LONG WAVES, SHORT MEMORIES
Overproduction, Profit and Innovation
What is right in Paul's explanation of the long wave is that the reason that periods of innovation are concentrated, and not just random occurrence, or uniformly spread, is that profit itself moves through cycles, and these cycles are the result of regular crises of overproduction. Part of the problem of economic analysis, both for Marxist analysis and orthodox analysis, is a confusion of terms. A crisis of overproduction is often confused with a recession or even depression, especially when looking at long wave patterns, but these are very different things.
Innovation is concentrated at certain points because, at certain periods, capital becomes overaccumulated. But what does overaccumulation mean? It is not an absolute overaccumulation. Capital is overaccumulated, as Marx describes in Capital III, Chapter 15, when any further accumulation results in no addition to the mass of surplus value produced. In Theories of Surplus Value, Chapter 21, Marx also describes what that means.
If we take a single worker who is backed by £1,000 of capital, the worker works a 10 hour day, and is paid £100 wages, producing £100 of surplus value. So, they work 5 hours of surplus labour. The rate of profit is 10%. If we assume their wages remain constant, at £100, the capital, as a result of progressive accumulation, might rise to say £1500. In order to produce 10% profit, the worker must now produce £150 of surplus value. To do so, the working day must rise from 10 hours to 12.5 hours, so that 7.5 hours of surplus labour is undertaken. If the capital accumulates to £2,000, the worker must produce £200 of surplus value, which requires a working-day of 15 hours. But, it may then be impossible for the worker to work any more hours in the day.
If the capital accumulates to £3,000 the worker would need to produce £300 of surplus value, which would require 15 hours of surplus value, in addition to the 5 hours of necessary labour. But, if the physical maximum working day is 15 hours, this is impossible. It is impossible to produce more than 10 hours of surplus value so that any accumulation of capital over £2,000 represents overproduction of capital. At £3000, only £200 of surplus value can be produced,, which means that the rate of profit falls to 6.66%.
Moreover, if capital continued to accumulate in this way, in relation to each worker, the demand for labour-power would itself rise, so that wages themselves rose above the value of labour-power, wages might rise to say the equivalent of 7.5 hours, rather than 5 hours of labour. In that case, even with a 15 hour working day, the surplus value would fall to 7.5 hours, producing only £150 of profit, so that the rate of profit would fall to 5%, as it is squeezed by the rising wages. This is what Marx means in Capital III, Chapter 15 when he says,
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. 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.”
In Theories of Surplus Value, Chapter 21, Marx points out that, of course, if capital accumulates on the basis of the existing technology – so the same technical composition of capital – provided additional labour is employed, there is no reason for the rate of profit to fall. If £1,000 of capital employs 1 worker who produces £100 of profit, then £3,000 of capital, employing 3 workers, who produce £300 of profit, results in a 10% rate of profit in both cases. The point here is that, on the basis of a given state of technology, producing a given technical composition of capital, the rate of profit can only maintained or raised by exploiting more labour simultaneously. Either the individual working-day must be extended/intensified or else the social working day must be extended by an expansion of the workforce. When that reaches the limits, i.e. the working-day cannot be extended, and no more workers are available, it becomes impossible to increase the mass of surplus value. There is a profits squeeze. As Marx also 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.”
But, there is then an obvious response for capital, in such conditions. It is to create a relative surplus population by technological, labour-saving innovations. That is exactly what Marx describes in Value, Price and Profit, where he notes the way, between 1849 and 1859, agricultural wages rose, squeezing profits, which led to farmers seeking out technological innovations to replace labour. I will come back to this in examining the next chapter.
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