• Sergio Focardi

Capitalism needs less and less consumers

In a previous post I discussed how the current concept of inflation is not applicable to a rapidly changing, complex economy. In simple terms, one cannot define inflation with a single number applicable to a complex system. In this post I would like to discuss employment, especially full employment. Similarly, the concepts of full employment and unemployment cannot be defined in terms of a single number applied to a highly segmented economic reality.


The problem of employment is essentially linked to the management of profit. Classical theory divides the population into capitalists and wage earners. Capitalists own firms and earn a profit. Wage earners work and earn wages. Since everyone can own shares, the two categories of wage earners and capitalists can partly overlap. In practice we can consider them separate.


If we exclude relations with foreign countries, in aggregate the only cost is the salary. Profit is the total of the company's income minus the cost of aggregate wages. Profit in turn is divided into capitalist consumption and investment. These are the fundamental equations introduced by Kalecki. Since it is not possible to physically aggregate output, consumption and investment given the heterogeneity of products and services, all these relations must be understood as monetary relations.


In classical theory, workers are employed only if the value of what they produce exceeds the cost of their employment. On this basis it is argued that wages must follow the dynamics of the market otherwise unemployment is produced. In classical theory, workers form a homogeneous system. Employment grows in an expanding economy, it is reduced in times of recession.


This extreme simplification is very far from the current economic reality. In particular, there are two fundamental considerations. The first is the fact that modern advanced economies segment into sub-economies with different dynamics. The capitalists have an interest only in increasing the production of the products and services that form their consumption but have no interest in increasing the consumption of wage earners. Due to automation, the increasingly strong symbolism associated with products and services, and the relocation of production, the fraction of the population that is engaged in producing the consumption of the capitalists is constantly decreasing.

This was not true in the past when production was difficult, symbolism was less intense and new companies and new capitalists were constantly being created. The economic and social philosophy of capitalism was based on a growing consumption of an increasing quantity and variety of goods and services. Capitalism was based on the private initiative of a growing number of entrepreneurs who created companies. In this situation the whole population was engaged in a productive effort. Today, production requires less and less personnel, and the symbolism, created by an entire PR and advertising industry especially in the luxury sector, requires a limited fraction of the workers. But above all, the phenomenon of "winner takes all" has been created, which has concentrated production in a small number of very large companies.

The second point concerns the creation of monetary profit. The considerations of the previous paragraph refer to the creation of real profit, profit that is consumed or possessed in the form of goods. If wage earners consume only their wages and the central bank does not produce money, real profit is the only possible form of profit. In the current situation, however, wage earners are net debtors. Their debt increases their consumption and produces monetary profit for the capitalists. QE operations have also strongly contributed to creating monetary profit.

The above considerations have produced a fundamental segmentation of the economy into at least three segments. The first segment is formed by the fraction of wage earners who do not contribute to profit while the second segment is formed by wage workers who contribute to generating profit because they have the necessary skills to produce the consumption of capitalists and go into debt. The third segment is made up of capitalists . Within these large segments there are sub-segments: a modern economy is fragmented into subeconomies with different dynamics.


The processes of monetary profit have exacerbated this situation.

The problem in terms of employment is that increasing fractions of the population are excluded from economic life and are marginalized. In general it is very difficult to move from one segment to another. There are barriers formed by skills, salary levels, networks of knowledge and support. There are many entrepreneurial ventures, start-ups, but these companies are generally short-lived. In a small number of cases they are very successful and survive but generally either fail or are absorbed by larger realities.


The classical concept of quantitative and homogeneous unemployment is completely unsuitable to describe the employment situation in a highly segmented economic reality. From the point of view of corporate profit this reality creates huge concentrations of profit with decreasing employment. From the social point of view it creates large masses of excluded and those who are included find themselves working in conditions of great uncertainty often forced to accept jobs that result in serious family difficulties.

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