Politics in More than One Dimension

The terms ‘right’ and ‘left,’ as political terms in use today appear to me to be applied in an ad hoc and makeshift manner.  Certainly, there seems to me to be no clear theory underpinning their application to politics.  So let’s develop one.

We will start with two positions: 1)  Society should act to benefit the individual.  We will suppose that to be the premise of the right.  The nest step is the notion that society is best served when it serves the individual.  The extreme logical conclusion is that society can be sacrificed for the individual.

                                                      2)  The individual should act to benefit society.  We will suppose that to be the premise of the left. The next step is that the individual is best served when he serves society. The extreme logical conclusion is that the individual can be sacrificed for society.

This is just where we are starting.  We will come back to this. 

This will not give us our usual alignment of interests.  For instance, from this basis, universal health care is something which should be desired by someone on the right. On the other hand, the justification for national defense is found on the left.  So, apparently we have another axis, independent of the left or the right, which is the size of government.  The argument against universal healthcare, then, is against a larger government, and in favor of a smaller one. But it cannot be one of efficiency.  There are dozens of examples where universal healthcare is more efficient at delivery of services to citizens than what happens in its absence.  Neither can it be a liberty argument, and it cannot be a danger argument.  

We also observe that while totalitarianism is indeed on the left, anarchy, reputed to be a phenomenon of the left, is under these premises, in fact a possibility of the right.  Note we have said nothing about inequality.  We have not mentioned any relationships between individuals, but only between an individual and the rest of his society.

Now our two premises are incomplete, and in fact pejorative of the left.  We have placed the benefits to the individual on the right, and the costs to the individual on the left.

Lets go back to what we see. Or rather what we are told is what we see:   We see Right and Left.  We see Republicans and Democrats.  We see the rights of the individual versus the demands of the state. But I do not think that is the real situation.

Consider instead that all politics comes down to who gets the benefits, and who bears the costs.   And remember, all benefits have to be paid for.  The extreme positions on each of these then is either the individual as a particular, or society as a whole.

But this gives us the following table:  I have also included some rubrics one might consider these positions, and their arguments, to go under.

  Society pays: Society Benefits                     Society pays:  Individual benefits

           (Communism)                                                      (  Capitalism )

Individual pays: Society benefits                 Individual pays: Individual benefits  

           (          ?           )                                                   (Libertarianism)

          

So these statements are like the corners of a physical table.  They are the extremes, and all of politics, all the actions of and in society, goes on on the surface of this table, inside these corners. 

                     

Now, no society really exists, or has ever existed, at the corners, or even at the edges, of the table.  Robinson  Crusoe, for instance, being both the individual and his complete society, is squarely in the middle.   They are ideals that (misguided) individuals strive for.  They are misguided because these corners properly apply to different aspects of every society.  These values are themselves a higher dimensional structure than we have come to understand, and -  and the table,  it’s actually a tetrahedron.  I am preserving the line of my thinking because, even described, it is far more difficult to jump directly to the tetrahedron.

But to return to consideration as a table, the left-right axis is from the lower left corner to the upper right hand corner.  The lower left corner, we can substitute for the question mark "altruism."  Or, taxes.  Similarly the upper right, which we have shown is congruent with universal health care, we have put capitalism. As we have stated above, there is another, independent, dimension, which is size of government.  On the right we can have all government, (which de facto I suppose would be fascism,) and on the left no government, which we have named "altruism," extending the definition of the word to include the corresponding political structure, however it may be constructed.   

The Evolution of Power and Society in Late Capitalism

Power is the ability to impose consequences, on the world, and on people. It is the ability to impose positive consequences, or negative consequences. Usually, these consist of rewards, for behavior pleasing to the powerful, or punishments, for behavior displeasing to the powerful. Of course, consequences may also be applied arbitrarily, but this wastes power. Power may also be applied inefficiently, which is also wasteful of power.  

In today’s world, the wealthy and many political leaders have the most power, and thus the ability to impose the most consequence.  The power of other institutions to influence the evolution of society and the economy has been significantly reduced.  While there are also other indicators of this, the reduced influence of these institutions can be seen in the combination of diminished material income, and increased dependency upon capital for such income as they retain. 

In a democracy, political leaders are expected to represent the will of people, and the interest of the people and the wealthy do not coincide. While both the wealthy and the people desire order and security, the wealthy and the people are always in competition for wealth and power. Since the people are dispersed, and the difference between what they have and what they need is less, unless they unite in will and action, they are at a decisive disadvantage to wealth.  The most important and unified instrument of the will and action of the people is their government.  Where the government is the strongest and most coherent agent of the wealth and power of the people, the wealthy will always seek to overcome, corrupt and capture it, that they may use it to help gather the wealth and power of the people to themselves.  On the other hand, seldom does an established government seek to take the wealth and power of the wealthy from them, since these tend to be regarded by the government and the people as legitimately acquired, and generally supposed to be applied to the benefit of the people.   

The wealthy are not monolithic.  However, they all share the same desire to enhance their own personal wealth.  While some are less principled in seeking and achieving this goal than others, none is so principled as to willingly give any substantial portion of his wealth and income to the people.  And so, few can afford to allow the unprincipled behavior of other wealthy to go without answer. Where some of wealthy still act as a check of the unprincipled behavior of other wealthy, the efforts of the wealthy to seize control of the government may be mitigated.  However, where the rewards for unprincipled behavior become substantially greater than the rewards for more responsible behavior, the ability and inclination of those wealthy who might be regarded as responsible, must be expected to decrease.   The pressure on the government to first pass laws and adopt policies allowing for its corruption, and then laws which further its corruption, thus increases, along with the degree of control of the government by the wealthy.  Efforts to oppose this process by interest groups from among the people are also increasingly repressed.     It should be noted that the effective transfer of control of government is an enormous transfer of wealth and power from the people to the wealthy, a transfer which usually goes unremarked. 

 As wealth becomes concentrated, and its influence on politics increases, the political leaders lose effective power, however, and become mere agents of the wealthy in the application of their power.  As this happens, political leaders, through the government, increasingly impose the will of the wealthy upon the people, whose interests they, and the government no longer represent.  Interestingly, even those interests the people once had in common with the wealthy, order and security, no longer completely serve the people, since they now also serve to enable the oppression of the people by the wealthy.  Once their government is captive of the wealthy, so long as the people are orderly and seek security, the wealthy and their captive government, through commerce and law, will strip the people of their property and rights. In this respect, an important instrument of positive power becomes degraded, as the people increasingly perceive their desires for order and security to be in, the net, harmful to themselves. 

In theory, of course, in a democracy, political leaders never ‘had power,’ as they were expected to be agents of the people, in transmitting and executing their will. However, the ability of the people to control these agents, that is the power of the people over them, was always limited.  The people were always limited in how and how much they could reward their representatives.  While they could offer rewards besides the material, those material rewards they could offer were in principle limited. Further, the perceived value of these non-material rewards were always under attack by the wealthy. And in general the people could only punish their representatives by not re-electing them to their office. The people were also limited in their ability to acquire information about many of the actions of their representatives.   For these reasons, and also because there were often a variety of ways to accomplish goals, political leaders always possessed a certain amount of discretion.  That is, a certain amount of their power actually originated from their own office.  Where, however, they are ‘elected’ by the wealthy, the wealthy have much more control over them, being able to both reward and punish them more, and also being more informed as to their actions, so most of this discretion is absent. (Because the wealthy are able supply greater reward, the expectation of that reward is higher.  Thus the punishment associated with the withdrawal of that reward would be greater.) Because of this, an ‘elected’ government can be expected to become a more effective agent of the wealthy than it ever was of the people.  Since the rewards to politicians change, we would expect the people who choose to become politicians to change, also.  We would expect them to become more self interested, and less public spirited.  We would also expect them to become more authoritarian and dogmatic, and less authoritative and pragmatic.  We would also expect them to be more sectarian and divisive, and less inclusive and unifying. 

We would expect them to identify with and seek to emulate their wealthy patrons, and devalue the rest of the population, especially the poor and other groups whose interests diverge from those of their patrons. Indeed, we would expect many to become wealthy themselves. However, so far as they must maintain the appearance of serving the interests of the people, they may be expected to engage in tactics which enable this.  Since their actions no longer serve the people, but favor the wealthy, those actions must be hidden from the people and obscured.  The people must be misled, and distracted by other activities which are irrelevant to the projects of the wealthy.  In particular the wealthy are indifferent to the divisions of the people, Yet, because these divisions are a powerful distraction to the people, the wealthy are prepared to exploit and aggravate them.

In this they are aided so far as the wealthy control the media. The media serves its owners. As society is segmented, so too is the media. Through the media the attention of the people is channeled, directed, and to a large extent, molded. The real actions of the wealthy and their servants in government, and the consequences of those actions, are downplayed or even ignored.  The importance of events which distract the people is exaggerated and those events dwelt upon. The information provided by the media increasingly diverges from reality, and action based on that divergence becomes counterproductive.  However, the information provided by the media is also what the wealthy wants the people to hear.   The wealthy are aware of this process.  It is circular,  and insofar as it progresses, it is perceived by the wealthy, and at some level at to some extent perceived by the people themselves, to render the people unfit for self-government, and requiring outside control of their activities.  It is this self-perception which renders the police state increasingly palatable to the people.  It is, however, not because they see themselves as requiring greater external restraint, but because they see their neighbors as requiring greater external restraint.  This heightened level of fear also increases the motivation in the individual to arm himself.      

Different segments of society become aware of the unresponsiveness and even the oppressive nature of their government at different times. Those people long at the bottom of the economic ladder do not notice, since they are most disadvantaged in any society. However, as society is plundered, each level of society plunders the levels below it.  Awareness thus tends to progress up the economic scale, but may be uneven, depending on the institutional  and economic relationships between the levels.  This awareness erodes the belief in the legitimacy of the government by the people.

So wealth, or capital, has power so far as it is able to impose both positive and negative consequences on labor and consumers. It gives rewards to labor through increases in wages and grants of authority, and punishes labor by discharging it, or laying it off.  (Of course, capital does not always interpret its own actions this way.)     However, as society becomes increasingly unequal, the ability of the wealthy to impose positive consequences decreases,  This because the rewards to labor that the wealthy bestow come from the income consumers spend on goods and services, and this income is decreasing as the wealthy increase their share of both that income and the wealth that comes from accumulating it. Indeed, this quantity can only decrease, unless compensated for by a greater rate of growth, or transfer of income from the wealthy to the worker.  This transfer, however, is contrary to the goal of the wealthy, which is an ever increasing stream of income to themselves. 

The reward the wealthy offer to labor of accumulated wealth is decreasing, and the income from that wealth also.  And, in its reduction of everything to material worth, the intrinsic value of labor, of work for works sake, is also devalued.  The wealthy see actual work as degrading, and this is eventually understood by labor; that laborers are regarded as fools, a vision that is reinforced by the abstract forms that work takes among the wealthy, and the disproportionate rewards the give to themselves and each other for such work as they do perform.

This means the wealthy must increasingly rely on negative consequences to exert their power. In particular, they must increasingly use force to contain and restrain the activities of labor.  Further, these negative consequences must continually escalate, to compensate for the negative consequences of the diminishing reward schedule given labor. 

It is intrinsic to capital and the wealthy that they devalue the other rewards that a society has to offer its members, since this relatively enhances the value of the rewards they offer society, and so enhances their power. They do this through their control of the media, through their control of government, and directly by how they invest their capital. (And of course, they also spend resources exaggerating the value of the rewards, and diminishing the apparent costs of those rewards, that they offer.)  It is necessarily part of their strategy to corrupt and co-opt the social, intellectual, and spiritual institutions that otherwise would provide these rewards, and which otherwise might provide a countervailing authority to their exercise of power.  Doing so, they necessarily corrupt and devalue the rewards that these institutions themselves provide.  But this process is part and parcel of capital’s decapitalization and plundering of society.  All institutions require both wealth and income to sustain themselves.  Where the wealth and income of these institutions can remain independent of capital, they can remain an independent and countervailing force.  Therefore, capital seeks to both erode and co-opt the sources of wealth and income that support these institutions.  Once the sources of wealth and income of these opposing institutions are co-opted, they may be withdrawn, and the institutions destroyed. Institutions that are dependent on income from the government, thus become vulnerable when the wealthy gain effective control of that government.  Indeed, it is evidence of capital’s control of government that they are able to do this.  And even where these institutions are not destroyed, they will be rendered compliant to the interests of capital, since the only other source of income is increasingly capital itself. 

 Further evidence of the control of the government by capital is that the government is set to tasks which, while beneficial to the wealthy, are either of no benefit to the people, or damaging to the wealth and income of the people.  Further, tasks which might be beneficial to the people are attacked and diminished, especially if they cost the wealthy income.    Most importantly, while war may be beneficial to the people, despite its costs to the people, and on occasion also be necessary, war need not be either of these.  However, whether or not war is either beneficial to the people or necessary, it is always a great source of profit to the wealthy.  When war is fought for profit, however, its goal is not victory, but perpetuation, and the maximization of that profit.  Since without victory, there can be no profit from the capture of foreign resources, all profit must be taken from the people.  What also must be taken from the people is the stream of resources from which that profit is derived.  These resources could otherwise be spent to the benefit of the people, and instead are effectively destroyed.  

So, the question arises, why hasn’t capital captured the government before now?

The first reason is the fact that the activities of government are, of themselves, not particularly profitable.  This is because, ordinarily, the discount rate for government investment is much lower than that of private capital.  One could say that, ideally, and in the limit, government is in the business of the preservation of resources, and the discount rate goes to zero.  Thus, a government responsive to the needs of its society will maintain its infrastructure.  When government is captured by capital, however, the discount rate goes up, public assets are sold at a discount, and infrastructure is allowed to decay. (The discount rate goes up because capital is effectively taking its profits from government in reduced taxation.) The second reason is that it is often much more difficult for a private entity to capture the return on these kinds of investments, than it is for the larger society.  (For these reasons together, education tends to be relegated to the public sphere.)

So taken together, these reasons imply that ordinarily capital will seek greater profits elsewhere.  And as long as it can do so, that is where its efforts will lie.  And as long as it has access to an expanding base of resources, capital will remain dispersed. That is, as long as access to resources expanded faster than the profit rate, capital would remain dispersed. But in recent times, this has ceased to happen, and return to real capital has declined.

However, the acquisition of resources and their modification and distribution throughout society, the provisioning of society, is merely an instrument to capital’s actual goal of acquiring a society’s wealth through ever greater monetary profits. Where greater profit can be obtained through manipulation of an economy, rather than providing for it, this is where capital will next turn.  Since this is process is essentially the wealthy transferring assets from the people to themselves without any substantial compensation, it can be expected to be resisted by the government. Thus, the government must be captured by the wealthy before it can be done efficiently.

  And the final reason that we haven't previously observed capital to capture the government is that one of the most important activities of government is to counterbalance the accumulation and concentration of profit in society. The government must distribute final demand throughout the economy, in order to sustain the people and their institutions.  When government ceases to do this, the ability of the people and their institutions to sustain themselves collapses. So the final reason is that no society long survives the capture of its government by the wealthy. 

The Economic Consequences of Self-Interested Capitalism

We like to think of capitalism as an economic system different in kind, and not just degree.  It does seem to be the most efficient system to exploit its environment ever designed.  And we can conclude this because capitalism has driven its less efficient competitors out of business.

But what is capitalism’s environment?  Capitalism’s environment is two fold:  First is the physical environment.  Capitalism’s original reason was to more efficiently, and at greater scale, harvest and exploit the resources society needed from the physical environment, and provide them to society, and in a greater abundance and at a lower cost than ever before.  And this it did.

But the rest of capitalism’s environment is that same society and economy for which it provided, and still provides, and processes, resources.  However, it is becoming more difficult to extract resources from nature, and produce real goods for society.  The costs are higher.  The increase in costs is greater than the increase in society’s ability to pay, with its current infrastructure.  This means it is increasingly more difficult to extract profits.

But clearly, the capitalist will seek to go to where the profit is greatest.  When the profit is greatest exploiting the environment, by providing things society needs or wants, that is where the capitalist will go

.  

But if the capitalist can gain a greater profit, the capitalist can be expected to do what is necessary to do so, if society is not effective in preventing him from doing this. For instance, if the capitalist can effectively reduce his costs by damaging the rest of society, he must be expected to do so.  Under these circumstances, we must expect him to damage society, because the sole duty of the capitalist is to enhance and maximize his own profits.  (We address Milton Freidman’s discussion of this for corporations at: http://anamecon.blogspot.com/2012/06/milton-friedman-social-responsibility.html

 The human motivating force for capitalism is not so often discussed:  It is acting according to a narrowly defined self-interest, one that excludes the interests of any larger society.)   The first is by externalizing some of the cost of producing real benefits, real goods or services, to society. For instance, one way is by discharging pollution from the production of goods or services into the environment, and not cleaning up this pollution for society, or compensating society for the damage this pollution inflicts upon it.  Also, the capitalist may manipulate government to subsidize his production, so more is produced at greater cost and at greater profit to him than is beneficial to society. The capitalist, should either opportunity arise, must also be expected to enhance his profits through monopoly or monopsony, at the expense of the larger society.

When, however, the profit is greatest exploiting society directly, that is what the capitalist can be expected to do.  Since in the process of exploiting society directly, nothing is actually produced, these methods are all aimed at manipulating demand, with the goal of maximizing one’s own share of demand, and minimizing the share of others. 

Obviously the activity of thieves does not benefit society.  They transfer demand from others, others who are often productive individuals, to themselves, who are not productive individuals, and often to the extent of damaging the productivity of the individuals they steal from.  Where theft is made legal, as through allowing and even encouraging manipulative finance, it must be expected to proceed and grow apace. Consider the selling of credit default swaps, capital appreciation bonds to municipalities, leveraged buy-outs, and other malfeasances of Wall Street and the banking sector.

Resources are expended in this process, and indeed destroyed.  This is a consequence of the nature of debt, which can only, in real terms, be repaid by productive individuals and companies.  It is thus, in the net, the laying of debt on the productive sectors of an economy.  This hampers them, reduces their profitability, and discourages investment in them, and in consequence encouraging ‘investment,’ that is the transferring of demand, to the non-productive sectors of the economy.

Clearly, this process is destructive of the economy.  As real production is increasingly replaced by fictitious ‘production,’ we should expect the economy to be less and less capable of maintaining itself.  This would first be compensated for by importing increasing quantities of goods and material factors of production.  However, we should expect increasing poverty, decreasing investment in the real economy and infrastructure, decreasing market for real production, and eventual economic collapse.

A Problem with Capitalism

Capitalism, as a system, is inherently unstable.

Consider a closed economy.  By closed we mean no money, and no resources, flow in or out of it.    This is more general  than it seems, since we are really talking net flow:  We are thus talking about any economy where the flow of money in and the flow of money out are equal in magnitude. And any economy where the flow of resources in and the flow of resources out are equal in magnitude.

   

The economy consists of capital and labor. Profit is required by capital, in order to invest in greater production, that is, more capital.  Thus capital must exploit labor.  But, since the economy is closed,  labor is capital's only market, except for itself.  (Capital does not give its money, its demand, away to third parties.) But, capital cannot take a profit from itself. (Well, it can. But this is called taking a loss, when the expense borne by capital is greater than the return.)  Indeed, capital  cannot even break even, selling to itself, because of the  costs of business, and  because of the depreciation of capital. 

Thus, capital must get in return more than it produces. (This is on two levels, real and financial.) So it takes a profit from labor.  But what does this mean?    The capitalist exploits labor twice.  First, less is paid for labor than that labor produces. This produces a surplus of goods. This surplus is the profit of the capitalist.  Some of this surplus is retained by the capitalist. Yachts, for instance.  But yachts are an expense to the capitalist.  And not all of this surplus can be retained. If it is, that is the break even point  for the capitalist. 

So the surplus must be sold, and it can only be sold to labor.  This requires that the capitalist takes less from labor than it gives labor. But second, the capitalist takes more from labor than it gives labor in the first place as wages.  But this results in an ever diminishing market, whereas the capitalist requires an ever expanding market. 

Capital, in maximizing its profits, minimizes the return labor gets, even to the point where labor's return is negative.  That is, each year labor is paid less, in real terms, than the year before.   But this collapses the market for capital.  This is the problem.  

Indeed, for its market to grow, the capitalist must give labor (or some third party) some of the surplus of production.  That is, capital must share its profits with labor.  That is, labor must receive more than its costs.  This will result in an expanding market, which is required for capital to grow.  

Now with a closed real economy, the money supply can be changed. Thus an economy can be closed in real terms, (this is called Autarky,) yet 'open' in terms of money supply.   That is, the money supply can be adjusted to favor either the financial or the real sector of the economy. 

 

Keeping a fixed money supply is good for finance, but death to producers of real goods and services.  Finance takes money out of the real economy.  This is finance's cost, to the real economy, of doing business.  This is its profit, as it redistributes demand in the real economy.   Thus the money supply in the real economy decreases, and the real economy experiences deflation.   But this means that, on average, the producers of real goods experience negative profit.  Roughly, this means that, each year, over half of all non-financial businesses suffer losses.  

Loaning money to the real economy does not reduce this over time, but rather increases it, because of the interest.  Thus a period of deflation may be compensated for by finance loaning sufficient money to the real economy.  However, it will subsequently be followed be an even greater period of deflation, as the loans come due.  But this is superposed on the decline in production brought about by non-financial companies making negative profits. They will make money, and perhaps grow, while the money is being lent, but their markets will subsequently suffer an even greater contraction when loans come due, and can no longer be rolled over.  Thus while there are fewer dollars, they are also pursuing fewer goods, which may even be inflationary, if production declines at a rate greater than the money supply in the real economy. Meanwhile, the supply of money in the financial sector increases, but has no outlet, except in bidding up asset prices. Of course, real assets, that is the producers of real goods, are increasingly overvalued, as their markets are increasingly undermined. Depending on the degree of indebtedness, the transition is more or less dramatic.  

Therefore, the money supply must expand so that this profit, the money finance takes out, is zero.  This requires that the money supply be expanded in the real economy, and not in the financial economy, which will merely aggravate the situation. Effectively, this means it must be done fiscally, and not monetarily.   Finance must be taxed, and the money spent in the real economy.    

(More) Homage to Karl Marx

(More) Homage to Karl Marx

Ah, we have from the excellent Charles Smith, over at:

http://www.oftwominds.com/blogaug11/crisis-of-capitalism-8-11.html

that Karl Marx did indeed predict the financialization of the capitalist crisis.
So, the problems with using secondary sources...
Mr Smith's blog should be read, btw.

(Some) Homage to Karl Marx

(Some) Homage to Karl Marx

Let us offer some praise to a famous man, much in disregard these days: Karl Marx. Not because we’re a Communist, or anything. European Socialism has worked much better.(Can it continue to do so?) We offer it because he predicted this, our present predicament. He didn’t get the initial cause quite right, because his theory of surplus value was off. And he missed some delaying factors. But once he gets rolling…!

To Marx capitalism was a dynamic process, and its destruction an inexorable result of the forces implicit in its structure. He did not predict the action of some other implicit forces in society, which delayed and altered the process. But we see these forces are eventually overwhelmed, and their existence apparently in no way alters the final conclusion.

So what did he predict? Increasing substitution of capital for labor. Resulting in increasing unemployment. Increasing concentration of economic power. Decline of the middle class. Crises and depressions, as supply increases while demand decreases. Increasing misery among the masses. Who eventually react badly. Pretty good for 130 or more years. Of course, he didn’t think it would take that long…But, hey, in good company with Thomas Malthus, who also made predictions that, while also delayed, still seem pretty inexorable.

What he did not predict: The period of increasing well-being for labor, prior to the beginning of the collapse he does predict. Rise of debt and the rise of finance. The rise and role of government as a temporary buffering factor, providing a balance of power between labor and the capitalist. Indeed, he apparently missed the role of government altogether.

However, these factors only change the timing, but not the final direction. Neither did Marx predict advances in technology, but this is not necessary to his theory. It’s covered under the increasing substitution of capital for labor. And as for the end result, well, who can say?


It is not necessary to demand, as Marx did, that the value of a good is determined by the amount of labor that went into making it. (He might have had this backwards. It seems more meaningful to say the value of a good determines the amount of labor that goes into producing it. Clearly, you’re not going to labor to put more value into a good than you’re going to be able to sell a good for. There does seem to be the scarcity factor, also.) It is only necessary to observe that the Capitalist must take his profit from the worker. The worker must be ‘exploited.’ The worker must produce more than he consumes. He must produce surplus value. This is necessary. Otherwise the capitalist goes out of business. So, in fact, does society.
Now if this surplus were consumed in other ways, say by the Capitalist in high living, or the government in taxes and the production of public goods, all would be well and good. But the capitalist faces competition, and so must either drive down wages to subsistence, (and/or expand the work day and/or speed the pace of work(!)) or further invest in capital. Either way, he increases the surplus produced, either by decreasing the size of the market, or by expanding the amount produced. But all capitalists have to do this, so this merely increases the competitive pressure, leading to a crisis and driving the less efficient (smaller) producers out of business. This leads to unemployment, the concentration of wealth, etc., until the system recovers and the cycle repeats itself.

Marx apparently missed this next part: Where wages increase at the rate of the increase of production, so the market expands, there is no increase in competitive pressure, and so no crisis. Of course this is only temporary, as long as a balance of power exists between labor and capitalists, so that labor can share in the surplus value they produce. As long as the buying power of labor expands at the same rate as businesses expand, the surplus is consumed. (We previously mentioned the possible use of inflation for doing this: http://anamecon.blogspot.com/2010/07/producer-consumer-problem-again.html )

This, of course, is only a temporary situation, depending of the ability of labor to force the capitalists to keep increasing their wages, And note this balance of power works to the benefit of the capitalists, by mitigating competitive pressures. But labor must eventually fail in this, because the supply of labor continuously increases, weakening labor’s bargaining power. Note also the role of government: Government provides the legal framework for labor to exercise its power. It also acts to effectively increase wages through redistribution and regulation.

The inability of labor to prevent the taking over control of government by capital contributed to labor’s downfall. This helped permit the capitalists to hold down the wages paid labor, while at the same time increasing capitalization. Marx got this, but here Marx misses the onset of the debt bubble. Because, by borrowing, labor, despite is static income, is able to increase its buying power, its ability to absorb surplus value and so mitigate the competitive forces which bring about crisis. But debt can only carry the economy so far, and when labor reaches the limits of its ability to absorb debt, Marxian dynamics takes over, now with a vengeance.

The Marxian crisis is precipitated as the market suddenly collapses due to the tightening of credit, as the banks perceive that labor has reached the limits of its ability to pay. (Here it was as a result of the Mortgage crisis.) There is a surplus of production. Competition increases. Businesses cut back. Failures increase. Unemployment rises dramatically. (And the tax base erodes. This weakens the power of government.) Wealth becomes increasingly concentrated.

Now the government tries to intervene. It has always served as a buffer, augmenting demand, but now its efforts increase dramatically, maintaining demand by increasing spending. But this project is doomed, because with the increased concentration of wealth, the capitalists have taken over the government, and have arranged so that they do not pay their necessary share of taxes. (Indeed, the situation is aggravated by the increased demands that the wealthy, with their influence, place on government. That is, they are involved in increasingly extracting wealth from government. Thus the government, once captured by capitalists, works to destroy the capitalist’s own market, the buying power of labor, by pumping out money and giving it to the capitalists, rather than preserving the market the capitalists need.) At the same time, the income of the government has decreased, due to increased unemployment. So the government, already under increased debt loads due to the increased strenuousness of its efforts to augment demand during the period that labor was also taking on debt, must increase its debt burden dramatically. (Actually the government does not have to take on any debt at all. It can always print money. See: http://anamecon.blogspot.com/2010/11/banks-are-forcing-debt-on-rest-of-us.html Increasing taxes on labor would not have helped, as this would have left total demand unchanged. Only politically infeasible increased taxes on the wealthy would have provided an increase in demand, as well as a mitigation of supply.)

But government can only do this so far, when the wealthy, who have now committed much of their savings to government bonds, since they are unwilling to lend to others, (and indeed labor, that is the market, is still overextended,) use their influence to put a stop to this process.

It should be mentioned that much government intervention is misplaced, due to the disproportionate influence of finance. By trying to maintain the debt bubble, that is financial institutions of disproportionaate size, the real economy is sacrificed. And since it all depends on the real economy, of course, the government must eventually fail in this project, as well.

So the government ceases its intervention, and now its own demand contracts, as it seeks to reduce its debt. There is an increased surplus of production as demand decreases. Competition increases. Businesses cut back. Failures increase. Unemployment rises dramatically. The tax base further erodes. Wealth becomes increasingly concentrated.

So we have a two step crisis. Assuming this crisis eventually resolves itself, (this is uncertain) the cycle merely repeats itself, and more quickly, because of the increased weaknesses of labor and government.

The crisis may not resolve itself, however, because of the debt bubble. The debt bubble cannot deflate, except by default, and this will be resisted at all stages by those whose wealth depends on it being maintained. Since these will have control of government, this means debt will be forced on labor, (and the smaller business owner, and the middle class, who thus will be swept into the proletariat,) as government seeks to reduce its deficit, as asset prices and wages decline, and the prices of commodities increase. Labor and the middle class will take on more debt to survive, but this can only be a temporary expedient. When it reaches its limits, the workers will then be reduced to subsistence and charity.

So we see that the capitalist, by pursuing power, acquires too much! He then must act to create the misery among the lower classes that propels the proletarian revolution.

So we have filled in some of the details Karl Marx might have missed. I say might have, because I haven’t actually read his stuff, (except for the Communist Manifesto) just reductions of it. We have also skipped the role of trade, and globalization, and the fact that the interests of the industrial capitalist and the financial capitalist increasingly diverge.

And in out analysis, we haven’t reached Marx’s ‘happy’ conclusion, the liberation of the worker from the yoke of capitalism, either. That is a matter of discussion all itself. Indeed, the matter reaches to the very survival of our civilization.