Was Marx Right?

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Was Marx Right?

by Umair Haque  |   8:15 AM September 7, 2011

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In case you've been on Mars (or even just on vacation), here's a surprising idea that's been making the rounds lately: there might have been something to Marx's critiques of capitalism after all.

Now, before you leap into the intertubes, seize me by the arm, perform a citizens' arrest, and frog-march me into the nearest FBI office, exclaiming "See this suspicious looking brown guy? He's a card-carrying communist!!" please note: I'm, well, not. I'm a staunch believer in capitalism (hence, the title of my book.)

Yet, I do think — and after reading the dismal, dreary headlines every day, not to mention checking the value of your 401K, house, job, economy, society, and future lately, I'd bet you do too — that prosperity as we know it might be lazily circling the glowing inner rim of the burbling event horizon of a massive supergalactic black hole. And when it comes to doing much about it (wave hello to your new friend, "double-dip"), well, the status quo's pretty much out of options, out of ideas, and running out of time (hey, is that a Congressional "super-committee" being stalked by lobbyists I see? Who came up with this brain-melter of an idea?).

Hence, indulge me for a paragraph or two. Now, please note: This is a hugely divisive topic, and by "was Marx right?" I don't mean "Communism is the glorious future of humankind, my brothers in arms!! (And I am your leader — bow!!)". For, of course, I think we've had plenty of compelling demonstrations that it wasn't. Rather, I mean: "Was there maybe a tiny mote of insight or two hidden in Marx's diagnoses of the maladies of industrial age capitalism?"

Let's take Marx's big critiques of industrial age capitalism, one by one (and with a grain of salt: since I'm far from a Marxist economist, it's entirely possible my quick, partial descriptions leave much to be desired).

Immiseration. Marx claimed that capitalism would immiserate workers: he meant that labor would be "exploited" — not just in a purely ethical sense, but in a narrower economic one: that real wages would fall, and working conditions would deteriorate. How was Marx doing on this score? I'd say middlingly: wages in many advanced economies — notably, the most purely capitalist in a financialized sense — have failed to keep pace with productivity; not for years, but for decades. (America's median wage has been stagnant for roughly 40 years.) In macro terms, labor's share of income has plummeted, while the lion's share of growth has accrued to those at the very top.

Crisis. As workers were paid less and less, capitalism would be prone to chronic, perpetual crises of overproduction — for they wouldn't have the means to purchase or invest in enough goods to keep the economy humming. As Marx put it, there was likely to be "poverty in the midst of plenty." How's Marx doing on this score? Not bad, I'd say: the last three decades have in fact been characterized by global crises of what you might crudely call overproduction (think: too little demand chasing too many disposable widgets, resulting in a massive global debt crisis, as vanishing middle classes took on more and more debt to compensate for stagnant real wages).

Stagnation. Here's Marx's most controversial — and most curious — prediction. That as economies stagnated, real rates of profit would fall. How does this one hold up? On first glance, it seems to have been totally discredited: corporate profits have broken through the roof and into the stratosphere. But think about it again, in economic terms: Marx's prediction concerned "real profit," not just the mystery-meat numbers served up by beancounters, and chewed over with gusto by "analysts." When seen in those terms, Marx might be said to have been onto something: though corporations book nominal profits, I'd suggest a significant component of that "profit" is artificial, earned by transferring value, rather than creating it (just ask mega-banks, Big Energy, or Big Food). I've termed this "thin value" and Michael Porter has described it as a failure to create "shared value." Replace "declining real profit" with "shrinking real value" and it's analogous to what Tyler Cowen and I have called a Great Stagnation (though our casus belli for it differs significantly from Marx's).

Alienation. As workers were divorced from the output of their labor, Marx claimed, their sense of self-determination dwindled, alienating them from a sense of meaning, purpose, and fulfillment. How's Marx doing on this score? I'd say quite well: even the most self-proclaimed humane modern workplaces, for all their creature comforts, are bastions of bone-crushing tedium and soul-sucking mediocrity, filled with dreary meetings, dismal tasks, and pointless objectives that are well, just a little bit alienating. If sweating over the font in a PowerPoint deck for the mega-leveraged buyout of a line of designer diapers is the portrait of modern "work," then call me — and I'd bet most of you — alienated: disengaged, demoralized, unmotivated, uninspired, and about as fulfilled as a stoic Zen Master forced to watch an endless loop of Cowboys and Aliens.

False consciousness. According to Marx, one of the most pernicious aspects of industrial age capitalism was that the proles wouldn't even know they were being exploited — and might even celebrate the very factors behind their exploitation, in a kind of ideological Stockholm Syndrome that concealed and misrepresented the relations of power between classes. How's Marx doing on this score? You tell me. I'll merely point out: America's largest private employer is Walmart. America's second largest employer is McDonald's.

Commodity fetishism. A fetishized object is one which is more than a symbol: it's believed to have actually the power the symbol represents (like an idol, or a totem with magical properties). Marx claimed that under industrial age capitalism's rules, commodities became revered talismans, worshipped through transactional exchanges, imbued with mystical powers that give them inherent value — and obscuring the value of and in the very people who've worked labored over them in the first place. It's one of Marx's most subtle and nuanced concepts. Does it hold water? Again, I'll merely pointing to societies in furious pursuit of more, bigger, faster, cheaper, nastier, now, whether it's the retail temples of America's mega-malls, or London rioters stealing, not bread, but video games.

Marx's critiques seem, today, more resonant than we might have guessed. Now, here's what I'm not suggesting: that Marx's prescriptions (you know the score: overthrow, communalize, high-five, live happily ever after) for what to do about the maladies above were desirable, good, or just. History, I'd argue, suggests they were anything but. Yet nothing's black or white — and while Marx's prescriptions were poor, perhaps, if we're prepared to think subtly, it's worthwhile separating his diagnoses from them.

Because the truth might just be that the global economy is in historic, generational trouble, plagued by problems the orthodoxy didn't expect, didn't see coming, and doesn't quite know what to do with. Hence, it might just be that if we're going to turn this crisis upside down, we're going to have to think outside the big-box store, the McMansion, the dead-end McJob, the bailout, the super-bonus, and the share price.

The future of plenitude probably won't be Marxian — but it won't look like the present. And if we're going to trace the beginnings of better, more enduring, more authentic, more meaningful, fundamentally more humane paradigm for prosperity, perhaps it's worthwhile exploring — even when we don't agree with them — the critiques and prophecies of those who already challenged yesterday's.

NB: This is a divisive topic. Let's stay civilized, enlightened, and keep a sense of humor. Let's discuss the issues and ideas in the comments — not just defend ideologies by pointing fingers and calling one another names.

More blog posts by Umair Haque

More on: Economy

Umair Haque

Umair Haque is Director of Havas Media Labs and author of Betterness: Economics for Humans and The New Capitalist Manifesto: Building a Disruptively Better Business. He is ranked one of the world's most influential management thinkers by Thinkers50. Follow him on twitter @umairh.

http://blogs.hbr.org/haque/2011/09/was_marx_right.html

Stephen King: As capitalism stares into the abyss, was Marx right all along?

We may avoid a 1930s Depression but the best we can hope for may be a 1990s Japan

Monday 02 March 2009

"Modern bourgeois society ... a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells."

Those of you with revolutionary zeal will immediately recognise these words. Penned by Karl Marx in 1848, they form part of the Communist Manifesto. Marx, like Adam Smith before him, had a historical view of society's development. Capitalism, with its bourgeoisie, had replaced feudalism, but capitalism, according to Marx, would be replaced by communism. Capitalism was inherently unstable, as Marx noted later in the same paragraph:

".....the commercial crises... by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production."

Whatever else one thinks of Marx, he certainly knew a thing or two about the business cycle. Were he alive now, he would surely claim his theories were being vindicated. We are, after all, witnessing the most remarkable collapse in economic activity around the world. Take Japan. In November, industrial production fell 8 per cent. That was bad enough. In December, production dropped another 9 per cent. That was even more remarkable. January's production figures, though, are simply eye-wateringly awful, showing a further 10 per cent decline. Production, then, is down almost 30 per cent in just three months, a pace of decline unprecedented in Japanese post-war economic history.

Or how about the US, where we discovered last week that national income contracted in the final quarter of last year at an annual rate of more than 6 per cent, the biggest drop since the early 1980s. Then there's Taiwan, where exports have been in freefall in recent months. Not to mention dear old Blighty, where the economy might end up shrinking by approaching 4 per cent this year.

The pace of decline in global economic output is extraordinary. On virtually any metric, we are seeing the worst global downturn in decades: worse than the aftermath of the first oil shock in the mid-1970s and worse than the early-1980s downswing, when the world economy had to cope with a doubling of the oil price, the tough love of monetarism and the onset of the Latin American debt crisis. Moreover, this time we cannot use the resurgence of inflation as an excuse for lost output: the credit crunch in all its many guises has seen to that. Instead, we have a world of collapsing output combined with falling prices: a world, then, of depression.

For many years, Marxist ideas appeared to be totally irrelevant. The collapse of the Berlin Wall in 1989 brought to an end the era of Marxist-Leninist Communism, while China's decision to join the modern world at the beginning of the 1980s drew a line under its earlier Maoist ideology. In western economies, Marxist ideas were at their most potent after the First Word War when the likes of Rosa Luxemburg could smell revol-ution in the air and as the Roaring Twenties gave way to the Great Depression of the 1930s. I'm not suggesting we're entering revolutionary times. However, it seems increasingly likely that the economic landscape in the years ahead will be fundamentally different from the landscape that has dominated the working lives of people like me who entered the workforce in the 1980s. We've lived through decades of plenty, where incomes have risen rapidly, where credit has been all too easily available and where recessions have been mostly modest affairs. Suddenly, we're facing a collapse in activity on a truly Marxist scale. It's difficult to imagine the world's love affair with free markets being sustained under this onslaught. The extreme nature of this downswing will change our lives for decades to come.

The first change relates to the allocation of capital. Increasingly, policymakers are accepting that market forces, left to their own devices, will lead to a race to the bottom. The dangers are becoming greater by the day. Interest rates are close to zero while prices and wages are in danger of declining. If deflation takes hold, real interest rates on cash will start to rise, creating perverse incentives in capital markets. Why bother to buy equities or corporate bonds if you are nicely rewarded for hanging on to an entirely risk-free piece of paper?

The efforts to stop this vicious circle are increasingly focused on bypassing the banking and financial system. As central banks widen the assets they are prepared to purchase to maintain the flow of credit to the economy at large, they are increasingly getting into the capital allocation game. They, and not the market, will at the margin decide whether companies and households are creditworthy. And as governments increase their spending plans to ward off a catastrophic loss of demand, they, rather than companies, will decide on how our savings should be allocated.

The second change relates to an increased national bias in the allocation of capital. As Nicolas Sarkozy, the French President, pushes to offer government funding to French car companies on condition they don't outsource French jobs abroad, as US Congress signs off a stimulus package with more than a hint of a "Buy American" policy, and as the UK Government pushes to encourage bailed-out banks to lend domestically as opposed to internationally, we appear to be turning our backs on the previous world of heightened cross-border trade and capital flows. While these flows have undoubtedly been volatile, they have nevertheless allowed emerging economies, in particular, to gain a foothold on the development ladder. Are we about to cast these countries asunder in our desperate attempt to fix our domestic problems?

The third change relates to interference in the price mechanism. When it comes to Sir Fred Goodwin's pension, this isn't so surprising, but the price mechanism extends far and wide. At the microeconomic level, we'll enter a world of subsidised loans with murky political undertones. At the macroeconomic level, countries may take the opportunity to manipulate their exchange rates in an attempt either to gain a competitive advantage or to "default" to foreign creditors.

Some of these changes may be absolutely necessary to prevent an outright collapse in global economic activity (although the rise in protect-ionist pressures is surely a retrograde step). They also suggest, though, that there will be no return to "business as usual" for market forces. The cost of avoiding depression is a heightened level of state intervention on a scale unimaginable for those who believe in the virtues of free markets. While such intervention may help prevent the worst ravages of economic collapse, it will ultimately do little to foster the entrepreneurial spirit and risk-taking behaviour which have, in the past, contributed so much to rising living standards. We may avoid a 1930s Depression but, increasingly, we may find the best we can hope for is a 1990s Japan. Not quite a Marxist revolution, then, but certainly a lasting sea-change in economic performance.

http://www.independent.co.uk/news/business/comment/stephen-king/stephen-king-as-capitalism-stares-into-the-abyss-was-marx-right-all-along-1635162.html

Video: Terry Eagleton: why Marx was right

Monday, 10 June 2013 20:20

Written by fourmanfilms

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Economic catastrophe has put Marx back on the agenda. Was he right all along? Terry Eagleton makes the case in this video of his talk at Dangerous Ideas for Dangerous Times

Books | Review: ‘Why Marx Was Right’ by Terry Eagleton

Hrannar Baldvinsson reviews "Why Marx Was Right", Terry Eagleton's bold and boisterous defence of one of the most revered, maligned and misunderstood figures of modern intellectual and political thought.

Book Reviews, New in Ceasefire - Posted on Sunday, June 10, 2012 12:03 - 1 Comment

Tags: marx

By Hrannar Baldvinsson

“Eagleton’s main theme seems to be that Marxists have given Marx a bad name”

Marx is back! Or so we hear every time Capitalism is in trouble. Back in 2008 newspapers reported that demand for Das Kapital had exploded in Germany, in Japan the Communist Party started selling comic book versions of his most popular works.

Even anti-Marxist thinkers like philosopher John Gray admit that Marx was on to something; he was right, Gray maintains, about many aspects of Capitalism, for example that it leads to the proletarisation of the middle class. It’s just that he was wrong about the alternatives.

Terry Eagleton, Professor of English literature and card-carrying Marxist would argue that Marx was right about a great deal more. In fact, he would argue that Marx was right on more or less everything. To make his point, he has assembled a book on why Marx was right and why his detractors are (mostly) wrong-headed ignoramuses or reactionary bullies.

This is not a dry boring academic type of text but rather popular literature intended to be accessible to laymen as well as experts. Over less than 300 pages, Eagleton has taken what he beliefs to be ten standard criticisms of Marx and Marxism and tries to refute them “in no particular order of importance.”

Although claiming in the preface to be a critical Marxist – and thus in no way accepting of everything that Marx had to say – Eagleton’s criticism in practice consists mostly of a few and far in between gestures such as admitting that there are problems with the theory of historical materialism. Of course, bearing in mind the title, as well as structure, of the book this is perhaps to be expected.

Eagleton’s main line of attack is against a number of familiar tropes: for instance, that Marxism might have been relevant in the 19th century but not so any more, that it is fine in theory but a disaster in practice, that it is deterministic, utopian, reduces everything to economics, ignores the spiritual side of life, that its notion of class is outdated, that it rejects reformism for revolution, that it believes in an all-powerful state and that recent radical movements owe little to Marxism.

In response to the first charge, Eagelton maintains that the point of Marxism is to undo itself: once there is nothing left to fight for, Marxism will cease to exist. If it still exists today it is because there are many things left to fight for. This maybe true for Eagleton but for a great deal many revolutionaries, radicals and activists this is also about an attitude and a way of living. Put bluntly, fighting the good fight feels good, and “Banjo lessons” might not be quite as nourishing for the soul.

Eagleton also maintains that the reason for Marxism going out of fashion is not that society has drastically changed, but that the system seemed unbeatable and the alternatives seemed worse. As a result the left leaped into post modern nihilism. In fact, the Capitalist system at its core remains unchanged, which is why Marxist critique remains valid.

Of course, one only needs to think of the Occupy Wall Street movement, or any other recent critique of “the system” to see the parallels with cold war left critiques. The problem is that the left doesn’t really offer much of an alternative anymore. Indeed, the Slovenian Marxist philosopher Slavoj Zizek even closed one of his books by arguing that, despite having no concrete plan, the left could at least “speak truth to power.”

But Eagleton goes further, offering a common defence of socialism that readers of Eric Hobsbawn would recognise, insisting that it was never meant to be introduced in a disastrously-poor country like Russia.

Lenin and co, Eagleton  points out, had hoped that the revolution would spread to other countries and had especially high hopes for Germany, even setting up the headquarters of the Comintern there. Their hope was that the German revolution would then help the new and backward Soviet Union with much needed materials and technology. Socialism, as they saw it, would have to be established in advanced countries with flourishing civic culture, liberal democratic traditions and a highly educated workforce.

This, however, overlooks one crucial aspect: the system that Lenin established in Russia contained no checks and balances. There were no real institutions to stop the Central Committee of the Bolshevik Party from abusing its power, something critics of Lenin, including Trotsky had noted even before the revolution.

One could, of course, argue that Lenin had a  good reason for doing this, a revolution after all is not a tea party (as Mao would have said,) and if one wants to revolutionise society giving people who do not share your enthusiasm the wherewithal to thwart your plans is no way to do things.

Eagleton omits this point, however, seemingly convinced that, had the revolution occurred in a more “civilised”, wealthier society things might just have turned out all right. Believing such a thing requires an expansively optimistic outlook, to say the least. After all, regardless of where they occur, revolutions have a tendency to be rather messy things.

Eagleton seems to advocate some sort of Market Socialism but omits to mention that such an enterprise was attempted in Yugoslavia as well as in Hungary with meagre results. When one advocates a new system, explaining what went wrong with previous attempts might be helpful, and explaining what will be different “this time” even more so.

Eagleton also seems to be interested in using modern information technologies (i.e. the internet) to solve the practical problems of socialism. One could of course point out that central planners in Eastern Europe had also pinned their hopes on the computer revolution to solve their problems, and as we know, it didn’t. This does not rule out that it might eventually do so. Modern societies only need a fraction of its populace working in industry and production. Most people work in the service industry, often doing things that we could very well do without.

On the charge that Socialism has often been a disaster in practice, Eagleton counters with the assertion that modern Capitalist nations are the fruits of history of genocide, violence and imperialism; it just so happens that we have forgotten about this because it has been about for so long. Socialism, he points out, also had its monumental achievements to its credit, such as free healthcare and schooling, as well as full employment (although inspecting them from the vantage point of the modern welfare state might make them sound rather meagre and unimpressive).

After pointing out the weaknesses of Historical Materialism, Eagleton admits that Marxism is deterministic, but not as much as Dogmatic Marxists understood it to be. On being Utopian, he responds that Marx said next to nothing on how socialism would come about or be, but did however assert that socialism should be a decisive break with the present, (or the end of prehistory which itself has a slightly utopian ring to it).

Eagleton also points out that there have been drastic social changes in the past centuries, to think that change will simply stop now is absurd. This is of course true, but the changes were accomplished, to a large extent, through compromises. This might explain why Capitalism is still with us today.

Eagleton closes his book with a flurry of swings and swerves: Marx had a passionate faith in the individual, was suspicious of dogma, was not into “perfect society”, not for equality as commonly understood, not utopian, was for diversity, was hostile to the state, friendly to democracy, not against reformism, did not obsess over the working class, was not simply a materialist, praised the middle classes and saw socialism as its inheritor, a champion of women’s rights and so on.

Eagleton can be a very convincing writer. He can even make religion sound plausible and some of his assertions on Marx are surely on spot, though others remain controversial. The main problem with his characterisation of Marx, however, is that while this jolly, open-ended “everything goes” Marx sure sounds appealing, he is hardly the Marx of Trotsky or Lenin.

Trotsky was a dogmatic believer in the automatic collapse of capitalism, seeing it just around the corner throughout his entire life. For his part, Lenin was a man who got out of bed only for the revolution and saw nothing wrong with using any means available to bring it about.

Indeed, Lenin managed to design the authoritarian formula of a vanguard party, without one iota of concern about democracy, all while maintaining that he was an orthodox Marxist. Yet Eagleton seems to have no beef with Lenin and his merry band of revolutionaries who saw nothing wrong with shooting people en-masse for the sake of the cause.

While it is true that Marx´s writings can be difficult to decipher – with some containing passages that make him seem a cold blooded determinist while others paint a more nuanced picture – the Marxism systematised by his successors contained more of the dogmatic Marx than of the open-ended Marx. Ignorance can hardly account for this; the job was largely done by Engels himself as well as others, notably Karl Kautsky, “the pope of socialism” (though admittedly a harsh critic of the Russian revolution).

Eagleton’s main theme seems to be that Marxists have given Marx a bad name, rather like Christians have given Christ a bad name (an argument he incidentally makes in another book). Well, not many people would argue that the ideas of Christ were largely bad, even though many would have no issues agreeing that “actually existing Christianity” has often been a disaster.

The same applies to Marx and Marxism. Marx criticised the liberal order of his time for the apparent gap between the theory of how Liberal Democratic Capitalism was supposed to work and how it actually worked. To bridge this gap, to unify theory and practice, is something Marxists tried to implement and, I would argue, had failed miserably in their endeavour. How far we can go to amend the difference between theory and practise is a question that all progressives grapple with.

The answer is anyone’s guess, some might maintain that it is better to attempt that which might not in the long run be possible, than to embrace the status quo. “A map of the world that does not include Utopia is not worth even glancing at” Oscar Wilde once said. Eagleton seems to concur.

Why Marx Was Right
Terry Eagleton
Paperback: 272 pages
Yale University Press; Reprint edition (3 Jan 2012)

Hrannar.Baldvinsson studied East-Asian societies in Iceland before going to Japan to do graduate studies in political theory at Waseda University where he focused on the early history of Japanese left wing thought. He currently divides his time between Tokyo and Beijing.

http://ceasefiremagazine.co.uk/review-why-marx-was-right-eagleton/

Fri Aug 12, 2011 at 01:40 PM PDT

Roubini: Marx was right. Capitalism may be destroying itself.

by goinsouthFollow

Video - Dr. Nouriel Roubini Claims Karl Marx Was Right About Capitalism Destroying Itself - WSJ.com - Wsj.com - Wall Street Journal

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live.wsj.com/...roubini...marx-was-right/68EE8F89-EC...

2012. 6. 19.

In a clip from a longer interview with WSJ's Simon Constable, Dr Nouriel Roubini claims Karl Marx was right ...

Nouriel Roubini is a mainstream economist who teaches at New York University and may be best known as one of the early predictors of the '08 crash.

He is no Marxist.

But today, in an interview with the Wall Street Journal, Roubini admitted that Marx was right about Capitalism and raised the possibility that Capitalism is destroying itself in the way Marx outlined more than a century and a half ago.

I've produced a rough transcript (Roubini's accent gives me some trouble) of the critical portion of this very interesting interview.  I urge you to read each word carefully at least once, if not twice.

WSJ:  So you painted a bleak picture of sub-par economic growth going forward, with an increased risk of another recession in the near future.  That sounds awful.  What can government and what can businesses do to get the economy going again or is it just sit and wait and gut it out?

Roubini:  Businesses are not doing anything.  They're not actually helping.  All this risk made them more nervous.  There's a value in waiting.  They claim they're doing cutbacks because there's excess capacity and not adding workers because there's not enough final demand, but there's a paradox, a Catch-22.  If you're not hiring workers, there's not enough labor income, enough consumer confidence, enough consumption, not enough final demand.  In the last two or three years, we've actually had a worsening because we've had a massive redistribution of income from labor to capital, from wages to profits, and the inequality of income has increased and the marginal propensity to spend of a household is greater than the marginal propensity of a firm because they have a greater propensity to save, that is firms compared to households.  So the redistribution of income and wealth makes the problem of inadequate aggregate demand even worse.

Karl Marx had it right.  At some point, Capitalism can destroy itself.  You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand.  That's what has happened.  We thought that markets worked.  They're not working.  The individual can be rational.  The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else's income and consumption.  That's why it's a self-destructive process.

The full interview is here.

The portion where Roubini talks about Marx and excess capacity is here.

http://www.dailykos.com/story/2011/08/12/1006318/-Roubini-Marx-was-right-Capitalism-may-be-destroying-itself

Chris Whalen: Roubini Is WRONG About Karl Marx Being Right

By Aaron Task

Chris Whalen: Roubini Is Wrong About Marx Being Right - Yahoo!7 Sport

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au.sports.yahoo.com/videos/watch/26591099/

2011. 12. 2.

Loading Flash Video Player. If this doesn't play, please check you have the latest flash player. Chris Whalen ...

With Europe on the verge of imploding and the U.S. searching for yet more government answers to our economic ills, it's time to ask: Was Karl Marx right about capitalism being self-destructive?

NYU Professor Nouriel Roubini seems to think so, suggesting Marx "said it right," in a recent interview with The WSJ. "We thought that markets work. They're not working."

Roubini's comments generated a firestorm on the Web, including a retort from Institutional Risk Analytics co-founder Christopher Whalen.

"Those who laud Marx disparage all things American," Whalen writes in his Reuters column.

As you'll see in the accompanying video, Whalen's beef isn't with Roubini as much as with Marx and Marxist theory.

"Marx created the term 'capitalism'. It's a pejorative, insulting description that says all economic activity is a matter of greed," Whalen explains. "If you're any sort of libertarian. If you believe in American principles of democracy and free enterprise, just the fact we use the term 'capitalism' should insult you. We need new labels."

Indeed, an economy that's kept afloat by massive government spending, unprecedented easing by the Federal Reserve and seemingly unlimited bailouts for banks and their creditors cannot be considered free-market anything, capitalism or otherwise.

"This is corrupt corporate statism," Whalen say. "It's the fusion of the old Robber Baron model with a socialist European model."

While that sounds a bit (to me) like fascism, Whalen believe we have to "remake our economic dialogue," suggesting we are "far too confided by labels and terminology of the 19^th century."

Rather than Marx, he recommends viewers read Ludwig von Mises' Human Action, as well as the works of America's great economic thinkers, like Thomas Jefferson and Andrew Jackson. "Let's start talking like Americans instead of like spoiled Germans, which is who Karl Marx was," he quips.

Talk Is Cheap, Bailouts Are Expensive

Economic theory aside, the author and analyst says the only viable solution to our economic issues is to stop the bailouts and let the free market work.

"If we have the courage to reduce government and to restructure and not pretend these pieces of paper are still worth par, then we can fix this," Whalen says. "We have to get government out of the way so people can go and be prosperous and create wealth."

Ironically, here Whalen finds himself in complete agreement with Roubini; at least the part about needing to restructure bad debts, rather than continuing the policies of "extend and pretend," which don't seem to be fooling many people on either side of the Atlantic right now.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

http://finance.yahoo.com/blogs/daily-ticker/chris-whalen-roubini-wrong-karl-marx-being-164404329.html

Saying Marx Is Right, Getting Him (And Capitalism) Wrong

• Michael Schauerte |
• Crises |
• Marx in the Media |
• Marxism

“God save me from my friends; I can protect myself from my enemies.”

Karl Marx’s circle of friends, or at least friendly acquaintances, has grown considerably since the financial crisis broke out in the autumn of 2008. Now, three years later and with many countries facing a double-dip recession or worse, articles titled “Was Marx Right?” (or even “Marx Was Right”) are a fairly common sight in the pages of the financial press.

Twenty years ago, with the collapse of the Soviet Union, it was so obvious to most that Marx had been wrong that he was subject to more ridicule than criticism—or simply ignored altogether. Followers of Marx may find it satisfying that he is now being taken seriously, but the standard used to conclude that he is “right” in 2011 is not much different from the one employed in 1991 to prove he was “wrong.”

Then as now Marx is often treated as a nineteenth-century Nostradamus, as if his main aim had been to predict the future course of capitalism or prophesize its end. Judged on this basis, Marx has been deemed right whenever capitalism is struggling or appears to be on its last legs, only to be proved wrong again during the next economic recovery or boom. (And since many assume that Marx sketched the blueprint for state capitalism, a system still commonly referred to as communism or socialism, his critics have pointed to false predictions about a future utopia as another reason he is wrong.)

Using the word “prediction” to describe the results of Marx’s investigation of capitalism is a bit off the mark. The term is only apt in the sense that his analysis of how capitalism functions, which reveals its limits or boundaries as a profit-driven system, can serve as a basis for “predicting” what sorts of problems will arise under it. But these are more general expectations than specific predictions, and from experience we already know what sort of trouble to expect from capitalism. The significance of Marx’s analysis is that it explains why those problems – such as unemployment, war, and poverty – are permanent fixtures of the capitalist social system.

Dr. Doom digs Marx

One of the most widely-quoted “Marx was right” comments in recent months was made by the economist Nouriel Roubini, who earned fame and the nickname “Dr. Doom” for correctly predicting a messy end to the housing bubble. In a videotaped interview with the Wall Street Journal in August, Roubini said: “Karl Marx had it right. At some point capitalism can self-destroy itself. That’s because you cannot keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand.”

And Roubini repeated the same point in an article titled “Is Capitalism Doomed?” in which he wrote: “So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.”

Roubini’s praise for Marx gets his ideas on crisis wrong in two significant ways worth exploring: Marx certainly did not think that workers’ limited consumption is the real  cause of crises (or that increasing their consumption is a way out); nor did he think of a major crisis in terms of the potential “self-destruction” of capitalism.

Greedy but not stupid

The “underconsumption” theory of crisis that Roubini ascribes to Marx is in fact a position that he had harshly criticized. On just an empirical level, Marx thought it dubious to claim that “crises are caused by the scarcity of effective consumption” because experience shows that they are always directly preceded by “a period in which wages rise generally.” Thus, according to the underconsumption theory, “such a period should rather remove the crisis” (Capital vol. 2).

The more interesting rebuttal of the theory, however, can be found in Marx’s explanation of why capitalists, as Roubini laments, end up “cutting jobs [which] reduces labor income, increases inequality and reduces final demand.” Are they simply too stupid and greedy to know what’s good for them? Should they read Roubini’s latest book to figure it out?

Capitalists may indeed be greedy and short-sighted, but they are not stupid when it comes to their own interests. Unlike the advocates of the underconsumption theory, they are smart enough to remain focused on obtaining profit, knowing that to fall short of that goal can mean falling out of the capitalist class.

Raising the wages of their own workers may contribute to expanding the overall “final demand” but it cuts directly into their own individual profit. Moreover, the beneficiaries of a wage increase at one capitalist firm will be other capitalist firms, particularly those producing consumer goods. Such an act of self-sacrifice on the part of some capitalists is even less likely to occur in an economic crisis, when it is already difficult for many firms to secure a more or less average level of profit. Roubini should know that when the prospects for profit are dim, capitalists will prefer to curtail or even cease production altogether, not raise wages. He can lament the situation all he likes, but it is perfectly rational behaviour under the irrational capitalist system.

Yet the underconsumption theory of crisis, despite its inanity, has continued to seem attractive and plausible to some capitalists (and most Leftists). Marx explains how the theory reflects capitalists’ rather fond view of the workers of other capitalists: “Every capitalist knows this about his worker, that he does not relate to him as producer to consumer, and [he therefore] wishes to restrict his consumption, i.e. . . . his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity” (Grundrisse).

Roubini sees that restricted consumption limits final demand, and fancies that the solution can be found in simply reversing the situation by increasing consumption to expand final demand. He never stops to think about why consumption must be limited in the first place. Roubini views restricted consumption as the cause of crisis when in fact it is the natural outcome and also the basis of a system designed to squeeze profit from workers’ labor.

Ignoring the profit motive and its relation to workers’ wages, Roubini feels free to dispense his wisdom on how the current crisis can be overcome by means of a “return to the right balance between markets and provision of public goods” in order to “enable market-oriented economies to operate as they should and can.” Instead of imagining the “should and can,” however, Roubini would be better advised to consider the “how and why.”

A forcible solution

The other way Roubini gets Marx wrong is by saying that he envisaged the possibility that capitalism could “self-destruct” in a crisis. Alarming capitalists by pointing to this dire prediction may be part of Roubini’s shtick as Dr. Doom, but at the same time it is a fairly widespread assumption regarding what Marx thought.

Marx does describe the occurrence of a world crisis as an “explosion” or “eruption” of capitalist contradictions and antagonisms, or even as a “destructive process.” But far from viewing crisis as the potential end of capitalism, Marx describes it as a “forcible solution” or “forcible adjustment” that temporarily restores the disturbed equilibrium, and as a violent process involving the “real concentration and forcible adjustment of all the contradictions of bourgeois economy” (Theories of Surplus Value).

The capitalist contradictions or antagonisms Marx is alluding to concern things that are linked to, yet independent of, each other – such as the relation between sale and purchase, or between the production process and circulation process. These things are clearly connected and interrelated, yet they can diverge from each other. The potential for sale and purchase to diverge, for instance, is magnified greatly under our modern credit system, where an inability to conclude one transaction can unleash a chain reaction that disrupts other transactions.  

Crises according to Marx are a forcible means of bringing such contradictory (semi-independent) elements back into some sort of alignment with each other so that the system can better function. This view of crises as a solution, albeit a crude and violent one, contrasts with the outlook of Roubini, who sees the destruction of a crisis as an avoidable problem rather than an unfolding solution.

Marx seemed to have economists like Roubini in mind when he wrote: “Instead of investigating the nature of the conflicting elements which erupt in the catastrophe, the apologists content themselves with denying the catastrophe itself and insisting, in the face of their regular and periodic recurrence, that if production were carried on according to the textbooks, crises would never occur” (Theories of Surplus Value).

The entire focus for an economist like Roubini is on coming up with practical solutions to crisis, not understanding why crisis occurs or what it tells us about the contradictions and limitations of capitalism. Marx thought of crisis as a phenomenon to be understood, not as a problem that could be solved. Even if we can manage to understand the exact causes of a specific crisis and fully examine all of the contradictions and antagonisms that are “strikingly revealed” (Theories of Surplus Value) in it, we are still not in a position to solve or prevent future crises. This is because the contradictions that explode in a crisis are all an integral part of the capitalist system.

What is clear from reading Marx is that the only way to get rid of crisis is to replace capitalism with a new system, free of capitalist barriers and antagonisms. This is not a “prediction” of the end of capitalism, but an explanation why workers must bring about its end.

In his analysis of crisis and other phenomena, Marx always seeks to understand why things are the way they are, not to predict when they might disappear or how the system might “self-destruct.” The defenders of capitalism are less interested in the why of things, than in making suggestions for how they should be, as if problems like crisis could be avoided if only capitalists followed the recommendations of economics textbooks. And this fosters the misguided hope that capitalism can (some day) be reformed. It’s natural for these economists to misinterpret Marx, even when praising him: they take capitalism completely for granted, and Marx didn’t.
MICHAEL SCHAUERTE

http://www.worldsocialism.org/spgb/socialist-standard/2010s/2011/no-1288-december-2011/saying-marx-right-getting-him-and-capitalism-wro

Why Karl Marx was right

Lee Sustar explains why mainstream economists are referring to Karl Marx in discussions of the world economy--and why they won't talk about the whole Marx.

September 13, 2011

ECONOMIST NOURIEL Roubini, whose predictions of the financial crash of 2008 earned him the nickname "Dr. Doom," has referred his patients to a specialist in capitalist crisis: Dr. Karl Marx.

In an interview with the Wall Street Journal, Roubini said:

Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand. That's what has happened. We thought that markets worked. They're not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else's income and consumption. That's why it's a self-destructive process.

For several hours on August 12, the Journal website ran the video of the interview as a top story, under the headline, "Roubini: Marx was Right."

Considering that the first edition of Marx's three-volume masterwork Capital appeared in 1867, Roubini's revelation isn't exactly news to socialist opponents of capitalism. But given the intractable nature of the current crisis--a deep global recession, a weak recovery in the traditional core of the system in the U.S. and Europe, and now the possibility of a lurch into a second recession--mainstream, or bourgeois, economics has been exposed as ideologically driven and incapable of offering solutions.

Stimulus spending, championed by liberal followers of the economist John Maynard Keynes, was in full swing two years ago. It staved off total economic collapse after the financial crash, but failed to produce a sustained boom and led to big government budget deficits.

That opened the door to the free-market champions of the so-called Austrian economic school of Friedrich von Hayek, who argued that slashing spending was key to an economic revival--only to see such measures choke off growth in Europe and, more recently, the U.S.

But in August, stock markets gyrated worldwide amid a worsening European debt crisis, a near-stall in U.S. economic growth and a slowdown even in China, home of the world's most dynamic big economy. Suddenly, the ideological crisis that accompanied the 2008 crash was palpable once more as the world system appeared on the brink of a new recession.

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ROUBINI, A professor at New York University, made his name--and quite a bit of money--by telling the unvarnished truth to Big Capital before the Wall Street meltdown hit. He's done so once again, this time referring to Marx for an explanation.

In his interview with the Journal, Roubini argued that the U.S. economy is flagging because business is hoarding cash--more than $2 trillion by one estimate--rather than investing it in factories, new equipment and hiring workers. As he put it:

If you're not hiring workers, there's not enough labor income, enough consumer confidence, enough consumption, not enough final demand. In the last two or three years, we've actually had a worsening, because we've had a massive redistribution of income from labor to capital, from wages to profits.

That shift has taken place not during the crisis, but during the recovery, as economist David Rosenberg pointed out earlier this year when he noted that the "labor share of national income has fallen to its lower level in modern history," 57.5 percent in the first quarter of 2011, compared to 59.8 percent when the recovery began. While that might seem like a small change, given the $14.66 trillion size of the U.S. economy, it's huge.

In alluding to this trend, Roubini is apparently referring to Marx's observation about a central contradiction of capitalism. "The consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class," Marx wrote in Capital Volume 3. "The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses."

It's wrong to assume, Marx contended, that capitalists limit their investments during a crisis because "the absolute consuming power of society" has reached its limit. On the contrary, the unemployed want jobs and workers desire a higher standard of living as the slump wears on.

But during crises, capitalism can't deliver, even when business has plenty of capital to invest. That's because capitalists won't put their money into building factories and offices and hiring workers--as Roubini pointed out--unless they have a reasonable chance of making a profit. Otherwise, they sit on their money.

"The capital already invested is then, indeed, idle in large quantities," Marx explained. "Factories are closed, raw materials accumulate, finished products flood the market as commodities. Nothing is more erroneous, therefore, than to blame a scarcity of productive capital for such a condition."

The result, Marx wrote, was both a "superabundance of productive capital" and "paralyzed consumption"--a fairly accurate description of recent trends in the U.S. economy.

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THE BIGGER questions are these: Why do such capitalist crises come about at all? And why are some downturns in the economy mild recessions, while others generate protracted crises, like the Great Depression of the 1930s or the "depression-with-a-small-d" that's gripped the world economy since late 2007?

Marx wasn't the first to observe what today's mainstream economists call the "business cycle"--the economic slumps that take place every few years. His contribution was to delve into the reasons for that pattern. He concluded that the internal contradictions of capitalism doomed the system to periodic, highly destructive crises.

The root of these crises is in the unplanned and competitive nature of capitalist production. For the capitalist, what matters isn't meeting social needs, but obtaining the maximum profit. If obtaining profit is possible from producing a life-saving medical device like a heart pacemaker, that's fine. But if more money can be made by producing junk food or nuclear weapons, greater investment flows into those industries instead.

Meanwhile, competition puts capitalists under constant pressure. They have to make sure that workers produce goods in as little time as possible--at what Marx called the "socially necessary labor time" required to produce a particular commodity. Otherwise, more efficient capitalists will drive them out of business. Thus capitalists are constantly compelled to invest in labor-saving machinery to cut production costs.

That is the secret of capitalist profitability. For example, new technologies may allow workers to produce enough to cover the costs of their wages in, say, just three hours instead of the four needed previously. The result is an increase in labor time spent working just for the capitalist--increasing what Marx called "surplus value," which is the source of profits.

But a portion of surplus value must also be reinvested in the production process. Refusing to do so is not an option for capitalists--who live by the rule of eat or be eaten. To the capitalist, Marx wrote in Capital Volume 1, the motto is:

Accumulate, accumulate! That is Moses and the prophets!...save, save, i.e., reconvert the greatest possible portion of surplus-value, or surplus-product into capital! Accumulation for accumulation's sake, production for production's sake: by this formula classical economy [the original bourgeois economics] expressed the historical mission of the bourgeoisie, and did not for a single instant deceive itself over the birth-throes of wealth.

The drive to accumulate is blind and chaotic. As Roubini recognized, "markets aren't working" because what is rational for an individual person or corporation--the maximization of profit by pushing down labor costs--can be irrational for the system as a whole.

During the upswing of the business cycle, the problems are largely hidden. As long as profits are high and credit is available, companies can borrow to invest in new production and hire new workers. Pundits proclaim that recessions are a thing of the past.

But even as production expands, profits are squeezed as new entrants flood the market. Companies go bust, which hits their banks hard. The banks, in turn, raise interest rates or simply refuse to lend, which triggers further bankruptcies. Factory closings and mass layoffs ensure--and, in the modern era, job cuts hit the public sector as tax revenues decline.

In the section of Capital Volume 3 quoted above, Marx described how the crisis can seem to erupt out of nowhere. Thanks to the extension of credit, he wrote:

[E]very individual industrial manufacturer and merchant gets around the necessity of keeping a large reserve fund and being dependent upon his actual returns. On the other hand, the whole process becomes so complicated, partly by simply manipulating bills of exchange [i.e., checks and promises of future payment], partly by commodity transactions for the sole purpose of manufacturing bills of exchange, that the semblance of a very solvent business with a smooth flow of returns can easily persist even long after returns actually come in only at the expense partly of swindled money-lenders and partly of swindled producers. Thus business always appears almost excessively sound right on the eve of a crash.

Marx's description of how credit could delay, but then exacerbate, a crash applies to the financial debacle of 2008, which involved no small amount of the kind of manipulation and swindling Marx saw in his day. Set aside the toxic alphabet soup of today's financial assets--CDS, CDO and MBS--and Marx's analysis of the role of bankers sounds familiar: "the entire vast extension of the credit system, and all credit in general, is exploited by them as their private capital."

The development of credit, in turn, helps expand capitalist production beyond the capacity of the market to absorb new commodities: "[B]anking and credit...become the most potent means of driving capitalist production beyond its own limits, and one of the most effective vehicles of crises and swindle."

But Marx also stressed that the credit crunch is actually a symptom of problems in the underlying productive economy. He wrote in Capital Volume 2, "[W]hat appears as a crisis on the money-market is in reality an expression‎ of abnormal conditions in the very process of production and reproduction."

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THERE ARE longstanding debates among Marxist economic theorists about just how capitalist crises play out in general and their manifestation in different historical periods.

Marx identified a long-term tendency in the rate of profit to fall--the result of the constant pressure to invest in technology to replace workers, who are the source of surplus value. But capitalists have been able to counteract the falling rate of profit in various ways--for example, by destroying unprofitable capital through highly disruptive means, ranging from bankruptcies to wars like the Second World War, which ultimately was the most important reason the system finally overcame the Great Depression and was launched into a postwar boom.

In the 1970s, severe slumps returned to the world system as a revived Europe and Japan, along with several newly industrialized countries, emerged as more effective competitors to the U.S. But the restructuring of uncompetitive industries, free-market policies and corporate globalization opened the way to a new boom in the 1990s, when the U.S. declared that its "miracle economy" was the model for the world.

Ultimately, however, the economic expansion of the 1990s set the stage for a new crisis--one that Marx would have recognized. In the Communist Manifesto, written in 1847, years before he undertook a systematic study of the system, Marx and co-author Frederick Engels noted that capitalism's drive to expand led to crises of overproduction--of too many goods to be sold at a profit:

In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity--the epidemic of overproduction. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce...

And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

That passage still has the ring of truth. It was capitalist overproduction on a world scale in the 1990s that set the stage for the 1997 East Asian financial crisis and the recession of 2001. But by dropping interest rates to rock bottom, the Federal Reserve was able to postpone the real day of reckoning for the U.S. for nearly a decade. Cheap credit and the housing bubble kept American consumers spending and the number of Asian factories growing, even if the number of manufacturing jobs in the U.S. continued to decline during the 2002-2007 expansion.

As we now know, banks were happy to make the loans for mortgages and then pass them along to Wall Street, which bundled them into securities that later turned toxic. When even a limited number of sub-prime loans started to go bad, a credit squeeze quickly destroyed investment banks Bear Stearns and Lehman Brothers. Nouriel Roubini, who had been warning about all this for years, was suddenly a business celebrity--and even Karl Marx made the financial press.

The bad debts of that era of casino capitalism continue to weigh down the world economy. Yesterday's toxic assets held by private banks have morphed into today's government budget deficits, thanks to the no-questions-asked, multitrillion-dollar bailouts in the U.S. and Europe.

And the global crisis of overproduction is still unresolved. In the U.S., the capacity utilization rate for total industry was 77.5 percent in July, some 2.2 percentage points above the rate a year earlier, but 2.9 percentage points below the average for the period between 1972 and 2010. That's unmistakable evidence of a depressed economy--and it's what Roubini was talking about when he cited "excess capacity" and mentioned Marx.

With mainstream economists fresh out of ideas about how to overcome the crisis, perhaps it shouldn't be surprising that Marx made news even in Rupert Murdoch's Wall Street Journal. But don't hold your breath waiting for a follow-up Journal headline: "Capitalism Isn't Working: Socialism is the Alternative." That part is up to us.

http://socialistworker.org/2011/09/13/why-karl-marx-was-right

Friday, August 12, 2011

Roubini: Marx Was Right & Markets Aren't Working

It appears that even Mr. Roubini Global Economics Monitor himself cannot but return to the scribblings of one of the central figures in classic political economy, Karl Marx. (Yes, neoclassical economics becomes tiresome after a while and lacks explanatory power for phenomena outside its narrow framework.) A few years ago, I wrote about why Marx was, wryly, a big fan of globalization and free trade. Insofar as it would help accelerate inequality that spurred the backlash of the workers of the world and hence communism, globalization was to him welcome. If not exactly using the term "globalization," his description of it is nearly indistinguishable from today's interconnected reality. Walking past the British Museum nearly every weekday in whose reading room (pictured below) Marx largely penned Das Kapital and witnessing the London riots, these things do weigh on my mind.

While visiting the Wall Street Journal, I came across the above interview in which Roubini alludes to Marx's well-known notion of capitalism's inherent contradictions. Roubini opines that the lack of confidence--animal spirits, if you will--of firms in the world economy's future prospects causes them to be cautious about both investment and hiring. However, while throttling back hiring and increasing the productivity of hired workers may increase profits, the knock-on effects for the wider economy are unfavourable. For, if many remain unemployed, their income and hence purchasing power is diminished. Consumer confidence is dented. In turn, aggregate demand is simply not there. (Skip to around 4:00 in the video.)

It is no big secret that the last few years have seen labour's share of income decline relative to that of capital in many developed nations and some developing ones (most notably China). The ratio of profits to wages keeps rising and this implies growing inequality between capital holders and the modern proletariat. As Roubini puts it succinctly: "My [firm's] labour costs are someone else's income and consumption."

Ominously, Roubini notes that riots in the Middle East and those here in England have a high likelihood of spreading Stateside. The US infamously boasts of the world's largest population of incarcerated individuals. With even higher inequality in the US than many Middle East nations and the UK, highly racialized divides in wealth and incarceration may represent an even bigger powder keg. Throwing so many folks in jail is a symptom of a dysfunctional society and not its cure. Come to London and I'll show you around.

To paraphrase The Doors, someone will come and light America's fire soon--and the results certainly won't be pretty. And when that happens, I suppose even more will say Marx was right all along.

UPDATE: For more on the Marxist thought underpinning Roubini's assertion, see my follow-up post.

http://ipezone.blogspot.kr/2011/08/roubini-markets-arent-working-marx-was.html

Wednesday, August 17, 2011

Roubini, Marx, Globalization & First World Inequality

This post is a continuation of a recent thread in which more or less conventional economist Nouriel Roubini lauds Marx for correctly describing the situation most of the industrialized world now finds itself in. But first let me revisit a step-by-step compressed version of Marx's explanation:

1. Value is created through labour;
2. Innovation, the bedrock of capitalism, finds ever-newer ways of extracting more "surplus value" at the expense of labour;
3. Since less labour becomes necessary relative to capital as innovation takes place (for productivity has been enhanced), the labourers' share of income diminishes while that of capital holders increases;
4. This process leads to the greater polarization of winners (capital) and losers (labour);
5. Eventually, labour's share of income becomes so minuscule that there are few left who can buy all the wonderful goods and services wrought by innovation;
6. Capitalism succumbs under the weight of its internal contradictions.

While I am by no means a Marxist, political economists worth their salt should nonetheless be able to explain the key concepts of Marxism and apply them to contemporary phenomena. Accordingly, let me point out a relevant passage from Das Kapital that explains things pretty succinctly--especially of globalization before such a term was coined. The interpretation of economies of scale is especially noteworthy. From volume 1, chapter 32 [I break it up into three paragraphs for improved comprehensibility]:

As soon as this process of transformation has sufficiently decomposed the old society from top to bottom, as soon as the labourers are turned into proletarians, their means of labour into capital, as soon as the capitalist mode of production stands on its own feet, then the further socialization of labour and further transformation of the land and other means of production into socially exploited and, therefore, common means of production, as well as the further expropriation of private proprietors, takes a new form. That which is now to be expropriated is no longer the labourer working for himself, but the capitalist exploiting many labourers. This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the centralization of capital.

One capitalist always kills many. Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the cooperative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labour, the entanglement of all peoples in the net of the world market [is that not proto-globalization?], and with this, the international character of the capitalistic regime.

Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.

Pretty scary stuff, but there's no arguing that Marx foresaw a lot of what's going on--English riots included. It's funny that after the likes of Francis "End of History" Fukuyama declared Communism dead in the wake of 1989, we find ourselves having to say that capitalism is encountering an existential crisis. And while Leninist doctrine may have been incompatible with true Marxist ideology in many respects--especially the Soviet's statist tendencies--the same cannot be said for capitalism's contradictions since Marx described its self-defeating properties well. (Just say no to Soviet apologists like Eric Hobsbawm.)

As it was before it shall ever be. A spectre is haunting Europe...and much of the rest of the world.

http://ipezone.blogspot.kr/2011/08/roubini-marx-globalization-1st-world.html

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Feb. 29, 2012, 8:24 a.m. EST

Grantham wonders if Marx was right after all

Commentary: Capitalism will gladly sell the rope used to hang itself

By Al Lewis

DENVER (MarketWatch) — With all the news focused on Warren Buffett’s annual shareholder letter, it was easy to miss Jeremy Grantham’s more urgent missive.

Like Buffett, Grantham is a legendary value investor. He’s co-founder of the Boston-based investment firm GMO LLC, which manages $97 billion. That’s about half the market value of Berkshire Hathaway Inc. /quotes/zigman/219651/quotes/nls/brk.a BRK.A -0.38% /quotes/zigman/583979/quotes/nls/brk.b BRK.B +0.12%  but still big enough to produce a noteworthy letter. Read Grantham’s letter to GMO investors.

Buffett, in his widely anticipated letter, is content to repeat platitudes, such as “America’s best days lie ahead.” The Oracle of Omaha proclaimed “the banking industry was back on its feet” and even managed to find the bright side of foreclosures: “Large numbers of people who have ‘lost’ their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost.”

Jeremy Grantham

Grantham, however, takes a longer view, and isn’t so “aw shucks” about the future of our broken economic system.

“Capitalism,” he writes, “threatens our existence.”

Already, capitalism is proving that Karl Marx and Friedrich Engels were at least partially correct. They “looked forward to globalization and the supranational company because they argued it would make capitalism even more powerful, overreaching, and eventually reckless,” Grantham writes.

Globalization “would ... offer the capitalists more rope to hang themselves with ... rope ... bought from briskly competing capitalists, eager till the end for a good deal.”

Grantham, who is British, studied economics at the University of Sheffield and has an MBA from Harvard Business School. He started his investment career as an economist with Royal Dutch Shell before starting GMO in 1977.

He says capitalism does almost everything better than any other economic system. It’s just that its two or three main flaws are potentially fatal and have gone largely unaddressed. A sustainable economic system, for instance, can’t be based on ever-increasing debt, corporations can’t be allowed to run governments and loot treasuries, and “growth at any cost” is a recipe for planetary suicide.

Here are some of Grantham’s finer points:

• Capitalism too heavily discounts the future value of cash flows as it seeks to raise debts: “Your grandchildren have no value.”

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ECB tapped for ?530 billion

European banks and institutions took ?530 billion in loans from the European Central Bank under its long-term refinancing operation.

• Companies foolishly reward executives for taking on debt: “Total remuneration ... for senior officers ... rose as a percentage of the average worker’s pay from 40 times in Eisenhower’s era to over 600 times today with no indication of any general improvement in talent.”

• It’s about profit, not people: “Capitalism in general has no sense of ethics or conscience. Whatever the Supreme Court may think, it is not a person.”

• The more people borrow, the more they just gamble: “Leverage ... increases your returns over and over until, suddenly, it ruins you. ... There are no Investors Anonymous meetings to attend.”

• This time, it’s not so different: “Ignore the ... inevitable cheerleaders who will assure you that this time it’s a new high plateau ... even if that view comes from the Federal Reserve itself. No. Make that, especially if it comes from there.”

• Washington is becoming a corporate subsidiary: “What capitalism has always had is money with which to try to buy influence. ... The issues they influence are precisely ... the ones that are most important to society’s ... very existence.”

• Big companies can’t help it: “Ethical CEOs can drag a company along for a while, but this is an undependable and temporary fix.”

German political philosopher and economist Karl Marx was born in Trier in 1818 and died in London 1883.

• Economic theory ignores natural laws. It suffers an “absolute inability to process the finiteness of resources. ... Capitalism wants to eat into ... limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today.”

• It’s not just inexpensive oil we are running out of: The “loss of our collective ability to feed ourselves, through erosion and fertilizer depletion — has received little or no attention.”

• Americans are too optimistic: “They adopt a hear-no-evil approach to life and listen exclusively to good news. ... There are always a few experts lacking in long-horizon vision, simple common sense, or whose co-operation has been rented, like “expert” witnesses at a murder trial, who can be dragged out to reliably say that everything will always work out fine.”

• Governments must step in. “To interfere with Marx’s apocalyptic vision, we need some enlightened governmental moderation ... before capitalism gets so cocky that we have some serious social reaction.”

• Where Marx and Engels got it wrong was in thinking workers would unite. “It’s going to be hard to have a workers’ revolution with no workers. Organizing robotic machine tools will not be easy.”

Al Lewis is a columnist for Dow Jones Newswires

http://www.marketwatch.com/story/grantham-wonders-if-marx-was-right-after-all-2012-02-29

Why Marx was wrong about capitalism

Type: Think Pieces Written by Dr Madsen Pirie | Thursday 11 April 2013

Dr Madsen Pirie's speech in opposition to the motion: "Karl Marx was right. Capitalism post-2008 is falling apart under Its own contradictions."

Like many public figures who leave a legacy, either in their writings or their deeds, Karl Marx was sometimes right and sometimes wrong.  I concentrate on some of the things about which he was wrong.

He was wrong to predict that history would take us to the inevitable triumph of the proletariat and then stop.  History shows no signs of doing either.  Marx was also wrong to suggest that this would happen first in the most advanced economies as the final stage of capitalism.  In fact such revolutions as came took place in less developed economies such as Russia and China.  It has not happened in the advanced economies, and this could be because Marx was wrong about something else. 

He predicted that capitalism would drive down wages to survival level before its final denouement.  In fact as economies became more advanced, both wages and living standards rose to levels not even dreamt of in Marx's day, and this seems to have lowered the pressure for revolutionary change.

Marx was also wrong about something more fundamental.  He was wrong about change.  I don't just mean that he was wrong about the changes that would come about; more fundamentally he was wrong about how change takes place.  He took the Hegelian model of change.

To Hegel change comes about through staccato triangles.  A state of affairs nurtures its opposite, and from the violent clash between the two a new state of affairs emerges.  Thesis, Antithesis and Synthesis.  Violence is at the core of it, and hence Marx's commitment to revoution.

But Marx was a contemporary of Darwin.  He had read Darwin's "Origin of Species" and admired Darwin's account of the origins of humankind.  He failed, however, to spot the significance of Darwin's theory of change and to incorporate it into his own programme.

Darwin advanced a gradual mechanism of change in which small differences gradually come to dominate over time.  It is evolutionary, not revolutionary, and is a much more accurate description of how change usually happens in human societies than was Hegel's account.  Indeed, Darwin was right and Hegel was wrong.  This means that Marx was also wrong, wrong about change, and wrong about how capitalism would develop.

The point is that capitalism changes and evolves.  It has been through many transformations.  The capitalism that Marx thought would collapse under its own contradictions is not the capitalism of today - the one this motion refers to.

In the material world organisms evolve.  They respond to crises and they change.  A similar thing happens with our social practices.  They evolve and adapt to new circumstances.

Capitalism has faced many crises, and each time it has evolved and changed.  Each time a new form of capitalism has emerged to solve the problems its predecessor faced.  This is how human beings progress.  We solve our problems by adapting our practices.

Capitalism certainly faced a crisis in 2008, but it is still with us, as yet uncollapsed.  It is evolving and responding to the changes that are needed and, as before, when the dust of crisis has settled, it will be a new version of capitalism that goes on to generate more wealth and to expand the opportunities open to humankind.

That new version of capitalism that emerges will have to be one which somehow manages to keep at arm's length the politicians wanting to fix its outcomes for political advantage.  Greedy bankers can only take reckless risks if politicians make it cheap for them to do so by turning on the taps of credit and money.  Politicians like booms and bubbles because they help them to win elections and office, so procedures must be found that limit their ability to do this.  Those whose greed is for power are no less deadly than those who greed is for gain, and both need rules to circumscribe their scope for action.

I wish to make a further point: that capitalism will survive because it is the only valid way we have found that works in practice to create wealth and the opportunities it brings. 

Marx was wrong about another important thing.  He subscribed to the labour theory of value, believing that the value of a thing arises from the labour put into producing it.  Wrong.  Value is based on demand.  If no-one wants a thing, then no matter how much labour went into producing it, it is valueless.

We all value things differently, which is why trade takes place.  We trade because we each put greater value on what the other person has than on what we are offering in exchange.  We both gain more value when we trade, and that's how we create wealth.

We produce in order to trade and to create wealth, and we invest in order to produce.  That's in essence what capitalism is, and it works - certainly better than anything else that has been tried.  And it works more humanely, too.

Yes, capitalism grows more complicated and more ambitious as it evolves, but its principles remain.  Capitalism will survive its current crisis.  It will be tweaked and modified but it will not collapse, because nothing has ever been found that can replace it or do what it does, or bring the advantages and benefits it brings.

It has brought the resources that have lifted most of humankind above subsistence and starvation, that have enabled us to conquer diseases, to fund education and social services, to enable people to engage in artistic and cultural activities and to enrich their lives with previously undreamt-of opportunities.

That is why this motion, cumbersome and ambitious as it is, is also misconceived, and why I urge everyone to defeat it.

http://www.adamsmith.org/research/think-pieces/why-marx-was-wrong-about-capitalism

What if Marx Got It Wrong?

by Stuart Jeanne Bramhall / July 5th, 2013

Progress and Poverty is an economic classic which has been suppressed in the US owing to its subject matter: the elimination of poverty and economic inequality by restoring The Commons. Internationally George’s economic theories are regarded as comparable to those of Marx, Keynes and Galbraith. Despite being the third most famous American in 1879 (after Edison and Mark Twain), George’s work remains largely unknown outside of Australia, New Zealand, Hong Kong and Taiwan. Up until a month ago, I would have called myself a Marxist. Since reading Progress and Poverty, I have converted to Georgism.

Written over 130 years ago, the book provides uncanny insights for the current difficulties capitalism faces with our current paralyzing recession, massive public and personal debt and growing income inequality. Given the simplicity and clarity of the concepts George lays out, I find it extremely baffling that his theories have been eclipsed by Marx’s, which in 1879 had yet to be translated into English. The book is a must read for anyone with a serious interest in reducing economic inequality – despite my personal skepticism a land tax would work in the absence of monetary reform. The massive financialization of the global economy over the last three decades has given the ruling elite a monopoly over the money supply, as well as land and resources. Thus for George’s land tax to be fully effective, it would also be necessary to restore public control over money creation.

Why Development Always Produces Poverty

George’s goal in writing Progress and Poverty is to explain, in economic terms, why material progress (i.e. economic development) is always accompanied by poverty and increasing inequality. Employing Adam Smith’s classical definitions of labor, capitol, wages and interest and Ricardo’s Law of Rent, he argues that development must always produce poverty and inequality so long as a privileged elite holds an exclusive monopoly on the ownership of land and basic resources. He starts from the premise that land and natural resources are the source of all wealth, though wealth itself can only be created through human labor. According to George, the relative monopoly the elite hold on land allows them to capture all increases in productivity and production as “rent” increases. He gives numerous historical examples demonstrating that the continual increases eases in land value and rent that accompany development always come at the expense of workers. In fact, increases in productivity almost always result in a relative decrease, rather than increase, in wages

Maybe Capitalism Isn’t the Problem

The book also makes an extremely eloquent case that boom and bust cycles (such as we’re currently experiencing) aren’t the inevitable result of capitalism itself but of land privatization. Again with examples, he demonstrates how the monopoly the rich hold on land and resources allows them to engage in speculation by holding them out of production to increase their value. This, in turn, creates the speculative bubbles which cause episodes of “industrial paralysis” when they burst – commonly known as depressions and recessions.

The History of Land Privatization

George’s approach is relatively unique for political economists in his emphasis on the role ideology plays in the economic theories that gain popular acceptance. In contemporary society, no one questions the right of a privileged elite to monopolize land and natural resources for their own benefit. However, private land (and resource) ownership is a relatively new concept originating in seventeenth century Britain with The Enclosure Act.

About a third of Progress and Poverty traces the historical evolution of private land ownership. In all human societies, the common right of all people to use the earth to support themselves has been sacrosanct. The concept of individual land ownership only emerged as societies advanced and either concentrated power in privileged classes or seized land and slaves through military conquest. Prior to the rise of Greek and Roman civilization, all land was communally owned and the notion of an individual claiming a patch of land as his exclusive possession was unthinkable. Henry George sees the mass seizure of land by the nobility (in Rome this was referred to as the latifundia) as responsible for the death of democracy in these early societies and the ultimate collapse of both civilizations. In the case of Rome, he points to the inherent advantage German barbarians had as part of a system in which every family was entitled to a share of common land. In George’s view, this egalitarianism translated into character strengths of initiative, creativity and flexibility that made it possible for small bands of individuals to overrun the once great Roman Empire.

After the Roman Empire fell, feudalism was characterized by systems of communal and exclusively private property rights that operated in parallel. A feudal estate was considered to belong to society at large. The king, as the chief representative of the people, merely granted its use in trust to church leaders and military officers in return for services rendered to the commonwealth. Churches were expected to provide for the care and welfare of the sick and poor. For their part, feudal lords were expected to defend the king’s interests militarily. As of 1879, France still held almost ten million acres of communal land. Moreover despite enclosing (privatizing) over eight million acres between 1710 and 1879, at the time Progress and Poverty was written, England still maintained two million acres as commons (though most was unsuited for agriculture).

Because they allowed the British system of private land ownership to persist in the US, George accuses the founding fathers of failing in their efforts to establish a true republic. despite abolishing heredity titles and establishing the right to vote, they failed to reestablish the communal property rights that enabled the Greek and Roman to flourish. He contends that political equality, when coexisting with wealth inequality, must always lead to either dictatorship or anarchy. He also highlights the steady social decay (crime, insanity and increasing prison populations) that always accompanies increasing income inequality.

Restoring The Commons Through a Land Tax

George proposes that the wealth inequality, recessions and numerous other evils commonly attributed to the capitalist economic model could be totally eliminated by restoring public ownership of land and resources.

Rather than advocating outright government seizure of private land, he proposes to accomplish this by imposing a tax on unimproved land roughly equivalent to its rental value. Such a system would allow landholders to preserve their right of tenure, while discouraging them from speculating by holding land and resources out of production. While ending land speculation and recessions, this type of tax would simultaneously expand land and resource access for workers and capital investment. Any productivity increases (beyond interest on capital), would accrue to the government, rather than private landholders.

With this approach, everyone whose interest as a worker or capitalist (i.e. investor) exceeds their monopoly on land would also experience direct gains. Employers would be forced to increase wages because workers would have easy access to land and self-employment opportunities. Workers, in turn, would no longer fear the technological advances (e.g. automation) that increase productivity as they would share directly in the rewards.

The government, in turn, would use revenue from the land tax to pay down debt without resorting to austerity cuts that dampen productions and to abolish taxes on wages and capital, which also discourage production.

Dr. Stuart Bramhall is an American child and adolescent psychiatrist and political refugee in New Zealand. Her works include a young adult novel The Battle for Tomorrow about a 16 year old girl who participates in the blockade and occupation of the US Capitol and a memoir, The Most Revolutionary Act: Memoir of an American Refugee. Email her at: stuartbramhall@yahoo.co.nz. Read other articles by Stuart Jeanne.

This article was posted on Friday, July 5th, 2013 at 7:59am and is filed under Book Review, Capitalism, Communism/Marxism/Maoism, Economy/Economics.

http://dissidentvoice.org/2013/07/what-if-marx-got-it-wrong/