How the Market Doesn’t Work

When you’re out on the stump discussing capitalism – face-to-face or on-line – you can guarantee some defender of the system that has left a third of the world population without clean water, nearly a sixth without enough food, and wrought megadeaths upon megadeaths from wars within the last hundred years, will try and point out how the market is the most efficient system for allocating resources. A self-correcting mechanism without which we would all descend to barbarism and all advanced industry and technology would utterly cease to be. Leaving aside that the cogs in this marvellous mystery self-regulating machine are human beings who must be ground out to make it run smoothly, such a picture of the market system is quite, quite wrong.

A clear example stands before us from the recent news. Over the past year, television and radio has been reporting how people in well-paid City jobs have been leaving to become plumbers. The shortage of those skilled tradespeople has meant, according to market forces, that the price of their labour has risen. Accordingly, the price of a plumber’s labour or labour power (depending on whether they are self-employed or not) has risen to attract more people into the trade to fill up the gap between supply and demand. All of this sounds exactly like the market functioning perfectly.

The problem is that, at the end of January, BBC radio reported that the market for plumbing skills has become glutted – so many people were attracted into the trade that now there are more plumbers than there is work available. This can happen because, far from being the perfect mechanism for conveying information, the market can only convey information at the speed of trade. Prices will not be lowered until the plumbers start entering the market and begin lowering their prices to tout for trade against stiff competition. New entrants to the market will not be able to see that supply has been fulfilled until after the prices start to fall. People just entering training – having heard the word on the street – will not know until they are finished that the bottom has fallen out of the market, and that the arrival of them and their class mates has caused this.

However, even if some sort of mechanism was applied to coordinate between different branches of production, the problems of capitalism would still occur. Otherwise the state capitalism in the former Soviet bloc would have never collapsed and its system would have been seen to be more sturdy than the Western variety. Even with the greatest planning in the world, accidents happen, things change and perfect coordination is rendered impossible. The problem lies much deeper than that, though, in the very nature of capitalism itself.

If the plumbers could simply jump from the plumbing market to a different trade without any difficulty, there would be no problem – they would still be able to acquire the necessary use values with which to live. The problem is, however, that these workers have invested money that they need to recover – both in terms of paying for training and of earnings and promotions they would have gained had they stayed in their old careers. They have invested money in order to enter into the market, and in many cases may well have borrowed as well as using up their savings. In order to ensure they do not make a loss (which will risk their homes and families) they need to ensure that they get that money back – they have to return their initial investment back into its original form as money.

Many plumbers will be unable to do this, and will find themselves driven out of business, based on nothing but the mistiming of their investments and their inability to lay hands on cash. It will not necessarily reflect on their plumbing skills, their personality or anything about them, but simply the blind workings of the market. In order to obtain use values – the things they need with which to live – they must secure exchange value. To stay in business, though, they must use some of the money – exchange value – they earn to pay debts or to ensure they are not out of pocket.

This process, or turning useful things back into exchange value, distinct from the particular usefulness of any given thing, is the essence of capitalism. Anything that interrupts this process puts a spanner in the works of that shiny self-regulating machine – and miscoordination based on poor information is just one such (common) spanner. Whilst our example here is small affecting only a few thousand people at most, obviously, a major capitalist concern could lose billions of pounds and wreak havoc on millions of lives.

Some sharp-eyed pro-capitalists – skilled in misdirecting arguments from points on which they are losing – may choose to suggest that we have here accepted an important point of theirs. These people, they will claim, are willing to do the dirty work – the plumbing – solely because the price is right and they have been lured into the trade. Such nimble minds would actually find themselves too fast for their own feet. Many of the bored office workers (interviewed by journalists, another species of bored office worker) expressed their pleasure that they would find the work interesting and fulfilling, and that it was because the work paid a decent wage now that they were able to enter that trade.

So, in fact, it proves precisely our point once more – the requirements of exchange value hold back the natural co-operation and ability and desire to work of human beings, rather than enabling it. Socialism would be as prone to nature and accident as any system and so could miscalculate and produce too much of something. But as it would not be hamstrung by turning things into exchange values as capitalism is, it could just write off any waste as a misfortune to try and be avoided, rather than one to be exacerbated and spread by sackings and bankruptcies.

People’s skills could be used when required and people would not find themselves dumped on the rubbish heap and denied access to their necessities of life just because they had worked hard and finished the job or because less of that type of work were no longer required. We would be able to enter into an age where communication conveyed at the speed of light could be used immediately, without having to be grafted onto the old operating system of society – like trying to read the internet on a pocket calculator.

PIK SMEET