Capitalism’s Three Oscillations and the US Today

Throughout its history and across its geography, capitalism has swung back and forth between private and state forms.  The former reduces while the latter enlarges the state’s intervention in the economy.  The economic events that precipitate swings (in both directions) have been various mixes of recession and widening inequality.  Political oscillations have paralleled the economic.  Often the party or faction losing power is the one most closely associated with the kind of capitalism being displaced, while the ascendant party or faction champions the other kind.  Cultural oscillations complete the interconnected tableau.  For example, in the economic theorizing of the politicians, professors, and journalists, celebrations of private capitalism (variously named liberalism, neo-liberalism, neoclassical economics, microeconomics, and so on) oscillate with celebrations of state capitalism (variously named welfare statism, Keynesianism, central planning, macroeconomics, and so on).

Abundant evidence suggests that these three sorts of oscillations — economic, political, and cultural — function simultaneously as causes and effects of one another.  Together they comprise a web that serves sometimes to contain the contradictions of the system as a whole.  In that sense, capitalism survives because it can resolve the crises of one kind of capitalism by a transition to the other kind rather than a transition out of capitalism.  Yet the web of interdependence among its economic, political, and cultural oscillations may alternatively magnify a crisis of one kind of capitalism into a social demand for transition out of capitalism.

In the US, a crisis of private capitalism in the late 1920s was associated with oscillations to state capitalism, to welfare state economics, and to the Democratic Party.  In the later 1970s, the reverse swings occurred.  The web of interdependence among economics, politics, and culture worked in these instances to contain the contradictions of capitalism.  That web enabled the crafting of a New Deal in the 1930s to preserve the basic system from dissolution and transition to another system.  Later, in the 1960s and 1970s, that web precluded disaffection with the post-war US welfare state from producing a transition beyond capitalism and instead accomplished a relatively popular shift back to private capitalism.  Perhaps, as others have argued, no system disappears until it has exhausted all its possible forms and oscillations among them.

For this argument to make sense, we need first and foremost to define carefully what we mean by the capitalist system.  Borrowing from Marx‘s careful analysis, “capitalism” refers to the system of production in which a relatively large group of people (productive laborers) sell their capacity to work to a relatively small group of different people (capitalist employers) for an agreed payment.  The capitalist employers provide the “means of production” (tools, equipment, and raw material) for the productive laborers to work with and on.  There are two key aspects of the relationship between capitalists and productive laborers.  First, what the laborers produce belongs instantly and automatically to the capitalist who sells it.  Second, the revenue from that sale must exceed what the capitalist paid for the means of production and to the productive laborers.  The excess is the surplus, the fund from which the capitalist distributes portions to reproduce capitalism as a system (portions including interest to creditors, dividends to shareholders, budgets to managers and advertisers, profits retained for enterprise growth, etc.).

In the private kind of capitalism, the employers have no position within a state apparatus.  Moreover, the state’s functionaries exercise quite limited powers over the relationships among and between employers and laborers.  By contrast, in the state kind of capitalism, state functionaries have much greater powers to regulate, control, and intervene in the relationships among and between employers and employees.  Extreme state capitalism finds state functionaries replacing private individuals as capitalist employers (in “state-owned” enterprises) and thereby directly appropriating and distributing the surpluses produced by productive laborers.  What both kinds of capitalism have in common — what makes them alternative kinds of one system — is the shared structure of the surplus-yielding employer/employee relationship.

A social crisis of either kind of capitalism could go beyond merely a transition to the other kind.  It could entail a basic change in the capitalist relationship between employer and employee.  One example of such a basic change would be a social reorganization of production requiring employers and productive employees to be the same individuals.  Job descriptions would then mandate that productive laborers work Mondays through Thursdays on making output, while on Fridays they would assemble to function collectively as their own board of directors.

Is the US now entering another crisis-cum-transition period?  Thirty-five years of rolling back the New Deal did return and renew private capitalism.  Republicans displaced Democrats (among Democrats, the anti-welfare statist faction replaced the pro-welfare statist one).  Neoclassical and neo-liberal economic theories vanquished Keynesian economics in the schools and refashioned “common sense” about economic issues.  Yet US private capitalism since early 2000 has suffered a stock market bubble’s burst whose effects are still ramifying.  Now a real-estate bubble totters with troubling consequences.  Worries grow about international financial markets — increasingly mysterious in their multiplying layers of new instruments and increasingly opaque.  Will finance be yet a third bubble of the new millennium?  Can the private kind of capitalism survive all this?

Widening income and wealth disparities associated with private capitalism’s resurgence helped already to provoke a US political oscillation.  The Republican coalition (advocates of private capitalism allied with religious fundamentalism) cracked partly because of those disparities.  By adding to and fueling opposition to the Iraq war, growing social inequalities switched Congress to the Democrats in 2006.  (Similarly, the unequal benefits from state-interventionist capitalism had undermined the Democratic party’s coalition in the 1970s and thereby enabled Reagan’s victories in the 1980s.)  Elsewhere today, especially in Latin America, neo-liberalisms in economic theory and in politics are shifting back toward welfare statism.  These winds of change raise two interconnected questions yet again.  First, will the still dominant private capitalism be able to keep its current US crisis under control?  Second, if not, will transition be limited again to welfare statism in economics, Keynesianism in theory, and Democrats in politics?  Or might today’s conditions persuade enough Americans that a more basic transition — out of capitalism — is the needed solution?

This last transition will not likely occur without a strong social movement for it.  Is that not a major task for a resurgent left in the US?

Rick WolffRick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006).

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