A People's Guide to Capitalism
A study guide of Hadas Thier’s 2018 book ‘A People's Guide to Capitalism.’
Summary, part 3
Chapter 5: The Accumulation of Capital
“The satisfaction of even the most extravagant of needs can only go so far. But the boundless goal of acquiring money through its circulation is an inexhaustible endeavor.” -p. 75
Chapter five of A People’s Guide to Capitalism examines how competition, the heartbeat of capitalism, drives production forward and fuels the system. Even capitalists who have monopolized the market are not immune to the need to compete and accumulate. The reduction of socially necessary labor-time required to complete work makes sure of this; it cheapens labor and allows competitive profits to be made by capitalists. Capitalists cannot exist without constantly changing the production process.
This is partially due to the fact that capitalists do not get to keep all of their profits—they must make returns on the investments that other companies made during the production process. For instance, a capitalist needs a factory or warehouse space to produce his commodities, so he will owe another capitalist rent after his production cycle has completed. These landlords and other capitalists that invest in the production process are referred to as hangers-on or unproductive capitalists, who, unlike the productive capitalists they lend to, are not producing anything actively but rather giving others the means to do so.
Since capitalists must either “grow or die” in order to survive in the competitive market, generated surplus value must continue to be reinvested so that capitalists may continue to accumulate (p. 112).
While capitalists do spend an astronomical amount of money on themselves, due to the constant need to accumulate and reinvest, they are still ultimately “gold-studded cogs in the wheels of the system,” according to Thier (p. 114). Whether extravagant or “caring” capitalist companies like Ben and Jerry’s, they still participate in this same system.
According to Marx, there are two ways that capitalists can continuously increase and grow their enterprises, which are the concentration of capital and the centralization of capital.
The concentration of capital, referred to by mainstream economists as “organic growth,” is the process of an enterprise growing over time through accumulation and reinvestment, where capitalists can afford to invest more money in each following cycle of production.
The centralization of capital occurs when industries become dominated by fewer and larger corporations through consolidation, which results in further concentration of capital. Unlike concentration, however, centralization occurs with already-existing capital. Smaller companies often become defunct and go bankrupt when centralization occurs, and credit aids this process by allowing corporations to borrow astronomical amounts of money to buy out smaller companies. Centralization, according to Marx, can occur in the ‘twinkling of an eye’ because these company groupings must not wait on accumulation over time as concentration does, and they can buy out their competitors or bring smaller firms into the fold.
Concentration and centralization also incentivize competition because they encourage companies to grow bigger in order to keep up. Bigger companies carry certain advantages over smaller ones because of factors like having a larger workforce, having upfront investments already taken care of, being able to enforce/supervise constant intensive labor that is more efficient, being able to buy in bulk, and being able to access lower interest rates. This efficiency is irresistible to capitalists and therefore encourages them to compete to achieve it.
Monopolization is another product of this competition and accumulation. While we do not see many monopolies very often due to the fact that there are almost always some disruptive smaller companies entering the market, monopolization practices can be found everywhere. From airlines to Big Pharma (pharmaceutical conglomerate), monopolization has a distorting impact on the supposedly “free market” principles touted by mainstream economists. Through price gouging and limiting consumer choices, those with economic power have twisted the market to meet their needs. Additionally, the state can (and often does, as we will see in chapter seven) also shield monopolies from failure by providing bailouts if the economy encounters a recession due to the fact that they pose too great of an economic risk if they were to go bankrupt. Due to their financial, industrial, and social interconnectedness, it would be disastrous if monopolized companies suddenly went defunct.
Monopolization, however, is not the highest stage of capitalism; imperialism holds that title. When the concentration and centralization of capital advance to such a point that large monopolies wield astronomical amounts of economic or political control, the interests of capital and of the state can often become fused.
The line between economic and military tensions can be thin since corporations depend on the state to beat down barriers to foreign markets and depend on governments to keep a corporate-friendly environment at home. Under capitalism, national competition morphs into international competition, and the “melded interests with the state” combined with “need for international production and markets” lead to military rivalries for power and territory (p. 139).
After all, according to Thomas Friedman, “The hidden hand of the market will never work without a hidden fist.” (p. 138).
So, what is the alternative? Does socialism offer a model for societal growth? While Marx and Engels did celebrate the productive capacity brought forth and displayed through capitalism, this celebration was more geared towards the groundwork it laid for other possibilities in the future, not its destructive current practices.
Socialism, on the other hand, would advance society’s productive capacity, but in a way that focused on use-values rather than on how worthy something was for exchange; things would be made to be used, not for profit. Human need would drive decision-making, compelling technological advancements and research for better, more sustainable production, and socialized production would not be cheaply built for a quick buck as is often done under capitalism, where items are made to last for the short-term, but rather to be durable and ecologically sustainable. We could also cut the necessary labor power by doing this and spend that free time unleashing the creative potential of human beings since we’d not have the burden of a workweek. Many things would stop being produced (military arms and advertisements) and others slowed (cars and plastics). Capitalism forces us into accumulation for the sake of accumulation, but under socialism, we would reorganize the satisfaction of human needs without destroying our planet.
Chapter 6: Capitalist Crisis
“The volatility and destruction brought upon by endemic, periodic crises make capitalism a fundamentally precarious system, and at the same time open the way toward class struggle and the potential for revolution.” (p. 149)
Chapter six delves deep into the structures present in capitalism that self-sabotage and cause crises. It also discusses how those crises also reboot the system, benefitting capitalists and coming at the expense of the working class.
Since profits are the heartbeat of capitalism, when they begin to cease, we see the system start to crash. Crashes like the Great Recession of 2007-09 lead to great devastation for many except for those bailed out by the government or by their accumulated wealth. Mainstream economists analyze crises at the surface level of price fluctuations and monetary policy, but Marxists take a deeper look at the bedrock of the system of capitalism, where the crises originate.
In order to function, a capitalist economy thrives upon exploitation, poverty, oppression, and environmental and even this “healthy” system eventually encounters issues and enters a crisis. Accumulation, which capitalism is predicated on, is a contradiction because it is also the thing that brings on crises within the system of capitalism.
Bourgeois economics denies that crises are intrinsic to the system, despite the number of crises that have occurred under capitalism. They assert that the market self-corrects while crises are simply anomalies that occur every once in a while.
Economists use a model where profits are made by capitalists and then redispersed when capitalists spend that money, thus balancing out the market again. This theory is often referred to as Say’s Law. This theory neglects to mention the fact that capitalists often sit on the money they’ve made or pay back debts if investment doesn’t look profitable. Even economists like John Maynard Keynes, who saw that crises were linked back to the system, still posited that regulation of capitalist systems could prevent crashes, neglecting to acknowledge the role that growth and profit played in the system.
Since capitalism is about profits and maximization rather than consumption and distribution, Say’s Law and Keynes neglect to remember that capitalists will often choose crashes and recessions if they are deemed to be more profitable than other options, so this surface view of economic data leads to a surface level view of crises and recessions.
As previously mentioned, this chapter heavily references the most recent devastating economic crises in the U.S., the Great Recession, where the housing market grew and then suddenly tanked. Corporations often don’t take stock of the need for or their ability to pay for goods they produce rather, they are usually concerned with ever-expanding their individual share of the market, regardless of what is needed. This causes capitalists to focus on mass production with no regard to the needs or limits of the market. The outcome is that, while production is ever-increasing, our wages are not, meaning that our ability to buy these products becomes increasingly limited. This will not immediately cause a crisis in the system because capitalists also produce luxury goods for the rich and raw materials for other capitalists, so the market will continue to move along as long as money is made and investment continues. Crises under capitalism do not occur due to a shortage of goods, but rather due to a shortage of profits.
Theories of underconsumption put forth that, since the working class is paid too low of wages, their demand cannot meet the ever-expanding production under capitalism, and this causes economic crises. When taken in an isolated way, many of Marx’s teachings are seen as supporting this theory. Capitalists, however, do not fully depend on the working class’s consumption for profits, especially knowing that they pay exploitative wages to workers. If this were the case, underpaid workers not being able to buy products would put the system in permanent crisis, and it would motivate capitalists to reduce unemployment and pay higher wages. Instead, capitalists continue to produce for the sake of accumulating surplus value, which can then be placed back into the production process to accumulate even more capital. Capitalists do not solely create for the working or middle class, but rather for the means of production. Rather, the prevailing theory among Marxists is that of overaccumulation. This theory posits that, while too large of a supply of goods can be handled, when production is slowed until inventory sells off, the machinery and other means of production used will lie dormant and deteriorate. This unused capacity is a financial drain, and whether it be through physical destruction from war or other destruction through leaving factories to lie unused, this destroys capital and brings on a crisis.
Additionally, capitalists often invest far more in the means of production and innovative technologies than they do in growing their workforce. While this increases their productivity and raises their profits in the short term, they still lose money in the long term. When they begin to invest more in this constant capital than in labor-power because of the limits of exploitation, they will lose out on profits. While these all are occurring at the same time, they do not occur at the same rate, and the short-term profits disguise the fact that it is happening at all.
The restoration of profitability occurs when the destruction of capital makes room for recovery; with a looser, less occupied market due to failed corporations, remaining corporations have the chance to emerge with less competition. The means of production will have also lowered in price, meaning remaining companies can purchase them cheaply, and surviving capitalists can purchase raw materials and more from bankrupted corporations. Additionally, the weaker working class will be forced to accept lower wages, and capitalists will again induce labor-saving technology (such as intensifying labor), thus repeating the accumulation cycle. Here, the capitalist benefits from the crisis.
While it seems that capitalist systems would’ve shut down due to this a long time ago, it’s important to remember that, as long as the rate (relative to how much has been invested) of profits stays above zero percent, the mass (if capitalists can still grow the mass of products and thus mass of profits to make up for it) of profits doesn’t have to fall.
Capitalists can alleviate this tendency through different measures, including raising the rate of exploitation or moving overseas or to right-to-work states (which break the power of labor unions) to find cheaper labor and postpone the need to invest in more technology. Additionally, technology that needs to be purchased by corporations grows cheaper over time because the capitalists in those industries are constantly investing in labor-saving technology, as well.
These tendencies ensure that lower profits are a tendency and not law, and the downward pressure on profits occurs slowly over long periods of time in a nonlinear way. As long as the rate of profits stays positive, capitalists will invest, and capital will continue to circulate.
In these ways, the drive to increase the rate of profit is undermined by its own process of overaccumulation. While it is disputed among Marxists what the causes of individual capitalist crises may be (falling profitability, overproduction, disproportionality among branches) due to the fact that Marx’s theories were scattered and incomplete among his works, it is agreed that contradictions within the capitalist system lead to crises in the system. Additionally, crises are an integral part of the capitalist system, where profits are wiped by all except the extremely wealthy, and this “solution” and the rebuilding of the system falls upon the backs of the working class.