When the Great Depression followed the 1929 stock-market crash, almost everyone acknowledged that capitalism was unstable, unreliable, and prone to stagnation. In the decades that followed, however, that perception changed. Capitalism’s postwar revival, and especially the post-Cold War rush to financialised globalisation, resurrected faith in markets’ self-regulating abilities.
First, it must balance employers’ demand for waged labour with the available labour supply. Second, it must equalise savings and investment. If the prevailing real interest rate fails to balance the labour market, we end up with unemployment, precariousness, wasted human potential and poverty. If it fails to bring investment up to the level of savings, deflation sets in and feeds back into even lower investment.
If that were true, capitalism would never stagnate — unless a meddling government or self-seeking trade union damaged its dazzling machinery. Of course, it is not true, for three reasons. Instead of investing, they embark on more mergers and acquisitions, which strengthen the technostucture’s capacity to fix prices, lower wages, and spend their cash buying up their companies’ own shares to boost their bonuses. Consequently, excess savings increase further and prices fail to reflect relative scarcity or, to be more precise, the only scarcity that prices, wages, and interest rates end up reflecting is the scarcity of aggregate demand for goods, labour, and savings.
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