The Basics Economics
- Fig 1 -
In our earliest studies of economics, we're introduced to the idea of supply and demand (click the pictures to enlarge them) and, despite the many complications that this simple analysis can gloss over, I think it can be an important thinking tool nonetheless.
In his book Debunking Economics, economist Steve Keen, drawing on the work of Italian economist Piero Sraffa, points to the likelihood that the supply curve is not, in fact, upward sloping. At least, not in the estimation of business leaders or by empirical measurement of the world around us at this time. For Keen, the supply curve (the upward sloping line) is more likely to be horizontal, or even downward sloping (see Fig 2). What this would show is that our ability to produce, to create and to supply is not being constrained by the conditions of supply, but rather by the conditions of demand; we could potentially produce more and at lower unit costs than the economy outputs at the present time. In other words, we're being held back; we're losing out and we're watching a lot of our potential simply go to waste. And that's a conclusion that fits with our wider assumption or suspicion that capitalism is unfairly excluding people and allocating market power to an undeserving minority. It also shows that fixing it isn't a matter of improving the conditions of supply (such as technology), but allowing the economy to get demand power back into the hands of the people where it rightly belongs. (This would push the demand curve - the downward sloping line in Fig 1 - outwards to the right.)
- Fig 2 -
So this provides more support for the idea that the problems of capitalist economics are systemic and internal; they are not 'natural' features or limitations of either the natural world or our own capacity. Indeed, until we can be free from the perverse influence of systemic economic injustice, it's going to be very hard for us to understand what those limitation might be.
Capitalism is, to any casual observer, a staggeringly distorted system. For a few (who I'm sure many would regard as the least reputable among us) capitalist economics provides astonishingly well. We've already seen how much wealth is available to those who do not lift a finger in contribution to the economies that provide so phenomenally well for them. But it is surely for most of humanity that life is made crushingly difficult. The wealth and power that rules the world are notorious for their corruption and their ever increasing cultivation of a system that serves themselves at the expense of everyone else. While a few are able to rig the system and cheat their way to unimaginable wealth, many are left facing poverty, misery and struggle, perhaps a lifetime of economic subjection/slavery, at the hands of a few that abuse them.
Capitalism is the problem. The problem lies in the exclusivity of economics under capitalism, its proclivity to serve an undeserving few at everyone else's expense and that is what we are able to observe and identify as a clear and obvious assault on wider demand; that is, the income and opportunity normal human beings all over the world can ever hope to have. Billions of people are being reduced by this system and forced to live a precarious existence, while favor is lavished on the rich and immeasurable amounts of human potential are rendered dormant or destroyed.
Capitalism's many problems, then, are not a reflection of our limited productive potential, or our inability to do economics better, they are a product of distortionary pressures which render the majority of us unable to demand that which we can produce. And it's a truly basic economic fundamental that if it cannot be demanded, it will not be produced:
Hanauer, speaking principally about employment, but clearly conveying the primacy of demand in driving production, consumption and employment.
What readers of this website will know is that capitalism is exclusionary and it is distortionary by design, that it splits the world into two fundamental groups: the few who own and control the economic world and the many who are then rendered 'subject' to them. The simple fact of what they have done is steal the commons (where money comes from) and common rights. That's what capitalism is; the theft of the commons and common rights. And they've rendered the subject population sufficiently economically uneducated as to simply not know what's going on. Indeed, they've managed to make many millions of people among the subject classes believe capitalism is nothing short of "freedom" itself.
In the terms of our supply and demand analysis, what that means is that the demand curve is being pushed back towards the left, leaving many people excluded and production (Q) distorted towards the indulgences and demands of a power class. (A bloated military, unending wars for profit and bailouts/tax breaks for the rich are sure to be examples of such.)
It seems reasonable, then, to suggest that Keen and orthodox, neoclassical economic theory might find some resolution by drawing the following graph. Here, diminishing marginal productivity and rising marginal costs do set in eventually (as orthodox theory claims they should), but at a level of output/demand much higher than is realized under capitalism.
- Fig 3 -
Here, the return of people's human and democratic rights allows the demand curve to move outwards to the right, economically including a great many more people (all people we would hope!) along with their inventions, innovations and enterprise. Note that the needs of 7+ billion people must be produced within Q. As we have it, many of the world's people are simply excluded and left totally outside of the scope of analyses such as these. By swapping the unearned privileges and the exploitation of the rightsless under capitalism for real human and democratic rights, all human beings can be brought back into the embrace of human industry. And it's surely only through such means that we can give substance to the heretofore largely 'in name only' human right to life.
Let me just finally point out that I think it would seem to make little difference if Keen's assertion turned out to be wrong. Even if it is the case that today, under capitalism, the conditions of supply are more constraining than Keen believes them to be, and supply curves do in fact rise, the conditions of supply and demand are so entwined with one another that it seems reasonable to believe that a demand curve being pushed out to the right will take the supply curve with it. People who are economically excluded are obviously very limited in their ability to be productive, to pursue an education, to drive communities and industries forward through innovation and enterprise; people who are economically included face far fewer limitations. Stated another way, the economically included can and do make unproductive parts of the world around them productive. Needless economic subjection and exclusion are in and of themselves both offensive to human dignity and harmful to the economy - to both supply and demand - and that is enough to condemn capitalism as an inefficient, distortionary and unacceptable system. So even if supply curves do rise under capitalism, widespread economic inclusion would push the demand and supply curves out to the right, which is just about what it'll take to create the conditions in which the needs of 7+ billion people are included within Q.
- Fig 4 -
1. See: Debunking Economics, chapter 5, 'The Price of Everything and the Value of Nothing'. ↩