The Law of the Tendency for the Rate of Profit to Fall As A Relic
But, in fact, capital not only revolutionised agricultural production via the use of science, technology and intensive application of capital, but it also produced its own synthetic alternatives to many of its products, and the values of these could be reduced in the same way that other manufactured commodities were reduced. Food prices have been reduced so much, as a result of intensive capitalistic production, that the average family, in the developed world, throws away about a third of the food they buy. We now have science being applied to the production of meat grown artificially in the laboratory.
Similar rises in productivity for other agricultural products have been effected, reducing agricultural raw material prices, and the continued application of science is reducing those prices more and more. And, that applies even more with the reduction in the value of mineral products. What is more, technological development also means that these raw and auxiliary materials are used more efficiently. Global oil consumption rose from 63 million barrels per day, in 1980, to 85 million barrels per day, in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods, that means that global GDP rose by around seven times the increase in oil consumption. That is also despite the huge growth in the number of cars in places like China, which is now the biggest car market in the world.
The reason that oil consumption has increased by only a fraction of the increase in global economic growth is because huge advances have been made in the efficiency of oil use. That is why, in the 1970's, a four fold increase in oil prices sparked a global slump, but, in the late 90's, a ten fold increase in the price of oil did not. As well as promoting new technological developments in the production of oil, and consumption of oil, it has also led to other technological developments, such as the development of electric and hybrid cars, with a consequent development of battery technologies, so that, within a decade, fully electric cars will not only be cheaper to buy, and a small fraction of the cost to run than conventional petrol engine cars, but will have more or less replaced them.
But, this revolution, in the way oil is used, is merely one example, of a process that has occurred across the global economy. On the one hand, an inability to increase supply quickly pushed prices of primary materials higher, on the other, this transformation of usage has meant that unit costs have fallen. It is not just that there has been this revolution in the way materials are used. As always happens, in order to reduce costs, capital finds cheaper, better, alternative materials to use. It replaced cotton and other natural materials, in the past, with synthetic materials, like nylon, polyester etc., for example, and it is doing the same thing today with a revolution in materials science.
By 2013/14, all of the vast capital investment in primary production began to come on stream. In addition, new technologies, like fracking, meant that oil and gas could be extracted from shale, turning the US once more into the world's largest oil producer. New types of commodities, such as mobile phones, and other devices use far less material than their predecessors, and use different types of material, such as rare earths. New materials such as carbon fibre, fibre optic cables, replaced steel in manufacture, copper cables for communications and so on, and, in the process, in the latter case, enhanced the efficiency of those systems 1,000 fold, in speed and capacity. Wireless technologies themselves replaced cables.
Even with the onset of the supposed “Great recession”, “Long Depression” or “Secular Stagnation”, following the financial crisis of 2008/9, the demand for these primary products continued to rise by around 2% p.a., but their market prices fell sharply from around 2014, because all of the vast investment in new production, after 2000, began to come on stream; supply rose much faster than this increase in demand; the price of iron ore, copper, oil and agricultural prices such as milk fell sharply. The price of a litre of milk fell below the price of a litre of water! This is consistent with the description of the long wave movement of primary product prices described by Marx in Theories of Surplus Value, Chapter 9, and the basis of it derived from such opening of new facilities, provision of corresponding infrastructure and so on.
In many developed economies, the physical mass of material consumed in production is falling proportionally. Using the materials footprint measure, which includes the mass of imported materials, as well as domestic materials production, developed economies, increase their MF, on average, by 6% for every 10% increase in GDP. Obviously, this does not mean absolutely less material being consumed, but relatively less. There is one other obvious reason why this is the case, and why the Law of the Tendency for the Rate of Profit to Fall no longer operates in this manner, and that is because in modern economies, 80% of new value and surplus value production comes from service industry, and not from manufacturing, i.e. not from the processing of raw materials, which is the foundation of the law. But, even when manufacturing and the processing of materials were the largest component of the economy, and even allowing for the factors that Marx had described in relation to material prices, he still did not see it as being sufficient to bring about any significant fall in the rate of profit as a long-term tendency. He wrote,
“The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.”
(Theories of Surplus Value, Chapter 23)
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