Thursday, 22 November 2012

Capital I, Chapter 15 - Part 9


Here, Marx describes, in more detail, the contradictory nature of the effects of the introduction of machinery. On the one hand, there is no doubt that, for it to be worthwhile, to introduce a machine, the labour-time, required for its production, must be less than the labour-time it replaces. As previously seen, under capitalism, that is less than the labour-time that is paid for. To this extent the effect can be no other than to reduce the amount of labour employed to produce a given quantity of some particular commodity, including that employed in producing the machine.

However, the machine has other consequences. It raises relative surplus value, and it cheapens commodities so that an increased level of demand for them may arise. In both these ways a new demand for labour-power can arise. So, Marx writes,

Nevertheless, in spite of the mass of hands actually displaced and virtually replaced by machinery, we can understand how the factory operatives, through the building of more mills and the extension of old ones in a given industry, may become more numerous than the manufacturing workmen and handicraftsman that have been displaced. Suppose, for example, that in the old mode of production, a capital of £500 is employed weekly, two-fifths being constant and three-fifths variable capital, i.e., £200 being laid out in means of production, and £300, say £1 per man, in labour-power. On the introduction of machinery the composition of this capital becomes altered. We will suppose it to consist of four-fifths constant and one-fifth variable, which means that only £100 is now laid out in labour-power. Consequently, two-thirds of the workmen are discharged. If now the business extends, and the total capital employed grows to £1,500 under unchanged conditions, the number of operatives employed will increase to 300, just as many as before the introduction of the machinery. If the capital further grows to £2,000, 400 men will be employed, or one-third more than under the old system. Their numbers have, in point of fact, increased by 100, but relatively, i.e., in proportion to the total capital advanced, they have diminished by 800, for the £2,000 capital would, in the old state of things, have employed 1,200 instead of 400 men. Hence, a relative decrease in the number of hands is consistent with an actual increase.” (p 422-3)

In previous chapters, its also been seen, how Capitalist development means that, as it expands, the amount of constant capital grows relative to labour-power. But, again this is a contradictory process. There are times when capital expands purely quantitatively on the same technical basis i.e. just more factories are built, more firms arise, and so the demand for labour grows in the same proportion. But, at other times, of more feverish development, that I would term a Long Wave Boom, a rash of new technological developments are introduced rapidly. Capital expands not just quantitatively but qualitatively. There may be a sharp reduction in the amount of labour-power employed relatively, as new technologies displace existing workers, some existing firms, or even entire industries, which may disappear. (That was true e.g. about all those people employed in industries related to horse-drawn carriages, that disappeared as motor vehicles were introduced.) But, this occurs simultaneously with a large increase in the absolute quantity of labour-power employed, as whole new industries are developed, and the total level of social production expands at a faster rate.

Marx wrote,

This first period, during which machinery conquers its field of action, is of decisive importance owing to the extraordinary profits that it helps to produce. These profits not only form a source of accelerated accumulation, but also attract into the favoured sphere of production a large part of the additional social capital that is being constantly created, and is ever on the look-out for new investments. The special advantages of this first period of fast and furious activity are felt in every branch of production that machinery invades. So soon, however, as the factory system has gained a certain breadth of footing and a definite degree of maturity, and, especially, so soon as its technical basis, machinery, is itself produced by machinery; so soon as coal mining and iron mining, the metal industries, and the means of transport have been revolutionised; so soon, in short, as the general conditions requisite for production by the modern industrial system have been established, this mode of production acquires an elasticity, a capacity for sudden extension by leaps and bounds that finds no hindrance except in the supply of raw material and in the disposal of the produce.” (p 424)

As I have set out elsewhere, the solution to the last of these constraints – the disposal of the produce – can be and is resolved, by the continual introduction of new types of Use Values that can be sold as commodities. This is also what Marx talks about in the Grundrisse, when he speaks about the “Civilising Mission of Capitalism”, which forever has to create these new types of Use Values, for that very reason, to be sold to workers, and by that very process continually extends the workers horizons. The limitation here essentially becomes a technical one of having sufficient new Use Values to be introduced to absorb the Surplus Capital, so as to avoid overproduction. Again, this is the essential feature of the Long Wave. In periods of boom, technological developments create sufficient new base technologies to allow that to happen, in periods of Long Wave downturn, they do not.

It also has other consequences. In these periods, when workers are thrown out of employment, it creates a drive towards emigration, which was seen in to North America, India, and Australia. Combined with the existing colonial empires, this provided an impetus for these colonies to become mainly sources of the required raw materials, as well as markets for the manufactured goods. In a way, this replicates the previous division between town and country, and the social division of labour built on it. But, it now creates this social division of labour at a global level. I have described elsewhere - Imperialism, Industrialisation and Trade – how the development of capital created yet another new International Division of Labour, particularly after WWII.

The seeds of that development could, however, be seen at the time Marx was writing. For example, he writes, of the United States in 1866,

The economic development of the United States is itself a product of European, more especially of English modern industry. In their present form (1866) the States must still be considered a European colony.”

But, by the time of the Fourth German Edition, Engels had appended to this note,

“Since then they have developed into a country whose industry holds second place in the world, without on that account entirely losing their colonial character.” (Note 2, p 425)

The same kind of development has occurred in many former colonies, in the latter part of the 20th Century, and continues to spread into the 21st Century. Today, it is Africa's turn to experience rapid industrial development.

The reason for the scramble for sources of cheap raw materials and for markets for goods stems directly from the competition between relatively large numbers of companies, each producing essentially homogeneous commodities (i.e. one yard of cotton drill is essentially the same as any other), and each forced to try to expand its market share on the basis of lower prices.

The enormous power, inherent in the factory system, of expanding by jumps, and the dependence of that system on the markets of the world, necessarily beget feverish production, followed by over-filling of the markets, whereupon contraction of the markets brings on crippling of production. The life of modern industry becomes a series of periods of moderate activity, prosperity, over-production, crisis and stagnation. The uncertainty and instability to which machinery subjects the employment, and consequently the conditions of existence, of the operatives become normal, owing to these periodic changes of the industrial cycle. Except in the periods of prosperity, there rages between the capitalists the most furious combat for the share of each in the markets. This share is directly proportional to the cheapness of the product. Besides the rivalry that this struggle begets in the application of improved machinery for replacing labour-power, and of new methods of production, there also comes a time in every industrial cycle, when a forcible reduction of wages beneath the value of labour-power, is attempted for the purpose of cheapening commodities.” (p 425-7)

In contrast to Lenin's argument in Imperialism: The Highest Stage of Capitalism, it is, if anything, this pre-monopoly stage of capitalism which explains the drive to secure colonial possessions, and indeed, as Bill Warren has pointed out in “Imperialism: Pioneer of Capitalism”, it was during this pre-monopoly stage of capitalism that the world WAS divided up into colonial empires.

In fact, as Engels sets out in his Critique Of The Erfurt Programme, by the end of the 19th Century, the development of large companies and corporations brings to an end this period of privately owned capital, but also of the “planlessness” described here by Marx. From the beginning of the 20th Century, with the economy being dominated by a relatively small number of huge corporations, the nature of competition within this more “planned” capitalism changes. In place of destructive price competition, these oligopolies seek to increase their profits by an increased focus on innovation, as a means of reducing costs. They seek to defend and extend their market share on the basis of a similar use of innovation, to distinguish their own brand from other commodities, of a similar type, by a focus on raising quality and choice, a distinction they attempt to heighten via extensive use of advertising and marketing.

The Fordist model, adopted by developed economies in the 20th Century, particularly after WWII, attempts to extend this planning principle, developed within the enterprise, to the economy as a whole. Welfare States provide a high degree of regulation of workers income and expenditure, so as to avoid large swings in aggregate demand; central banks via monetary policy, help prevent deflation, and falls in nominal prices, which are destabilising and destructive of oligopoly profits; the incorporation of the Trades Unions, via collective bargaining and mutuality agreements, ensure continual rises in productivity and relative surplus value, in return for annual real wage increases, thereby creating stability, and steadily rising aggregate demand.

This is not to say that by these means capitalism has become crisis free. Far from it. The same tendency towards overproduction, that Marx indicates above, in relation to 19th Century privately owned, competitive capitalism, applies even more to 20th and 21st Century, collectively owned, monopoly capitalism, but the manifestation of that tendency is necessarily different. In the former, it leads each enterprise to seek to overcome the limitations of the market, by trying to win a larger share of it, by even more production, and lower prices, which acts to only accentuate the overproduction, and intensify the collapse. In the latter, it leads to enterprises reducing their output in a planned way, slowing their investments, and laying workers off, in order to reduce their costs, and prevent falls in prices.

Andrew Kliman in his book “The Failure of Capitalist Production” is absolutely correct in this regard, when he writes,

This explanation of why prices fall has nothing to do with the irredeemably flawed notion that technical progress causes 'overproduction' – the production of too much output in relation to demand which in turn forces companies to slash their prices. Companies' decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.”(Note 4, P 16)

But, of course, this very process of reducing the level of planned investment, and so on has the effect of reducing aggregate demand, which in turn leads to a downward spiral, unless checked by some form of action by the State in the form of Keynesian fiscal, or Friedmanite Monetary stimulus, or both. Yet, even the effectiveness of these measures, as was seen in the 1970's and 80's, is limited by the Long Wave conjuncture. During the Long Wave downturn, they are likely to lead to “crowding out”, or to stagflation rather than robust growth. Where they do promote growth, as happened in the 1990's, it is inflationary growth, leading to its own problems, which are witnessed today, in the huge debt overhang affecting Europe and North America.

The consequences of this are even more severe for those sectors of the economy where these 19th Century relations still persist i.e. in the small business sector.

Marx continues,

A necessary condition, therefore, to the growth of the number of factory hands, is a proportionally much more rapid growth of the amount of capital invested in mills. This growth, however, is conditioned by the ebb and flow of the industrial cycle. It is, besides, constantly interrupted by the technical progress that at one time virtually supplies the place of new workmen, at another, actually displaces old ones. This qualitative change in mechanical industry continually discharges hands from the factory, or shuts its doors against the fresh stream of recruits, while the purely quantitative extension of the factories absorbs not only the men thrown out of work, but also fresh contingents. The workpeople are thus continually both repelled and attracted, hustled from pillar to post, while, at the same time, constant changes take place in the sex, age, and skill of the levies.” (p 427-8)

And, this uncertainty and disruption continues to characterise capitalism today. Changes within the structure of capital, and the uneven development of capital, and of the employment of technology within it, continually change the nature of the demand for labour-power.

The kinds of changes that occurred in the 19th century, with large numbers thrown off the land, and into long hours of factory work, have been mirrored over the last thirty years by the large numbers thrown out of relatively stable employment in manufacturing industry, into unstable, temporary, and casual employment in service industry, as it has become dominant.

Marx describes the continual fluctuations between prosperity and depression, in the years between 1815 and 1860 in the textile industry. These fluctuations often occurred from one year to the next as opposed to the more prolonged trade cycle witnessed in later years. During this period, new businesses, often run by former overlookers, would be set up, during periods of prosperity, only to be crushed when it ended, partly due to being under capitalised. In order to save money, capitalists would buy cheaper cotton, and use cheaper ancillary materials, only to find this raised costs because of the poorer quality, and because it caused the machines to break down. They would try to recoup this cost from workers wages, pushing them below the value of labour-power. This was abetted by the fact that employers also owned workers' cottages, and deducted rent directly from wages. This was also the period of the Truck System, when employers paid wages in tokens only redeemable at the company owned shop. It was in response to this, and the poor quality of goods available to them, as a consequence of this monopoly, that workers established their own Co-operative stores, and agitated for laws against the Truck System. Ironically, today the Trades Unions defend the modern Truck System operated by the Capitalist State in the form of the Welfare State.

As Engels describes, in his later prefaces to “The Condition of The Working Class in England”, another consequence of the development of capital beyond these early small scale forms of capital, was that the bigger capitalists abandoned these kinds of “penny-pinching” measures as counter-productive. They embraced the Factory Acts and even Trades Unions. In so doing they strengthened their own position. As Engels put it,

And in proportion as this increase took place, in the same proportion did manufacturing industry become apparently moralised. The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites. Thus the development of production on the basis of the capitalistic system has of itself sufficed — at least in the leading industries, for in the more unimportant branches this is far from being the case — to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages.”

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