Thread: The End of Capitalism?

The End of Capitalism?

by Ann Robertson

Global Research, January 5, 2009


Cracks in the Foundation

The collective consciousness of the U.S. working class is on the brink of a profound transformation. We grew up being told that capitalism was the best of all possible systems, with apparent confirmation being supplied by the fall of the Soviet Union. But we are now entering a new reality that has the potential to overturn all the old, established assumptions perhaps, in the final analysis, even to overturn capitalism itself.

The U.S. government, which has been lecturing other countries for decades about the virtues of privatizing state-owned enterprises, has recently embarked on a campaign of reversing its own dictates by partially nationalizing many of the financial institutions that were teetering on the brink of disaster. In other words, the U.S. government became a stockholder in these companies, thereby ironically taking a step in the direction of socialism  socializing their losses, that is, not their profits. Meanwhile, for decades, the U.S. working class has watched helplessly as public education has been defunded, the environment has been progressively destroyed, and social services in general have shriveled, all supposedly because no money was available to launch a rescue operation. Yet the breathtaking speed with which the government threw a staggering trillion-dollar bailout to the financial institutions  with no strings attached  has not been lost on the working class. And more is on the way: the government has thus far pledged a total of $8.5 billion to help rescue the financial institutions. Workers, too, through their unions, are now demanding bailouts.

Policies that only yesterday appeared as irrevocable as acts of nature suddenly appear as they truly are: political decisions made by the federal government where Democrats and Republicans are united in their commitment to rescue their friends  the rich.

And fuel has been thrown on the fire. Recently, when asked for an account of how they spent the bailout funds, the financial institutions refused to oblige. After all, they calculated, why should they start becoming accountable to the U.S. public after all these centuries? This, too, has not been lost on the working class.

The working class also took notice of the modest but resounding victory scored by the United Electrical workers at the small windows and doors factory in Chicago. These workers did not have the advantage of working in a key industry so that if it were shut down, the reverberations would echo far and wide, thereby providing them with bargaining leverage. But they were emboldened by the outpouring of public support from across the country, and Bank of America, one of the most powerful banks in the world, backed down.

Finally, the working class was assured that the Great Depression would never see a second coming. Lessons had been learned and mechanisms were inserted to guarantee everlasting stability, we were told. All these assurances now look like more toxic assets, and working people will begin to draw the obvious conclusion: not only are recessions endemic to capitalism, but depressions are as well. And this realization will inevitably provoke questions about the desirability of capitalism itself.

The Defense

Harboring a rather grim view of human nature, capitalism’s apologists have argued for centuries that we are incorrigibly greedy to the core, meaning that we focus exclusively on our individual self-interest, not the interests of our neighbors or the community at-large or those who are most needy, and we define our well-being principally in terms of the accumulation of material wealth. Accordingly, Milton Friedman, leading member of the notorious Chicago School of Economics, reasoned: “The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that system.â€

I take it from your postings that you are not a fan of either capitalism or Israel?

Originally Posted by AE

I take it from your postings that you are not a fan of either capitalism or Israel?

While not an expert in, or scholar of, economics, I am not particularly a fan of capitalism and view it as vastly propagating corruption and moral degradation. Personally, I prefer some type of 'reformed socialism.'

Also, I do not necessarily agree with the policies of the Israeli government, nor of the U.S. government, who, in most cases, vehemently supports any actions by Israel, right or wrong.

What, if any, kinds of examples of nations who have been using something like that? I have felt that Switzerland has been pretty successful, and wondered what type of financial system they have been using.

Maybe a better approach might be to not adopt just one established economic system over any other, but a combination of the best from several, such as Finland's education, Estonia's progressive tax policy, Denmark's labor market, Iceland's entrepreneurship, Sweden's management of big companies and Norway's oil?

From the Federal Reserve "The World of Economics":

Mercantilists

Mercantilism was the economic philosophy adopted by merchants and statesmen during the 16th and 17th centuries. Mercantilists believed that a nation's wealth came primarily from the accumulation of gold and silver. Nations without mines could obtain gold and silver only by selling more goods than they bought from abroad. Accordingly, the leaders of those nations intervened extensively in the market, imposing tariffs on foreign goods to restrict import trade, and granting subsidies to improve export prospects for domestic goods. Mercantilism represented the elevation of commercial interests to the level of national policy.

Physiocrats

Physiocrats, a group of 18th century French philosophers, developed the idea of the economy as a circular flow of income and output. They opposed the Mercantilist policy of promoting trade at the expense of agriculture because they believed that agriculture was the sole source of wealth in an economy. As a reaction against the Mercantilists' copious trade regulations, the Physiocrats advocated a policy of laissez-faire, which called for minimal government interference in the economy.

Classical School

The Classical School of economic theory began with the publication in 1776 of Adam Smith's monumental work, The Wealth of Nations.

The book identified land, labor, and capital as the three factors of production and the major contributors to a nation's wealth. In Smith's view, the ideal economy is a self-regulating market system that automatically satisfies the economic needs of the populace.

He described the market mechanism as an "invisible hand" that leads all individuals, in pursuit of their own self-interests, to produce the greatest benefit for society as a whole. Smith incorporated some of the Physiocrats' ideas, including laissez-faire, into his own economic theories, but rejected the idea that only agriculture was productive.
While Adam Smith emphasized the production of income, David Ricardo focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw a conflict between landowners on the one hand and labor and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits.

Thomas Robert Malthus used the idea of diminishing returns to explain low living standards. Population, he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labor. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.

Malthus also questioned the automatic tendency of a market economy to produce full employment. He blamed unemployment upon the economy's tendency to limit its spending by saving too much, a theme that lay forgotten until John Maynard Keynes revived it in the 1930s.

Coming at the end of the Classical tradition, John Stuart Mill parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.

Marginalist School

Classical economists theorized that prices are determined by the costs of production. Marginalist economists emphasized that prices also depend upon the level of demand, which in turn depends upon the amount of consumer satisfaction provided by individual goods and services.

Marginalists provided modern macroeconomics with the basic analytic tools of demand and supply, consumer utility, and a mathematical framework for using those tools. Marginalists also showed that in a free market economy, the factors of production -- land, labor, and capital -- receive returns equal to their contributions to production. This principle was sometimes used to justify the existing distribution of income: that people earned exactly what they or their property contributed to production.

Marxist School


The Marxist School challenged the foundations of Classical theory. Writing during the mid-19th century, Karl Marx saw capitalism as an evolutionary phase in economic development. He believed that capitalism would ultimately destroy itself and be succeeded by a world without private property.

An advocate of a labor theory of value, Marx believed that all production belongs to labor because workers produce all value within society. He believed that the market system allows capitalists, the owners of machinery and factories, to exploit workers by denying them a fair share of what they produce. Marx predicted that capitalism would produce growing misery for workers as competition for profit led capitalists to adopt labor-saving machinery, creating a "reserve army of the unemployed" who would eventually rise up and seize the means of production.

Institutionalist School

Institutionalist economists regard individual economic behavior as part of a larger social pattern influenced by current ways of living and modes of thought. They rejected the narrow Classical view that people are primarily motivated by economic self-interest. Opposing the laissez-faire attitude towards government's role in the economy, the Institutionalists called for government controls and social reform to bring about a more equal distribution of income.

Keynesian School

Reacting to the severity of the worldwide depression, John Maynard Keynes in 1936 broke from the Classical tradition with the publication of the General Theory of Employment, Interest, and Money. The Classical view assumed that in a recession, wages and prices would decline to restore full employment. Keynes held that the opposite was true. Falling prices and wages, by depressing people's incomes, would prevent a revival of spending. He insisted that direct government intervention was necessary to increase total spending.

Keynes' arguments proved the modern rationale for the use of government spending and taxing to stabilize the economy. Government would spend and decrease taxes when private spending was insufficient and threatened a recession; it would reduce spending and increase taxes when private spending was too great and threatened inflation. His analytic framework, focusing on the factors that determine total spending, remains the core of modern macroeconomic analysis.



Summary

Economic theories are constantly changing. Keynesian theory, with its emphasis on activist government policies to promote high employment, dominated economic policymaking in the early post-war period. But, starting in the late 1960s, troubling inflation and lagging productivity prodded economists to look for new solutions. From this search, new theories emerged:

Monetarism updates the Quantity Theory, the basis for macroeconomic analysis before Keynes. It reemphasizes the critical role of monetary growth in determining inflation.

Rational Expectations Theory provides a contemporary rationale for the pre-Keynesian tradition of limited government involvement in the economy. It argues that the market's ability to anticipate government policy actions limits their effectiveness.

Supply-side Economics recalls the Classical School's concern with economic growth as a fundamental prerequisite for improving society's material well-being. It emphasizes the need for incentives to save and invest if the nation's economy is to grow.

These theories and others will be debated and tested. Some will be accepted, some modified, and others rejected as we search to answer these basic economic questions: How do we decide what to produce with our limited resources? How do we ensure stable prices and full employment of resources? How do we provide a rising standard of living both for now and the future?

Interesting. You can see some of our modern system within many of the ideas. I tend to believe in limited government. I feel the governments job is simply to be there to enforce what is Constitutional, nothing more.

Our nation was doing well in the mid, to later 1800's and this was due to limited government in the markets. However, the exception there was worker safety and regulation of wages. Many greedy employers did whatever was good for their pockets, and nothing for their employees, this is where we had to have some government oversight.

Right now, we are dealing with a lot of over-bloated mega businesses. What makes it more of an insult to most Americans is that these mega corporations have gotten away with limited to little taxes. Nafta has given these companies a bigger edge on tax evasion.

Even my very Democratic father, before his death, and an ardent Clinton supporter, was against Nafta, knowing it would give big corporations a way out of their financial responsibilities and would also cause the loss of millions of jobs, which it has.

Ideally, limited government is preferable, however, the inherent failure of self-regulation in capitalism clearly warrants substantial interventionism.

Did you know that as much as $300 billion a year in taxes goes uncollected by the government, and some estimate that more than a third of this may be related to corporations funneling money to offshore locations? We sure could use that money!

I agree with you about NAFTA, and, at the very least, it should be re-negotiated towards fair and balanced trade on every level.

I found out that in Oregon, corporations have a minimum $10 tax........read this, http://www.ocpp.org/cgi-bin/display.cgi?page=es040223

I find this a big deal. Considering this, I have to wonder how many other states have something similar going on? I can only think of two reasons why this still stands. The first would be fear of losing jobs and the revenue that brings, and then the second would be plain old cronyism.

Our main sources of tax come from property tax and income tax, we do not have a sales tax, but to be honest, I do not think that a sales tax would even help, since most people here are not heavily consumerist, we tend to put off buying, especially large purchases (sure, there are some within our state who do buy a lot, but they are a small minority). This could be explained why we have been one of the latter states to get all of the big box stores the rest of the nation had long ago, just recently.