The Creation Of New Industries (2)
It is odd that most of the discussion of the Law of the Tendency of The Rate of Profit To Fall, is couched in terms that are basically alien to Marx's analysis, because they assume a degree of fixity that is not just at odds with Marx's philosophy and method, but which is clearly at odds with reality just on a cursory view.
Those who seek to turn the Law into some kind of Philosopher's Stone that unlocks the secret of capitalist crises, worse still those that see it as leading to some ultimate catastrophic collapse of Capitalism, opening the door to Socialism, in particular, couch their arguments in terms in which even if the countervailing tendencies set out by Marx are considered, these can only be factors that delay and mitigate its ultimate, inevitable result. To an extent, that is true. The countervailing forces such as the necessity for the rate of surplus value to rise, the reduction in the value of constant capital, and so on may only be able to mitigate the fall in the rate of profit, as its described in Capital III, Chapter 13. But then the description of this falling rate in that chapter is really a description of the necessity for profit margins to fall.
But, more importantly, what these approaches fail to take into account are the other mitigating factors that Marx sets out within these chapters, which are a necessary consequence of the very process that results in this progressive squeeze of profit margins. One of those is the fact that this very process results, necessarily in a rise in the rate of turnover of capital, which means that the general annual rate of profit tends to rise, for the very same reason that profit margins fall. This process also results in a release of capital, which is then available for additional accumulation, including in the establishment of new lines of production.
As Marx puts it in Chapter 14,
“On the other hand, new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.”
If Capitalism were a closed system, where the accumulation of capital could only ever be achieved by continually adding to the existing productive capacity, so that the same range of commodities simply kept on being produced in ever larger quantities, and whose production over time saw the role of living labour increasingly replaced by that of dead labour, as new machines replaced workers, then the argument that profit margins must continually fall, necessitating crises, and indeed, as Ricardo, Malthus and Mill argued, that ultimately even the mass of profit itself must fall, as the mass of labour-power itself falls absolutely, might have some validity. However, Marx himself points out above, why this simply is not possible, it is simply not a reflection of how capitalism works. A cursory view shows that day after day new industries are being developed.
If I am a capitalist, with capital to invest, my approach will not be that different to that it was of a capitalist 200 years ago. I will want to invest that capital in some activity that will produce for me the greatest return. If I am a productive-capitalist rather than simply a speculator, I may be inclined to invest that capital in some activity about which I have some specific knowledge, especially if I believe that I have some new product, for which there is likely to be a market, at prices that will offer me the potential for above average profits. If I do not have capital of my own, I may search out venture capital that will invest in such activity. Following periods of more intensive innovation, which themselves are provoked by previous periods of falling productivity, which cause capital to look for new solutions, the range of base technologies available, to be used to develop such new products, increases qualitatively. Often those who have been involved in this Innovation Cycle are themselves factors in developing the new industries based upon them. What might at first be developed to resolve some problem of how to produce more efficiently, is spun out into a range of consumer goods.
So long as capital can be spun off into these new industries, where the organic composition of capital is lower than the average, the rate of profit higher than the average, and where the potential to develop whole new markets for these commodities means that the elasticity of demand is low, so that these profits are more easily realised, then there is no reason whatsoever why the general annual rate of profit for the economy must fall, even if the profit margin for the majority of existing commodities does continue to fall.
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