A Marxist Understanding of the Economic Crisis - Literature review Example

Section/# A Marxist Understanding of the Economic Crisis of 2007/2008 Although there are many aspects of Karl Marx’s theories which can be utilized in order to draw inference upon the current state of economics and the means by which certain historical aspects have taken place, some of the most effective understandings that Marx provided is of course with regards to his definition and understanding of what he termed as “capital accumulation”. As a function of such an understanding, the following analysis will be concentric upon discussing the ways in which Marx’ theories can be applied to understanding the recent downturn and subsequent crises that developed during the 2007/2008 collapse. Whereas the term “capital accumulation” itself has been in existence for far longer than the Communist understanding of the way in which global economics takes place, it was Marx who most clearly elucidated and defined this concept. Although many of Karl Marx theories and understandings were inexorably linked to a rather slanted and biased view against capitalism as a means of defining global economics, Marx understanding of “capital accumulation” can almost invariably be accepted as a perfect textbook definition. Though Marx does not agree with the means by which capital accumulation takes place, the identifiers that he exhibits with regards to how such a system takes place and is perpetuated is difficult to argue against regardless of the political/economic ideology that the individual may have. As a function of understanding Marx’s identification and theory of capital accumulation, this analysis will approach this topic from a historical and economic standpoint. Moreover, after seeking to define and understand the nuances of capital accumulation, as Marx describes it, the analysis will then move on to attempting to define whether or not this particular definition and understanding is applicable currently or has any contemporary relevance whatsoever. Finally, it is the hope of this author that such a discussion will not only integrate a further understanding with regards to Marx’s original intent and the means by which the Communist definition of capital accumulation was theorized/enunciated but that this realization an understanding will seek to elaborate upon the means by which such a definition/theory continues to be relevant or is entirely irrelevant within the current era. Before delving into an in depth understanding of the 2007/2008 crisis, it is of course first necessary to integrate with an interpretation and understanding of how Marx defined human psychology and base nature as a means of better understanding this theory and definition of capitalist accumulation. Ultimately, the writings and philosophy of Karl Marx were concentric upon an understanding that human nature as necessarily developed as a means of ensuring that humans are able to derive all of the necessary requirements for life that they may have. Not distinct from the evolutionary standpoint, Marx theory of human nature specifies that the individual, and the group for that matter, will likely seek to enrich themselves in all manners possible at all times possible (Hein, 2012). According to Marx, this is something of an innate drive that is engaged from the moment that an individual self-actualizes until the time that they die. This primary interpretation of the motivation degree provides is a primal means by which the capital accumulation theory is defined within the Marxist worldview. In direct relation to the crisis of 2007/2008, Marx understood capitalism to be locked in something of a self induced death spiral. This was ultimately the result of the fact that Marx understanding of capital was a situation in which humans invariably seek after wealth and self-enrichment as a means to define their own reality. Although this in and of itself represents and unethical approach, far more unethical, according to Marx, is the reality of fact this reality invariably takes place on the backs of others. This enrichment at the expense of others has profound and severe consequences due to the fact that brutal treatment of the producers is oftentimes affected as a means of capital accrual/accumulation. In short, Marx’s concept of capital accumulation can be understood with regards to the illustration and so many economists oftentimes make with regards to the “economic cake” (Chiber,2011). Although somewhat simplistic, the “economic cake” example is used to define the situation of overall quality of life that the individuals within the system experience as the economic cake grows and contracts. Obviously, growth necessarily benefits all individuals within the system, to a greater or lesser degree, and contraction necessarily hurts all individuals within the system; likewise to either a greater or lesser degree. Through such an integration ,the reader can come to the appreciation of the fact that the 2007/2008 crisis was something of a pre-ordained reality that was destined to come to pass as a result of the capital system and the manner through which it operates. Further, the illustration of the “economic cake” can be utilized as a means of understanding the 2007/2008 crisis as well. Even though this approach is something of a symbolic approach to the means by which Karl Marx identifies and illustrates capital accumulation, it is nonetheless salient. According to Marx, in order for capital to define a system, in the form of capitalism, it is required to incessantly grow and expand; as a means of ensuring that individuals within the system gain a necessary degree of benefit. Naturally, this is the idealistic description of the system that in and of itself cannot exist as defined. Due to the fact that there are finite resources and infinite needs/demands that individuals within the system place upon these finite resources, it is ultimately impossible for the accumulation of capital to continue to grow undeterred (Sklansky, 2012). Marx of course makes note of this necessary shortcoming of capitalist system and promotes hypothetical system of socialist/communism as a means of ameliorating these necessary drawbacks. Integrating with the 2007/2008 crisis in this way, Marx would have seen the capitalist system and the accumulation of capital as an inherently unsustainable system. Due to the fact that it was impossible for capital accumulation to continue to grow and provide for the growing needs of society, the socialist/communist approach to the way in which the economy should operate was put forward. In such a way, the socialist/communist economy would not base its overall level of production upon cumulative capital (Susen, 2012). Rather, it would instead base production and economic activity with regards to the ultimate criteria of satisfying the needs of individuals within the system in question. In such a way, production of goods would be carried out directly correlated to their utilitarian purpose; whereas previously the accumulation of capital in the approaches which it engendered necessarily meant that production was only carried out as a means of generating further income building a higher level of capital for the individuals were ultimately in control. Moreover, within the Marxist interpretation of economic theory, the capitalist approach to economic need was solely defined upon the means by which capital accumulation could be derived. Rather than having any social consciousness whatsoever, this particular approach championed the means by which capital could be created and expanded upon the needs and necessities of the given market (Porter, 2013). This expanding capital was almost invariably considered with regards to an expression of ultimate monetary value. Without delving too deeply into the role in which labor plays in deriving value, it was Marx understanding that this derivation of capital accumulation was ultimately the result of labor expenditures that took place upon the backs of the less advantaged proletariat (Pleois, 2012). Ultimately, in order for any of this at take place, the capitalist approach, according to Marx, must necessarily engender a process whereby objects of value are owned, divided, and traded. In such a way, capital accumulation has something of a double origin; both trade and expropriation. Additionally, within such an understanding of trade, according to Marx, the continuation of capital accumulation depends on the removal of all obstacles to trade. This helps to define the manner through which deregulation served as a primary drive for governments around the world leading up to the events that took place during the financial crisis. Although this is oftentimes and understood as a net positive for the way in which the world grows and continues to develop, Marx understood the removal of these obstacles as inexorably linked to violent repressions, civil wars, colonized nations, and a litany of other negative processes by which the developed world impacts upon those which it seeks to influence (Leon, 2012). As more and more markets expand, and capital accumulation becomes a definitive means by which more and more individuals within the market seek to integrate, the necessary overlap in interests is realized with regard to the way in which the participant’s desire to accumulate further capital necessarily infringes upon the desire of other participants to accumulate capital. In such a way, resistance is met and often leads to conflict within such a paradigm; according to Marxist interpretation of capitalistic inflation (Teilmann, 2012). In short, what encourages accumulation is ultimately competition. In business, if competition does not take place than regression will certainly take place. According to Marx, such a dynamic necessarily engages the individual with a strong understanding that the strong must exploit the weak as a means of staying relevant within the business environment. Although many of the areas that it herein been discussed are relevant with regards to a Marxist interpretation of capitalist accumulation and the means through which the 2007/2008 crisis began and was perpetuated, perhaps the most salient and important aspect that Marx discusses is with regards to the tendency the capital has to be concentrated in centralized within the hands of a few ultra rich within a given system (Weeks, 2012). Says Marx of this dynamic “It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals.... Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.... The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, caeteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages.... It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish” (Marx, 2006. P. 75). According to the Marxist interpretation, capital accumulation must be very nature realize a degree of profitability. Ultimately, this profitability realized once capital has been reinvested into a particular means of production error by is able to generate profit. As a means of defining this level of profit production on capital accumulation, Marx lays out in Das Kapital what he terms as seven distinct moments. These are as follows: 1) the initial investment of capital, 2) the command over surplus labor and its appropriation, 3) the increase in value of capital through the creation/production of new units 4) the use of outputs produced by employees which contain added value 5) utilization of surplus value (profits) after deduction of all costs, 6) the creation of surplus value through sale and 7) final reinvestment of this profit into further means of production; thereby starting the cycle afresh (Jossa, 2012). However, Marx made specific mention of the fact that each of these seven processes could not be understood as a means of production alone. Rather, they are intrinsically linked to a societal/political interpretation of the means by which the economic matters are conducted. In such a way, what is being described within this particular definition of capital accumulation is with regards to a paradigm that exists and existed at the time in which Marx was performing this analysis as well as within the current era. Further contrasting the capitalist’s mode of capital accumulation as compared to the socialist’s model, which has been discussed previously, Marx draws in the analogy of primitive accumulation of capital. This primitive understanding provides the key relation of capital and necessarily refers to the degree in which the world used to see capital accumulated primarily as a means of plunder, robbery, slavery, extortion, theft, and a litany of other negative human behaviors (Scott, 2013). Although no one could argue that this aforementioned list is anything short of appalling, Marx sought point to the fact that the way in which current capital is accumulated is not altogether different. In such a way, it becomes clear and the parents to the researcher/analyst why Marx so fundamentally opposed to the capitalist dynamic. Although there many aspects of Marx understanding of capital accumulation which can be directly linked to the current system, it is the belief of this author that the most salient to the 2007/2008 economic crisis is with regard to the level and extent to which capital accumulation reduces the overall level of wealth that is exhibited within the system (Tsolakis, 2010). Although this may seem as somewhat counterintuitive, the reality of the situation is that capital accumulation, by its very nature, asserts that the resources that are derived from profit do not ultimately make themselves felt within the economic environment. Rather, they are all too often times exhibited with regards to reinvestment in the process itself, or exhibited within the hands of but a few owners. Although it is not the purpose of this brief analysis to take a particular site with regards to whether or not the Marxist approach is ultimately correct or incorrect, the applicability of the Marxist dynamic to explain the means by which constriction of overall wealth is exhibited with regards to the way in which the owners and the producers interact with one another is undeniable. Perhaps no more perfect example of this can be seen than with regards the way in which the global economic crash 2007/2008 impacted upon the most vulnerable within society (Resnick & Wolff, 2013). Although it is not surprising that the economic downturn would have a greatly increased impact upon low income/workers that it might regards to the producers and capital owners of the system, the fact of the matter was that many of the negative reactions that took place within the economy shortly thereafter only served compound the issue. In such a way, a rapid constriction of capital was witnessed. Whereas this did not have any long-lasting effect on a number of established businesses, means by which capital relation in hoarding immediately took place sincerely impact upon the overall wealth is exhibited within system. Further evidence of this is of course illustrated with regards to the way in which the constriction of capital surly meant that baking institutions, as well as many other firms that produced tangible goods were unwilling to lend or expand their industries due to a general fear of the current environment which they operated (Iwaisako & Futagami, 2013). In such a way, the entire process was geared not with regards to the level of utility that might be gained from operational liberalization; rather, it was geared towards the paradigm of capital and the means by which continued profitability was in question. In this understanding, the reader can readily note that one of the most powerful means by which the current and past economic hardships have been evidenced is with respect to the level to which capital holders react to market shifts and demands. This particular paradigm can also be understood in the macro economic sense. Whereas the preceding paragraphs have discussed capital accumulation with regards to certain aspects of individuals and the means by which wealthy capital holders might behave in times of economic hardship/crisis, when one expands this particular understanding to the macro view, it becomes clear the compounding effect that groups of wealthy capital holders can have upon both workers and consumers within the economy (Fuchs & Mosco, 2012). One of the first aspects of expenses that are oftentimes sought to be reduced is with regards to the human capital costs assisted with production. In this way, as soon as an economic slowdown is anticipated or felt, a firm/entity is likely to seek to offset this by laying off/firing/furloughing individual workers within the firm as a means of saving costs. Furthermore, if a more broad financial difficulties facing the economy, the effects of this between many employers/capital holders is severe. A final salient point with regards to the theory of capital accumulation is with respect to the unique need for constant and continual growth that the capitalist system exhibits. Whereas Marx’s communist paradigm requires that markets and industry seek only to satisfy the utility of this society, the capitalist paradigm requires that for capital accumulation to be affected, sustained and continual economic growth must be engaged with. As has been noted within the recent past, such a reality is unreasonable to expect (Davenport, 2013). By very nature of the way in which economic growth, sustainment, and contraction takes place, it can and should be noted that both growth in recession are unavoidable externalities of the current system. Although it would be somewhat of a stretch to claim the capitalistic inflation theory is irreconcilable with the way in which the current system operates, it should be noted that capitalist accumulation, in its purest form, can only take place within certain times of economic growth and maintenance that the economy necessarily enjoys (Paternoster et al, 2011). Obviously, the remainder of the time capitalist accumulation will falter and capital holders will necessarily constricts their level of activities and wealth generation/creation; affecting all members of the society and workforce disproportionately. In conclusion, the Marxist interpretation of capital accumulation is both relevant and insightful with regards to the historical progression of economics as well as the current application that is exhibited within the current paradigm. Although it is not the belief of this author that the Marxist paradigm of capital accumulation is sufficient to correctly explain the world in which we live in the mechanisms by which it operates, it is nonetheless insightful with regards to understanding one of the sheep drawbacks that capitalism necessarily entails. Within such an understanding and framework, it is possible for the reader to gain a more complete grasp of both Marxism and capitalism as economic systems. Finally, the evolution and progression of Marxism and capitalism cannot and should not be understood as entirely divergent. Rather, the evolution of capitalism, as evidenced over the past 60 years, has engaged with cheap elements of socialism and Marxism as a means of seeking to ameliorate some of the fundamental drawbacks that pure capitalism necessarily entails. It is therefore reasonable to assume that the understanding and appreciation for the Marxist paradigm is applicable in helping to explain the reason for why she changes to purely capitalist models have been evidenced throughout many of the most powerful economic systems the entire world. This is not to say that there are no drawbacks to the capitalist paradigm within the current system; rather, a further and more complete understanding of the Marxist paradigm has helped policymakers and governments the world over to seek in some ways to lessen the negative externalities that capitalism necessarily engenders. References Davenport, A 2013, Marxism: Condemned to a Realist fate?, European Journal Of International Relations, 19, 1, pp. 27-48, Academic Search Complete, EBSCOhost, viewed 14 May 2013. Freeman, A 2010, Marxism without Marx: A note towards a critique, Capital & Class, 34, 1, pp. 84-97, Business Source Premier, EBSCOhost, viewed 14 May 2013. 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