Sunday, September 4, 2011

Self-destructing Capitalism

Does capitalism have a future ? The question was raised by some economists and analysts who asked (quoting Marx) whether the capitalist system is not self-destructing. In a recent article, N.Roubini writes: "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".

In his powerful analysis of the contradictions of capitalism,  Marx maintains that capitalism eventually destroys itself as it exploits more and more people until the great majority of the population is converted into proletarians and thus creates the conditions for socialism. Basically, capital drives out labor, and so destroys its own market, as well as the source of wealth creation. Today, the capitalist system is confronted to a similar contradiction as in every one of its periodic crises. It continues to produce an ever-expanding volume of goods and services, which an impoverished population cannot afford to buy. So Marx was right, and of course we cannot blame the great man, who lived from 1818 until 1883 (the year when Keynes was born!) for the crimes committed decades after his death. 

However, the economic problems of modern capitalism differ greatly from those of the 19th century. There are two relevant features which can explain the current global crisis: the first one is the huge concentration of capital  and power of banks and financiers and the uncontrolled mass of money crossing national boundaries; the second one is the massive shift of wealth from labor to capital and the resulting inequalities in income as real wages decline.  

S.Brittan (Ft 26.08)  argues that 'even if the analysis is right the remedy is wrong. The justification for redistribution is ethical. if the only thing wrong with capitalism is insufficient mass purchasing power then surely the remedy is the helicopter drop of money envisaged by Milton Friedman. for this we need not s much a political as an intellectual revolution, namely the overthrow of the balanced budget fetish". 

Governments and central banks are breaking their heads about how to save capitalism.  The origin of the crisis is not an excess of debt, neither a mere problem of redistribution. The causes are much deeper and old remedies are useless. As Einstein said :"The significant problems we have cannot be solved at the same level of thinking with which we created them".

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