ARE ECONOMIC CRISES INEVITABLE?

Are economic crises inevitable?

Are economic crises inevitable?

The means of production and the distribution of wealth are controlled by private owners - this is what characterizes capitalism. The capitalists are not motivated by a desire to furnish all the goods necessary for the daily life of several billion human beings. They don't produce food, medicine or automobiles to satisfy human needs, but only because they expect to earn profits from this production.

All the riches of society, including profit, are created in the workshops of production. Human labor is the only force capable of creating value by transforming, for example, steel, plastic and electric wires into cars. Labor power has this extraordinary ability to create more value than it costs to maintain. If the wages that a capitalist pays his workers more or less allow them to pay their bills, these wages are still much less than the wealth the workers create by their work. The part of the wealth created by the workers beyond what they are paid by the capitalists is what Marx called surplus value. It is the source of capitalist profit.

Ultimately, all of capitalist society is organized in order to divide up surplus value. Surplus value sweated from the workers on the automobile assembly lines will be divided among the stock holders, the dealers, the bankers, the insurance companies and other intermediaries.

But if the cars sit in the parking lots of the factory or in the dealer showrooms, the surplus value is unrealized; it is only potential. In order to obtain their profits, the capitalists must sell the cars. It's a really important phase. For every car, every plasma screen TV, every consumer good on the market, the capitalists must find a consumer with enough purchasing power to buy it. There must be money enough in the market.

But that market is limited. Households all over the world constitute the potential buyers of consumer goods. There is first of all the bourgeoisie and petty bourgeoisie, who consume a lot, and not just private jets or yachts. But much more numerous are the ordinary layers of the population, whose limited purchasing power allows them just to buy life's necessities even during periods of economic prosperity when the purchasing power of the working class is growing.

Supply, on the other hand, depends on the capacity of production. This grows with scientific inventions and technical innovations. But supply is not the result of a conscious decision taking into account which needs production will satisfy and how to meet them. It results from the decisions of a multitude of individual capitalists, all competing with one another.

These capitalists are engaged in a fierce war. In the automobile industry there are a dozen big companies. If world demand is estimated at about 70 million new vehicles per year, each company wants a bigger part of the market. Each one builds factories to produce more cars than it can ultimately sell. This competition leads to swollen capacity of production, which at some ...