A thumbnail sketch of my understanding of the capitalist system.
Capitalism is a dynamic system, a profit driven system, a wealthy system and a flexible system
Up to a point. But beyond that point all of those attributes turn into their opposites. It becomes a moribund system where profits fail, wealth disappears and flexibility becomes pointless. My guess is that the current Keynesian measures (stimulus packages) to solve the current crisis will not work.
Capitalism is a dynamic system
It continually creates new types of jobs and destroys old types of jobs. The productive forces are continually developed.
Barry Jones wrote Sleepers, Wake! in 1982, tracking the massive changes in employment from agriculture to industry to Services to Post service (Education / Leisure) from 1780 to 1980
More recently, Clayton Christensen has written and spoken about disruptive technologies such as computer startups that sometimes begin in garages and then become highly successful: Apple, Microsoft, Google are well known examples.
These changes push the workforce in the general direction of more skills and more education, as mind numbing, labour intensive work is augmented by technology which becomes increasingly smart.
Capitalism is a profit driven system
If a commodity can’t be sold at a profit in the market place then eventually it won’t be made.
New technology, (which can be expensive), is introduced by capitalists into workplaces to increase productivity. This new technology creates new jobs and destroys old jobs but in growth conditions can lead to an overall increase in employment.
New technology can lead to increased output and, with economies of scale, cheaper products. The cost of plant (fixed costs or one off costs of tooling up) has gone up but production costs per unit have gone down (technology enhanced productivity). With sufficient volume of sales this can and has created cheaper products. However, only big capitalists (monopolies) can maintain this brutal regime. Due to competition between capitalists the overall tendency is for the rate of profit to fall. Hence the smaller under capitalized companies tend to fail and be eaten up by monopolies, who have larger reserves of capital.
When capitalism is going well then increased productivity leads to cheaper goods which leads to more demand which leads to more employment. If this is happening in a whole country then GNP or GDP per worker increases and standard of living goes up.
This has been the general trend in the long boom since the end of WW2, although it has been interspersed with downturns or recessions (1973-4 oil cartel, 1981-2 (contractionary monetary policy to control inflation), 1992 and 2000-02 tech bubble)
Capitalism is a wealthy system
Due to the rapid development of the means of production over the past centuries capitalism can sustain a high standard of living for nearly all members of industrialised society. Even people on welfare can have swimming pools (plastic), foxtel for entertainment, recreational drugs and the like. There is a more or less endless range of distractions which induce many people to not pay detailed attention to political and economic developments.
Capitalism is a flexible system
For most of the time (recessions excluded) capitalism is flexible enough to make adjustments (without excessive government regulation) to keep most people satisfied and to keep unemployment within "acceptable" limits for most of the time. Since the overall trend for 60 years has been growth and recessions have been of relatively short durations (1-2 years) in most industrialized countries (exception: Japan) then the overall impression is gained that capitalism works or at least works better than socialism (the main historical alternative), which is regarded as discredited.
These flexible adjustment mechanisms at the level of the workplace include natural attrition (not replacing workers who leave), part time / full time work choices, retraining, overtime, casual employment and flexible timing in the introduction of new technologies.
At the government level they include migration policy, school leaving age policy, retirement age policy (elaborate Superannuation schemes; at what age are people eligible for the pension), fiscal policy and monetary policy ...
For most of the time capitalism seems to work. Many economists speak highly of the ability of the market to automatically regulate the complexities of this dynamic system. Recessions are inconvenient but perhaps worth tolerating, in the absence of anything demonstrated to be superior, if the overall trend is growth. It's remarkable that some people have lived their whole lives (eg. since 1945) in the belief that our system is economically stable (within acceptable limits) only to discover now that perhaps it is not. It may take a while before that belief evaporates. My evaluation is that our current rulers don't have a clue.
Now we have a major downturn and there is no end in sight. Growth has slowed dramatically in most countries and now unemployment is beginning to soar. The reassurances from those who brought us to this point, that it will all be over in a year or so sound hollow. We need to look deeper at the causes of the current crisis.
(based on Unemployment and Revolution, Part 2)
Stiglitz and the demise of marginal productivity theory - from Lars Syll Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. C...
3 hours ago