Is capitalism past its use-by date?

Back in September 2012, I wrote a post on whether capitalism is a mode of production that just suffers a series of crises, booms or slumps, or is instead (or also) a system that will eventually break down and collapse when it passes it ‘use-by’ date.  I think I still hold to my tentative conclusions in that post

In that post, I referred to a paper by Robert J Gordon, a professor at North-Western University entitled, Is US economic growth over? – see and

In that paper Gordon argued that the rapid technological progress under the capitalist mode of production in the last 250 years is now over.  Growth in real GDP per capita, at least in the US economy, will be slower that in any extended period since the Civil War.   Gordon argued there are six headwinds that will slow future innovation: an ageing population in the mature economies; rising inequality; an increasing lack of competitive advantage for the mature capitalist economies; poorer education because public investment in education is being destroyed; increasing environmental regulations; and excessive debt. Gordon concluded that US real economic growth could fall to just an average 0.2% a year for the foreseeable future compared 2-3% of the past.


Whether those headwinds justify such slower economic growth is open to question.  Gordon suggested that capitalism drove the productive forces (and thus economic growth) upwards from about 1750 to 1950. But since then it has been in a downward spiral that no longer takes the productive forces forward. Capitalism, at least in the mature economies, has had its day.


Well, Gordon’s paper came in for a lot of flack from mainstream economics.  The arguments against Gordon centred round his claim that technological progress had come to an end.  Both arch Keynesian guru, Paul Krugman and arch Chicago neoclassical economist John Cochrane agreed that their “gut feeling” was that Gordon is too pessimistic about the future of technology.

As Gordon put it in a sequel paper to his 2012, just released (Gordon 050314), “A controversy about the future of U.S. economic growth was ignited by my paper released in late summer 2012.1 The debate began with my prediction that over some indefinite period of time into the future, perhaps 25 to 40 years, the growth of real per-capita disposable income of the bottom 99% of the U.S. income distribution would average 0.2% per year, compared to 2.0% per year in the century before 2007. This prediction set off a firestorm of controversy with commentary, blogs, and op-eds around the world.”

Gordon admitted that he was talking about the US and no other economies where the ‘headwinds’ may be less and agreed that “there is plenty of room for “catch-up growthin the emerging markets of the world”.  And he was looking at potential growth not actual real GDP.

Gordon was criticised for underestimating the new technologies that will come into play in driving up productivity growth over the next few decades.  In his sequel paper, he says “the primary role of the headwinds in predicting slow future growth escaped notice in the initial round of controversy about innovation”  He retorts: “there is no need to forecast that innovation in the future will “falter,” because the slowdown in the rate of productivity growth over the past 120 years already occurred more than four decades ago. This sequel paper explains why the pace of innovation declined after 1972. The future forecast assumes that innovations in the next 40 years will be developed at the same pace as the last four decades, but reasons for scepticism are provided for that prediction.”

So Gordon claims that he does not need to predict poor innovation from here still to conclude that US economic growth is set to slow to a trickle over the next few decades.  Gavyn Davies, the Keynesian economist and former chief economist at Goldman Sachs, who now blogs for the Financial Times, agreed that the prospects for increased living standards for the average American household do not look good (The economic future of Americans – some arithmetic,

Gordon predicts the real living standards of all but the top 1% in the income distribution will barely grow at all in the decades ahead and that this experience of the vast bulk of the population has been no better than that since 1973. Over the whole of that period, median real household income has actually risen by only 0.1% per annum.

However, Davies’ successor at Goldman Sachs, Jan Hatzius, is less pessimistic. Hatzius points out that the trend in college attendance continues to expand strongly, so he does not see why the contribution of education to productivity growth should decline.  Hatzius also reckons that the rise in the profits share cannot continue indefinitely, and cites evidence that the share of the top 1% in the wage distribution stopped rising in 1997. He therefore reckons that rising inequality will be much less of a factor in the decades ahead. Even so, as Davies points out, the resulting future growth in median household income is still only 1-1.5%.  This is what US capitalism offers most Americans at best, and that assumes no more major recessions or slumps.

But is technology and innovation really going to fail to deliver better growth over the next few decades?  The rise of robots and artificial intelligence is predicted by some to have an exponential effect in what has been called the ‘second machine age’ in Andrew McAfee and Erik Brynjolfsson’s influential book on the march of the robots. I intend to return to this issue in a future post.

But what cannot be denied is the productivity growth in the US and other major capitalist economies has been slowing since the 1970s – neoliberalism has failed to innovate.  US output per hour of work since 1972 has risen by only about 1.3% a year, apart from the brief boom in the late 1990s.  And real output growth per worker has slowed from a mediocre 2.4% a year (as Gordon recorded) in the last 20 years to just 1% a year over the past three years.

Many critics of Gordon’s view argue that this slowdown is temporary and is caused by the effects of the Great Recession and the cyclically weak recovery since.  Once capitalists start to invest more, productivity growth will recover to the previous trend.  The only problem with that argument is that there is still little sign of any significant return to the previous trend in business investment growth.

I did a quick analysis of US business investment growth.  In 2013, real spending on business investment in the US rose 3.8%, little more than half the rate achieved prior to Great Recession.  And what is especially noticeable is that spending on hi-tech innovatory equipment, the previously dynamic high growth sector with an average of 10-20% annual growth, is very weak, now growing at a pace slower than overall real GDP.

US business hi-tech investment

Hi-tech spending on both equipment and software has fallen as a share from 4.7% of US GDP in 2000 to 3.5% in 2013.  It is this area that is key to boosting productivity.  What is the reason for this slowdown in investment in new technology?  Well it appears to be that the cost of new equipment and software is just too high relative to the realised and expected return on those investments – in other words, the rate of profit is not high enough.

Kenneth Rogoff, of Reinhart and Rogoff fame (or infamy, see my post,, pitched in on Gordon’s predictions in a recent article (Malthus, Marx, and Modern Growth).  He agreed that there were obstacles to continuing the ‘previous success’ of capitalism.  There was environmental degradation; growing inequality within countries; aging populations that don’t work; and the risk of financial crashes. Yet he remained optimistic that capitalism can overcome these challenges.  After all, “so far, every prediction in the modern era that mankind’s lot will worsen, from Thomas Malthus to Karl Marx, has turned out to be spectacularly wrong… despite a disconcerting fall in labour’s share of income in recent decades, the long-run picture still defies Marx’s prediction that capitalism would prove immiserating for workers.  Living standards around the world continue to rise.”

Rogoff continues that technological progress has trumped obstacles to economic growth in the past.  “Will each future generation continue to enjoy a better quality of life than its immediate predecessor? In developing countries that have not yet reached the technological frontier, the answer is almost certainly yes. In advanced economies, though the answer should still be yes, the challenges are becoming formidable.”   So the mainstream economists remain broadly optimistic about the future of capitalism, despite Gordon’s prognostications – not surprisingly.

In my post in September 2012, I reckoned that capitalism could get a further kick forward from exploiting the hundreds of millions coming into the labour forces of Asia, South America and the Middle East?  This would be a classic way of compensating for the falling rate of profit in the mature capitalist economies.  I have calculated before that the world rate of profit (not just the rate of profit in the mature G7 economies) stopped rising in the late 1990s and has not recovered to the level of the golden age for capitalism in the 1960s, despite the massive potential global labour force.  It seems that even the countervailing factors of foreign investment in the emerging world, combined with new technology, have not been sufficient to keep pushing up the world rate of profit, so far (see roberts_michael-a_world_rate_of_profit.).

world rate

I’ll be revisiting these measurements of the world rate of profit in a future post in the light of new work done by a young Marxist economist from Argentina.

Yes, crises are endogenous to capitalism because of the main contradiction within the capitalist mode of production, of accumulation for profit and not need.  But also it is possible for capitalism to recover and soldier on ‘endogenously’ when sufficient old capital is destroyed in value (and sometimes physically) to allow for a new period of rising profitability.  Capitalism can only be replaced by a new system of social organisation through conscious action of human beings, in particular by the majority class of people (the working class globally). Without such conscious action, capitalism can stumble on.

Maybe the mainstream economists will be proved right and the new technology in the pipeline will be applied by a resurgent capitalist revival to boost productivity and growth, but Gordon’s evidence suggests otherwise.

18 thoughts on “Is capitalism past its use-by date?

  1. Well, of course Marx has been shown to be only too correct, because by ”immiseration” he did not mean that the people were becoming poorer under capitalism, but that they were progressively being deprived of the objective possibility to reproduce their lives except as wage workers. ”…this complete denudation, purely subjective existence of labour, stripped of all objectivity. Labour as absolute poverty: poverty not as shortage, but as total exclusion of absolute wealth”. Grundrisse pp 295-296.

  2. I’m amazed that bourgeois economists keep making this claim about a theory of immiseration in Marx, but then some Stalinists and catastrophists have made similar claims.

    What is more, Marx makes clear in Capital III and in Theories of Surplus Value, that the other Malthusian Theory adopted by Ricardo and others of a falling rate of profit was based on the idea of diminshing returns, i.e. of also falling profits. Marx makes clear that the very forces that create a “tendency” for the rate of profit to fall not only create the mitigating forces that prevent that “tendency” from materialising as an absolute fall in the rate of profit, also necessitate not falling profits, but a steadily rising volume of profit!

    Its on the basis of this steadily rising volume of profit Marx argues in Capital III, that capital expands, and thereby continually employs an absolutely growing number of workers.

  3. I wonder about the measurements Gordon is using in his paper. His graphs show ‘no growth’ before 1750 – but in Britain (for example) population more than doubled between 1400 and 1700 – that couldn’t have happened without any economic growth.

    Gordon’s chart showing a peak and tailing off in innovation is based on Britain and then the US (after 1906) only. This selection means what we see reflects the relative decline of the US economy. If he had chosen Holland followed by Britain the tail off would have started much earlier, and if he had chosen Japan followed by China, would there still be a rising curve today?

    I also have some doubts about the graph above showing US spending on ‘hi-tech’ equipment. What is considered high-tech is subjective and changes each year. When I first started working in IT in 1990 the high-tech equipment was far less powerful and far more expensive than it is today. How do you really measure ‘innovation’ in this field? My current mobile phone has a 100 times more memory and is about twenty times faster than the mid-range computers I worked on in the 1990s, it is also a lot cheaper – this suggests that technology can advance rapidly in some fields even if its cost declines.

    There is surely a danger of technological determinism creeping into this debate. After all Marx did not deny that capitalism was a dynamic system, he pointed out that its dynamism led to crisis because it relied on the competitive pursuit of profit. Technical innovation in a wide range of areas continues apace (e.g. bio-technology, computing, mobile technology), often with substantial state funding (another element missing from the figures). The point is that this does not necessarily improve the lot of humanity as it should.

    1. I think you are right to be concerned about the figures. Productivity is very hard to measure, and one reason productivity per hour in the US tends to be low is because US workers tend to work long hours.

      As for capital investment in high tech, as you say what does this mean. The important point surely is not the amount spent, but the quantity purchased. It is almost certainly the case that more equipment is being employed – and certainly far more powerful equipment – but the cost of that equipment has fallen massively.

    2. Having read (and written about) Robert Gordon’s 2012 paper, he used Britain pre-1906 and the U.S. afterward because they represented, at their respective times, the world’s leading capitalist power, a not unreasonable measuring stick. He argues that the inventions that arose out of the Industrial Revolution had vastly more impact than the Internet/computer/dot-com boom that arose in the mid-1990s.

      That is a correct reading, in my opinion. The Internet obviously has had real economic impacts, but it also simply shifted consumer buying patterns, which aren’t a net gain but simply a re-shuffling from one set of merchants to another. The computer and the Internet, then, haven’t had the effect of the invention of electricity or the adoption of the automobile.

      None of us can rule out a future innovation that would lead to a real (although ultimately limited in time) upsurge, but absent that mature capitalism doesn’t offer us anything more than stagnation, and therefore more austerity imposed by the bourgeoisie and financialization to keep the party going.

      1. I don’t think I would disagree with the points made about the differences between some technological innovations and others, but that doesn’t change the point about how best to go about measuring it in such a way as to be able to create a graph that can quantify in some form the rise and fall of ‘innovation’ over time.

        I think my point stands just as much for innovation in areas other than IT – for example railways – the development of modern high-speed trains depends on many innovations – how do we go about quantifying this in such a way as to be able to demonstrate that ‘innovation is in decline’? A related point worth making, is that the existence of an innovation does not necessarily directly lead to its use. The UK is only now developing a high-speed train to connect its two largest Cities (London and Birmingham) – despite the fact that the technology has been around for some time (at least 30 years) – would this count in the graph on spending on ‘hi-tech’?

        It is one thing to suggest that innovation will decline because productive investment is stagnating, but I don’t think the connection between the two is necessarily as direct as Gordon implies. There has, for example, been a great deal of innovation in bio-technology, much of which could be of benefit to millions of people, the main issue here is not to deny that the innovation has happened, but to argue that its utility should take precedence over its potential profitability.

      2. The Internet has had massive implications for production and distribution, which has raised productivity and with it the rate of profit. The Internet and revolution in communications made possible globalisation, and flexible specialisation in a way that otherwise would not have been possible, for instance because it links together decentralised global production units.

        The Internet means that commodities can be sold across the globe that otherwise would not have been possible. For example, literally millions of Chinese watch Manchester United and other Premier League football clubs via the Internet and via sattellite TV. Similarly, music and other artistic and crative production can be distributed globally in a way that would otherwise have not been possible, or else would have been costly to achieve. For example, music, software and so on can simply be downloaded anywhere in the globe, whereas otherwise it would have to be put on CD/DVD or other media, and physically shipped. As Marx says that transport costs are value adding, the reduction in transport costs represents a significant reduction in costs, and raising of productivity.

        The Internet not only means that the time of circulation of capital is massively reduced because commodities are transported to markets almost instantaneously, but together with the improvements in payment systems, they mean that the time of circulation is massively reduced, because commodities can be paid for immediately, the money then being available once more to be advanced once more for productive capital.

        As a result the turnover time of capital is massively reduced, which means the annual rate of profit is significantly increased.

      3. Its nonsense to say that innovation is in decline. Although its not a decisive measure, the number of new patents being registered is at an all time high. A large proportion if not the majority are being registered in China.

  4. Well author has right when he says that global profit rates are falling. That is true. But author doesnt give us why profit rates are falling? There are two main variables responsible for declining of “capitalism”.

    Rising prices of energy , and demographic transition in western civilization.

    I ll copy paste this;


    Era of cheap energy is over

    Morgan goes on to say that the era of surplus energy, which has driven economic growth since 1750, is over. The key isn’t to be found in the theories of “peak oil” proponents and the potential for absolute declines in oil reserves. Instead, it’s to be found in the relationship between the energy extracted versus the energy consumed in the extraction process, also known as the Energy Return on Energy Invested (EROEI) equation.

    The equation maths aren’t difficult to understand. If the EROEI is 10:1, it means that 10 units are extracted for every 1 unit invested in the extraction process.

    From 1750-1950, the EROEI of oil discoveries was very high. For instance, discoveries in the 1930s had 100:1 EROEIs. That ratio declined to 30:1 by the 1970s. Today, that ratio is at about 17:1 with few recent discoveries above 10:1.

    Morgan’s research suggests that going from EROEIs of 80:1 to 20:1 isn’t disruptive. But once the ratio gets below 15:1, energy becomes a lot more expensive. He suggests the ratio will decline to 11:1 by 2020 and the cost of energy will increase by 50% as a consequence.,,,,,,,,,,,,,

    And next reason why there is “end of capitalism and profit rates” are because people in western countries are getting older and older. This means increased costs for pension, social care, and health care and “less money and profits” to the working class and capitalists.

    1. Cheap energy is on its way:

      In areas of high intensity sunlight such as the US south west and some areas of Australia, electricity generated from photovoltaic cells is now cheaper than that bought by electricity companies. As the efficiency of solar cells increases, so too will the areas where this occurs. It’s a game changer in the world of power generation. Scientists at Arizona State University are working at increasing the efficiency of solar cells even further. They dream of a future where solar power is so cheap and efficient that it could not only power whole cities, but drive machines which scavenge carbon dioxide from the air.


      Harnessing energy from a fusion reaction has been the Holy Grail for atomic physicists for decades. In February 2014 a major milestone was reached at the Lawrence Livermore Laboratory in California. Using laser beams focussed on a small pellet, hydrogen atoms were pushed together, in a way similar to what occurs in the sun, producing helium and releasing energy. In the lab, in a reaction that occurred in some billionths of a second, the energy released was more than the energy required to run the reaction, hence the excitement over the result. If this can be scaled up, being repeated many times per second, and the energy safely harnessed, then the dream of limitless clean energy will have been achieved.

  5. The era of cheap energy is not over. US energy prices have dropped significantly because of fracking. Malthusians have been predicting that the fuel would run out for nearly as long as they have been predicting the food would run out.

    If you look at oil use, it has risen by only a seventh of the rise in global GDP since the 1970’s, because technology means that not only is it possible to get more of it out of the ground, more cheaply, but every unit of it produced is used far more efficiently, so even if the unit price of a barrel of oil was rising, the unit cost of its use, most certainly isn’t.

  6. Well, lamestream economists, especially of the Rogoff stripe, are not to be expected to have actually read Marx.

    In Capital, Marx puts forward, not a “theory of immiseration” but a theory of the growth of a “relative surplus population” that “exists in every possible form” as the “absolute general law of capitalist accumulation”,

    This relative surplus population was broken down into three sections. The first two correspond to “normal” short-term unemployment as commonly understood, and to immigration, domestic or international. It is the third that is of the most interest. According to Marx, ” The third category of the relative surplus population, the stagnant, forms a part of the active labour army, but with extremely irregular employment. Hence it furnishes to capital an inexhaustible reservoir of disposable labour power. Its conditions of life sink below the average normal level of the working class; this makes it at once the broad basis of special branches of capitalist exploitation. It is characterised by maximum of working-time, and minimum of wages.”

    Today this stagnant layer derives from a multitude of sources: retail and restaurant service sector, the military rank and file, the prison and ex-con population, some State employees, the “self-employed” with its high turnover, the criminal underworld and other forms of “disguised unemployment”.

    It is this “stagnant” layer that should be of greatest interest when speaking of “immiseration”. Has this layer tended to grow in the mature capitalist countries? Somehow I sense that the answer is yes. Mature capitalism hits a development wall past a certain point in the expansion of the productive forces, where the growth of this relative surplus population looms large indeed as a political and economic problem.

    The significance of this problem as the “absolute general law of capitalist accumulation” is not negated by the fact that there is still room in developing countries for capitalism to pull a growing proportion of the population out of “pre-capitalist” backwardness, given the right circumstances. Even if the incomes of the “stagnant” layer remained constant rather than fell, while this layer continued to grow, and while “hundreds of millions are lifted out of poverty” in the developing countries as the lamestreamers continuiously go on about, the global result is an overall negative for capitalism. If is far more a condemnation of this system that it can no longer advance to lot of the majority of its wage laborers in the mature countries, than that it is still able to advance into wage labor many in the developing world. It shows instead that these, as they mature, will run into the same wall at the end, not of history as we are told, but at the end of capitalist history.

    1. Excellent points, Matthew. If those workers who have given up looking for a job were to be added to the unemployment rate, I’d say we’d more clearly see the increasing ‘immiseration’ of the proletariat well, in numbers at least. In reality, you see them begging on the streets and pushing shopping carts around the neighbourhoods of the cities.

  7. Productivity may only be increasing by 1.3% since 1972, but real wages haven’t increased at all since then which of course is a way of fighting the tendency of the rate of profit to fall.

    Also, it must be remembered that as worker productivity increases, the prices of commodities which take less socially necessary labour time to produce should come down and indeed they have if one measures in real dollars.

  8. Marxists are right to assert that Marx himself does not use the concept ‘immiseration’ (Verelendung), which apparently we owe not to Boffy’s anonymous Stalinists, but to Bernstein. What we have to refute however is the argument that Marx had asserted that Capitalism would progressively lower the wages of the proletariat, while on the contrary he argued that wages in more advanced capitalist countries would be higher than those in less advanced ones. Now while what Mathewrusso9 says is perfectly correct, there is another argument to be made here, namely that where Marx speaks of the absolute poverty of labour under the capitalist mode of production he does not mean that the proletariat commands fewer and fewer use values but labour is progressively stripped of all objective wealth, a process we can currently see very clearly with the step by step expropriation of the Chinese peasant. I feel Mandel in his Introduction to Capital I Pp 69 to 73 quite failed to bring this out. “..finally since the conditions of labour confront the individual worker in an ever more gigantic form and increasingly as social forces, the chance of his taking possession of them himself as is the case in small-scale industry, disappears.” (TSV Vol. 3 P353) Perhaps we should think of the accumulation of capital and the the impoverishment of the labourer as Hegelian Momente, accumulation being the positive side and impoverishment the negative side of the contradictory development that is the capitalist mode of production.

  9. Let’s have a look at capitalism from the practical point of view of us, the working people. The majority of us who have to sell our lives and our abilities that is our creativity to an employer. Somebody whose going to use us to make a profit. Now capitalism is a system based on profit and therefore it’s a commercial system which throws up many consequences.

    In a commercial system like this one and it’s out there you need banking, insurance, taxation, advertising, money lending, debt collecting, the law, police, prisons, armies, navies, airforces, military industrial complexes, sales people of every different kind, weights and measures, trade and standards, customs and exiles, the gambling industry, stock exchanges and many more.

    Now all this. All this work. All this social endeavour. These absolute essentials to capitalism absorbs around 80% of all social effort and produces absolutely no wealth what so ever. No food, shelter, clothing, medicine, education, art, music, dance, sport, literature, transport. All these things we need for a fulfilled and fulfilling life.

    Now, get rid of the commercial system and instead of producing for profit, we can produce for human needs. Instead of having around 20% of us available to roll our sleeves up and get stuck in to volunteer to produce the goods and services needed, there would be 100% of us available. Life will be a lot easier and a lot more fulfilling for everyone.

    In capitalism, with us 80% doing unnecessary work, it’s four times more expensive to sell something than it is to make and we’re so busy taking care of business we don’t have time to take care of ourselves.

    And not to mention, the wars we have in capitalism. All wars are commercial wars and are over resources, raw materials, trade routes, markets. Reformists like Steve Forbes ignore all that and they tinker with capitalism to try and make it work. It doesn’t.

    Capitalism working for ordinary working people, which is most of us, is like trying to get a slaughter house to run in the interests of the animals it processes. It cannot be done!

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