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Decline and fall of capitalism

Updated on June 2, 2016

Where is the peasants' ideology?

The Industrial revolution started around mid 18th century. The ancien regime was ending. The three classical ideologies came to fore – liberalism which was for the new middle class, socialism for the new working class and conservatism which stood for the aristocracy and nobility. The peasants are still there, and were there for at least eight millennia, but there is no ideology. Back then life was simple, there were only two classes, peasants who produced and those aristocrats and military that extracted from the peasants. Any of the ideologies would be superfluous and downright nonsense. However, later an ideology did arise for the peasant, especially in China, the Chinese communism that was a modification of socialism. Socialism was for the “proletariat”, the working class. Marx expected the workers (because of the poor conditions of the working class) to bring revolution, but because the lot of working class improved, they did not go for revolution which was taken up by the poor peasants in the hope of improving their situation. That is why communism spread in the poor countries of Russia and China instead of the industrialist societies, as Marx predicted. And, that is why nothing changed except for the elites who ruled.

Is this relevant in a hub that discusses the “decline and fall of capitalism”? More importantly, has capitalism really declined? Answer to both the questions is yes. The rest of the discussion is the why and how.

Capitalism is the mirror image of communism.

Yes, it is. Alternatively, you can say it is the two sides of the same coin. Why? We just saw that all the three ideologies arose only after or only along with the industrial revolution. Except for conservatism, the other two belonged to the ‘new regime’. For all practical purposes, liberalism can be equated with capitalism and socialism with communism. So how can they be mirror images? Haven’t volumes written extolling the virtues of capitalism and the failure of communism? Are they all wrong? Has not capitalism still alive and kicking while communism is dead along with the USSR? The truth is capitalism died along with communism.

We just said that the two ideologies arose with the industrial age. Before the Industrial age, we had the agricultural economy. If you were born in that era, you are either a farmer or nobility that lived of the farmer. Rarely may belong to the artisan or merchant, which are minor components of the economy.

Then came the Industrial revolution and along with it the MANUFACTURING ECONOMY. The aristocracy was preserved, but it changed in form. Capitalism was born. The ‘bourgeois’ capitalist became the new aristocracy, but it was not hereditary or rigidly preserved. Democracy got upper hand before the economy, in fact they both grew together helping each other. The farmers lost importance as the major factor of the economy. Instead, the working class gained importance and became a major driver of the economy.

On the other hand, there was no socialism in Russia as it was simply continuation of the Tsarist Russia, with the party leaders as the new Tsar. It was imperialism under Russia. When USSR collapsed, it was not socialism that collapsed, but Russian imperialism.

India may be a representative of a socialist country, but that too was not atypical country. By the time of independence, Britain made it sure that it is one of the poorest nations in the world by plundering its wealth and destroying its indigenous industries and by making it into a market of Britain’s products. Britain also bequeathed it, its most infamous bureaucracy riddled with corruption, which was designed mostly as a hindrance than as a promoter. Even then, the country fared better and never was a failed country or dictatorship. So if at all anyone want to compare, one should take India as a representative of socialism not Russia or China. USSR or China may be taken as examples of what will happen at the end of socialism or capitalism. You read it correctly, I wrote capitalism, read on.

Capitalism and socialism belong to the same spectrum of manufacturing economy; the extreme ends remained in theory while in practice it was mostly the middle, a mixture of two.

Where was Marx wrong and where was he right?

Marx proposed that the poor conditions of the working class would bring about revolution. What he did not foresee was that the ‘working class’ will change in composition. When Marx said ‘working classes, he meant the manual laborers who were the major factory workers. But as technology improved it brought another class, skilled laborers who got a better deal. Along with it came or increased in numbers similar classes like the accountants, doctors, lawyers…. A true middle class was born who had a reason to perpetuate the existing system rather than undermine it. Another factor is that the manual laborers became more organized and then could demand better salaries. The formation of communist regimes in Asia also helped, as the bourgeoisie were more accommodating to the workers demand for fear of a proletariat revolution. Their whole lot improved. Therefore, there was no reason for them to agitate as envisaged by Marx.

Nevertheless, that was not the situation in Russia or China. There were no big industries to speak about. The agricultural economy continued and the peasant’s lot remained the same with a major difference. There were people who could see the betterment of westerners and there were people who could educate the peasants. The technology came to their help. The peasants revolted and Marx’s ideas were put into practice and the communist regimes were established. But those regimes were no different from the old aristocracy. Instead of the traditional elite, a new elite of the party bosses took charge, they became the new aristocracy. Nothing really changed, and they brought the industrial economy, which did not help, as it was no different from the agricultural economy that was there. Marx got the revolutionary part right, but he was wrong about who would revolt.

All the comparisons between capitalism and socialism are false.

When people compare they forget that it is the different aspects of the same manufacturing economy they are comparing, but there is more to it. People compare American capitalism with the totalitarian communism of Russia, forgetting that American capitalism is not ‘true’ capitalism (laissez faire capitalism) nor Russian communism is true socialism(but what would happen if socialism is implemented in a real life situation, in a poor autocratic country instead of Utopia).[isn’t it interesting to note that true liberalism, socialism or anarchism would work properly only in Utopia. Fortunately, conservatism works anywhere, only it is just as worse when it works as when it does not.]

I repeat, American capitalism is NOT true capitalism because government is actively involved in guiding and intervening the capitalism from running amok. Without government intervention, capitalism would have brought a worse fate to America than the Russians. Just remember the anti-monopoly rules. Without that, one big company would swallow all others. Once it swallows others, it will be free to fire workers. Even before firing they are free to reduce the wages as they deem fit (remember laissez faire). Less money can prevent people from buying there by depressing the economy. Technology also is helping the capitalists; newer technologies allow them to hire fewer workers. Whatever the economists (read Austrians economies) say, for the economy to work we need buyers as well as sellers. If the buyers have no money, then they are beggars not buyers. In laissez faire, workers are more like beggars. There will not be any competition for workers as businesses will be monopolies. In laissez faire workers have no say, forget about those poor people, people with disabilities and the like. And when they get out into the world and start careers, the poor man’s son, even a commoners son is not on the same footing as Bill Gate’s son, even if the ‘laissez faire’ists claim so.

If laissez faire was allowed, there would not have been any middle class, and without middle class to absorb what capitalism produce, capitalism would be long dead. There would be a (UCSA) United Capitalist States of America that was no different from USSR, a totalitarian regime. So when people compare capitalism with socialism they are actually comparing theoretical capitalism with a supposed socialism. In practical life, there is nothing to compare and it is hypocrisy to use a failed autocracy to compare. Unbridled capitalism or socialism both can reach the same destination, though the road is different.

Without government intervention, the ‘business cycle’ and great depression would have killed multitudes.

The Austrians think that there is a natural rate for the economy. Austrians think, because the economy has grown at a certain rate, it will always grow at that rate. They think we just have to leave the economy to itself that will regain any fall in rate. It is akin to saying that because a man was running at a rate of 8 km/hr, and though he is now running at a rate of 5 km/hr you only have to leave him alone that he will regain the previous speed.

There is no such “natural rate”, when people have bought everything they want (or if they have no money to buy) and when there is nothing more to buy most businesses become superfluous and they shut down causing job loss, the depression. When new products come into market (or when they get money, as by working as soldiers in WWII and as workers in new deal), the demand increases and new business will start producing more jobs, the business cycle will pick up. It is as simple as that.

So in 1929 people had no money. For people with money there was no “new” product. The world war and new deal changed it by bringing money to people and by bringing research that produced new products for people to buy. The “natural growth rate” was reaching zero. If the ‘laissez faire’ were allowed capitalism would have collapsed even then. Keynesianism [ Keynesianism is simply making the government push the economy car that has run out of steam, hoping that someone (new inventors) will come and correct the engine (by inventing new public demanded products). It worked in the past is no reason it will work in the future. As it turns out hopes are not always fulfilled. Austrians on the other hand thinks that it will be magically filled with gas and the car has run this much is a proof that it will run further, even though it's broken down, if you just leave it alone.] triumphed, government intervened. Therefore, what did happen in America was the middle of ‘capitalism-socialism’ spectrum. If laissez faire were allowed we would have had a dictatorship, just like in Russia, only this time it would be business aristocracy instead of the party aristocracy. It was the ‘invisible hand of the government’ not the ’invisible hand of the market’ that made the markets work well.

Therefore, neither true capitalism nor socialism can survive, what could survive was the centre with a slight movement to this or that side, within a narrow range. The so-called dichotomy of capitalist/socialist is false and capitalism was declining from the great depression or even before. Even the laissez faire capitalism under laissez faire politicians, it simply moved to the right a little, never went anywhere near the end.

Laissez faire and world

We can see limited ‘laissez faire’ capitalism in this world. The world may be taken as a capitalist enterprise as there is no world government. Before the collapse of USSR, there was some hindrance to American power, but after that even though for a brief period it was laissez faire as far as America was concerned. Before that, at the areas of influence it was laissez faire. What happened? Did it give rise to uniform prosperity and peace? Not at all, America behaved just as any other monopoly would. It toppled nations and sovereigns and supported them, irrespective of whether they are democratic or autocratic, when it helped the needs of American imperialism. It extracted resources, and is doing even now from the rest of the world cheaply and is living at their expense. If laissez faire is allowed in a nation that will be happening inside a nation, just as America is not restrained (as long as it has military might, which surely is limited as shown by Iraq) by any fear of international opinion or by morals, the business too would be unrestrained by public opinion or morals. The rich will extract everything from the poor. Even the middle class or less rich will not be safe. In addition, the nation will soon become an autocracy or oligarchy at best, of the richest business.

Death of capitalism

Is capitalism dead? As I said earlier, it is. It would have continued in the centre with slight vacillations but for another problem, the ‘manufacturing economy’ is dead. Capitalism is the product of manufacturing economy as I explained earlier. Now the economy has changed once again just as it changed at the time of industrial revolution but this time without anyone noticing. Now it is SERVICE ECONOMY. In a service economy, we do not produce wealth, what we produce is money not ‘things/materials’. Service economy does not need workers. It does not even need employers. One can sit in his home and make a product and another can make that product just as well in his computer. Without wealth (capital), there is no capitalism.

Without sellers and buyers, the economy works in a different plane. What workers are left are the vestiges of the manufacturing economy. As businesses are not producing wealth and as technology allow them to reach more people without any extra effort, they hire less workers and fire more.

As wealth production decreases the GDP growth also decreases (A computer will register as GDP, but not a software. Software can be copied a million times without any extra effort). As workers decreases, consumers also decrease, as consumers are essentially workers. This century there are no farmers (in America, except for a very few, all food is produced by companies – products of capitalism). Just as farmers decreased during the manufacturing economy, workers (let us be more specific, well-paid workers, the middle class) are decreasing now in service economy. Soon there will not be any middle class. Unlike manufacturing economy that absorbed the farmers, service economy does not absorb the displaced workers. In fact, service economy will make it worse by getting rid of most workers.

Now people have no new product to buy. We are again reaching a situation that resemble the time before the great depression. In fact, we are already in that situation. The frequent recessions are a sign of that. People have nothing more to buy, unemployment is increasing as businesses do not have products to sell and they do not need employees to produce. Keynesianism also does not work well because it is not manufacturing economy. What government spends is going to produce riches and not wealth. In addition, riches goes to the very few that are adept in the game and are at the right place at the right time. That will not help the economy because economy works only when the money circulates (that is why it is called currency.). Stagnation causes degradation and death.

Capitalism died. The economists though do not understand that the economy changed. They are still living in the 20th century. They are still arguing over the theories of a dead economy without ever bothering to think that the very foundation changed. In this new economy no theories of capitalism or socialism work. Whether it is laissez faire or socialistic capitalism is irrelevant. What we need is a paradigm shift in our thinking. Not that it would help (as discussed in other hubs), but at least we will have a better understanding.

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