2.THE GENERAL PRINCIPLES OF CAPITALISM (A PREMISE)
3.SOME QUESTIONS WE SHOULD ASK (A SECOND PREMISE)
4.THE FAIRY WORLD OF SCHUMPETER-STYLE POLITICAL ECONOMY
5.THE WASTE OF PRIVATE PRODUCTION
6.THE MORAL LEGITIMATION OF AN INHERITED ENDOWMENT AND THE NATURE OF PROFIT
7.THE DECLINE OF FREE COMPETITION
8.ON CREATIVE DESTRUCTION, CRISES AND THE FALLING RATE OF PROFIT
9.ON MONOPOLY PRACTICES
I will dwell upon it in a while.
Schumpeter ends up with an apology of Monopoly Capitalism, disguised as a desirable evolution of Capitalism. However, this is not what is interesting to the ends of this article.
Schumpeter unawarely summarises all its pious positive believes about the "private" determination of social good, in one phrase:
There is no optimal allocation of resources and no maximisation of output, at least in "historical terms"; We will see why after a few paragraphs.
Schumpeter, as a free market supporter and apologist of Monopoly Capitalism, praises Marshall-Wicksell economic analyses, whereby:
Even in free competition - not to mention monopoly Capitalism - huge economic and social waste is present.
Private production is not efficient. It is subject to the limit of private property, competition and profit.
In the light of this, innovation is curbed, technological development is suppressed and investment (therefore production) curtailed, war waged whenever is profitable.
In the absence of profit deriving from the ownership of the means of production and private entrepreneurial initiative an even greater output could be achieved — e.g. with the economic planning, following Lange’s trials and errors method — and this higher output would also be socially necessary, like in Capitalism.
Assume you're a Capitalist who just bought machinery at the price of, say, 100.000$.
In Capitalism, the private management will not adopt a cost-reducing method until the entire existing plant and equipment is entirely written off — given the profit constraint — whereas in Postcapitalism, people themselves would electively do that whenever it is desirable.
In Capitalism, before investing again, one Capitalist has to wait for the said constant capital of 100.000$ to be fully written off. In Post-Capitalism, an economic unit invests whenever people electively decide so, whenever it's socially necessary.
As we may notice, production in Capitalism is not elective. It is imposed on the people by historically inherited private initiative. In Capitalism, a Capitalist will use that raw material, which is the most inexpensive, that which allows him/her to produce more at the least cost, even if it's a polluting material and its usage is not socially necessary due to the potential damage of the environment. This occurs because of the contradiction of Capital and Wage-Labour, because of the presence of Competition, Profit and Activity property.
Is it "chance" that at the beginning of the 2010s humanity is still deprived with sustainable energy? ;)
What is the moral justification to this inequality as given by historically inherited conditions?
Schumpeter doesn't say. Nevertheless, he just indifferently rejects class struggle.
Soviet Army in Action]
The nature of profit, the problems of private competitive production, the huge social cost of Capitalism, in all forms of Private Production?
(and not by the market):
<<[..]the full produce of one's labour is the material/immaterial production itself: commodities and services, as desired by the buyers. The buyers - by desiring our commodities and services - implicitly desire the labour necessary to their production: our labour, the labour of the 99%; which is partially remunerated due to the profit absorbed by non-working owners, investors and financial parasites.
In fact, Schumpeter rejects class struggle and endorses the necessity of entrepreneurial action and profit as socially necessary self-evident factors.
In short, competitive Capitalism, perfect competition — a system where firms are price takers and profit-maximising entities — is the deus-ex machina of all the humanity problems.
How can crises materialise themselves?
In my article on the Fall of Berlusconi and the Rise of Monti I tried to briefly explain one possible reason for realisation crises in Capitalism:
[in the following video, North Vietnamese Communists (Vietcong) entering Saigon — the Capital of US-allied South Vietnam — and urging to the US imperialists to a desperate retreat. The Vietcong would rename the city "Ho Chi Minh" in the name of the famous Communist leader, to then reunify the country under "Communist" (ahem) rule]
Like all Capitalist activities, this process of creative destruction is monopoly oriented, and produces crises/unemployment.
It drives pre-existing Capitalists out of competition and absorb their profits through an ever-growing large-scale establishment in a process centralisation and concentration of production, namely, through monopoly practices.
The growth of Monopoly Capital worsens the frequency of cyclical crises, as the XX century chronology of crises proved.
Capitalism — as Marx well described in Capital with scientific rigour and as Schumpeter also recognises — is clearly a self-destructive system; competition feeds monopoly practices in the long run; which in their turn feed growing wage-labour poverty with the coming of growing realisation crises and growing attacks on the working class, in the form of austerity for instance.
The contradiction between dead and living labour makes itself felt, with the mechanisation of labour craved by the Capitalist's drive for higher profits. Through the industrial employment of larger constant capital (larger-scale plants) a given amount of workers can convert a greater amount of raw materials into a greater amount of output. This investment process will lead to the end of Capitalism in the long run, once the Capitalist cannot get enough profit to satisfy its investment requirements and capitalist consumption.
Because the rate of profit —namely, how much surplus value is achieved given total capital employed (variable and constant) — keeps falling over time with the steady rise in constant Capital and the slight or null advance in variable Capital; not to the mention the latter's decrease, which would bring down surplus value further (assuming the rate of exploitation to be constant).
Unemployment is there even during "boom times". Unemployment is there to stay in Capitalism.
Whilst in post-Capitalism unemployment is kept at 0% through economic planning — in Capitalism the labour market dynamics not only ensure high profits for CEOs and low wages for wage-labourers, but also offsetting of growing real wages by means of a growing reserve army of labour.
Communist radicalisation is one possibility, fostered by the sharpening of dialectical contradictions during crises. On the other hand, it must be remembered that the negative impact of the contradiction of Capital over that of Wage-Labour may have the upper hand (e.g. with fascism or reformism).
Further, competitors that are already on the market would also have to waste capital against monopoly practices to survive as Capitalist as they are in a far lesser favourable position to concoct new strategies. In case of a bankruptcy, the ruined competitors' profit will be absorbed by the huge concentrated and centralised production of big Capitalists, which will keep accumulating and producing systemic contradictions, whether on a higher or lower scale.
What Schumpeter hasn't grasped, however, is that not everybody is able to become a Capitalist and enjoy "free entry" into private production, even in a regime of free competition and even if one workers wants to become a Capitalist.
With an already-historically-established income distribution, workers are compelled to sell their ability to work (their labour power) in the market in order to survive, where Capitalists - who own the means of production - hire them.
Owning the means of production is more remunerative than working with the means of production. It goes without saying that the very fact Capitalists had the "historical luck" to engage in private production is not a matter of concern to Mr Schumpeter.
Further, if the market is already saturated and demand cannot absorb the potential production of "a proletarian willing to become a potential Capitalist" (assuming fantastically he could start an activity with his miserable savings), the "potential Capitalist" would go bankrupt with all the negative consequences for him/her and his/her family.
Talking about growth, one might argue that Monopoly capital, namely, the large-scale establishment or the big business, is by no means separable from the economic progress.
To have progress in a Capitalist way, one must accept the non-human consequences of monopoly practices as well as those of perfect competition, on workers and capitalists.
Of course, we are forced to accept this humbug only if we accept Capitalism as the ultimate eternal truth for humanity.
Schumpeter expresses all its economic idealism by perpetually underestimating the catastrophic nature of Capitalism in remarks of the likes of “nor can it be argued that these catastrophes occur in any case” [Capitalism, Socialism and Democracy, page 91]; as if the crises and daily tragedies of the labour market were not inherent (and fruitful for some) in Capitalism! Crises, as already discussed, were not interrupted by the coming of "pro-Stability" Monopoly Capitalism! Also, Schumpeter paradoxically patronises e.g. the Weberian concept whereby Capitalism is a rational system. For Schumpeter, actually, any human mode of production is a rational one. The manufacturer’s and trader’s interest, says Schumpeter, was the interest of all during the free market years of Capitalism. On the other hand, we have already seen that Capital in general — whether of Merchants or Industrialists — by no means pursue the interest of all.Capital is always willing to apply a negative force on Wage-Labour.
Capital can counterattack with employers' association, lobbies and by supporting pro-Capitalist state action, austerity and much more.
Further, monopoly Capital can achieve profits even through inflation, which has a negative impact on the workers' real wage
In case a Capitalist raises the price level and for any reason the wage indexation lags behind the rise in the price level, the Capitalist can even achieve profit by inflation!
In many countries of the world, wages are not properly indexed, namely, they don't rise in proportion to a rise in the price level. Hence, whenever the real wage decreases, the workers are poorer; while few Capitalists are richer, of course.
One Capitalist can increase his profit with appropriation by dispossession of land, natural resources, by increasing the intensity of work imposed wage-labour, by displacing workers through the effect of machinery as materialised by a growing reserve army of labour, by promoting competition among workers, by despoiling the wealth of other capitalists through the financial system or through monopoly practices et cetera.
There are many way one Capitalist can do that.
Capitalism is a system in which workers are set out against capitalists, who in their tun are set out against workers and other capitalists. It is a system based on lack of human genuine co-operation, a degenerated historical produce. Human beings — social by nature — are turned into mere "isolated individuals" by the historical contradictions of Capitalism. Capitalism alienated the real essence of one person, that of a social being.
Neoliberal economics à la Schumpeter is purely idealistic and speculative, insofar as it takes for grant existing relations whilst not helping us to shine a light on the nature of profit, crises and the reason behind the growing poverty within this planet of slums.