Wed 11 Sep 2019, 07:10 AM | Posted by editor
LETTER from Tom Smith, Newport West Labour Party
I take the view, at meetings I attend, that complexity has to be introduced in a simplified way that then opens the way to the complex in detailed discussions. Here is one simplification of world economy, to capture the fundamental contradiction the system cannot overcome.
Here is a model of the world economy. Imagine all the multinationals were merged into two equally large global organisations. There are thousands of small firms but the overwhelming power is in the hands of these two organisations.
There is one bank and you can borrow as much as you like but pay, say, 6% interest. Finally, there is that sector that supplies all the investment goods to industry in general.
We live in system of profit and that can only be realised by production beyond the total wages earned by workers. This spells out the limitation of the world economy, workers cannot buy all the goods that the system potentially can produce.
Thus, in this climate, our two multinationals have assets equal to one another but earn 10% profit on the assets employed. One decides to compete and doubles its capital. The other responds. If the world market in not expanding the rate of profit falls to 5% because the same revenue now has to cover double the capital it once did. A 5% rate of profit makes investment unattractive because it less than the 6% offered by the bank. Workers in the investment industry are laid off, spending power is cut down, demand for other goods falls, and more workers laid off. Recession takes place.
Today, no matter how complex the world economy is presented to us by capitalist economists, this fundamental contradiction remains, a capitalist crisis of overproduction. Surplus capacity and virtually zero rates of interest reveal the inability of capitalism to invest and develop productive forces. Quantitative easing solves nothing.
A group of gamblers have a million pounds to play cards. They spend some cash in the local economy but the rest is used to buy back shares and fund take overs. The bank doubles the cash to two million pounds. The gamblers have no need to invest more in the local economy and so the extra funds are used in the same way as usual, buying shares and funding take overs. That is the state of the world economy right now. Trade wars merely speed up the process anyway. The world recession is inevitable.
My dad was a bricklayer. During the sixties we were enjoying an enormous word boom. Every one believed that we had solved boom and bust world circumstances forever. Not my dad. He hated politicians and the clap trap of the capitalist press that churned out this deceit, he hated the idea that these people thought that workers were thick and stupid. I asked him once when will the world circumstances will be different. He thought about this and replied when the world capitalist system had too many factories. In short, when there was world overcapacity. How right he was!
