Breakdown State: Unpacking 21st Century Capitalism with Marx's Capital

"Capitalism is facing a crisis like never before. Productivity is stagnant, government debt is rising, the wealth gap is growing, trade conflicts are reminiscent of a bygone era, and economists are uncertain about the future. Can capitalism recover? This book delves into the answer by examining the economy through the lens of Karl Marx's "Capital."

Marx's theory critiques the underlying principles of economics and provides a comprehensive analysis of capitalism's shortcomings. Despite various alternatives proposed by economists over the years, each time a new idea is introduced, the global economy has fallen into a deeper crisis. The COVID-19 pandemic is just the latest example.

Marx argues that the institutions of private ownership and commodity markets, created by humans, have inherent flaws that lead to an uncontrollable state of chaos and a 'breakdown state' of the economy. This is like a plane that has lost power and is falling towards a crash, sometimes catching a gust of wind to rise temporarily, but ultimately declining. The capitalist economy will inevitably reach a state between Argentina's collapse and Japan's 'lost era' of zero growth.

Critics dismiss Marx's conclusion as a doomsday prophecy, but no system, including man-made ones, can function indefinitely. The theory of sustainable growth in economics, whether labeled as conservative or progressive, presupposes the idea of a steady-state with sustained growth and overlooks past failures. The theory of "breakdown state" provides a better explanation for the current economic state, as it attributes the flaws of capitalism to the law of falling profit rates caused by capital-biased technological progress.

This book argues that the fundamental flaw of capitalism is the capital-biased technological progress, which leads to a decrease in the return on capital investment, resulting in a lower overall profit rate and disrupting the proper functioning of the economy. By examining the economy through the lens of "Capital," we can gain a deeper understanding of the challenges facing capitalism and its future trajectory."

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Breakdown State: Unpacking 21st Century Capitalism with Marx's Capital

 

Preface

 

Gaining insight into the economic characteristics of capitalism has become crucial in today's world as the economy is facing unprecedented turbulence. Labor productivity has slowed to a crawl, government debt is rising, the wealth gap is returning to pre-modern levels, trade conflicts are reminiscent of the pre and post World War I era, and the economy is stagnating. The current economic situation is unpredictable and economists, who once had confidence, are now uncertain about the future. Questions about the future of capitalism persist, not only among the public, but also among those who make important decisions affecting the world. With all of this in mind, the question remains: Can capitalism recover?

 

This book provides a comprehensive examination of the capitalist economy through the lens of Karl Marx's theory in "Das Kapital". The strength of Marx's theory lies in its thorough critique of the underlying principles of economics. This critique is evident in the subtitle of "Das Kapital": "Criticism of Economics". In the book, Marx delves into the fundamental shortcomings of capitalism and explores its future trajectory, considering both progress and regression.

 

Economics is built on the fundamental assumption of private ownership and the presence of a commodity market. However, “The peculiar nature of the materials it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest.” Despite economists offering various alternatives in the 2000s, each time a new idea is proposed, the global economy has fallen into a deeper crisis, as if rebuking it. For example, in 2004, when the Chairman of the US Federal Reserve Bank, Ben Bernanke, introduced the concept of "Great Moderation", a major recession occurred in 2008. Similarly, when economists predicted a bright future for the fourth industrial revolution in the 2010s, the world was soon dominated by the bleak reality of the COVID-19 crisis. Despite this, economics has consistently failed to accurately analyze and predict future events.

 

In "Capital", Karl Marx examines the ", the Furies of private interest.” or the negative effects of private ownership and commodity markets, scientifically. He argues that these institutions, created by humans, have inherent flaws that hinder sustainable economic growth and ultimately lead to an uncontrollable state of chaos. The conclusion of "Capital" is that the capitalist economy will inevitably reach a ‘breakdown state.’

 

The economy's 'breakdown' is akin to a gliding airplane after its engine has shut off. Without power, the plane can’t regain altitude, but instead falls, sometimes temporarily catching a gust of wind to rise, before ultimately declining. Similarly, the economy in a breakdown state becomes increasingly unstable due to low growth and recurrent crises, and no reforms can reverse the trend. In the worst case, the capitalist economy heads towards a collapse, similar to Argentina's, where national wealth is lost, and even in the best case, it enters a prolonged period of zero growth, like Japan's "lost era." Capital's prediction of the end of capitalism is a state between Argentina and Japan.

 

Critics sometimes dismiss the conclusion of <Capital> as a doomsday prophecy. The prevailing view in economics is that of a steady-state with sustained growth. Even if the balance is disrupted over time, economics considers it a new normal, not a collapse. But, in reality, no system, including man-made ones, can work indefinitely. A system that operates permanently is a mere religious notion. The reality is that systems function well until they reach their breaking point, due to some internal flaw - just like a perfect circle can never exist in reality. Using the dialectic of "development of contradiction," <Capital> delves into how these internal flaws affect the entire system.

 

Economics, whether it's labeled as conservative or progressive, is based on the theory of steady-state and presupposes the idea of sustainable growth. The theory of sustainable growth assumes that the economy can continue to grow if productive resources such as capital, land, and labor are properly distributed. There is a disagreement between conservatives and liberals on the proper allocation of these resources, with conservatives advocating for limited government intervention and liberals supporting government intervention. However, both sides overlook the historical failures of their approaches - conservatives ignore the impact of deregulation in the late 20th century on the current economic turmoil, while liberals overlook the resurgence of economic growth in the 1990s after regulation of Keynesian policies. Economics can only present itself as a viable alternative by ignoring past failures, regardless of political leaning.

 

This book argues that the theory of "breakdown state" provides a better explanation for the current economic state, rather than the theory of steady state. The fundamental flaws of capitalism, as analyzed in "Capital," can be attributed to the law of falling profit rates caused by the capital-biased technological progress. The capital-biased technological progress refers to companies' focus on investing in technology and capital to boost labor productivity. However, this competitive innovation leads to a decrease in the return on capital investment, resulting in a lower overall profit rate. In a capitalist economy where corporate profits serve as the source of investment and employment, a drop in profit rate leads to a decrease in investment and employment and an increase in excess capital and population. The continued expansion of these excesses eventually disrupts the proper functioning of the economy. The declining profit rate of the US, the heart of global capitalism, was the cause of the failures of Keynesian policies in the 1970s and the new policies in the 2000s. Economics only holds explanatory power in instances where the profit rate rises.

 

The limitations posed by biased technological progress can only be temporarily overcome through a transformative period known as the Industrial Revolution. The Industrial Revolution is characterized by the development of new technologies that significantly reduce the cost of improving labor productivity and the creation of systems to maximize their use. This leads to an increase in the profit rate. However, the challenge lies in maintaining this growth as the revolution is short-lived and the ordinary is long. When the impact of the revolution wears off, the profit rate decreases again. This is why economists are increasingly focusing on the potential of the "fourth industrial revolution" as a solution to the current economic turbulence. Despite their lack of recognition of the law of falling profit rates, economists recognize that only a new industrial revolution can save the economy.

 

When capital transformation proves difficult, the focus may shift to labor transformation. Socialism has historically been seen as a solution in this regard. However, the socialist revolutions of the 20th century only resulted in a shift from individual ownership to state-controlled communism, and competition was replaced by state monopolies. While these changes resulted in significant upheaval and even civil wars, the changes were not truly progressive. Instead, they often resulted in a regression compared to 20th-century American capitalism. As a result, it is more accurate to describe countries like the Soviet Union and China as state capitalism rather than socialism, as state control remained the dominant force in both ownership and markets. State capitalism, as we know it, has not proven to be more progressive than American capitalism in terms of liberty, equality, or prosperity.

 

The true measure of transformation lies in the direction of change, not the speed. Whether through gradual reforms or rapid political action, it is essential to know where the changes are headed. This is why it is important to continually analyze the shortcomings of capitalism. Only by fully understanding its flaws can we determine the best direction for change.

 

Capitalism, as an economic system, has been in existence for nearly 300 years, realizing the modern ideals of freedom, equality, and prosperity. Ownership liberty has abolished restrictions on individuals, market equality has eradicated discrimination based on identity, and the combination of ownership and market has maximized prosperity through the development of productive forces. However, capitalism was bound to progress and decline simultaneously. The flaw of declining profit margins resulted in production stalling, while liberty became a privilege only accessible to those working as wage laborers and equality was reduced to monetary equality rather than equality among individuals. In the 21st century, capitalism's pursuit of liberty, equality, and prosperity has entered a period of decline after reaching a turning point. This book will analyze the current situation and assess the rise and the fall that capitalism has experienced.

 

I believe this book will also be beneficial for those who find "Capital" challenging to comprehend. The complexity of its content and the fact that the world has changed significantly since its publication 150 years ago are some of the reasons why it can be difficult to understand. However, this book aims to bridge that gap by examining recent economic events and offering a contemporary critique of economics. The goal is also to present "Capital" in a way that is more accessible to the reader. As John Maynard Keynes once said, "The difficulty lies not so much in developing new ideas as in escaping from old ones"

 

The first part of the book, "Commodity and Money," covers the topics of technological advancements such as AI, digital economy, Bitcoin, and financial expansion and analyzes them through the lens of labor value theory. This part corresponds to parts 1 to 2 of Volume I and part 3 of Volume III of "Capital."

 

The second part, "Profits and Wages," delves into the exploitation of labor, focusing on issues like workplace power abuse, fair wages, wage shares, and the role of trade unions. This part corresponds to parts three to six of Volume I.

 

"Growth and Crisis," the third part of the book, covers the entirety of Volume II and parts 5 and 6 of Volume III. It explores issues related to economic growth, such as real estate prices, regulatory reforms, and income-led growth, using the theory of capital circulation.

 

Finally, the fourth part, "The Law of History," corresponds to part 7 of Volume I. This part analyzes long-term visions of capitalism, including economic inequality, the failure of real socialism, and the impact of the recent COVID-19 pandemic, through the lens of the "General Law of Capital Accumulation," the conclusion of "Capital."