Understanding Capitalism from Marxist Perspective
Marx understood Capitalism as an expansionary system, which is based on the exploitation of labor and pure greed. Also, he also presumed that the classes, which typically capitalist system yields, generate a struggle against exploitation or the bourgeoisie. In a nutshell, Marx believed that capitalism is based on greed and exploitation, which is why it is inherently unstable that become the cause of various kinds of economic crisis in a capitalist economy (Aronowitz, 2016).
The most recent of such economic crisis is 2008 sub-prime mortgage crisis, which was dubbed as The Great Recession, in many ways once against questioned the very foundation of the Capitalist system. For instance, the banking sector, which was prime culprit, was reckless and irresponsible. However, to understand the reckless and irresponsible behavior, we have to understand the crisis and its causes (Mészáros, 2008).
Crisis
The apparent causes of sub-prime mortgage crisis are banks, hedge funds, and insurance companies. The banks and hedge funds were responsible for creating mortgage-backed securities, and the insurance companies covered this security with credit default swaps. When the prices of real estate assets and houses were inflating, because of artificial reasons, banks started to issue loans for houses and real estate assets, despite the information that inflation of prices, in the housing industry, was artificial and the bubble could burst any time (Connolly, 2015). Also, the interest rate, on which these loans were issued, was adjustable and therefore; when interest rates increased, it skyrocketed the mortgage interest rates, which because of defaults on the loans. As people started to default on their loans, the prices of houses also started to decline, causing the crisis to intensify (McNally, 2008).
All-Powerful Corporate of America
The United States’ political system is strongly influenced by Corporate American; large firms spend billions in the election process, which allows them to rig the system in their favor. In the year 1999, Glass-Steagall Act was relaxed, which allowed banks to invest the depositor’s fund other than hedge funds. Some experts are of the view that reckless and irresponsible behavior, of banks, was large because of the relaxation of the Glass Steagall Act, which keeps checking on the banks since 1989 (The Economist, 2008).
Financialization of the US economy
The incredible increase in the financial capital was not by any accident, and it was yielding challenges for the production. The financial capital produces wealth by 1) issuing loans and 2) through charging interest on these loans. Therefore, financial capital, which is predominantly used by the financial aristocracy to generate wealth, is explosive and it undermined national output, real wages, and all other real variables of the economy (Smith, 2009). This money making, without the mediation of the production process, yields economic and societal contradictions, which result in economic crisis. It is what we have witnessed during the sub-prime mortgage crisis, in which hedge funds intended to outperform (greed) and in the process yielded economic crisis (Dunn, 2011).
As the American economy started to yield lower profits, because of various factors and upward push on the labor wages compelled the devising of a new system of creation of wealth, which is more secure and thus financial system the US was created purely based on greed (Dunn, 2011).
Consequences
As it has been established, beyond the shadow of a doubt, that the American capitalist system is based on exploitation and greed. The large companies have grown so bigger than they are now influencing the political system. The bailout packages for the Lehman Brothers and Goldman Sachs are examples. We also see the decline in production, capitalism and rise in financial capitalism. It must be acknowledged that production, capitalism is the lesser evil, as it creates wealth through the production process and in return employment generates; it affects the real variables of the economy, and it may lead to the appropriation or improvement of the economy. In contrast, financial capitalism completely bypasses production process, and entirely relies on interest-based exploitation to create wealth (Mészáros, 2008).
It has widened that gap between rich and poor and according to statistics, only one-tenth of one percent controls most of the wealth. It must also be recognized that the marginal propensity to consume, of the working class, is higher, which means they consume impacts the economy and consumption is the engine of growth for the American economy. Therefore, the Financialization of economy would be fatal.
Ten years after the crisis, American economy seems to resuscitate because extra-ordinary monetary and fiscal measures; however, the gap between rich and poor is widening, and large industries and corporations are still influencing the political system in a manner that undermines fairness in the economy (Smith, 2009). Such example is a tax-break bill. The next shock, because of the transformation production-capitalist economy, into financial economy, US economy will not be able to sustain.
US GDP
https://tradingeconomics.com/united-states/gdp
Changes in House Prices
https://www.globalpropertyguide.com/real-estate-house-prices/U#united-states
US unemployment Rate
https://tradingeconomics.com/united-states/unemployment-rate
References
Aronowitz, S., 2016. The Crisis in Historical Materialism: Class, Politics, and Culture in Marxist Theory. 2nd ed. Springer.
Connolly, K., 2015. Booklovers turn to Karl Marx as the financial crisis bites in Germany. [Online] Available at: https://www.theguardian.com/books/2008/oct/15/marx-germany-popularity-financial-crisis [Accessed 10 January 2018].
Dunn, B., 2011. Can Marxism explain the crisis? [Online] Available at: http://socialistreview.org.uk/363/can-marxism-explain-crisis [Accessed 10 January 2018].
McNally, D., 2008. From Financial Crisis to World Slump: Accumulation. [Online] Available at: http://sites.google.com/site/marxandthefinancialcrisis/mcnallydec2008/McNallyDec2008rev.pdf?attredirects=0 [Accessed 10 January 2018].
Mészáros, I., 2008. The Unfolding Crisis and the Relevance of Marx. [Online] Available at: https://mronline.org/2008/11/04/the-unfolding-crisis-and-the-relevance-of-marx/ [Accessed 10 January 2018].
Smith, A., 2009. Can Marxism explain the financial crash? [Online] Available at: https://socialistworker.org/2009/04/13/marxism-and-the-financial-crash [Accessed 10 January 2018].
The Economist, 2008. What would Marx say? [Online] Available at: https://www.economist.com/blogs/certainideasofeurope/2008/10/what_would_marx_say [Accessed 10 January 2018].
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