Anti-capitalism - Post your links [Archive]

cormacobear

1st December 2004, 00:45

I've started critiqueing statements made by www.Capitalism.org
The thread is in Websites.

http://www.che-lives.com/forum/index.php?showtopic=30660

and here is a paper I wrote this semester

From Smith to Keynes:
The vagaries of a marketplace left to chance.

Keynes’ theories are an attempt at limiting the damage done to society by the inherent flaws, and basic inhuman policies of Smith’s Laissez faire system. While Keynesian economics are an improvement they fail to provide the amount of economic control necessary to provide the highest standard of living to the greatest number of people. I can think of no other goal for a just society. The only argument appears to be how we achieve this.

Smith clearly acknowledges that the highest standard of living for the greatest number of people is important. “ No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” (Adam Smith, Pg. 83). Smith was aware of the inherent flaws of allowing capitalists a free hand. He notes in India, compared to North America where the British constitution limited the influence of corporations, “ In a fertile country which had before been much depopulated, where subsistence, consequently, should not be very difficult, and where, not withstanding, three or four hundred thousand people die of hunger in one year, we may be assured that the funds destined for the labouring poor are fast decaying.” (Adam Smith, Pg 77) However rather than recommending strong legislation regarding concentration of capital, he seems to merely hope it will all work itself out in a way we now refer to as Laissez faire, or free market. This clearly has not worked in the 228 years since Smith published his acclaimed book the concentration of wealth in what we think of as capitalist nations has changed little. According to Statistics Canada 10% of Canadians possess 53% of the countries wealth while 55% are expected to make due with 5.6%. While the wealthiest 10% of Americans own 70% and the poorest 40% own 0.2%..(“world revolution”) This inhuman disparity has led to a great deal of suffering, being most apparent in times of recession.

It is this cycle of boom and bust that is perhaps the most detrimental flaw in Smith’s ‘hands off’ system. John Kenneth Galbraith the most influential economist of the Keynesian school points out “A loss of income at the margin is less painful for the rich than for the less affluent.” (Galbraith, pg 30) This remains true whether there is a depression or a recession which still occur under the Keynesian system. The great majority of Keynes’s vast body of work is dedicated to containing this harmful cycle, with no effort given to ending it. Keynes believes in limited governmental applications of stimuli to prevent excessive inflation and dramatic recession. In vague terms Keynes describes the situations where governmental influence is necessary as when;
“aggregate working capital was being increased, some authority (the government or the banking system) would have to induce them to surrender to them (either compulsorily by taxation or voluntary by offering a rate of interest) an amount in counters falling due equal to the increase in working capital; and if working capital is being decreased, corresponding steps would have to be taken to augment the current purchasing power of the public.” (Keynes, Pg. 96)
Keynes concentrates his theorem on creating steady growth in order to maintain virtual full employment. In times of slow or receding growth Keynes favours the lowering of the base interest rate to encourage investment. The growth created by investment on the part of private individuals or corporations may provide greater employment, in turn increasing the buying power of society as a whole. (Keynes pg) This seems wonderful on the surface but the increased buying power of society does not mean necessarily that there will be an increase in individual buying power. Keynes notes, “ Increased investment will increase employment; we shall also discover increased investment will cet. par. diminish real wages.” (Keynes, Pg. 100) It must also be noted that lowering interest rates and taxes can not ensure investment, but rather in times of instability the wealthiest potion of society tend to save rather than invest. Keynes was aware of this and proposed large scale public works projects may be necessary to stimulate growth.
Smith believes that recessions should be allowed to run their course with little governmental interference; merely lowering taxes on the wealthiest capitalists should be enough to stimulate growth, and that periods of unemployment are necessary to lower the volume of labourers.“ If in such a country the wages of labour had ever been more than sufficient to maintain the labourer, and enable him to bring up a family, the competition of the labourers and interest of the masters would soon reduce them to this rate which is consistant with the common humanity.” (Smith, Pg. 75) The common humanity being the lowest amount necessary to survive. Smith views starvation of workers to be regrettable yet inevitable. In periods of great depression Keynes is willing to endorse large scale governmental investment as job creation programs. By lowering taxes, the general interest rates, and large scale governmental investment you inevitably end up with a deficit. Keynes hoped that the increased employment will stimulate the economy long enough to pay off these deficits. “With such or similar safeguards and if we assume that we start initially in a state of full employment,[..]There could be no general boom or general slump. Nor could there be any obstacle to an optimum level of output except as a result of miscalculation, or insufficient time to make the proper arrangements, or a stupid obstinacy on the part of either of the firms or the factors of production.” (Keynes, Pg. 96, 97) In a capitalist system we can be assured of a stupid obstinacy on the part of either the firms or factors of production. It was true in Smith’s time, just as it is today. Smith points out in a capitalist system “The workmen desire to get as much, the masters to give as little as possible.” (Smith, pg 70) This basic foundation of the capitalist system seem to run counter to Keynes's core assumptions.

Keynes noted in a letter written to a fellow economist in April of 1936 that “ I agree that our methods of control are unlikely to be sufficiently delicate or sufficiently powerful enough to maintain continuous full employment. I should be quite content with a reasonable approximation to it, and in practice I should probably relax my expansionist measures a little before technical full employment had actually been reached.” (Keynes, Pg.235) He notes “These conditions would have been satisfied in a socialist or even a communist state,[…] There is, however between these postulates and those of a monetary economy, a halfway house, which permit’s the existence of unemployment in the short period, and is therefore a much more plausible representation of the real world.[…]it is, (this halfway point) I think, the habitation of Prof. Pigou.” (Keynes, Pg 52) However Pigou’s analysis of Keynes’s theories was not so kind, yet I believe correct. Pigou said of Keynes’s theories “Keynes’s analysis , to my mind,[…] tends to be when the relevant functions and independent variable are such and such; […] the response of the economic system to stimuli is not instantaneous.[…] In a moving world, therefore, Keynes’s short period equilibrium positions are not the positions which are at all likely ever to actually establish themselves.[…] if changes in fundamental conditions occurred only at fairly long intervals, Keynes’s tendencies would in truth be facts.” (Pigou, Pgs. 61-63) If it were the case that Keynes were correct there would not have been the recessions seen in the second half of the 20th century.

As Pigou noted, and Smith observed in his comparison of India and North America the capitalist system leaves too many variables to chance to prevent the recession boom cycle and create the highest standard of living for the greatest number of people. Yet Keynes proved this, in the hypothetical, could be achieved through socialism. (Keynes, pg. 152) The introduction of Keynesian reforms has prevented the recessions of the last two thirds of the 1900’s from deteriorating into full blown depressions like the one in the 1930’s that inspired Keynes. Does it not stand to reason then if governmental control can limit depressions, perhaps complete or near complete control could prevent them? Rather than endeavour to achieve this all the economists referenced so far, with the exception of Marx, have dismissed this possibility out of hand rather than endeavour to achieve it.

If we compare the economies of England, Canada, and the United States where Keynesian capitalism is the dominant system, and those of such western European nations as Sweden, Denmark, and Germany where a more socialistic approach has been adopted to varying degrees, we can observe a number of important facts. During the 1990-1998 period Denmark had an average taxation rate of 52.2%. The United States had a taxation rate of 28.8% of G.D.P. and Canada 36.6%. Denmark had 69.9% of their workers covered by collective bargaining, the United States at a dismal 18%, Canada 36%. Of Danish men working more than 45 hours a week there were only 15%, the United States 26%, and Canada 22%. According to Smith and Keynes this should relate to higher growth for the United States than Canada, and similarly a higher growth rate for Canada than Denmark. That is however not the case. Denmark saw an average G.D.P. growth of 2.3%, Canada 1% and the United States saw a growth rate of 1.7%. When foreign investors where asked why they chose Denmark many pointed to the higher productivity. They didn’t lose as much labour to illness and injury due to the socialized medical coverage, and it was noted two men working four hours each are more productive than one man working eight. (Berlin, Aster, pg24) However such economies are currently forced to compete globally with countries where big business is given a more free hand. The effects of this competition are as profound today on a global level as it was on a national one in Adam Smiths time.

The effects this competition is the lowering of wages and standards of living amongst the workers which make up the majority of any society. During the 1970’s and 80’s Sweden was looked to as the model socialist state, with the highest average standard of living on the planet. Their inability to attract investment has meant the rescinding of many of their equality based governmental policies, thus lowering their standard of living. While Germany, since the fall of dictatorial communism, developed the most benevolent pension system of it’s age, and instituted one the largest building projects of recent history along the strip of previously unoccupied land in central Berlin. The Germans believing as Keynes did that this vast, deficit creating, investment would lead to a stimulated economy. However due to competition on the current global level virtually all of these grand new structures remain unoccupied and the German economy, reliant on a capitalist market, is in a downturn that is increasing in speed and severity. The economic crises has meant the cutting of the pension benefits, and unemployment relief. The result of which is , as a recent poll showed, 76 percent eastern Germans said they believed communism was a good idea and a majority of western Germans, 51 percent, also agree with that sentiment.(“expatica”)

All of this shows that Keynesianism is ill equipped to ensure the fundamental principal that a just society should endeavour to provide the highest standard of living to the greatest number of people, particularly in this age of globalism. Any honest historian will tell you that the quality of life of the majority of the English in the 1600’s was better than that of the majority in the 1700’s after the industrial revolution had begun. Smith regards the foundations of the current owner to worker relationship as being caused by Private property. He states “ As soon as land becomes private property, the landlord demands a share of almost all the produce which the labourer can either raise, or collect from it.” (Smith, Pg. 69) This observation is true in any means of production that include private ownership. Capitalism is built on the principles of hoarding, and concentration of capital. Therefore the current economic disparity and the harm caused by this, most obvious in times of recession, created by the lack of central control over the vagaries of the marketplace, are not the accidental result of capitalism but rather the foundational basis of the system. The current epidemic of outsourcing to the third world is a grim reminder of Smith’s system. The lack of governmental regulation of their market places has led to the nightmarish working conditions in the third world. This is also proof that Keynesian reforms are not dramatic enough to control human abuse by the capitalist system. If governmental control over the marketplace in the first world is not brought up to at least the levels seen in Denmark we will soon witness our own economies depress due to the loss of capital for investment to the third world. As a result, our standard of living will fall to near that of the virtually enslaved populace seen in places like India.

References:

Galbraith, John Kenneth. “The Good Society: The Humane Agenda“, Ó1996, Pub. Houghton Mifflin co., Printed in the United States of America

Keynes, John Maynard. “The general Theory and After; A supplement”, Edit. By Donald Moggridge, Macmillan University press, Ó The Royal Economic Society 1979, Printed in Great Britain at University Press, Cambridge

Pigou, A. C.. “Keynes’s ‘General Theory’: A retrospective View”, A.C. Pigou, Ó 1950 London Macmillan & co. ltd.

Smith, Adam. “An Inquiry Into the Nature and Causes of the Wealth of Nations”, Edited By C J Bullock PhD., Ó 1909 by P.F. Collier & Son, New York

Websites:

http://www.worldrevolution.org/Projects/Fe...SInequality.htm (http://www.worldrevolution.org/Projects/Features/Inequality/USInequality.htm)

http://www.expatica.com/source/site_articl...&story_id=10955