WEBVTT NOTE 13. The Marxian System, II: The Economics of Capitalism and its Inevitable Demise (continued) 1 00:00:00.000 --> 00:00:07.920 4. THE LAWS OF MOTION II. THE IMPOVERISHMENT OF THE WORKING CLASS 2 00:00:07.920 --> 00:00:13.420 The vital corollary for the Marxian system of the ever-thinning ranks of the centralized 3 00:00:13.420 --> 00:00:20.080 capitalists is the ever-swelling ranks of the proletariat and their increasing impoverishment 4 00:00:20.080 --> 00:00:27.640 and immiseration. The two antagonistic classes engage in a dialectic all their own, the culminating 5 00:00:27.640 --> 00:00:30.480 in the Marxian system. 6 00:00:30.480 --> 00:00:36.720 On the one hand, the ever-thinning ranks of the ever-wealthier capitalists, until or nearly 7 00:00:36.720 --> 00:00:41.320 until one man owns all the wealth in the world. 8 00:00:41.320 --> 00:00:47.540 On the other, the ever-swelling ranks of the ever-more impoverished proletariat, until 9 00:00:47.540 --> 00:00:51.640 the proletarian masses rise up and take over. 10 00:00:51.640 --> 00:00:57.320 But let Marx tell the story, in what amounts to his rousing peroration in the penultimate 11 00:00:57.320 --> 00:01:01.080 Chapter of Volume 1 of Capital. 12 00:01:01.080 --> 00:01:08.560 Hand in hand with this centralization or this expropriation of many capitalists by few develop 13 00:01:08.560 --> 00:01:16.080 on an ever extending scale the cooperative form of the labor process, the conscious technical 14 00:01:16.080 --> 00:01:23.060 application of science, the entanglement of all peoples in the net of the world market, 15 00:01:23.060 --> 00:01:28.460 and with this the international character of the capitalistic regime. 16 00:01:28.460 --> 00:01:34.420 Along with the constantly diminishing number of the magnets of capital who usurp and monopolize 17 00:01:34.420 --> 00:01:42.780 all advantages of this process of transformation, grows the mass of misery, oppression, slavery, 18 00:01:42.780 --> 00:01:49.940 degradation, exploitation, but with this too grows the revolt of the working class, a class 19 00:01:49.940 --> 00:01:55.660 Capitalists always increasing in numbers, and disciplined, united, organized by the 20 00:01:55.660 --> 00:02:00.480 very mechanism of the process of capitalist production itself. 21 00:02:00.480 --> 00:02:06.020 The monopoly of capital becomes a fetter on the mode of production, which has sprung up 22 00:02:06.020 --> 00:02:10.080 and flourished along with and under it. 23 00:02:10.080 --> 00:02:14.720 Centralization of the means of production and socialization of labor at last reach a 24 00:02:14.720 --> 00:02:19.680 point where they become incompatible with their capitalist integument. 25 00:02:19.680 --> 00:02:22.400 This integument is burst asunder. 26 00:02:22.400 --> 00:02:30.520 The knell of capitalist private property sounds, the expropriators are expropriated. 27 00:02:30.520 --> 00:02:36.560 Now here is a critical impoverishment of the working class is a key to the Marxian system 28 00:02:36.560 --> 00:02:43.120 because on it rests the allegedly inevitable doom of capitalism and its replacement by 29 00:02:43.120 --> 00:02:44.860 the proletariat. 30 00:02:44.860 --> 00:02:50.820 If there is no increasing impoverishment, there is no reason for the working class to react 31 00:02:50.820 --> 00:02:57.700 against their intensifying exploitation and burst asunder their capitalist integument, 32 00:02:57.700 --> 00:03:01.960 those fetters on the technological mode of production. 33 00:03:01.960 --> 00:03:07.460 So how does Marx demonstrate the increasing poverty of the proletariat? 34 00:03:07.460 --> 00:03:12.840 At this point, Marx seems to grow desperate and to come up with a number of varied and 35 00:03:12.840 --> 00:03:17.800 Contrasting Arguments, some of which are mutually contradictory. 36 00:03:17.800 --> 00:03:23.660 It's as if Marx wildly tries to multiply the arguments, however feeble, in the hope 37 00:03:23.660 --> 00:03:29.360 that at least one will stick and that he will demonstrate the inevitability of the next 38 00:03:29.360 --> 00:03:33.000 proletarian communist stage of history. 39 00:03:33.000 --> 00:03:39.400 But all of these attempts to prove increasing misery come up, first and foremost, against 40 00:03:39.400 --> 00:03:46.320 It's an insuperable obstacle, an obstacle that only Ludwig von Mises has clearly demonstrated. 41 00:03:46.320 --> 00:03:52.960 For if workers' wages are already and at all times at the means of subsistence, kept 42 00:03:52.960 --> 00:03:57.940 there by the iron law, how can they get any worse off? 43 00:03:57.940 --> 00:04:02.680 They have been at maximum poverty level, so to speak, for a long time. 44 00:04:02.680 --> 00:04:08.680 But if for that reason they cannot get worse off, where is the dynamic that will lead them 45 00:04:08.680 --> 00:04:27.680 We can concede, of course, that the new proletarians, so rudely tossed into the ranks of the working class by their triumphant fellow capitalists, will be particularly edgy and disgruntled at their new lot in life. 46 00:04:27.680 --> 00:04:37.680 But surely Marx would not be content to confine his revolutionary workers to the relatively limited ranks of recently déclassé capitalists, 47 00:04:37.680 --> 00:04:53.160 Setting aside for the moment this grave inner contradiction with the iron law of wages, 48 00:04:53.160 --> 00:04:59.280 how does Marx propose to establish his alleged law of the increasing impoverishment of the 49 00:04:59.280 --> 00:05:00.720 proletariat? 50 00:05:00.720 --> 00:05:07.040 In one answer, the eternally falling rate of profits puts a severe pressure on capitalists 51 00:05:07.040 --> 00:05:13.920 is to find more profit by sweating and exploiting the proletariat more intensively, making 52 00:05:13.920 --> 00:05:17.120 them work harder and for longer hours. 53 00:05:17.120 --> 00:05:23.500 But aside from the problem of the ever-present iron law, Marx is faced with the problem, 54 00:05:23.500 --> 00:05:30.840 why did capitalists allow their rate of exploitation to grow slack until finally spurred on by 55 00:05:30.840 --> 00:05:33.240 a falling rate of profit? 56 00:05:33.240 --> 00:05:39.160 Capitalists always and at all times try to maximize their rates of profit. 57 00:05:39.160 --> 00:05:46.020 And if so, and unless we are to assume a sudden intensification of greed or of eagerness for 58 00:05:46.020 --> 00:05:53.000 profit among capitalists, they are never slack or lax in squeezing the greatest possible 59 00:05:53.000 --> 00:05:55.800 amount of profit from the workers. 60 00:05:55.800 --> 00:06:01.760 But then, how can a falling rate of profit spur them on to ever greater heights? 61 00:06:01.760 --> 00:06:06.360 Surely it is not simply a desire for profit. 62 00:06:06.360 --> 00:06:12.460 Here Marx falls back on a suggested mechanism for this increased exploitation of labor and 63 00:06:12.460 --> 00:06:19.280 falling wage rate, the accelerating growth of a permanent industrial reserve army, a 64 00:06:19.280 --> 00:06:22.400 growing legion of the unemployed. 65 00:06:22.400 --> 00:06:29.360 It is increased competition from the unemployed that forces wage rates downwards and increasingly 66 00:06:29.360 --> 00:06:33.760 continues to do so as capitalism advances. 67 00:06:33.760 --> 00:06:40.600 But how can there be a continuing army of the unemployed when wages to the unemployed 68 00:06:40.600 --> 00:06:41.800 are zero? 69 00:06:41.800 --> 00:06:47.880 Why don't the unemployed starve to death before they can ever constitute a competitive threat 70 00:06:47.880 --> 00:06:50.620 to the employed proletariat? 71 00:06:50.620 --> 00:06:56.960 If Marx answers that the unemployed are rapidly absorbed into the employed ranks, driving 72 00:07:26.960 --> 00:07:33.960 If the rates are bolstered above the market equilibrium level, does unemployment become permanent? 73 00:07:33.960 --> 00:07:40.960 And if, as Marx maintains, the unemployed army lowers wage rates through its competition, 74 00:07:40.960 --> 00:07:45.960 then it should rapidly disappear and pose no further problems. 75 00:07:45.960 --> 00:07:50.960 But where does the industrial reserve army come from in the first place? 76 00:07:50.960 --> 00:07:55.960 For Marx, it is the old bugaboo, technological unemployment. 77 00:07:55.960 --> 00:08:03.000 Industry is mechanized and workers are thrown, presumably permanently, out of jobs. 78 00:08:03.000 --> 00:08:09.760 But what of the expansion of quantity demanded and of production brought about by technological 79 00:08:09.760 --> 00:08:10.880 innovation? 80 00:08:10.880 --> 00:08:16.480 And what of the increased demand for production and resources in other industries that are 81 00:08:16.480 --> 00:08:21.860 freed by cheaper products in the technologically expanding industry? 82 00:08:21.860 --> 00:08:28.300 and what, as we have seen above, of lower wage rates as the free market way of maintaining 83 00:08:28.300 --> 00:08:31.780 full employment of labor. 84 00:08:31.780 --> 00:08:36.220 Technological unemployment is an old and oft-discredited bogey. 85 00:08:36.220 --> 00:08:41.700 When automatic dialing for telephones was established, for example, there was a general 86 00:08:41.700 --> 00:08:47.940 piteous wail that the poor beloved telephone operators would be thrown out of work by this 87 00:08:47.940 --> 00:08:51.140 productive but heartless innovation. 88 00:08:51.140 --> 00:08:57.500 And yet, of course, the lower prices of telephone service resulted in an enormous expansion 89 00:08:57.500 --> 00:09:04.980 of telephone's market, including a substantial increase in the number of telephone operators. 90 00:09:04.980 --> 00:09:12.420 Similarly, the number of workers in the construction industry have been increased, not slashed, 91 00:09:12.420 --> 00:09:18.660 by the development of cranes, electric shovels and other construction machinery as compared 92 00:09:18.660 --> 00:09:21.660 to the good old days of hand shovels. 93 00:09:21.660 --> 00:09:27.620 All in all, for the technological unemployment argument to work as a way of demonstrating 94 00:09:27.620 --> 00:09:34.340 increasing impoverishment, not only would each successive technological innovation have 95 00:09:34.340 --> 00:09:41.680 to cause permanent unemployment, but the effect would have to accelerate over time, and thereby 96 00:09:41.680 --> 00:09:48.460 more than offset any equilibrating tendencies toward greater employment that the market 97 00:09:48.460 --> 00:09:50.500 might possess. 98 00:09:50.500 --> 00:09:56.060 In the discussion of the alleged industrial reserve army, we have been dealing with Marx's 99 00:09:56.060 --> 00:10:01.620 assertion that there is a permanent secular increase of that army. 100 00:10:01.620 --> 00:10:09.180 Below, we shall deal with another Marxian doctrine of the recurrence of cyclical unemployment, 101 00:10:09.180 --> 00:10:15.000 which along with ever-worsening cyclical depressions may provide the motor of increasing 102 00:10:15.000 --> 00:10:21.400 Following Misery and Proletarian Revolution Another Marxian argument for the inevitability 103 00:10:21.400 --> 00:10:28.640 of the impoverishment of the working class is found particularly in the Communist Manifesto. 104 00:10:28.640 --> 00:10:36.100 As machinery develops and capitalists accumulate capital, Marx and Engels lament, labor loses 105 00:10:36.100 --> 00:10:42.760 its variety of skills and the proletariat gets pushed into ever simpler, more monotonous 106 00:10:42.760 --> 00:10:49.780 Business and Unskilled Tasks, and this de-skilling lowers the average wage. 107 00:10:49.780 --> 00:10:55.600 This feeble argument rings particularly hollow nowadays, when left liberal friends of the 108 00:10:55.600 --> 00:11:02.560 working class are pushing the exactly opposite lament, that in an age when ever greater numbers 109 00:11:02.560 --> 00:11:09.160 of labor are going into high-skilled computer and electronics work, what is to happen to 110 00:11:09.160 --> 00:11:33.160 A related Marxian argument stresses not so much the increasing impoverishment of the working class, but its immiseration through aggravated alienation, increasing monotony or repulsiveness of work, caused by expanding mechanization. 111 00:11:33.160 --> 00:11:41.160 While Marx himself indeed refers to such alleged expanding misery in work of the labouring class, 112 00:11:41.160 --> 00:11:50.660 we have seen at length above that for Marx, alienation had nothing to do with subjective psychology or monotony of work, 113 00:11:50.660 --> 00:12:02.160 but was cosmically rooted in, and indeed defined as an attribute of, the basic modern system of exchange and the division of labour, 114 00:12:02.160 --> 00:12:14.160 and beyond that, in the separation of individual men from man and from nature that was going to be cured and could only be cured by communism. 115 00:12:14.160 --> 00:12:28.160 Apart from the empirical problem of how more monotonous work was really becoming and the contrast to the liberating nature of the increasing variety of wants, products and occupations, 116 00:12:28.160 --> 00:12:36.520 It is difficult to see how or why any alienation should increase significantly over time, much 117 00:12:36.520 --> 00:12:41.760 less how this increase is conveyed in some way to the working class. 118 00:12:41.760 --> 00:12:49.160 No, the case of increasing misery as a spur to revolution must be a palpable and objective 119 00:12:49.160 --> 00:12:54.500 one evident to the working class, or be no case at all. 120 00:12:54.500 --> 00:13:00.220 We are left with the doctrine of the growing impoverishment of the proletariat, a doctrine 121 00:13:00.220 --> 00:13:07.500 so crucial in Marx that it can hardly be trivialized as a prediction that somehow went astray. 122 00:13:07.500 --> 00:13:13.020 This prediction is absolutely critical to the allegedly inevitable tendency for the 123 00:13:13.020 --> 00:13:19.620 workers to rise up and overthrow capitalism, a tendency that is supposed to deepen and 124 00:13:19.620 --> 00:13:23.060 accelerate as capitalism progresses. 125 00:13:23.060 --> 00:13:28.640 And yet, it has been starkly evident to everyone that one of the vitally significant facts 126 00:13:28.640 --> 00:13:35.160 of the century and a half since the birth of Marxism has been the continuing spectacular 127 00:13:35.160 --> 00:13:41.440 growth in real wages and in the standard of living of the working class and of the mass 128 00:13:41.440 --> 00:13:43.040 of the population. 129 00:13:43.040 --> 00:13:49.760 Indeed, what we have seen in this period is the most spectacular growth in industrialization 130 00:13:49.760 --> 00:13:53.440 and in living standards in the history of the world. 131 00:13:53.440 --> 00:14:00.460 Moreover, and particularly telling in a critique of Marx, that advance of the working class 132 00:14:00.460 --> 00:14:07.960 has been particularly striking precisely in the advanced capitalist countries of the West, 133 00:14:07.960 --> 00:14:13.560 those that were supposed to herald the growing impoverishment of the proletariat. 134 00:14:13.560 --> 00:14:21.000 Here is a stern and unrelenting fact that every Marxist must face, and one that by itself 135 00:14:21.000 --> 00:14:25.060 can and should destroy the Marxian system. 136 00:14:25.060 --> 00:14:29.680 How have the Marxists dealt with this grave problem? 137 00:14:29.680 --> 00:14:35.340 Some Marxists, of course, have simply abandoned the ship, either noisily proclaiming their 138 00:14:35.340 --> 00:14:39.380 defection or quietly slipping from the fold. 139 00:14:39.380 --> 00:14:46.100 A few Marxists, as Schumpeter bemusedly notes, actually do not mind taking up the ridiculous 140 00:14:46.100 --> 00:14:54.000 position that a tendency for the working class's standard of life to fall is in fact observable. 141 00:14:54.000 --> 00:15:00.180 But generally, Marxists have tried to save the phenomenon, salvage the theory by various 142 00:15:00.180 --> 00:15:03.900 fallback positions or forms of evasion. 143 00:15:03.900 --> 00:15:10.780 One popular tactic asserts that the underlying tendency toward impoverishment still exists, 144 00:15:10.780 --> 00:15:17.900 but has been, temporarily, one or two centuries, offset by counteracting factors. 145 00:15:17.900 --> 00:15:24.140 A popular but bizarre Leninist variant is that workers in the West have benefited from 146 00:15:24.140 --> 00:15:32.260 imperialist Western exploitation of, or investment in, the Third World, so that, in a sense, 147 00:15:32.260 --> 00:15:37.100 and Workers become capitalists on an international scale. 148 00:15:37.100 --> 00:15:42.860 In the first place, in this transmutation of the oppressed proletariat of the West into 149 00:15:42.860 --> 00:15:49.380 exploiting capitalists of the Third World, whatever happened to the inevitable dwindling 150 00:15:49.380 --> 00:15:51.460 of the capitalist class? 151 00:15:51.460 --> 00:15:58.180 Second, the grotesquerie of this doctrine may be gauged by the fact, as P.T. Bauer has 152 00:15:58.180 --> 00:16:04.940 has demonstrated in many works that the bulk of the Third World, however poor, has also 153 00:16:04.940 --> 00:16:10.480 been developing rapidly in recent decades, and the standard of living of their working 154 00:16:10.480 --> 00:16:13.260 masses has steadily risen. 155 00:16:13.260 --> 00:16:19.620 Not only that, but this development and rise in standards has taken place precisely in 156 00:16:19.620 --> 00:16:26.720 those areas and regions of the Third World, for example, port cities, in closest trading 157 00:16:26.720 --> 00:16:31.600 Banking and Investment Touch with Developed Western Countries. 158 00:16:31.600 --> 00:16:37.560 On the other hand, it is the remote areas of the third world, not yet opened up to trade 159 00:16:37.560 --> 00:16:42.480 with the West, that have lagged behind in this economic growth. 160 00:16:42.480 --> 00:16:47.540 None of this can be squared with the image of the Western world making its tremendous 161 00:16:47.540 --> 00:16:53.680 strides over the century at the expense of what would have to be very rapid and deep 162 00:16:53.680 --> 00:16:59.680 Impoverishment and Immiseration of the Masses in the Third World. 163 00:16:59.680 --> 00:17:05.320 Apart from imperialism, there have been other intervening factors that various Marxists 164 00:17:05.320 --> 00:17:11.040 claim to have temporarily interrupted the working of inevitable impoverishment. 165 00:17:11.040 --> 00:17:16.640 A particularly popular choice at about the turn of the 20th century was the closing of 166 00:17:16.640 --> 00:17:19.800 the frontier in the western United States. 167 00:17:19.800 --> 00:17:26.340 The frontier thesis eventually lost popularity as the event receded in memory and the workers' 168 00:17:26.340 --> 00:17:33.040 living standards continued their inexorable advance, although it was curiously revived 169 00:17:33.040 --> 00:17:40.880 in the outlandish stagnation thesis of the late 1930s, in which the closing of the frontier, 170 00:17:40.880 --> 00:17:46.560 along with other ill-chosen factors, was suddenly supposed to have risen up out of 171 00:17:46.560 --> 00:17:55.360 of its grave of four decades and smitten the economy with an unexplained delayed immiseration. 172 00:17:55.360 --> 00:18:01.640 But by far the most popular fallback position has been to change the terms of the argument 173 00:18:01.640 --> 00:18:03.360 and the prediction. 174 00:18:03.360 --> 00:18:08.760 Flying in the face of the evidence, these Marxists contend that Marx did not really 175 00:18:08.760 --> 00:18:15.440 mean absolute impoverishment, a continuing fall in the standard of living. 176 00:18:15.440 --> 00:18:21.480 He met a fall in the relative income of the workers, relative, of course, to the standard 177 00:18:21.480 --> 00:18:24.200 of living of the capitalist class. 178 00:18:24.200 --> 00:18:31.880 It was relative impoverishment, not absolute, that Marx supposedly meant, and that the Marxists 179 00:18:31.880 --> 00:18:34.560 were now proclaiming. 180 00:18:34.560 --> 00:18:41.760 As an empirical question, relative impoverishment may or may not be true at various times and 181 00:18:41.760 --> 00:18:43.120 and Places. 182 00:18:43.120 --> 00:18:46.000 But its cogency is certainly dubious. 183 00:18:46.000 --> 00:18:52.800 It is certainly clear that the degree of inequality, for example, under Oriental despotism, or 184 00:18:52.800 --> 00:19:00.340 in the absolutist France of Louis XIV, was far greater than it is under modern capitalism. 185 00:19:00.340 --> 00:19:06.960 But more important is the ludicrousness of relying on relative impoverishment as a sufficient 186 00:19:06.960 --> 00:19:13.520 motor for the working class to rise up in bloody revolution to overthrow the capitalist 187 00:19:13.520 --> 00:19:14.880 class. 188 00:19:14.880 --> 00:19:20.680 If a worker has one yacht, will he rise up in rebellion because there are others in the 189 00:19:20.680 --> 00:19:23.560 society who have two or three? 190 00:19:23.560 --> 00:19:30.040 Or to put it more realistically, will a worker with two color TV sets rise up in revolution 191 00:19:30.040 --> 00:19:37.020 One because Rockefeller or Lee Iacocca or Hugh Hefner has a larger set in each room? 192 00:19:37.020 --> 00:19:40.960 We are a long, long way from immiseration. 193 00:19:40.960 --> 00:19:47.360 The coming inevitable wrath of the proletariat has turned, at last, to farce. 194 00:19:47.360 --> 00:19:53.600 And yet, even the head of official Marxism after Engels, Carl Kautsky, being forced 195 00:19:53.600 --> 00:20:00.320 in 1899 to admit that the standard of living of the workers was rising, was compelled to 196 00:20:00.320 --> 00:20:07.000 fall back on the view that what Marx really meant was relative, or what Cotsky called 197 00:20:07.000 --> 00:20:09.320 social poverty. 198 00:20:09.320 --> 00:20:16.440 By social poverty, Cotsky frankly meant envy or covetousness, and so he was obliged to 199 00:20:16.440 --> 00:20:23.640 to fall back on the view that gaining in income, but seeing others gain more, would suffice 200 00:20:23.640 --> 00:20:30.400 to rouse the workers into enough envy to rise up and overthrow the entire system. 201 00:20:30.400 --> 00:20:36.160 In any case, it is far more plausible that envy would be institutionalized in political 202 00:20:36.160 --> 00:20:43.340 drives, say for a progressive income tax or various subsidies from government, rather 203 00:20:43.340 --> 00:21:13.340 The Theory of Money and Credit 204 00:21:13.340 --> 00:21:18.340 The Real Objective Impoverishment of the Working Class 205 00:21:18.340 --> 00:21:25.340 Finally, there is a glaring inner contradiction at the heart of Marxian economics that is never resolved. 206 00:21:25.340 --> 00:21:34.340 If the capitalists suffer over time from a falling rate of profit and workers suffer from increasing impoverishment, 207 00:21:34.340 --> 00:21:39.340 who is benefiting in the distribution of the economic pie? 208 00:21:39.340 --> 00:21:44.980 At least in the Ricardian system, the capitalists suffer from a falling rate of profit, and 209 00:21:44.980 --> 00:21:48.660 the workers are kept at brute subsistence level. 210 00:21:48.660 --> 00:21:55.180 But some group keeps grabbing all the social benefits, the parasitic landlords and their 211 00:21:55.180 --> 00:22:00.100 increasing absorption of the social product by land rent. 212 00:22:00.100 --> 00:22:06.580 But in the Marxian system, the landlords have disappeared, increasingly and rapidly assimilated 213 00:22:06.580 --> 00:22:08.860 into the capitalist class. 214 00:22:08.860 --> 00:22:16.620 So how can both mighty classes lose out under developing capitalism? 215 00:22:16.620 --> 00:22:19.060 5. 216 00:22:19.060 --> 00:22:24.440 The Laws of Motion III, Business Cycle Crises 217 00:22:24.440 --> 00:22:30.900 A final variant of Marx's attempt to demonstrate the inevitability of the proletarian revolution 218 00:22:30.900 --> 00:22:35.800 was closely related to the doctrine of absolute impoverishment. 219 00:22:35.800 --> 00:22:42.600 This variant, however, stressed not a steady secular trend toward growing impoverishment 220 00:22:42.600 --> 00:22:49.700 or an industrial reserve army, but rather increasingly destructive business cycle crises 221 00:22:49.700 --> 00:22:55.420 and depressions marked by impoverishment and cyclical unemployment. 222 00:22:55.420 --> 00:23:02.600 We turn now to Marx's theory, or rather his various theories, of cycles and crises. 223 00:23:02.600 --> 00:23:07.780 or his writings contain several very different and incompatible theories. 224 00:23:07.780 --> 00:23:13.220 Perhaps Marx in desperation was willing to come up with a number of theories, hoping 225 00:23:13.220 --> 00:23:17.180 that one of them at least might stick. 226 00:23:17.180 --> 00:23:22.580 Underconsumptionism The underconsumption explanation of depression 227 00:23:22.580 --> 00:23:28.980 was Marx's dominant variant of cycle theory, as evidenced, for example, by his and Engel's 228 00:23:28.980 --> 00:23:42.040 The point, as elaborated particularly in Marx's Theories of Surplus Value, written between 229 00:23:42.040 --> 00:23:51.080 1861 and 1863, is that as capitalist accumulation and production advances, it outstrips the 230 00:23:51.080 --> 00:23:57.320 ability of the exploited workers, who earn far less than the value of their product, 231 00:23:57.320 --> 00:23:58.600 To Consume 232 00:23:58.600 --> 00:24:04.520 The mass of workers cannot consume enough to buy the capitalist product, and the slack 233 00:24:04.520 --> 00:24:10.320 is not taken up by the capitalist exploiters, who are far more interested in saving and 234 00:24:10.320 --> 00:24:13.120 accumulating than in consuming. 235 00:24:13.120 --> 00:24:21.200 Hence, say is incorrect, and there is systemic general overproduction, with production outstripping 236 00:24:21.200 --> 00:24:24.260 the masses' ability to consume. 237 00:24:24.260 --> 00:24:30.500 As Marx repeatedly says, the majority of the people, the laboring population, can extend 238 00:24:30.500 --> 00:24:35.420 their consumption only within very narrow limits. 239 00:24:35.420 --> 00:24:41.860 Marx returns to this dominant under-consumptionist theme in Volume 3 of Capital. 240 00:24:41.860 --> 00:24:48.400 In Capitalism, Marx writes, the consuming power of society is determined by antagonistic 241 00:24:48.400 --> 00:24:59.400 and the economic conditions of distribution, which reduce the consumption of the great mass of the population to a variable minimum within more or less narrow limits. 242 00:24:59.400 --> 00:25:13.400 Moreover, the consuming power is furthermore restricted by the tendency to accumulate, the greed for an expansion of capital and a production of surplus value on an enlarged scale. 243 00:25:13.400 --> 00:25:17.400 The market must, therefore, be continually extended. 244 00:25:17.400 --> 00:25:27.400 But to the extent that the productive power develops, it finds itself at variance with the narrow basis on which the conditions of consumption rest. 245 00:25:27.400 --> 00:25:31.400 Also in Volume 3 of Capital, Marx writes, 246 00:25:43.400 --> 00:25:49.400 Only the absolute consumption of society set a limit to them. 247 00:25:49.400 --> 00:25:54.720 The most obvious and blatant problem with an under-consumptionist theory of economic 248 00:25:54.720 --> 00:25:58.220 crises is that it explains too much. 249 00:25:58.220 --> 00:26:04.560 For if the consumption of the masses is never enough to buy back the product and keep business 250 00:26:04.560 --> 00:26:09.120 profitable, why is there no permanent depression? 251 00:26:09.120 --> 00:26:12.800 Why are there booms as well as busts? 252 00:26:12.800 --> 00:26:18.360 Both Marx and Engels apparently sensed this problem, and hence saw the need for at least 253 00:26:18.360 --> 00:26:20.040 a supplementary theory. 254 00:26:20.040 --> 00:26:26.440 Thus, in Volume 3 of Capital, Marx, in addition to the quote above, conceded that there are 255 00:26:26.440 --> 00:26:34.240 at least temporary boom periods before crises, when wages rise and workers obtain a larger 256 00:26:34.240 --> 00:26:36.720 share of the product. 257 00:26:36.720 --> 00:26:42.960 Angles II, in Antiduring, first states that large-scale industry, which haunts all over 258 00:26:42.960 --> 00:26:49.180 the world for new consumers, restricts the consumption of the masses at home to a starvation 259 00:26:49.180 --> 00:26:54.240 minimum and thereby undermines its own internal market. 260 00:26:54.240 --> 00:26:59.800 But then, a bit later in the same work, Angles, after asserting that the under-consumption 261 00:26:59.800 --> 00:27:07.340 of the Masses is therefore also a necessary condition of crises, admits the concept cannot 262 00:27:07.340 --> 00:27:14.820 explain why crises exist today while they did not exist at earlier periods. 263 00:27:14.820 --> 00:27:19.680 By the time that Engels wrote the preface to the first English edition of Volume I of 264 00:27:19.680 --> 00:27:27.080 Capital in 1886, however, the problem had been neatly resolved to his own satisfaction. 265 00:27:27.080 --> 00:27:34.320 While business cycles of boom and bust had indeed prevailed until 1867, he opined, the 266 00:27:34.320 --> 00:27:40.400 English economy was now satisfactorily bogged down in permanent depression. 267 00:27:40.400 --> 00:27:46.060 Whatever the subsidiary causes of the booms, they were now ended, and permanent depression 268 00:27:46.060 --> 00:27:49.880 would soon usher in the proletarian revolution. 269 00:27:49.880 --> 00:27:55.840 Amidst the sea of wreckage of self-assured Marxian predictions, this was one of the most 270 00:27:55.840 --> 00:28:07.900 The Decennial Cycle of Stagnation, Prosperity, Overproduction and Crisis, Ever Recurrent 271 00:28:07.900 --> 00:28:16.040 from 1825 to 1867, seems indeed to have run its course, but only to land us in the slough 272 00:28:16.040 --> 00:28:20.340 of despond of a permanent and chronic depression. 273 00:28:20.340 --> 00:28:24.280 The side four period of prosperity will not come. 274 00:28:24.280 --> 00:28:30.500 As often as we seem to perceive its heralding symptoms, so often do they vanish into air. 275 00:28:30.500 --> 00:28:36.300 Meanwhile, each succeeding winter brings up afresh the great question, what to do with 276 00:28:36.300 --> 00:28:37.860 the unemployed? 277 00:28:37.860 --> 00:28:43.080 But while the number of the unemployed keeps swelling from year to year, there is nobody 278 00:28:43.080 --> 00:28:48.540 to answer that question, and we can almost calculate the moment when the unemployed, 279 00:29:18.540 --> 00:29:21.040 Resources and Capital Goods. 280 00:29:21.040 --> 00:29:26.820 More importantly, as in the case of every crazy theory, the price system quietly drops 281 00:29:26.820 --> 00:29:33.120 out of the picture and we are left with such aggregative juggernauts as production and 282 00:29:33.120 --> 00:29:35.840 consumption facing each other. 283 00:29:35.840 --> 00:29:39.180 There is no such thing as overproduction. 284 00:29:39.180 --> 00:29:45.780 There is only too much produced for the price that consumers are willing to pay, a price 285 00:29:45.780 --> 00:29:51.220 The price which, in crises, does not cover the costs incurred by businessmen. 286 00:29:51.220 --> 00:29:57.560 But once we recognize that, we must then also see that in order to bring production and 287 00:29:57.560 --> 00:30:04.380 consumption into balance, in order to eliminate the problem of supply or stock being greater 288 00:30:04.380 --> 00:30:09.340 than demand, all that need happen is for prices to fall. 289 00:30:09.340 --> 00:30:15.500 Let prices fall and they will soon equilibrate supply and demand, and business losses will 290 00:30:15.500 --> 00:30:21.720 will only be temporary, and this point leads the analysts to consider the next step. 291 00:30:21.720 --> 00:30:28.120 Why did businessmen, entrepreneurs with a sterling overall record in forecasting demand 292 00:30:28.120 --> 00:30:35.960 and costs, why this time did they bid up costs so excessively high that they suffer losses 293 00:30:35.960 --> 00:30:38.520 in trying to sell the product? 294 00:30:38.520 --> 00:30:45.080 In short, why did businessmen make this cluster of severe forecasting errors that mark the 295 00:30:45.080 --> 00:30:47.680 The Period of Economic Crisis 296 00:30:47.680 --> 00:30:53.040 None of this, of course, could be considered by Marx and by the underconsumptionists who 297 00:30:53.040 --> 00:30:56.080 do not bother considering the price system. 298 00:30:56.080 --> 00:31:02.760 Moreover, Marx, like Smith and Ricardo before him, has no conception of the entrepreneur 299 00:31:02.760 --> 00:31:05.720 or of the function of entrepreneurship. 300 00:31:05.720 --> 00:31:13.220 Finally, it is well known that crises invariably begin, not in the consumer goods industries, 301 00:31:13.220 --> 00:31:43.140 The second crisis theory, prominent in volume 3 of Capital, focuses on the Marxian falling 302 00:31:43.140 --> 00:31:53.140 The Incessant Drive of Capitalists to Accumulate brings about a secular trend of the rate of profit to fall. 303 00:31:53.140 --> 00:32:02.140 Finally, when profit falls below a certain rate, the growth of capital ceases, and an economic crisis ensues. 304 00:32:02.140 --> 00:32:08.140 Just as capitalism leads to an overproduction of goods in relation to consumption, 305 00:32:08.140 --> 00:32:12.940 So, too, it creates an overaccumulation of capital. 306 00:32:12.940 --> 00:32:18.860 The cessation of capital investment leads to a recession in the capital goods industries, 307 00:32:18.860 --> 00:32:22.900 which then widens into a general depression. 308 00:32:22.900 --> 00:32:28.220 While this second explanation of economic crisis at least has the merit of focusing 309 00:32:28.220 --> 00:32:34.760 on capital goods industries rather than consumption, it is scarcely an improvement. 310 00:32:34.760 --> 00:32:40.760 In the first place, once again, the falling rate of profit seems to describe a law of 311 00:32:40.760 --> 00:32:42.760 secular decline. 312 00:32:42.760 --> 00:32:50.240 But why should it lead to a specific economic collapse, much less a cyclical series of booms 313 00:32:50.240 --> 00:32:51.920 and busts? 314 00:32:51.920 --> 00:32:57.680 Even if the profit rate falls, why should businessmen stop investing, especially all 315 00:32:57.680 --> 00:32:58.960 of a sudden? 316 00:32:58.960 --> 00:33:04.600 What is the mechanism to explain the sudden sharp upper turning point? 317 00:33:04.600 --> 00:33:11.120 Moreover, even if the profit rate falls, the admittedly increasing mass of saved capital 318 00:33:11.120 --> 00:33:17.040 might well increase the absolute amount of aggregate profits, so that even though the 319 00:33:17.040 --> 00:33:23.520 rate falls, the process may still stimulate a great deal of further investment. 320 00:33:23.520 --> 00:33:29.800 Furthermore, even if Marx could explain an upper turning point and a sharp crash, why 321 00:33:29.800 --> 00:33:32.440 should there ever be a revival? 322 00:33:32.440 --> 00:33:36.440 Here is a particularly shaky point in Marx. 323 00:33:36.440 --> 00:33:44.080 Capital decumulates greatly during the crisis, so that the capital denominator actually declines, 324 00:33:44.080 --> 00:33:48.800 and hence the rate of profit to total investment rises. 325 00:33:48.800 --> 00:33:54.640 This process can again create greater investment and another boom. 326 00:33:54.640 --> 00:34:00.520 The likelihood, however, that a depression will be steep enough to actually consume capital 327 00:34:00.520 --> 00:34:08.360 and also raise profit rates more than the alleged continuing tendency for the profit rate to fall 328 00:34:08.360 --> 00:34:14.680 is very low, and even if a recovery gets underway, why should a lusty boom ensue? 329 00:34:15.720 --> 00:34:22.520 There is finally no hint in marks or angles why these cycles or depressions are supposed 330 00:34:22.520 --> 00:34:30.360 to increase in intensity, universality and depth over time. Finally, to result in permanent 331 00:34:30.360 --> 00:34:33.320 Depression and Revolution. 332 00:34:33.320 --> 00:34:39.540 All in all, the falling rate of profit strand of cycle theory is singularly shadowy and 333 00:34:39.540 --> 00:34:43.860 unconvincing. 334 00:34:43.860 --> 00:34:48.280 Disproportionality Here in the disproportionality theory of Marx 335 00:34:48.280 --> 00:34:54.780 we return in a deep sense to where we, or rather Marx himself, began. 336 00:34:54.780 --> 00:35:00.660 to Communism and the Desire to Eradicate the Market and the Division of Labor. 337 00:35:00.660 --> 00:35:06.340 Woven into his discussions in Capital and Theories of Surplus Value, written between 338 00:35:06.340 --> 00:35:15.940 1861 and 1863, is the view that cycles and crises inevitably stem from the market process. 339 00:35:15.940 --> 00:35:22.580 To Marx, the problem was endemic in the market economy, and particularly in the money or 340 00:35:22.580 --> 00:35:25.300 Indirect Exchange Economy 341 00:35:25.300 --> 00:35:32.180 Since the market allegedly had no coordinating mechanism, all production and exchange, according 342 00:35:32.180 --> 00:35:40.740 to Marx, is chaotic, discoordinated, a regime of what he called the anarchy of production. 343 00:35:40.740 --> 00:35:42.940 As Boeber sums it up, 344 00:35:42.940 --> 00:35:49.240 This theory is concerned with the maladjustments and disproportionalities traced to the anarchy 345 00:35:49.240 --> 00:35:57.160 of Competition, to the blundering, in-coordinate moves of multitudes of individual capitalists, 346 00:35:57.160 --> 00:36:02.520 to the complexities of the many elements which must fit into each other in an enormously 347 00:36:02.520 --> 00:36:10.200 complex world, and which will do so by sheer accident, if not by planned design, and to 348 00:36:10.200 --> 00:36:14.200 the vagaries of wind and weather. 349 00:36:14.200 --> 00:36:20.360 Marx had a telling point against the Ricardians, the British classicists of his day. 350 00:36:20.360 --> 00:36:27.040 The world does not, indeed, bask happily in the never-never land of long-run equilibrium. 351 00:36:27.040 --> 00:36:32.200 But what Marx overlooked is precisely what the Ricardians overlooked. 352 00:36:32.200 --> 00:36:37.880 If they had shifted their focus out of the cloud land of long-run equilibrium and back 353 00:36:37.880 --> 00:36:43.360 to the real world of the market economy, they would have discovered a very different world. 354 00:36:43.360 --> 00:36:49.340 They would have seen what Turgot and the French and Italians and scholastics had seen. 355 00:36:49.340 --> 00:36:56.880 The real world of markets is not perfectly, but still harmoniously and dynamically coordinated 356 00:36:56.880 --> 00:37:03.820 by two crucial elements, a price system that is free to fluctuate to equate the changing 357 00:37:03.820 --> 00:37:11.460 forces of supply and demand, and entrepreneurs, who in their continuing search for increased 358 00:37:11.460 --> 00:37:17.340 Profits and Avoidance of Losses perform this coordinating task. 359 00:37:17.340 --> 00:37:23.440 But by focusing on long-run equilibrium, the British classicists had eliminated both the 360 00:37:23.440 --> 00:37:30.340 real-world price system and the vital entrepreneurial role in the market economy, the successful 361 00:37:30.340 --> 00:37:35.240 anticipation of change in a changing and uncertain world. 362 00:37:35.240 --> 00:37:41.720 If there is no price system for the exchange of property titles to goods and services, 363 00:37:41.720 --> 00:37:49.800 and there are no capitalist entrepreneurs, then indeed production is in a state of anarchy. 364 00:37:49.800 --> 00:37:56.540 Marx also saw that discoordination might cause overaccumulation of capital, and wove this 365 00:37:56.540 --> 00:38:03.320 theme into the preceding variant, the falling rate of profit, in an attempt to explain cycles 366 00:38:03.320 --> 00:38:05.320 Cycles and Crises. 367 00:38:05.320 --> 00:38:12.160 Some later economists, notably the Russian Marxist economist Tugan Baranovsky, celebrated 368 00:38:12.160 --> 00:38:20.040 these hints into what has been called a non-monetary over-investment theory of the business cycle. 369 00:38:20.040 --> 00:38:27.400 Marx saw that the monetary and credit system played an important role in cycles and crises. 370 00:38:27.400 --> 00:38:30.680 Credit is important in the centralization of capital. 371 00:38:30.680 --> 00:38:37.320 encourages speculation, intensifies the crisis and accelerates overproduction. 372 00:38:37.320 --> 00:38:43.380 But to emphasize bank credit as a fundamental cause of the cycle could have been fatal for 373 00:38:43.380 --> 00:38:51.020 Marx's attempt to pin the blame for cycles and crises on forces inherent within the capitalist 374 00:38:51.020 --> 00:38:52.740 market economy. 375 00:38:52.740 --> 00:38:59.360 And so it was necessary for him to repudiate any possible currency school emphases on the 376 00:38:59.360 --> 00:39:02.280 The Causal Role of Bank Credit 377 00:39:02.280 --> 00:39:08.920 The superficiality of political economy, Marx writes in Capital, shows itself in the fact 378 00:39:08.920 --> 00:39:14.880 that it looks upon the expansion and contraction of credit, which is a mere symptom of the 379 00:39:14.880 --> 00:39:20.560 periodic changes of the industrial cycle, as their cause. 380 00:39:20.560 --> 00:39:27.480 Despite his overt scorn for John Stuart Mill, Marx was thereby driven into implicit support 381 00:39:27.480 --> 00:39:32.320 for the Mill Took Banking School Theory of the Business Cycle. 382 00:39:32.320 --> 00:39:38.040 As we have seen, the currency school writers themselves were forced into this view after 383 00:39:38.040 --> 00:39:45.160 the seeming failure of Peel's Act of 1844 to eradicate business cycles. 384 00:39:45.160 --> 00:39:52.440 While all banking school type theorists on non-monetary disproportionality and overinvestment 385 00:39:52.440 --> 00:40:00.440 were obliged to admit that expansion of money and bank credit were necessary conditions to a cycle boom. 386 00:40:00.440 --> 00:40:12.440 They all proclaimed that credit cycles were only passive resultants of non-monetary cycles of over and under trading or of speculation. 387 00:40:12.440 --> 00:40:21.440 Thus, million non-monetary cycle theory permeated the ranks of economists and encouraged economists, including Marx, 388 00:40:21.440 --> 00:40:27.040 to blame the capitalist market economy for the recurrence of business cycles. 389 00:40:27.040 --> 00:40:37.640 The insights of the vanished currency school, the realization that money and credit as a necessary condition was close to saying a cause, 390 00:40:37.640 --> 00:40:49.640 and the original insight that it takes bank credit expansion to distort the market signals to entrepreneurs and create a boom-bust cycle, remained buried, 391 00:40:49.640 --> 00:40:55.640 to be discovered or re-discovered by Ludwig von Mises in 1912. 392 00:41:02.640 --> 00:41:10.640 Thus, Karl Marx created what seems to the superficial observer to be an impressive integrated system of thought, 393 00:41:10.640 --> 00:41:16.640 explaining the economy, world history, and even the workings of the universe. 394 00:41:16.640 --> 00:41:21.440 In reality, he created a veritable tissue of fallacies. 395 00:41:21.440 --> 00:41:26.400 Every single nodal point of the theory is wrong and fallacious. 396 00:41:26.400 --> 00:41:32.680 And its integument, to use a good Marxian term, is a web of fallacy as well. 397 00:41:32.680 --> 00:41:37.440 The Marxian system lies in absolute tatters and ruin. 398 00:41:37.440 --> 00:41:43.800 The integument of Marxian theory has burst asunder long before its predicted bursting 399 00:41:43.800 --> 00:41:46.040 of the capitalist system. 400 00:41:46.040 --> 00:41:51.800 Far from being a structure of scientific laws, furthermore, the Jerry-built structure was 401 00:41:51.800 --> 00:41:58.800 constructed and shored up in desperate service to the fanatical and crazed messianic goal 402 00:41:58.800 --> 00:42:05.720 of destruction of the division of labor, and indeed of man's very individuality, and to 403 00:42:05.720 --> 00:42:13.200 the apocalyptic creation of an allegedly inevitable collectivist world order, an atheized variant 404 00:42:13.200 --> 00:42:16.560 of a Venerable Christian Heresy. 405 00:42:16.560 --> 00:42:23.180 During the 1960s, messianic and romantic Marxists liked to make a sharp separation between 406 00:42:23.180 --> 00:42:31.460 the earlier lovable, idealistic, humanist Marx and the later mean, hardcore, pro-Stalinist 407 00:42:31.460 --> 00:42:33.400 economist Marx. 408 00:42:33.400 --> 00:42:36.740 But we now know that there is no such division. 409 00:42:36.740 --> 00:42:44.320 There is only one Marx, whether early or late, once he adopted Marxism in the 1840s. 410 00:42:44.320 --> 00:42:51.800 There is even a good case for seeing one lifelong Marx, including his crazed demonic poems calling 411 00:42:51.800 --> 00:42:58.020 for universal destruction in his still earlier graduate school years at Berlin. 412 00:42:58.020 --> 00:43:03.680 In fact, the humanist Marx is scarcely a relief from the later economist. 413 00:43:03.680 --> 00:43:10.000 Quite the contrary, all Marx's in one were in service to his fanatical and destructive 414 00:43:10.000 --> 00:43:12.880 messianic vision of Communism. 415 00:43:12.880 --> 00:43:19.400 A convincing case can be made indeed that the well-known horrors of 20th century Communism 416 00:43:19.400 --> 00:43:27.540 of Lenin, Stalin, Mao and Paul Pot can be considered the logical unfolding, the embodiment 417 00:43:27.540 --> 00:43:31.900 of the Nineteenth-Century Vision of Their Master, Karl Marx.