The final crisis of capitalism?

Are we seeing the final crisis (pdf) of capitalism? What I mean is that Marx envisaged that the end of capitalism would see four features, all of which are in place now.
1. The rate of profit would fall, reducing the motive to invest and producing slower growth and bigger recessions.
Although observed, past profit rates are high, companies’ reluctance to invest and the low valuations on shares suggest that bosses and shareholders anticipate very low future profit rates.
2. Low returns on real assets would lead to speculative bubbles and swindles and hence financial crises.
To some extent, the banking and euro area debt crises are the results of the dearth of real investment opportunities arising from the fall in (expected) profits. This lack of investment, combined with high Asian savings drove bond yields down. That led to the growth of mortgage securities, as banks tried to synthesize securities to meet demand for them, and encouraged governments to borrow. In this way, the seeds of the financial crises were sown by the fundamental crisis of real profitability.
3. Increased inequality would exacerbate economies’ propensity for crises, by creating a mass of people too poor to buy the goods which capitalism produced.
This has not quite happened. But, as IMF research has argued, inequality has had a very similar destabilizing effect. It led to the build-up of debt which contributed to the banking crisis.
4. By its end, capitalism would cease to be a means for developing the economy’s productive forces and become instead a barrier to their development. As Marx put it:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production…From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution.

This too fits capitalism today. Capitalists invest only if it is profitable to do so. When returns to investment were monetizable, this meant that capitalism was indeed a form for developing the productive forces. But returns have become less monetizable, and so capitalists are now less willing to invest. I mean this in several ways:
- Investment is no longer about building big factories and using capital-intensivity as a barrier to entry and hence form of monetizability; this is done in Asia rather than the west. Instead, investment here is more closely tied to innovation. But capitalists have always had trouble appropriating the returns to innovation, and so are - now they have wised up to this - are reluctant to undertake it.
- Some/many investments (such as in green technologies?) have higher social returns than private returns. But capitalists don’t invest merely because social returns are high.
- Technology and changing social norms mean that many capitalist investments in the media are no longer monetizable.
Insofar as there are potentially useful investments which are capitalists are not undertaking because they are not profitable, then capitalism is indeed a fetter on the development of productive forces.
Now, of course, the death of capitalism has been hailed many times before. But I suspect that this crisis differs from that of the 30s and 70s.
In the 30s, profits were depressed by weak aggregate demand, something which could be cured. In the 70s, they were depressed by labour militancy, and when this was killed, capitalists’ desire to invest was rekindled.
But the problem now is deeper than then. Capitalism has lost its underlying oomph; investment was low, remember, even before the recession. And this suggests that its vitality cannot be restored by policy measures, be they Keynesian (“boost demand”) or Thatcherite (“attack workers“).
Herein, though, lies the problem. Even if capitalism is dying - and I say if - there is no-one to kill it off; Marx’s prediction that the working class would become a powerful agent of change was wrong. And there is no well worked-out vision of an alternative.  Gramsci’s words fit the bill:

The old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

Comments

[John H]

So, basically, what you're saying is: the problem with the final crisis of capitalism is that it ended up arriving after the final crisis of the proletariat...

[George Hallam]

Are we seeing the final crisis (pdf) of capitalism?

I remember discussing this with a friend at an economics conference in August 2007. We agreed that it was not the final crisis.

He said that he thought it was not even the penultimate crisis, though it might well be the crisis before the penultimate crisis.

Only time will tell.

[PeterM]

I think you are correct that traditional industrial development has been incentivised away - to Asia. But I totally reject the notion that there is not something coming down the wire (internet) to replace this. Media production has exploded, for instance, both interactive and traditional. These new supply lines are very Western, and there is a lot of growth to pursue. Capitalists are now more free than ever to choose which in which corporate and sociological environment to start-up. Hopefully they will choose London.

[anon]

Every recession shows these four features. (Except maybe for 2, but that's debatable. Every once in a while, a 'swindle' works and yields outsized returns to its investors. Think AMZN or GOOG.) Increase AD and you'll see businesses invest more and long-term rates rise (however slightly).

If rates stay low even at full employment, this suggests that public borrowing should rise. To that extent, one could say that public investment should replace private investment.

[ortega]

You are ill and you call it an epidemic. Go and tell the end of capitalism to people in Brasil, Chile, India, Singapore or China. Even Africa is growing (see Xavier Sala Martin work on it). The problem is Europe not capitalism.

[chris]

@ Ortega - true. But this is consistent with Marx: capitalism is developing the productive forces in poorer countries, tho it's holding them back in Europe.
@ Anon - No. The big difference between this recession & its predecessors is that investment was low before the recession, indicating a secular problem of expectesd profits, not just a cyclical one.

[Northern Worker]

Is the problem with capitalism or profligate governments of all colours spending too much?

[Jimmy Hill]

@ Chris: But why should we infer from low levels of investment that this is the end of capitalism? Why is this view superior to Tyler Cowen's Great Stagnation argument that we are entering a period of low growth that we will eventually leave?

Also, did Marx really say this: "Increased inequality would exacerbate economies’ propensity for crises, by creating a mass of people too poor to buy the goods which capitalism produced."

This post seems to suggest otherwise: http://gene-callahan.blogspot.com/2011/09/under-consumption-theories.html

[Dipper]

I'm amazed and disappointed by the reaction of the left to the crisis. All the evidence you could want to see the failings of modern Anglo-Saxon capitalism is laid out in front of us. Book after book painstakingly assembles the evidence of the complete failure of the system, It's not just the banks, its Enron, Worldcom, all the takeovers that failed to deliver any value to the shareholders.

But why do the hardwork of analysing the failures, underlying the structural causes, and think about how this can be solved, when you can just join in an orgy of "evil banker" bashing? So much easier. So much more gratifying.

[ortega]

It is hard for me to see the productive forces that are being holding back. Maybe is jur the european capìtalist model that is failing (from some time now).

For a look at recent economic history, maybe you'll be interested on that (in case you do not know already).

http://press.princeton.edu/chapters/s8253.pdf

For a more dramatic view, just yesterday on the WSJ

http://online.wsj.com/article/SB10001424053111904106704576580522348961298.html?mod=WSJ_Opinion_carousel_2

[ortega]

Sorry, time to sleep for me now:

...that are being hold back. Maybe is just the european...

[Chris]

"Marx’s prediction that the working class would become a powerful agent of change was wrong."

Well, not really. The working class may not have made revolutions in most countries, but it's certainly created mass movements that have brought about better wages and employment rights as well as better services.

It is unfortunate there's not a powerful left-wing movement right now, but in the cauldron of crisis, perhaps one can be born.

[nodder]

what happened to the working classes in Asia? Do the masses in China stand any chance of taking control of the means of production?

[www.facebook.com/profile.php?id=1333366645]

Chris, you can add the decline in natural capital to the list, surely?

Usually, you end these kinds of posts by citing the potential for worker-owned firms in a market economy. Are you less optimistic about this, now?

[chris]

@ Jimmy Hill - This analysis is consistent with Tyler's "great stagnation" view. The reason I posed it as a question is that it's possible that capitalism will pull out of this weak investment period, if a new wave of monetizable investment opportunities emerge. But I don't know if or when this'll happen.
That quote from Gene doesn't bear on this story. It all hinges on the propensity to spend out of profits. If the latter is high, then that passage is right; a low wage share is no cause of crisis. But if - as is the case now - profits aren't being spent, then a low wage share and high profit share does exacerbate the problem. But be clear - the underlying problem is a lack of investment.
@ Facebook - My story is consistent with the case for worker ownership, in the sense that a common complaint against co-ops - that they are loath to invest - loses its power if capitalists are loath to invest too.

[Kosimba]

Investment opportunities will not arise by magic - the defining feature of the crisis we are now in is that the state needs to create the context - the new paradigm as it were. I think the error of Marx and even Keynes was to think of the crisis of capitalism or in Keynsian terms the euthanasia of the rentier in the singular. Their are periods (the recurrent senility of the rentier?)where within the current paradigm investment is not profitable for private investors and it needs the greater resources of the state to lift us to the next stage. which is as evry fule kno about green technology. Actually there are a range of technologies on the near horizon that make one think that this is the last crisis of capitalism as we are on the verge of a time when either a) optimistically consumer goods are so ridiculously cheap and technology can do so much of what we have known as work that we lounge around having sex, painting pictures and playing complicated games. Or we fuck the planet to such a degree that only worms and computer viruses survive. The current crisis -effecting the countries historically responsible for global warming and making business as usual impossible yet offering the state very cheap money to borrow for investment almost feels like a last chance from a benevolent god. Are we too stupid to take it?

[bobhunds]

It is hard for me to see the productive forces that are being holding back. Maybe is jur the european capìtalist model that is failing (from some time now).http://www.smalasussie.com/
http://www.bobhunds.com/
http://www.blingcase.co/

[PacRim Jim]

The Left should keep in mind who owns the guns in this country.
Hint: It's not them.

[gordon]

I'd be curious as to what you make of Robert Brenner's account (e.g. http://escholarship.org/uc/item/0sg0782h), which contrasts significantly with those in the linked Kotz. His argument rests heavily on the claim that diminished profit rates in manufacturing have had the effect of reducing investment and demand economy wide--how is one to assess this?

[boqueronman]

Capitalism? What's that? I've read accounts that such a thing once existed. But, much like the poor dinosaur, the institution went extinct in 1929. Since then, beginning with Herbert Hoover, the ruling paradigm has evolved into a parasitical system of government-corporations-unions which determine the permissibility and shape of all economic activity from investment to distribution. The "final crisis" which is now approaching is actually the collapse of the socialist-Progressive Corporate/Special Interest State model of governance based on redistributing resources from the producers, savers, and investors to the rentiers class. Unfortunately, Obama was the necessary catalyst so that the Western world can finally usher this failed philosophy out the door of history. But be warned. This mathematically inevitable outcome may not come smoothly and easily.