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  1. 09 Aug '13 22:24 / 1 edit
    The Death Spiral of Capitalism

    July 24th, 2013
    posted by RJ Random

    1) The Declining Rate of Profit

    The early major theorists of capitalism, Adam Smith, David Ricardo, and Karl Marx, all predicted that the rate of profit of capitalist enterprises should fall, as a general trend over time.

    Each reached this conclusion in his own way. Adam Smith derived it from increased competition; David Ricardo from rising rent costs. Karl Marx was able to show that the greater the proportion of fixed capital (eg machinery) to variable capital (eg labor costs) in an investment, the lower the profitability. Marx’s theory has the most explanatory power, but the fact that other theorists reached a similar result is not insignificant — all predicted that the graph would trend downward toward an eventual 0% rate of profit.

    History, too, has proved the correctness of this prediction. The tendency of the rate of profit to fall can be seen quite clearly today; the attempts of capitalists to mask it merely demonstrate that it is a reality they cannot alter.

    2) Masking the Decline

    The first method is depressing wages. Over the last several decades in the USA, the bottom sixty percent of earners have suffered real wage losses, while the sixty-to-eighty percenters have remained stagnant. Reducing labor’s share of production has allowed enterprises to keep their profits up, even while profitability declines.
    Fact: average real wages for private non-agricultural industries peaked in 1972 and are 14% below peak today. (1)

    The second method is debt. Also over the last several decades, consumer and student debt have grown at astronomical rates. Extension of credit has helped working people retain an approximation of their standard of living, and helped keep up demand for products and services – of course, at a price.
    Fact: total American credit card debt is $856.5 billion, mortgage debt is $7.86 trillion, and student loans are $999.3 billion. (2)

    The third method is government intervention. The tendency of the rate of profit to fall makes the economic system increasingly unstable and enterprises increasingly precarious. To counter the inevitable breakdowns, the government has propped up the system via direct intervention. The size of these bailouts, from the early 1970s through the latest financial rescue, has been increasing.
    Fact: $328.6 billion in bailouts 1970-1995, $1.78 trillion in bailouts 1995-2013 (all in 2008 dollars). (3)

    These methods are all adaptations to the tendency of the rate of profit to fall. Their function is to try to preserve profit by shifting the burden of capital’s need to expand onto workers – by lower wages, debt-financed consumption, and bailouts using public funds.

    And still — the economy’s growth slows.
    Fact: USA average yearly GDP growth 1970-1979: 10.3%, 1980-1989: 7.7%, 1990-1999: 5.6%, 2000-2009: 4.0%, 2010-2013: 3.8%. (4)

    3) Over-Accumulation of Capital

    Investments generate profit. Capital piles up. It needs an investment outlet. That is why a necessary symptom of the tendency of the rate of profit to fall is increased financialization.

    As the prospects of productive investments go down, speculation on commodities becomes relatively more attractive and increases. Capital flows away from production in a self-reinforcing process – as more capital flows to commodities, the potential for profitable commodity trading increases, attracting more capital. Oil, wheat, gold, housing etc. up through complex financial instruments like derivatives come to represent an increasing portion of investment, and become subject to increasing fluctuations.

    Financial capital chases financial capital. The portion of the economy made up by the finance sector increases.
    Fact: the financial sector made up 8.6% of GDP in 2011, quadrupling its share from the 1950s. It made more than 30% of corporate profits on the year. (5)

    In short, capitalism begins to smother production and consumption – the “real” economy – through a game of false values created by financialization.

    At the same time, increasingly difficult profits induce monopoly structures in markets. Thin profit prospects make economies of scale increasingly decisive. Small enterprises are usually bankrupted first in severe crises, and are less likely to be bailed out. At the same time, lack of attractive investment gives big firms more incentive to use their resources to try to guarantee profit (at the expense of consumers and competitors) by strangling competition.

    Exponential growth and mergers help to create increasingly monopolistic market structures over time. However, it is not only a natural tendency of capitalism, but one that is accelerated by the political power of the large enterprises. Through legislation, government contracts, and the ability to command a bailout, the large enterprises enhance their advantage.

    In fact, many large enterprises now generate more revenues annually than mid-sized states do tax revenue. Resources are the basis of power, so it is safe to say, that corporations are increasingly more powerful than states.
    Fact: Exxon-Mobil Corporation has yearly revenues of $482 billion, while Sweden’s 2011 total tax revenue was $239.6 billion, and Spain’s was $467.2 billion. (6) (7)

    4) Escaping the Death Spiral

    The last time capitalism reached such an advanced stage of its death spiral of falling rate of profit and over-accumulation of capital, was in the period leading up to WW2. The Second World War provided an escape through the massive destruction of capital and enterprises. That reset the rate of profit to an earlier, higher level.

    Today, with our more advanced weaponry, World War is not an option. It is only an escape from the tendency of the rate of profit to fall, inasmuch as it is an escape from human life and civilization on the planet.

    Some say technological growth will come to the rescue of the world economy. Technology always grows – that has not stopped the tendency of the rate of profit to fall. The internet boom did not prevent slowed growth.

    Others point to third-world development as a panacea. Opening new markets is indeed one of the few ways that the tendency of the rate of profit to fall, derived from the over-accumulation of capital, can be overcome. But this is only a temporary shot in the arm. Profits from new markets translate into additional capital accumulation, driving profit decline. Ever more intense doses of the drug are needed, and in the end there is no way to provide enough – the world is of finite size.

    Capitalist theoreticians have been working hard to keep the system afloat. The amount of economic understanding and skillful manipulation of the markets and economy has increased magnitudes since the Great Depression. But the skill and technique of an expert doctor cannot save the life of a terminal patient – only extend it. And, as extending the life of someone dying can sometimes be inflicting misery, prolonging the current system is to inflict agony on its suffering masses.

    The current system has reached the end of its historical usefulness.

    The so-called “creative destruction” of the market, already a blind anarchy with a high human cost, no longer serves its nominal purpose of removing failures to make way for new growth – witness the bailouts. Those financial elites who claimed to deserve their ludicrous salaries because they were such great winners and economic sages were revealed as losers dependent on the workers whose labor they profit off not just for work, but for public bailout. The beautiful system of competitive firms ensuring efficiency they claim to wisely guide is in actuality populated by zombie behemoths run by failures.

    The rate of profit falls – and they have no answer; no way to ensure growth. Instead they are compelled to smother the economy in financialization and to push workers down further and further, to try to keep making profits.

    What is needed is a transformation of economy and politics so that abundance is shared by all, and so that growth can be revitalized stronger than before, based on rational planning to meet the needs of the entire population.

    That transformation will not achieve itself. History has proved it a utopian optimism to think that capitalism itself can achieve it, or that at a certain time the common sense of such a transformation will make it inevitable. The realistic view is that it will only occur when the power of the class with an interest in preserving the profit system is broken by the power of another, stronger class, that aims to abolish it.

    http://livingrevolution.co/2013/07/24/the-death-spiral-of-capitalism/

    can someone interpret this for me, in essence, what is the writer saying.
  2. Donation rwingett
    Ming the Merciless
    09 Aug '13 22:33
    Originally posted by robbie carrobie
    The Death Spiral of Capitalism

    July 24th, 2013
    posted by RJ Random

    1) The Declining Rate of Profit

    The early major theorists of capitalism, Adam Smith, David Ricardo, and Karl Marx, all predicted that the rate of profit of capitalist enterprises should fall, as a general trend over time.

    Each reached this conclusion in his own way. A ...[text shortened]... iral-of-capitalism/

    can someone interpret this for me, in essence, what is the writer saying.
    It's a mistake to debate economists on their own terms.
  3. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 22:35
    Originally posted by robbie carrobie
    The Death Spiral of Capitalism

    July 24th, 2013
    posted by RJ Random

    1) The Declining Rate of Profit

    The early major theorists of capitalism, Adam Smith, David Ricardo, and Karl Marx, all predicted that the rate of profit of capitalist enterprises should fall, as a general trend over time.

    Each reached this conclusion in his own way. A ...[text shortened]... iral-of-capitalism/

    can someone interpret this for me, in essence, what is the writer saying.
    I skimmed it and it makes sense to me. It will take time to read it fully though.
  4. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 22:36
    Originally posted by rwingett
    It's a mistake to debate economists on their own terms.
    Rule For Radical #whatever: make the enemy play by his own book of rules
  5. 09 Aug '13 22:37 / 3 edits
    Originally posted by rwingett
    It's a mistake to debate economists on their own terms.
    hmmm, I am not an economist, what i dont understand is why the rate of profit should be falling to almost 0, surely there are many profitable businesses, in fact, if your business is not profitable, it will fail, unless of course you are deemed too large to fail. What I really want to know is, is what the writer says true?
  6. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 22:38
    Originally posted by robbie carrobie
    hmmm, I am not an economist, what i dont understand is why the rate of profit should be falling to almost 0, surely ether are many profitable businesses, in fact, if your business is not profitable, it will fail.
    That's why the number of successful businesses is decreasing.
  7. 09 Aug '13 22:41 / 1 edit
    Originally posted by AThousandYoung
    That's why the number of successful businesses is decreasing.
    ok I think i understand and this is turn creates a monopolising effect?
  8. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 22:42
    Originally posted by robbie carrobie
    ok I think i understand and this is turn creates a monopolising effect?
    Yep.
  9. 09 Aug '13 22:43 / 5 edits
    Originally posted by AThousandYoung
    Yep.
    ok, i see, thats great, i understand, and its bad because it leads to lack of competition and stagnation, right? and because all of these companies become larger and larger, they need to find something to do with their profits which creates a kind of economy all of its own.

    (I really only want to understand what the writer has written) not to debate it, maybe I should have put it in general.
  10. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 23:08 / 1 edit
    My summary and interpetation of the OP:

    Capitalism is not a healthy economic system. It exists only because it is less unhealthy than rivals. Under capitalism any ethnicity can rule as long as they have enough money. Other systems don't work like that. Communism has a Party which rules due to the power of massed, organized, discipline labor including its ability to inflict and absorb violence, not because of money. Caste systems and Empires are ethnically organized.

    So capitalism is better than what preceded it. However, replacing imperialism with the money game, while it does allow the underdog to rise to the top on occasion, and the rulers to fall, without violence, does not however remove the struggle between powerful entities to be number one at the expense of the other.

    Capitalism rewards businesses that make money. More money means more power in business, just as more people tends to mean more power in politics. So businesses have to find ways to profit at the expense of one another and of the poor especially as physical wealth (homes, electronics, cars etc) accumulates. This leads to oligarchy and eventually monopoly.

    Because capitalism's growth is limited but the ambitions of people are unlimited they eventually have to squeeze more money from somewhere to keep those addictive profits going. As fewer and fewer people get a share of the pie, and they keep getting richer and richer, they become megalomaniacal and lose touch with reality.

    The financial system does not factor in the natural limits of capitalistic growth.

    World War II was in part caused by the Allies' feeding on Germany to maintain their profits which the German people found completely unacceptable. Then the Germans tried to feed on the Slavs which THEY found unacceptable. It showed that eventually the system will break down violently somehow. If we allow it to happen without changing the capitalism game to prevent it...then lots of death and lots of property destruction as another and another nation falls to capitalists...

    AND THEN COMMIE REVOLUTION OMG
  11. Donation rwingett
    Ming the Merciless
    09 Aug '13 23:10
    Originally posted by robbie carrobie
    hmmm, I am not an economist, what i dont understand is why the rate of profit should be falling to almost 0, surely there are many profitable businesses, in fact, if your business is not profitable, it will fail, unless of course you are deemed too large to fail. What I really want to know is, is what the writer says true?
    Why do you assume that the rate of profit should be greater than 0? Why do you assume that any of the arcane calculations of neo-classical economics has any relevance to a just society? They don't. To argue within that paradigm is to grant it a legitimacy it does not deserve.
  12. 09 Aug '13 23:20 / 2 edits
    Originally posted by rwingett
    Why do you assume that the rate of profit should be greater than 0? Why do you assume that any of the arcane calculations of neo-classical economics has any relevance to a just society? They don't. To argue within that paradigm is to grant it a legitimacy it does not deserve.
    Its not an assumption, it seems self evident, if i work I can sell my services or products to other people that need or want them, in turn i can buy products and services from others, at some point I am profited or they are profited, for all work is not the same, nor is deemed to be of equal value. I am not debating a just or unjust society, i am merely trying to understand what the author has written, have i not made that clear enough? Whether the writings and theories of neo classical economists has relevance or even legitimacy I cannot say until i fully understand what the writer is saying and on what basis.
  13. Subscriber AThousandYoung
    Poor Filipov :,(
    09 Aug '13 23:25
    Originally posted by robbie carrobie
    Its not an assumption, it seems self evident, if i work I can sell my services or products to other people that need or want them, in turn i can buy products and services from others,as some point i am profited or they are profited, for all work is not the same, nor is deemed to be of equal value. I am not debating a just or unjust society, i am mer ...[text shortened]... en legitimacy I cannot say until i fully understand what the writer is saying and on what basis.
    You are looking at economics from the natural, physical perspective.

    Capitalism looks at economics from the perspective of the accounting equation.

    The difference between the two is the problem.
  14. 09 Aug '13 23:35 / 2 edits
    Originally posted by AThousandYoung
    My summary and interpetation of the OP:

    Capitalism is not a healthy economic system. It exists only because it is less unhealthy than rivals. Under capitalism any ethnicity can rule as long as they have enough money. Other systems don't work like that. Communism has a Party which rules due to the power of massed, organized, discipline labor inc ction as another and another nation falls to capitalists...

    AND THEN COMMIE REVOLUTION OMG
    the whole point of going into business is to make money and to benefit from profits. Governments by providing infrastructure in the form of laws, regulations and logistical means for the business to carry out its business profitably expect a share of those profits in the form of taxation and rightly so. It appears to me that problems arise when businesses stop sharing the profits to persons who dont actually produce anything, (take for example the huge rise in the price of food after investors started trading in foodstuffs, cereals etc ), these people dont actually produce anything in themselves and simply act like middlemen, between producers and consumers, bidding on harvests and driving prices up in the process as they seek to make a profit on their initial investment.
  15. 09 Aug '13 23:38
    Originally posted by AThousandYoung
    You are looking at economics from the natural, physical perspective.

    Capitalism looks at economics from the perspective of the accounting equation.

    The difference between the two is the problem.
    umm i did a course in accountancy for my own business, what accounting equation are to referring to?