Saturday, December 18, 2010

How our economy works

All societies, no matter when or where, must have a way of reproducing themselves over time. In order to do this, there must be some organized way of socially producing the things people in the society need to survive. This is the heart of any economic system: the way that production is socially structured and organized.

In the US we live in a capitalist society. Although people associate all sorts of things with capitalism (e.g. consumerism, greed, stock markets, etc.), we need not concern ourselves with all of these in order to really understand the basic structure of capitalism. As I said above, the heart of any economic system is production. We will therefore need to say something about how production is structured and organized in capitalism in order to get a grip on how the U Seconomy works.

In capitalism, production is for the profit of those who own and control production. The basic motive for all large-scale production is accumulation for accumulation's sake. But who is it that owns and controls production in capitalism? The answer is obvious: capitalists do. Production is owned and controlled by investors who possess all but one of the key ingredients necessary to produce (capital, equipment, raw materials, etc.). The only factor of production they don't own outright is labor-power, i.e. the capacity to work. In the not-so-distant past, of course, Slave owners did own this outright.

Now it doesn't much matter whether individual capitalists desire to produce for the sake of profit or not- they are forced to do so by competition (i.e. by the way the system is configured). If a particular firm doesn't reinvest profits in expanded production, often the result is that competition will push it out of business. In order to even be (and remain) a capitalist, then, one is forced to grow one's firm and accumulate rapidly. If you don't, you're liable to go under.

At the level of an individual firm, there is a great deal of conscious rational planning. All sorts of cost-cutting and allocative decisions are made in order to maximize the profits of the firm in question. But at the system-wide level, there is no plan at all: there is merely the anarchic head-butting of various firms who fight for market share and profits. The completely ludicrous idea pedaled by apologists for this system is that all of this irrational greed-driven competition will deliver the best possible consequences for all.

Any society needs to produce certain goods in order to reproduce itself over time. Just about all of the things we need to survive are dependent on the process of production in our society. (The idea that society could shut down tomorrow and we could all grow our own food in our back yard is a utopian fantasy).

Importantly, in order to be a capitalist society at all, production must not be under the control of the people. "Free enterprise" requires that the "entrepreneurs" have exclusive ownership and control of it. And worse still- what they do with their exclusive ownership and control is wield production exclusively to enrich themselves. Profit is the sole motive for investment and production.

Production is not designed to meet our needs. Production in capitalist societies is designed in the first instance to accumulate profits for those who own and control it.

Because of this, we can get the things we need (e.g. jobs, income, goods, food, etc.) from the system only if certain conditions obtain. That is, production only occurs when it can be done in such a way that capitalists turn a profit. When sufficiently high profits are not on offer, capitalists do not invest. This is the reason why "free market" health care systems leave the old and sick out in the cold: such persons are not "good investments" since they will need more than they will pay in. They are not potential sources of profit, so profit-seeking capitalists do not transact with them. The result is that their needs are liable to go completely unmet by the market.

Our entire economy, then, is like an engine that only runs when the ruling class is accumulating profits. This frames and circumscribes the space in which policy makers in the State make decisions. For Democrats as much as Republicans, the basic question is the same when it comes to sculpting economic policy: what can we do to create the conditions in which the accumulation process can resume? They are committed to using this particular engine, so their only real disagreements are over how best to fuel it.

All of the major economic policies implemented since the onset of the recession have been aimed at trying to solve this problem: they have all aimed at trying to secure the conditions for resuming profit accumulation for the capitalist class.

The stimulus bill, for instance, which was a Keynesian-inspired idea, aimed to solve this problem by trying to prop up effective demand. In other words, it was aimed at trying to increase the purchasing power of ordinary people so that they can go out and buy the things that capitalists sell, thus trying to solve the problem of overproduction and resuming capitalist economic activity.

Of course, the stimulus bill had side effects for ordinary people that truly were beneficial: increased spending on infrastructure, increased education spending, new jobs, protection of some old jobs, etc. But at the end of the day, these were just side-effects of the bill: the basic goal of the policy was to resume profit accumulation for the ruling class by propping up effective demand. If the basic goal was actually to help people in need for its own sake, this would beg the question of why so many needs (even the same needs addressed by the much-too-small stimulus) go entirely unmet by policy in general.

Or, take a few other examples. Take TARP. The goal there was simple. It had nothing to do with fairness, justice, or the best interests of the majority. It was rather obviously a massive transfer of toxic private assets from financial institutions to public rolls. The reason for it was simple: it was aimed at resuming the conditions of profitability as quickly as possible for the biggest and most powerful financial institutions which were teetering on the verge of collapse. You have to get that engine running again, right? If it was unfair or unsavory to ordinary people, that's because it had nothing whatsoever to do with what ordinary people should find fair or just. It had one basic goal and it succeeded marvelously. Everything else that was said about it was merely the massage-work of PR.

The same goes for "quantitative easing". The interest rates are near zero because the technocrats at the Fed think this is the best way restore profitability to the commanding heights of the economy.

Or, if you like, take the present regime of austerity. The reasoning behind this strategy is, as I recently noted, the same reasoning as the "structural adjustment" nightmares forced upon the populations of numerous countries in the global South and elsewhere. This is classic IMF-style neoliberalism. Massive sums of public money are mobilized to bail out financial institutions who've driven themselves into the ground- and in order to finance the bailout, a program of austerity for ordinary people is implemented. It's nothing personal- it's not as though the primary aim of the system is screw ordinary people, though this is often the practical consequence of how it functions. It's all about restoring the conditions in which the accumulation process can resume.

Now, it should be quite clear what I'm not saying by this point. I'm not claiming that there's some conspiratorial clique of elites who just want to screw us and do nothing but. No, the claim is quite the opposite: it doesn't much matter what bureaucrats and government officials think in a certain sense. As individuals, they can choose to operate within the logic of capitalism, or they can decide to resist it. But as occupants of a certain institutionalized role which is itself lodged within the logic of capitalism, they have no say. Even if they are leftish liberals who actually care about working people, so long as they are to work within the logic of capitalism they are forced, whether they like it or not, to care about the basic goal of profit accumulation. Because when the accumulation process stops, so does all of the cherished liberal programs that are funded by it. Thus liberals are stuck with a contradiction they can't erase so long as they operate within capitalism. All efforts, then, to try to massage away the worst effects of capitalism will be brushing against the grain and unstable over time.

Left-wing reformists have tried quite hard to try to deal effectively with this contradiction. Some have tried to nationalize certain sectors of the economy in order to bring some of the most crucial industries under democratic control. Some have tried to heavily tax and regulate capital; others have tried to hang their hat on strong trade unions who are, for a time at least, formidable enough to exact some compromises from capital. But at the end of the day, all of these putative solutions prove unstable over time for one reason: they leave the ruling class intact. As long as there is a ruling class, as long as the basic structure of the economy is under the control of capitalists, they will never be satisfied with concessions. They too can go on strike. They can (and have, in many different historical instances from the Paris Commune to Chile in 1973) appeal to foreign powers to intervene (directly/violently or economically). They can threaten capital flight. Sometimes they can just use the existing state apparatus to repress social movements demanding that the system change. They've got a whole goody-bag of tricks they will use if it their power is threatened.

For this reason, the basic analysis of capitalist societies provided by Marxism lends itself to revolutionary demands for justice. Surface level tweaks won't do. We need to change the basic priorities of the system and bring production under democratic control. Only the most radical form of democracy can succeed in bringing about such a state of affairs.

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