New Capitalism

Intro

Capitalism is a profit economy. No profit – no prosperity. This in turn creates an antagonism between production and consumption: capitalism is unable to develop freely and fully the conditions of consumption. The conclusion is inevitable: crises and depressions are inherent in the capitalist relations of production, they can be avoided only by the abolition of those relations. But this conclusion is either evaded or openly rejected by the bourgeois economists. Even where the conclusion arises logically out of their own analysis, if consistently pursued, they fly off at a tangent and offer “cures” based on secondary factors. They prefer, in theory and practice, to cling to capitalism.

The upsurge of labor militancy in the strikes of 1877 led the employers to consider the problem of “harmony” between labor and capital. It aroused new interest in profit-sharing, (John Lewis Partnership in the UK,) Today, it is suggested that co-operatives are the answer. Benevolent welfare by the capiialist is calculated to strengthen the dictatorship over labor to maintain ‘loyalty.’

There was a theory once propagated  of “trade union capitalism.”  Its assumption was this: if the workers mobilize their “enormous” savings, and invest them in corporate stocks and labor banks, the working class will eventually get control of industry. Workers will become capitalists, and the antagonism between labor and capital will be ended. It disappeared in the mists of times, occasionally resurfacing when romantics suggest that the working class can buy out the capitalist class because in the end small as the workers’ share of the national income is, their share of the national savings is still smaller.

Raise the wage

Recurring  breakdowns of prosperity in the form of recessions are a typical, damnable spectacle of capitalist civilization. After every depression the cry goes up, “Never again!” But it does agin and  again, and always will in capitalism. New economic models of a new capitalism are developed by the experts despite that usually they are not new but resurrections of past failed and flawed ideas.  Jacob Vanderlint, a merchant and economist, wrote in 1734, when capitalism was in its revolutionary youth:
“Increase the power of labourers to buy half as many more necessaries for their support and comfort, and there would be almost half as much more Trade and Business ... Raise the wages of the labouring People and augment the profits of the trading part.”

Why not stimulate consumption? This is the obvious solution. The productive forces are highly developed. Their mere use means the abolition of unemployment and poverty. But the question is not whether an increase in consumption is possible and would result in permanent industrial revival. It is and it would. The question is whether capitalism can and will promote an increase in consumption which interferes with the making of profits.  The apologists of new capitalism ignore, or they insist that higher profits and higher consumption are not mutually exclusive.

The latest proposal termed by some is ‘re-distributionism. ’ They claim their program means the redistribution and more democratic ownership of wealth. Its proponents insist that high wages are profitable to the capitalists: they want to raise wages and control profits in the interest of prosperity and of assured higher profits. Fair wages and fair profits is the aim. The the government  by intervention and regulation will ‘control’ industry to compel the capitalists, in their own interest, to raise wages and limit profits, and thus assure ultimately higher profits.  The  objectives is the desire to ‘save’ capitalism from itself.  These ‘practical’ economists manufacture a theory to make the deception appear rational full of promises to equalize income and wealth.

The fatal flaw in the “policy of high wages” is this: Higher wages might mean more consumption, production, and profits, but as employers are free to raise or not to raise wages, the employers who did not raise wages would gain more than the employers who did, because in terms of a particular enterprise higher wages mean relatively lower profits. If the “fixing” of a statutory minimum or living wage raises labor costs (leaving aside that minimum tends to become maximum), profits must fall, and efforts to increase the productivity of labor to lower costs and raise profits must be intensified, resulting in an absolute or relative decrease in total wages and employment.

Profits are not made by paying the workers higher wages. They are made by forcing down wages relatively to profits, by appropriating more surplus value, more unpaid labor.

If $10billion is added to wages it would increase consumption and production; the capitalists would make only a very small profit, however, on the additional output and sales. If the capitalists retain the $10billion as profits, their wealth is correspondingly augmented and its investment creates new claims upon labor, production, and income. It is not that part of labor’s product (wages) consumed by the workers as means of subsistence which enriches the capitalists, but that part of labor’s product (profits) converted into capital goods. Capitalist production means accumulation of capital, an increasing output and absorption of capital goods, thereby converting profits into capital and permitting an increasing exploitation of labor. Profits and wages must necessarily clash and profits beat down wages, whether capitalism is unfettered free enterprise or under state-capitalist controlled.

 The policy of fixing minimum wages is reformism. Always limited and largely illusory. They might have had some value during prosperity, during an upswing of capitalism. In recession and its aftermath the policy merely “fixes” wages at prevailing low levels. frequently below average wages. Not only that but only a  part of the workers are affected by the minimum wages, the so-called precariat. Their practically vulnerable nature allows employers to evade paying the minimums. Evasions involved all sorts of expedients and pressure upon the most helpless workers, particularly temporary and migrant workers. Granted there was some increase in some wage rates, mainly among the most exploited workers and only in comparison with the recession  low pay levels; but that is offset by the lesser number of hours worked as part-time employment increases  and the pervading rise in the cost of living by falls in the real wage by inflationary rises.

As earlier mentioned in passing the minimum wages tends to become the maximum, driving down wages in general, a complaint made again and again by the unions in the history of minimum wage laws. The result of the minimum wage “fixing” has a tendency to break down the differentials between skilled and unskilled and semi-skilled workers. It is desirable to decrease the differentials: they are largely artificial, altogether too great, and they create antagonisms between different groups of workers but the the law breaks down differentials not by raising the wages of the poorer-paid workers but by lowering the wages of the better-paid.

In return, for accepting the minimum wage, we can expect the capitalist class to exact a price for this ‘concession’ which would be a new  controls over labor, preventing strikes, and restricting independent industrial action. The controls imposed upon capital are in the interest of capital while the controls imposed upon labor are not in the interest of labor. Workers must fight for shorter hours and higher wages, whatever the effect upon profits.  But as any shorter hours and higher wages threaten the existence of profit, the capitalists will not yield and the workers must broaden their action: the issue becomes one of saving capitalism or of overthrowing it.

Those in favor for a new capitalism  argue its objective is to decrease unemployment and increase purchasing power. But the objective and the means are limited by the nature of capitalist production. Purchasing power is ‘increased’ by slightly raising total wages and lowering average wages: a peculiar way of increasing purchasing power, but profitable to the capitalists.

Profits and wages clash, and profits beat down wages, because the accumulation of capital is the primary aim and driving force of capitalist production. In its origins and  development and capitalism is inseparably identified with accumulation. The accumulation of capital means the conversion of profits into capital. Profits are realized surplus value, the surplus product of the workers which the capitalists appropriate through ownership of the means of production. As surplus value and profit are unpaid labor, wages and profits move in inverse ratio: the lower the one, the higher the other. The capitalists consume only a part of the surplus product they appropriate; if they consumed it all, there would be no accumulation and no expansion of industry, and, consequently, no new profits yielded by new capital. A part of the surplus product must be transformed into capital, which takes the form of capital goods to produce more profits. Thus accumulation depends upon the capacity of industry to make profits and to transform them into capital by means of an increasing output and absorption of capital goods. Capital goods, the growth of capital plant, multiply and secure capitalist wealth and its claims upon labor, production, and income.

The accumulation of capital, the production of profits and their conversion into capital, means both life and death to capitalism. Capitalist production aims to make profits. Consumption is subordinate to production, and consumption grows incidentally, as a mere by-product of the accumulation of capital. The worker works to consume, but capitalist production permits him to work and consume only if profits are thereby realized to enrich the owners of industry. Capitalist enrichment results from accumulation, not from consumption.  Production and consumption, instead of being complementary, are in fundamental antagonism.

The capitalist class strives to throw the burdens of  recessions upon the workers. It slashes their wages, throws millions out of work, and limits their consumption.  Workers displaced by improved technological efficiency, are no longer re-absorbed in the upswing. Even if it were true that workers displaced by technological changes and higher productivity are absorbed as output rises, great hardships would still be imposed upon them. Unless the displaced workers are absorbed by greater output in the same plant and on the same job, they lose their skills or familiarity with particular processes, the older workers are thrown upon the scrap heap, and at least an interval of unemployment must ensue. Thus there is wanton human suffering and wastage even if the displaced workers are eventually absorbed. Workers are forced to take new jobs at lower wages. They are deprived of old skills and experience.  Displacement of labor by technological progress is not a result of technology itself.  For technology is a part of the progress of mankind, since man is a tool-making and tool-using animal. Its development strengthened man’s control over natural forces and, consequently, his capacity to produce. When technology, under capitalism, became the purposive application of science to industry, it resulted in an enormous increase of the productive forces of society and of man’s mastery over nature. Now these developments are undermining capitalism. Technology is being limited in its progress and uncontrolled in its results. The great productive forces of society bring permanent unemployment and want in the midst of plenty. Thus technology is not an independent but an historical factor; its forms, development, and uses are interlocked with the social-economic relations of production.

The Banksters and Corporate Oligarchy

Modern capitalism has two interlocking aspects: separation of ownership, management, and control; usurpation of control by the financial oligarchy. However, there is an unclear conception of how control is secured and exercised and by whom. Who make up management? Not the mass of managerial employees, but the officers and directors; most of them are financial capitalists, all of them are identified, by interlocking interests and directorates, with the institutional arrangements of financial control dominated by the oligarchy. Management becomes an institutional function of employees. Owners become absentees, rentiers in one form or another, who merely receive the income of ownership. The capitalist is now a mere exploiter, as the organization and management of industry is an employee function. Industrial capitalists operated primarily with their own money; financial capitalists operate and secure control primarily with other people’s money. The financial oligarchy, speculative, adventurous, wholly parasitic, dominates the capitalist class.

 Stockholders own, but they do not manage.  The stockholder, beyond the pieces of paper which represent ownership, is unable to say “this” or “that” is “mine.” He knows nothing of the enterprise in whose ownership he has a stake, except its dividend yield and stock market quotations. Corporate industry is institutional or impersonal, an immense objective socialization of production;Management does not own, but it manages as employees. The financial capitalists are merely exploiters; they control, and have a monopoly share in ownership, but they perform no useful social function. Separation of ownership and management permits seizure of control by the financial oligarchy, which imposes its dictatorship over industry; the financial capitalist is wholly predatory, its ownership becomes more wholly parasitic.

Neither management nor stockholders control industry; control is usurped by the financial oligarchy and its institutional mechanism, the great banks. Of whom is management composed? It is under control of the higher administrative officers and directors, many of them major or minor financial capitalists, most of them plundering their corporations, and all of them dependent upon the financial oligarchy. Upon them the real management, the lower officers and managerial and supervisory employees, is dependent. This dependence, moreover, is not only objective; for the ideology and practices of management are still dominated by the social relations of capitalist production. Nor is management independent of the stockholders; its most important elements are themselves stockholders.

Concentration of the ownership of stock, of wealth and income, provides the sinews of speculation. Because of control by the financial oligarchy, corporate industry becomes increasingly irresponsible, adventurous, speculative, and unstable.

Speculation depends, in final analysis, upon the exploitation of the producers. Superabundant capital became more and more aggressive and adventurous in its search for investment and profits, overflowing into risky enterprises and speculation. Speculation seized upon technical changes and new industries, which were introduced planlessly, regardless of the requirements of industry as a whole. Large profits were made by simple speculative manipulation.  Mergers and take-overs became the objects of speculation; they yielded huge promoter’s profits and inflamed speculative hopes. Giant corporation interlock with the great banks; there is a fusion of financial and industrial capital. The financial oligarchy operates with the mass of paper title claims and increasingly subordinates the production of goods to the production of speculative profits. It subjects whole industries to predatory speculation and plunder.  Speculation flourishes because profits are high.  Banks encourage over-expansion, speculation, and risky enterprises, convert their constructive “book-keeping” function into a source of malfeasance. Financial capitalists move from enterprise to enterprise, industry to industry, and country to country, seeking and extorting higher profits. All this is both result and negation of the constructive achievements out of which arises the predatory dictatorship of finance capital. Marx clearly foresaw the development:

“This is the abolition of the capitalist mode of production within capitalist production itself, a self-destructive contradiction, which represents on its face a mere phase of transition to a new form of production. It manifests its contradictory nature by its effects. It establishes a monopoly in certain spheres and thereby challenges the interference of the state. It reproduces a new aristocracy of finance, a new sort of parasites in the shape of promoters, speculators, and merely nominal directors; a whole system of swindling and cheating by means of corporation juggling, stock jobbing, and stock speculation. It is private production without the control of private property.”

Monopoly and finance capital multiply the contradictions and antagonisms of capitalist production.

 the growing magnitude and importance of money capital, which is separated from the function of capital itself. There is both an increase in the capital needs of large-scale industry and in the social wealth, which increasingly assumes the form of money capital. This capital is concentrated in the banks. Its sources are the funds of money capitalists and of industrial or commercial enterprises and the scattered savings of all classes of society. The bank’s money capital is enormously augmented by credit, which is of constantly greater importance in capitalist production. (Credit, whether based on savings or not, is a command over social labor; it reveals clearly that appropriation of surplus value, of unpaid labor, is the source of profit, for credit represents neither the “saved” capital of the capitalist nor, much of it, the savings of anybody, but merely command over labor. At the same time, credit becomes the basis of speculation, fraud, intensified competition, and overproduction, creating disturbances and maladjustments. [2*] The social nature of credit is, however, one form of the objective transition toward a new mode of production, toward socialism. Industry becomes constantly more dependent upon the money capital under control of the banks.

Industrial capital itself increasingly assumes the form of money capital. Industrial capital is bound up with the person of the industrial capitalist. But he is now replaced by stockholders, non-participating absentees, whose dividends are not essentially different from interest, except that they are more subject to fluctuations.  Industrial capital in the form of stockholdings is almost as mobile as money capital: it moves from industry to industry and enterprise to enterprise; this is particularly true of the stockholdings of great financial capitalists, whose inside information tells them where the profits – and losses – are. There is a fusion of industrial and money capital; the forms merge into one form, finance capital, which is mobilized by the banks and the financial oligarchy.

Banking is transformed. Originally the primary function of banks was to make payments, to supply industry with the “commercial” capital to finance the distribution of goods (whence the name commercial banks). This type of bank was dominant when industry was small-scale and the merchant capitalist was the chief entrepreneurial factor. As industrialism developed, the commercial banks, at first exclusively limited to mercantile operations, began to supply industry’s growing needs for fixed capital. In the 1880’s arose the trust company, whose phenomenal expansion paralleled that of corporate enterprise. The trust company combined commercial and investment banking with ordinary trust functions; it acted as fiscal agents for corporations and performed other services for them. (By acting as investment expert for non-active investors in corporations the trust company emphasized the separation of ownership and management and the growth of parasitism.)  After the 1890’s, the commercial banks engaged more and more extensively in investment operations. Banks have grown in size by concentration, by reinvestment of profits, and inner expansion of business. They have also grown by absorbing other banks or merging with them. These monopolist combinations of banking capital, with enormous control over the money capital of society, are no longer mere intermediaries serving industry, they are the masters of industry. The mastery is strengthened by industrial combination, with its separation of ownership, management, and control. Monopolist banks become the dominant force in the centralization of financial control over industry, by the command of credit, the operations of security affiliates, and the interlocking of directorates. A handful of financial oligarchs control industrial and banking capital, the most decisive portions of social capital; they control, in one concentrated institutional mass, the use of savings and credit, the mobilization of investment capital, and the great corporations in which most of the capital is invested. It is the dictatorship of finance capital.

Out of capitalist competition arises the concentration of industry. For the competitive struggle, waged primarily by cheapening costs, develops the imperative to produce more and sell more. This involves the necessity of enlarging the scale of production, emphasized by the pressure of technological change, with its constantly greater demands for fixed capital and raw materials, and the efforts to overcome a fall in the rate of profit by increasing its mass. Thus capitalist expansion and accumulation are accompanied by the gradual but inexorable rise to power of large-scale industry. Small individual producers are replaced by giant corporate enterprises, utilizing the most efficient methods of production and distribution, including inner planning and the control of raw materials and markets throughout the world.

Conclusion

 New Capitalism advocates seek to ‘save’ the ideals by “more generous” distribution of small independent property, the remnants of the American Dream , clinging still to a petty-bourgeois world which modern capitalism destroyed. Liberals reformists catch ideas on the wing, combine them haphazardly, never bother with fundamentals, and scornfully reject the Marxist analysis. These ‘radical reformers’ propose to “reconcile” the class struggle and combine the  best features of capitalism with  ‘socialism’. An impossible task.

Robots or class fighters

Estimates are that the total world's wealth is close to $200 trillion. The wealthiest 1 percent of the world's population represents approximately forty million adults. The poorest half of the global population together possesses less than 2 percent of global wealth. The World Bank reports that, in 2008, 1.29 billion people were living in extreme poverty, on less than $1.25 a day, and 1.2 billion more were living on less than $2.00 a day. Starvation.net reports that 35,000 people, mostly young children, die every day from starvation in the world.The numbers of unnecessary deaths have exceeded 300 million people over the past forty years. Farmers around the world grow more than enough food to feed the entire world adequately. Global grain production yielded a record 2.3 billion tons in 2007, up 4 percent from the year before—yet, billions of people go hungry every day. Grain.org describes the core reasons for ongoing hunger is while farmers grow enough food to feed the world, commodity speculators and huge grain traders like Cargill control global food prices and distribution. The richest 1% of Americans own 40% of the stock market and the richest 10% owns 80%.

Karl Marx in Capital explains that a human being is able to produce a product that has a certain value. Organized business hires workers who are paid below the value of their labor power. The result is the creation of what Marx called surplus value, over and above the cost of labor. The creation of surplus value allows those who own the means of production to concentrate capital even more. In addition, concentrated capital accelerates the exploition of natural resources by private entrepreneurs—even though these natural resources are actually the common heritage of all living beings.

American corporations are seeing rising profits and the share of corporate revenues that shows up as profits is the highest in history. At the same time labor is seeing its lowest share in history. Myth has it that capitalism works because entrepreneurs take economic risk to build corporations from nothing and that that their managers keep business competitive through innovation—the development and adoption of new processes and technologies, while keeping labor at the minimum levels consistent with maximum productivity. Mainstream economists such as Paul Krugman repeats this myth here . The sad state of  labor is due to workers being replaced with technology—either allowing fewer workers to do work formerly done by many or through ‘robotics’ that replaces human beings in manufacturing with machines. Attributing increases in productivity to technology has the added benefit of provides the rationale (to capitalists) for all of the benefits of modern capitalism accruing to capital—capitalists invested in the technology that has replaced labor and therefore the results in corporate profits and concentrated wealth rightly belong to capital. Technology has undoubtedly played a role in the way that capitalist enterprises operate—computers and robotics have dramatically reorganized how everyday operations and processes are undertaken. The larger question, though, the struggle between labor and capital, is avoided. Austerity re-declared the class war.

The religion of economics

Religion has been around for a long time.  The traditional answer is that humans evolved religion as a means of coping with death of loved ones, which is true, as religion preys strongly on personal crisis in helping cope with the deaths of loved ones by promising that they will see their loved ones again. Another reason often put forward is for a means of explaining the world around us as being created by an all powerful deity, because it was only until quite recently that we have had any real clue as to the nature of the forces at work around us that have crafted our environment and state of existence. As humans discovered agriculture and started to settled down, populations tended to grow far beyond the small hunter gatherer groups. Human societies started to independently evolve religious ideas as a means of controlling the behaviour of members of society of how people should behave which were  said to be laid down by an all knowing and powerful deity, the creator, rules such as thou shall not kill, steal, and one man one wife, and of course to pay homage to the creator/s and follow the teachings and instructions of the deities prophets and priests, that were to be repeatedly recited and ingrained in all members of society.

All religion's seek to exert total control over every member of society as it was/is believed that all events that happen are as a consequence of the pleasure or displeasure of the Gods such as natural disasters in which respect societies even went so far as to sacrifice fellow humans to please their gods, and sacrifice remains at the fundamental core of all religions i.e. that humans sacrifice independant free will in this life for freedom in the next life, and to a achieve entry into the afterlife humans need to obey the will of the Gods as set down by those that purport to represent the deities such as kings and queens and priests under the fear of what would happen to them if they did now obey the will of the Gods as their representatives on earth. Complete religious control even upto the point of self sacrifice (martyrdom). Over time this control of the masses has continued to develop and intensify the hold on the general population's actions, making it far easier for the elite to control every aspect of life.

In today's society we are manipulated from cradle to grave by the state to serve the interests of the elite, we are educated to be docile citizens that will go on and work for the elite, to perform all of the duties that the elite request of us for pieces of paper and metal tokens. We are forced to toil for a third of our working life.  The compliance of the masses by means of money paid by the elite who own the means of production.

We are constantly being bombarded with propaganda to be good citizens or face the dire consequences, because our every action is being watched and monitored 24/7 by technology from millions of CCTV cameras, internet browsing logs, phone conversation, mobile phone networks, GPS positioning, financial card transactions, and in your every interaction with the state's apparatus and private corporations that is logged and which the state has constant access to determine whether our behaviour is subversive or not.

Economics is a form of religion, a means for controlling the masses.

The Socialist Choice

It is frequently claimed, not just by apologists for capitalism but so-called avowedly socialists, that it is impossible to have an economy which excludes such things as wages, prices and money, and that any society’s economy is necessarily going to include those concepts, particularly wages and prices. Sorry to say but it is well documented by anthropologists, that there has been many societies which has not involved a monetary economy – in fact some exist even today in isolated parts of the world. Dollars and cents, salary checks, and price tags on goods are not an intrinsic part of the human essence as such statements imply

According to capitalist economic theory, prices are the means for determining the rational allocation of resources in a money economy. But, in fact, prices are not intended for the purpose of organising production. The function of pricing is to fix costs with a view to making profit. In practice, costing and pricing are ultimately about calculating the exploitation of labour, enabling the capitalist class to live and accumulate capital from the wealth that the working class produces but does not consume. The problem of rationally allocating productive resources in an economy is common to all human societies at least as long as these resources remain relatively limited compared to needs. However, there is no need to assume that this allocation could be effected rationally only through the exchange of resources taking the value -”price”- form. Labour power, your ability to work, is a commodity that is sold on the open market like anything else, the `price’ you get for it is your wage. If you have special natural skills or a training to perform a particular kind of labour which is in high demand then like everything else you can command a higher price for it, as well as good working conditions

A monetary economy gives rise to the illusion that the “cost” of producing something is merely financial. Money is the universal unit of measurement, the “general equivalent” that allows everything to be compared with everything else under all circumstances—but only in terms of their labour-time cost or the total time needed on average to produce them from start to finish.
Such non-monetary calculation of course already happens, on the technical level, under capitalism. Once the choice of productive method has been made (according to expected profitability as revealed by monetary calculation) then the real calculations in kind of what is needed to produce a specific good commence so much raw materials, so much energy, so much labour…
In socialism it is not the case that the choice of productive method will become a technical choice that can be left to engineers, as is sometimes misunderstood by critics, but that this choice too will be made in real terms, in terms of the real advantages and disadvantages of alternative methods and in terms of, on the one hand, the utility of some good or some project in a particular circumstance at a particular time and, on the other hand, of the real “costs” in the same circumstances and at the same time of the required materials, energy and productive effort.

Production- for- use would operate in direct response to need. These would arise in local communities expressed as required quantities such as grammes, kilos, tonne, litres , metres, cubic metres, etc, of various materials and quantities of goods. These would then be communicated as required elements of productive activity , as a technical sequence, to different scales of social production, according to necessity.
Each particular part of production would be responding to the material requirements communicated to it through the connected ideas of social production. It would be self -regulating , because each element of production would be self-adjusting to the communication of these material requirements . Each part of of production would know its position. If requirements are low in relation to a build-up of stock , then this would an automatic indication to a production unit that its production should be reduced . If The register of needs and the communication of every necessary element of those needs to the structure of production would be clear and readily known . The supply of some needs will take place within the local community and in these cases production would not extent beyond this , as for example with local food production for local consumption.

Other needs could be communicated as required things to the regional organisation of production. Local food production would require glass, but not every local community could have its own glass works. The requirements for glass could be communicated to a regional glass works. These would be definite quantities of required glass . The glass works has its own suppliers of materials , and the amounts they require for the production of 1 tonne of glass are known in definite quantities. The required quantities of these materials could be passed by the glass works to the regional suppliers of the materials for glass manufacture . This would be a sequence of communication of local needs to the regional organisation of production, and thus contained within a region .
Local food production would also require tractors, and here the communication of required quantities of things could extend further to the world organisation of production . Regional manufacture could produce and assemble he component parts of tractors for distribution to local communities .These would be required in a definite number and , on the basis of this definite number of final products, the definite number of component parts for tractors would also be known . The regional production unit producing tractor would communicate these definite quantities to their own suppliers, and eventually this would extend to worl production units extracting and processing the necessary materials.

This would be the self-regulating system of production for need , operating on the basis of the communication of need as definite quantities of things throughout the structure of production . Each production unit would convert the requirements communicated to it into its own material requirements and pass these on to its suppliers . This would be the sequence by which every element of labour required for the production of a final product would be known.
This system of self-regulating production for use is achieved through communications . Socialism would make full use of the means communications which have developed These include not only transport such as roads, railways, shipping etc. They also include the existing system of electronic communications which provide for instant world-wide contact as well as facilities for storing and processing millions of pieces of information. Modern information technology could be used by socialism to integrate any required combination of different parts of its world structure of production.

Simpler is Better

Socialists desire to abolish economics. No exchange, no economy.

Socialism, being based on the common ownership of the means of production by all members of society, is not an exchange economy. Production would no longer be carried on for sale with a view to profit as under capitalism. In fact, production would not be carried on for sale at all. Production for sale would be a nonsense since common ownership of the means of production means that what is produced is commonly owned by society as soon as it is produced. The question of selling just cannot arise because, as an act of exchange, this could only take place between separate owners. Yet separate owners of parts of the social product are precisely what would not, and could not exist in a society where the means of production were owned in common.

However, socialism is more than just not an exchange economy; it is not an economy at all, not even a planned economy. Economics, or political economy as it was originally called, grew up as the study of the forces which came into operation when capitalism, as a system of generalised commodity production, began to become the predominant mode of producing and distributing wealth. The production of wealth under capitalism, instead of being a direct interaction between human beings and nature, in which humans change nature to provide themselves with the useful things they need to live, becomes a process of production of wealth in the form of exchange value. Under this system, production is governed by forces which operate independently of human will and which impose themselves as external, coercive laws when men and women make decisions about the production and distribution of wealth. In other words, the social process of the production and the distribution of wealth becomes under capitalism an economy governed by economic laws and studied by a special discipline, economics.

Socialism is not an economy, because, in re-establishing conscious human control over production, it would restore to the social process of wealth production its original character of simply being a direct interaction between human beings and nature. Wealth in socialism would be produced directly as such, i. e. as useful articles needed for human survival and enjoyment; resources and labour would be allocated for this purpose by conscious decisions, not through the operation of economic laws acting with the same coercive force as laws of nature. Although their effect is similar, the economic laws which come into operation in an exchange economy such as capitalism are not natural laws, since they arise out of a specific set of social relationships existing between human beings. By changing these social relationships through bringing production under conscious human control, socialism would abolish these laws and so also the economy as the field of human activity governed by their operation. Hence socialism would make economics redundant.

What we are saying, in effect, is that the term exchange economy is a tautology in that an economy only comes into existence when wealth is produced for exchange. It is now clear why the term planned economy is unacceptable as a definition of socialism. Socialism is not the planned production of wealth as exchange value, nor the planned production of commodities, nor the planned accumulation of capital. That is what state capitalism aims to be. Planning is indeed central to the idea of socialism, but socialism is the planned (consciously coordinated) production of useful things to satisfy human needs precisely instead of the production, planned or otherwise, of wealth as exchange value, commodities and capital. In socialism wealth would have simply a specific use value (which would be different under different conditions and for different individuals and groups of individuals) but it would not have any exchange, or economic, value.

In socialist society productive activity would take the form of freely chosen activity undertaken by human beings with a view to producing the things they needed to live and enjoy life. The necessary productive work of society would not be done by a class of hired wage workers but by all members of society, each according to their particular skills and abilities, cooperating to produce the things required to satisfy their needs both as individuals and as communities. Work in socialist society could only be voluntary since there would be no group or organ in a position to force people to work against their will.

Socialist production would be production solely for use. The products would be freely available to people, who would take them and use them to satisfy their needs. In socialism people would obtain the food, clothes and other articles they needed for their personal consumption by going into a distribution centre and taking what they needed without having to hand over either money or consumption vouchers. Houses and flats would be rent-free, with heating, lighting and water supplied free of charge. Transport, communications, health care, education, restaurants and laundries would be organised as free public services. There would be no admission charge to theatres, cinemas, museums, parks, libraries and other places of entertainment and recreation. The best term to describe this key social relationship of socialist society is free access, as it emphasises the fact that in socialism it would be the individual who would decide what his or her individual needs were. As to collective needs (schools, hospitals, theatres, libraries and the like), these could be decided by the groups of individuals concerned, using the various democratic representative bodies which they would create at different levels in socialist society. Thus production in socialism would be the production of free goods to meet self-defined needs, both individual and collective

To advocate monetary calculation, is to advocate that only one consideration—the total average production time needed to produce goods—should be taken into account when making decisions about which productive methods to employ. This is patently absurd but it is what is imposed by capitalism. Naturally, it leads to all sorts of aberrations from the point of view of human interests. In particular it rules out a rational, long-term attitude towards conserving resources and it imposes intolerable conditions on the actual producers (speed-up, pain, stress, boredom, long hours, night work, shiftwork, accidents).

Socialism, because it will calculate directly it kind, will be able to take these other, more important, factors than production time into account. This will naturally lead to different, in many cases quite different, productive methods being adopted than now under capitalism. If the health, comfort and enjoyment of those who actually manipulate the materials, or who supervise the machines which do this, to transform them into useful objects is to be paramount, certain methods are going to be ruled out altogether. The fast moving production lines associated with the manufacture of cars would be stopped for ever ; night work would be reduced to the strict minimum; particularly dangerous or unhealthy jobs would be automated (or completely abandoned). Work can, in fact must, become enjoyable. But to the extent that work becomes enjoyable, measurement by minimum average working time would be completely meaningless, since people would not be seeking to minimize or rush such work.

The supply of some needs will take place within the local community and in these cases production would not extent beyond this .Other needs could be communicated as required things to the regional organisation of production. Local food production would require glass, but not every local community could have its own glass works . The requirements for glass could be communicated to a regional glass works . Some organisation for such as mining for raw material sources would require world co-ordination . When socialism is established it will be necessary to set up councils at local , regional and global levels for the administration of social affairs in every aspect of productive activity . Also there will have to be councils whose functions will be to co-ordinate the work of the various specific councils . The majority of the people in a local area will make decisions affecting that area specifically , the people in a certain region will make decisions for that region and everyone will make global decisions .

The problem with a centrally-planned model of socialism is amongst other things its inability to cope with change. It lacks any kind of feedback mechanism which allows for mutual adjustments between the different actors in such an economy. It is completely inflexible in this regard. A decentralised or polycentric version of socialism, on the other hand, overcomes these difficulties. It facilitates the generation of information concerning the supply and demand for production and consumption goods through the economy via a distributed information .Stock or inventory control systems employing calculation in kind are absolutely indispensable to any kind of modern production system.

In a “free access” socialist economy income or purchasing power would, of course, be devoid of meaning. So too would the notion of status based upon the conspicuous consumption of wealth. Because individuals would stand in equal relation to the means of production and have free access to the resultant goods and services

Marx saw the communist administration as a federation of self-governing groups largely concerned with their internal affairs and collaborating for the comparatively few purposes that concern all the groups. The association of free producers , not a centrally planned State whose roots go back to “Bismarckian State-Socialism” and Lassalle , so readily endorsed by Lenin and his Bolsheviks yet so rarely acknowledged by his pupils .

How are these needs communicated? What allocation mechanism do you use? Certainly they won’t be by getting those individuals needs allotted to them .

Decisions involving choices of a general nature, such as what forms of energy to use, which of two or more materials to employ to produce a particular good, whether and where to build a new factory, there is a technique already in use under capitalism that could be adapted for use in socialism: so-called cost-benefit analysis and its variants. Naturally, under capitalism the balance sheet of the relevant benefits and costs advantages and disadvantagesof a particular scheme or rival schemes is drawn up in money terms, but in socialism a points system for attributing relative importance to the various relevant considerations could be used instead. The points attributed to these considerations would be subjective, in the sense that this would depend on a deliberate social decision rather than on some objective standard. In the sense that one of the aims of socialism is precisely to rescue humankind from the capitalist fixation with production time/money, cost-benefit type analyses, as a means of taking into account other factors, could therefore be said to be more appropriate for use in socialism than under capitalism. Using points systems to attribute relative importance in this way would not be to recreate some universal unit of evaluation and calculation, but simply to employ a technique to facilitate decision-making in particular concrete cases. The advantages /disadvantages and even the points attributed to them can, and normally would, differ from case to case. So what we are talking about is not a new abstract universal unit of measurement to replace money and economic value but one technique among othersfor reaching rational decisions in a society where the criterion of rationality is human welfare.

Planning in socialism is essentially a question of industrial organisation, of organising productive units into a productive system functioning smoothly to supply the useful things which people had indicated they needed, both for their individual and for their collective consumption. What socialism would establish would be a rationalised network of planned links between users and suppliers; between final users and their immediate suppliers, between these latter and their suppliers, and so on down the line to those who extract the raw materials from nature. There is no point in drawing up in advance the sort of detailed blueprint of industrial organisation that the old IWW and the Syndicalists used to , but it is still reasonable to assume that productive activity would be divided into branches and that production in these branches would be organised by a delegate body. The responsibility of these industries would be to ensure the supply of a particular kind of product either, in the case of consumer goods, to distribution centres or, in the case of goods used to produce other goods, to productive units or other industries.

Since the needs of consumers are always needs for a specific product at a specific time in a specific locality, we will assume that socialist society would leave the initial assessment of likely needs to a delegate body under the control of the local community (although, other arrangements are possible if that were what the members of socialist society wanted). In a stable society such as socialism, needs would change relatively slowly. Hence it is reasonable to surmise that an efficient system of stock control, recording what individuals actually chose to take under conditions of free access from local distribution centres over a given period, would enable the local distribution committee (for want of a better name) to estimate what the need for food, drink, clothes and household goods would be over a similar future period. Some needs would be able to be met locally: local transport, restaurants, builders, repairs and some food are examples as well as services such as street-lighting, libraries and refuse collection. The local distribution committee would then communicate needs that could not be met locally to the bodies charged with coordinating supplies to local communities.

The individual would have free access to the goods on the shelves of the local distribution centres; the local distribution centres free access to the goods they required to be always adequately stocked with what people needed; their suppliers free access to the goods they required from the factories which supplied them; industries and factories free access to the materials, equipment and energy they needed to produce their products; and so on. Production and distribution in socialism would thus be a question of organising a coordinated and more or less self-regulating system of linkages between users and suppliers, enabling resources and materials to flow smoothly from one productive unit to another, and ultimately to the final user, in response to information flowing in the opposite direction originating from final users. The productive system would thus be set in motion from the consumer end, as individuals and communities took steps to satisfy their self-defined needs. Socialist production is self-regulating production for use.

To ensure the smooth functioning of the system, a central statistical office would be needed to provide estimates of what would have to be produced to meet peoples likely individual and collective needs. These could be calculated in the light of consumer wants as indicated by returns from local distribution committees and of technical data (productive capacity, production methods, productivity, etc) incorporated in input-output tables. For, at any given level of technology (reflected in the input-output tables), a given mix of final goods (consumer wants) requires for its production a given mix of intermediate goods and raw materials; it is this latter mix that the central statistical office would be calculating in broad terms. Such calculations would also indicate whether or not productive capacity would need to be expanded and in what branches. The centre (or rather centres for each world-region) would thus be essentially an information clearing house, processing information communicated to it about production and distribution and passing on the results to industries for them to draw up their production plans so as to be in a position to meet the requests for their products coming from other industries and from local communities. The only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other side the amount of the good produced, together with any by-products.

Stock or inventory control systems employing calculation in kind are, as was suggested earlier, absolutely indispensable to any kind of modern production system. While it is true that they operate within a price environment today, that is not the same thing as saying they need such an environment in order to operate. The key to good stock management is the stock turnover rate – how rapidly stock is removed from the shelves – and the point at which it may need to be re-ordered. This will also be affected by considerations such as lead times – how long it takes for fresh stock to arrive – and the need to anticipate possible changes in demand.

A typical sequence of information flows in a socialist economy might be as follows. Assume a distribution point (shop) stocks a certain consumer good – say, tins of baked beans. From past experience it knows that it will need to re-order approximately 1000 tins from its suppliers at the start of every month or, by the end of the month, supplies will be low. Assume that, for whatever reason, the rate of stock turnover increases sharply to say 2000 tins per month. This will require either more frequent deliveries or, alternatively, larger deliveries. Possibly the capacity of the distribution point may not be large enough to accommodate the extra quantity of tins required in which case it will have to opt for more frequent deliveries. It could also add to its storage capacity but this would probably take a bit more time. In any event, this information will be communicated to its suppliers. These suppliers, in turn, may require additional tin plate (steel sheet coated with tin), to make cans or beans to be processed and this information can similarly be communicated in the form of new orders to suppliers of those items further down the production chain. And so on and so forth. The whole process is, to a large extent, automatic – or self regulating – being driven by dispersed information signals from producers and consumers concerning the supply and demand for goods and, as such, is far removed from the gross caricature of a centrally planned economy.
It may be argued that this overlooks the problem of opportunity costs .For example, if the supplier of baked beans orders more tin plate from the manufacturers of tin plate then that will mean other uses for this material being deprived by that amount. However, it must be born in mind in the first place that the systematic overproduction of goods that Marx talked of – i.e. buffer stock – applies to all goods, consumption goods as well as production goods. So increased demand from one consumer/producer, need not necessarily entail a cut in supply to another – or at least, not immediately. The existence of buffer stocks provides for a period of re-adjustment.

Liebig’s Law of the Minimum – states is that plant growth is controlled not by the total amount of resources available to a plant but by the particular factor that is scarcest. This factor is called the limiting factor. It is only by increasing the supply of the limiting factor in question – eg nitrogen fertiliser – that you promote plant growth.
Liebig’s Law can be applied equally to the problem of resource allocation in any economy.It makes sense from an economic point of view to economise most on those things that are scarcest and to make greatest use of those things that are abundant.To claim that all factors are scarce (because the use of any factor entails an opportunity cost) and, consequently, need to be economised is actually not a very sensible approach to adopt.You cannot treat every factor equally – that is, as equally scarce – or, if you do, this will result in gross misallocation of resources and economic inefficiency.The most sensible basis on which to make such a discrimination is the relative availability of different factors and this is precisely what the law of the minimum is all about.When a particular factor is limited in relation to the multifarious demands placed on it, the only way in which it can be “inefficiently allocated” (although this is ultimately a value judgement) is in choosing “incorrectly” to which particular end use it should be allocated . Beyond that, you cannot misuse or misallocate a resource if it simply isn’t available to misallocate (that is, where there are inadequate or no buffer stocks on the shelf, so to speak). Of necessity, one is compelled to seek out a more abundant alternative or substitute .

To determine priorities Maslow’s “hierarchy of needs” would be a guide to action. It would seem reasonable to suppose that needs that were most pressing and upon which the satisfaction of others needs were contingent, would take priority over those other needs. We are talking here about our basic physiological needs for food, water, adequate sanitation and housing and so on. This would be reflected in the allocation of resources: high priority end goals would take precedence over low priority end goals where resources common to both are revealed using the earlier discussed “points” system of cost benefit analysis.

To sum up , a communist steady-state equilibrium, will have been reached. Gradual change, growth, will be simple and painless. The task of planning becomes one of simple routine; the role of economics is virtually eliminated.

 Marx said in communism it is now society’s free (disposable) time and no longer labor time that becomes the true measure of society’s wealth.

When Michael Albert of Parecon  state that “from each according to abilities, to each according to needs” is an unachievable utopian and unpractical demand, it proves just how non-radical he is. In Parecon webpages Paul Mattick and Anton Pannekoek feature as influences yet it should be remembered that when they were being ostracised by the orthodox left and the libertarian left, it was the small World Socialist Movement that were still offering them an outlet to express their views when they had little opportunity to do so. They shared the real socialist demand for free access and the end to wage slavery an one the problems with participatory economics (parecon) is that it continues with prices and wages and money, instead of abolishing them all. It is NOT impossible that such a society offered by free-access socialiststo be feasiblebut is in fact more desirable than the alternative  present within the Parecon model.

Unlike Parecon, many socialists caution against the creation of blueprints (“recipes for the cook-shops of tomorrow” as Marx called them ). There is no point in drawing up in advance the sort of detailed blueprint of industrial organisation that the old IWW and the Syndicalists or the Guild Socialists used to do and what Parecon now does . For a small group of socialists , as we are now , to do so would be undemocratic. It would also be dumb. Socialists don’t have crystal balls to determine what the conditions will be when socialism is established. As the socialist majority grows, when socialism is within the grasp of the working class, then will be the proper time for making such important decisions. It is imprudent for today’s socialist minority to be telling people how to administer a socialist society. When a majority of people understand what socialism means, the suggestions for socialist administration will solidify into an appropriate plan. It will be based upon the conditions existing at that time, not today.

We also recognise that there may not be one single way of doing things, and precise details and ways of doing things might vary from one part of the world to another, even between neighbouring communities. Of course, we can reach some generalised conclusions based on basic premises – that socialism will be necessarily democratic, for example – and can outline broad principles or options that could be applied. That is, we do not have to draw up a plan for socialism, but simply and broadly demonstrate that it is possible and therefore refute the label of “utopianism”.

We look to the real world to see how it is, and how it could be. Socialist society is not starting from a blank sheet and we are inheriting an already existing economic system. Workers with all their skills and experience of co-operating to run capitalism in the interests of the capitalists could begin to run society in their own interest. We do not need to build the new society in the womb of the old, that is here already.


 Marx cautioned – “Instead of the conservative motto, A fair day’s wage for a fair day’s work! they ought to inscribe on their banner the revolutionary watchword, Abolition of the wages system!”


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scarcity or abundance and allocation of resources


Abundance is not a situation where an infinite amount of every good could be produced . Similarly, scarcity is not the situation which exists in the absence of this impossible abundance. Abundance is a situation where productive resources are sufficient to produce enough wealth to satisfy human needs, while scarcity is a situation where productive resources are insufficient for this purpose. "Unlimited wants " is an abstraction of Capitalism . Needs are indeed finite .

Not all resources are available in sufficient supply to meet all uses for them. Land is an obvious case in point: a piece of land cannot be used at the same time for housing and for farming . Some criteria will indeed have to be developed for deciding what use to put them to .Maslow’s “hierarchy of needs” , perhaps . Needs that were most pressing and upon which the satisfaction of others needs were contingent, would take priority over those other needs, high priority end goals would take precedence over low priority end goals where resources common to both are revealed to be in short supply .
Cost benefit analysis is an elaborate skill in capitalism and could be a neutral tool based on a “points system” to evaluate a range of different projects facing society.

Allocation calculations in socialism will not be economic but technical . In socialism calculations will be done directly in physical quantities of real things [calculation in kind ] , in use-values , without any general equivalent unit of calculation ie money and prices

Banks and Crisis

Many seek out solutions without understanding the causes. Marx wrote extensively on money and banking and credit yet how convenient it is to forget his conclusion that it is the entire capitalism system not simply individual aspects of its functioning that is the problem. Theorists seem to forget that the capitalist system remains, in all essentials, the same as it was when Marx studied in the British Museum. Lest we forget, the source of all Rent, Interest and Profit is the unpaid labour of the working class. It’s not a revolution if you’re only taking out the bankers. The bankers are not wicked finance capitalists against whom the anger of workers should particularly be directed, just capitalists with their capital invested in a particular line of business, no more no less reprehensible than the rest of the blood sucking parasitical capitalist class. Recessions are inherent in the boom bust cycle of capital. “Greedy bankers” are a scapegoat distracting from the fact that this will happen again and again and again. Blaming them alone implies you could have a nicer capitalism with good bankers. Pinning the blame on “greedy bankers” lets the rest of the culprits off the hook. This is not just a financial crisis, but a crisis of the whole capitalist economy in which the whole business and political class are fully implicated.

The Institute for New Economics.

From the Institute for New Economics.
“Sharing profits with those who labored to make the products is another part of the rebalancing of our economic system to one that is fair and sustainable."

This is a pipedream. The INE claim to be offering radical solutions – we don’t think so. Martin Luther King Jr. once said ” Shallow understanding from people of good will is more frustrating than absolute misunderstanding from people of ill will.” The underlying assumption of the writers is that capitalism remains, albeit in an altered state. The INE want to retain exchange and trading with some new kind of money. Socialists want a society based on common ownership geared to producing things directly for people to take and use in which exchange and trading, and money as the means of exchange, would be redundant. What’s the point of a new alternative local currency (apart from helping local shopkeepers)? What difference does it make what coloured pieces of paper we have to use to get the things we need to live? The real problem is that in present-day, capitalist society we have to use money at all to obtain these, and that the amount of money we have will always be rationed by what we get as wages. That restricts and distorts our lives.

Regardless of their occasional insights and their good intentions, they are totally lacking in vision and simply repeating the same old wishful thinking …ahhh, if only we could re-organise, re-structure, reform capitalism to work in the interests of the majority…ahhhhh….if only we can make it all better and could make capitalism less capitalist. Too many do not understand the basic fundamentals of capitalism and see no alternative to capitalism, even those in academia with letters after their names.

By definition capitalism can only function in the interest of the capitalists, no palliatives can (nor ever will be able to) subordinate capitalist private property to the general interest.

All that effort, skill, energy, all those tools that the writers of INE wish to evoke should be turned against class society, to create a society of common interest where we can make changes for our common mutual benefit. So long as class exists, any gains will be partial and fleeting, subject to the on-going struggle. What we should be opposed to is the whole culture of reformism, the idea that capitalism can be tamed and made palatable with the right reforms.

Reformism is the graveyard for hope. Reformism requires a pact with the devil.

Over decades, millions of workers have invested their hopes in so-called ‘practical’, ‘possibilist’ organisations and policies, hoping against hope that they would be able to neuter the market economy when, in reality, the market economy has successfully neutered them. They turned out to be the real ‘impossibilists’. Demanding the unattainable humanised capitalism is one of the greatest tragedies of the last centuryand it is made all the greater because it was all so predictable. Many held and still hold such as the authors the idea that capitalism could be reformed into something kindly and user-friendly. It couldn’t and it can’t.

Socialists understand only too well the urge to do something now, to make a change. That makes us all the more determined, however, to get the message across, to clear away the barrier of the wages system, so that we can begin to build a truly human society. Why waste time fighting for half measures? We would better spend our time, energies, and resources educating people to establish socialism rather than waste time in the false belief that our present system can be made to work in everyone’s interest.

Only the threat of a socialist movement setting down as the only realistic and immediate aim the establishment of social property of society’s means of existence so as to ensure their management by and in the interest of the whole community, would be able to force the capitalists to concede reforms favourable to the workers for fear of losing the whole cake. Yet more reason to advance the maximum programme of socialism.

The recession's recovery

"Permanent crises do not exist" Marx wrote

He meant that the slump itself would create the conditions for capital accumulation to resume. For Marx the accumulation of capital, which is the engine of economic growth, proceeded in fits and starts, a series of cycles of moderate activity, boom, crisis, slump, recovery, moderate activity, boom, crisis, etc. Booms eventually created the conditions for the next following slump while slumps created those for recovery.

“This fall in the purely nominal capital,” Marx explained “State bonds, shares etc....amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.”

The financial world has been gripped by the recession. Yet one cabal of investors, bankers and lawyers found plenty to toast at London’s opulent Claridge’s hotel last month. One fund manager enthused “There’s a tidal wave of opportunities coming now.”

A German minister once called them “locusts”. Other choice descriptions are “corporate raiders”, “predators”, “vultures” and “asset strippers”. Socialists apply some of these descriptions to all capitalists, but what have these particular kind of capitalists done to earn such epithets even from non-socialists?

This is the sector which seeks to take advantage of stressed and dislocated financial markets. It typically comprises hedge funds or private equity firms that acquire at a discount fundamentally sound or defaulted loans, bonds or entire portfolios of debt from banks and other investors under duress, and attempt to squeeze out a profit. Alternatively, they may try to seize control of struggling companies by buying their loans and bonds, and converting this debt into equity ownership – a strategy known as “loan to own”.

European companies have to repay more than $4,000bn of loans and bonds in the next four years, according to credit rating agency Standard & Poor’s – a formidable sum at a time when the continent faces unprecedented pressure. Most are expected to manage to repay or roll over these debts, but some are expected to founder and could be taken over by distressed debt investors. Europe’s banks, normally a ready source of funding for many of these companies, are themselves struggling. Banks in France, the UK, Ireland, Germany and Spain have unveiled plans to slash a total of €775bn ($1,065bn) of assets, according to data collected by Bloomberg. Leon Black of Apollo Global Management, a leading investor in distressed debt, recently estimated this sum could increase to €1,500bn in coming years. It will provide investors with opportunities to cherry-pick assets, financiers say. Many are eyeing Ireland, where loans and property worth a nominal €72bn have been taken over by the National Asset Management Agency, a state-run “bad bank”, and will gradually be sold off.

Most investment banks are rebuilding or beefing up distressed debt desks, expecting the sector to provide a rich vein of lucrative business in the coming years. “We’re just in the first innings,” says the European head of a major US firm. “We have already bought quite a bit already, and the market is going to be huge over the next few years.”

From capitalism’s point of view, they are not doing anything wrong. In fact, they are only doing what comes naturally to capitalists: trying to make the biggest profit they can. The parvenus are buying up failed and failing business at bargain prices. As well as laughing all the way to the bank they can justify their unpopular activity as performing a necessary function in capitalism’s business cycle. As indeed they are.

What shape will the recovery turn out to have. The optimists are hoping that it will be V-shaped (i.e. a fairly rapid return to pre-recession levels). Others see it as being more like a tick (i.e. a slower recovery). The pessimists see it like a W (i.e. a double dip, a initial small recovery followed by second fall).

The only solution to the problems of a depression is the depression itself. If capitalism is to return to profitability, unprofitable concerns must be closed, workers laid off, wages suppressed, and capital devalued. This restores profitability and lays the basis for a new round of capitalist prosperity.Unprofitable firms must be eliminated, their capital destroyed or devalued, and real wages must fall, so as to restore the rate of profit. That means more company failures and more unemployment. In short, more misery. This tells us nothing about how long this might take. Could the present slump really last for a decade or more? The truth is we don’t know and can’t know. The future course of capitalism is largely unpredictable.Economic forecasting is no more reliable than an astrological horoscope. All we can say with certainty is that it is an irrational system.

A number of quite distinct and separate things need to happen before a slump can run its course. Firstly, capital has to be wiped out if excess productive capacity is to be tackled with devalued capital being bought cheaply by those enterprises in the best position to survive the slump. Secondly, de-stocking needs to take place, with overproduced commodities bought up cheaply or written off entirely. Investment will not resume if overproduction still exists. Thirdly, after this has occurred there needs to be an increase in the rate of industrial profit helped both by real wage cuts and falling interest rates (which tail off naturally as the demand for more money capital eases off in the slump). This will help renew investment and increase accumulation. Also, if recovery is to be sustained, a large proportion of the debt built up during the boom years will need to be liquidated, if it is not to act as a drag on future accumulation. Through these mechanisms a slump helps build the conditions for future growth, ridding capitalism of inefficient units of production. When these processes have run their course, accumulation and growth can begin once more with capitalism again creating a boom situation, which will be inevitably followed by a crisis and slump. This has been the history of capitalism ever since it first developed. Far from being an aberration, this cycle of misery is the natural cycle of capitalism.

Workers cannot be indifferent to a crisis, no matter how much we are disgusted by the predictable pendulum swing between “boom” and “bust” , because our lives can be directly influenced by today’s financial turbulence. But at the same time, we have no interest whatsoever in thinking up ways to put capitalism “back on track” or make it “healthy” again. Even when the system is in tip-top shape it works directly counter to the interests of workers. The crisis will not miraculously or mechanically turn every worker into a socialist, as some hope, but it does at least create a situation where socialists may find workers more willing to consider an alternative to capitalism. It is up to us, as socialists, to present that alternative in a convincing way based on our understanding of the essential nature and limitations of the capitalist system.

Marx or Keynes

Keynesianism can mean a lot of things to lots of people, but the central idea is pretty easy to characterise – markets are good, but they need taming by government. Keynes' theory was massively interpreted, reinterpreted, and misinterpreted, over the years. Some within the more left-wing "post-Keynesian" tradition. Keynesian economics, as opposed to free market capitalism, maintains that the state can and should intervene in the economy in order to stop economic crises from occurring. After 1945. Keynesianism became the ideology of overall political management of the economy (e.g. "fine tuning").

Every capitalist crisis, no matter what its imputed causes, manifests itself in a declining accumulation of capital. The share of social production earmarked for expansion is considerably reduced or even fully eliminated, curtailing total social production in the process. Seen from the restricted view of the market, however, this process appears as overproduction of goods or insufficient demand. The depression that resulted was a deflationary process which affected both prices and production, but which at the same time brought about substantial changes in the economic structure and prepared the way for a new economic boom. The depression became an instrument for overcoming economic crisis, and although not deliberately encouraged, it was passively allowed to run its course. Inflation, the creation of money by the state, impairs the price mechanism. As capital grew it created obstacles to its own further expansion. Its periodic crises became more and more oppressive and persisted long enough to create a real danger that the deflationary process would lead to social upheaval rather than to a new boom. To prevent this from happening, state economic interventions were in order in the great crisis that followed the 1929 crash; their theoretical justification came later.
This interventionist policy sought to achieve by inflationary means what seemed no longer attainable by deflationary methods. Keynes assumed that the interest rate was dependent on the quantity of money in circulation. An increase in the money supply would decrease the interest rate and spur new investments, which in turn would increase employment and raise prices and profits. Since the state had the power to create more money, it was a matter of government decision whether the way to economic recovery would be through lower interest rates. However, the profitability of capital had already fallen so far that even a reduction in interest rates would not be sufficient stimulus new investments. It would therefore be necessary to make up for the defective private demand by creating more public demand. However, since an increase in public spending by way of taxation would cut even more into the profits of the private sector, it would have to be financed through state deficits. The technique, of course, was not to print more money, which would depreciate the currency, but merely to expand state credit which would absorb idle private capital and finance the increased public demand. This added demand would, it was expected, stimulate the economy as a whole sufficiently to bring it out of the depression and into a boom, which in turn would enlarge the state's tax revenue to such a degree that it would be able to pay off its depression incurred debts in a new period of prosperity. The co-ordinated employment of monetary and fiscal policies would not only counteract the deflationary trend of the crisis, they would in addition initiate a new period of upswing, which although containing inflationary tendencies, need not degenerate into a real inflation as long as unused money and real capital were still available. The specter of inflation would loom only if anew disproportionality arose between the means of payment and commodity production. But this was a real possibility only when full employment was reached, and then it could be combated by state-initiated deflationary policies. In short, it was imagined that a theory and practical policy had finally been found which would place the economic cycle under conscious state control.
Even under the best conditions, a steadily rising inflation rate leads eventually to economic stagnation. Inflation must then be halted at the point where it begins to have a negative effect on the economy. Just as governments add steam to inflation by their monetary and fiscal policies, contrary measures can slow its course. However, it is not within the power of governments to bring inflation totally to heel, since price inflation will continue despite deflationary government measures. This being the case, depression is aggravated in two directions: on the one hand, because of a stepped up general economic decline, and on the other, because of the multiplying social conflicts generated by the inflationary distribution of income. Depression, like an upswing, sets limits to inflation. But any limit can be overstepped if one is willing to accept or is unable to avoid the attendant social risks; the hyper-inflations of the past are ample testimony to this. But the risk is far greater when inflation is worldwide than when it is isolated within individual countries, as has been the case in the past. The bourgeoisie therefore tries to check it, but it can only do so by accepting lower profits, reducing public spending, and allowing depression to deepen. As the hopes that the depression will have a deflationary effect fade, they are replaced by prospects of a new boom contrived by inflationary means. Where all this will lead cannot be forecast with certainty, but at least one thing is sure: the present crisis, with its peculiar deflationary inflation, will keep the world in a perpetual state of unrest that could easily lead to catastrophe.

The mainstream economics that emerged post-war, sometimes called the "neo-classical synthesis", was a more conventional marriage of core elements of the old "neoclassical theory" with Keynesian insights. For as far as economics goes, Keynes' co-worker, Joan Robinson coined the phrase "Bastard Keynesianism" to describe the vulgarisation of his economics and its stripping of all aspects which were incompatible with the assumptions of neo-classical economics. Thus the key notion of uncertainty was eliminated and his analysis of the labour market reduced to the position he explicitly rejected, namely that unemployment was caused by price rigidities. This process was aided by the fact that Keynes retained significant parts of the neo-classical position in his analysis and argued that the role of the state was limited to creating the overall conditions necessary to allow the neo-classical system to come "into its own again" and allow capitalism "to realise the full potentialities of production." [Keynes, The General Theory] Keynesianism was a tool for saving capitalism and avoid socialism. Save capitalism by reforming it. Keynesian economics is not trying to democratise the economy. Keynesian economics is more about regulation, public sector spending and so on, its not about democratic control, or worker control. It works within the framework of how to keep growth going, it leaves class systems in place and supports them. Keynesianism is not socialist, not even close, its just responsible capitalism. It isn't calling for abolishment of social classes but rather things like more progressive taxation, universal healthcare, spending on infrastructure projects etc.

In terms of policy rather than theory, the "Keynesian consensus" typically involved a number of common elements. First, markets are volatile and sticky so they need hands-on regulation. Second, when private investment fails the government can step in via fiscal (i.e., tax and spending) policy, and if necessary with big spending programmes like the European welfare states. Third, at the international level, capital flows are stabilised with a global financial architecture: the Bretton Woods system which fixed currency exchange rates until 1971; and institutions like the World Bank and IMF.

Keynes's demand management (or pump priming money) aims to overcome crisis by increasing the rate of exploitation. If it was implement correctly, it would lead to the lowering of the working class's living standard. Keynes wrote:

“Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.” [ The General Theory]

Unlike neo-classical economist who prefer to cut nominal wage (or using deflation). Keynes preferred to cut the worker's living standard by cutting real wage using inflation so there would be fewer obstacles posed by unions to capitalist's profit restoration project. Inflation is therefore a means of attacking real wages. It can also be a concession to the working class since it tends to keep inefficient businesses functioning (every wage-slave with a grain of class consciousness knows that these are the best ones to work for!) Inflation tends to undermine debts (by reducing the value of repayments) and so favours industry relative to finance capital

Thus left-wing Keynesians who later founded the Post-Keynesian school of economics recognised that capitalists "could recoup themselves for rising costs by raising prices." Joan Robinson

The "Bastard Keynesianism" of the post-war period (for all its limitations) did seem to have some impact on capitalism. There is what is often called the "Golden Age of Capitalism," the boom years of (approximately) 1945 to 1975. This post-war boom presents compelling evidence that Keynesianism can effect the business cycle for the better by reducing its tendency to develop into a full depression. By intervening in the economy, the state would reduce uncertainty for capitalists by maintaining overall demand which will, in turn, ensure conditions where they will invest their money rather than holding onto it (what Keynes termed "liquidity-preference" and a situation we now call “credit-crunch”). In other words, to create conditions where capitalists will desire to invest and ensure the willingness on the part of capitalists to act as capitalists. This period of social Keynesianism after the war was marked by reduced inequality, increased rights for working class people, less unemployment, a welfare state you could actually use and so on. Compared to present-day capitalism, it had much going for it.

So instead of attempting the usual class war (which may have had revolutionary results), sections of the capitalist class thought a new approach was required. This involved using the state to manipulate demand in order to increase the funds available for capital. By means of demand bolstered by state borrowing and investment, aggregate demand could be increased and the slump ended. In effect, the state acts to encourage capitalists to act like capitalists by creating an environment when they think it is wise to invest again. As Paul Mattick points out, the "additional production made possible by deficit financing does appear as additional demand, but as demand unaccompanied by a corresponding increase in total profits. . . [this] functions immediately as an increase in demand that stimulates the economy as a whole and can become the point for a new prosperity" if objective conditions allow it. [ Crisis and Crisis Theory]

Keynesian capitalism is still capitalism and so is still based upon oppression and exploitation. It was, in fact, a more refined form of capitalism, within which the state intervention was used to protect capitalism from itself while trying to ensure that working class struggle against it was directed, via productivity deals, into keeping the system going. For the population at large, the general idea was that the welfare state (especially in Europe) was a way for society to get a grip on capitalism by putting some humanity into it. In a confused way, the welfare state was promoted as an attempt to create a society in which the economy existed for people, not people for the economy. So there is no denying that for a considerable time, capitalism has been able to prevent the rise of depressions which so plagued the pre-war world and that this was accomplished by government interventions. This is because Keynesianism can serve to initiate a new prosperity and postpone crisis by state intervention to bolster demand and encourage profit investment. This can mitigate the conditions of crisis, since one of its short-term effects is that it offers private capital a wider range of action and an improved basis for its own efforts to escape the shortage of profits for accumulation. In addition, Keynesianism can fund Research and Development in new technologies and working methods (such as automation) which can increase profits, guarantee markets for goods as well as transferring wealth from the working class to capital via indirect taxation and inflation. In the long run, however, Keynesian "management of the economy by means of monetary and credit policies and by means of state-induced production must eventually find its end in the contradictions of the accumulation process." [Mattick] This is because it cannot stop the tendency to (relative) over-investment, disproportionalities and profits squeeze In fact, due to its maintenance of full employment it increases the possibility of a crisis arising due to increased workers' power at the point of production. So, state intervention can, in the short term, postpone crises by stimulating production, however, these interventions do not actually set aside the underlying causes of economic and social crisis.

We frequently hear the distinction that Keynesian economics is of the Left, and the Austrian/Chicago school of the Right. Workers should not get involved in, or be distracted by, inter-capitalist squabbles but should keep their eye on the ball - to defend their own interests in the most militant fashion possible whether against the state or some private corporation. Beyond that they should be looking to get rid of capitalism in all its guises including state-capitalism, or mixed-economy. is any merit at all in workers supporting nationalisation as against privatisation. I say no because for workers to do so is a to be coopted into supporting one form of capitalism vis-a-vis another. Workers should follow a policy of strict abstentionism or neutrality on the question of economic policy which in the end is a capitalist issue not a working class issue. They should militantly pursue their class interests whether in the private sector or the state sector and not seek to ally themselves with sections of the capitalist class in wanting to expand the latter or minimise the former.

Through Keynesianism the state has become stronger and more centralised. Chomsky could state that "prisons also offer a Keynesian stimulus to the economy, both to the construction business and white collar employment; the fastest growing profession is reported to be security personnel." [ Year 501]

The pattern of a particular crisis is influenced by the concrete circumstances of the time so no crisis is merely a repetition of those which have preceded it. While there are elements common to all crises we cannot say in advance how these elements will interact in a specific situation or what is the relative strength of other factors associated with it. Consequently to understand a crisis, we can only be wise after the event.

We can say that all crises are intimately connected with two fundamental features of the system, viz., " anarchy of production " and " disproportional industrial development." These two features are again intimately bound up with each other. By anarchy of production we do not infer economic chaos, on the contrary capitalism is a system ruled by laws and compulsions of its own. What is meant is that capitalism is not a system consciously regulated by social aims. Capitalists do not meet beforehand to harmonise production in accordance with social ends. Capitalism being profit motivated production, capitalists invest in industry for no other motive and without regard for and little knowledge of other investments being carried out at the same time. Because the different branches of industry are atomistically controlled or to state it alternatively because "anarchy of production," prevails in capitalism, decisions for capital investment are carried out by Capitalists without knowledge or regard for investment decisions being made at the same time by other capitalists elsewhere. But capitalist production is social production and the different branches of industry form an interlocking whole. It can be seen then that the different yet integrated industrial spheres, governed as they are by autonomous decisions being made simultaneously, there exists in the system an inherent bias towards uneven development between the various branches of industry. When this disproportionality reaches a certain level the possibility of a crisis emerges. Thus the phase of the business cycle associated with accelerating investment, rising wages, rising employment and increasing profits, will come to an end and be replaced by the antithetical phase of reduced investment, falling employment and declining wages and profits. Capitalism may be described as a system of unstable equilibrium.

To put the matter concretely, capitalists in a particular industry have overestimated the demands for their product and so produced more than the market can absorb at a remunerative price and if we take it that other industries have not similarly expanded, then it can be said that this particular industry has over-expanded relative to other industries, i.e. a disproportionality of industrial development has taken place. This relative over-expansion of industry will, however, generate cumulative effects. Not only will the industry affected cut investment and hence production but in doin'g so it reduces its demands for commodities, including labour-power, to those industries linked to it. They in turn will cut their orders to other concerns and so on. As a result a widespread decline in production will occur. If the initial over-expansion is big enough it may permeate the entire economy and precipitate a crisis. Large scale unemployment will appear, purchasing power suffer a sharp decline and surplus products will then begin to appear on the market as a matter of course. It can be seen then that over-production in one branch of industry brings elements of over-production in other branches of industry, and by rupturing the conditions of equilibrium, initiates relative over-production, which is indistinguishable from general over-production. All crises then are crises of relative over-production. An industry can only over-expand in relation to other industries although the effect which this produces is, as has been already stated, indistinquishable from general overproduction.

Crises, as Marx pointed out, do not arise through a lack of paying consumption of the mass of the population. They arise because disproportional development in one industrial sector leads to a curtailment of investment (and so production) which by upsetting the balance of the different industrial branches brings about a general slowing down of production. The lack of paying consumption is a consequence not a cause of crises. A crisis is made possible because of the antagonistic class distribution of income inherent in a system of antagonistic class relations of production. Capitalists cut back investment because there is an unsatisfactory income distribution for them, in that profit margins are too small and wage levels too high. They are not concerned with some abstract purchasing power but in the concrete fact that the purchasing power in the form of wages is too high for the existing volume of capital to earn a given return. There is still plenty of purchasing power in the pockets, holdings, banks, etc of the capitalists, but of course they do not choose to spend.

People should ask themselvs if they think state intervention -- Keynesianism -- disproves the Marxist contention of capitalism as intrinsically prone to crisis and crises are not just incidental interludes between periods of high trade activity but an essential corrective for the uninhibited self-expansion of capital. As Marx states it: "Periodically the conflict of antagonistic agencies seek vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions, violent eruptions which restore the disturbed equilibrium for a while." [Capital]

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