So, these are the conditions that usually lead to workers being laid off due to overproduction, and which then require a whole period to transpire to create the conditions for resolving that overproduction, raising the rate of profit, and enabling a new period of expansion to occur. The current conditions are completely different.
Although, technological development in production occurs all the time, sometimes in one sphere, then in another, the big technological revolutions, affecting all production, come in Innovation Cycles connected to the long wave cycle, and driven by the factors described above, i.e. the overproduction of capital relative to the social working-day, which results in a squeeze on profits. The last big such technological revolution occurred in the 1970's, peaking in 1985. It created the new base technologies used in production, such as the microchip. These new base technologies are the foundation of all the technological development that arises out of them. The microchip made possible the revolution in computing power; it made possible the revolution in printing, not just in terms of word processors and compositing, but also the advance of photocopying and so on; it made possible the revolution in telecommunications, and the Internet, as well as mobile communications; it made possible the revolution in other sciences such as genetics and so on.
Improvements in production based upon this base technology continue to take place, but the main function of this technology, currently, is in the realm not of production, but of development of new consumer products. That makes possible an expansion of the market in breadth, but does not bring with it the advances in productivity that were obtained in the 1980's and 90's. So, now, as production expands, and expands in the form of this ever widening range of consumer goods and services, slowing productivity growth means that proportionately more labour is employed, for each unit of additional output, compared to the conditions in the 1980's and 90's, when additional output was achieved by replacing existing machines and labour with new machines and technology.
This process is the same as that seen in the 1950's and 60's. Then the Innovation Cycle peaked in 1935, bringing with it all of those new technologies upon which the post-war boom was founded. It sharply raised productivity and profits in the 1940's and 50's, and created the conditions for the expansion of the workforce, leading to the conditions described above, when, in the 1960's, the expansion of capital began to exceed the expansion of the social working-day. We are not yet at the equivalent stage seen in the 1970's, when the growth of capital, relative to the social working-day, led to profits being squeezed, and crises of an overproduction of capital, but we are at an equivalent stage as that of the early 1960's, in which that process began to take effect. It is what caused rising wages and interest rates in the mid 2000's, and sparked the 2008 global financial crisis. Its why, since 2010, governments and central banks have tried to hold back economic expansion, via austerity, and have used monetary expansion to try to divert money into financial and property speculation, and away from the real economy.
So, in the last year, workers were laid off, not because there was an overproduction of commodities glutting the market, nor because of an overproduction of capital, relative to the social working-day. Before the lockouts and lock downs, profits remained high, and capital could still find plenty of available labour to exploit. Instead, workers were laid off as a result of government diktat, an act of deliberate economic sabotage, to drastically reduce consumption and production, and so all other economic activity. In the process, firms faced all of their existing costs, plus additional costs due to the need to introduce measures of physical distancing and so on. At the same time, some businesses sales were stopped completely, whilst for others, the sharp reduction in overall economic activity, meant that sales no longer covered total costs, resulting in losses, which then required a draw down of balance sheets, borrowing and so on.
The total number of hours worked in the UK, per week, fell from 1 billion, in the first three months of 2020, to just 841 million, in the second quarter. That is consistent with the 20% drop in UK GDP, during that period. As I have set out previously, GDP is only a measure of the new value created by labour in the current year. So, if the amount of new labour undertaken falls by 20%, so does GDP. As Marx sets out in Capital I, because we now have a global economy, the value produced by labour in an hour, in any country, is also a function of the level of productivity in that country, compared to others. The value produced by labour in an hour, in a developed economy, with high levels of productivity, is greater than that of an hour's labour in a low productivity developing economy. That is why the rate of surplus value is always higher in developed economies than in developing economies, despite much higher living standards for workers in the former.
If we take the 1 billion hours per week, and multiply up by 52, we get approximately 50 billion hours worked per year. If we take UK GDP in 2019 – prior to the cratering of the economy by lockouts – it was approximately £2.2 trillion, meaning that, in money terms, 1 hour of labour creates around £42 of new value. In fact, this is an underestimate, because not all of those 50 billion hours worked are value creating labour.
Half a million people work in the civil service. Two million people work in local government. Another 135,000 work in the police force, 32,000 in the fire and rescue service, and 150,000 in the armed forces. Three million people work in retail. Another 1 million work in banking and finance, with 300,000 working in legal services. In short, this is around seven and a half million people, out of a workforce of 33 million, i.e. about a quarter, who, whilst they might undertake necessary labour, do not undertake value creating labour. In other words, the amount of value created by labour is, on average, more like £55. That is about what a garage would charge for labour when working on your car. Its clearly not what the garage pays its mechanics, or what workers in general are paid. The median average wage in the UK is £31,000 p.a., or about £15 per hour. Again, of course, this is an overestimation, because it includes the salary of some very well paid people, for example, those employed in high paying jobs in finance, as well as the wages of people on minimum wage. Some of those very high wages are actually paid out of surplus value, not variable-capital.
Its out of the other £40 an hour of new value created by labour that comes both the other revenues that make up the GDP figure, i.e. profits, rents and interest, as well as comes the wages paid to those workers who do not create additional new value, as well as the taxes taken by government, used to fund its activities, to pay benefits and so on. But, even this grossly underestimates the extent to which labour is exploited. Looking at this data in this form, you would think that, over the year, workers create that £2 trillion of new value, and that employers advance approximately £500 billion in wages to them, but that is not the case. In fact, as Marx demonstrates, in Capital II, the amount that firms advance to workers, in wages, is just a fraction of what the total annual wage bill is. That is because, the capital turns over many times during the year. That is without considering that workers are paid in arrears.
In other words, suppose a worker is paid £100 per week in wages. During the week, they produce £500 of new value, which their employer pockets as they sell what the worker has produced. Now, at the start of the second week, the employer does not advance an additional £100 in wages. They merely advance the same £100 they advanced at the start of the first week, and whose value the worker has already reproduced for them, via their labour, and which has been returned to them, along with £400 of profit. Looked at at the end of the year, the employer appears to have advanced £5,200 of capital in the form of wages, whereas, in fact, they have only advanced £100, and after the worker has reproduced it for them, they simply advance this same £100 52 times. In reality, therefore, £100 of capital, advanced as wages, produced for the capitalist £26,000 of new value, and £20,800 of profit. The real extent of the workers' exploitation was not then 4:1, but 208:1! Instead of the rate of surplus value being 400%, it is 20,800%!! The higher the rate of turnover of capital the larger this real annual rate of surplus value compared to the apparent rate of surplus value.
The source of this surplus value was first discovered by Adam Smith though, as Engels says, he did not realise what he had discovered, much as with Priestley's discovery of oxygen. As Smith realised, labour divides into two components, necessary labour and surplus labour. He took this understanding from the Physiocrats who had seen that, in agriculture, the physical output of labour is greater than the physical inputs required as seed, fertiliser and so on, plus what is required to reproduce the labourer. Smith went beyond the Physiocrats in understanding that value is labour, and it is not just agricultural labour that then produces such a surplus but all labour involved in the production of use values. As Marx remarks, had Smith simply then understood that what the wage labourer sells is not their labour, but their labour-power, their ability to undertake labour, he would have seen that they get paid the value of this commodity, labour-power, as wages, which is the equivalent of necessary labour, and that, therefore, the excess of value over this amount, i.e. the amount by which the new value they create exceeds the value of their labour-power, is the surplus value which the capitalist then appropriates.
So, the basis of surplus value is straightforward. The worker creates an amount of new value. In the data above for the UK, £2 trillion of new value, in 2019. But, the value of their labour power, is only £500 billion, meaning they have produced £1.5 trillion of surplus value. Now, in Capital III, Chapter 49, Marx sets out the basis of social reproduction, as being a reproduction of material balances.
“if we leave aside that portion of constant capital which did not pass over into the product, and which therefore continues to exist, although with reduced value, as before the annual production of commodities; in other words, temporarily leaving out of consideration the employed, but not consumed, fixed capital, then the constant portion of advanced capital is seen to have been wholly transferred to the new product in the form of raw and auxiliary materials, whereas a part of the means of labour has been wholly consumed and another part only partially, and thus only a part of its value has been consumed in production. This entire portion of constant capital consumed in production must be replaced in kind. Assuming all other circumstances, particularly the productive power of labour, to remain unchanged, this portion requires the same amount of labour for its replacement as before, i.e., it must be replaced by an equivalent value. If not, then reproduction itself cannot take place on the former scale...
In so far as reproduction obtains on the same scale, every consumed element of constant capital must be replaced in kind by a new specimen of the same kind, if not in quantity and form, then at least in effectiveness. If the productiveness of labour remains the same, then this replacement in kind implies replacing the same value which the constant capital had in its old form. But should the productiveness of labour increase, so that the same material elements may be reproduced with less labour, then a smaller portion of the value of the product can completely replace the constant part in kind. The excess may then be employed to form new additional capital or a larger portion of the product may be given the form of articles of consumption, or the surplus-labour may be reduced. On the other hand, should the productiveness of labour decrease, then a larger portion of the product must be used for the replacement of the former capital, and the surplus-product decreases.”
In other words, if we consider a farmer who plants 100 kilos of seed, then, out of their production of grain, they must first take 100 kilos, to again use as seed, in order to be able to produce on the same scale. If the productivity of labour rises during the year, this 100 kilos will represent a smaller proportion of their output (a release of constant capital, meaning they have more to consume or accumulate), whereas if labour productivity falls it will represent a greater proportion of their output (a tie-up of capital, meaning less to consume or accumulate). But, the same applies to the variable-capital. In other words, if they employ 100 workers the wages of those workers are not some arbitrary amount, but determined by what is required to reproduce their labour-power – necessary labour/product. Suppose that amounts to 10 kilos of grain per worker, in that case, to continue producing on the same scale, the farmer must also take 1,000 kilos of grain out of his output to pay wages for the next year, to employ these workers.
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