7. Capitalism

The Basic 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 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.[1] For Keen, the supply curve (the upward sloping line) is more likely to be horizontal, or even downward sloping (see Fig 2). And what that shows is that our ability to produce and to supply is not being constrained by the conditions of supply, but rather by the conditions of demand. We could potentially be more productive and produce at lower unit costs than the economy outputs at the present time.

 

Another way of saying that is we're being held back - we're missing out and we're watching a lot of our potential simply go to waste. And that's a conclusion that fits with our wider view that capitalism unfairly distributes market power towards a few at the expense and often the exclusion of everyone else. It would also suggest that fixing it isn't a matter of improving supply side conditions like technology, but rather demand side improvements that put opportunity back in the hands of the ordinary majority. (This would push the demand curve - the downward sloping line - outwards to the right.)

 

 


- Fig 2 -

 

 

So this would seem to provide support for the idea that the problems of capitalist economics are systemic and internal, rather than limitations imposed either by the natural world or our own capabilities. If so, then what we're dealing with are distortionary pressures which render the majority unable to demand that which we are able to produce. And it's a truly basic economic fundamental that if it cannot be demanded, it will not be produced:

 

 

 

 

 

 

Hanauer conveying very clearly the primacy of demand in driving production, consumption and employment.

 

Capitalism, of course, is hierarchical/distortionary by design. Looking still at the demand side of our supply-demand analysis, disenfranchising the majority and leaving so many economically excluded can be shown as the demand curve being pushed backwards towards the left, leaving many to fall outside the scope of the graph. It also means that productive output (Q) is directed away from what people really want (rendering that demand latent) and towards the wants or demands of an unjustly empowered few.

 

It seems reasonable to postulate, then, that Keen's observations and orthodox neoclassical economic theory might find some eventual resolution by drawing the following graph. Here, diminishing marginal productivity and rising marginal costs do set in eventually (the supply curve sloping up), but at a level of output and demand that meets the needs of many more people than can be achieved under capitalism.

 

 


- Fig 3 -

 

 

Fig 3 shows the potential effects of democratic and human rights, including and enfranchising many more people, pushing the demand curve outwards to the right. Note that the needs of 7+ billion people must be produced within Q. Democratic and human rights, then, may allow people all over the world to be brought back into the embrace of human productivity.

 

And that sounds a lot better than the horrors that exist all around us today.

 

I gave good reason why we should prioritize demand in our analysis. But supply and demand are inherently entwined and it's a supply side argument that some might make to defend capitalism and the status quo. If on one side we say that capitalism is unfair, that it is exclusionary and distortionary, on the other, one could argue that class hierarchy, domination and extraction are drivers of productivity. Here, it is the capitalist whip that makes us all productive and keeps us from falling into a life of "indolence". It's a "slavery is productive" kind of argument, but it's an argument nonetheless. Could real democratic and human rights bring about a catastrophic collapse in labor participation or discipline?

 

We can observe that withdrawing cultural and legal support for slavery didn't bring about a collapse in economic productivity, even though many at the time proclaimed that it would. But then, the wider conditions of economic subjugaton and coerced labor were left intact. Society was and remains steeply hierarchical.

 

We would expect democratic and human rights to produce supply side effects by changing the lives and the conditions of the working and poor; we want people to have greater rights, greater freedoms, greater opportunity and the ability to derive greater benefit from their work. We want the economy to change very considerably. But would people still "slave away" at their jobs, or at other jobs, in a post-capitalist economy? Would they need to in order to remain productive? It's an unpleasant argument to evaluate, the idea that capitalism might be "doing the right thing" by dominating and dictating, by opposing democracy and human rights globally, by whipping the working class into action. It's horrible to think that the rich ruling over and extracting from the poor is what's "better for everyone". And it's utterly stomach churning to think that this hierarchical misery is the best humanity can hope for.

 

In response I would offer the following: In a world run by and for elites, enormous numbers of people are economically excluded, disenfranchised, unemployed and underemployed. Furthermore, the content of any participation, being ultimately for the benefit of elites and not employees, is deeply dehumanizing and demotivating for us all. Yes we do expect people who are miserable in their work lives to benefit from democratic and human rights by rejecting the conditions of their misery in search of a better life. Our hope is that they and everyone else can find it. Such an economy, one which is much more "of and for the people", which is richer and more rewarding for ordinary people, may well balance any fall-off in labor discipline with increased participation and motivation.

 

If people who today are economically excluded are tomorrow included, they will bring their ingenuity, their creativity and their enterprise into the productive realm. People who are deprived their rights, dispossessed and overlooked can't participate in life as they would like to; they will simply never receive the inputs and opportunities they need to develop their productive potential. Economically enfranchised people are much more likely to, indeed, may be the only ones who really can.

 

So, supply side factors that affect productivity positively in a post-capitalist, democratic society, might balance or even outweigh productivity losses brought about by undermining the 'disciplining' conditions of capitalism and economic subjugation. And that could mean that, even if Keen's assertion turned out to be wrong, if the conditions of supply today are indeed more constrained than Keen believes them to be and supply curves do slope upwards, the inclusion of so many disenfranchised people through democratic and human rights could ensure that even upward sloping supply curves can be pulled outwards by outward shifting demand curves. These are the developments, the inventions, innovations and opportunities that economically included people can bring.

 

 


- Fig 4 -

 

 

I'm convinced that the humiliating economic subjection and injustice of capitalism is not only offensive to human dignity, but also harmful to both the supply and demand conditions of the economy. And that would be enough to condemn capitalism as inefficient as well as distortionary. I would struggle enormously to believe that we run such a cruel, hierarchical system for 'the greater benefit of all', rather than for the simple greed and covetousness of powerful economic elites. But anyone who thinks they can convince me otherwise is welcome to try.

 

 

 

 

Footnotes

1. See: Debunking Economics, chapter 5, 'The Price of Everything and the Value of Nothing'. 

 

 

 

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