Business Cycles and the Tendency toward Recession. Marx noted that something more than greed is involved in the capitalist's relentless pursuit of profit. Given the pressures of competition and rising wages, capitalists must make technological innovations to increase their productivity and diminish their labor costs. This creates problems of its own. The more capital goods (such as machinery, plants, technologies, fuels) needed for production, the higher the fixed costs and the greater the pressure to increase productivity to maintain profit margins.^(2)

Since workers are not paid enough to buy back the goods and services they produce, Marx noted, there is always the problem of a disparity between mass production and aggregate demand. If demand slackens, owners cut back on production and investment. Even when there is ample demand, they are tempted to downsize the workforce and intensify the rate of exploitation of the remaining employees, seizing any opportunity to reduce benefits and wages. The ensuing drop in the workforce's buying power leads to a further decline in demand and to business recessions that inflict the greatest pain on those with the least assets.

Marx foresaw this tendency for profits to fall and for protracted recessions and economic instability. As the economist Robert Heilbroner noted, this was an extraordinary prediction, for in Marx's day economists did not recognize boom-and-bust business cycles as inherent to the capitalist system. But today we know that recessions are a chronic condition and — as Marx also predicted — they have become international in scope.

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(^2) As an industry becomes more capital intensive, proportionately more money must be invested to generate a given number of jobs. But business is not dedicated to creating jobs. In fact, capitalists are constantly devising ways to downsize the workforce. From 1980 to 1990, the net number of jobs created by the biggest corporations in the United States, the "Fortune 500," was zero. The new jobs of that period came mostly from less capital-intensive smaller firms, light industry, service industry, and the public sector