Commentary on Political Economy

Thursday 13 August 2020

Capitalist Crisis (Keynes and Schumpeter) - The Twin Evils of Overpopulation and Consumerism


Part One

 In the General Theory, Keynes is concerned with how and why capitalist industry leads to crises – financial and investment - that result in “involuntary unemployment”. The reason, he explains, is that once capitalist employers reach a certain level of profitability (revenue minus costs) they no longer find it profitable to re-invest the profits accumulated to that point. At that precise conjuncture, Keynes argues, the capitalists’ “propensity to consume” declines, resulting in excess savings and fall in aggregate demand, which only exacerbates the margin of profitability on fresh investment. What Keynes does not address, however, is that apart from the falling propensity to consume on the part of employers once income distribution becomes overly skewed in their favour so that all of the output cannot be cleared at profitable market prices – apart from this factor, there is also the far more important one that the rate of profit has a tendency to fall beyond a certain level of investment. Why is there such a “tendential fall of the rate of profit”? As we saw earlier with regard to the capitalist tendency to induce overpopulation, this is because at a certain level of profitable productive expansion, the reserve army of the unemployed begins to be exhausted and cannot be expanded further for reproductive (fertility) or political reasons. It is at such a juncture that capitalist investment reaches the limit of its profitability.

 Let us proceed in orderly fashion. We saw earlier how capitalist profit is nothing other than a “hypothecation” over future human living labour to be reduced to the status of a marketable commodity in the guise of “labour-power”. That means that once full employment is reached any further expansion of output will result in workers’ demands for higher money wages, and therefore real wages at current price levels. But this means that the higher consumption of real goods by workers will enhance their emancipation from wage labour, and lead inevitably to demands for either higher money wages or for more leisure time. The only way capitalists can protect themselves from this wage-push inflation is by raising prices so that the real wages of workers remain the same or else even begin to fall. And the other way is by expanding the reserve army of the unemployed so that growing money-wage competition between workers facilitates fresh profitable investment while money wages are kept stable and real wages per capita actually decline. Keynes explicitly excludes the possibility that existing employed workers will accept a reduction in money wages because (a) workers compare their money wages with those of other workers quite easily, and (b) a lowering of money wages would actually reduce aggregate demand even further than just the decline of the capitalists’ propensity to consume, with predictably devastating consequences for employment and consumption and therefore social well-being and political stability (strikes and political upheaval).

 It follows from all this that where it is not possible for capitalists to expand the reserve army of unemployed, whether within national boundaries or by investing in low-wage countries (preferably authoritarian ones), the economy will stagnate. Worse still, because capitalist investment involves the presence of credit whereby lenders lend to borrowers at a fixed interest rate in the hope that borrowers will be able to pay the interest on their loans out of fresh profits – because of this contractual “term-structure” of interest-bearing loans, once borrowers are unable to repay interest on loans, the lenders will begin to reckon with the possibility that even their principal will not be repaid by borrowers. At that point, the ensuing panic will lead to the liquidation of existing loans and the winding up of businesses – with the inevitable recession and even depression. This is the financial mechanism whereby it is in the essence of capitalist industry and finance to over-extend itself until the rate of profit falls below the rate of contracted interest on loans and the entire economy goes into recession or depression.

 We can see from the foregoing account how Keynes’s entire economic theory is based on “secular stagnation” (Harrod) or is indeed “the economics of depression” (as J. Hicks called it in “Mr. Keynes and the Classics”). It is notions like the money-wage (for workers), the propensity to consume  and “liquidity preference” (for employers and workers combined if they refrain from spending) that help account, for Keynes, for the occurrence of involuntary unemployment and economic crises. For the Bursar of King’s College, in the absence of fresh profitable investment opportunities – which for us are due to unavailability of potential workers to add to fresh consumers and in part to the extension of the reserve army -, the capitalist economy can be saved from political upheaval and even harmful falls in living standards and industrial output by the only social entity that can procure (a) fresh capital to prop up capitalist enterprises through lower interest rates and the expansion of the monetary mass in circulation (“the transmission mechanism”), (b) welfare payments to maintain workers’ consumption, and (c) fiscal measures for direct investment by the State to maintain and boost “aggregate demand” especially in areas of industrial activity with which the State is already familiar such as infrastructure, public service and the like.

 Again, we can see that Keynes’s overriding preoccupation was with maintaining social stability in times of capitalist crisis by seeking to understand the origins of crises and then suggesting appropriate remedies such as interventions in state-managed interest rates and money supply. The title of his major work clearly outlines Keynes’s rank of priorities: it is The General Theory of Employment (first), Interest and (then) Money. And we can also see, upon a proper interpretation of his analytical framework, how The General Theory centred on the tendential fall of the rate of profit upon the decline of investment opportunities due to the exhaustion of the reserve army of the unemployed (“new markets”) to absorb the “profits” (surplus value) generated by existing capitalist industry (declining “propensity to consume”) – and therefore the need for “external political intervention by the State” to provide monetary (interest-rate and money supply) remedies and, where these failed due to “the liquidity trap”, fiscal intervention to stabilize employment and social welfare and ultimately political stability.

 There is a clear, over-riding, pervasive and inescapable pessimism in “the economics of Keynes” (to be distinguished from “Keynesian economics”) about the future of capitalism – “in the long run, we are all dead”. As Schumpeter soberly reminds us, Keynes was always concerned with stagnation and depression – never with Schumpeter’s own obsession, capitalist “development” and “business cycles” – in other words, with “the capitalistic use of crises”, or as he called it, “creative destruction”. Ultimately, Keynes’s economic theory boils down to the limit of overpopulation – the expansion of both the army of the employed and the reserve army of the unemployed – to make up for the political intractability of overpopulation itself and of the growing inequality of income distribution in capitalist societies. The impossibility of capitalist industry to resolve its inherent contradictions was the reason why Keynes had to turn to “the social capitalist” par excellence, the State, to take over the reins of investment and employment so as to preserve and maintain the society of capital. (We shall deal with Schumpeter’s divergent focus on crisis as the consequence of capitalist innovation in a separate piece.)

 Part Two

 But overpopulation is only one pillar of capitalist accumulation and, therefore, of the systematic destruction of the ecosphere. As we indicated earlier, the other aspect is consumerism. The reason why we use the term “overpopulation” to indicate the first of the “twin evils” of capitalism is that capitalism pushes population increase to the limit of sustainability so far as the existing human and natural resources are concerned at any current level of technological utilization. As we have shown, capital is impelled to do so by that end-less (without quantitative limit, and without qualitative human goal or purpose) accumulation of capital that is its essential being, its raison d’etre. The intrinsic and imprescindible goal of capitalism is not the achievement of a particular level of human well-being, but rather the never-ending numerical or accounting task of maximizing the return on investment – profit. Needless to say, overpopulation has an automatic reflex therefore in “overconsumption” because, if the working population and the reserve army of the unemployed combined exceed what is sustainable, it must follow that the level of consumption is also unsustainable because it extends or exasperates the level of productive output to the limit of what is environmentally sustainable for human society.

Just on its own, the overconsumption needed to satisfy the reproductive needs of overpopulation will push humanity toward ecological catastrophe. It is an evident fact that as workers’ antagonism to the wage relation rises, capitalists need to produce more real goods for workers to consume, and at the same time they need to ensure that the reserve army grows so as to drive down workers’ demands. But this extension of the reserve army engenders, of course, greater excess consumption. It gets worse. For capitalists to ensure that workers are more dependent on the wage relation, the nature of their consumption must be distorted so that as great a part of workers’ consumption is directed toward “distorted needs” or, better named, “wants”. This has obvious implications for “overconsumption” because – as is evident – if a society consumed only those products that served its needs rather than its wants, it would not need to produce as much as with distorted needs or wants.

 It follows that when we examine consumption or “demand” in a capitalist society we must also keep in mind the horrendous distortion and waste occasioned not just by the need to keep alive entire armies of reserve workers, but also by the capitalist requirement to distort social needs into wanton wants for the sake of reducing the ability of social production to satisfy real needs and therefore to emancipate workers from wage labour! Thus, overconsumption is only one intrinsic aspect of overpopulation which, in turn, is an intrinsic aspect of capitalism. There is a separate reason why capitalism pushes us toward the destruction of our ecosphere: this aspect we can call consumerism. Consumerism is distinct from overconsumption in that the latter is tied more strictly to the process of the extraction of surplus value from workers – hence of the accumulation of capital and finally of overpopulation. Consumerism is quite distinct from overpopulation and overconsumption because whereas these are merely factual aspects of the operation of capitalism, whereas these are requisite operational aspects of capitalist industry and accumulation, consumerism is instead the very ideology of capitalism in that it serves not so much an organic purpose in capitalist production but much rather a propagandistic role in the subjugation and exploitation of workers. Indeed, many languages used the word propaganda especially after World War Two until it was replaced with the far less pejorative word “advertising”: thence, the direct political use of capitalist propaganda was turned into an innocuous “advertence to consumers” – a simple “notice” serving the useful purpose of “adverting your attention to” a given product.

Consumerism is, as it were, the sugar-coating that allows workers and the proletariat at large to swallow the bitter pill of capitalist exploitation and lack of real participatory democracy in liberal parliamentary bourgeois regimes. How so? The wage relation is one of violence in that workers would never accept to sell their living activity in exchange for the dead product of their living labour - that is surely an “exchange” that amounts to fraud (if unwitting) or violence (if workers are aware of it). Of course, the very fact that workers are willing to work for “a fair wage” means that the capitalist mode of production does have a minimum of legitimacy (Weber). Nevertheless, legitimacy does not mean absence of conflict: capitalist society is founded on social antagonism between capitalists and workers - and specifically on the antagonism of the wage relation. It is at this level that the reality of alienation (of workers and all of society) from control over production and of reification (the global extension of alienation to the commodification of all social relations) – it is at this level that Lukacs’s notions (developed in History and Class Consciousness and critically reviewed by us earlier) come into their own – that is, not at the point of production but rather in the sphere of consumption. The third aspect of consumerism is therefore the ideological component – “marketing”. Hence, the pervasive bombardment of workers through “advertising” and the relentless emphasis on “consumer choice” as a substitute for true participatory democracy is tantamount to the collective brainwashing of our “democratic” societies.

 The question then arises of why the antagonism of the wage relation has not exploded into open social conflict - into civil war in many advanced industrial capitalist societies. The answer has to do with capitalist growth and development. Let us see how this works.The “specificity” of a capitalist society consists in the ability of capitalists to dominate living labour, workers, not just through explicit coercion but rather through a complex set of institutions that force workers to exchange their living labour for the objects that they themselves have produced, with “dead labour” - again, not through direct coercion from a particular capitalist toward particular workers because the capitalist does not “own” the workers as is the case with slavery or with feudal relations where the “serfs” are tied to the land, the feud or glebe. One of the fundamental institutional pillars of capitalism – as against feudalism and slavery, for instance – is that workers are “formally legally free” in the sense that their employer (the capitalist) does not “own” them the way feudal lords and ancient masters did. Because capitalists have no ownership of workers but simply purchase their labour-power on the “free market”, it follows that capitalists compete with one another for workers’ labour-power. Part of this competition gives rise to a simple paradox to which the bourgeoisie is exposed: although each individual capitalist wants to pay his workers as little as possible, the same capitalist wants other employers to pay their workers as much as possible so that they may spend their income on the goods he produces! This is a variant (the converse, if you like) of the “paradox of thrift” first illustrated by Marx in Capital and then adopted by Keynes.

The result is that workers’ consumption is distorted in two very nefarious ways, deleterious to society and to the human environment. The first aspect is that capitalists cannot produce goods that emancipate workers from wage labor – this occurs indirectly through wage-push and demand-pull inflation. The second aspect is that capitalists must employ marketing to persuade workers to spend their wages on the repressive goods they force them to produce. This obviously results in the most horrendous irrational waste!

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