Critical and modern economic
A present essay seeks to address the issue of current global economic downturn in light of classic, critical and modern economic thought. Using the insights produced by thinkers as diverse as Keynes, Lenin, Marx, Rousseau etc. the following questions are discussed: the interrelation between crisis and the dynamics of global capitalism, interaction of supply and demand on the global scale, income inequalities between central and peripheral states and factors, contributing to the further mitigation of economic contractions.
The nature of current crisis There is no denying the importance of the fact that the current crisis resulted from the contradictions intrinsic to capitalism as a mode of production. Karl Marx was the first to explicitly reveal those contradictions, which inevitably result in cyclic crisis of overproduction (Marx 346-367). He discovered the law of a surplus value, that is the source of profit and wealth, which is squeezed from the labor force by capitalists.
Extracting surplus value leads to the revolutionizing of production and technology, however, it also results in income inequalities between dominant and dominated strata of society (Marx 318). Moreover, as the norm of profit decreases, capitalists tend to diversify their funds from production to financial sector: credit, speculation, which results in economic instability and cyclic crisis. Overproduction was also characterized by Marx as not the reason, but a result of intrinsic contradictions within capitalist mode of production.
It is partly caused by the uncontrolled rush for profits, which however ignores real purchase abilities of population and supply-demand interrelation (Marx 451). Proceeding from Marx’s findings, it may be claimed that the current crisis should be understood as the reflection of capitalist dynamics and contradictions. First of all, there is no denying the importance of the fact that decreasing the norm of profit in 80s resulted in the financialization of economy.
The latter implies that in order to stimulate production banks gave credits for population on low rates, created derivative instruments, which formed new market with high profit margins, gave insecure credit funds for estate companies etc. In their turn, corporations engaged in speculations in the stock market, used the practice of cash-and-carry in developing countries etc. It resulted in the creation of the demand bubble, which when burst caused wide-ranging overproduction, credit crunch, liquidity gaps, bankruptcy of gaps and building companies.
The dynamics of the current crisis may also be properly interpreted through the prism of Keynesian theory of aggregate supply and demand (McGrath 2002). It goes without saying, that income gap in developing and developed countries continuously raised over the last twenty years as the consequence of globalization. The latter was one of the causes, which fostered overproduction and consequent crisis. As it is known, Keynes thought that social guarantees, full employment and high wages for the majority were the guarantees for securing stability of capitalist production and balance between demand and supply (Keynes 26).
Such approach was dominant in the West during almost 40 years in the 20th century. However, with the rise of neoliberalism Keynesian policies were abandoned both in developed and developing countries, which resulted in the deterioration in distribution of wealth between rich and poor, that is growth of inequalities. In these conditions only credit could stimulate capitalist production. However, when it became evident that the demand is artificial, the crisis ruined the economies of all globalized countries.
Beside this, Keynes’ economic doctrine is based on the principle of ‘euthanasia of speculator’, which was abolished with the rise of derivative, hedge and other funds, playing with insecure financial instruments (McGrath 2002). Therefore, it should be said that the crisis revealed the plausibility of both Keynes’ and Marx’s theories. Moreover, the current economic crisis takes place in highly polarized international system, characterized by profound inequalities between developed and developing countries.
Such reality results in the impossibility of modernization of developing countries, which lost their home industry and internal markets, as a result of globalization. As a result, those countries, which were the most globalized and export-oriented, were the most affected by crisis. This situation may be easily interpreted using Lenin’s theory of imperialism (Heilbroner 1999). According to Lenin, imperialism is based on exploiting cheap labor and resources, which may be found in the Third World.
These resources are necessary for keeping the norm of profit at the high level (Lenin 19). Globalization which fostered outsourcing of production to the Third World, export-oriented integration of peripheral countries through GATTS, WTO, IMF, should be interpreted within the mentioned framework of imperialism. Current crisis is especially detrimental to the countries, which are integrated into the world market as the suppliers of resources and have no possibilities to invest money in the internal market, because it is almost absent and is filled with imported goods.
The economic downturn results in the fall of demand for their resources, such as gas, oil etc. and consequent budget and social problems. Among such countries one should mention Ukraine, Mexico, the majority of African countries, India etc. Apart from reconfirming the theoretical insights of the discussed thinkers, current crisis also debunks certain wide-known economic doctrines and concepts. For instance, the latter is true of Adam Smith’s concept of the free hand of market, which creates the balance between demand and supply.
As the previous analysis shows, market activities resulted in the rising imbalance between the supply and demand, which eventually caused economic crisis. Market forces proved to be spontaneous and uncontrolled; however, the latter was detrimental for the entire global economy (Heilbroner 1999). Moreover, Adam Smith’s doctrine of laissez-faire and free trade, which was so influential in the Western economies, was abandoned as soon as the Western governments realized that the market can not regulate itself without centralized intervention.
These examples once again prove the theory, that markets are part of the economy, which is complex system of social relations. It should be also mentioned, that Max Weber’s concept of economy as market also should be critically evaluated in the light of current crisis. Market is part of economy, rather than its basis. Economy is based on production and social relations, which are highly unequal, especially so far as international environment is concerned. Mechanisms, which might mitigate economic contractions
It is obvious, that the process of neutralizing the consequences of the crisis should be based on open democratic participation and involvement of the majority of population, suffering from its consequences. In the opposite way, governments would allocate resources and create favorable conditions for bankrupt banks and ineffective corporations, violating the iron laws of the market – that is non-intervention. In these conditions, one should remember Rousseau’s theory of general will and common good, which are the sources of legitimate power (Heilbroner, 1999).
Moreover, it is important to secure genuine representative governance, which was proposed by J. S. Mill in his famous study. Without accountability and responsibility on the part of state, citizens would be hostages of deteriorating economic situation. Moreover, free market policies, creating tax heavens for corporations etc. in contrast to the dominant thinking, would not stimulate enhanced economic activity, but instead would deteriorate purchasing power, stability and social policies of the state.
In this situation governments should make more pressure on corporations and medium business in order to prevent massive lay-offs, causing unemployment and inflation. To sum it up, present analysis showed that current economic crisis is caused by the global dynamic of capitalism, which was analyzed by many modern and classic thinkers, however, from different theoretical standpoints. In order to prevent the expansion of crisis one should follow rational policies favoring the majority of population. Bibliography Heilbroner, Robert L. 1999.
The Worldly Philosophers: The Lives, Times and Ideas Of The Great Economic Thinkers [7th Edition]. London: Touchstone. Keynes, John Maynard. 2009. The General Theory of Employment, Interest and Money. Management Laboratory Press Lenin, Vladimir. 1996. Imperialism: The Highest Stage of Capitalism. London: Pluto Press. McGrath, John. (Eds. ). 2002, Readings In Social Theory And Modernization (Volume 2). London: Pearson Marx, Karl. 1992, Capital: Volume 1: A Critique of Political Economy. Penguin Classics.Sample Essay of RushEssay.com