It is this fact that capital employs labour that means that the demand for labour rises, when the suitable conditions for capital accumulation exist, and falls when they do not. And that means not only that a high or sufficient rate of profit is currently being enjoyed by capital, but that it should believe that even more profit can be made by employing additional labour. The two things do not necessarily go together, as Marx describes in Capital III, which is why, at times, the rate of profit may be high, but the rate of accumulation is low, resulting in an increase in the supply of loanable money-capital, and fall in interest rates, which then can result in speculation in search of capital gains.
Again, this gives the lie to the subjectivist arguments of the reformists and syndicalists about the ability of workers to raise their wages on the basis of “more militancy” or redistributive tax and benefits policies. The ability of workers to raise wages, including the social wage, is always dependent upon the demand for labour-power, but the demand for labour-power depends on the rate of capital accumulation, and the rate of capital accumulation depends on the judgement of capital on the potential additional profit that might result from such accumulation. It also depends upon the mass of profit, and rate of profit of enterprise, that makes available the resources for any such expansion, but as Marx points out, when capital has developed beyond a certain point its ability to expand output becomes very elastic, so that this constraint becomes less rigid.
“The workmen, if they were dominant, if they were allowed to produce for themselves, would very soon, and without great exertion, bring the capital (to use a phrase of the vulgar economists) up to the standard of their needs. The very great difference is whether the available means of production confront the workers as capital and can therefore be employed by them only in so far as it is necessary for the increased production of surplus-value and surplus-produce for their employers, in other words whether the means of production employ the workers, or whether the workers, as subjects, employ the means of production—in the accusative case—in order to produce wealth for themselves. It is of course assumed here that capitalist production has already developed the productive forces of labour in general to a sufficiently high level for this revolution to take place.” (p 580)
Marx cites the situation existing at the very time he was writing (Autumn 1862). There were large profits being made on the production that was being undertaken, but an economic recession existed. In part, the recession was due to the US Civil War, but, in a wider context, it marked the beginning of the end of the long wave boom that had commenced in 1843, with a period of crisis running from around 1862-75 (that includes the Paris Commune), and which gave way then to the period of stagnation (the so called First Great Depression) between 1875-90.
Large profits are often made during periods, of crisis, because capital accumulation has proceeded over the previous 25 years of economic expansion, with employment of labour reaching a maximum. But, this large mass of profit also goes together with low profit margins, because the full employment of labour, means that the working-day has already been extended, including via the payment of overtime rates, and the social working-day has already been extended by the employment of women, children, migrants etc., so that it has become impossible to increase absolute surplus value further. Because, production has developed largely on the basis of existing technologies, during this period, the rapid increases in productivity, typical of the earlier phases of the long wave cycle, no longer apply, so that it also becomes impossible to increase relative surplus value. The mass of profit rises, as economic growth proceeds, but it rises at a declining rate, as rising wages, and the inability to raise the rate of surplus value, cause a squeeze on profits. Its in order to respond to that, that capital introduces new labour-saving technologies.
In the stagnation phase, this introduction of labour-saving technologies, begun in the crisis phase, leads to labour being made redundant. The profits squeeze is ended because wages fall below the value of labour-power, as unemployment rises. As the wage share falls, then, as Marx indicated earlier, profits rise, and this is reflected in a greater proportion of production going to the production of luxuries consumed by capitalists and landlords, and less on necessaries. In addition, in such periods, large amounts of fixed capital suffers a fall in value, and is picked up on the cheap, raising the rate of profit. But, during such periods, there is no incentive to invest these large masses of profit in additional capacity, whilst economic activity and aggregate demand remains subdued. So, these profits get consumed unproductively, as increased luxury consumption, but also flow into money markets, depressing interest rates, inflating asset prices, and encouraging speculation.
In the stagnation phase, this introduction of labour-saving technologies, begun in the crisis phase, leads to labour being made redundant. The profits squeeze is ended because wages fall below the value of labour-power, as unemployment rises. As the wage share falls, then, as Marx indicated earlier, profits rise, and this is reflected in a greater proportion of production going to the production of luxuries consumed by capitalists and landlords, and less on necessaries. In addition, in such periods, large amounts of fixed capital suffers a fall in value, and is picked up on the cheap, raising the rate of profit. But, during such periods, there is no incentive to invest these large masses of profit in additional capacity, whilst economic activity and aggregate demand remains subdued. So, these profits get consumed unproductively, as increased luxury consumption, but also flow into money markets, depressing interest rates, inflating asset prices, and encouraging speculation.
“The plight ‘of the Lancashire unemployed labourers; on the other hand, “the difficulty of finding employment for money” on the London money market, this has almost made necessary the formation of fraudulent companies, since it [is] difficult to obtain two per cent for money. According to Ricardo’s theory “some new field of employment ought to have been opened up,” for on the one hand there is capital in London, and on the other, unemployed workers in Manchester.” (p 580-1)
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