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Why Capitalism Does Not Work

Alex Grant

December 30, 2001

Capitalism is presently in crisis. Western economies have been in slump since March 2001, and despite the wishful thinking of bankers and government politicians the end is nowhere in sight. Everywhere we see layoffs, closures, cutbacks and shortage, and yet only 1 year ago all the pundits were praising the virtues of the economy. A thinking member of the working class can be left with only one conclusion - the capitalists do not understand their own system.

Marxism takes the long view of history; we seek to uncover the processes within society and the economy in order to better change them. There is no point for a Marxist to distort reality as this will only get in the way of overcoming the status quo. For the ruling class the exact opposite is true. The minority can only dominate the majority when they have convinced us that there is no other way to live and that we live in “the best of all possible (capitalist) worlds”. In the sphere of economics and social sciences this leads the bosses to have a blind spot the size of a bus when looking at class society. They cannot face the truth when the truth tells them the system that protects their privileges does not work.

Since its very birth capitalism has gone through booms and catastrophic slumps, and yet in not one university economics textbook will you find an explanation for this phenomenon. Every slump is seen to be the result of certain “special” conditions, a failure of the stock exchange, not enough credit, too much debt, inflation, deflation, lack of oil, lack of “confidence”, etc., etc., etc., and the current slump will undoubtedly be blamed on terrorism. None of these excuses get to the root of the problem - the capitalist mode of production.

The basic contradiction within capitalism is that it produces more goods than can be sold at a profit. This is the famous crisis of overproduction. To use capitalist language, supply outstrips demand. Of course this is a very narrow definition of the word “demand”. There still exists a huge demand for houses for the homeless, or food for the hungry, or medicine for the sick - but for a capitalist, demand only means anything if it is backed up with hard cash. Capitalism gets itself in this mess because it produces for profit and not for need.

Where does value come from? All commodities in a capitalist society have value because they are the product of human labour. A stone you pick up off the ground is not worth anything because nobody has done anything socially useful to it (no matter how pretty it may be). However, when a group of people use expert mining skill to bring up other small stones and then more skilled people cut those stones and put them on rings, we have a very valuable product; (this form of human labour is so valuable that different groups of capitalists are fighting wars over it in Africa). The labour theory of value may seem academic at this point but it is one of the main reasons why capitalism can produce more stuff but not more people to buy this stuff.

Say for example you work in a factory and are paid $10 per hour. In a day’s work you produce $200 worth of product. However you are only paid $80 that day - where did the other $120 come from? Workers are paid for their ability to work and not the work that they do. We are given enough money to live (just) so we can maintain a steady pool of workers for exploitation by the capitalists. The extra $120 goes as profit to the capitalist. He gets this money purely because he previously had enough money (capital) to own factories, equipment, etc. but he has actually done nothing productive in this process. (In fact, if you remove the capitalist taking profit, production proceeds quite smoothly - the same is not true if you remove the workers). This extra profit on top of wages is called surplus value. After spending some of the surplus value on mansions and private jets, our capitalist is forced to re-invest the surplus back into production. Investment is the motor force of the capitalist economy and helps improve the productivity of labour. If our capitalist does not invest, then he will be out-competed by other more efficient capitalists who do. If investing in new machinery makes production 20% more efficient then the boss can fire 20% of the workers (or cut everybody’s hours 20%) and still make just as much stuff. Unfortunately for the capitalist his profits are based on how much labour is worked ($120 per worker); when he fires people the rate of surplus value to investment decreases. This is fine as long as the market is growing and the capitalist is selling more items in total (even though the profit per item is decreasing - the recent explosion of the computers market is an excellent example of this). Unfortunately this eventually reaches its limits; the tendency for the rate of profit to fall means that an initial relative reduction in profits turns into an absolute reduction in profits. Workers earning $80 a day can only buy so many computers and the capitalist cannot sell his goods at a profit. Our poor boss is forced to close factories and lay off even more people (e.g. Nortel Networks). While we may gain intellectual satisfaction in the fall of a particularly exploitative employer, it is clear that the workers in this situation are far worse off than the boss. The crisis of capitalism is systemic.

During these periods of slump the bigger capitalists, with economies of scale, are better able to survive. Capitalism has an inherent tendency to concentrate into monopoly. They also try to get out of these crises by selling goods on foreign markets. However, all the other capitalists are trying to do the same and the world is only so big. Also in the very act of exporting to foreign markets the capitalists develop the productive forces in these countries (eg. Indonesia, China) which then start producing a surplus for export - exacerbating the problem. The only solution at this point is to take these foreign markets by force. This was the basis of the 1st and 2nd world wars and was the defining sign that capitalism had exhausted its potential to develop human society. When a system has to resort to killing millions of people to solve its problems then it is a pretty good sign that something is badly wrong.

So what is the solution? Some on the left propose a series of reforms, the essence of which is to tax the rich to pay for social programs for the poor. Reformism aims to create a kinder, gentler capitalism. Unfortunately it is still capitalism; the law of value still holds true; the parasitic ruling class still extracts surplus value from the workers; production is still for greed and not need - the system still results in booms and slumps that destroy the lives of working people. On top of this, taxing the rich stops investment - the very motor force of the capitalist economy. If you raise taxes there will be a capital strike resulting in another slump at the expense of the workers. The bosses will take their factories to another country and invest it where there are low taxes, poor working conditions, and no environmental regulations. It is utopian to believe that the problems of the capitalist economy can be solved by band-aid approaches while leaving the system intact.

Marxists propose reorganizing the economy so production is for the fulfillment of human needs and not private greed. The commanding heights of the economy, the top 150 banks and corporations that control 85% of Canadian commerce, must be nationalized and democratically controlled by the workers. The bosses can’t take their factories down to Mexico if the workers are occupying them. When the majority comes together to collectively decide how to plan the economy, in the interests of all, we will be able to eradicate poverty. Even under present day chaotic unplanned capitalism there is enough wealth for each family to be worth over one third of a million dollars if only it was distributed equally. Production for need enables us to destroy the boom slump cycle and lower the working week to create full employment. Socialism is the only answer; join L’Humanité and help us build it.

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