Thursday, 2 August 2018

Theories of Surplus Value, Part II, Chapter 17 - Part 35

[7. Absurd Denial of the Over-production of Commodities, Accompanied by a Recognition of the Over-abundance of Capital] 

Marx previously referred to the fact that Ricardo himself suspected the inconsistency of Say's argument that there could be no overproduction of capital with his other comment that the more abundant capital became relative to the demand for it, the lower interest rates would fall. 

“To the best of his knowledge, Ricardo is always consistent. For him, therefore, the statement that no over-production (of commodities) is possible, is synonymous with the statement that no plethora or over-abundance of capital is possible.” (p 496-7) 

For Adam Smith, capital accumulation increases faster than the growth of the labour force, and this is what causes wages to rise, which thereby creates the tendency for the rate of profit to fall, which inexorably leads to crisis. As Marx showed, this is wrong, in terms of an explanation of a long-term fall in the rate of profit, but it does not mean that there are not periods when such an acceleration in growth, in capital accumulation, does not lead to such conditions. Indeed, that is precisely the conditions that Marx describes in Capital III, Chapter 6 and 15, that leads to a squeeze on profits. The period 1849-59, described by Marx in “Value, Price and Profit”, was such a period that subsequently led to the introduction of labour-saving machines, so that a relative surplus population was created and wages fell. It subsequently led into a period of stagnant economic activity known as the First Great Depression that ran from around 1873-90. 

But, the period from around 1914 is a similar period to 1849-59, when the growing organisation of workers, in the boom of 1890-1914, led to a large growth in trades unions and social-democratic parties, also saw wages rise and squeeze profits that leads into the crisis period that runs from 1914-26, that also subsequently led to the introduction of new labour-saving technologies, and a period of depression that ran almost until WWII. And, the same was seen in the profits squeeze that arose in the 1960's and 70's, which again led to the technological revolution of the 1980's, which replaced labour, on a large-scale, and led to the stagnation that ran from the late 1980's through to 1999.  (A stagnation you would not know occurred from present day media accounts of the time, which depict it as a boom-time, based purely on the boom in the prices of financial assets, and the corresponding affluence of speculators, but which was actually an illusory debt binge that has yet to be unwound).

As Marx puts it, 

“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.” (Note *, p 497) 

Ricardo, as described earlier, disagreed with Smith, on this point. He did not believe that things were so fortuitous for workers. By contrast, Ricardo believes that it is because the workforce will always expand in line, at least, with the needs of capital that this will result in an ever rising demand on agriculture, which causes agricultural prices, rent and wages to rise, which then squeezes profits. It is this, then, according to Ricardo, which causes the tendency for the rate of profit to fall, which, in turn, leads to a crisis for capitalism, and the possibility for a breakdown of the system. He says, 

““There cannot, then, be accumulated in a country any amount of capital which cannot be employed productively, until wages rise so high in consequence of the rise of necessaries, and so little consequently remains for the profits of stock, that the motive for accumulation ceases” ( [Ricardo], l.c., p. 340). “It follows then … that there is no limit to demand—no limit to the employment of capital while it yields any profit, and that however abundant capital may become, there is no other adequate reason for a fall of profit but a rise of wages, and further it may be added, that the only adequate and permanent cause for the rise of wages is the increasing difficulty of providing food and necessaries for the increasing number of workmen” (l.c., pp. 347-48).” (p 497) 

But, as Marx says, Ricardo never actually witnessed a crisis of overproduction. He died in 1823, two years before the first crisis of overproduction, which occurred in 1825. It fell then to his followers to try to explain what, after 1825, became a regular occurrence. Yet, as Marx says, Ricardo himself quite rightly equated an overproduction of commodities with an overabundance of capital, whilst his followers tried to explain the recurrence of crises by making a distinction between the two. They denied the possibility of an overproduction of commodities, whilst accepting the existence of an overabundance of capital. 

“Not a single responsible economist of the post-Ricardian period denies the plethora of capital. On the contrary, all of them regard it as the cause of crises (in so far as they do not explain the latter by factors relating to credit). Therefore, they all admit overproduction in one form but deny its existence in another. The only remaining question thus is: what is the relation between these two forms of overproduction, i.e., between the form in which it is denied and the form in which it is asserted?” (p 497) 

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