I
believe that most working people ask ourselves questions about the economy
throughout our lives. Why do the affluent have so much money, when there are
hungry people all over the world? The government argues that the military works
to provide for our security. If that is the true, why doesn’t the government
make it a priority to feed the hungry? Why is so much money spent on banks,
insurance companies, advertising agencies, and corporate law firms, when these
enterprises add no value to the commodities we all need and want? Well, allow
me to make an attempt at answering these questions.
First,
I can say that these problems do not happen because people with power made
mistakes, or that they are insensitive, or because of human nature, or because
they are just plain stupid. No, my opinion is that these problems stem from the
fact that we live under a system known as capitalism.
When
we look at capitalism from an historical perspective, there are legitimate
reasons why it came into existence. First, there were tribal societies that
lived in a communal and truly democratic way of life. Then, the oligarchs of
the slave societies of Greece and Rome began to understand that they could live
more comfortable lives through military conquest. The feudal societies replaced
slavery, and the craft guilds began to advance technology. Capitalism replaced
those societies and began to create mass-production industries that operated
for profit.
However,
just as the societies of the past had been replaced, today capitalism has
outlived its usefulness and needs to be replaced. So, in a nation that claims
to be democratic, where they say there is “liberty and justice for all” what is
the problem?
We
can start with the writings of Adam Smith and David Ricardo. These were two
economists who first outlined the fundamental laws of the capitalist system.
Both Smith and Ricardo understood that there was a fundamental problem with
capitalism that could not be resolved using capitalist methods. This is the
problem of overproduction.
In
their pamphlet titled, The Communist Manifesto, Karl Marx and Frederick
Engels labelled this problem a “disease.” They went on to say that overproduction
had never occurred before in history. In other periods of history, when there
was a surplus of goods that people needed, those were seen as good times and
people celebrated. But with capitalism, when there are more commodities than
people will buy, corporations throw people out of their jobs and workers go
through difficult times. These times are called recessions or depressions.
Why is
overproduction a problem in the capitalist system?
So,
the question arises: Why would overproduction create recessions and depressions?
This appears to be illogical. Allow me to make a hypothetical case using the
table below with the performance of a hypothetical corporation over a period of
three years.
|
First
Year
|
Second
Year
|
Third
Year
|
Sales
|
$10
|
$100
|
$1,000
|
Profits
|
$2
|
$10
|
$50
|
Percent
Profit
|
20%
|
10%
|
5%
|
So,
we see in this chart that the hypothetical corporation has increased sales and
profits in three consecutive years. This appears to be a positive trend from
the corporate point of view. However, the bad news comes with the percent of
profit on investment. While sales and profits are increasing, the percent of
profits on investments are going down. Why do I think that this is the reality
that corporations face today?
Back
in the 1970s interest rates on savings accounts were about four or five
percent. Today those same interest rates are less than one percent. For the
average worker, this might not be very significant because we rely on our
paychecks for an income. Interest on savings was never a big part of our
income.
However,
the deteriorating savings account interest rates reflects a decline in the rate
of return on investments. This is the tendency reflected in the above chart. So
how does this decline in the rate of profit effect the overall economy, and how
do corporations deal with this decline in the rate of profit?
The
answer to this question lies in the routine day to day corporate practices.
Workers see this reality in the corporate drive to cut costs, sell more
commodities, raise prices, and go into astronomical corporate debt. These are
the methods that are necessary to maintain profitability, while the overall
rate of profit is declining.
So,
when workers improved the standard of living in this country with the labor,
civil rights, and women’s movements, corporations responded by investing huge
amounts of money in factories around the world. In those nations the prevailing
wages are between $1 and $10 per day.
Some
people see this tremendous export of capital as a matter of thoughtless greed
by capitalists. However, when we understand the nature of capitalism, this
export of huge amounts of capital was absolutely necessary for capitalism to
survive. So, while President Trump and all pro-capitalist politicians have a
strategy of “America First,” the reality is that capitalist enterprises are
routinely driven to invest in other nations.
How does the
government support the corporate drive to maximize profits?
This
brings up another point. In order for corporations to function as they do, it
is absolutely imperative that the government make the drive to maximize profits
their primary concern. So, while there have been cutbacks and enormous price
increases for education and health care, the government has dumped trillions of
dollars in a scheme known as quantitative easing. This meant that when
banks were unable to collect on vast amounts of money from mortgages, the
government spent trillions of dollars to purchase those worthless pieces of
paper.
The
government also subsidized the oil and auto industries by spending trillions
of dollars on roads, highways, bridges, and tunnels. Why do I say this?
Automobiles have no value if there are no roads to drive on.
This
brings us to another question. Why are there wars in the world? The First and
Second World Wars were about what nation would become the super-power and
dominate the world. Britain used to have that role, but their empire went into
inevitable crisis. Germany, Japan, and the United States went to war to
determine what nation would be the new super-power. The United States won those
wars at a cost of about eighty million deaths.
After
WWII the United States government went to war against Korea, Vietnam, Iraq, and
Afghanistan. We might think about the fact that none of these wars were
declared. The government didn’t feel confident enough to get Congress to
declare war because of the unpopularity of all those wars. When we understand
the nature of capitalism, it becomes clear that all these wars were about
consolidating the United States position as the world’s super-power.
As I
mentioned, corporations are driven to cut costs and they have made enormous
investments in nations where the prevailing wages are between $1 and $10 per
day. Those nations usually need ruthless and repressive governments to enforce
those conditions.
The
government of Saddam Hussein in Iraq was this kind of ruthless and repressive
government. However, Hussein decided that he would advance an independent
course from Wall Street and invaded the nation of Kuwait. The punishment for
this act of disobedience was a United States invasion that destroyed much of
that nation. The U.S. government then installed a puppet government in Iraq.
The
nation of Cuba doesn’t have many financial resources. However, the government
there makes the needs of the people its top priority. So, the people of Cuba
who once lived in dire poverty, now have lifetime rights to education and
health care. This relatively modest change provoked Washington to implement a
trade embargo against Cuba for sixty years.
How will a
worker’s government change this reality?
The
Cuban example begins to expose the basic myths of capitalism. While the Cuban
people have lifetime rights to education and health care, workers in the United
States pay exorbitant prices for both education and health care. Yet the
government in this country claims that we live in a democracy.
We
can begin to answer this riddle with the equation Karl Marx used to explain how
the prices of commodities are determined. This was his formula:
Constant
Capital (machinery and buildings used to manufacture commodities), plus
variable capital (wages paid to workers), plus surplus capital (profits and
other expenses not directly related to production), equals Capital (the average
price of commodities.)
When
we look at this equation, we see that constant capital and variable capital
will always be needed. Machinery and workers must be maintained in order for
everyone to have the things we need and many of the things we want.
However,
when we think about what surplus capital is, we see many enterprises
that in no way directly contribute to the manufacture of commodities. Saying
this, we can say that both health care and education are necessary to humanity.
Yet these services only contribute indirectly to the manufacture of
commodities.
However,
there are the enterprises of banking, insurance, advertising, corporate law,
and corporate management. These enterprises do not contribute directly to
production, and are primarily concerned with generating profits for
corporations.
We
see examples of surplus capital in the skylines of cities throughout the world.
These skylines are filled with office buildings that usually house the
enterprises representing what Marx called surplus capital.
We
all need many things. These include: food, clothing, housing, transportation,
communication, health care, education, and exposure to culture that includes:
music, dance, art, theater, film, literature, etc… While many goods and
services are designed by engineers in office buildings, most of the enterprises
housed in these buildings are completely unrelated to the manufacture of goods
and services.
As I
said, corporations need to accumulate vast quantities of debt. In the past
Michael Milken and Bernie Madoff were sentenced to terms in prison for
violating the laws regulating the sale of bonds.
Finance
companies found a way to deal with this problem by inventing a fund called derivatives.
These derivatives are complex bets on investments that are difficult or
impossible to understand. Therefore, they are not regulated by the government.
The
so-called economists who invented derivatives actually received a Nobel Prize
for their efforts. Today derivatives are valued at hundreds of trillions of
dollars. I believe Karl Marx would have called these investments surplus value
or fictitious capital. So, while investors went to prison in the past for
violating the laws regulating bonds, today investors reap obscene amounts of
money on investments that are not regulated, but are highly volatile.
So,
while banking, insurance, and advertising contribute nothing to the manufacture
of commodities, we need to pay for all those services with literally every
commodity we purchase. This is one of the reasons why prices are so high.
Today,
many of the commodities we use, like food, clothing, and cell phones are
produced in other nations. The wages in these nations are between $1 and $10
per day. The workers who toil under those conditions are the ones who create
much of the wealth in the world. Why do I say this?
Karl
Marx wrote a three-volume analysis of capitalism titled Capital. The
first sentence of this work stated: “The wealth of those societies in which the
capitalist mode of production prevails, presents itself as ‘an immense
accumulation of commodities.” In other words, Marx defined wealth, not as
money, but in terms of the commodities we all need and want. Looking at the
world from this perspective, we can say that there are enormous amounts of
wealth that could be used to eliminate poverty and greatly improve the standard
of living in the world.
Instead
of investing in banks, or insurance companies, or advertising agencies, those
massive investments could be made to eliminate poverty, end racial and sexual
discrimination, remove the root cause of war in the world, and make sure that
all enterprises work in harmony with the environment.
What would a
socialist world look like?
Understanding
these facts, we can question any politician or corporate representative who
claims we don’t have the resources to make dramatic improvements in the
standard of living. When we look at the skyscrapers in all the major cities, we
are looking at monuments of the exploitation of workers around the world. How
would this change if human needs were the primary concern of the government?
Working
people would eventually be able to work considerably less and retire at a much
earlier age. This would mean that we could all have time to pursue whatever
interest we might have.
Black
people, Native Americans, Latinos, and all oppressed nationalities would begin
to have real control of their communities. The routine harassment, brutality,
and prisons we see today would be an ugly memory. Students would learn the
truth about the history of slavery, Native American genocide, the theft of land
from Mexican people, all so a tiny minority could live in opulence.
Women
would have access to top quality day care and would have time to truly enjoy
life. They wouldn’t be judged merely by their appearance, but by their
character. In that environment women wouldn’t feel the need to invest in
billions of dollars in cosmetics, jewelry, mascara, and extravagant clothing.
They would be appreciated for who they are.
People
who are now called immigrants would no longer need to come to this
country to earn a living. They could remain in their homeland and live fruitful
lives. People from around the world would travel, not for money, but to gain an
appreciation of our sisters and brothers all over the planet.
When
we see what could be possible and then think about our current reality and
where it is heading, I believe there is a clear choice. The struggle to make
this a world where human needs are more important than profits is the struggle
of our lifetimes.
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