The Economy Of Analysis - Part 9

An analysis of the Long Wave Cycle requires a separate series of blog posts on its own. I will be producing such in the near future. However, for now a summary of the significance of the Long Wave Cycle in this regard will suffice. What is it that distinguishes period of Long Wave Boom (approx. 25 years) with that of decline (also around 25 years, and to be understood not as an actual period of decline, but of below trend growth)?

I will argue that the essential difference is this. At all times Capitalism as a system has to continually recreate the conditions of its own existence. The latter is marked by a stalling in its ability to do so, and the gradual overcoming of that situation. The former is marked by the fact that it has succeeded in overcoming that situation, and the conditions have been established whereby the system can continue to reproduce itself on a rapidly expanding basis.

But, what are the conditions that Capitalism has to create and recreate to ensure its existence? The reality is that we tend to think of the development of Capitalism as being an inevitability. But, it was not. An earlier attempt to establish Capitalism in the Mediterranean City States, for example, had failed.

It failed because, the Merchants, who represented the advanced guard of Capitalism, so exploited the actual producers, the peasants, in their drive to make profits through buying low and selling high, that they completely undermined the potential for those producers to expand production. In fact, many of the peasants were unable even to make enough to live, let alone to expand production. A similar tendency to undermine productive capacity, rather than to enhance it, has been witnessed in the actions of Merchant Capital, in its operations under Colonialism.

In fact, Capitalism itself cannot exist in a purely peasant economy, where the vast majority of the population are self-sufficient owners of the means of production. That is so for two separate reasons.

Firstly, Capital is unable to recruit wage workers under such conditions, and secondly if everyone provides for their own needs, Capital can find no market for the goods it produces. Imagine that, in Britain, in 1800, the only industry had been the textile industry – in fact, the Textile industry at that time, was by far the biggest industry. The concomitant of this, would be that the majority of the population would have continued to have been self-sufficient peasants. Under those conditions, Capitalism could not have become established. Firstly, its likely that these self-sufficient peasants would have continued to have provided themselves with their own clothes, as they had done for millenia.

Even, if the industrially produced textiles were much cheaper, in order to buy them, the peasants would have needed a marketable surplus of agricultural goods, in order to obtain the cash required to buy these clothes. The textile Capitalists could not have made a profit from selling to their own workers, because that would have required that those workers had high enough wages to buy all of their own production. The only way in which Capitalism could develop was on the basis that a series of industries existed, such that each was able to trade its goods, in exchange for the outputs of others.

And, that is what happened with the Industrial Revolution. Although, the textile industry was by far the biggest industry in Britain, it was able to sell its output, to workers – who as workers rather than peasants were no longer able to produce their own clothes – employed in these other industries. The workers in these other industries were able to buy the output of the textile factories, because they were paid wages by their Capitalists, who were able to do this out of the revenues they obtained from selling the output produced by their own workers. On this basis Capitalist production could take hold simultaneously in Agriculture, Textiles, Coal, Iron & Steel, Transport etc., and for these industries to grow by exchanging their outputs. This is the essential condition for Capitalism to exist, and which it has to continually recreate.

But, in fact, this is not as easy as it might seem. The general tendency of Capitalism, is to continually revolutionise production under the whip of competition.

As a result, the volume of output is continually increased. Marx's statement about the limit to this being the limited means of workers to buy this output is frequently cited by underconsumptionists, whose explanation for economic crises is that there is insufficient monetary demand to purchase all the output. In fact, this is not the main problem. This problem when it breaks out as a crisis could be resolved in several ways. Wages could be raised so that workers do have the means to buy the unsold goods. This is not a solution that Capital would want to adopt, for the obvious reason that the increase in wages, is accompanied by a corresponding fall in profits. In reality, that is not as dire as it seems, because it would be only a fall in “potential” profits. If the Capitalists cannot sell their goods, then these profits will in any case remain merely potential rather than realised.

In fact, in the period after WWII, the Fordist production regime was based on precisely this kind of historic, social-democratic compromise. The system of “Mutuality” meant that workers were compensated for having to spend their time in mind numbing, mass production jobs, tied to a conveyor belt, in return both for having some say in their work-process, and in return for wage increases tied to productivity increases. This meant that the constant increases in productivity fed through into constant increases in real wages, thereby ensuring that workers were able to provide a market for the increasing range of consumer goods being churned out from those lines. Secondly, the Capitalists could consume the surplus goods themselves, or else reallocate the surplus capacity to produce other luxury goods for their own consumption.

The bigger problem for Capital, is when production of commodities has increased at such a pace that, it is not insufficient monetary demand that prevents them being consumed, but the fact that demand has been sated. Orthodox economics, theorises this kind of situation in terms of the Elasticity of Demand. There are various types of elasticity, but the two we are interested in here are price elasticity, and income elasticity. The basic principle is this. If the price of a commodity falls (or if income rises) then this is likely to result in an increase in demand for this commodity. But, the amount by which this demand will rise is different for different commodities. The elasticity measures the proportion by which the demand rises, for any given fall in price (rise in income).

Marx, also understood this principle. In Capital, he speaks of a rise in workers wages leading them to increase their demand for Sheffield cutlery. However, he continues, further rises in wages will not cause workers to buy even more cutlery. A worker only has need of a certain amount, and once that is satisfied, there is no reason to buy more, no matter how cheap it becomes. So, the explanation of the difference between the Long Wave Boom, and the decline can best be viewed in this light. Over the period of the Boom, continual improvements in productive technique makes an increasing volume of commodities available, and generally at lower prices.

At the same time, this rapid accumulation of Capital uses up the available supplies of Labour Power. The relative balance between the Demand and Supply of Labour Power shifts to the advantage of Labour, with a consequent rise in wages. Workers are increasingly able to satisfy their needs for the basic necessities that characterise that particular period. They may even begin to consume some of the goods that previously were luxury goods in the preserve of the Capitalists.

But, the mechanism outlined above, means that the more workers needs are sated, the more Capitalists have to reduce the prices of these goods simply in order to achieve an increase in demand. At the same time as they are coming up against this barrier to selling their products, and are having to reduce prices, they simultaneously are having to pay higher wages to their workers, such that a squeeze on profits occurs.

The rational solution to this, and the one that Capital is able to adopt at the beginning of the Boom, is to move out of production of those goods for which demand is becoming sated, and into some new type of production where large new potential markets exist, where lack of competition and high demand means that high prices can be charged, and higher profits obtained. But, it is precisely this problem that characterises the end of the Boom, and onset of the period of decline. No, or not enough, new types of production exist to move into.

In the 1930's amid all of the misery, in fact, new industries did begin to develop. In the Midlands and South-East, new consumer goods industries producing household appliances, as well as the motor car industry began to develop. These workers enjoyed quite good wages for the time, and this meant that within those specific areas demand was created for other new types of production, and consumption. For example, new ways of housebuilding saw the beginnings of homeownership for an increasing number of workers. But, the number of these new industries, and the number of people employed in them, was insufficient for this to be self-sustaining, or to offer a solution to those millions of other workers in the North-East, South Wales and elsewhere, whose traditional industries, and skills were now in decline.

It was only with the onset of the new Long Wave Boom, after 1949, that these new industries were able to form a basis for the kind of exchanges within the economy that could become self-sustaining, and expanding.

The end of the Long Wave Boom in 1974 was characterised once again by a similar set of conditions. But, similarly, the commencement of the new Boom from 1999, has been signalled by the opposite.

During the downturn, a whole series of new base technologies were developed, which created the foundations not just for new, more efficient methods of production, but which also created the basis of a whole range of new industries, producing a wide range of consumer goods – although microchips had existed for a while, as late as the early 1990's the Council I worked at was only just providing PC's, as opposed to dumb terminals; it seems odd now, but it wasn't until the late 90's that mobile phones began to be taken up, and so on – as well as there being a shift to other types of consumption centred around a range of leisure activities.

Consequently, it is difficult to see what basis Ticktin

has for his argument in relation to a Surplus of Capital in the Marxist sense, because a look around us today, shows that there is no shortage of new industries, all with large and expanding markets for their products. In fact, what characterises the current Long Wave Boom is precisely the dynamism that it seems to have in terms of this vast increase in potential new industries, products, and productive potential, along with the fundamental changes it is bringing with it, in terms of the production relations – what has been termed Neo-Fordism – as well as in its potential for creating a Tendency For The Rate of Profit To Rise as opposed to the usual concerns for it to fall.

Tomorrow I will look at the situation in the US, Europe, and China, to examine the actual economic problems that each has to contend with.

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