>> You remember that when we went from the micro theory to the macro theory, we talked about a five part theory of crisis. What we're going to do now is go backwards, so we're going to look at the micro, macro theory first. And the difficulties with the five elements of Marx's theory or crisis, that we discussed last time. And then we're going to go into micro theory, the underpinning, obvious argument in particularly, the labor theory of value. But so, the first of the five elements of crisis that I mentioned was the problem of liquidity. That once, an economy is totally dependent on money, it can seize up, you know? Marx talked about hoarding. The rich would, would sit on their money and then there wouldn't be liquidity in the system. We all lived through that in 2008 when there was a huge panic in global financial markets. Banks stop lending to banks, because they didn't know if the banks they were dealing with were solvent or not. And the whole system froze for about three days, then what happened? >> The, the public sect, sector stepped in and created a stimulus. >> The government stepped in and created a stimulus and before that central banks started pouring liquidy in the system. Okay? Marx and Engels in the Communist Manifesto, talked about the state as the executive committee of the bourgeoisie. But interestingly, in a way they didn't take their own theory seriously enough. Because they discounted or didn't appreciate the extent to which governments might step in and actually save capitalism from itself in a way that we saw the central banks do in those days in the fall of 2008. And so, the potential liquidity crisis, which certainly materialized in those weeks, was headed off by the actions of, of the central banks of Europe and the Fed here. So that's one element of his theory of crisis that was, was, which underestimated the extent of what governments can do. Secondly though, Marx talked about the declining tendency in the rate of profit. This was because all the classical economists believed that this was an obvious fact. They looked around them at the economies of their day and they saw that profits fell. And so they were sure that somehow, even, even to the point of thinking that a test of any theory would be, if it could account for the declining tendency in the rate of the, in the rate of profit that they thought they saw about them. Now if it, it turns out that it's far from obvious that there is a long term declining tendency in the rate of profit and capitalist economies and as you can see from the chart, I put up there. Actually, it can be much more varied. Profits can go down, profits can go up, It's not clear there's an obvious trend. Why might they have been wrong? Why might Marx have and, and Smith and Ricardo why, you know, the story they told? Remember, we go from an industry where there's very high, high rates of profit and then I'll put up here the example of going from the Wright brothers to modern jet aircraft. That as technology gets more and more apart of the process there's less and less human living power. And so the, the capacity to make money in that industry. Now, we're talking about the airline industry goes away. >> Mm-hm. >> What, why, why might that be wrong? >> Well, you, if you know, you can't make money in a particular industry anymore, the, in, you can always move to another industry. >> Right. So, maybe you can move out of the airline industry and when computers come along and you're moving to the computer industry and then the whole process would begin again. And there would be very high profit margins at the beginning, the production would become more and more capital intensive and profits would get compute, competed away in the computer industry and then people would go into something else. So, it's a very it's a very static view of capitalist markets. I think Marx, you know, understandably is looking at 19th century Britain factory production. He is not thinking about innovation being actually innovations of entire industries in directions that nobody could conceivably have thought of in the middle of the 19th century. But once we allow the possibility, that there are going to be new industries emerging, then this idea that, that declining tendency and the rate of profit in any single industry is going to translate into declining tendency in the rate of the profit in the whole economy fails. >> Mm-hm. >> Right? Any other reason? >> Yeah, there is one problem, for instance that capital incentive idea is not necessarily true. Because sometimes, it's not a capital, it's just the idea that you have that can create a big success. >> Okay. So that's a very good observation and this comes to, the next point I wanted to get into, which is that Marx said monopolies eliminate competition. And so when we think about monopoly capitalism, he said, the, the very thing that gave capitalism, its dynamism was going to go away. Now, there are two reasons why that argument might have been problematic. One is again, that he underestimated the possibility that the government might step in with anti trust regulations and in, and, you know, break up, we broke up the airline industry with antitrust laws. And so it may well be that, that monopoly capitalism can be to some extent undone by the state. The second though, is the example you just gave. That in fact in some sectors, there might be economies of smallness, you know, I'm old enough to remember those two, two folks in their garage in California. Who took on IBM with, this is the original Macintosh computer up there and almost destroyed one of the biggest multinationals in the world by exploiting economies of smallness. So, not everything is like the o-rings on the challenger, which involved huge capital intensity. And therefore, massive barriers to entry in an economy, in a, in a sector of the economy. In fact, there maybe many economies of smallness. So this again puts in question the notion that monopolies will, will gradually make every industries decreasingly competitive, maybe they will and maybe they won't. Fourth problem, we've already alluded to a little bit in today's discussion. Under-consumption, the workers collectively couldn't buy everything that they produce. And that creates a problem for the system potentially depression prone because you're going to have these situations in which nothing can, can soak up. There's not enough demand to, to soak up everything that's going to be produced and then the system's going to get into trouble. So, a very important theorist came along in the 20th century to address this question. Who is that? Who is, who is that on the screen there? >> That's Keynes. >> That is John Maynard Keynes Author of the General Theory. Probably the most important work of political economy written in the 20th century certainly in the first half of the 20th century. Published in 1936 and provided the intellectual architecture for the New Deal and Keynes's essential, analytical insight was that there's diminishing marginal propensity to consume. We've already mentioned this. And this means that if you're a poor person and I give you a dollar, you will spend it. Whereas if you're a rich person and I give you a dollar, you'll save it. And so the, the problem during depressions and recessions is that the, the poor people lose their jobs, so they don't have any money and the rich people are afraid to invest. And Keynes argued that governments can engage in counter-cyclical policies, they can borrow money and give it either spend it such as we did in the, of the depression and creating public works. Or, or give it to people at the bottom in the form of cheap loans and so on. Transfer payments, unemployment insurance. They will spend it, that'll stimulate them in and pull the economy out of recession. You mentioned the stimulus the stimulus program that was engaged in first by the Bush administration and then the Obama administration that Tarp so called AFTA. This is classic AFTA that collapse of 2008-9, that's classic Keynesian Demand stimulus. And so, it's another reason why, even though there may be a general problem of under consumption was Marx like to call it overproduction in capitalist economies, you wouldn't necessarily get to the point where it becomes terminal. Another way in which he underestimated the executive committee of the bourgeoisie, the state as a, as an institution that can step in and save capitalism from itself. Let's talk a little more about working-class consciousness. This links back to our earlier discussion of the difference between a class in itself and a class for itself. Marx we rem, remember, we, we talked about this. Believed that eventually the two would come together. That as capitals [INAUDIBLE] got into increasing amounts of trouble, the workers would come to see that their interests were in common and aligned against the interests of capitalists rather than against one another. And I talked at some length about the, the psychological assumptions underneath that, that this, that this notion that what makes us feel good or bad is not the kind of Ronald Reagan comparison, are you better of than you were four years ago that he used in 1984 to get reelected. But rather that people compare themselves to others in order to decide whether or not, they're being well treated. And I said at the time, Marx's was half right, but I didn't explain that. So let me explain it. If, if you think about people in the auto industry who are feeling under pressure, workers in the auto industry. Do they compare themselves to the executives in their industry? You might think they would, that's exactly the comparison Marx hoped they would make. Remember, when we were talking about that the rate of exploitation and why it is that, even though it seemed counter intuitive he thought you would object to increasing relative exploitation. So you would think if CEOs are getting 55 or 100 times the amount that the shop, the workers on a shop floor are getting, that's the comparison that they would make. Right? But it turns out that Marx was wrong about that, he was right that they compare themselves to others, but wrong that they make those kind of comparisons. What's interesting is that auto workers say, will compare themselves in deciding how well off or not they are with others, but with similarly situated works. So, auto workers will compare themselves with steel workers not with executives. And this is true up and down the occupational scale. So for example, with a professor. If, if you, if a professor learns that his or her salary is $2,000 less than the salary of the person in the office next door, that will upset them way more than if they learn that their salary is $200,000 less than the attorney who lives down the street. People compare themselves to similarly situated people, so Marx was right that people are basically other referential, other regarding in their conceptions of well-being. But he was wrong to think people would make the kind of global comparisons he wanted them to make and particularly that the working class would make comparisons with the capitalist class. This seems all the evidence now for 150 years of, of sociology and sociological study is that's not what happens. People generally compare themselves to people who are relatively similar to themselves. And so the results of that a class in itself never quite becomes the class for itself. So those are the reasons that each one of the five elements of these macro theory of crisis, in one way or another is problematic. Comes down to his assumptions about how economies work were too mechanical? His assumptions about human nature were insufficiently nuanced and he massively underestimated the degree to which governments really would operate as the executive committee of the bourgeoisie saving capitalism from itself.
