Ted Reese – Capitalism in terminal decline: the compelling empirical data trends

The economic necessity of ‘state monopoly socialism’

Ted Reese is the author of Terminal Decline and The End of Capitalism: The Thought of Henryk Grossman Follow Ted on Medium, Twitter and Linkt.ree @grossmanite


Karl Marx regarded socialism’s supersession of capitalism as a natural historical process. Premature expectations he may have had, but this prescient view, based on exceptional scientific rigor, rings evermore correct as production evolves from mechanized to automated. As he explained, this technological advance is necessary to raise the productivity of labor and meet the ever-rising demands of capital accumulation; but paradoxically tends to abolish the source of (exchange) value and profit – capital’s theft of commodity-producing labor’s labor time. Or, as the production of commodified use values (utilities) expands, the exchange value (labor time) contained within them tends to wither away.

By looking at long- and short-term economic trends, a compelling set of evidence comes together indicating that capitalism is indeed both approaching a ‘final breakdown’ and birthing the foundation of a socialist mode of production.

Long-term indicators

The average global rate of profit is trending historically towards zero, having fallen from an estimated 43% in the 1870s to 11% in the 2010s.

Interest rates (interest being a form of profit) have trended downwards over seven centuriesfive millenia, even – regardless of the political-banking regime.

GDP growth rates in what the World Bank calls ‘high income countries’ are trending towards and already closing in on zero, having averaged around 6% in the 1960s and below 2% since 2000.

The rate of productivity growth has trended downwards over the past seven decades to near-zero.

Between 1964 and 2014, the average lifespan of S&P 500 companies shrank from around 60 to 18 years.

From 1977 to 2013, startups as a share of all US firms fell from 16.5% to 8%.

Of the roughly 750 currencies that have existed since 1700, only around 20% remain.

British pound sterling has lost more than 99.5% of its purchasing power since its adoption as official currency in 1694.

The US dollar has lost 97% of its purchasing power since 1913, having barely changed in the previous 140 years when the rate of the economy’s growth (relative to its size) was much higher.

The vast amount of that figure, 91%, ensued after 1949, when the US supplanted Britain as the world’s dominant capitalist superpower.

The figure since 1970 is 85% (93.5% for Britain), around the time of the first major post-WWII recession and the start of an absolute productivity boom largely based on computing power tending to double every 18 months.

Production costs and consumer commodity prices have therefore trended secularly/historically towards zero.

For example, whereas the world’s fastest supercomputer in 1975 was worth $5m ($32m in 2013’s money), the price of an iPhone 4 released in 2010 with the equivalent performance was $400.

One gigabyte of data storage fell from $193,000 in 1980 to just $0.03 in 2014.

In 2000, the cost of producing one kilogram of protein through precision fermentation cost $1 million, but in 2020 the cost had fallen to around $100.

As soon as a company like Nestle starts buying its milk this way – as it must to re-widen its profit margins – the conventional farming industry will become uncompetitive and unprofitable.

With deposits becoming shallower and deeper and extraction more capital-intensive (dependent on machinery relative to labor), the Energy Return on Investment (EROI) on fossil fuel has fallen from above 100:1 (a return of 100 units of energy for every 1 invested) in 1930 to around 3–6:1 in 2019.

The labor intensity (including the labor needed to produce capital-intensive extraction machinery) of fossil fuel production and its non-renewability (constantly reproducing the industry’s demand for labor) has been vital to capitalism’s overall profitability.

The 2010s ‘tight oil/shale gas revolution’ peaked along with oil production in general, according to Shell, in 2019.

The value of Saudi Arabia’s state assets is predicted to fall from $900bn to minus-$2trn around 2030. Between 2016 and 2020, Saudi oil prices averaged $51 a barrel, but the break-even cost of production averaged $86.

In 2015, the total debt of the oil and gas sector globally stood at roughly $2.5 trillion, 250% higher than at the end of 2006.

The fossil fuel industry only remains ‘profitable’ because of its parasitic dependence on debt/public subsidies – no bottomless pit – of $16bn a day and artificial cuts to production that normally raise consumer prices by 70–80%.

Just as the number of slaves in the US declined as a percentage of the population (from approx. 25% in 1790 to 16% in 1860) before slavery ended; manufacturing workers declined as a percentage of the US workforce from 26.4% in 1970 to 8% in 2018.

Science has usurped manufacturing as the mother of production and the working class is now largely based in services instead of physical commodity production, even in South America and Sub-Saharan Africa. Services workers handle finished or near-finished commodities, therefore producing relatively little value.

Whereas the capitalist class is a relatively dwindling minority of the world population, the working class (dependent on waged employment) has grown exponentially, making – along with new technological capacities (debating and voting online) – ‘capitalist democracy’ outmoded.

Short-term indicators

Trade restrictions have been hitting record levels since 2015, before Brexit and the presidency of Donald Trump.

The medium real revenue growth of ‘FAANG’ stocks – Facebook, Amazon, Apple, Netflix and Google, the five best-performing American technology companies of the 2010s, comprising about 20% of the value of the S&P 500 – turned negative in 2022 for the first time.

2022 was the worst year for stocks and bonds combined since 1871.

43% of around 9,000 banks in the US disappeared between 2000 and 2017 (already down from 14,000 in 1986 and 30,000 in 1921).

Losses on the banking industry’s investment securities totalled $690bn in the third quarter (Q3) of 2022 – compared to less than $100bn in 2008 at the height of the Great Financial Crisis (GFC).

Total banking assets of $23.6trn were matched by total liabilities (money owed); but once the devaluations of face value investments as a result of rising interest rates are taken into account the US banking industry as a whole was a conservatively estimated – not including exposure to hidden derivatives and cryptocurrency – $400bn short of solvency.

A third ‘one-in-100-year’ financial bubble in three decades – the first three to surpass the bubble preceding 1929’s Wall Street Crash – has been labeled ‘the everything bubble’ (the previous two being the 2000–01 dot com bubble and the 2007–09 housing bubble) since it now encompasses every asset/debt class for the first time.

Official US national debt-to-GDP – driven by private sector debt – hit an all-time high of 137.2% in 2021. The record high aggregate global debt is unsustainable since the tax base needed to repay it is shrinking in relative terms.

The actual figure has been estimated to be 2.5 times higher (as of July 2019) and 2.5 times higher than the global money supply (as of 2015, up from two times higher in 2013).

To bail out private banks and corporations (by purchasing their debt, spending the money into existence), the balance sheet of the Federal Reserve, the US central bank, rose from $900bn in September 2008, to $9 trillion (trn) in 2020 – an unprecedented 10-fold increase.

The US’s M1 money supply (very liquid monies such as cash) rose from $1.6trn in May 2009, to $4trn in February 2020, to $16.5trn in June 2020; and $20.7trn in March 2020.

The broader M2 supply (M1 plus less liquid monies such as savings and money market funds) went from $8.4trn in June 2009 to $15.3trn in February 2020 and $22trn in April 2022.

That meant 80.7% of all M1 ever put into circulation was ‘printed’ (electronically) in just 23 months; 69.5% for M2 in 26 months.

For comparison, the total the US spent on its wars on Afghanistan, Iraq, Syria and Pakistan from 2001 to 2020 cost $6.4trn.

Money, like any other commodity, devalues with rising productivity, which tends to double every 25 years. Another doubling of production would surely result in worldwide hyperinflation.

Lifting the US economy out of recession has required on average since 1958 a baseline (central bank) interest rate cut of 6% (to cheapen capital to incentivise investment); but at the time of the (worst ever) stock market crash in March 2020, rates were already near zero; immediately cut to zero cut from 0.75% in the UK and 1.75% in the US.

Neither country had ever gone down to 0% before 2009.

As ‘smaller’ or poorer banks and corporations go bust or default on their debts to the central bank, the central bank balance sheet (and thus the money supply) naturally falls and so interest rates inversely rise – making new debt needed to pay off the interest on old debt more expensive, including for governments and central banks.

In 2023 the Congressional Budget Office projected that US government interest costs would grow nearly threefold from $331bn in 2021 (2% of GDP) to $910bn in 2031, from 7% to 12% of the federal budget, totalling $5.4trn over 10 years – making it the fastest growing component of the federal budget – and 45% of the federal budget in 2050 ($60trn, 9% of GDP). That’s far higher than the previous postwar peak of 19%.

After more than a year of rising interest rates, at the start of 2023 the percentage change in the M2 money supply declined absolutely for the first time since the end of 1932, during the Great Depression – from a greater relative ‘height’ and at a greater relative ‘steepness’.

That is, from March 2021 to June 2023, the rate of M2 growth fell by 31% from its peak of 26.3%, contributing to disinflation (slowing inflation) of about 5%; compared to 12% and 10.5% actual deflation in 1932.

The Fed itself started to operate at a loss in October 2022 – with its long-term assets fixed at lower rates but its short-term liabilities (money owed) burdened by rising interest rates – putting it on course to have negative tangible equity (liabilities exceeding assets) for the first time.

That meant the Treasury stopped receiving the Fed’s surpluses, a $100bn+ annual revenue source – four times the annual budget of NASA.

It took eight years of interest rate hikes peaking at 19% in 1981 to bring down the inflation of the 1970s – lower wages relative to rising household debt levels mean interest rates of 3% in Britain in 2022 were the equivalent of 14% in 1980.

In 2019, after interest rates had crept back up from 0% over 30 months to 2.5%, the highest since early 2008, the US yield curve inverted for the first time since before the GFC.

(That is, the yield on 10-year government bonds went lower than 2-year bonds. Long-term rates are normally higher since the risk is higher. In the US every recession has been preceded by a yield curve inversion and only two yield curve inversions have not been followed by recessions.)

Remarkably, however, the inversion struck after the baseline interest rate had moved back down (from 2.25% to 2% at the end of July).

Also remarkably: while falling share and rising bond prices in a crisis usually generate falling interest rates, on 9 March 2020 the 10-year US Treasury Bond yield spiked upwards — something that statistically speaking should only happen every few millennia.

By September 2023, the yield curve had been signaling a recession for a record 212 days straight. Historically, the longer a recession takes to start after an inversion, the more severe the recession is.

As the US yield curve started to uninvert, it did so in a unique way. The yield curve has always uninverted via short term rates falling faster than long rates. For the first time, short-term rates are rising yet the yield curve is uninverting.

The economic necessity of ‘state monopoly socialism’

Capitalism has evolved into an increasingly centrally planned state monopoly capitalism, one ‘last’ evolutionary shift away from a centrally planned state monopoly socialism. The evolution of private property is culminating in a social revolution whereby it is transformed into social property and capital accumulation is transformed into social accumulation.

Since private enterprise is increasingly dependent on mergers and long-term central planning (eliminated internal markets, centralized databases, real-time stock tracking, etc.) and state (public) subsidies (including tax cuts); taking the means of production under public ownership, a ‘final merger’, and centrally planning the economy as a whole, is becoming, for the first time, an economic necessity. (A total monopoly cannot be privately-owned since no exchange of ownership of use-values takes place; i.e. use-values are decommodified.)

Since the private sector is losing its ability to employ value-creating (commodity-producing) labor – it does so only if profitable – society, via the state and social enterprise, must take over responsibility for employment, enabling actual full formal employment and and shorter working hours for all as the burden of work is shared by the entire population. (‘Full employment’ in capitalism discounts lumpenized/destitute and ‘economically inactive’ workers.)

Since the workforce is now almost entirely services-based, economic stability can only be established by an applicable system, whereby value is created not by for-profit commodity-production but by break-even utility-production.

Since fiat currency is dying a natural death, with cash also disappearing in relative terms – only so much cash can be stored physically; accumulation demands increasing efficiency in circulation and turnover; and cash must be converted into stocks and bonds to lower interest rates/cheapen capital – it must be replaced by a non-transferable digital voucher system, with the ‘currency’ pegged to labor time.

As AI, 3-D printing, lab-grown food, etc. rise in quality and fall in price, the divide between producer and consumer will increasingly disappear, bringing about increasing economic independence and then abundant (extremely plentiful) material wealth for all, meaning class and the state will become increasingly irrelevant and wither away.

So, whereas capitalism has a long-term tendency to centralize wealth and power, socialism has a long-term tendency to decentralize wealth and power.

Essentially and historically, socialism completes what capitalism started but could not finish.

Precision fermentation, 3-D printing, bioplastics, microbial fuel cells, etc., are forms of additive manufacturing (growing, replicating, layering) as opposed to subtractive manufacturing (extraction, metal milling, etc). So:

(Toxic, non-reciprocal) subtractive and mechanized production = limited/scarce production = capitalism

(Clean, reciprocal) additive and automated production = unlimited/abundant production = communism

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