Monday, 17 February 2014

How The Storms Reduce The Rate of Profit and Raise The Rate of Interest - Part 1

Keynesians see events like the storms as the basis of increasing economic activity. Things like natural disasters, or better still wars, that physically destroy large amounts of capital and wealth, mean that it has to be replaced, people are put to work replacing what has been destroyed, firms see demand for their products rise as this replacement is undertaken, and as newly employed workers spend their wages. This process raises aggregate demand in the economy, and thereby national income (wages, profits, rents, interest and taxes). Even were this argument correct, which it isn't, it would demonstrate only what a ridiculous system Capitalism is that destruction is seen as beneficial!

To see why it is ridiculous, but also why the Keynesian argument is false, consider our old friend Robinson Crusoe, whose economy, Marx says, tells us everything we need to know about the Law of Value (Capital I, Chapter 1, p 81) Robinson, instead of spending all his time hunting animals for food, builds a stock-pen. He breeds animals for food, thereby saving considerable time in catching them, and so massively reduces the time required to meet his consumption needs. The time saved then forms part of his surplus labour-time, available to be used as he chooses. He can either use this time to increase his consumption further, as leisure time, or else to invest in additional productive-capacity so as to increase his future consumption. The proportional relation of this surplus-labour-time to the labour-time he has to expend to replace his means of production, and meet his consumption needs, represents the equivalent of his rate of profit, it represents his potential to expand his economy.

If a storm comes along and destroys his stock-pen, would Robinson see this as something fortuitous, because it gives him the opportunity to engage in work he otherwise would not have needed to undertake? Of course, not! In fact, the time he now needs to spend simply rebuilding his stock-pen, rounding up the escaped animals etc., may require him to use all of his surplus labour-time just for that purpose, rather than be able to use it, for his enjoyment or to expand his productive capacity. In other words, rather than increasing his wages (consumption) or his profits (his surplus labour-time) not only may he find that his profits – and therefore rate of profit – sinks to zero, but the time he has to spend simply replacing his means of production, might even eat into the time he would previously have set aside to meet his consumption needs!

As Marx points out, these underlying value relations, determined by the Law of Value, do not change just because the mode of production changes, only the form of their manifestation changes. These underlying value relations, for example, explain why such tragedies severely affect those economies that already have little in the way of capital compared to those which have huge amounts of it. As Marx makes clear, it is not the physical destruction of capital, which is beneficial, and raises the rate of profit, as the Keynesians believe, but the destruction of capital-value. In other words, for the rate of profit to rise, and the potential for accumulation, thereby to rise, the physical capital must continue to exist – it is after all needed to produce the commodities, in which the surplus value is embodied – but its value must be reduced by the process of “moral depreciation”, or by simply being written down, as one capitalist goes bust, and their business is taken over by another.

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