Paul Mattick: Capitalism's Dismal Future
[Paul Mattick is chair of the department of philosophy at Adelphi University and former editor of the International Journal of Political Economy. This essay is adapted from his book Business as Usual: The Economic Crisis and the Failure of Capitalism, published this month by the University of Chicago Press.]
...A remarkable feature of the commentary on today's economic troubles is that, despite constant reference to the Great Depression of the 1930s, as well as to the many downturns since World War II, there has been little mention of the fact that business depressions have been a recurrent feature of the capitalist economy since the Industrial Revolution. But even the briefest attention to history makes recent events appear far from unusual. From the early 1800s to the late 1930s, in fact, capitalism spent between a third and a half of its history in depressions (depending on how they are dated by different authorities), which increased steadily in seriousness up to the Big One in 1929. It was only the relative shallowness of the recessions since World War II that gave rise to the idea that capitalism would no longer undergo the ups and downs characteristic of its first 150 years as the dominant social form. The choice in economic theory seemed to be between the neoliberal idea of capitalism as a self-equilibrating system and the Keynesian conception of the economy as controllable by government manipulation. The inadequacy of both views demonstrated by current economic events calls for another look at the long-term dynamic of the capitalist system.
Earlier students of what by the later 19th century had come to be called the business cycle came to understand it as characteristic of a market economy, in which most goods are produced for sale. In such an economy, the reason goods and services are produced by businesses is to make money; businesses expand and contract, and they move from producing one kind of good or service to another, in response to the level of profits earned by their investments. By the early 20th century, statistical studies (carried out, more important, by the American economist Wesley C. Mitchell and the National Bureau of Economic Research) demonstrated that the alternation of prosperity and depression followed the fluctuations of business profitability.
The most elaborately worked-out explanation of those fluctuations, Karl Marx's theory of the profit rate, came from so far outside the mainstream of economic theory as to be largely ignored by students of capitalism, including most on the left. But economic history suggests the accuracy of his idea that, while prosperity creates conditions for an eventual crisis, the ensuing depression makes possible an economic revival, as the lowering of investment costs—thanks to bankruptcies, price collapses, the vaporization of paper claims to investment income, and the decline of labor costs due both to increased unemployment and the improved productivity of new machinery—brings higher rates of return on investment, producing increased investment and so an expanding economy....
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...A remarkable feature of the commentary on today's economic troubles is that, despite constant reference to the Great Depression of the 1930s, as well as to the many downturns since World War II, there has been little mention of the fact that business depressions have been a recurrent feature of the capitalist economy since the Industrial Revolution. But even the briefest attention to history makes recent events appear far from unusual. From the early 1800s to the late 1930s, in fact, capitalism spent between a third and a half of its history in depressions (depending on how they are dated by different authorities), which increased steadily in seriousness up to the Big One in 1929. It was only the relative shallowness of the recessions since World War II that gave rise to the idea that capitalism would no longer undergo the ups and downs characteristic of its first 150 years as the dominant social form. The choice in economic theory seemed to be between the neoliberal idea of capitalism as a self-equilibrating system and the Keynesian conception of the economy as controllable by government manipulation. The inadequacy of both views demonstrated by current economic events calls for another look at the long-term dynamic of the capitalist system.
Earlier students of what by the later 19th century had come to be called the business cycle came to understand it as characteristic of a market economy, in which most goods are produced for sale. In such an economy, the reason goods and services are produced by businesses is to make money; businesses expand and contract, and they move from producing one kind of good or service to another, in response to the level of profits earned by their investments. By the early 20th century, statistical studies (carried out, more important, by the American economist Wesley C. Mitchell and the National Bureau of Economic Research) demonstrated that the alternation of prosperity and depression followed the fluctuations of business profitability.
The most elaborately worked-out explanation of those fluctuations, Karl Marx's theory of the profit rate, came from so far outside the mainstream of economic theory as to be largely ignored by students of capitalism, including most on the left. But economic history suggests the accuracy of his idea that, while prosperity creates conditions for an eventual crisis, the ensuing depression makes possible an economic revival, as the lowering of investment costs—thanks to bankruptcies, price collapses, the vaporization of paper claims to investment income, and the decline of labor costs due both to increased unemployment and the improved productivity of new machinery—brings higher rates of return on investment, producing increased investment and so an expanding economy....