Crisis of Capitalism by David Harvey: A Response

A 2010 youtube video features Marxist intellectual David Harvey discussing the recent economic recession as a failure of capitalism. It's main contentions are as follows:

1. Since the liberalization of markets in the 1980s, wages have been stagnant or falling in OECD countries.

2. But wage earners are also consumers so reducing wages means less demand for capitalist products.

3. So the capitalists loaned money to wage earners and set the stage for the economic crisis.

4. Economic recovery in the United States does not absolve capitalism of its ills because the crisis was just shifted other countries like Greece, Spain and Portugal.

5. Financial institutions allocate capital efficiently but make financiers rich therefore resulting in injustice.

Similar to my approach in this article, we will examine the internal consistency of statements. Economic theory is also important but Marxist propositions are so convoluted with logical fallacies that a discussion of economics is superfluous.

The first statement, that wages have been falling, will be taken as true. We will no longer examine the difference between household income and individual income. No discussion will be had on the function of profits and their necessity for the increase in wages. (an empirical rebuttal to Harvey can be found in this video)

The second statement is amusing because older Marxists never thought about the fact that wage earners were also consumers who bought, and hence benefited, from the mass production possible under capitalism. It would seem that the Marxists have gotten less wrong in their beliefs.

Statement three suggests that statement two was made only to justify the ad hoc theory that wage earners were 'forced' into debt to compensate for the reduced ability to consume as a result of declining wages. The accumulated debt on the backs of wage-earners/consumers is then the cause of the credit crunch. Capitalism is hence destroyed because greedy capitalists could not see the flaw in lending money to unsound borrowers.

So let me get this straight. Capitalists were smart enough to solve the problem of demand by making credit accessible to the masses but they were too blind in their greed not to lend to unsound borrowers. If capitalists are blinded by greed to the prospect of major long-term losses then it should have also blinded them to the lack of demand resulting from lower wages in the first place. What we see here is a double standard in the application of the premise. Not only that, but the whole proposition is based on belief in a capitalist conspiracy theory!

Are the capitalists really to blame for the recession? The question of moral responsibility needs to be reassessed. I would venture into the possibility that it is the (gasp!) wage earners who are to blame for the recession. After all, there would be no recession had the wage earners not defaulted on their debts. As the saying goes, 'it takes two to tango'. Surely, some responsibility ought to be assigned to the wage earner for the decision to borrow money he knew he could not repay. If the capitalist creditor is blinded by greed, then so is the wage-earning debtor. If we are not to be hypocrites, then both capitalist and wage-earner are to blame for their freely chosen actions which resulted in the recession.

But my ramblings mean little to Marxists who would surely argue that unlike the capitalists, the wage earners were 'forced' to indebt themselves since their wages were below subsistence. This claim is even more ridiculous considering the context of United States, where the consuming wage-earners used credit to fund exuberant lifestyles. But the main point here is that the reality of 'voluntariness' of trade is totally ignored. Every transaction in capitalism is voluntary. For a wage-earner to be exploited by a capitalist implies the consent of the alleged victims of exploitation. This reality is totally ignored because it exposes the necessarily violent means employed by anti-capitalists to achieve their intended goals. Extreme situations such as a worker starving to death if he did not submit to 'exploitation' do not change matters. Freedom is the absence of physical coercion. It is not about doing whatever one wants. Man must work, provide value for value, for him to improve his lot in life. A jobless individual starving to death under conditions of natural freedom can only mean that the person does not have anything of value to provide his fellow man. The miserable state of this individual is not an injustice but justice since he deserves it for not using his mind, which is the only tool for man's survival. Since such a dire scenario would be unlikely in a free society, its presentation only shows the philosophical nihilism of those giving such examples.

Go back to the five statements. We find other ad hoc explanations in defense of the leftist position. The possibility of an economic recovery might salvage capitalism in the US so our Marxist author says the harm is not eliminated only moved to other countries. The fifth proposition shows the author's downright bigotry of wealth and success. Such asinine claims do not even merit discussion.