Accumulation of capital

Posted: 11 October 2009 in Uncategorized
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Hugo Gellert, "Law of Capitalist Accumulation"

Hugo Gellert, "Law of Capitalist Accumulation"

I often teach my students that supply and demand cannot be considered independent of one another (as neoclassical economists always assume, and teach) if the accumulation of capital determines both. Thus, for example, if the accumulation of capital leads to rightward shifts in both the demand for and supply of labor, wages may not increase (and quite possibly will decrease).

So, to understand what is going on, it’s important not to remain on the surface (of supply and demand) but to ask what is going on behind (the supply and demand schedules).

The same is true of explanation of the current crisis. The latest is offered by Ravi Jagannathan, Mudit Kapoor and Ernst Schaumburg, “Why are we in a recession? The Financial Crisis is the Symptom not the Disease!” [open link] Here’s their story:

The common wisdom is that cheap money and lax supervision of financial institutions led to this financial crisis, and solving that crisis will take us out of the recession. In our view, the financial crisis is just the symptom. The fundamental cause of the crisis is the huge labor supply shock the world has experienced, not the glut in liquidity in money supply.

The impact of globalization is a sharp increase in the developed world’s labor supply. Labor in developing countries – countries with vast pool of grossly underemployed people – can now compete with labor in the developed world without having to relocate in ways not possible earlier. . .[W]e argue that this huge and rapid increase in developed world’s labor supply, triggered by geo-political events and technological innovations, is the major underlying force that is affecting world events today.

The first question they fail to ask is, what caused the sharp increase in the developed world’s labor supply? The second question is, what effects did this sharp increase have—in the United States, China, and elsewhere?

To answer the first question, we would have to understand the role of the accumulation of capital: in outsourcing jobs from the United States to China and elsewhere (thus putting downward pressure on workers’ wages in the United States) and in creating new labor supplies in China and elsewhere (by destroying noncapitalist forms of production and swelling the ranks of the capitalist working-class).

Then, it would be possible, to answer the second question, to analyze the changing distribution of income—again, in  the United States, China, and elsewhere—that led to the tremendous increase in capitalist surplus that was appropriated within and between countries and distributed across national boundaries to fuel the financial boom. And then bust.

  1. […] I wrote back in 2009, it’s quite possible that at the micro level—for example, in the case of the labor […]

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