Addressing the Ravages of Capitalism: An Economic Perspective

By: Charles Posa McFadden and Karen Howell McFadden  Posted on

“Capitalism’s War on the Earth”: The existential challenge of a moribund socio-economic system

 

“…capitalism has remained essentially … what it was from the beginning: an enormous engine for the ceaseless accumulation of capital, propelled by the competitive drive of individuals and groups seeking their own self-interest in the form of private gain. Such a system recognizes no absolute limits to its own advance. The race to accumulate, the real meaning of economic growth under capitalism, is endless.” – John Bellamy Foster, Brett Clark, and Richard York (2010, Monthly Review Press) The Ecological Rift: Capitalism’s War on the Earth, p28

 

Corresponding to the ecological critique of capitalism is a critique through the lens of its financial system. This sub-system of contemporary capitalism preceded the emergence of capitalism as the dominant form of social relations. From this perspective, capitalism is a system based on credit. But credit, as well as its flipside debt, grows at a compound rate of interest while real, physical wealth (based on the Earth and its resources) does not. Debt is a claim by creditors against future production. Infinite debt (the logically ultimate outcome of compound interest) would equate to the infinite enslavement of the indebted to their creditors and an infinite claim against Earth, a finite source of resources. 

 

A human-created ecological system which necessitates financial credit, such as capitalism, is therefore in an irreconcilable contradiction with the aim of the conservation of nature and of the people who inhabit nature. In a finite human-created ecological system, capitalism – and any other market based economic system – is ultimately unsustainable. Such is our distillation of the arguments to be found in the introductory chapters of Philip B. Smith & Manfred Max-Neef’s (2011, Green Books) Economics Unmasked: From power and greed to compassion and the common good.  

 

After centuries in which this inherent contradiction at the heart of capitalism has played out, the system has reached its ultimate, ecological crisis. As John Bellamy Foster and Fred Magdoff warned in connection with the 2008 economic crisis (2009, Monthly Review Press, The Great Financial Crisis: Causes and Consequences), “there is no possibility that the enormous surplus capital that has fed the financial explosion can be absorbed by productive investment under the present system at this stage in its history and with the existing structure of inequality.”     

 

Human society, enmeshed in capitalist economic relationships, has reached the stage of unprecedented economic, social, political and environmental crisis and a corresponding final opportunity to change course. This is evident in the rise of democratic popular movements worldwide. Capitalism, now universally characterized by monopolistic private-for-profit corporations, dominated by the cancerous growth of its now megalithic financial sector, has outlived the period of its relative social usefulness. 

 

Far from being the efficient engine of production and distribution of goods and services envisioned in utopian capitalist theorizing and far from being a partner in achieving a more democratic society, capitalism has turned into the principal barrier to a sustainable, just system of use and distribution of natural resources and has become the main threat to democracy. Its principal characteristics have become an extreme inequality in income and wealth distribution, a wasteful system for using the resources of a finite planet, a growing supremacy of corporate over popular rule and consequent economic and social instability. It has become the principal cause of a potential collapse of human civilization, including encouragement by its most dangerous representatives of racist violence and other expressions of neofascism.

 

The nature of capitalism: Misconceptions and scientific conceptions

 

Serving as barriers to addressing the systemic nature of the present crisis are misconceptions about capitalism promoted by its defenders. Here we briefly identify a couple of these misconceptions.  

 

The sources of wealth?

 

Scientific conception (classical and Marxian political economy):  nature and human labor are the sources of all wealth.

Misconception (vulgar and neoclassical economics, especially the neo-liberal world view): the claim by capitalists that their additional contribution is the capital consumed in the process of producing goods and services. Rather, this part of capital can be traced to nature and to the expenditure of human labor power, purchased but not created by capitalists. The “work” of capitalists in the process of producing and selling goods and services is to add to their own bank accounts some of the proceeds. The short-changed accounts are those of nature and the people who have provided their labor. 

 

For a comprehensive correction of this misconception about the sources of wealth, see Karl Marx’s Capital, Volume I. 

 

Distribution of income from the sale of goods and services?

 

Scientific conceptions (Marxian political economic theory): (1) After all the expenses of production and distribution of goods and services are paid, including the wages and salaries due to the workers and the replacement costs of used up materials and tools, the remainder of the income from the sale of the commodities and services (“surplus value”) is split between personal consumption expenses of the capitalists, their investment in expansion and their savings for later investment.  (2) The part retained by workers is less than the value of the labor power they have expended in the production process; the surplus is added to the income, savings and investment accounts of the capitalists (“exploitation of labor”.)     

Misconceptions (neo-classical and vulgar economics, neo-liberal view): (1) Workers and capitalists participate as equals in the market place, the workers selling their labor power and the capitalists purchasing that labor power; (2) The part of the income retained by the capitalists is equal to their contribution in the forms of their own capital and labor.

 

Social and environmental outcomes of capitalist markets?

 

Scientific conceptions (most serious academic economists): (1) a characteristic of capitalism is the continual expansion of capital, driven by incessant competition which sees those groups of capitalists who have been less successful in expanding the capital under their control being eaten up by other groups of capitalists who have been more successful; (2) the development of capitalism is in the direction of monopolistic capitalism, facilitating collusion between the smaller number of competing capitalists to the disadvantage of smaller capital formations, relegated to the role of exploited suppliers to the more monopolistic ones; (3) the distribution of capital between its various branches (such as the production and sales of consumer goods and services, production and sales of the tools and services needed for production, savings and investment of money capital, and purchase and sale of real estate) tends to move away from equilibrium, resulting in periodic economic crises; (4)  given the inherent priority, reinforced by law in the societies dominated politically by capitalists, of profits over environment and human development, the conservation of nature and the development of human beings are underserved; (5) results, in part, of these  tendencies are periodic social and environmental crises, increasing in severity over time.  

Misconceptions (promoted by corporate sponsored right-wing think-tanks and neo-liberal politicians): (1) capitalist competition in a free capitalist market results in ever-increasing economic growth and development by replacing poorly functioning businesses with those that do a better job of meeting human need; (2) increased competition would be the result of capitalist markets freed of government “interference”; (3) a capitalist market freed of government “interference”would naturally restore equilibrium, reducing if not eliminating the periodic crises that have occurred throughout the history of capitalism; (4) when freed of excess government “interference“, capitalist corporations acting in their own self-interest would serve to protect nature and enhance human welfare and development; (5) social crises and environmental degradation have always been with us, evidence that the causes are other than the natural behavior of a capitalist economic system when it is left free of government regulation.   

 

For an understanding of the tendency of capitalism towards crisis, including a well-documented analysis of the 2008 crisis, see: David Harvey (2010, Oxford University Press) The Enigma of Capital. For an identification and explanation of Marx’s three laws of capitalism (value, accumulation and the tendency of the rate of profit to fall) and their application to prediction and explanation of capitalist economic crises, see Michael Roberts (2018, Lulu.com) Marx 200: A Review of Marx’s Economics 200 Years After His Birth and Michael Roberts (2016, Haymarket Books) The Long Depression: How It Happened, Why It Happened, and What Happens Next)

 

Capitalism must die if people are to live

 

We offer the following outline, based on Karl Marx Capital, Vol. 1 for those who prefer symbolic representation.     

 

capitalist market economy can be considered analytically by first assuming that all goods and services created in the process of capitalist production (that is production for profit) are sold.    

 

It goes without saying that everything not provided for free from nature is created by human labor, utilizing goods and services from nature, where human labor is self-evidently also a natural process.

 

Implicit in Volume 1 of Marx’s Capital is that the exchange of goods and services occur in the absence of capitalists large enough in relation to their competitors to control the prices paid for goods and services. Marx considered the likely effect of monopolistic practices in later volumes of Capital and in his then unpublished research notes.  

 

Marxian analysis after Marx has largely focussed on monopoly capital, that is, capital in its contemporary stage, rather than the idealized versions of capitalism still fed to the public by its proponents. But the core of capitalism was already revealed in Volume 1 of Marx’s Capital.

 

On the assumptions made by Marx in Volume 1 of Capital, and with all the following variables as functions of the time, t, during which a capitalist productive process takes place:

 

We have the Value Equation:

 

V = c + v + s   which can be rewritten as   s = V – c – v

 

where V is the total exchange value (sale price) of the goods and services produced, 

 

c is the cost of depreciation of the means of production (for example, tools, machines, buildings) and the cost of the materials consumed (also means of production). 

 

v is the cost of living labor required during the process of production, sold by the employed workers to the employing capitalists. 

 

s is the surplus value, created by living labor in the capitalist productive process and appropriated by the capitalist class.

 

The Value Equation, of course, only applies to the total exchanges that occur in a capitalist economy taken as a whole. Each of V, c, v, s is an average value in relation to the total of exchanges that take place in a capitalist economy, and then only under idealized conditions where everything produced is instantaneously purchased. No real market economy can run this smoothly, as evident in the numerous cyclical crises that characterize real capitalist market economies. 

 

Comments:

 

1. People usually buy goods and services for the use they can make of them, that is, their use value. However, what they pay for is their exchange value, expressed in the form of money.  This exchange value is represented in the formula above by the capital letter, V. It is the value of all the labor that has been expended in the chain from the extraction of materials and services from nature through to the sale of the produced goods and services. 

 

2. The cost to the employer for producing a certain value of goods and services includes the amount of past labor, for example in the form of the wear and tear of buildings and machines (measured as depreciation) and the cost of the extraction, reworking and transportation to the employers of the materials consumed in the process of producing new goods and services. Marx called the sum of this the cost of “dead labor” or fixed capital, represented above by the small letter c.  

 

3. The cost to the employing capitalist(s) also includes the cost of the labor power purchased from the employed worker(s). Marx called this variable capital, represented above by the letter v.  Presumably this would include any necessary contribution to the laboring process made by the employers, although this is sometimes mistakenly included, especially by small businesses, in their declared “profits”.

 

4. If the exchange value includes a surplus value, there is only one place it could come from, given that all other labor costs have been accounted for. It must be the difference between what employees are paid and employers retain as surplus value, which they usually call profits.  

 

5.  So before even considering the current stage of capitalism, dominated by a decreasing number of ever more powerful multinational corporations, the relations between capital, labor and nature are already made clear by Marx’s analysis in Volume 1 of Capital. Capitalism is the system of producing a surplus for the capitalists from the exploitation of people and nature. People are exploited through the surplus value they render to the capitalists. The otherwise free goods and services are provided by nature in the form of the degradation of nature through unsustainable capitalist exploitation of nature’s “free” goods and services. Capitalism’s ultimate gift to people is a degraded natural environment. If people are to survive, then capitalism must be replaced by a more sustainable economic system, one that prioritizes the health of people and nature over private profits.

 

The Capitalist Justification for Capitalism Owes to Labor Productivity

 

P = V/t

 

Where P is the productivity of labour,

            V is the exchange value produced 

t is the labor time expended in the production of this exchange value.

 

Comments:

1. Labor productivity owes to the accumulated history of human invention.

2. However, unsustainable exploitation of nature can drive up the costs of production, for example the extraction of ever more costly to mine minerals and the additional costs of the damage done by climate change. 

3. Moreover, the employment of productive labor by capital results not only in goods and services needed by people, but also in the production and promotion of goods and services that are unnecessary or designed for rapid obsolescence and replacement, in each case recklessly wasteful of nature and human labor.   

4. The alternative is an economic system that prioritizes human and environmental health over private profit. This will be an economy that focuses on use values, not exchange values.

 

The “Moral” Intent of a Capitalist Market Economy

 

M’ = M + S

 

Where M is the money value of invested capital,

            M’ is the goal of capital investment.  

S is the unsustainable increment stolen by capitalism at the expense of people and nature. 

 

Comment: A sustainable economy is likely one in which the material throughput declines over time. With increasing labor productivity and declining waste, this would mean a corresponding decline in the total number of working hours in material production and a corresponding decline of Gross Domestic Product (as it is usually measured). While the result could be a continually improving quality of life and a sustainable economy, this could not occur in an economy dominated by capitalism. Capitalism must die for people to live.

   

The people’s revolutionary aims and practices

 

The achievement of a society beyond capitalism equates to the end of class divisions within society and therefore also of the need for political parties that represent the contending classes. The aim of a revolutionary movement is not a seat at the governing table of a hierarchically controlled class system. It is the elimination of the violence inherent in all class-based social systems. Its main demands are for radical democracy at work and in the community and for a sustainable relationship with the rest of nature. 

 

Revolutionary consciousness translates into revolutionary action. The test of revolutionary theory is always revolutionary practice. The place for those who have drawn revolutionary conclusions is with the people in struggle for needed reforms. The development of theory and practice, learning and doing, must be mutual to be socially enduring. It must translate into customary practice and law.  

 

The ruling classes, of course, would prefer to control all the political parties contending for legislative power, including limiting them to demands that do not challenge the system of class relationships. They have even been known to pass legislation or interpret existing laws to exclude those whose aims go beyond what capitalism can profitably accommodate. The struggle for democracy, including the participation of those whose aims go beyond capitalism, is therefore essential to any possibility of an ecologically sustainable civilization.   

 

However, any society governed by a political party remains, by definition, a class society, one in which those who manage the means of production, including allocate the results, constitute a different economic class from those who do the producing. The alternative to capitalism, by definition, is a society managed by the people themselves, without owning classes and governing political parties. Although the people need to participate in the political struggle to achieve a just, radically democratic, ecologically sustainable civilization, the aim cannot be long term rule by the political parties that support their aims. The aim must remain a classless society, one in which the people themselves, through a more radical form of democracy, decide on what to produce and how to produce it, while allocating the results equitably. 

 

Condensing the longer list that concluded our article, “Gaining Revolutionary Perspective” (also published in the online journal, Green Social Thought), the inherent aims of any movement to move beyond the violence of capitalism therefore include:

  • Radical democracy, including informed participation in decision-making based on science, imagination and education, eliminating employer – employee, property owner – renter, government official – governed, and all other hierarchical relationships, including the associated management and decision-making rights of employers, property owners, and government officials.
  • Ecological stewardship responsibility, based on priority attention to restoring and maintaining a healthy biosphere and healthy ecosystems, including the diversity of species within them.
  • Usufruct rights to share the commons, including humanity’s cultural inheritance from current and past generations, free from private-property exclusions, constrained only by the equal right of future generations to make the same conservative use of the material and energy resources available on Earth;
  • Equal rights to share the structures built by current and past generations, including shelter, meeting space, and all other human-created infrastructure; and
  • Equal right to migration and citizenship, ending the political boundaries now placed on the migration, location and associated citizenship of human beings.         

 

But there is a qualifying consideration in relation to the achievement of these revolutionary aims. The transition to an ecologically sustainable civilization will necessarily take place over a time during which its advantages are established through learning and experience. A cultural revolution requires time. This transition period will necessarily be a contested one. 

 

While generosity, sharing and reciprocity are already widely valued and practiced cultural norms, we are all presently enmeshed in capitalist relationships, usually justified by corresponding moral views. To avoid destructive violence and enable all to participate in establishing the new relationships needed for an ecologically sustainable human civilization, we will need time for learning and experimentation with the replacement of private property rights by stewardship responsibilities and usufruct rights. 

 

From the beginning of the transition period to its successful culmination we need the participation of all in the new economy. All have talents that will be needed and must be honored, regardless of remaining political differences. The patience to practice consensual forms of decision making in which each person has an equal say and an equal responsibility to participate is the path forward. 

 

In this transition from a predominantly market to a non-market economy, use can be made of taxation policy and social investment, expanding opportunities for family members to render assistance to each other, for voluntary activity on behalf of the common good and in the expansion of free social services, such as the current provision of free educational, medical and other social services.  

 

The greater the proportion of total goods and services provided outside of market relations, the more this experience is likely to promote its further expansion, particularly in the face of continuing social and environmental violence traceable to past and any continuing capitalist behavior. 

 

Our descendants may then successfully transform themselves and their relationships with each other into fully cooperative ones in accord with the moral principle “from each according to their abilities to each according to their needs.” For that, the cultural habit of determining one’s needs by a quest for comparative advantage over one’s neighbors would disappear. In its place, a cultural habit would develop that identifies needs with no more than is consistent with equal distribution, constrained by sustainable use of resources. In this event, and only in this event, people could then honestly claim to have achieved a society where the “free development of each” assures “the free development of all.” 

 

In subsequent articles, we will consider the transformation of culture as a necessary accompaniment to a successful political and economic transition to an ecologically sustainable civilization.

 

 

Charles Posa McFadden and Karen Howell McFadden

Fredericton, New Brunswick, CANADA

www.greensocialdemocracy.org

apcamcfadden@aol.com