Glut, Son of Markets
Tyler, Gus
Glut is the four-letter word that has plagued capitalism from the moment of its birth. It is an endemic disease that turns epidemic when ignored. It started several centuries ago in Europe....
...Has it worked...
...Glut is the four-letter word that has plagued capitalism from the moment of its birth...
...Since the "master" is in a far better position than his employees to determine how the company's income shall be divided, he generally is able to accumulate capital far faster than his employees are able to raise their wages...
...The maker of shoes comes to the market demanding something in return, like a shirt...
...A "solution" had been found—if only the planet would expand to accommodate these powers' needs for a vent...
...In the process, a global redistribution of income takes place, with average global wages falling as jobs are transferred from better paying to poorer paying areas of the planet—a descending spiral without a bottom as jobs are once more exported to still lower paying areas once wages begin to rise in the recently favored region...
...Say would admit that some particular commodity might be in oversupply...
...Thus, some three hundred years before Keynes, a French economist warned that in the absence of what Keynesians call the "propensity to consume," a market economy will waste away, stricken by plenitude, gorged with glut...
...It is doubtful, however, whether the necessary balance between public and private interests can be maintained in the future as global corporations decouple themselves from nation-states...
...But it didn't...
...In recent years, as suggested above, it has been used with more or less thought and with more or less positive results...
...For the purpose of this vent, a domestic market is greatly to be preferred to a foreign one...
...The first two have failed, and the third is likely to fail unless recast for a globalized economy...
...At present, such movement is twenty times as great, dollarwise, as the movement of goods...
...Glut was back...
...Consuming what they produced would eliminate glut...
...now, he gets his way because he runs away from the state...
...To attain an appropriate market, there is need for a public presence—government—to arrange a more equitable and efficient distribution of income...
...Let this principle (as it is in FALL • 1990 • 497 Glut England) be carried towards its full extent, and it is in vain that scientific power shall pour forth its inexhaustible treasures of wealth upon the world...
...Without a capitalist class, workers would get the full fruits of their labor...
...The ultimate consequence, if present trends are not reversed, is very likely to be a return of that characteristic malady—glut...
...Indeed, by his definition, supply was demand...
...Failing in Italy, the wares "flowed upon Germany, Russia and Brazil, and soon found in these countries similar obstacles...
...In 1929 came the Great Depression...
...495 Glut The powers of production, to whatever extent they may exist, are not alone sufficient to secure the creation of a proportionate degree of wealth...
...But as practiced in communist states the experiment proved to be a political and economic disaster...
...The problem was perceived long ago...
...It started several centuries ago in Europe...
...The third solution—variously labeled Keynesian, social democratic, liberal, mixed economy—seeks to mate the capitalist mode of production with the socialist ideal of distribution...
...In the decade following the war, the great powers (at least those who won the war) enjoyed prosperity...
...For several centuries, it was simply assumed that the state had such power...
...What would happen, Hamilton worried, if some foreign consumer of America's agricultural output were to exclude our exports for political reasons or would not need our exports because it had its own bountiful harvest...
...How then did Say account for the glut that was paralyzing one country after another...
...It was necessary and desirable, he maintained, to have a wealthy leisure class—nonproductive—in society, a bevy of big spenders who would provide the market for the market economy...
...The global corporations that move in to do this, some of them American-based, will be trying to penetrate existing markets...
...In both their operations and their ownership, megacorporations are going global...
...For the middle range, ad hoc arrangements could be worked out among sovereign powers to deal with their corporate counterparts as equals, at least...
...The prices on their products—such as cotton and tobacco— had been falling...
...Therefore, reasoned Hamilton, America should develop its own manufacturing sector, populated by people who would provide a "vent" for any threatening "glut...
...In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of overproduction...
...Highly mobile, they can—and do— threaten governments, demanding that public policy be shaped to meet their need or greed—or else...
...Some years ago, Raymond Vernon, prophetically anticipating this development, wrote a book entitled Sovereignty at Bay...
...They felt doubly squeezed: declining income and rising cost of living...
...Unable to find a market at home, the "great manufacturing power, England," shipped its wares to "Italy in a proportion so far exceeding demand, that the merchants, in order to realize even a part of their capital, have been obliged to dispose of them at a loss of a third or a fourth...
...It has failed...
...With this kind of freedom, why should a prudent and profitminded corporate board of directors, made up of nationals from many lands, continue its operations in a high-cost country, paying the price for civilization in the form of laws affecting minimum wages, social security, accident insurance, health and safety, environmental protection, and fair employment, when the same corporation can operate in other lands without these burdens...
...In his Nouveaux Principes d'Economie Politique, Sismondi wrote: Europe has in every part arrived at the point of possessing industry and manufacturing power superior to its wants...
...South Carolina refused to respect the law in its Acts of Nullification...
...Say built his theories around an imaginary economy of barter where the producer was also the seller...
...If British goods languish in Italy, he says, that is not due to overproduction by England but to underproduction by Italy...
...In such a case, the producer did indeed enjoy the full fruits of his labor and was in a position to provide a market for what was on the market...
...Not surprisingly, Keynes thought Malthus was on the right track...
...An updated rewrite might well be entitled Sovereignty in Decay...
...Nature, "jealous of these operations, revenges herself forthwith by a general confusion, at the moment when she sees that, for a foreign intermixture, we challenge her lights and the wisdom of her operations...
...So the empires collided in the First World War...
...The Philadelphians, about to launch the first Workingmen's party in America, were speaking from experience...
...Capital moves easily and instantaneously across national lines...
...Such a circumstance "would occasion a glut in the markets" of the supplier—that is, in the United States...
...A contemporary of Vauban, Pierre le Pesant, Sieur de Boisguillebert, likewise noted a recurrent circumstance that paralyzes "all the country's limbs and makes it miserable in the midst of an abundance of all sorts of goods...
...In the three hundred or so years since Boisguillebert noted the recurrent glut that paralyzes "all the country's limbs and makes it miserable in the midst of abundance," pundits and politicians have looked for a way to avoid the dread social disease...
...A market economy, he reasoned, involves an exchange of goods...
...Ownership of the means of production and exchange by the state meant that all power was centralized in the party and, within the party, in the party boss...
...The United States can still dictate terms to global corporations (perhaps "negotiate" is a more acceptable word) by denying entrance into the American market unless certain minimum standards are met...
...In modern times the theories of the early French and later British economists about glut are restated in terms of "overproduction" or "underconsumption," two variants of the same concept...
...The inclination—perhaps compulsion—of a prudent employer is to keep the wage as low as possible, to hold down costs, and to realize as great a profit as possible, to accumulate capital to build the business...
...But they all do it...
...Glut" is a malady peculiar to a "market economy...
...The British "solution" was quickly copied by other great powers: France, Holland, Spain, Portugal, Belgium, all found a vent in their colonies to relieve their glut...
...Emphasis added...
...James Madison, a southerner with broad vision, concluded that the South was suffering not because of the tariff but because of "the inevitable effects of a market equally glutted with the products of the land and the land itself...
...The result is the same: a polarization of income that could be the prelude to another 1929...
...We see on every side proofs of the superabundant production which exceeds consumption...
...So, there can never be such a thing as overproduction—in a general sense...
...The middling classes, venders of the products of human industry, will begin to experience its deleterious effects," and, "at last, the contagion will reach the capitalist...
...But the joy born out of war was shortlived...
...Let nature do its shtick...
...In the closing years of the seventeenth century, French economist Sebastian le Prestre de Vauban posited the obvious: a market economy is in trouble if it does not have a market...
...But that vent for glut was closed almost a half century ago and the smaller wars since were too small to do the trick...
...But the power of the government to speak for the nation, "the people," must be there...
...If their action is to be realistic, they must do what has to be done in the short run to survive, what they can do in the middle range to prepare for the long haul, and what they should do in the long run to ward off glut...
...An outcry came from southern agriculturalists...
...But, once 496 • DISSENT the price of such a commodity fell, production would fall off and things would get back into equilibrium...
...Europe is headed that way for 1992...
...Revolutions in transportation, communication, material handling, and data processing have made planetary operations possible and, therefore, inevitable...
...The Second World War was undoubtedly in part responsible...
...The obvious shift would be from high-wage to low-wage countries, from countries with good social benefits to those with bad or no social benefits, from countries that encourage or allow unions to countries that discourage or don't allow them...
...Inevitably, the capacity to produce outraces the capacity to consume...
...For many years, however, orthodox economics maintained that there could be no such thing as a glut...
...It is evident that the exertions of the husbandman will be steady or fluctuating, vigorous or feeble, in proportion to the steadiness or fluctuation, adequateness or inadequateness, of the markets on which he must depend for the vent of the surplus which may be produced by his labor...
...Emphasis added...
...The communist version of the Marxist solution has also been put to the test...
...A general glut...
...Supply, he said, creates its own demand...
...Three cures have been tested: colonialism, communism, and Keynesianism...
...Sometimes it was abused...
...Vauban and Boisguillebert did not attribute these "crises" to the economy per se but to actions of governments and malevolent souls whose stupidity or cupidity knocked a perfectly designed order out of whack...
...people were exported, as indentured servants to America or as prisoners to Australia...
...In this sort of politicized economy, rewards depended not on what you did but on whom you knew...
...market...
...The entrance of East European countries into the market economy will not make matters easier...
...Today it is global, threatening the economic and political stability of the world...
...The colonial solution, successfully pioneered by Great Britain, was to export the glut...
...500 • DISSENT...
...Malthus reached an opposite conclusion...
...Within a few years, Congress took Hamilton's advice and enacted a tariff...
...It's the "tragedy of the commons" all over again...
...And his capital will become useless, unemployed, and stagnant...
...The result...
...his or her employer is...
...It was not until capitalism appeared on the scene, with its production for an abstraction called "the market," that plenty became a recurrent plague...
...The lapse from economic grace was due to overtaxation by government or overpricing by monopolists who thereby disrupted the "harmony ordained by a superior Providence...
...It did not exist in feudal systems...
...Sweden does it in its own "socialist" way...
...To survive and surpass in a worldwide competition for the market, every major producer is obliged to produce where it is cheapest to do so...
...The producer (the worker) is not the seller...
...About a century later, the "dismal" scientist, Robert Malthus, took time out from his lifelong worry about too many people in relation to the land to note that there was too much production in relation to the "means of distribution...
...Capitalism is 498 • DISSENT Glut productive—indeed, too productive for its own good, unless it finds a market for its wares...
...To get going, they will need markets— external markets, whether they be in the United States, Japan, or Australia...
...But the modern market (capitalist) economy does not work that way...
...In those days, the manufacturer had his way because he ran the state...
...The global currents are too strong...
...Almost daily the weight shifts to the corporate side...
...He did it in the manner of any brilliant rhetorician...
...All that was required was a do-good welfare state to replace a ne'er-do-well aristocracy...
...Inevitably, a country like the United States will face even tougher competition than in the past for overseas markets and will even find its domestic markets endangered...
...In the first place, this means still another corps of competitors for the same limited (shrinking...
...Glut Say's reply to Sismondi is a paradigm of the intellectual enchanted by fantasies of his invention...
...Then, as Lord Acton had noted, "absolute power corrupted absolutely," giving rise to a new ruling class, the nomenklatura...
...Japan in its neofeudal way...
...Its products will be amassed to glut the overflowing storehouses and useless hoards of its insatiable monopolizers, while the mechanic and productive classes who constitute the great mass of the population, and who have wielded the power and labored in the production of this immense abundance, having no other resource for subsistence than what they derive from the miserable pittance, which they are compelled by competition to receive in exchange for their inestimable labor, must begin to pine, languish, and suffer under its destructive and withering influence...
...Indeed, the above passages were quoted by Say in a letter to Malthus in which Say addresses himself to the rhetorical question: "What is the cause of the general glut of all the markets in the world, to which merchandise is incessantly carried to be sold at a loss...
...of the manufacturing industry which is proportioned, not to the demand, but to the capital employed: of that mercantile activity which impels the merchants in crowds to every new market, and exposes them in turns to ruinous losses...
...Economic crisis arose out of scarcity—a natural disaster, poor harvest, war, locusts...
...Now, with a tariff on manufactured goods, the South would have to pay more for products coming out of the North...
...The rise of global corporations that are stateless, faceless, and—by definition—soulless is not due to the malevolence of the bourgeoisie...
...Is there any way, then, to bring some order to this coming chaos...
...While Madison saw the problem in "agricultural" terms, the Mechanics' Union of Trade Associations of Philadelphia (1827) saw the same problem through the eyes of the urban worker: No greater error exists in the world than the notion that society will be benefitted by deprecating the value of human labor...
...The delicate balance between public and private interests is being upset...
...It grants that capitalism is, as Marx put it, a system that "has created more massive and more colossal productive forces than have all preceding generations together...
...America's buying power is its strongest weapon...
...They belong to no sovereign, since ownership is in the hands of shareholders and directors from many nations...
...And vice versa, the shirtmaker comes demanding shoes or a bottle of wine...
...They decried the new "Tariff of Abominations...
...In this respect, modern capitalists are no different from their ancestors in the days of Dickens—with one difference...
...Hamilton recommended specific steps to speed the industrialization of America...
...manufactured goods were exported in exchange for cheap raw materials...
...Something else seems to be necessary in order to call these powers fully into action...
...sometimes it just was not used at all to restrain businesses, which led to other kinds of abuse...
...The economy has been restructurFALL • 1990 • 499 Glut ing itself in response, as Marx would have noted, to changes in the means of production...
...The impetus came from northern manufacturers...
...From this premise, Karl Marx was to conclude in later years that the solution was for the workers to enjoy the full fruits of their labor so they could provide the necessary "demand" to consume the potential output...
...In his words: FALL • 1990...
...The worker's share of the income is what his or her employer gives him or her as wages...
...The seeds of secession were beginning to sprout...
...As countries and corporations compete for this limited market, matters get worse...
...For the short run, there is very little that most nations can do solo...
...For the long run, a political instrument has to be constituted to play the role internationally that governments in the last half of the twentieth century tried to play vis-à-vis domestic corporations in order to achieve a safer and saner distribution of income...
...The United States is probably the exception to the rule, because in a world economy that is market dependent, the United States is still the great market for the wares of the world...
...If the Italians were more productive, they could offer their wares—"oils, silks and raisins" —in exchange for British manufactures...
...If this does not happen, [hardship will ensue...
...Capital was exported to the colonies for their development...
...For this sacrilege, the nation was punished...
...Apparently the middle way—capitalism with a socialist conscience— has worked...
...Among the first to discuss it was Alexander Hamilton, who in his Report on Manufacturers (1791) addressed the question of how to cope with agricultural glut...
...Should the United States remain a nation whose economy rested exclusively on agriculture, he reasoned, it would face a precarious future, since it would have to depend on foreign consumers...
...A key to a market system with a social soul is the authority of the sovereign (the state) over the individuals and institutions, citizens and corporations, that live in and operate from its (the sovereign's) turf...
...The cultivation of the soil becomes not only useless but ruinous to proprietor and worker, [on] account of the costs that they are obliged to bear if, for want of consumption, the products that they extract from their lands remain with them and sell not at all...
...Where Marx turned to the proletariat to be the savior, Malthus turned to the landed nobility, a leisure class with the necessary income to indulge its expansive appetite and its expensive tastes...
...Yes, but only if governments act to reassert the public interest over private profit...
...Britain does it in its own "conservative" way...
...Since the great trauma of the 1930s, every major industrial democracy has tried in its own fashion to strike a balance between public power and the private sector, so as to achieve a balance between the propensity to consume and the capacity to produce...
...Ergo, every product that is made (the supply) is automatically a demand for some other product...
...The initial idea was logically and arithmetically sound...
...War was a "solution," of a kind...
...But capacity to consume, worldwide, does not keep up...
...But general overproduction or underconsumption was impossible...
...It is an endemic disease that turns epidemic when ignored...
...There was no personal incentive to do more, to do better—to do anything...
...How does it happen," asks Sismondi, "that philosophers refuse to perceive what meets the eyes of the vulgar in every direction...
...each global corporation does what is best for itself here and now, and by doing so does what is worst for all in the near future...
...From one extremity of that vast and prosperous continent to the other, there is not even a village where the quantity of merchandise offered for sale is not infinitely superior to the means of the buyers...
...They had gone through the Depression of 1819...
...Nor was the United States exempt...
...Q.E.D...
...So far, by the test of history, yes...
...Consider his reply to Swiss economist Jean Charles Leonard Simonde de Sismondi, a contemporary who attributed the glut that was afflicting country after country to a maldistribution of income...
...Money is just a convenient way of making the exchange, the grease—as it were—in a barter...
...They had witnessed poverty amidst plenty, with the galling thought that they were suffering poverty because of plenty...
...Most are in the Third World, but millions live Third World lives in the "First World...
...Pull" was more important than productivity...
...by lowering overall wages, they lower overall consumption, further limiting the market for their expanded production...
...The rest is history...
...Consumption (demand) was not keeping up with production (supply...
...Since the Great Depression, there has been no major recurrence of what was once a predictably recurrent disease...
...Twenty years later (1847), in The Communist Manifesto, Karl Marx noted "the commercial crises that by their periodical return put the existence of the entire bourgeois society on trial, each time more threateningly...
...It "consumed" capital, goods, and people...
...The great economic problem for capitalist societies has been plenty: how to cope with a simultaneous glut of capital, goods, and people...
...The declaration goes on to describe the way in which the misery spreads to other classes...
...The great economic problem for precapitalist societies was scarcity: how to produce enough to meet the needs of the masses or the greed of the masters...
...America was blessed (cursed) with too much rich land worked by an industrious people who could not find a market for their output...
...In those societies, production was carried on for a defined body of consumers—the lord, his retinue, the people working the manor—with some surplus for exchange...
...the United States does it in its nondescript way...
...This is an effectual and unchecked demand for all that is produced...
...This indictment of the system—its inability to balance demand with supply—was not unknown to Say...
...In time, the egalitarian ideal of sharing equally came down to divvying up the hole in the bagel...
...In the United States, the pest of glut was not unrecognized...
...Two-thirds of the people on this earth are a nonmarket, full of desires but without dollars...
...What is produced, he stated, must be consumed...
...Their tentacles reach around the globe in search of cheap labor, low taxes, subsidies, raw materials, proximity to markets in which they can sell at protected prices...
...The proposed solution was, in the now famous words of Boisguillebert, "Qu'on laissez faire la nature...
...The foreign capital that pours into East Europe may seek to use this new source of relatively skilled cheap labor to run the advanced machinery of the West...
...The first of these was "protecting duties, or duties on the foreign articles which are the rivals of the domestic ones intended to be encouraged...
...Capacity for production expands exponentially, especially as countries and corporations fight for a share of the market...
...Among the first to state the proposition was, again, a French economist, Jean Baptiste Say...
...It is neither the inclemency of the air, nor the fault of the people, nor the sterility of the earth to which we must attribute the cause...
...That supreme authority has to be exercised with care if the everdelicate balance between public and private interests is to be maintained...
Vol. 37 • September 1990 • No. 4
