Heather Warner
Nov. 27, 2000
Economics in Popular Film
Economics 100 (02)
Professor Gabriel
"Black Thursday."
The name itself sends shivers down your spine. October 24, 1929
the New York Stock Exchange crashed signaling the end of the Roaring
Twenties and the start of the Great Depression. A depression can
be defined as, "a prolonged deep recession." A recession
is, "a period during which aggregate output declines."
(Case 118) This was certainly quite a change, as in the twenties
the economy seemed to be booming around the world. There was rapid
increase in industrialization, and drastic improvements in technology.
Wages, consumer spending, and stock prices were high and seemed
to keep rising. In fact, as people kept buying on margin, (speculating
that the upward trend would continue) billions of dollars were
invested which did at first keep pushing the stock prices ever
higher. People poured their life savings into the market, mortgaged
their homes, etc… during this crazed time period. However,
it soon happened that this buying craze was followed by an even
wilder selling spree. On that fateful day in October prices dropped
just about as low as they could get as investors tried selling
their holdings. In fact, by the end of the day the New York Stock
Exchange had lost $4 billion, taking the exchange clerks working
straight until 5 AM the next day to clear all of the transactions
that had taken place the previous day. Several days after this,
panic occurred as people began to realize just what had happened.
Thousands of people were now financially ruined. Many banks that
had participated in speculative investments failed as well, and
this caused many "run on banks." Each and every player
contributed to the downward spiral that was sucking the world
into the Great Depression. (Underwood)
However, there is more to
the cause of depressions and recessions than just the role of
the financial sector and speculative investments. Yet, why do
I mention the ideas of a booming economy suddenly becoming a state
of despair and perhaps even turning into a recession or depression?
In watching the film Roger & Me I feel like Flint,
Michigan experienced these events because of the decisions of
General Motors. Flint was at first a booming economy, but it soon
became one filled with much poverty.
I believe that Roger &
Me deals, at least in part, with the issue of imperialism.
Therefore, we need to look a bit more at capitalism and what a
driving force for this system is. (From a multitude of other class
notes and ideas I have tried to put together a brief summary of
the thoughts, ideas, and theories of one economist from the past-Karl
Marx; I will start off with his ideas of Surplus Value and then
move on to talk about profits). Karl Marx was one of the first
economists to examine the actual relationship between laborers
and the exploitation that they endure from the capitalists who
employ them. Theories in general reflect, grow out of, and are
based upon on-going social events and circumstances of a specific
time, thus Marx's interest in the capitalist system seems in keeping
with the time. Although I have chosen to discuss Marx, keep in
mind that he is but one economist, and thus this is but one explanation
for the occurrences in a capitalist society.
Marx felt that most of the
economists before him failed to incorporate "historical perspective"
into their theories. But due to the economic and social circumstances
of the time, Marx became intrigued and interested in explaining
the relationship between capitalists and laborers. He therefore
chose to study and understand, as best as he could, the features
necessary and unique to the production process in a capitalist
society. This method of study and analysis led him to numerous
conclusions, which in his opinion had previously been confused
and distorted by other economists.
Marx objected to earlier economists'
notions that production and distribution were separate. He believed
that there were numerous forms of property; that each mode of
production had its own forms of property; and that these forms
of property determined distribution. Therefore, production and
distribution are not independent of each other and are both necessary
to understanding the capitalist society.
Understanding production and exchange are key. Marx believed that
a commodity holds two essential characteristics: that it satisfy
human wants and allow people to derive utility (giving the commodity
use value); and that it have exchange value. Exchange value is
the ratio of how much one can get of one commodity in exchange
for a given amount of some other commodities. This idea, then,
presupposes a common element. Marx argued that commodities not
only have use value (hard to measure) but they are produced by
human labor. It is this labor time required for production that
Marx focused on-as it was quantitatively comparable between all
commodities.
In a simple commodity market
economy (C-M-C') a commodity is sold and money received from its
sale. This money can then be used to purchase more commodities.
In this "world"
goods are exchanged with the final goal of consumption in mind.
If one focuses solely on the acts of buying and selling commodities,
then on a superficial level the system of exchange is a system
of equality. If capitalism were to be viewed solely in this light
then economic harmony would exist in a capitalist society. This
can be seen from the conclusions Marx drew about exchange. He
essentially concludes that exchange is the exchange of equivalents,
equivalents require a common property, and that common property
is labor.
{The greater the labor time needed, the greater the value of
the commodity}. But Marx argued that accepting exchange as the
only economic relation was incorrect.
What is interesting, and perhaps key to this point of Marx's theory,
is that in analyzing his ideas closely, one can see that in this
realm of circulation alone there would be no net gain in surplus-value.
For even if the commodity were exchanged above its value, then
the seller would gain in exchange, but the buyer would lose an
equal amount of exchange value.
Therefore, attention to the area of
production and labor is necessary. Marx felt that in a capitalist
society the circulation of capital is one with the goal of profits.
Money is used to purchase a commodity, that commodity is then
used and sold to produce more money then what had originally been
used (M-C-M').
It is this additional money that is referred to as surplus-value.
The value of labor power (wage) is equal to the value of subsistence
of a worker's family.
It is the value that is
created beyond subsistence needs that creates value for the capitalist;
that is to say, the amount of surplus labor (labor creating no
value for the worker himself, but instead creating surplus-value
for the capitalist) produced beyond the necessary labor (the labor
that produces only the value of the laborer's labor-power-the
value of the laborer's means of subsistence). When labor power
is sold as a commodity, its use value is the performance of work
and when the work is performed it becomes part of the commodity,
giving it value. The only source of surplus-value is the difference
between the value of the labor power as a commodity and the value
of the commodity actually produced by the laborer. The labor power
is purchased by the capitalist with the intention that its consumption
will create value above and beyond its original value-yielding
surplus-value. Again, this can happen because the capitalists
have to purchase labor power at its value (determined by the price
of subsistence and what is necessary and essential for survival)
and once the capitalist owns the labor power they are able to
"consume" it as they please. It is from this consumption
which takes place outside of the exchange and into production
that leads to the creation of surplus-value. As Marx puts it,
"This increment or excess over the original value I call
'surplus-value.'" (Marx 251)
The capitalist is thus able
to obtain a fund of money that is greater in value than the original
fund and is in a position to start the process again-but on an
expanded scale.
In this sense it would
seem that capitalism represents a never ending, repetitive process
where capital creates surplus-value, which is the source of more
capital, which in turn lends itself to the creation of more surplus-value,
and so on… "His (the capitalist's) aim is rather the
unceasing movement of profit-making." (Marx 254) It is this
quest for ever-greater surplus-value that is the motivating force
behind the capitalist system and helps to keep it going. Therefore,
it is evident why to Marx, the rate of surplus-value was seen
to represent the degree of exploitation of labor power by capital-or
the degree of exploitation of the laborer by the capitalist.
Marx, like Smith and Ricardo
before him, came to the ultimate conclusion that the accumulation
of capital produced a tendency for the rate of profit to fall
over time. But while they all concluded the same trend, they each
had "divergent approaches" to the final solution. Labor
is the secret to capital getting bigger; it's the source of surplus
value. While it was stated that the trend for the rate of profit
is to fall, it is necessary to note that a falling rate of profit
does not mean a fall in total profit, for Marx believed that total
profit would still increase even if the rate of profit was decreasing.
Furthermore, usually when capitalists feel downward pressure on
the rate of profit, they take great pains to reverse the trend.
Therefore, according to Marx, although the tendency of the falling
rate of profit is present, it is not generally realized in totality.
Why does the rate of profit
decline? Looking at the definition and the formula of the rate
of profit established by Marx, one can see that either a decrease
in the rate of surplus-value would have to occur or an increase
in the composition of capital must take place. Yet remembering
that Marx concluded that the tendency for the rate of surplus-value
is to increase, then the cause for the decline in the rate of
profit must be due to an increase in the composition of capital
that is bigger and at a faster rate than the increase in the rate
of surplus-value. It is the change in technology that causes both
surplus-value to increase and the composition of capital to increase.
Technological changes take place because of the on-going quest
and desire of capitalists to increase the surplus labor by decreasing
the amount of necessary labor required. In order to decrease the
necessary labor then, technology must change. With the decrease
in necessary labor that occurs the surplus value can in turn be
increased.
In other words, according
to Marx, the rate of profit has a tendency to decline because
the composition of capital (means of production) increases faster
than the rate of surplus-value-as a consequence of technological
changes. This means then, that more capital is invested than labor
employed-and this reduces the value produced. (Remember, labor
power is highlighted as the real source of surplus-value, and
surplus-value is a necessary component of the rate of profits).
If the rate of surplus-value remains constant then the decrease
in value produced will result in less surplus-value produced per
unit capital invested, as well. All of this translates into a
declining rate of profit, as Marx said that profit varies inversely
with the organic composition of capital and directly with the
rate of surplus-value.
As previously mentioned,
usually capitalists will attempt to reverse the trend of falling
profits once they realize what is occurring. They are able to
counteract the falling rate of profits a number of ways. Marx
mentions that capitalists might increase their power of exploitation
by lengthening the working day and or providing incentives to
make labor more intense. This would raise the profit rate because
of the effects that such things as good management, better technology,
more efficiency, etc… would have in increasing the overall
surplus-value in the end as they would be able through these means
to increase the surplus labor by decreasing the necessary labor.
Increasing surplus labor and decreasing necessary labor is thus
one way to reverse the trend.
Second, Marx mentions that a "depression in wages below the
value of labor power" would also help. He mentions that an
overpopulation of workers could increase profits only if wage
rates were decreased. (Hunt 205)
A third method to reversing
the trend of the falling rate of profit is if the element of constant
capital were cheapened. This might be achieved by changes in technological
methods of production. Such capital saving innovations might include
things as: improvements in technology, recycling waste products
to be reused, and or producing more durable machines to begin
with. (Blaug 270)
A final possible solution
to the falling rate of profits that Marx makes mention of is allowing
foreign trade to take place. Exports of capital counteract the
decreasing rate of profits by "draining off excess savings,"
and imports provide cheaper wages goods and cheaper raw materials.
(249 Blaug) Interestingly, it is this final idea that led many
future economists to base their ideas and theories of imperialism
and the need of ever-expanding markets for capitalists. Many economists
emphasize how expanding abroad (imperialism) can provide cheap
labor, cheap raw materials, access to markets, and the ability
to utilize excess capital, all while helping to avoid getting
a glut or overproduction. Thus in the opinion of many economists,
expanding abroad is necessary to keep a capitalist system going
well, and that a capitalist society by its very nature needs to
expand. They must expand to stay in business and remain powerful.
Of course many economists have differing opinions on this issue,
and not everyone agrees with Marx's theory and the cause for the
ups and downs that a capitalist society experiences and the causes
for the struggles that laborers and capitalists endure and have
with one another. However, Marx at least offers much explanatory
power and one possible explanation.
With the previous ideas in
mind, one can perhaps rationalize a bit why General Motors did
what it did. The movie Roger & Me is a documentary
film taking place in Flint, Michigan-the birthplace of General
Motors. The inhabitants of Flint used to believe that "Everyday
was a great day." While Flint was at one time prosperous,
busy, and flourishing economically, the viewer sees how it is
easily turned into a desolate, poverty-stricken, place of violence
when General Motors decides to close down a series of factories
set up in Flint and to move to Mexico where inexpensive labor
can be purchased-$0.70 an hour. It demonstrates what can sometimes
occur when imperialism takes place. The greedy, profit-making
capitalists can abuse their powers and make the laborers and citizens
of one country, state, city, etc…worse off-30,000 workers
were laid off as 11 older plants were closed, while not necessarily
improving the lives of people in other countries very much (of
course it all depends on the rules, laws, and regulations that
are in place). One man, Ben, had been laid off five times within
the five years that he worked at one of the GM factories in Flint.
Ben could take this uncertainty no longer and was now in a mental
hospital. Flint was quite literally going to the rats, as the
rat population became 50,000. People tried to keep their spirits
up as best as possible, but it was hard. Flint even paid for a
preacher to said such things as, "Tough times don't last
but tough people do."
Yet despite all these negative
effects that closing down the factories was having, Tom Kay supported
Roger Smith's actions of building factories abroad by stating
such things as, "If GM were to go bankrupt it wouldn't do
anyone any good. Roger must do this because of the economic climate
and to stay competitive, even if it means laying off all workers."
Some (the rich and well-off families) felt that there were actually
more opportunities with the absence of the factories than before.
For example they justified the lay-offs of the less fortunate
people by saying that if they had stayed in the plant they could
only have gone so far and never progressed or acquired new skills.
This might have been true, but it appeared that most individuals
were unhappy with the loss of their jobs, as their comments and
graffiti all around showed, "Assholes drive imports."
It certainly seems horrible that so many people would have to
suffer because of the "inherent nature" of capitalism
and its need to keep expanding and creating profits. In this case,
imperialism was at least in part responsible for turning this
once prosperous place into the "worst place in the country
to live" (according to Money Magazine). As we can see, then,
capitalism is a system that, like other systems, has its good
and bad points. It would just be nice if the "bad" points
could be mitigated a little and made a bit less sever.
Blaug, Mark (1). Economic Theory in Retrospect. (Fifth Edition).
United Kingdom:
Cambridge University Press, 1996.
Case, Karl E. and Fair, Ray C. Principle of Macroeconomics. (Fifth Edition). New Jersey: Prentice Hall. 1999. P. 118.
Class Notes.
Hunt, E.K. History of Economic Thought. Belmont, California:
Wadsworth Publishing
Company, Inc., 1979.
Marx, Karl (1). Capital. (Volume One). New York: Random House, Inc. 1976.
Marx, Karl (2). Capital. (Volume Three). Chapters 9 and 13.
Moseley, Fred (1). "Marx's Theory of the Falling Rate
of Profit." (An Encyclopedia
Entry).
Underwood, Mark. "Thursday, October 24, 1929." May
1996.
http://sac.uky.edu/~msunde00/hon202/p4/