Will Capitalism Destroy Itself?

Karl Marx was one of the most influential philosophers and economists during the 18th century. His ideas relating to economics are profound and have an enormous impact on the world today.

The amazing thing about Karl Marx was that he was able to predict the crisis that capitalism would go through. Even though Marxism and Communism are largely considered to be failed systems today, it must be noted that Karl Marx was able to predict with incredible precision the economic crisis that is faced by the world today.

He believes that just like slavery and feudalism brought about their own end, so will capitalism. This is because of the conflicting forces inherent in capitalism that are constantly at war with each other creating systemic problems. Karl Marx called these problems internal contradictions.

In this article, we will have a closer look at what is meant by internal contradictions.

Stage #1: Growth of the Western World

The first stage of capitalism is characterized by prosperity. Capitalism provides a better way to organize society. As a result, it raises the standard of living of the entire society.

Both the working class and the owners benefit during this period. During these years, the capitalists can afford to pay higher wages and still make a handsome profit. This is because the industry is relatively nascent and therefore there is considerable room to grow at the top.

This can be traced back to the era when Henry Ford used to considerably raise the wages of his workers with each passing year. Growing wages lead to more spending creating an even bigger market. This sustains the momentum for some time.

Stage #2: Offshoring of Jobs

The success of these capitalists attracts a lot of competition. As a result, it becomes difficult to stay competitive. Newer strategies have to be introduced in order to stay competitive.

The economic reality makes it inevitable that the capitalists focus on reducing the labor costs. This is done either by automation or by offshoring of jobs to other countries. Notice that the very workers who were the beneficiaries of capitalism in the previous stage are now losing their jobs thanks to it.

Capitalists find it more prudent to pay overseas workers a fraction of the cost. This allows them to stay more competitive. However, notice the fact that the high wage earned by workers was the very basis of the market!

If high wages are eliminated, the capitalists inadvertently shoot themselves in the foot. Over a period of time, fall in wages manifests in the form of a slowdown or a recession.

Stage #3: Raising Sales via Credit

This is the stage wherein capitalists are desperate to find more sales to keep the momentum going. The capitalist system believes in attaining perpetual growth which is simply not possible! However, they come up with short-term solutions that seem to correct the problem. This solution inevitably is the growth and creation of credit. The result is that the workers no longer have jobs that can enable them to buy products. However, they are highly indebted because everything is available on credit. This is exactly what has happened in the United States since the 1990’s.

The job market is rapidly shrinking whereas the indebtedness of the general population is going through the roof. The unemployed population also tries to make money via speculating in the markets. This gets them further indebted as in the case of the subprime mortgage crisis. The American housing boom and bust could have been predicted years ago if due attention was paid to Karl Marx’s theories.

Stage#4: Debt Defaults

It doesn’t take a genius to figure out that a system which relies on giving out loans to insolvent customers cannot last for very long! This is why the next stage inevitably is cascading debt defaults. This is where the subprime mortgage crisis seems like the inevitable result of the events that took place before it.

Marx had also predicted that these crashes can wipe out entire institutions and that they pose a systemic risk to the capitalist system.

At this stage, attempts will be made to save the system by frantically introducing bailout packages. However, it is like fighting a lost cause. The debt defaults are merely the last step of a system that began with the rising wages of workers.

Any kind of bailout package will not be a permanent solution. Instead, it will provide temporary relief, the effects of which will end up amplifying the problem.

The sequence of events is not at all random. Instead, the results can be easily predicted using the internal contradictions theory of Karl Marx.

Stage #5: The Geographical Spread of the Crisis

Capitalism, by nature, seeks out greener pastures. Hence, it is likely that it will spread to different nations to repeat the process. It is, therefore, possible that the United States may be at the stage of debt defaults whereas countries like China and India will be experiencing rising wages simultaneously. In the end, however, the entire system is expected to fall prey to the internal contradictions that are inbuilt into the system.

To sum it up, Karl Marx was well aware that in the long run capitalism will end up destroying itself. Proponents of capitalism are merely looking at the short-term effects and not the opposing forces which are inherent in the system.