The reason those asset prices all got inflated I have described many times before. In the 1970's, global capital entered its long wave crisis phase, as rising wage and other input costs caused the kind of Smithian profits squeeze that Marx describes in Capital III, Chapter 6, and 15. In other words, it was a crisis of overproduction. Capital had expanded to such an extent that it had used up available labour supplies, given the existing state of technology, that it could no longer employ more labour without pushing up wages, and causing the rate of surplus value, thereby, to fall, causing a squeeze on profits, which in terms of the squeezed profit margin, meant that it became far more likely that commodities, having been produced, might end up having to be sold at a loss. As Marx puts it in, Capital III, Chapter 15,
“Given the necessary means of production, i.e., a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given. And the capitalist process of production consists essentially of the production of surplus-value, represented in the surplus-product or that aliquot portion of the produced commodities materialising unpaid labour.”
The available supply of labour-power had started to get used up, wages rose, so that the potential to produce surplus value had been reduced, causing the profits squeeze. This is the opposite of Marx's explanation of the long run tendency for the rate of profit to fall, in which he describes not a falling rate of surplus value, as its cause, but a rising rate of surplus value, driven by technologically induced rises in productivity, which increase the amount of material processed by a given quantity of labour, and which also brings about not a lower mass of profit, but an increased mass of profit, even as the rate of profit falls.
In the 1960's, and 70's the rate of surplus value falls as wages rise, and it is that which causes the squeeze on the mass of profit, and thereby the rate of profit. As he says, in Chapter 15 again,
“As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
The answer to this crisis of overproduction is to increase the rate of surplus value. As Marx points out in that earlier quote, the only answer to a falling mass of surplus value, due to the exploitation of the existing labouring population hitting its limits, is either to increase the actual size of the labouring population – bringing in women workers, children, opening up new parts of the globe – or else to create a new relative surplus population, by raising the level of technology so that each unit of labour, is able to produce far more than it previously did. In fact, its this shift to intensive accumulation of capital, the introduction of new machines and techniques that focus more on producing existing levels of output with less labour, than on producing increased levels of output with the same amount of labour, which creates the conditions for the law of the tendency for the rate of profit to fall.
The Law of the Tendency for the Rate of Profit to Fall is not the cause of crises of overproduction, but is the means by which capital resolves those crises. The law is based upon a rising rate of surplus value, brought about by rapid technological development, which raises the level of productivity, and thereby increases the technical and organic composition of capital, because a given mass of labour processes an increased mass of raw material. That technological development is spurred precisely by the need to create a relative surplus population, so as to reduce wages, and remove the squeeze on profits that had resulted from an increase in the value composition of capital, as opposed to technical and organic composition, as rising input costs increased the amount that has to be laid out on constant capital, whilst higher wages cause a reduction in the rate of surplus value, and profit.
The Law of the Tendency for the Rate of Profit to Fall is not the cause of crises of overproduction, but is the means by which capital resolves those crises. The law is based upon a rising rate of surplus value, brought about by rapid technological development, which raises the level of productivity, and thereby increases the technical and organic composition of capital, because a given mass of labour processes an increased mass of raw material. That technological development is spurred precisely by the need to create a relative surplus population, so as to reduce wages, and remove the squeeze on profits that had resulted from an increase in the value composition of capital, as opposed to technical and organic composition, as rising input costs increased the amount that has to be laid out on constant capital, whilst higher wages cause a reduction in the rate of surplus value, and profit.
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