Artificial scarcity (1998)

From the April 1998 issue of the Socialist Standard

Technological capacity to produce enough to satisfy everyone's needs already exists globally and has done so for many decades. Yet needs continue to remain unmet on a massive scale. Why? Quite simply because scarcity is a functional requirement of capitalism itself.

Production today is not primarily geared to satisfy human needs but "effective demand"--when "consumers" are able to buy goods at a price which will enable enterprises producing them to realise a profit. If what people can afford falls short of what they need, increasing output to satisfy the latter would cause prices to fall--to the detriment of profit. So the need for profit conflicts with the satisfaction of human needs.

Profit is not essentially a measure of technical efficiency. It is sometimes argued that the market's "hidden hand" guides enterprises towards the most efficient allocation of resources by bankrupting those failing to respond appropriately to its price signals. According to this argument, resources are inherently scarce and the market provides the best, if not the only, available mechanism for ensuring they are not wasted (which would aggravate scarcity). But the yardstick of "efficiency" used here is not something external to capitalism but intrinsic to it. An enterprise is judged to be "efficient" to the extent that it is profitable.

That means its revenue exceeds its cost. However, this can create the illusion that profits are made in the market--by raising prices to more than cover costs. But capitalists cannot just arbitrarily raise their prices--that could mean losing business to their competitors. In any case, one enterprise's price increase would constitute another's cost increase (insofar as enterprises supply each other with the inputs they require), with the resulting reciprocal losses and gains balancing each other in the long run.

In fact, profits are made in the sphere of production (but only "realised" in the market). The source of all wealth is human labour applied to natural resources. Those who apply their labour to create this wealth today (the workers) are employed to do so by the owners of the means of wealth production (the capitalists). The value of the wealth workers create necessarily exceeds the value of their working abilities for which they are paid a wage (or salary)--the difference between these two values being "surplus value", the source of the capitalists' profit.

So profit depends on restricting workers' consumption to what is needed to develop and maintain their working abilities at the level required. More than that only adds to the wages bill without producing a commensurate increase in productivity. But what is so vital about profit that makes this necessary? Not only does it afford capitalists a lavish lifestyle; more importantly, it is the source of their capital. The more capital they can accumulate out of the profits accruing to them the more effectively can they compete--by investing in more productive technologies to undercut their competitors--and thus claim a larger share of the market for themselves. If they did not do this then their competitors would, and could knock them out of business.

So economic competition between enterprises fuels the drive towards capital accumulation. This in turn necessitates profit maximisation which expresses itself as a continuous downward pressure on wages (reinforced by competition between workers on the labour market), insofar as these constitute costs which subtract from the capitalists' profit. This downward pressure on wages was once widely thought by Leftists to lead to a chronic and ever-deepening depression. According to this theory of "underconsumption", the development of the productive forces would result in increasing quantities of consumer goods swamping the market which workers would be unable to buy back, thus precipitating capitalism's collapse.

However, any decline in the workers' share of total wealth must represent an increase in the share appropriated by the capitalists and hence also their potential demand for consumer goods. It might be argued that rather than increase their consumption of consumer goods the capitalists could divert more of their wealth into investment instead, thereby enhancing the productive capacity of industry. But since such investment will only proceed when there is the expectation of profit this presupposes the existence of consumer markets capable of absorbing the potential increase in output.

Nevertheless, while growth in productive capacity and market demands tend to balance out in the long run their normal state is one of "disequilibrium". This generates a continuous process of mutual adjustment which takes the form of the capitalist "trade cycle". In the run-up to a boom enterprises expand their productive capacity to meet the surge in market demand. However, blind competition between them leads to overproduction in some sectors of the economy at first, resulting in falling prices and a squeeze on profits. Workers are then laid off in these sectors thereby reducing their demand for the goods provided by other sectors. A ripple effect is thus created which takes its toll on an expanding range of industries resulting in a generalised recession which only comes to an end when the conditions for profitable production are restored. As Marx put it: "the last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit" (Capital III, p.30).

Artificial needs

As well as desiring things we need, we are also encouraged to desire things that we do not need. Indeed, insofar as there is theoretically no limit to what we are capable of desiring this allows pro-capitalist economists to argue that scarcity is the "condition of the world". To question why we should desire such things over and above what we need is to encroach on territory that falls beyond the scope of traditional economics; it is thus deemed inadmissible from the blinkered perspective of the economists themselves.

Not that that prevents them from adopting the assumption that human beings are fundamentally driven by insatiable desires. In fact, the attempt to universalise that assumption by grounding it in the very nature of human beings was, as Marshall Sahlins argues in his Stone Age Economics, the ideological by-product of an emerging bourgeois society. Not coincidentally, it went hand-in-hand with the attempt to downgrade and dismiss earlier cultures as "primitive" and "backward" for not exhibiting the insatiable desires characteristic of bourgeois society itself. As Sahlins points out, the bourgeois axiom of scarce resources and unlimited wants can be neatly reversed in the case of our hunter-gatherer forbears for whom an excess of possessions was not merely disapproved of but viewed as a positive encumbrance to their nomadic way of life.

It was with the appearance of private property, particularly in its individualistic capitalist form, that the ideology of scarcity took root. In his perceptive book To Have or To Be, Erich Fromm notes that private property derives from the Latin word privare meaning "to deprive of" because "the person or persons who own it are its sole masters, with full powers to deprive others of its use or enjoyment". It is such deprivation that engenders the pathological desire to possess. For within this individualistic world-view it is through one's possessions that one attains the power and freedom to be oneself; one's sense of self-identity and self-worth--in short, one's social status--is tied up with, and expressed through, one's possessions. This is what Fromm means by a "having" mode of existence as opposed to a "being" mode.

Crudely speaking, this means that the better-off one is materially speaking the more status one accrues. However, since it is not the absolute amount of one's material possessions as such that determines one's position in this status hierarchy but rather what one has compared with what others have, it follows that economic inequality is a basic precondition for such a system of status differentiation to effectively operate. In this respect, capitalism not only provides the yardstick by which this concept of status is measured but also works to ensure an unequal distribution of wealth, enabling such a system to operate.

So it does not matter how modest one's real needs may be or how easily they may be met; capitalism's "consumer culture" leads one to want more than one may materially need since what the individual desires is to enhance his or her status within this culture of consumerism and this is dependent upon acquiring more than others have got. But since others desire the same thing, the economic inequality inherent in a system of competitive capitalism must inevitably generate a pervasive sense of relative deprivation.

What this amounts to is a kind of institutionalised envy. This is ironic inasmuch as socialists are often accused of being motivated by the "politics of envy". Nothing could be further from the truth. In fact, such envy is merely the flip side of the same coin as greed. And it is the idea of greed which underwrites the myth of scarcity which, in turn, serves to justify the existence of a market which socialists oppose.

Socially useless production

Socially useless production constitutes a large and growing proportion of economic activity within capitalism and, as such, contributes significantly to the perpetuation of artificial scarcity--in this case from the standpoint of supply rather than demand.

Of course, capitalism does not and cannot distinguish between socially useful and socially useless production. The reason for this is that both are functionally necessary for the realisation of profit. So for anyone not looking beyond the parameters of capitalism such a distinction will remain obscured.

If socially useful production comprises any form of activity that goes to satisfy real human needs, socially useless production represents any activity that does not satisfy such needs. The needs that the latter satisfies are the system's needs. These include not only status needs but operational needs arising from how the system operates. There is a tendency for capitalism to develop towards ever-increasing complexity with the consequence that over time its operational needs tend to soak up ever-larger quantities of resources and human labour. This is exemplified by the growth of money-based activities to facilitate market transactions (from banking to retailing), reactive/remedial activities to cope with the social problems thrown up by capitalism (from social workers to trade unions) and coercive activities to protect or promote the interests of capital (from weapons research to security firms).

Estimates vary as the proportion of total labour and resources devoted to systemic needs but there can be little doubt that, particularly in the advanced capitalist economies, well over half the total labour force is involved in one or other form of socially useless production. This represents a massive waste of human effort and resources which, if redirected towards socially useful production, could effectively eliminate scarcity as far as the satisfaction of real needs is concerned. To eliminate scarcity, however, requires a fundamental switch from production for profit to production for use--from capitalism to socialism.

Robin Cox