The Rate of Profit
Paul hits a nail on the head, when he says,
“The real insight posed by Luxemburg's insight is not what happens when the whole world is industrialised, but what happens if capitalism runs out of ways to interact with an outside world? On top of that, what happens if it can't create new markets within the existing economy?” (p 63)
At a point where employment and wages are high, stimulating demand for wage goods, capital is incentivised by competition to meet the demand by additional investment in wage goods production. With wages rising, and the rate of surplus value falling, capital is led to throw a larger proportion of those squeezed profits into accumulation than personal luxury consumption. With rising interest rates, asset prices fall, discouraging the use of profits for speculation. But, with employment and wages high, workers consumption has already risen. As Marx points out, demand is determined by use value, not exchange-value. If the price of knives falls, Marx says, it doesn't mean I have to buy six knives when I only need one. And, the same is true where wages rise, i.e. its a matter of income elasticity of demand, as opposed to price elasticity. At some point, I have bought enough food, clothes and so on. To get me to buy more, rather than save the money for the next period of uncertainty, the prices of those things have to fall by a lot. As Marx describes in Capital II, workers begin in those periods to buy some of the luxury products formerly the preserve of the rich, thereby compensating for some of the drop in the demand, from the rich, for these goods and services. But, even with higher wages, workers still cannot afford to buy many of these luxury items.
When Ford began mass production of the Model T, at prices much below what cars previously sold for, they still had to introduce the novel idea of consumer credit, even for middle-class consumers, to be able to buy them. It is a fact that a limit to the growth of the market for these existing commodities is reached that means that whole new markets, in the shape of brand new types of goods and services, can be sold at high prices producing large profits.
In my book, Marx and Engels' Theories of Crisis, I have given the figures for UK car ownership, for example, in the postwar period.
“In Britain, in 1950, there were just 1.9 million cars on Britain's roads, by 1971 that had risen to 19 million. In 1951, nearly 90% of households had no car. By 1971 that had fallen to around 40%. By 1971, around 5% of households had two cars, and for the first time the number of households, even with 3 cars begins to appear in the statistics.”
Paul notes Lenin and Bukharin's linking of Hilferding's ideas to the notion of Imperialism, as nation states, standing behind monopolies, seek to carve up the world into colonial empires, which drives them to war. He fails to point out that the notion was both historically and factually inaccurate, and basically nonsense, although polemically useful, in the conditions it was developed. Colonial empires had been constructed in the heyday of Mercantilism, long before the dominance of industrial capitalism, let alone the transformation of that industrial capital into large monopolies. The main drive to war in Europe was not competition over colonies, but a drive to create a unified European state, in the same way that Prussia had united Germany, and the US Civil War had created a centralised state there. In 1918 and 1939, it was a question of whether Germany or France could dominate such a state, and whether, as it had done in previous centuries, Britain could prevent such unification altogether.
Paul also highlights the problem of the top-down approach, which I have previously discussed. As he describes, in Russia, the Bolsheviks were led to abolish workers control, and, across Europe, wherever workers did take control, it was shown they were simply not equipped to do so.
As Paul rightly says, the concept of catastrophe and collapse, promoted by Stalinism, had a debilitating effect on the working-class, and Varga's Law of progressive immiseration was spread by Stalinist parties across the globe. Even in the post-war period, when it was more than apparent that workers' living standards, in the West, were rising sharply, the Stalinists performed ridiculous acrobatics to try to show that it wasn't real. The various Trotskyist sects, also, in this period, clung to the thought that capitalism was in its Death Agony, until they eventually had to accept that it was alive and well, at which point they did an about face, and adopted various Keynesian arguments to justify its renewed stability. Most of them have not gone beyond that, and the extent of their radicalism, as with the Left reformists nowadays goes no further than calling on the capitalist state to nationalise this or that failed enterprise, with the demand for workers' control, tagged on to save face.
Paul notes the work of Husson and Shaikh, and says they
“... demonstrated how neoliberalism restored profit rates from the late 1980's onward. But these show a sharp fall in the final years before the 2008 financial crisis. Husson argues, correctly, that neoliberalism 'solves' the problem of profitability – for both individual firms (by suppressing labour costs) and for the system as a whole (by massively expanding financial profits). But, alongside higher profits, the overall rate of investment after the 1970's is low.” (p 71)
But, the real factor at play here was Marx’s law of the falling rate of profit, which in the 1970's and 1980's introduced new labour saving technologies that undermined labour, drove down wages, and drove up the rate of surplus value. It decimated the value of the existing fixed capital stock, and drove up the rate of turnover of capital, thereby creating a surge in the annual rate of profit, from the mid to late 1980's onwards. It creates a huge excess supply of loanable money-capital, which progressively drives down the rate of interest, and drives up asset prices. In the way Marx describes in Theories of Surplus Value, the cheapening of constant capital also releases it, converting capital into revenue, giving an illusion of profit, as he describes in Theories of Surplus Value, Chapter 22.
The fall in the rate of profit prior to 2008 has nothing to do with the law of a falling rate of profit, and everything to do with the fact that a) after 1999, raw material prices soared, and b) wages began to rise, at a point where productivity gains were starting to fade, which thereby began to reduce the rate of surplus value.
The rise in financial profits is an illusion. Financial profits, as stated earlier, are based upon either the difference between banks' borrowing costs and lending rates, or else, they are based upon their speculative activities, via their investment banking arms. The former is merely an indication that the rate of profit of industrial capital has increased massively, since the 1980's, because interest is a deduction from that profit, and the latter is pure illusion, or more appropriately delusion, because it is actually an indication not of profit, but simply of speculative – and in the case of QE induced, hyper-inflated asset prices not so speculative - capital gains on fictitious capital. That is why, as soon as interest rates began to rise in 2007, the whole edifice collapsed.
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