The Long Wave - Part 16

In the Autumn or crisis phase, therefore, the rate of profit falls, not because of the Law of the Tendency for the Rate of Profit to Fall, but because, as Marx sets out in Capital III, Chapters 6 and 15, the rapid expansion of capital, on an extensive, rather than intensive basis, causes available labour supplies to be used up, so that wages rise and the rate of surplus value falls. As wages rise, and workers consumption rises, the elasticity of demand rises, making it more difficult to convert produced surplus value into realised profits, so profit margins are squeezed. Any rise in raw material prices, arising from spikes in demand, that cannot be immediately met by increased supply, then cannot be passed on to final prices, so market prices fall below cost prices, leading to a crisis of overproduction, whereby the capital consumed cannot be reproduced.

The expansion of capital on the basis of the existing labour supplies, and existing rate of exploitation, has, therefore reached its limits. It can only continue to expand if either much greater supplies of exploitable labour can be mobilised, or if the rate of exploitation can be increased. It is this, which creates the incentive for a new Innovation Cycle to begin, so as to produce labour-saving technologies, to create a relative surplus population, so that wages are reduced, and surplus value is raised. It is also the incentive for capital to seek out additional supplies of exploitable labour. This is not as simple as it may at first seem, because, as Marx sets out in Capital III, Chapter 13,

“As regards countries possessing different stages of development of capitalist production, and consequently capitals of different organic composition, a country where the normal working-day is shorter than another's may have a higher rate of surplus-value (one of the factors which determines the rate of profit). First, if the English ten-hour working-day is, on account of its higher intensity, equal to an Austrian working-day of 14 hours, then, dividing the working-day equally in both instances, 5 hours of English surplus-labour may represent a greater value on the world-market than 7 hours of Austrian surplus-labour. Second, a larger portion of the English working-day than of the Austrian may represent surplus-labour.” 

It may, then be the case that large masses of labour exist, for example, in colonies, but the low level of capitalist development in these economies makes any investment of additional capital unprofitable, because low levels of social productivity mean that the rate of surplus value is low, despite very low levels of wages. Moreover, it is not a simple matter of establishing the latest factories, using the latest technology, in these economies, to overcome this restriction. For such factories to be effective, and operate at high levels of productivity and profitability they require a large amount of additional national infrastructure, to get raw materials to the factories, and finished commodities to markets, as well as to provide the necessary levels of education, healthcare and so on that the workers of such a more technically advanced society require, in order to operate the machines and so on.

This is one reason that the majority of investment from advanced industrial economies goes not to less developed, low wage economies, but to other advanced industrial economies where these necessary requirements are met, and why the increase in investment in newly industrialising economies only occurs as these requirements begin to be established at a minimum level, and also why the initial industrial development in these economies tends to be in those types of mature production, where skilled labour has been replaced by machine production, needing only unskilled machine minders. But, once these minimum requirements are met, the potential exists for capital accumulation in these new areas to develop on an extensive basis at a very rapid rate. (See – New International Division of Labour).

That was seen in the US in the latter part of the 19th century, as well as in Russia and Japan, during the same period, and in China and other parts of Asia, as well as in Latin America, at the start of the 21st Century, with the same process now creating the conditions for such rapid industrial development in Africa, in the next long wave cycle.

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