Why is Growing Economic Inequality Bad for Capitalism?

Karl Marx, who was the most perceptive analyst of how capitalism works, referred to the fundamental contradiction in capitalism. That contradiction is not difficult to understand. Consider that the business of capitalism is commodity production. In Marx' analysis, the capitalist takes a sum of money that we call capital, M, and uses it to buy materials and hire workers to turn those materials into commodities which we call C that the capitalist can sell at a profit. Those profits can then be used to increase capital and thus expand or to pay the personal expenses of the capitalist, which as an enterprise grows bigger become a smaller and smaller part of the profit. Marx denotes this as M – C – M'. The point is that M' has to be greater than M. Otherwise, there is no profit, and the enterprise cannot continue.

If we consider the whole society, we can add up all the wages earned in that society, and we can add all the prices of the commodities produced. The sum total of the wages has to be less than the sum total of the prices of the commodities. Therefore, there are not enough wages to pay the prices of all the commodities. That is what Marx called the fundamental contradiction in capitalism.

Of course, other things are going on. Capitalists invest some of their capital to make production more efficient. That allows them to increase quality and lower prices. Enterprises unable to compete at that inevitably go out of business. There is also financial capital in which no commodities are produced, such as lending money for interest. Marx refers to that as M – M', in which again M' is greater than M. But that does not change the fundamental contradiction.

For obvious reasons then, the drive of capitalists is to increase profit, a feature that can be simplified as greed, which is the underlying motivation in capitalism. Profits can be increased by raising prices (monopolies are able to do that) or by decreasing the cost of production or both. The primary way to do that is to decrease the amount of capital spent on wages, whether by replacing humans by machines or by paying workers less. It is easier to lower wages than to lower the other costs of production, such as materials. Of course, if prices rise and wages do not, that achieves the same effect as lowering wages.

So, how does economic inequality fit into this analysis? The larger the gap between the wealthiest people and the rest of the people in the society, the less money the latter have to buy commodities. That sharpens the fundamental contradiction.

There are other factors at play, too. For example, you pay workers not only to provide food and shelter that workers need to be able to continue working but to reproduce themselves since workers do not live forever. So wages have to be sufficient to raise children, to educate them so that they will be competent workers, to provide them with healthcare when they need it, and thus to reproduce the work force.

We are seeing a major breakdown in the reproduction of the work force. For example, many students have to take out exorbitant loans to finance their educations, often without a prospect of finding a job with wages large enough to pay off those loans. We have increasing numbers of people who cannot afford housing, even if they have jobs. We have large numbers of people who cannot afford healthcare.

Thus the growth of economic inequality threatens the ability of capitalism to reproduce itself, and when that happens, the system begins to collapse. This may all sound very theoretical, but it is precisely what we are living through now.

Tragedy and Farce: The End of Reconstruction and the Contemporary Resurgence of White Supremacy

 Karl Marx began his most literary work, "The 18th Brumaire of Louis Bonaparte," with these words: "Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce."

Indeed, we are certainly living through a farcical phase now, though there is nothing at all funny about it. After the US Civil War, the Emancipation Proclamation, and the 13th and 14th amendments, we went into the brief period of Reconstruction. It was a great political opening. African-Americans began to vote and to obtain political power both locally, in states, and nationally. Reconstruction was made possible by the presence of federal troops in the South.

However, there was a huge backlash led by the virulently white supremacist Democratic party at the time. Disgustingly racist attacks were made against Lincoln in 1864 and Grant in 1868. The Republicans did not allow Frederick Douglas to campaign for Grant in that year, and there were signs of back pedaling on their part over emancipation and the right to vote.

According to a huge compromise, the federal troops were withdrawn from the South, and white supremacy, enforced by brutal and bloody violence, retook control and Jim Crow became the law of the land. The first Ku Klux Klan played a key role. The re-emergence of virulent racism continued to dominate US society and there were few signs of that lessening until after World War II.

There is a clear and valid comparison between Reconstruction and the gains of the civil rights movement in the 1960s. By the same token, the rise of our current white supremacist excremental president, strongly parallels the successful backlash in the 1870s. In this farcical repetition, DEI and Critical Race Theory fill the same role as Reconstruction.

The difference now is that there is a huge constituency for the protection of the fairness gains of the last 60 years. Unfortunately, the Democratic party establishment refuses to represent this constituency. The Democratic left is willing to do that, but they are still a very small minority among elected officials. I refuse to call them leaders because they refuse to lead.

We cannot afford to wait 90 years to reverse this dangerous back sliding.

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