If firms operate at lower profit margins, this both restricts their ability to accumulate (less of a problem under these conditions) and possibly to innovate. It also leaves them more susceptible to any future weakness. As the examples show, the likely outcome is a crisis of overproduction. It is a crisis that arises not because of any under-consumption – other than to the extent that consumption has fallen, in response to higher prices, or grows only marginally in response to lower prices – or any underlying lack of profitability, resulting from a falling rate of profit, but as a result of a rising cost of materials, or indeed a shortage of materials. This may or may not have been caused by the rise of manufacturing productivity that rapidly increases demand for those materials.
The latter is, in fact, typical of the situation under the Spring phase of the long wave boom. For the reasons Marx sets out, the supply of materials does not quickly adapt to this increased demand. A similar point was made in Part 9 in relation to copper. This situation of a crisis of overproduction during the Spring phase of the cycle is different to the situation that exists under the Autumn phase of the cycle. In the situation described, during the Spring phase, it is the rapid rise in productivity, caused by intensive accumulation, i.e. new technologies are introduced that are labour-saving. One new machine replaces several older machines, and in the process replaces the workers that were attached to those machines - in reality as Marx describes in Capital I, it is more often that output can expand without taking on more labour-power in the old proportion. The quantity of material processed by each worker and machine, thereby rises sharply.
As Marx sets out, this is effectively a crisis of disproportion. There is an overproduction of fixed capital, and an under production of circulating constant capital – raw material – because the supply of the latter does not increase as quickly as the demand for it created by the new technology, so raw material prices rise. It is these sharp rises in raw material prices, alongside actual shortages that then prevent the circuit of capital being completed.
In the Autumn phase of the cycle, however, there is extensive accumulation. More or less the same technology gets rolled out, which means that the organic composition of capital does not fall, more or less the same quantity of raw material gets processed by the same amount of labour, just more of it in total, as firms buy additional machines, employ additional workers, and additional firms are established using the existing technologies.
Under this phase, the surge of investment in new mines, quarries, farms and so on that accompanied the Spring phase, stimulated by very high raw material prices, has been completed. The subsequent over supply, and fall in prices in these materials has been worked through, but there is no great incentive for any new surge in investment in new sources of supply. Raw material prices now tend to rise, because additional demand uses up existing supply, which suffers from diminishing returns, as existing mines etc. get worn out and so on.
Those rising material costs are no longer offset by rapidly rising productivity, which acted to reduce unit costs. For the same reason, existing labour supplies are used up, pushing up wages. Moreover, during this phase, because commodity prices have generally been reduced during the preceding periods, and because higher levels of employment and wages have caused consumption levels to rise, the price elasticity of demand across a whole range of commodities, has increased. Workers, and sections of the middle class, having increased their consumption of these commodities, as living standards rose, turn their attention to other commodities, which, in the past, would have been considered luxuries.
In the 1960's, for example, workers in most developed economies had more than adequate diets, and they began to use some of their income to buy or rent TV's, and consumer durables, and some even to buy cars, which previously were luxuries, only consumed by the rich. In order to persuade workers to buy more food, or other staple commodities, therefore, the prices of these had to be reduced considerably, in order to obtain any significant rise in demand. As Marx puts it,
“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
(TOSV 3 Chapter 20, p 119)
The same thing can be seen today, around 20% of UK household consumption now goes not even to the purchase of physical consumer goods, but to “Entertainment”, and similar such commodities. Where, in the 1960's, it was unusual for there to be even one car per household, today there are several, and so the potential to expand car ownership further is thereby limited.
Profits in this phase get squeezed, therefore, because the cost of circulating constant capital rises, whilst slower productivity growth restricts the ability to offset this by reducing unit costs; wages rise and the ability to pass on these rising input costs is increasingly limited, because of a rising price elasticity of demand. This is heightened by the fact that the range of new commodities being introduced itself slows down, as a further consequence of the expiration of the previous innovation cycle.
Its no longer sudden shortages of supply of materials that cause crises, but this profits squeeze caused by rising costs, and an inability to pass on those rising costs in final prices. In other words, the kind of chronic condition of overproduction Marx describes in Capital III, Chapter 15 exists, which thereby leads to repeated overproduction.
That kind of situation began to develop in the 1850's, as Marx described in “Value, Price and Profit”.
“Take, for example, the rise in England of agricultural wages from 1849 to 1859. What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall. But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it.”
The period from 1843 to 1865, was a period of long wave boom. In its initial phase, capital has at its disposal large labour reserves, and the introduction of new technologies, create additional supplies of relative surplus population. That limits the potential for wage rises. The crises in this period are either financial caused by speculation driven by low interest rates, and abundant loanable money-capital (for example, the 1847 crisis), or the kind of sudden crisis caused by a shortage of material described above.
But, in the subsequent period, existing technologies are rolled out extensively, which means that labour supplies tend to be used up, causing wages to rise. This is the condition Marx describes here during the 1850's, and which ran into the 1860's, when that boom period ended, and a period of crisis followed by stagnation ensued. Part of the reason for the stagnation is precisely that new labour saving technologies, introduced to remedy the shortages of labour, cause the rate of profit to fall, as labour is washed out, causing unemployment to rise.
As Marx sets out, this is effectively a crisis of disproportion. There is an overproduction of fixed capital, and an under production of circulating constant capital – raw material – because the supply of the latter does not increase as quickly as the demand for it created by the new technology, so raw material prices rise. It is these sharp rises in raw material prices, alongside actual shortages that then prevent the circuit of capital being completed.
In the Autumn phase of the cycle, however, there is extensive accumulation. More or less the same technology gets rolled out, which means that the organic composition of capital does not fall, more or less the same quantity of raw material gets processed by the same amount of labour, just more of it in total, as firms buy additional machines, employ additional workers, and additional firms are established using the existing technologies.
Under this phase, the surge of investment in new mines, quarries, farms and so on that accompanied the Spring phase, stimulated by very high raw material prices, has been completed. The subsequent over supply, and fall in prices in these materials has been worked through, but there is no great incentive for any new surge in investment in new sources of supply. Raw material prices now tend to rise, because additional demand uses up existing supply, which suffers from diminishing returns, as existing mines etc. get worn out and so on.
Those rising material costs are no longer offset by rapidly rising productivity, which acted to reduce unit costs. For the same reason, existing labour supplies are used up, pushing up wages. Moreover, during this phase, because commodity prices have generally been reduced during the preceding periods, and because higher levels of employment and wages have caused consumption levels to rise, the price elasticity of demand across a whole range of commodities, has increased. Workers, and sections of the middle class, having increased their consumption of these commodities, as living standards rose, turn their attention to other commodities, which, in the past, would have been considered luxuries.
In the 1960's, for example, workers in most developed economies had more than adequate diets, and they began to use some of their income to buy or rent TV's, and consumer durables, and some even to buy cars, which previously were luxuries, only consumed by the rich. In order to persuade workers to buy more food, or other staple commodities, therefore, the prices of these had to be reduced considerably, in order to obtain any significant rise in demand. As Marx puts it,
“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
(TOSV 3 Chapter 20, p 119)
The same thing can be seen today, around 20% of UK household consumption now goes not even to the purchase of physical consumer goods, but to “Entertainment”, and similar such commodities. Where, in the 1960's, it was unusual for there to be even one car per household, today there are several, and so the potential to expand car ownership further is thereby limited.
Profits in this phase get squeezed, therefore, because the cost of circulating constant capital rises, whilst slower productivity growth restricts the ability to offset this by reducing unit costs; wages rise and the ability to pass on these rising input costs is increasingly limited, because of a rising price elasticity of demand. This is heightened by the fact that the range of new commodities being introduced itself slows down, as a further consequence of the expiration of the previous innovation cycle.
Its no longer sudden shortages of supply of materials that cause crises, but this profits squeeze caused by rising costs, and an inability to pass on those rising costs in final prices. In other words, the kind of chronic condition of overproduction Marx describes in Capital III, Chapter 15 exists, which thereby leads to repeated overproduction.
That kind of situation began to develop in the 1850's, as Marx described in “Value, Price and Profit”.
“Take, for example, the rise in England of agricultural wages from 1849 to 1859. What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall. But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it.”
The period from 1843 to 1865, was a period of long wave boom. In its initial phase, capital has at its disposal large labour reserves, and the introduction of new technologies, create additional supplies of relative surplus population. That limits the potential for wage rises. The crises in this period are either financial caused by speculation driven by low interest rates, and abundant loanable money-capital (for example, the 1847 crisis), or the kind of sudden crisis caused by a shortage of material described above.
But, in the subsequent period, existing technologies are rolled out extensively, which means that labour supplies tend to be used up, causing wages to rise. This is the condition Marx describes here during the 1850's, and which ran into the 1860's, when that boom period ended, and a period of crisis followed by stagnation ensued. Part of the reason for the stagnation is precisely that new labour saving technologies, introduced to remedy the shortages of labour, cause the rate of profit to fall, as labour is washed out, causing unemployment to rise.
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