This is an important point to remember in trying to understand the process of the cycle. It is based upon combined and uneven development. Not every individual capital is experiencing the same conditions at the same time, not every capital is investing intensively rather than extensively, not every capital is seeing rising productivity as a result of introducing new technology. But, it is the aggregate effect on the economy, which influences the general rate of profit, the rate of interest and so on.
In order to overcome rising material costs, or even to take advantage of rising material costs, some firms may engage in speculation, especially where low interest rates make it easier to obtain loanable money-capital, for such speculation. The speculation plays a more significant role for the small companies that may be wholly dependent upon such borrowed money-capital. The speculation may take the form of buying in large quantities of material, in the belief that it is at a low current price relative to the future. Or it may take the form of investment in new technologies for the extraction of such materials, e.g. fracking. The extent to which a lot of new oil production has been financed in the junk bond market, is an illustration of this.
Those firms that are successful in introducing new labour saving technology, are able to reduce their individual price of production beneath the general price of production for commodities of that type, and thereby able to obtain above average profits. But, the overall effect of this, by causing a rise in social productivity, is to create the conditions described by the law of falling profits. Moreover, to the extent that such firms are successful, other firms are led to adopt the same methods, so that the process required for a general rise in social productivity, and fall in the rate of profit is established.
Whether these new technologies result in an absolute or merely a relative reduction in employment depends upon other considerations. For example, in the case of a mature industry, such as textiles, where previous innovation cycles have caused the unit prices of commodities to be successively reduced, and where consumers demand has been largely satisfied, any new technology that reduces their value will have to be very significant so as to reduce textile prices sufficiently to cause an increase in demand, requiring an expansion of the capital employed in this sphere. Consumers, are more likely to simply take advantage of lower prices, to be able to use the savings for the purchase of other commodities, to pay down debt etc. than to increase their demand for textile products. In other words, the elasticity of demand will be high. Any new labour-saving technology, therefore, is likely to result in the same or only a slightly expanded output being produced with absolutely fewer workers, rather than in an expansion of textile capital.
By contrast, in the 1930's, in much of Europe, the motor car, and consumer electronics industries were new. Few consumers owned these commodities. New technologies that reduced the value of these commodities, therefore, brought them into the reach of increasing numbers of consumers. Although, the new technology resulted in relatively fewer workers being employed in these industries than previously, the absolute number employed expanded rapidly, because these lower prices resulted in a significant increase in demand for those commodities, which induced an expansion of capital employed in those industries. Similarly, in the Midlands and South-East, where these new industries were located, and where increasing numbers of workers were then being employed on relatively high wages, new technologies for house building were introduced, which reduced the price of houses, and made them increasingly affordable to buy, for the workers in those areas where previously only renting was a possibility.
But, the overall effect, given a rising population, is that a relative surplus population is created, which removes the constraint to further expansion, on the basis of extensive accumulation, previously encountered. Wages fall, the rate of surplus value rises, the mass of profit rises, and capital expands.
The crisis of overproduction, described above, where expansion, on the basis of extensive accumulation, runs into the constraints described, is typical of the Autumn phase of the long wave cycle. The resolution of that crisis, by removing those constraints, via the introduction of innovative technologies, but, which creates the conditions for a rising organic composition of capital, a period of intensive accumulation, and a falling rate of profit, arises in the latter stages of the Autumn phase, and the beginning of the Winter phase.
The Autumn phase of the cycle sees lower growth, because of those aforementioned constraints, which limit the ability to expand production profitably. But, this stagnation continues into the Winter phase of the cycle, because the basis of capital accumulation during this phase is intensive rather than extensive. By definition, this more intensive accumulation involves a slower growth of employment, and indeed it is on this basis that the relative surplus population is created.
“The stagnation of production would have laid off a part of the working-class and would thereby have placed the employed part in a situation, where it would have to submit to a reduction of wages even below the average. This has the very same effect on capital as an increase of the relative or absolute surplus-value at average wages would have had. Prosperity would have led to more marriages among labourers and reduced the decimation of offspring. While implying a real increase in population, this does not signify an increase in the actual working population. But it affects the relations of the labourer to capital in the same way as an increase of the number of actually working labourers would have affected them. On the other hand, the fall in prices and the competitive struggle would have driven every capitalist to lower the individual value of his total product below its general value by means of new machines, new and improved working methods, new combinations, i.e., to increase the productivity of a given quantity of labour, to lower the proportion of variable to constant capital, and thereby to release some labourers; in short, to create an artificial over-population. Ultimately, the depreciation of the elements of constant capital would itself tend to raise the rate of profit. The mass of employed constant capital would have increased in relation to variable, but its value could have fallen. The ensuing stagnation of production would have prepared — within capitalistic limits — a subsequent expansion of production.
And thus the cycle would run its course anew. Part of the capital, depreciated by its functional stagnation, would recover its old value. For the rest, the same vicious circle would be described once more under expanded conditions of production, with an expanded market and increased productive forces.”
(Capital III, Chapter 15)
In short, during the Winter phase of the cycle, those innovations that were introduced to overcome the previously encountered constraints to further accumulation, but which, in order to do so, brought about a fall in the rate of profit, because they brought about rising social productivity, and a rising organic composition of capital, now bring about a rising rate of profit. This rising rate of profit, is not yet sufficient to bring about a new boom, and high rates of accumulation, because it only develops out of a few, new, small sectors of the economy. This illustrates another aspect of the long wave cycle, arising from the role of innovation, that of the development of new industries.
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