Tue Jul 19th, 2005 at 09:49:57 PM EST
On the bus on my way to work at the U I overhear many undergraduate conversations. Most are bloody depressing, as I have noted in previous comments on literacy, the US educational system, etc. However last week I was treated to an interesting exposition by an undergrad who had been taking some economics classes. Here is his version of a fundamental paradox of capitalism which I had not, myself, really grasped before. And yet it seems so obvious.
In the market of theory (the Platonic Market):
- the market is supplied with goods and services by commercial enterprises.
- every commercial enterprise must make a profit in order to survive as a business.
- therefore every enterprise must offer for sale goods whose selling price is higher than the total expenses of producing them including salaries.
- therefore the total salaries paid to all workers contributing to the production of goods and services must axiomatically be less than the total value of the g & s produced.
- therefore the salaried consumers in the marketplace cannot possibly consume all the goods and services that they provide, since the total value of their salaries is always less than the total value of the g & s produced. a great deal of the production must go unsold and constitute a loss.
So how can the businesses run at a profit? the higher they jack up the selling price, the fewer consumers can afford the goods.
The answer historically appears to be playing one market against another with strict compartmentalisation -- that plus hyperconsumption by an elite class whose wealth does not derive from their labour but from rents or inherited capital -- consumers who are not workers. Goods produced by underpaid wage-slave labour in China can be sold in the temporarily more affluent US. The Indian textile industry can be wrecked -- and a million disemployed people starved to death iirc -- in order to boost production and consumption back home in Blighty. Multimillionaires can furnish 10,000 sq ft homes and consume as much as 100 ordinary workers.
But what happens when the market is global?
The sense I get is that industrial capitalism "kites" production and consumption in the way that real estate speculators kite mortgages, borrowing against one to capitalise another. It seems the only solution to the fundamental paradox of goods, services and salaries is to keep the capital and production in constant mutual flight, running on poverty at the production end and temporary wealth at the consumption end... not to mention the liquidation of "free" physical resources.
Maybe those with deeper economic literacy can comment on the problem.