Prophecies of Doom

Seeds of Self-Destruction are Baked into Capitalism

Key Takeaways:

1. To make capitalism sustainable, its foundation thinkers advocated for heavy taxes on property.

2. But Karl Marx noticed that once too much technology is introduced, not even heavy taxes can save the capitalist system.

3. Marx further suggested that democracy is the ultimate solution to technological unemployment.

The Foundation Thinkers of Capitalism

The Industrial Revolution erupted in central England after the old Medieval feudal system lapsed into dysfunction and chaos. Former peasants abandoned the countryside en masse and migrated into English cities, where they began working as employees in the new capitalist economic system. The rise of capitalism filled a void left by the fall of feudalism.

As the Industrial Revolution blossomed, the foundation thinkers of capitalism described the remarkable economic transformation they were witnessing. But writers like Adam Smith, John Stuart Mill, and David Ricardo also perceived a major problem lurking within that miraculous transformation.

Those economists saw the heirs of the old Medieval landlords helping themselves to the profits of the entrepreneurs, who were then establishing the factories that defined the Industrial Revolution. In their day, leftover lords from the Middle Ages still owned most of England’s land. And since all workers require housing to be reliable employees, employers had no choice but to pay increased wages to cover rent whenever landlords jacked it up.

The foundation thinkers of capitalism saw this as a market failure; they viewed jacked-up rents as inefficient overhead. Their conception of a “free market” was not a market free from regulators, but a market free from rent collectors.

Smith, Mill, and Ricardo worried that England could backslide into feudalism because landlords could make off with the profits of entrepreneurs. As a remedy, they proposed stiff taxes on the propertied class. These early economists made a careful distinction between earned income and unearned income, and advocated for heavy taxation of the latter.

Their idea was that taxing unearned income would discourage making money by owning property, as feudal lords had historically done. The foundation thinkers of capitalism focused on maximizing efficiency by incentivizing the actual production of goods and services. Smith, Mill, and Ricardo concluded that strategic taxation could make capitalism sustainable over the long haul, and prevent a slide back into feudalism.

Karl Marx

In the second half of the 1800s, Karl Marx arrived and chipped in his two cents. Rather than looking back at feudalism, like his predecessors observing the early Industrial Revolution, Marx lived through its later stages and focused instead at what might come next.

Marx’s bone-chilling conclusion would go on to have a major impact on the history of societies like Russia and China. He prophesied that technological progress would eventually become incompatible with the privately-owned “means of production” that are the hallmark of capitalism.

Under capitalism, employers are strongly incentivized to invest in labor-saving technology. Saving labor means saving on labor costs. And lower labor costs mean lower prices for customers and enhanced profits for employers. This was the capitalist efficiency celebrated by the likes of Smith, Mill, and Ricardo.

But Marx noticed a fundamental problem. As labor-saving technology progressed, employers would naturally fire their employees as they became redundant. Marx’s prophecy of doom was simply that employers would collectively fire so many workers that the remaining workforce would no longer be able to negotiate high enough wages to buy all the products being manufactured by machines.

The seeds of its destruction, argued Marx, were baked into the capitalist system itself. Once technology advanced beyond a certain point, privately-owned businesses would collectively fire enough workers to collapse demand for their products. Marx thought this was inevitable, and that even heavy taxes on unearned income would be insufficient to make capitalism sustainable in the long run.

Democracy

Karl Marx was focused intently on the market dynamics which he believed spelled doom for the capitalist system of production. He wrote very little about what might happen once capitalism reaches that inevitable inflection point.

Marx noticed the historical trajectory that carried Western civilization from the outright exploitation of the Roman slave economy, through the intermediate centuries of Medieval feudalism, and finally into modern capitalism with its employers and employees. He noted that each of these major transitions featured a more equitable arrangement between the ruling and working classes than its predecessor. Marx simply extrapolated that trend into the future by suggesting that whatever system eventually replaces capitalism is likely to be more democratic—and therefore less exploitative—than past economic systems.

But of course, democratic oversight over the means of production is anathema to the private entities who control it. The ruling class, particularly in America, have always been suspiciously dismissive of Karl Marx’s analysis. It’s easy to see why; private control over the means of production equates to a lot of power and influence for the minority who own them. Meanwhile, workers who are pure employees have no hand on the ship’s wheel and must accept any decision their employer might make.

But if business decisions were made democratically, profit would be only one among many variables to be optimized. In the face of labor-saving technology, a democratically-run firm might slash the length of the work day—while keeping wages the same—because workers with any decision-making power would be unlikely to vote to eliminate their own jobs. That’s why, according to Marx, democracy is the antidote to the specter of technological unemployment that has always haunted capitalism.

Conclusion

Today, we appear to be hurtling rapidly toward the inflection point that Marx glimpsed over a century ago. In recent weeks, corporate giants like Amazon, UPS, and Target announced layoffs totaling more than 60,000 job cuts this year alone. By 2030, Amazon anticipates letting their workforce shrink by some 600,000 jobs, a significant chunk of the entire US labor market. These corporations anticipate replacing vast swathes of their workforce with AI systems. It appears that we’re finally going to have to confront, head-on, the terrifying prophecy of Karl Marx. As technological unemployment continues apace, burying our collective heads in the sand is no longer a viable strategy.

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Further Materials

It is an undoubted fact that machinery, as such, is not responsible for “setting free” the workman from the means of subsistence. It cheapens and increases production in that branch which it seizes on, and at first makes no change in the mass of the means of subsistence produced in other branches. Hence, after its introduction, the society possesses as much, if not more, of the necessaries of life than before, for the labourers thrown out of work; and that quite apart from the enormous share of the annual produce wasted by the non-workers. And this is the point relied on by our apologists! The contradictions and antagonisms inseparable from the capitalist employment of machinery, do not exist, they say, since they do not arise out of machinery, as such, but out of its capitalist employment! Since therefore machinery, considered alone, shortens the hours of labour, but, when in the service of capital, lengthens them; since in itself it lightens labour, but when employed by capital, heightens the intensity of labour; since in itself it is a victory of man over the forces of Nature, but in the hands of capital, makes man the slave of those forces; since in itself it increases the wealth of the producers, but in the hands of capital, makes them paupers.
Karl Marx, Capital: A Critique of Political Economy, 1867, Chapter 15