Re: [OPE-L] what is irrational in the functioning of capitalism?

From: Dogan Goecmen (Dogangoecmen@AOL.COM)
Date: Wed Nov 29 2006 - 06:11:42 EST

In einer eMail vom 28.11.2006 14:42:22 Westeuropäische Normalzeit schreibt  

Hi Dogan:
The belief that capitalism is inefficient and irrational is implied  by
mainstream economic theory.  
Consider a production possibilities curve for the macroeconomy.
Label the axes 'guns' and 'butter' if you like.  On the production  
possibilities curve, all resources (land, labor,  capital) are  being
fully and efficiently utilized.  If there is unemployment,  however,
then it necessarily follows (within the context of the PPC graph)
that the economy is  not on the curve itself  (rather, it is to  the left
of the curve) and is therefore *not* fully and efficiciently utilizing  all 
available resources because it is not fully and efficiently 
utilizing all *labor* resources.  To the extent that one could claim  
that there is a structural association between periodic unemployment  
and capitalism, one can conclude -- *using only mainstream theory!*
-- that capitalism has an element of inefficiency and irrationality  to
its operation.  This is a point which is often overlooked by  mainstream
economists themselves.  (The more important point here,  though,
is not that capitalism is inefficient but rather that the concepts 
associated with mainstream theory -- in this case, opportunity  costs,
scarcity, choice -- are not capable of fully grasping the dynamic of  

Jerry, thank you for pointing that out. But I think that mainstream  economic 
theory does not explain why the system works inefficiently and  irrationally. 
It ignores the very structural problems behind it. The point I am  trying to 
make is this: capitalism cannot work otherwise than it works. So the  
correction of the dirction of production is not a matter of individual and  subjective 
decission making, and minor changes in the direction of the ends of  
production under capitalist conditions. This is an old dilemma. Lets take for  example 
Keynes. In his General Theory, he explicitly says that the fact there is  
unemployment does not suggest that the direction of production is wrong. I think  
any mainsteram solution to the problem of unemployment does not go beyond 
this  assertion of Keynes'. Classical political economy goes much beyond this, It 
 points to structrual problems. Especially Smith championed the idea that the 
 work should be distributed among all people able to work. This implies 
cutting  work hours and distributing it eqaully. This is why classical political 
economy  deserves to be called scientific in Marxian words.

In reply to Martin, you wrote:
> From the entrepreneurs point of view it does not matter whether  
> there is unemployment.
I strongly disagree: whether there is unemployment or not has huge
consequences for individual capitalists.  Putting aside the issue  for 
now of demand-effects, if there is unemployment then capitalists 
will be in a stronger bargaining position to get wage-workers to  work
for lower wages and benefits, increase the length of the working  day,
increase the intensity of labor, etc. 

I agree with everything you say here. Anybody who read something on the  role 
of reserve armee by Marx should know that. The point that I was trying to  
make is this: individual entrepreneur is above all concerned about using its  
full capacity of production as much as possible with as less work force as  
possible. Individual entrepreneur does not say 'now I am going to produce so and  
so many' unemployed people. He is by force of competion merely concerned about 
 the ration of constant capital to variable capital. Unemployment is not 
his/her  conscious intention. Rather it is an outcome of the functioning of the 
overall  structure of the production in capitalist society.

In solidarity, Jerry


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