Reading Marx For Fun and Profit
Reading Marx For Fun and Profit
Marx predicted in Das Kapital that capitalism and the free market are fated to boom-and-bust cycles. This turned out to be an accurate diagnosis with, however, a dangerous cure likely to kill the patient.
Nevertheless,CCBA Marx’s analysis has real value for careful long-term investors; as he pointed out, capital tends to over-produce, over-sell and over-exploit and must contract periodically leading to bubbles and panic with unfortunate consequences for an over-stretched system. What is surprising about this analysis is that economists and regulators always seem surprised when this happens.
An even more relevant and overlooked observation of Marx’s is particularly appropriate to the surprising resurgence of the market since March of 2008 in the face of continued unemployment. Marx points out that, contrary to the conventional wisdom, continued unemployment can be a useful motor for a profitable capital market. This is true for the simple reason that, of all the risks and challenges that Capital faces, its chief opponent and expenditure is usually Labor which continually claims a share of Capital’s profits equivalent to what they (and Marx) believe to have been their contribution to those profits.
Therefore, the weakening of Labor’s bargaining position by firings, attrition and general unemployment is a heavy blow to Capital’s chief challenger, a blow which necessarily improves Capital’s economic position. In spite of weak demand, mass unemployment creates an atmosphere of desperation in the ranks of Labor which can only decrease its share of corporate profits and increase Capital’s earnings. As demand slowly returns, increasing revenues tend to be unburdened by high labor costs.
Thus, despite a serious reduction in America’s mass purchasing power, corporate earnings come in, as they seem to come in these days, at unexpectedly high levels leading to unexpectedly higher stock prices. Indeed, in spite of continued high unemployment, the market has (unexpectedly) nearly doubled in the two years since its 2008 lows. Unexpected, that is,IL0-786 for those who fail to understand that Marx’s analysis had some profitable direction for the open-minded investor.
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