Capitalism and growth

Posted: 22 February 2013 in Uncategorized
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fwk-rittenmacro-fig02_012

Noah Smith tries his best to demonstrate that the continued existence of capitalism does not depend on economic growth.

But he’s wrong, from start to finish.

First, “simple Econ 101 theories” do presume simple, unfettered growth, best represented as above in the shifting out of the production-possibilities frontier (based on increases in resources and/or improvements in technology, both taken as given).

Second, the idea of debt paying interest does not depend on the time value of money; it depends, instead, on the availability of a surplus that can be used to repay the debt. And it’s the surplus that is missing from Smith’s account.

In fact, the pact with the capitalist devil (the idea that control over the surplus is granted to capitalists, in exchange for “doing the right thing”) is predicated on a growing surplus. For it’s that surplus that, once appropriated, can be used to accumulate capital—and thus create jobs for a growing population—and to distribute in the form of large incomes to the tiny minority at the top—including interest payments on debt to Wall Street.

Now, even if the surplus is growing (as it was in the years prior to 2007-08), capitalists can make decisions that lead to a crisis. We’re in the midst of such a crisis now, just as in the 1930s. But the capitalist solution to the crisis is to pump out even more surplus, in order to create jobs and reward those who provide the conditions of existence of capitalist growth in order to get even more surplus.

No growth, and those tasks become even more difficult. Sure, the “simple reproduction” of capitalism (the reproduction of capitalism on the same scale) is possible to model. But capitalism only works if it’s reproduced on an expanding scale. More surplus, more growth, even more surplus—all in the hands of capitalists.

What Smith doesn’t seem to understand is that the “the boring, pragmatic, plodding old ‘mixed economy'” he so favors is itself predicated on continued growth of the surplus. And it’s becoming clear to more and more people that the conditions and consequences of that growth are simply intolerable.

Comments
  1. […] have long argued (e.g., here and here) that capitalism involves a kind of pact with the devil: control over the surplus was reluctantly […]

  2. […] I have argued before (e.g., here, here, and here) capitalism has a real growth problem. The premise and promise of capitalism are […]

  3. […] I have argued before (e.g., here, here, and here) capitalism has a real growth problem. The premise and promise of capitalism are […]

  4. […] have long argued (e.g., here, here, and here) that capitalism involves a kind of pact with the devil: control over the surplus […]

  5. […] have long argued (e.g., here, here, and here) that capitalism involves a kind of pact with the devil: control over the surplus […]

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