In the 1920s, Henry Ford perceived a fundamental flaw in capitalism and when he suddenly started paying his auto workers the then extremely generous sum of $5 per day. A unilateral raise of this magnitude was shocking at that time. Ford did this so that his employees would have enough money to buy his Fords. Ford had recognized a fundamental fatal defect of capitalism:
Capitalist Employers throughout the capitalist market can not pay their employees enough so that employees are able to purchase all of the products that capitalism can produce and still make a profit. Without profit there can be no capitalism.
Think about this. If we have an economic system, capitalism, where almost all humans are employees, who, if not employees, will purchase capitalism’s products? Hunters and gatherers? Self employed farmers? What group in society has cash to purchase what capitalism produces? Are there enough money lenders and capitalist employers with enough profit and earned interest to purchase all of the production? Experience now clearly demonstrates that there are not. These sources have far more money than they have needs so their wealth simply is held in multiple dwellings, jet airplanes and other luxuries, investments, loans, and cash. This is not a left-right problem, nor a conservative- liberal ideological problem. It is simply a fact. It is an inevitable, unavoidable result of the core dynamic of capitalism. That core dynamic is:
A person with money hires a person with little or no money for the lowest possible wage to earn as much profit as possible for the person who already has money.
It is this profit generating dynamic over decades of time and repeated by hundreds of employers that has created the immense disparity of wealth and power between the top 1% of our nation and the 95% of us at the bottom. This top 1% has as much wealth and income as the bottom 95% of us. The purchasing power of the bottom 95% of us would be vastly enhanced if the wealth of the top 1% was spread more equitably among us all. The fatal defect of capitalism would be bridged. We employees could then purchase all of the products that our labor produced. The fact of the almost unimaginable wealth of the top 1% is little known and is largely suppressed by the capitalist media. The capitalist media ridicules as “class warfare” any thoughts we may have about the injustice and pain we experience because of this disparity of wealth.
So we have many millions of persons on the planet who have legitimate needs, and these same persons are willing and anxious to work. Why cannot our work meet our needs? There are insufficient jobs because employers cannot hire all of us and still make a profit. Capitalism gives us only one way to meet our needs. We must go to work for somebody who can make a profit on our labor. This fundamental flaw of capitalism perceived by Henry Ford is now causing our capitalism to implode, to destroy itself. Henry Ford was unique among the planet’s employers in perceiving this flaw and acting to correct it within his own company.
So why do not all employers follow Ford’s example? One reason is that the competition by those employers who continued to pay the lowest possible wage would quickly drive the generous employer out of business. Another reason is the simple greed by capitalists to get as much profit as they can as quickly as they can. Employers as a group would have to act together cooperatively and all of them would have to pay enough wages so that employees could buy capitalism’s products. However even if all employers cooperated and paid high wages, capitalism would implode sooner or later because of the large sums drawn out by private employers in the form of profits, CEO compensation, and dividends, and the large sums drawn out by private money lenders for interest on the money loaned for the production process. It is interesting to note that the very successful Mondragon Co-ops of Basque Spain have sustained themselves and expanded over the last 40 years in part because the workers are the owners and they limit the pay of the top managers ordinarily to no more than 3 times the pay of the production workers. The Mondragon Co-ops also have their own Co-op bank to supply their credit.
Capitalism can thus produce far more than can be sold at a profit. Capitalists curtail production to avoid loss of profit. If there is no profit to be made, there can be no capitalism. There remain millions of people with legitimate needs who are anxious to work, but there is no work, because there is no profit to be made. For example, the world wide auto industry has the capacity to produce far more cars than can be sold at a profit. This defect of capitalism existed long before the current mortgage bubble and crisis. Auto plants around the world were operating at less than full capacity because there was not a demand by buyers for all of the cars that could be produced. We have some human needs, for example health care that simply cannot be adequately met by capitalists and still make a profit. If there is no profit to be made, capitalists will simply not provide health care.
This fundamental defect of capitalism that has caused it to implode is a truth that is totally suppressed in our capitalist culture. We do not learn of this truth in Econ 1 or even in Econ 101. We do not learn of this truth from our capitalist media.
Given this truth, and the culture wide failure to diagnose the problem we must look at the false solution that capitalists select for us.
Secretary Paulson, Fed Chairman Bernanke and our elected Democratic leaders identify the problem as a “credit crisis,” or a “liquidity crisis,” and they propose that we employees tax ourselves so as to pay billions of dollars to the bankrupt Wall Street investment banks in the hope that they will again extend credit to employers and liberal credit cards to consumers. They seek to supply the credit to enable capitalists to seek profit making opportunities. (The fact that the Wall Street investment banks have not chosen to use the gifts of our tax money for this purpose so far, while criminal, is irrelevant to the larger problem.) That larger but totally ignored problem is Henry Ford’s 1920s problem. That problem is that there is insufficient sustainable demand for all capitalists can produce at a profit. Human wants are insatiable, and if we humans had the money to buy, credit would flow like a quickly melting glacier. The proposed solution does nothing to provide jobs and wages, and nothing therefore to create demand for capitalism’s products. If we were not so scared, we consumer employees could borrow more money for a short time and thus be able to buy products, but this could not go on very long. Most of us are already maxed out on credit. Sooner or later we have to pay the borrowed money back.
Wall Street and our Democratic elected officials are vainly trying to rejuvenate a dead system. Lending or giving the dead system more money simply does not solve the fatal defect. The fatal defect is neither diagnosed nor dealt with. The truth is hidden behind a culture wide taboo so that it cannot be discussed in the main stream.
The solutions so far advanced seek only to create profit making opportunities for capitalists. These solutions ignore capitalism’s fatal defect. They do absolutely nothing to correct the fatal defect. Capitalism cannot solve the dilemma identified by John Steinbeck in his 1939 book, Grapes of Wrath: “there is work to do, and people to do it, but them two cannot get together, and there is food to eat and people to eat it, but them two cannot get together either.” Even Franklin Roosevelt failed to diagnose this fatal flaw of capitalism in his New Deal when he sought to save capitalism with its profit making opportunities while providing temporary “band-aid” type remedies for those who had no work.
We human being can work together to meet our needs, on a small scale by simply bartering. We can meet our sustainable needs on a larger community scale with Mondragon Co-ops, and on a nation wide scale by causing our government to act solely in our interest to be our lending bank at little or no interest, to supply co-ops, small businesses, partnerships, and self employment, and as our employer of last resort. We can no longer afford profit making employers and money lenders who siphon off the increase in value that our work creates. Because of this fatal defect, our capitalism can be thought of as a huge tornado which having sucked us dry, then dies itself. Or it can be thought of as a cancer that kills those of us who are its workers and consumers, and having killed its host, and then dies itself.