/Radical Economics: A Clearer Look at Things, Part 2

Radical Economics: A Clearer Look at Things, Part 2

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The State  Today there are many social scientists who believe that capitalism is gradually transcending the government, meaning that governments can no longer regulate and control capital accumulation. This view is incorrect. Capitalist economies developed alongside of strong central governments and cannot exist without them. Capitalist production and distribution occur within markets marked by intense competition and extreme individualism. Without some sort of central control, markets would devolve into chaos as rampant cheating and violence erupted over market control. A central government is needed to make laws and rules for the smooth operations of markets: laws to compel contracts to be honored, laws to ensure minimal product purity, a bureaucracy to enforce laws and rules, and so forth. Governments are also necessary for the production of certain outputs essential for capitalist production but which the markets themselves will not cause to be produced. Either because no capitalist could be sure of reaping the reward of a particular investment or the investment is beyond the means of any single capitalist, the state must undertake certain investments. It must provide for the national defense, build roads, bridges, lighthouses, port facilities, airports, railroad lines, and provide for the general education of the work force.

Of still greater importance, a strong government is needed to keep the struggle between workers and capitalist within bounds. Workers are ultimately the major roadblock to capital accumulation. At any point in time, the reserve army of labor may be insufficient to contain the power of the working class. There have even been times when the employed and the unemployed joined hands in collective struggle. Today in Argentina for example, there is a strong mass movement of the unemployed, who have been blockading highways across the country and bringing transport and much related economic activity to a halt. Should the movement of the unemployed join the movement of workers, the whole system of capital accumulation in Argentina could be severely threatened.

To prevent workers from using their ultimate powers of general strikes, the governments of all capitalist economies have put in place laws and a police power to uphold these laws which make many types of working class activity illegal and subject to the state’s use of violence to suppress it. Examples here are legion, as a reading of any capitalist country’s labor history will make clear. In addition, the governments of the rich countries have tried to strangle every anticapitalist movement in the poor countries, and they have often succeeded, almost always with violence.

We will have more to say about the state in the next chapter. Suffice it to say here that the radical view of the state is one which argues that the state is primarily an instrument of class rule, a weapon used from the dawn of capitalism by employers to help them accumulate capital and suppress the working class. Neoclassical economists never tire of equating capitalism with freedom and democracy. Nothing could be further from the truth. The rich capitalist countries are set up as representative democracies, but this has little to do with capitalism. Workers fought to extend the bourgeois notions of freedoms to include freedoms relevant to them, and to the extent that modern capitalist governments guarantee some of these freedoms, this is due to the efforts of workers and not to capitalism. (Once certain freedoms become more or less universal, the state begins to propagandize this universality as an inevitable feature of capitalism. In this way, the state serves to legitimate capitalism, that is, to justify it as a good system.) Furthermore, those who own the means of production have managed to subvert representative democracy everywhere it exists through the power of their wealth. In the poor capitalist countries, even representative democracy is rare. Capitalism has had no problem existing in harmony with the most repressive forms of government and all sorts of forms of absolutely unfree labor, including slaves. We should also not forget that capitalism accommodated fascism in Western Europe without difficulty.



The accumulation of capital takes place in an environment of intense competition; it is the competition of the many capitals that, in fact, drives the accumulation process forward. Yet, as businesses seek profits, they see that one way to make more money is to find ways to denynew entrants into their market. A process of centralization of capitals begins to occur to accomplish this. More successful capitalists buy up or drive out of business the less successful ones. Large powerful capitals merge into giant corporations, and these few firms use their leverage over supply to keep prices and profits high. Monopolization of production (or more accurately the oligopolization (an oligopoly is an industry in which a few gigantic firms dominate production. Actual monopolies are rare) thus becomes a tendency of capitalist production.

While there is a tendency toward centralization of production, this does not mean that competition ceases to exist. New capital does enter even the most concentrated markets, as evidenced by the automobile and steel industries. U.S. firms once completely dominated these markets, but this is not the case today. Entire new industries are constantly being formed, and competition typically rules in the early stages of the industry’s development. In addition, capitalist enterprises are always centered in particularly countries and rely upon their country’s government for help in competing with capitals centered in other countries. And even when an industry is marked by oligopoly, this does not mean that the firms are not in competition with one another.

The tendency for capitals to become more concentrated, for an increasing share of production to be controlled by a decreasing percentage of all firms, has important consequences. Large firms in oligopolistic markets make greater profits than firms in more competitive markets. They can therefore keep some of their productive capacity in reserve and still have high profits. They would do this to be prepared for sudden increases in demand without having to make new investments. New investments are, by their nature in large companies, very expensive, and they add to the firms’ capacities to produce output, an added capacity which may or may not be needed. Better to keep some capacity in reserve. In addition, oligopolistic firms, because their capital investments are very large, will not quickly scrap capital even if more efficient capital is available. This also slows down the rate of capital investment as large firms wait until their capital stock is fully depreciated before embarking on new capital spending.



Neoclassical economists see economic crises—recessions and depression—as caused by some sort of external shock to the economy, such as a war, a sudden business failure, a stock market panic, catastrophic weather, etc. The ibertarians believe that the impact of the shock on various prices (wages and interest rates) will quickly get the economy back on track, with perhaps a little help from the central bank’s monetary policy. The liberals say that some fiscal policy might be needed as well, in the form of tax- or debt-financed government spending.

Radical economists put forth a different argument. They argue that crises come from within; they derive from the process of capital accumulation itself. Marx put forward a fundamental form of crisis: the tendency of the rate of profit to fall as capital accumulation proceeds.  He posited that over time, capitalists would make production more reliant on constant capital; they would substitute the dead labor embodied in the constant capital for the laving labor of actual workers. Relatively speaking, this would mean a decline in the mass of current workers, the source of surplus value and profits. With relatively less living labor to exploit, downward pressure would be put on the rate of profit, unless the living labor could be more intensely exploited. But during an economic expansion, it may become more difficult to raise the rate of exploitation. The reserve army of labor shrinks, and this not only puts some upward pressure on wages, but also may workers more aggressive and less productive in their workplaces. Without as much fear of becoming unemployed, workers may be more willing to stand up to their bosses: taking longer rest breaks, skipping work more often, even forming unions. The combination of rising wages and falling productivity pushes the unit cost of production up and this squeezes profits. Falling profits make capitalists less willing to put there money capitals onto the market, and when they act on this unwillingness, the economy goes into a slump.

Both the nature of an economic expansion or contraction are unpredictable. We only know that capital accumulation is self-limiting; the accumulation process runs up against an internal contradiction: an inability to rate of exploitation of workers fast enough to compensate for the fall in the relative mass of exploitable living labor. However, it is not just a matter of expansions coming to an end. The crisis serves a necessary purpose, in that it gets the economyprepared for the next expansion. During a slump, workers are re-disciplined by employers as the reserve army of labor swells and the fear of unemployment takes the steam out of the workers’fight against their employers. Wages fall, or at least the rise in wages levels off, and productivity begins to rise again, both factors lowering unit costs and helping to restore profit margins and business confidence.

Each expansion and each contraction will have unique characteristics, and these will help to determine how long each lasts and how deep or severe each is. For example, the United States came out of the Second World War with remendous advantages over the other rich capitalist nations. The United States lost none of its productive capacity , whereas that of the countries of Western Europe and Japan were physically devastated. This meant that the United States’ manufacturers had a near monopoly of world production. In addition, consumer spending was brisk after the war as people spent their forced wartime savings. Businesses added productive capacity rapidly, both to replace that used up in the war and to meet the foreign demand for U.S. products. These factors, combined with a boom in housing and automobile production, fueled by consumer debt spending and government loan guarantees, generated the great post-war boom in the U.S. economy.

Another factor which might influence the strength of an economic expansion is the aforementioned tendency of capital to become more concentrated. The more monopolized is production, the less robust an expansion might be, because large firms might be unwilling to make new investments when they already have a good deal of excess capacity. Their market power might make it more difficult for new capital to enter the market as the economy grows, and this slows down the recovery from a slump. Large firms in oligopolized markets might simply raise their prices as demand increases, just as in a downturn they might shed workers rather than lower their prices, since their large capital investments make price wars to risky to begin.

Each downturn is likewise unique. Perhaps during an expansion, consumers and businesses, caught up in the ptimism that often accompanies such periods, take on an inordinate amount of debt. They think that it is safe to do so as long as the economy is growing; the growth in income gives them the ability to pay back the debt and still prosper. However, when the expansion ends, the debts still have to be paid, and the payments on the debts deepen the slump. Consumers have to devote a higher fraction of their (reduced) incomes to debt repayment rather than spending on consumer goods and investing.

Can a government use Keynesian economic policies to end a slump? In some circumstances, yes, although we have seen that in today’s less regulated global economy, Keynesian policies can be foiled by the actions of consumers (increasing their demand for imported goods and services), businesses (refusing to make domestic investments), and speculators (selling the domestic currency). But even supposing that the government could bring a slump to an end, it must be remembered that, according to the radical theory, governments normally act in the general interests of the capitalist class. They will not normally want to push unemployment too low for fear that this will ultimately push down profits. It has frequently been the case that governments pursue policies which raise unemployment, pushing the economy toward a slump, for the express purpose of reducing the potential power of workers and their collective organizations. During the early 1980s, when the U.S. economy was mired in its deepest crisis since the Great Depression, the Board of Governors of the Federal Reserve System, under the chairmanship of Paul Volcker (currently appointed to head an advisory group trying to resurrect the Arthur Anderson accounting firm after the Enron debacle), pushed interest rates up to nearly 20 percent. This caused the failure of many businesses and the nemployment of millions of workers, including thousands of steel workers in my then hometown of Johnstown, Pennsylvania.


Alternative Crisis Theories

There has been a longstanding and ongoing debate among radical economists concerning the nature of economic crises in capitalist economies. It is beyond the scope of  this book to provide the details of all of these theories. However, two theories deserve some attention. Some radical economists have argued that prosperity so increases the power of workers that it is possible that this power will, itself, translate into lower profits and set off a crisis. During the post-World War Two boom, workers unionized and formed political organizations which raised their wages and benefits and forced employers to pay taxes to the government to fund various worker-friendly programs. The growing security which both private and public power gave to workers made them still more aggressive vis-a-vis their employers. Ultimately, employers experienced rising wages and taxes as a “squeeze” on their profits, and they responded by reasserting their own economic and political power.

The Monthly Review Theorists in Cuba

For capital accumulation to continue without crisis, the growing surplus must find spending outlets. Baran and Sweezy argue that the oligopolistic structure of modern business slows down investment spending, as we argued above in the section on monopoly. This implies that there will be a tendency for the surplus to grow faster than the investment outlets for it. This cannot continue indefinitely, because what will happen is that the shortfall in investment spending will cause total demand in the economy to fall short of supply. Insufficient demand will lead to a stagnating economy.

Two things can keep the system afloat in such conditions. First, history indicates that some earthshaking innovation, such as the railroad and the automobile, might come along and generate an explosion in investment spending, absorbing for a time the rising surplus. The automobile, for example, not only required vast amounts of capital for direct production, but also necessitated large investments in the steel, rubber, glass, oil, and related industries. Furthermore, the automobile completely revolutionized social life by increasing our mobility, and this led to huge investments in residential housing, motels, roads, and much more.

Unfortunately, “epoch-making innovations,” as Baran and Sweezy call them, cannot be guaranteed and, in any event, the investment boom they cause eventually peters out as the world becomes saturated with the product (there will be many people in the world who will never be able to buy it) or as its production produces tremendous social costs, as is clearly the case with cars. Then, the dearth of investment opportunities must be compensated through various forms of wasteful and socially destructive spending (the profit demands of business do not permit spending on more useful outputs such as publicly-produced affordable housing, health care, schooling, and transportation). Baran and Sweezy point to the growth of military spending and the explosion of corporate spending to promote sales, from advertising to packaging. Unfortunately, these can serve as only temporary palliatives, since both increase the surplus (military spending is very profitable as is advertising), the growth of which makes the economy unstable to begin with.


Testing the Radical Predictions


What makes the radical theory so different from the neoclassical theory is that is both historical in it analysis and based upon the notion that classes rather than individuals are the best theoretical building blocks. The neoclassical theory sets up a completely abstract model of capitalism, devoid of any connection to reality, and then proceeds to trace out the logic of this abstract model and make predictions about the real world. In the process, most neoclassical economists seem to lose sight of the difference between their model and the real world. They say, in effect, that the real world must be made to conform to their model if we are to reap all of the good consequences of an economy which operates on the principles elucidated in the model. But then they turn around and evaluate real world phenomena as if we were actually operating in their model economic world. They do not, for example, analyze an increase in the minimum wage in the context of the actual world in which it occurs. Rather they examine this in the context of their model world. The fact that an increase in the minimum wage leads to undesirable results in their model world is given as evidence that it will do real harm in the real world. No wonder the theory’s predictions do not test well. What the neoclassical economist have is not really a scientific theory at all. What they have is an ideology, a belief system that they use to evaluate the world. It is remarkable that this is precisely what they accuse radical economists of doing, though nothing could be further from the truth.

Several predictions can be derived from the radical theory of capitalism. Marx predicted that, once capitalism took hold, it would know no bounds. It would spread outward from its starting points in Europe to eventually encompass the globe. This is exactly what has happened.

Radical economics posits a capitalism which is radically inequitale. This inequality is rooted in the concentrated ownership of the nonhuman means of production. From this ownership flows the income which is the “reward” for the exploitation of labor. Without the development of a strong workers’ movement, aware of its exploitation and determined to do something about it, the inequality of and income inherent in capitalism will, the theory predicts, increase. We see this prediction verified throughout the world during the last three decades. The triumph of neoliberalism has been made possible by the thorough defeat of working class organizations in nearly every rich and poor capitalist country. Workers were left completely subjugated by the naked force of capital accumulation, aided and abetted by the police power of the state. The data we provided in Chapters Two through Four give evidence of what Marx called the “immiseration of the proletariat.” Without strong organization, the logic of capital accumulation demands constant cuts in wages, detailed division of labor, mechanization, overwork, and underemployment. While the neoclassical theory makes these dependent on the maximizing choices of employers and workers, the radical theory situates them in the nature of the capitalist system itself.

Once capitalism took hold in Europe, it was inevitable that it would spread. As Canadian economist, Sam Gindin, notes, “Globalization is not new. A century and a half ago, Karl Marx noted the inherent capitalist drive to ‘. . . nestle everywhere, settle everywhere, establish connections everywhere . . . .In place of the old national seclusion and self-sufficiency, we have intercourse in every direction, the universal interdependence of nations.’” How does the radical theory predict this would play out? Could it have been peaceful, and could the wealth of nations been shared? This would appear to be impossible. Capitalism requires the privatization of the nonhuman means of production; in the case of early capitalism, these consisted mainly of the land. In the first capitalist countries, peasants were ruthlessly deprived of their land rights; they were driven off the land and compelled to become wage laborers, sometimes, ironically, on the lands they had once had a right to use but which have now been converted into sheep farms. Once expropriated and subjected to capitalist exploitation, it was not possible for them to gain a large share of the society’s wealth and income. Only their collective organization, over many decades, won for them some mprovements in their life circumstances.

When capitalism began to spread, to Africa, Asia, and Latin America, European capitalists had already learned the art of property theft. Aided by better ships and arms, themselves the product of capitalist enterprise, they violently subjugated peasants around the world, converting capitalism early on into a system of imperialism. The degree of destruction of indigenous peoples was unprecedented in its magnitude. Millions were murdered and millions more died of diseases. Millions were enslaved. Wealth was looted as fast as it could be taken and put on ships bound for Europe. This stolen wealth—not just gold and silver but human beings—had a double effect. In Europe, this wealth greatly stimulated capitalism, creating the conditions for further exploitation of workers at home and abroad. To a certain extent, the exploitation of the poor countries allowed capitalists in the rich nations to pay better wages and set better conditions for their workers (though not ordinarily without great struggle by the workers). One advantage of this was that workers in the rich countries could be more easily coopted to support imperialism, even to the point of becoming soldiers in imperialist armies. At the same time, in the rest of the world, massive poverty and misery swelled. The stage was set for a future of rich nations and poor ones.

Mainstream commentators and propagandists often ask why after so many years, the poor nations aren’t richer. Just as they ask why black persons in the United States haven’t done better. After all, the poor nations ended their colonial status many years ago. Slavery for blacks in the United States was abolished with the Civil War of the 1860s. In the world of opportunity capitalism creates, these pundits ask, why haven’t poor nations and black persons seized upon the opportunities so obviously available and bettered themselves? The clear implication of such musings is that there is something wrong with the poor countries and the black people. Poor countries are full of corruption and ignorance. Black persons are lazy, too much into present-day consumption than the more arduous tasks of saving money or going to college.

To give readers and idea of how wrong this line of “reasoning” is, suppose we imagine two equally strong persons. One of them would like to take advantage of the other. He borrows a weapon and robs the other man. Then, he shoots the other man and cuts of his arms and legs and leaves him to die in the street. Suppose that the by a miracle the injured man survives. He endures several years of painful rehabilitation, but when he is released to the streets again, he has no money nor any place to live. His assailant, meanwhile, has used the stolen money to establish a business. Would anyone wonder why, twenty years later, this man was not as well off as his attacker had become? Would anyone be surprised that the material gap between the two had grown larger over time? The assault by the rich nations on the poor ones and the enslavement of people from Africa by plantation owners in the United States were no different than the brutal attack by the one man on another. When slavery ended in the United States, the larger society left the former slaves to fend for themselves. What is more, the white brutality which had marked slavery continued in new guises. Without wealth or access to it, condemned to the worst kinds of employment and beaten down with extreme harshness anytime they insisted on being treated like human beings, how exactly were black persons supposed to accumulate? It was not until the 1960s, just forty years ago, that Blacks in the United States started to enjoy the right to vote anywhere in the country, and it was in that same decade that the last terrorist lynching of a black man took place.


A Poor Nation in Africa

Equatorial Guinea is a small country on Africa’s west coast. Its population is about one-half million. While the GDP per capita is not nearly the lowest in the world (it was about $2,800 in 2000) the distribution of wealth and income is extremely unequal. The country has been ruled, in the words of the CIA, “by ruthless leaders who have badly mismanaged the economy.” The rulers have siphoned off most of the country’s wealth and terrorized all opposition. For the rest of the people, life is harsh and short. Infant mortality is nearly ninety-five per thousand births; only twenty-six other countries, nearly all also in Africa, have a higher rate. Most people live in shacks without running water or sewage and survive by foraging or working as street vendors. One woman told journalist, Ken Silverstein, “Why look for work when there isn’t any?” She added, “There’s only one way to find a better life, and that’s to get out.”

Remarkably, Equatorial Guinea’s economy is projected to grow by 34 percent in 2002, the highest projected growth rate in the world. The reason is the discovery of large amounts of oil. In the past few years, oil companies, mainly from the United States, have rushed into the country after making deals with the political rulers. Small foreign enclaves are being established to house the executives who will run the oil companies and the workers who will do the relatively skilled labor. Lobbyists have been at work in Washington, DC to make sure that the political and economic elite in the United States know what a good deal this is going to be. The oil-dominated administration of George W. Bush has recently reopened the U.S. embassy in Equatorial Guinea, despite gross human rights abuses. Now the leaders are being presented as making improvements, and the oil boom is being promoted as the key to the nation’s development. We can be certain that the production of oil, even it is on a vast scale, will not benefit the people of this poor country. Most of the main oil company workers will be imported. A handful of jobs might go to the locals, especially jobs as servants, and these few persons will see some amelioration of their conditions. But in a country and a world of great hierarchy, money flows to the top. The oil companies will take the lion’s share of the income from the oil. Some of the money will be siphoned off by the dictator and his family and friends. A few roads and even schools might be built for show with the meager tax dollars collected from the oil riches. But nothing fundamental will change. The poor rural villages, the vast majority of the country, have absolutely no way to tap into the money flow and will be left as badly off as they were before and compared to those at the top, relatively worse off.


The radical theory predicts that capitalist economies cannot be full employment economies. The theory posits the necessity of a reserve army of labor, as well as the necessity of periodic crises. A crisis-free and full employment capitalism is a contradiction in terms. Certainly this insight of the theory has been borne out by the entire history of capitalism. A very few capitalist economies managed after the Second World War to achieve high growth rates, low unemployment rates, rising real wages for workers, and decent provision of social welfare for most people. However, given the constant propaganda about what a wonderful system capitalism is, what is remarkable is how narrow these achievements were—how few of the world’s workers benefitted. What is also remarkable is the extent to which working people had to fight to win entry into what had always been a small elite of persons who could afford such amenities as vacations, cars, and college for their children. And most remarkable of all is how fast these gains have been eroded, as capitalist economies entered a long-term crisis in the middle of the 1970s.



Sam Gindin tells us something important when he says:

Capitalism, as a social system, could not live with the rise in equality and security for workers. The working class victories and concessions from business were not calming but raising expectations, and they were undermining discipline: they were threatening profits, class power, and class rule. What were earlier viewed as measures of progress—higher wages, better social programs, greater security—were redefined as barriers that blocked capitalism’s own needs. And it was those needs which demanded the deepening and expansion of market-logic known as neoliberalism.

The radical theory of capitalism postulates a mechanism—the accumulation of capital—as central to an understanding of the system. It lays out the features of this accumulation and asks how it is possible. Using the labor theory of value, it concludes that accumulation can only take place if workers are exploited, that is, forced to labor an amount of time in excess of the time necessary to pay for the constant and variable capital. The peculiar nature of the nonhuman means of production, their status as private property, permits the capitalists to appropriate the money that comes from the sale of the output produced during the surplus labor time. States are brought into being by these very same men of wealth to safeguard the entire enterprise. At the core of capitalist production is violence, either in the form of the slow death of unemployment or the mailed fist of the employer and the employer’s state.

Capitalist economies may be engines of growth, capable of producing mountains of output, every good and service under the sun and then some, in infinite variety. But as the radical theory makes clear, the fruits of growth can not be equitably distributed, for the benefit of all. Many must be poor, so that a few can be rich. Most must be insecure and afraid so that a few can face life with confidence. Nearly everyone must suffer a stunted existence so that a minority can enjoy life to the fullest. The evidence of this is so overwhelming that neoclassical economics can only survive because of its great propaganda value.