Economic instability
The profit motive has ensured that capitalism been able to more or less kill off other forms of production world-wide. But it is also the very reason why we need to put production – both industrial and agricultural – on a different basis. How so?
Although they belong to the same class, all capitalists compete amongst themselves to maximise their own profits. How do they do this?
First, we need to recognise that their profits derive from the difference between what they pay out in wages and the new value that only the workers produce.
So an obvious way to try to maximise profit is to reduce wages – by a straight pay cut or, more usually nowadays, by allowing them to be eroded by inflation.
Another way is to reduce the number of workers needed to produce a given amount of goods or services – by speeding up or increasing workload or by bringing in new technology. This may involve deskilling which will tend to force down wages over time.
Or capitalists can up sticks and move investment to countries where wages are lower and there are fewer of those pesky unions.
So a downwards pressure on real wages/salaries is built into the system.
(At times of high demand, wages can rise too of course.)
Let’s look at things from the capitalist’s point of view now.
Whatever level of profit capitalists have been able to screw out of us, they are forced to reinvest as much as they can in order to introduce or keep pace with technological change or gain from economies of scale. They may employ fewer workers, produce more stuff, or produce more cheaply to capture market share and kill off competitors
Then that gets repeated. Again and again.
And in each cycle, every capitalist races to chuck more stuff onto the market in an uncoordinated way – it’s dog eat dog, so they try to do whatever they can to gain an edge.
Could a worldwide production system organised on such a basis possibly go wrong? Of course, and it does regularly, but we’ll explain why later (see list of in-depth articles later).
For now, we just need to bear in mind that the profit motive is the root of capitalism’s productive capacity and instability
And of its inefficiency.
Next: Inefficiency ➡️