
I do not see unregulated and free market as equivalents. An unregulated market may function as a free market for some time before degenerating into something else. We could say that unregulated market was in place in Russia just after break up of Soviet Union when legal framework was missing with catastrophic results in very short time. I see free market as something that exists mainly in text books, meta stable as you noted, while in real world we get some approximation that works with more or less success depending on country and type of market.

Regulation can prolong the stable state of a market, but in my opinion due to human imperfection also the regulation will be imperfect thus from time to time markets will crash. Thus regulation will include unnecessary bureaucracy, inefficient regulation, loopholes.

I would not state in general that a closely-regulated system is the pre-requisite of a free market. Usually minimal amount of regulation is desired as overregulation may add lot of inefficiencies and bureaucracy. I see regulated market and free market as separate, the first being an approximation of free market. Regulation additionally faces problems that it attempts to fix issues that are dynamic in nature - market keeps developing and regulator can make decision only on "historical" information instead of up-to-date information. People can then "outsmart" regulators.

There is obviously no "rule" ingrained in the system that would result in periodic crises. It has to come from the imperfection and chaos how the system operates.

I claim no amount of regulation that aims to approximate free market can solve the problem with periodic crises because a.) you lack information b.) cannot regulate the system in time c.) you cannot regulate every aspect of human behaviour.
#14766511
Let me try an simplify things and try and make it clear for you why you can't use Marx ideology into the mechanics of Capitalism. Marx theory works in a workers state in the 19th century where technology and luxuries are non existence and there was no need to invest in growth. i.e. you are content with a roof over your head and food on the table. In such environment, money remains in a specific state and your customer base is limited to your workers and state residence and not a global market. Which is why Marx theory is flawed into todays world. Capitalism creates an intensive to progress in new technologies and in growth because it is principle isn't state based but individual based. This is why so many working class people hate wealthy people and consider Marx a hero. But the irony is Capitalism has made the world as advanced as it is today because it gives entrepreneurs reason to invent and businesses to invest so workers are actually better off today in terms of jobs, living standards and luxuries.

So now we have got the basics over with, your theory is based solely on Labour. A Marxist concept. In today's world there are many other variables to consider. First there is the wealth creating variable. For example, there is wealth in minerals. There is wealth in land and property, technology, inventions, food production, energy, tourism, etc, etc etc. All these concepts are wealth not created with an IOU (money) as they are either ideas or products from the Earth. Now it's time bring in the labour and services variable. These are trade by the actions we take. These concepts create IOUs (money) changing hands and spreads the wealth in society. And the next variables are product and concept. The things we make, buy and sell. This is where wealth changes hands again and also gives the insensitive to create profit and wealth. The final variable is investment. Borrowing to make money and making money by borrowing. This allows people to make growth possible as it gives them the ability to gain capital they don't possess.

I know what I have written is difficult to understand and I think I have even confused myself. But the principle I am trying to make is Capitalism works because of the wealth we gain in the first concept. This is why the wealthiest nations are either mineral rich, manufacturers or technology based. But naturally you need customers to trade with to make capitalism work so Labour is still an important variable. But I want to make one thing clear, bubble bursts are not created by Labour shortages, but by Dutch Syndrome (things being valued more than their true worth). Business decline is also not created by Labour becoming automated but by the businesses product becoming either less competitive or surplus to the current environment. Again I don't know if what I have written makes any sense. It's late for me. But I do hope it helps you out a little if nothing else.
Last edited by B0ycey on 22 Jan 2017 22:50, edited 1 time in total.
#14766513
Time was when we were all in it together, we were able to buy or sell the fruits of our labour to whoever we wanted, for a price determined between the individual buyer & seller.
After the Black Death in the Middle Ages, the price of Labour shot through the roof, eventually a 'balance' between Labour
& Capital was reached.

The basic law of the market is that the law of supply & demand is set by the price mechanism.

However, there is always the seller & buyer.

The seller has to have 'Capital' in order to run his\her business, one cannot run a business without 'Capital'.

When a business depletes it's capital to zero, the business is effectively no longer a 'going concern'.

'Capital' = Assets & the accounting equation for this within any business is, Assets= Liabilities+ Shareholder equity.

It stands to reason that for any 'business' to want to make a living say, as a 'trader', then that trader has to keep 'stock' in which to sell.

If the trader has no 'stock', then that trader cannot sell, nor 'potentially' make a profit.

I could go on almost infinitely about the step by step route of the process of trading & making a profit.

The point I want to make is, that in times past, business was simpler, often just one individual & another either 'bartering' one type of product for another, the value being determined by the quantity as agreed for the transaction to complete.

Over time, in which business has developed or evolved, along with the political system, the levers of power have changed to a situation where there is an INCESTUOUS RELATIONSHIP, between business & politics.

Those with money or power, even in a so-called 'democracy', which is a sham, have become so entwined, that governments now use TAXPAYERS money as 'CAPITAL' to GIVE AWAY to PRIVATE BUSINESSES, in the belief(mistakenly-but KNOWINGLY) that it would create jobs & distribute 'wealth'.

Well, it's GOVERNMENT that 'distributes' wealth, NOT to those at or near the bottom of the pile,that cannot be, because whenever a government 'gives' in one hand to those at or near the bottom of the pile, it has already predetermined how it will immediately recover that money, either by robbing Peter to pay Paul, or by putting taxes up & cutting welfare spending on health or welfare.
Business immediate smells any money that government is giving to any group of people & immediately sets about raising prices.
That is obvious, because government is always finding ways of creating inflation, it is written into each & every budget.

It does NOT achieve a 'fair' distribution of wealth, it merely arbitrates who shall it 'give' to & from whom shall it 'take'.

The 'SYSTEM' is set up, as well as propagated by a 'self-appointed' elite of businessmen, who 'buy' their way into that misnomer, we call 'democracy', by paying their political 'dues' to our CORRUPTED POLITICIANS,WHO THINK THAT 'DEMOCRACY' IS A 'FREE TICKET' TO EVENTUAL WEALTH IN THE POLITICAL HEREAFTER.

Remember the refrain,"The rich man in his castle, The poor man at his gate, God made them, high or lowly & ordered their estate".

One may be forgiven, for thinking that it is the 'Tory' Party at church on a Sunday, but, NO, it applies across ALL political parties at Westminster.

The villains that express the inequalities in society, by increasing them, are not just the system of capitalism, or should we really say, Monopoly Capitalism', it is the corrupt politicians that reinforce the division between Labour & Capital.

That includes ALL politicians, LEFT & RIGHT.

Variations in any 'cycle' are a direct result of the theft of public money through penury rates of taxation, the pay rates that sustain the serfdom system of them & us.

The 'capitalist' know - have worked the system to their own advantage, aided & abetted by Westminster politicians.

'YOU' the people, are the STOOGES of that system, it is YOU who places that, 'X' on the Ballot Paper, BLAME NO ONE ELSE BUT YOURSELVES FOR YOUR LOSS OF FREEDOM FROM IMPOVERISHMENT.
#14766935
fokker wrote:As a non communist I see the reason for capitalism's economic crises mainly in a.) human imperfection b.) inherent chaos in the system. People make irrational decisions, they lack information, tend to panic, let others scam them, exploit them.

The chaos inherent in the modern finance capitalist system is caused by debt money, which is inherently destabilizing because of its positive feedback. Capitalism without debt money need not be unstable. Marx just didn't understand how the positive feedback effect of debt money was causing the crises.
#14767030
I think there's another component that's important, recurnal, at least in how I conceptualize it. And this is the nature of capital in general.

Capital is, in part, a conceptual representation of what labour has produced. This goes back to William Thompson, at least, but Marx and Engels go over it in a way that, I think, you'll find sounds eerily similar to the Great Recession and the Great Depression before that:

Capital, Vol. III wrote:A factor, therefore, enters into the accumulation of money-capital that is essentially different from the actual accumulation of industrial capital; for the portion of the annual product which is intended for consumption does not by any means become capital. A portion of it replaces capital, i.e., the constant capital of the producers of means of consumption, but to the extent that it is actually transformed into capital, it exists in the natural form of the revenue of the producers of this constant capital. The same money, which represents the revenue and serves merely for the promotion of consumption, is regularly transformed into loanable money-capital for a period of time. In so far as this money represents wages, it is at the same time the money-form of the variable capital; and in so far as it replaces the constant capital of the producers of means of consumption, it is the money-form temporarily assumed by their constant capital and serves to purchase the components of their constant capital to be replaced in kind. Neither in the one nor in the other form does it express in itself accumulation, although its quantity increases with the growth of the reproduction process. But it performs temporarily the function of loanable money, i.e., of money-capital. In this respect, therefore, the accumulation of money-capital must always reflect a greater accumulation of capital than actually exists, owing to the fact that the extension of individual consumption, because it is promoted by means of money, appears as an accumulation of money-capital, since it furnishes the money-form for actual accumulation, i.e., for money which permits new investments of capital.

Thus, the accumulation of loanable money-capital expresses in part only the fact that all money into which industrial capital is transformed in the course of its circuit assumes the form not of money advanced by the reproductive capitalists, but of money borrowed by them; so that indeed the advance of money that must take place in the reproduction process appears as an advance of borrowed money. In fact, on the basis of commercial credit, one person lends to another the money required for the reproduction process. But this now assumes the following form: the banker, who receives the money as a loan from one group of the reproductive capitalists, lends it to another group of reproductive capitalists, so that the banker appears in the role of a supreme benefactor; and at the same time, the control over this capital falls completely into the hands of the banker in his capacity as middleman.

...Even assuming that the form in which loan capital exists is exclusively that of real money, gold or silver — the commodity whose substance serves as a measure of value — a large portion of this money-capital is always necessarily purely fictitious, that is, a title to value — just as paper money. In so far as money functions in the circuit of capital, it constitutes indeed, for a moment, money-capital; but it does not transform itself into loanable money-capital; it is rather exchanged for the elements of productive capital, or paid out as a medium of circulation in the realisation of revenue, and cannot, therefore, transform itself into loan capital for its owner. But in so far as it is transformed into loan capital, and the same money repeatedly represents loan capital, it is evident that it exists only at one point in the form of metallic money; at all other points it exists only in the form of claims to capital. With the assumption made, the accumulation of these claims arises from actual accumulation, that is, from the transformation of the value of commodity-capital, etc., into money; but nevertheless the accumulation of these claims or titles as such differs from the actual accumulation from which it arises, as well as from the future accumulation (the new production process), which is promoted by the lending of this money.

Prima facie loan capital always exists in the form of money, later as a claim to money, since the money in which it originally exists is now in the hands of the borrower in actual money-form. For the lender it has been transformed into a claim to money, into a title of ownership. The same mass of actual money can, therefore, represent very different masses of money-capital. Mere money, whether it represents realised capital or realised revenue, becomes loan capital through the simple act of lending, through its transformation into a deposit, if we consider the general form in a developed credit system. The deposit is money-capital for the depositor. But in the hands of the banker it may be only potential money-capital, which lies idle in his safe instead of in its owner’s.

With the growth of material wealth the class of money-capitalists grows; on the one hand, the number and the wealth of retiring capitalists, rentiers, increases; and on the other hand, the development of the credit system is promoted, thereby increasing the number of bankers, money-lenders, financiers, etc. With the development of the available money-capital, the quantity of interest-bearing paper, government securities, stocks, etc., also grows as we have previously shown. However, at the same time the demand for available money-capital also grows, the jobbers, who speculate with this paper, playing a prominent role on the money-market. If all the purchases and sales of this paper were only an expression of actual investments of capital, it would be correct to say that they could have no influence on the demand for loan capital, since when A sells his paper, he draws exactly as much money as B puts into the paper. But even if the paper itself exists though not the capital (at least not as money-capital) originally represented by it, it always creates pro tanto a new demand for such money-capital. But at any rate it is then money-capital, which was previously at the disposal of B but is now at the disposal of A.


That's pretty heady, and Jack London tries to explain the same thing (though cribbing Thompson instead of Marx) in more simple terms through a fictional guy named Everhard that's explaining to bankers and whatnot why their system is about to collapse. It misses some of the finer points, in my opinion, but underlines a similar problem:

Jack London wrote:“Let us, first of all, investigate a particular industrial process, and whenever I state something with which you disagree, please interrupt me. Here is a shoe factory. This factory takes leather and makes it into shoes. Here is one hundred dollars’ worth of leather. It goes through the factory and comes out in the form of shoes, worth, let us say, two hundred dollars. What has happened? One hundred dollars has been added to the value of the leather. How was it added? Let us see.

“Capital and labor added this value of one hundred dollars. Capital furnished the factory, the machines, and paid all the expenses. Labor furnished labor. By the joint effort of capital and labor one hundred dollars of value was added. Are you all agreed so far?”
Heads nodded around the table in affirmation.

“Labor and capital having produced this one hundred dollars, now proceed to divide it. The statistics of this division are fractional; so let us, for the sake of convenience, make them roughly approximate. Capital takes fifty dollars as its share, and labor gets in wages fifty dollars as its share. We will not enter into the squabbling over the division.* No matter how much squabbling takes place, in one percentage or another the division is arranged. And take notice here, that what is true of this particular industrial process is true of all industrial processes. Am I right?”

Again the whole table agreed with Ernest.

“Now, suppose labor, having received its fifty dollars, wanted to buy back shoes. It could only buy back fifty dollars’ worth. That’s clear, isn’t it?

“And now we shift from this particular process to the sum total of all industrial processes in the United States, which includes the leather itself, raw material, transportation, selling, everything. We will say, for the sake of round figures, that the total production of wealth in the United States is one year is four billion dollars. Then labor has received in wages, during the same period, two billion dollars. Four billion dollars has been produced. How much of this can labor buy back? Two billions. There is no discussion of this, I am sure. For that matter, my percentages are mild. Because of a thousand capitalistic devices, labor cannot buy back even half of the total product.

“But to return. We will say labor buys back two billions. Then it stands to reason that labor can consume only two billions. There are still two billions to be accounted for, which labor cannot buy back and consume.”

“Labor does not consume its two billions, even,” Mr. Kowalt spoke up. “If it did, it would not have any deposits in the savings banks.”
“Labor’s deposits in the savings banks are only a sort of reserve fund that is consumed as fast as it accumulates. These deposits are saved for old age, for sickness and accident, and for funeral expenses. The savings bank deposit is simply a piece of the loaf put back on the shelf to be eaten next day. No, labor consumes all of the total product that its wages will buy back.

“Two billions are left to capital. After it has paid its expenses, does it consume the remainder? Does capital consume all of its two billions?”
Ernest stopped and put the question point blank to a number of the men. They shook their heads.

“I don’t know,” one of them frankly said.

“Of course you do,” Ernest went on. “Stop and think a moment. If capital consumed its share, the sum total of capital could not increase. It would remain constant. If you will look at the economic history of the United States, you will see that the sum total of capital has continually increased. Therefore capital does not consume its share. Do you remember when England owned so much of our railroad bonds? As the years went by, we bought back those bonds. What does that mean? That part of capital’s unconsumed share bought back the bonds. What is the meaning of the fact that to-day the capitalists of the United States own hundreds and hundreds of millions of dollars of Mexican bonds, Russian bonds, Italian bonds, Grecian bonds? The meaning is that those hundreds and hundreds of millions were part of capital’s share which capital did not consume. Furthermore, from the very beginning of the capitalist system, capital has never consumed all of its share.

“And now we come to the point. Four billion dollars of wealth is produced in one year in the United States. Labor buys back and consumes two billions. Capital does not consume the remaining two billions. There is a large balance left over unconsumed. What is done with this balance? What can be done with it? Labor cannot consume any of it, for labor has already spent all its wages. Capital will not consume this balance, because, already, according to its nature, it has consumed all it can. And still remains the balance. What can be done with it? What is done with it?”

“It is sold abroad,” Mr. Kowalt volunteered.

“The very thing,” Ernest agreed. “Because of this balance arises our need for a foreign market. This is sold abroad. It has to be sold abroad. There is no other way of getting rid of it. And that unconsumed surplus, sold abroad, becomes what we call our favorable balance of trade. Are we all agreed so far?”

“Surely it is a waste of time to elaborate these A B C’s of commerce,” Mr. Calvin said tartly. “We all understand them.”

“And it is by these A B C’s I have so carefully elaborated that I shall confound you,” Ernest retorted. “There’s the beauty of it. And I’m going to confound you with them right now. Here goes.

“The United States is a capitalist country that has developed its resources. According to its capitalist system of industry, it has an unconsumed surplus that must be got rid of, and that must be got rid of abroad.* What is true of the United States is true of every other capitalist country with developed resources. Every one of such countries has an unconsumed surplus. Don’t forget that they have already traded with one another, and that these surpluses yet remain. Labor in all these countries has spent its wages, and cannot buy any of the surpluses. Capital in all these countries has already consumed all it is able according to its nature. And still remain the surpluses. They cannot dispose of these surpluses to one another. How are they going to get rid of them?”

“Sell them to countries with undeveloped resources,” Mr. Kowalt suggested.

“The very thing. You see, my argument is so clear and simple that in your own minds you carry it on for me. And now for the next step. Suppose the United States disposes of its surplus to a country with undeveloped resources like, say, Brazil. Remember this surplus is over and above trade, which articles of trade have been consumed. What, then, does the United States get in return from Brazil?”
“Gold,” said Mr. Kowalt.

“But there is only so much gold, and not much of it, in the world,” Ernest objected.

“Gold in the form of securities and bonds and so forth,” Mr. Kowalt amended.

“Now you’ve struck it,” Ernest said. “From Brazil the United States, in return for her surplus, gets bonds and securities. And what does that mean? It means that the United States is coming to own railroads in Brazil, factories, mines, and lands in Brazil. And what is the meaning of that in turn?”

Mr. Kowalt pondered and shook his head.

“I’ll tell you,” Ernest continued. “It means that the resources of Brazil are being developed. And now, the next point. When Brazil, under the capitalist system, has developed her resources, she will herself have an unconsumed surplus. Can she get rid of this surplus to the United States? No, because the United States has herself a surplus. Can the United States do what she previously did—get rid of her surplus to Brazil? No, for Brazil now has a surplus, too.

“What happens? The United States and Brazil must both seek out other countries with undeveloped resources, in order to unload the surpluses on them. But by the very process of unloading the surpluses, the resources of those countries are in turn developed. Soon they have surpluses, and are seeking other countries on which to unload. Now, gentlemen, follow me. The planet is only so large. There are only so many countries in the world. What will happen when every country in the world, down to the smallest and last, with a surplus in its hands, stands confronting every other country with surpluses in their hands?”

He paused and regarded his listeners. The bepuzzlement in their faces was delicious. Also, there was awe in their faces. Out of abstractions Ernest had conjured a vision and made them see it. They were seeing it then, as they sat there, and they were frightened by it.

“We started with A B C, Mr. Calvin,” Ernest said slyly. “I have now given you the rest of the alphabet. It is very simple. That is the beauty of it. You surely have the answer forthcoming. What, then, when every country in the world has an unconsumed surplus? Where will your capitalist system be then?”

But Mr. Calvin shook a troubled head. He was obviously questing back through Ernest’s reasoning in search of an error.

“Let me briefly go over the ground with you again,” Ernest said. “We began with a particular industrial process, the shoe factory. We found that the division of the joint product that took place there was similar to the division that took place in the sum total of all industrial processes. We found that labor could buy back with its wages only so much of the product, and that capital did not consume all of the remainder of the product. We found that when labor had consumed to the full extent of its wages, and when capital had consumed all it wanted, there was still left an unconsumed surplus. We agreed that this surplus could only be disposed of abroad. We agreed, also, that the effect of unloading this surplus on another country would be to develop the resources of that country, and that in a short time that country would have an unconsumed surplus. We extended this process to all the countries on the planet, till every country was producing every year, and every day, an unconsumed surplus, which it could dispose of to no other country. And now I ask you again, what are we going to do with those surpluses?”

Still no one answered.


All of this is to, essentially, underline that capitalism is a system that's built upon the promise that wealth will be generated when it moves around by virtue of it moving around. It ceases to be what has been created with it and becomes these promises. But these are abstract promises, like a sub-prime loan, that is initially valuable until the premise of the representation is questioned. Once this occurs, as things have expanded to the point that there is this surplus of wealth and money, the entire thing collapses as we are essentially simply agreeing that numbers in a ledger mean something at that point.

When this occurs, confidence needs to be built back up and capital returns to a more solid base; but it must continue to accumulate and be invested and move around by its very nature. Once it expands too far, there is nothing to support it again and it collapses.

I'm simplifying, but I've already wall-of-texted enough. In my mind, this is the most obvious (though not the only) portion of the crises of capitalism.

...If that helps at all.

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