Monday, 9 June 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 15

The Fall In The Value Of The Circulating Constant Capital (5)

A look at the actuality of the relative value of this circulating constant capital demonstrates these points. In Marx's time, the majority of power was provided by steam engines, fuelled by coal. Marx sets out in Capital, the way that the efficiency of the early steam engines was continually improved by people like James Watt and Matthew Boulton. Some of that improvement in efficiency was simply the result of improved engineering techniques developed by Boulton, as better lathes, milling machines and so on, enabled cylinders to be more accurately bored. But, other improvements were the result of design improvements introduced by Watt and others, so that, for example, separate condensers were introduced, and the steam instead of being used just once, was used several times to power separate cylinders. Similarly, engineering developments facilitated the development of bigger, more high pressure boilers and so on.

The actual materials that went into such developments were not really any different than in the original machines, often they were less. And, the same developments meant that the labour-time required for producing such an improved steam engine was usually less than for its less efficient predecessors. This is how the value of fixed capital is continuously reduced, and how it falls as a proportion of the total capital, by one machine replacing many. But, in just the same way, the more efficient machine also required much less fuel per unit of energy produced. The coal used to produce that energy comprised a significant element of the circulating constant capital, for industries that were dependent upon them. The first steam engines were so inefficient that the only enterprises that could use them were coal mines, which were able to feed the machines with the large quantities of coal they required.

But, today, the same thing applies to oil. Global oil consumption rose from 63 million barrels per day in 1980, to 85 million barrels per day in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods, that means that global GDP rose by around seven times the increase in oil consumption. That is also despite the huge growth in the number of cars in places like China, which is now the biggest car market in the world. The reason that oil consumption has increased by only a fraction of the increase in global economic growth is because huge advances have been made in the efficiency of oil use. That is why in the 1970's a four fold increase in oil prices sparked a global slump, but from the late 90's a ten fold increase in the price of oil has not. 

But, this revolution in the way oil is used is merely one example, of a process that has occurred across the global economy. On the one hand, an inability to increase supply quickly has pushed prices of primary materials higher, on the other this transformation of usage has meant that unit costs have fallen. As I have pointed out elsewhere -The Tendency For The Rate Of Profit To Rise – it is not just that there has been this revolution in the way materials are used. As always happens, in order to reduce costs, capital finds cheaper, better alternative materials to use. It replaced cotton and other natural materials, in the past, with synthetic materials like nylon, polyester etc. for example. About ten years ago, I became convinced of the Peak Oil Thesis, in that I believe there are probably no new major oilfields to be discovered, but I have never accepted the Malthusian conclusions that some draw from it. Capital uses science and technology to use oil more efficiently, and via things such as fracking, is able to extract more of it. 

But, today, the revolution in technology and in the patterns of production and consumption that it has partly brought about, has itself changed the whole structure of demand for constant capital. As I point out in the post linked to above, 

“Similarly, if we look at other items of consumption we find that in fact the materials used are negligible. A mobile phone, a PC, an LCD TV, the various services we use such as cinema, theatre etc. In fact a mobile phone probably uses far less materials than did the old type of land line, the LCD certainly less than a CRT screen. Again the largest component in the value of these products is not the Capital or material used in the production, but the intellectual labour that went into their development etc. Look at the huge amounts now spent on Computer games, yet a CD or DVD takes very few material resources to produce, very little in the way of Constant Capital. But it does take the labour of skilled games programmers. Or music. When I was first collecting records 40 years ago to amass 1,000 records consumed a fair amount of vinyl. Now 20 times that amount can be stored on a tiny stick, instead of the cost of transporting all the vinyl etc to record shops the music can be downloaded all over the world instantaneously over the Internet.” 

In fact, even since I wrote that, a few years ago, it has already become way out of date, because very little software, music etc. is transported via physical media such as DVD's. Instead it is shipped electronically via the Internet, and increasingly simply stored in the cloud, where one physical piece of media can be accessed by literally billions of people at the same time.

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