Recently, I took some time to write an article in the latest issue of American Affairs Journal. It was penned by the Irish Post-Keynesian economist Philip Pilkington entitled “Capitalism’s Overlooked Contradiction: Wealth and Demographic Decline.” The article was essentially a reevaluation of Marxist Theory’s stance on the “Diminishing Returns” phenomenon as Marx and Engels saw it.
In economics, the concept of Diminishing Returns refers to a condition within Liberal Capitalism in which the rate of Kapital Accumulation gradually decreases over time. If the Liberal Capitalists were making large sums of Kapital from running the Natural Sector of the Market/Mixed Economy, they are not going to be able to maintain that high rate of Kapital Accumulation. Eventually, the Kapital Accumulation is going to diminish, and they will be forced to look for other ways to generate Kapital. We saw this trend play out in the 19th century, when the Manufacturing Sector surpassed the Natural Sector as the largest source of Kapital Accumulation. Later in the 20th century, the Manufacturing Sector generated less Kapital, allowing the Services Sector to take its place. There is no doubt that the Information Sector, spearheaded by the World Wide Web (WWW), is more or less doing the same thing to the Services Sector.
Pilkington wrote that Marx was adamantly convinced that the Diminishing Returns trend would lead to the demise of Liberal Capitalism. At some point, the Liberal Capitalists are going to run out of ways to generate Kapital. That would be the opportune moment for a Totality to realize its own version of Pure Socialism. But what if the Diminishing Returns, Pilkington suggested, was not supposed to be interpreted as an “economic question?” What if we were meant to perceive it as an “ontological question?”
Put another way, the Diminishing Returns trend is not a reliable indicator of Liberal Capitalism’s weaknesses insofar as we really need to be more concerned about that paradigm shared between Production for Profit and Production for Utility. Interestingly enough, that was the conclusion I had reached in The Third Place (1st Ed.) and it is exactly the same one that Pilkington was making in his article:
Yet history has proven Marx wrong. The rate of profit has not fallen inexorably toward zero, as any stock analyst could attest. Investors do not typically deploy Marxian language, but they discuss the return on invested capital (ROIC) and the weighted-average cost of capital (WACC). If the ROIC for a given company is higher than the WACC, that company is creating value for the investor—that is, the company is turning a profit for the investor. Outside of severe recessions, the ROIC of the stock market as a whole remains consistently higher than the WACC, which is why investors in the market make money.
Marx’s logical error was simple enough: he confused what might be called an ontological question with an economic question. Ultimately—ontologically—it is true that all economic value emerges from human labor. But it does not therefore follow that you can infer economic truths from ontological ones. Economic value is not really a “thing” or a “substance.” Rather, it is a subjective assessment placed on a product by an end consumer. This consumer does not typically care how much labor went into the product, only that the product satisfies a particular need. One pair of shoes may be made entirely by robots, another may be made entirely by men, but an end consumer could still assess both as having the same value.
Still, there is something haunting about Marx’s vision. The machinery of the capitalist economy is enormously impressive, but it often seems to drive ahead blindly. And the capitalist system also seems to contain internal contradictions that destabilize it. I shall argue here that a clear-eyed assessment of empirical data suggests that Marx’s vision may not have been entirely mistaken, and that capitalism, if left unchecked, could destroy itself. Indeed, I believe that we now find ourselves feeling the early effects of such contradictions.
What Pilkington is implying is that we need a better way to comprehend the dynamics of Production for Profit and Production for Utility. Rather than the rate at which Kapital Accumulation diminishes, Pilkington claimed that the Diminishing Returns are more demographic than economic, more technological than financial. In other words, we are looking at a phenomenon that shares more parallels with the Political Organization Problem than the “Economic Calculation Problem.” In a Market/Mixed Economy, how do we know which forms of Kapital played a role in that “economic growth” that the Liberal Capitalists love to rant about, even in times of Recessions or Depressions?
Today, we think of prosperity in terms of economic growth, typically measured in terms of inflation-adjusted or “real” gross domestic product (GDP). The idea behind this metric is straightforward: measure how many transactions are made in the economy, adjust for inflation—that is, for the effects of price increases—and thus gain a sense of the total value of goods and services exchanged. An increase in the rate of real GDP growth thus reflects an increase in total economic output and gives us a sense of how much overall material wealth has increased.
In the short term, this rate of growth is most directly dependent on immediate economic conditions, including the rate of employment, the balance of trade, and the stage of the business cycle. But when we abstract away from these short-term effects, the rate of growth in real GDP in the long run is driven mostly by two factors: the pace of technological change (which includes efficiency gains from better resource management) and the rate of growth in the labor force.
Economists often assume that the rate of technological change is a given or exogenous consideration—that new technologies descend like manna from heaven. Likewise, they typically absolve themselves of responsibility for assessing the rate of change in the labor force. They may occasionally discuss immigration and its impact on the economy, or incentives and disincentives for labor force participation. But the fundamental question of how many new workers a given economy is actually producing is ignored as outside the purview of the field, a topic reserved for demographers rather than economists. As a result, the core contradiction at the heart of capitalism has gone unnoticed.
Basically, the Diminishing Returns manifest itself as a demographic issue than an economic one. When the initial rate of Kapital Accumulation diminished, the Liberal Capitalists took it upon themselves to harness Automation and Globalization to keep the rates of Kapital Accumulation high. The problem is that in order for this Kapital Accumulation to remain high, demographic decline was allowed to occur in the Liberal Capitalist nation. Demographers have noted this issue since the Death of Bretton Woods: as a nation becomes increasingly addicted to Kapital, it finds fewer Incentives to continue perpetuating itself. This occurs in the form of people struggling to accumulate Kapital and deterring themselves from raising families. Industrialization alone cannot account for this demographic decline, however, nor can we argue that all of it should be attributed to more women having access to education, contraceptives, or Meaningful Work.
Even if women are well-educated and pursuing their Vocations in Life, there is no reason that they cannot balance their professional life and their personal life. The real issue, Pilkington insisted, is whether Kapital itself is responsible for the demographic decline of the world. After all, the concept of “wealth” or “economic growth” under Liberal Capitalism does not require flesh and blood people to be involved in the creation of Kapital. The Liberal Capitalists have found Technology to be a suitable alternative. Flesh and blood people are responsible for Kapital’s opposite, Schuld (Debt/Guilt). Why raise a family if doing so is a burden, a liability, a form of Schuld in itself?
But the shift from an agrarian to industrial economy can account for only some of the decline in the birth rate. It perhaps explains why people might opt to have only two or four children instead of six or eight. But it does not explain why economies that achieve great wealth stop even having enough children for the population to replace itself (an average of 2.1 children per woman). It appears that in wealthy societies people increasingly see themselves as workers and consumers first and progenitors second. Family life is no longer a core aspiration of every person but becomes a “luxury,” another consumer choice to be made when one’s career goals are achieved and one’s optimal material consumption level has been reached. Recent studies show, for example, that 83 percent of women over the age of twenty-five purposely postpone starting a family so that they can focus on their career, thus maximizing work and material consumption. This decline in family formation has introduced a number of social pathologies, including an epidemic of loneliness and isolation. It also contributes to the mortality rate, insofar as nonparents on average have shorter lifespans and a higher rate of suicide than parents.
In addition to these human-scale effects, the expected economic consequences of this decline in birth rates are clear. In short, this trend is already raising obstacles to continued growth, and the economic and political effects seem likely to intensify. The phenomenon is perhaps most pronounced in East Asia, where rapid growth has gone hand in hand with rapid collapses in fertility. Countries that were among the most successful in transitioning from agrarian poverty to advanced economies in the last half century have experienced astonishing declines in birth rates. South Korea and Taiwan have the lowest fertility rates in the world, at around 0.8 and 1.1 births per woman, respectively. China’s fertility rate, estimated at 1.16 in 2021, has been well below replacement for years. Beijing has notably shifted from its infamous “one-child policy” to limit population growth to policies intended to encourage more children. Of course, Japan’s population has been shrinking for some time, limiting overall economic growth despite reasonable per capita performance.
Thus, Pilkington concluded that as the rates of Kapital Accumulation increase, the demographic decline intensifies. This demographic decline coincides with a nation’s growing adherence to Liberal Capitalist ideology. It is an important observation as Pilkington discovered that the rates of demographic decline Islamic nations are smaller compared to Western nations (where Liberal Capitalism is at its strongest). Similarly, nations with economic governance models higher than a “Socialist Market Economy” will experience similar effects.
A comparable trend can be discerned among nations whose ideologies that view Neoliberalism as irreconcilable, according to the demographics of Socialist nations prior to the 1990s. With Traditionalism and Socialism being two key outliers in terms of demographic decline, it stands to reason that Pilkington remained convinced that there is some precedent in Liberal Capitalism’s history, compelling the ideology to have a favorable outlook toward demographic decline.
In the nineteenth century, a heated debate also raged over demographics and the related issue of capitalist development—namely, the controversy around the theories of Thomas Malthus. Unlike the tendency of the rate of people to fall proposed here, which suggests the demographic limits of economic growth, Malthusian doctrine emphasized the economic limits to population growth. Malthus pointed out that the rate of human reproduction is multiplicative while the rate of economic growth is additive. Specifically, while people could reproduce rapidly—one woman in Malthus’s Britain gave birth to around five children on average—the agricultural economy could only increase food production gradually. The growing gap between these rates of increase, Malthus concluded, would result in famine and mass starvation.
Many at the time pointed out why he was wrong, arguing that technological progress could allow farmland to yield more output—a fact that should have been obvious even at the time Malthus was writing. In 1420, the average Englishman was consuming around 1,760 calories per day; in 1798, when Malthus published his pamphlet on population, that had risen to around 2,436 calories per day.12 Such accurate measures may not have been available at the time, but it should have been manifestly obvious that the average Englishman was better fed than he had been in the past. Marx, who thought that capitalism tended toward overproduction rather than a Malthusian underproduction, was particularly cutting about Malthus’ work, seeing it as an arch-reactionary tract aimed at proponents of social reform. “Malthus’s book On Population was a lampoon directed against the French Revolution and the contemporary ideas of reform in England (Godwin, etc.),” Marx wrote, “It was an apologia for the poverty of the working classes.”
If the argument that I have just laid out is correct, our eschaton is altogether gloomier: demographic and economic transformation seems to be driving us not to a heaven on earth but toward something closer to hell. The economists Charles Goodhart and Manoj Pradhan have done us a great service by writing an entire treatise on what such a society would look like—and the picture they paint is a grim one.15 Such a society, they predict, would be rocky and inflationary. The reason for this is intuitive: workers make things, while retirees consume things; thus, as the ratio of the former to the latter rises, the number of mouths to feed outstrips the number of cooks in the kitchen. And the resulting pressure on the prices of goods and services leads to spiraling inflation.
In such a society, intergenerational conflict seems all but inevitable.16 Younger people will see their real wages stagnate in the face of inflation, while asset markets will be dominated by the elderly, who will have accumulated more savings. The cause of the problem will be obvious to all, but there will be no equitable solution that benefits both sides of the generation gap. In societies faced with such zero-sum games, social bonds fray and strife becomes inevitable—in this case, we should expect intergenerational conflict as children turn on their parents. Such a vision is almost biblical in its perversity.
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