The Crisis of Capitalism

The faith in the global economy has been on shaky ground after Greece defaulted to a credit rating of “C”, the lowest level possible. The Eurozone, in turn, is positioned to fall back into another recession and even possible collapse should Greece decide to leave the union.  The effects would be catastrophic to say the least.  But how did we get here? How detrimental is our economic system? And was this foreshadowed by Karl Marx? Does Capitalism really have the tendency to self-destruct? Whether capitalism will self-destruct or not, we all can admit that it is in a state of emergency.

The source, however, can be traced back to the 1970’s when the excessive power of labor in relation to capital controlled the market. Through President Ronald Reagan and Prime Minister Thatcher, labor had to be “disciplined” and much of the means of production were sent offshore to countries such as India, China, and Brazil. By the 1980’s, capital markets had all the access to the world labor supply thus the blame was switched from excessive power of unions and labor to the excessive power of capital which became the new problem. To mitigate the excessive power of capital in the market, the practice of wage repression was put into place. Wages then became stagnant and national income level steadily decline over the next decade.

The decline in wages affected the purchasing power of the consumer thus sparking a gradual decline of supply and demand on overall goods. This problem was alleviated by pumping up the credit economy via credit cards and loans to a large consumer market, creating a large debt economy in the process.  Housing and credit markets tripled their debts over the past 30 years causing bubbles and crashes in its wake.

So as you can see, capitalism doesn’t necessarily solve its own issues, but rather moves them around from one market to another. You’ve heard in reports how the US economy is bouncing back, while in the meantime Greece defaulted. This is a perfect example of how the capitalist style in place today has been working for the past 30 years.

Karl Marx, who has studied capitalism for much of his life, observed that capitalism cannot abide by a limit. Rather, capitalism eventually destroys itself as it exploits more and more people until everyone has been reduced to worker status. The development of capitalism inevitably leads to its downfall. However, the system of exploitations does not disappear by itself. It is destroyed only as the result of the revolutionary struggle and the victory of the public.

And such a movement is happening across the financially devastated Greece and Socialist parties are regaining support after the default. So was Karl Marx correct? Only time will tell.

To learn more about Karl Marx’s theory be sure to check out Marx's Das Kapital For Beginners releasing May 29^th 2012.