WHY IS CAPITALISM FAILING US?

DOUG PAGE ON THE IMPERATIVE OF ANALYZING THE DYNAMICS OF OUR ECONOMY IF CIVILIZED LIFE IS TO SURVIVE

Our critical human needs are not being met by our capitalist economy that is now pervasive throughout the planet. We humans do not have adequate medical care. A very large percentage of us humans cannot get enough food at a price we can afford, so that millions are dying and millions of others are malnourished. We are spending billions on foreign wars, while billions of people are hungry. It seems obvious that so long as our economic engine is fueled by greed for short term profit, and that the profiteers from this economic engine control our government, we shall never deal with Global Warming or planetary ecological damage. We face the three coinciding crises: Peak Oil, Fragile Economy, and Global Warming. We still have much freedom, but our effective democratic voting power is thwarted. What has gone wrong?

The basic question of political economy has always been: How shall we human beings organize our productive and creative abilities so as to work together to meet our needs?

The current critically important questions are: Is our present day economy meeting our human needs? Are there alternatives? To answer these questions, and even to understand what our economy is, we must analyze its dynamics, the way it really works.

It is critical at the outset that we state our own values. We seek, insofar as is possible, to meet the reasonable needs of all humans. No person should have more than he needs when others are needy. We seek caring, sharing and cooperation. We seek a sustainable civilized free existence for all humans on this planet. Only this sort of a Political Economy will be sustainable, consistent with our values, and consistent with the wisest values of our spiritual traditions. We are radical in the first dictionary definition of that term: “one who seeks roots or root causes.”

In considering the following analysis, please try to suspend conventional wisdom, and your present beliefs and opinions. Like most of us, you may have never known of an analysis like this one or you may have learned to regard it negatively. Therefore, please evaluate the following on the basis of your own personal experience, your personal judgment, and what you personally observe that seems to be happening.

As Doug Page understands them, the following are some of the main dynamics of capitalism:

1. The core dynamic of capitalism is this: A private person with money hires a person without money for the lowest possible wage, in order make as much profit as possible for the person who already has money.

a. It is the private hiring of human beings that fuels the economic engine. Slavery would also work for this purpose temporarily just as well were it not for the problem of where would slaves get the money to buy products from the slave master-employer?

b. Notice the internal contradiction: As Henry Ford observed in the 1920s, employers do not pay employees enough to buy all the products employees create.

c. Capitalism inevitably produces more than employees and others can afford to buy, thus leading to repeated cycles of overproduction, layoffs, unemployment and recession or depression.

d. The core dynamic, employed by thousands of private employers over time, creates a very rich and politically powerful but relatively small elite group while it produces millions and millions of people who remain poor and never get wealth or power. The elite get richer and richer and the rest of us get relatively poorer and poorer. This accounts for the tremendous disparity of wealth in the United States. The elite use this power and wealth to control the government through bribes, campaign contributions and lobbyists.

e. This small elite group comes to control the government, despite the fact that formality of voting remains intact. The voters no longer have effective governmental power. The government unsurprisingly uses its power and its taxing power only to help the elite.

f. Notice that the employee creates something, but he keeps no part of it. He is alienated from the product and the pleasure and pride of creating it, unlike so-called primitive self-employed crafts people.

g. Notice that this core dynamic rests on the first employer getting his initial capital to begin hiring by shrewd bargaining, capture, force, luck, or theft. The core dynamic thereafter creates capital of the employer by extracting as much production from the employee for as little wage as possible. Thus it is true that all of the employer’s capital was one way or the other produced by the human labor of employees. Diamonds deep in the ground have no value until the labor of human beings brings them to the surface. This raises the issue of justice: Were the employees fairly paid? It also raises other questions: Do we really need private employers? Can we get along without them? (The Mondragon Co-ops of Basque Spain function perfectly adequately without private employers. When the hotel owner and employer recently went broke running a hotel in Buenos Aires, Argentina, the former employees took over the hotel and are operating it very successfully.)

2. Capitalism must constantly expand profit making opportunities for capitalists or the economy will cycle into a downturn.

The greed for more profit is insatiable, so capitalists constantly seek more profits through more production. There is never enough profit for them. Capitalists cannot relax with the level of income or wealth that they have at any given moment. With population growth, more capitalists are born each day. Soon there is more production than poorly paid employees can buy. Hence the downturn.

3. Competition among capitalist-employers inevitably leads to the elimination of small capitalists and to the monopoly of a few large firms, with capacity to produce more than they can sell at a profit.

Despite the ideology of competition, individual employers hate competition. It increases the risk that they will lose. It is safer and more profitable to cut a deal with other employers. That is why we have state and federal laws against monopoly, although they are weak and rarely enforced. Employers can reduce their risk and their competition for employees and for sales and increase their mutual profit by cooperating. Is this not self-evident? Look at the example of the auto industry. There were once hundreds of car manufacturers. Three remain in the U.S. and seven world wide. Look at the media industry. There are now five huge conglomerates that own and control the print media, radio, TV and PR agencies. With a monopoly, capitalists can limit production, and maintain the same prices even if demand falls off. Monopoly augments the power and wealth of the tiny elite.

4. The normal path of mature monopolistic capitalism thus leads inevitably to stagnation. Due to excess productive capacity, there are insufficient opportunities to make a profit by investing in production of goods and services to meet human needs. Vast unemployment and economic depression would result if nothing was done.

There are people other than employees who buy capitalist goods such as self employed farmers and crafts persons. However, they do not earn much either because their income is reduced by competition from the capitalists. Thus, capitalism is unstable. It powerfully tends toward overproduction as competing employers try to get a share of the profit, but then more is produced than employed and self employed people can afford to buy. They may need the product, food for example, but they cannot afford to buy it. So plants shut down, employees lose jobs, farmers also cannot sell their products and a depression results.

Human beings were shocked and startled by the Great Depression of 1929, particularly so, capitalist employers. Capitalists learned, even if we did not, that capitalism simply would not function without public money. U.S. capitalist employers remained without profit making opportunities for 14 years until World War II, despite the public expenditures of the New Deal. The vast public expenditures of WWII, primed the pump of capitalism. Billions and Billions of dollars of public money have sustained capitalism and avoided stagnation from 1940 to date. We now have:

• $49 trillion in interest-bearing debts, according to the U.S. Federal Reserve Board ...
• $50 trillion in federal contingency debts, according to the Government Accountability Office (GAO), and ...
• $164 trillion in derivatives, according to the U.S. Comptroller of the Currency (OCC).

That's a grand total of $263 trillion in debts and obligations, twenty times more than the total size of the entire U.S. economy.

Despite this massive public expenditure, our capitalism remains always on the brink of stagnation.

What do we mean by “stagnation?” It means absence of profit making opportunities, too much productive capacity, and much unemployment.

The huge unmet consumer needs that had built up during the depression and WWII, provided profit making opportunities until around 1970. Capitalist employers were determined that no future depression would again lay them low. All capitalists thus enthusiastically supported the vast public expenditures for defense during the Cold War from 1946 to 1990, the Korean War, and the War in Viet Nam. We are now spending $1 Trillion per year on the Iraq War

Despite all of this, capitalism remains fragile, prone to stagnation, and desperately dependent upon contribution of public tax money or borrowed money to keep it going. If there had not been this public taxpayer support of capitalism, there would have been another depression or to some solution like the Germans adopted in 1933.

5. The National Government is now a critical component of capitalism and to an ever increasing degree, capitalism and capitalists control the government. Capitalism and the government are “one.” We now have corporate state capitalism.

a. Even in Adam Smith’s day, the state and society were essential to the functioning of pure capitalism. The state provided laws and courts to protect private property, private ownership of resources, and provided the sole legal imperative for corporations to make money in the short run for shareholders. The state always did more than this. Through its sheriffs and army, it enforced its laws by force, if necessary. Law enforcement has always intervened in employee strikes on the side of employers. Society provided the ethical and practical incentive for capitalist employers to pay their employees at least enough to survive and continue working for the employers. (But with the global outsourcing of jobs, this social constraint has been abandoned. See below.)

b. The National Government, being effectively under the full control of capitalist employers and bankers, now provides “whatever public money it takes” to keep capitalism going for the elite and to avoid the loss of profit making opportunities. Thus the government provides massive public money for “defense,” “Cold Wars, War in Korea, War in Viet Nam, War against ‘communism,” and now for the perpetual “War against Terror.” Spending for human social services would prime the pump also, but the capitalist elite always vigorously opposes this because it would increase wage costs by making employees less desperate to work.

6. Since capitalists must make a profit, when profit making opportunities dwindle at home, capitalists, using the National Government and the Military go abroad to seek new profit opportunities, new resources, additional customers, and employees willing to work for lower wages. Capitalism at home tends inevitably toward capitalism abroad: Imperialism.

a. Capitalists do not go abroad to help foreign residents, to bring freedom, or to impose democracy. They go to make a short term profit.

b. Imperialism does not require colonialism with an occupying force. Imperialism is now more often a purely economic activity, perhaps aided by bribes of local officials, loans with unfavorable conditions for foreign peoples, and CIA toppling of unfriendly foreign governments.

c. Capitalists now pay employees at the cheapest wage rate they possibly can with total disregard of whether or not the employee will survive. Survival of human employees is somebody else’s problem under modern mature capitalism.

d. The voting public is caused to support each major foreign war by a “false flag” events such as Pearl Harbor or 9/11.

7. Despite the massive aid to capitalism from Imperialism, state spending and monopoly, capitalists, beginning in 1970, found insufficient profit making opportunities in investing to produce things human beings need. The capitalist elite began increasing investment in speculation in the financial sector to produce the short term profit upon which the survival of capitalism depends. This serves no human need except the speculators’ profit. We now have the phenomenon of Finacialization.

Beginning in 1970, the capitalist elite had no shortage of capital. Wealthy individuals and corporations had huge reserves of cash. There was simply no profitable place to invest it to meet human needs. Public expenditures for wars and defense, including the War against Terror were simply not enough. In this era of Financialization, corporations seldom invest their own accumulations of cash. There is much more profit to be made by “leveraging” that is, using borrowed money with as little of the corporations’ own cash as possible.

Wall Street created numerous novel investment vehicles where a short term profit could be made: Hedge Funds, and Collateralized Debt Obligations, Collateralized Mortgage Obligations, with each level serving as “security” for yet another level of Collateralized Debt Obligations.

Whereas finance used to support investment for production, Financialization took on a life of its own, unrelated to the real economy and production for human needs. The Fed and the big bankers created a “monstrous bubble of cheap credit.” “The monstrous explosion of debt, consumer, corporate and government (equal to well over 300% of the GDP by the housing bubble’s peak, both lifted the economy and led to growing instability.”

This investment in the financial sector and speculation has become the dominant and necessary feature of current capitalist investment, if a serious depression is to be avoided. While this investment may make a profit for the wealthy investors, it does absolutely nothing for human beings or the real economy. It is so necessary to keep capitalism going that Federal Reserve Chairman Bernacke absolutely refuses to regulate this financial speculation. If he did, stagnation would be the result. Bernacke gave the big banks almost $30 Billion “to avoid a total breakdown of the world economy.” Did the Big Banks use this public money to invest in new production to serve public need? Absolutely not! They used public money and barely secured loans to invest in foreign currencies so that they could augment their reserve capital to meet the difficulties from the worthlessness of the collateralized debt instruments!

It is now apparent for all to see that despite all of the foregoing Capitalism is still extremely fragile and vulnerable to stagnation. More importantly, Capitalism is failing to meet our most critical human needs.

8. Capitalism as it existed in the days of Adam Smith no longer exists in the Twenty First Century. Capitalism has mutated so as to cause the merger of corporate power with state power so that we now have corporate state capitalism whose powers are exercised solely to benefit of the global elite at the expense and starvation of the rest of us.

The elite causes the government to print massive amounts of paper money to rescue the institutions of the elite, and to stave off a massive economic collapse. This paper money is funded by the Chinese and the Arabs buying U.S. Bonds which we citizens and taxpayers will ultimately have to pay off.

It is conceivable that the US could default on its bonds. The US could simply not pay them, and start over with a new currency based on the Gold Standard. This would mean an immense depression in the US, the end of capitalism, and a new economy based on public hiring, public utilities, co-ops, partnerships and self employment.

Unfortunately, the existing power elite are not likely to sit passively by and to allow this to happen. It is far more probable that they will choose a military dictator favorable to their interests and to impose martial law. The power elite are hurt far less than the rest of us by massive depreciation of the value of the dollar.

As John McChesney says:

“One thing is certain. Large capitalist interests are relatively well positioned to protect their investments in the downswing through all sorts of hedging arrangements (Doug adds: Investment in foreign currencies, and repossession and ownership of houses and other assets) and can…call on the government to bail them out. They also have a myriad of ways of transferring the costs to those lower down on the economic hierarchy. Losses will therefore fall disproportionately on small investors, workers, and consumers, and on third world economies.”

It seems abundantly clear that the wealthy powerful elite served so well by Federal Reserve Chairman Bernacke is far more concerned with maintaining the stability of its banking institutions than with inflation. The elite have ways of profiting from inflation such as investing in stable foreign currencies.

9. The Propaganda Arm of the corporate capitalist state. The capitalist elite owns and controls all the major print and electronic media, public relations and advertising agencies. The capitalist elite thus imposes the ideas and ideology that benefit it, including the taboo against analyzing capitalism, its social inadequacy and its dynamics, upon all of us.

We must learn the truth of the points above by ignoring the massive taboo imposed by the elite, and by becoming aware of the degree which each of us has been brainwashed by the elite. The short term capitalistic best interests of the small ruling elite determine the ideas and ideology of the elite. The ideologies and ideas of the ruling elite are projected or imposed by this dominant elite on all members of that society in order to make the elite’s interests appear to be the interests of all. This is of course augmented by the ruling elite’s control of all of the mass media, by the dependence of us employees on the employers whose jobs are our only means of survival, and by monetary support of the elite to non governmental organizations and the academic community.

The ideology of a capitalist society is enormously important since it confuses us employees and voters, causes us to abandon our own economic and political best interests and creates a false consciousness such as the addiction to consumer goods. It is a part of the false American civil religion.

The elite through their ownership and control of the media are well aware of and make full use the manipulative power of Nationalism, of Patriotism, and of the “dogs of war.”

We set forth three current examples:

· The NYT acted as a branch of the government in publishing know lies that led us to support the war in Iraq.

· The NYT and the media publicized the views of retired military officers as objective efforts, knowing the fact was that they were acting as spokesmen for the military and Bush Administration.

· A huge majority of American voters want Universal Health Coverage, but neither Obama, nor Hillary Clinton, nor John McCain can promise to try to implement that wish of the voters.

Application of the analysis of these dynamics to current conditions:

Both capitalism and a government of, by, and for the people no longer exist. We now have corporate state capitalism with its military, intelligence agencies, and media, all controlled by the elite.

There are now three economies in the US each dominated and controlled by the elite:

· The economy of the very rich, for the support of which the Elite uses their control of media, academia, government, Federal Reserve Bank, and our taxes.

· The Stock Markets that we should think of as simply a gambling casino, with hidden government financial support and manipulation to aid the rich in the fleecing of little stock holders. (Do you know of the “Plunge Protection Team,” who controls it, whose money it uses, and under what circumstances? None of us do and we invest in the stock market at our peril.)

· The Real economy where the rest of us live in immense insecurity, with many unmet needs and we struggle to survive.

We have lost our ballot box control of the government. We have no means to control the ecological destruction of capitalism. Al Gore may be living in a fool’s paradise in his efforts to control Global Warming unless he deals with the dynamics of capitalism. We have no direct means of curbing, controlling or regulating corporate state capitalism. We can no longer study “economics” as a subject distinct from “political science” if we are to have any hope of enlightenment.

Because we do not have a visible dictator, because we still have substantial freedom to speak, write, communicate, and organize, and because the forms of ballot box democracy still remain in place (although not the substance), it is not yet accurate to call our global corporate state “fascism,” such as existed in Italy under Benito Mussolini.

The capitalism of Adam Smith, relatively free of government support, is no more. Monopoly Capitalism and the government are now one. However, even corporate state capitalism is fragile as we have seen. The government cannot keep borrowing forever to support this fragile institution. We citizens and taxpayers cannot pay ever higher taxes simply to keep capitalism from depression. Moreover, present day Corporate State Capitalism is parasitically dependent on us as consumers and as employees for its existence. This capitalism is like a cancer that in killing its human hosts, it kills itself. Its laws of motion take it inevitably in the direction of fascism, dictatorship and martial law. It destructive energy in sucking away the profit from our labor, and in its total lack of concern for our wellbeing, makes us think of a tornado. .

It is now probable that the ruling elite with its vast economic, military, media, and governmental powers, can avoid another Great Depression for them. There may be another great depression for the rest of us, although the mainstream elite media, using falsified statistics, may never acknowledge or publicize that fact. Runaway inflation where our wage dollars buy less and less would itself be a Great Depression for us. If a Great Depression really threatens the elite, it is probable that the elite would turn to a popular general like General Petraeus as military dictator and impose martial law. The elite would engage our “support” of this dictator by “false flag” operations, and by a media PR campaign, ,manipulating our own fear, and playing on our national honor, nationalism, consumerism, racism, religious differences, patriotism, “evil enemies at home and abroad,” and “the dogs of war.” In this, the elite will be successful unless we learn to be intellectually and emotionally immune to these false manipulations.

This being the case, what shall we do? What can we do?

It is clear that we cannot successfully or morally use force against the armed juggernaut of the elite, and against those among us who are successfully brainwashed by the elite.

· We can learn and communicate the dynamics of corporate state capitalism and its false PR manipulative strategies.

· Since even this mutated form of capitalism is parasitically dependent upon our work, and our consumption, we can stop working for large private employers. We can slow down our pace of work.

· We can stop our consumption of the products of the elite. We can boycott the products of the elite

· Insofar as is possible, we can grow our own food and meet our own needs as our ancestors did

· We can support a democratic government as our employer to meet those needs we cannot meet ourselves.

Our sustainable survival, our freedom, our democracy, and our civilization are dependent upon our overcoming the taboo imposed by the elite, and learning capitalism’s dynamics.

Is this analysis plausible? What part of it, if any, is illogical, or contrary to your own experience and observation? Is it worth considering? What is your alternative? How do you analyze the workings of capitalism?

Dated: June 6, 2008

Douglas R. Page dougpage2@earthlink.net

Doug Page is a retired lawyer for unions, a former Democratic politician, and a life long observer of government, unions and business.

This article is on line at http://www.thenewliberator.blogspot.com/