why the market economy no longer works
If you notice that the productive forces of capitalism produce nothing more than capitalization numbers
If you want to work in an economy that creates something again
…it’s time to figure out why capitalism has run out of steam and get acquainted with the future of a productive economy.
People are accustomed to consider markets as natural, and a planned economy as unnatural (unnatural?). Why, exactly? The idea of the “naturalness” of markets goes back to the old idea, almost from the time of John Locke, about the spontaneous generation of markets – not bad for the 17th century, completely irrelevant in the 21st. Markets do not spontaneously arise and do not exist “in the wild”: they require statehood, at a minimum, to mint coins. Markets can survive the weakening of the state, but not its collapse. The experience of Russia in the 1990s, Somalia, and Libya shows that the main demand for law and order is precisely from business, for which it is a matter of preserving private property. So markets are quite a man-made and even finicky phenomenon. They are the same product of organized social relations as a planned economy. This means that market and planned economies can be compared and analyzed in a single context as ways of conscious economic organization of society.
And this is where it gets interesting, because society, by its very nature, is centralized. Society is an organized group of people; organization implies centralization. Historically, societies arose around a common center: the state, the ruler. And it is quite possible that the first economies were also centralized. They were definitely united at the tribal level: if everyone hunted mammoth, then everyone eats mammoth – there is no place for a market here. For the first agrarian civilizations that required complex organized (that is, centralized) irrigation, like Egypt and Mesopotamia, centralizing the economy also made sense. For them, everything revolved around one organized resource – grain.
However, the administrative potential of ancient societies was limited, and they could no longer cope with the task of organizing a slightly more complex economy. This is what determined the historical rise and success of markets: societies were not developed enough to organize a controlled economy – and this niche was occupied by trade relations between individuals and groups of people. However, the usefulness and even necessity of markets from the first civilizations to late capitalism does not in any way imply their immutability, eternity, or universal efficiency in other conditions.
Moreover, at the current stage of development of society, humanity already has technical and institutional mechanisms for an organized planned economy, both at the national and international levels. Therefore, the question of the “naturalness” of planned or market economies becomes very relevant, because only the inertia of thinking based on the false premise of the naturalness of the market prevents us from looking at the issue of organizing the economy as if we had just got our hands on a society with all modern institutions and technologies, and we choose a more efficient way of organizing it from two equally possible systems.
Of course, efficiency criteria cannot be traditional, such as market ones today. The comparison should be made according to criteria external to both systems, thereby orienting them from intrinsic value to a utilitarian service role. This is not a problem for the plan – it is utilitarian in nature. But the market has a strong element of intrinsic value. The market will defend its existence because the market (more precisely, the economic agents that form it) needs it. This is the strength of the market, ensuring its stability in different periods when society could not provide it – the market could fight for itself and even help society gain stability. However, the strength of the market yesterday is becoming an increasingly visible flaw today. There is a downside to the resilience and self-healing ability of markets: the market cannot be changed. The market is always structured the same way; it cannot be given a task or reorient its priorities. The market's priority is always the same: monetary enrichment. To the extent that it coincides with the interests of society – good. What the hell if not?
Therefore, in history, when the state needed a result, even an economic one, outside the market, the state used non-market mechanisms. For example, how the Spaniards and Portuguese financed maritime expeditions starting in the 15th century. This is just an example of an economic problem that cannot be solved by market methods and requires economic intervention. And so throughout history: when the state needed to implement a major project, be it the construction of railways or the space program, or the needs of the front during the war, it took and did what was necessary.
At the same time, the market continued to work for enrichment, bringing in the process general benefit – an ability that has largely been exhausted. Everything that the market said to give, as a side effect of the race for wealth, the market gave. In other words, previously, the growth of wealth in a market economy was inevitably associated with the growth of material capital, the value of which implied a certain utilitarian use. It was impossible to get rich in isolation from the growth of material capital, and situations where this was possible quickly self-corrected, starting with the tulip bubble of the 17th century. However, this era is clearly behind us.
On the one hand, there has been an exhaustion of growth directions: all open markets for material goods are finite, and, therefore, so are enrichment and the rate of profit. This means that material capital has a ceiling, beyond which its expansion will not generate profit.
On the other hand, financialization and modern digitalization of the market economy have made it possible to more safely separate wealth in the financial circuit from material capital. That is, wealth in the modern form of the market does not really need material capital.
But then the market ceases to be needed: at least as an engine for creating wealth in the economy. The pursuit of capital continues – but it no longer brings bonuses to society in the growth of material capital, and, therefore, becomes a cost for it, because the market continues to absorb resources, and a significant part of the labor to ensure its functioning, without giving anything in return. Indices, stocks, capitals, capitalizations, individual wealth, stratification and monopolization are growing – but materially nothing is changing in the world and is even starting to crumble little by little: all the resources are in the financial circuit, so Boeing doesn’t even have enough bolts to properly tighten an airplane door.
As a result, the market economy breaks down into two fundamental components of the economy in principle: exchange and labor.
exchange, or economic distribution, is a market in the philistine sense: many buyers on one side, many sellers on the other, horizontally and decentralizedly distribute resources and products.
labor, or economic creation, is the material environment of humanity created by labor: from mines, roads and houses to songs and books.
Exchange and labor revolve in an endless cycle of direct exchange: labor creates a product for exchange > exchange provides labor resources.
This is the base – the level of division of labor, the fundamental level of economic relations. This is the level of subsistence farming. In the regime of division of labor, man existed in a tribal system. The division of labor in itself does not mean growth. In its pure form, there is no growth mechanism in it – it is a closed cycle in which there is no point in producing more than the partners can use for business. The flat cycle turns into a cycle of growth to a higher level – with the advent of the remedy. The medium of exchange allows one to produce more than is needed in a closed cycle of natural economy, because the surplus does not disappear: it is exchanged for the medium of exchange and is thus stored in the form of this medium. One can also say that with the medium of exchange comes the alienation of labor. With a means of exchange, the closed cycle of natural economy is replaced by a free cycle of indirect exchange: labor creates a product for exchange > exchange increases labor resources > labor creates more product for exchange.
With the transformation of direct exchange into indirect exchange, an economy arises; natural economy becomes economic. The type of economy depends on the medium of exchange. Of course, money turns this into a market economy. From the ability to “freeze” excess labor for deferred exchange, it creates the motivation to accumulate for exchange for something more; the desire for accumulation requires profit – the remainder at each turn of the wheel of monetary exchange. That's all: exchange + money – and the spinning flywheel of the market economy is launched.
To avoid any confusion, this does not mean the “Lockean” spontaneous generation of the market. For the birth of a market, only money is needed, but money is not a product of the market, it is a projection of power external to the market. The nature of money is a separate topic. The fact that the money factor necessary for the birth of the market is external to the market makes the spontaneous generation of the market impossible has been proven. The market is not born, the market is launched by the injection of money into the process of division of labor.
Exchange + money = the spinning flywheel of the market economy has been launched. On this wheel, humanity has traveled all the way from subsistence farming to the heights of industrial capitalism. Part of the success of the productive side of capitalism was the development of its financial support.
Capitalism moved on, creating material capital, increasing financial capital until it reached the dead end described above: in almost all spheres of the real economy there is nowhere else to increase the growth of material capital – a further increase in material capital ceases to generate profit, while financial capital opens up the opportunity to generate profit or disproportionate growth material capital, either independently, or even through the destruction of material capital.
This is, at the same time, both the success and the dead end of capitalism: one can say that the material level of capitalism has been completely passed, completed, there are no further levels, the wheel will spin idle: exchange occurs, profit is generated – there is no material growth.
Exchange in the financial circuit of capitalism, which has arrived to success, has practically closed in on itself: labor still produces a product for exchange, but then the entire excess of the medium of exchange (profit) joins the circulation within the financial circuit, increasing its volume, “total capitalization,” and returning it to the next production cycle is only enough to reproduce the product or even a slightly smaller amount of money. Having become isolated, financial capital thus gets to eat up its material base: maximizing the withdrawn profit and financial capitalization at the cost of depleting material capital.
Due to the functioning of the market as a redistribution mechanism, combined with the illusion of growing wealth generated on the exchanges, it seems that nothing has changed, and it is not clear what I’m talking about: the market is stronger than ever – and as always, there are new mountains of gold ahead and there will be prosperity in the end for everyone. But if you look closely, the fundamental changes described are undeniable: wealth generation in the financial circuit of the economy
or no longer leads to the growth of material capital – where do you see the growth rate of material capital – things around us that would correspond to the growth of financial capitalization?
or occurs at its expense: equity firms buy material businesses everywhere, gut them, split them up, selling them in parts at a higher price, generating an increase in financial capitalization, leaving behind only part of the required material capital: businesses are smaller, simpler and cheaper than they were before the purchase of equity -company.
Financial capital has neither profitable directions for increasing the material capital in reserve, nor the will to leave the cozy clouds of making money from money onto material land. And material capital, even if not increased, needs to be maintained – which conflicts with the motive of extracting maximum profit to maximize capitalization.
Thus, in place of the previous harmony of the tandem of material and financial capital, a material conflict has come: financial capitals live their quite successful lives separately, physical capitals degrade, depreciate, shrink and crumble – and with them material skills, that is, in the literal sense, knowledge , how to make this or that material thing, which is now an extra cost for the market, and not a guarantee of future profit.
Figuratively speaking, what Boeing is saving on today, Boeing will forget how to do tomorrow. And the conflict will grow, because Boeing’s “saving” will only become more strict, despite its profitability and cache reserves: everything is simply in the financial circuit, and you can’t take them out of there – then the financial house of cards of capitalization will crumble. And if you don’t take it out, it’s its material basis.
In total, according to the two fundamental functions of the economy, the state of the market economy at the stage of the passed material level
exchange is functioning, market trade is not interrupted.
labor – the productive potential has been developed, the market economy no longer increases the material benefits of the economy and begins to gradually deplete them.
In other words, the exit market is now
proposes market distribution of products and resources
offers no prospects for significant material growth.
On the other hand, a planned economy:
offers – planned distribution of products and resources
offers virtually unlimited potential for material growth.
The end of the first part and a loophole for capitalism. This is a mandatory introduction to the mechanics of a market economy in order to understand 1) the essence of the dead end of a market economy (I hope you saw an explanation of some things that you yourself have noticed for a long time) + 2) why it is impossible to get out of the dead end of a market economy by means of a market economy = 3) the need for another organizing the economy to remove the stalled productive forces of humanity, which are not even close to being exhausted (only a specific type of drive has been exhausted) from this ditch. Switch from wheels to trucks, so to speak.
If the analysis is successful, then it should show not only the essence of the problem, but also the outlines of the solution.
Left behind the scenes, in fact, is a look at a planned economy, the mentioned special nature of money, the untapped productive potential of humanity and some other related topics.
Well, despite all the thoroughness of the analysis, this is not a guarantee of the future, but simply the first sketches of a vehicle in which you can drive into it.
But it may not come to this, because capitalism, which has reached a dead end, has one way to get out of it and enter a new circle. There is no way forward: it will no longer go beyond the current line of material progress. However, there is an option to reboot the last level, so to speak: this is the destruction of part of material civilization and the rise of its restoration. In the 20th century, this usually happened literally in the form of war; in the 21st, it could also be the devastating effects of climate change, the degradation of the market economy itself, which has gone too far – or a combination of factors. But re-entering the same ditch is not moving forward.
The currently invisible scale of the future can only be assessed vaguely. It is necessary to discover and dismantle the untapped productive potential of humanity so that it becomes possible to assess the extent to which it is stuck in the current economic drive.
