In order to reduce wages, firms engage in technological development and introduce new more efficient machines. As Marx describes, in Theories of Surplus Value, Chapter 23, the new machines introduced might be more expensive, in absolute terms, than the machines they replace – for example a spinning machine replacing a spinning wheel, a power loom replacing hand looms, and so on – but, in relative terms, they are much cheaper, because a spinning machine costing, say, £100, replaces 100 spinning wheels, each costing, say, £10.
“The individual capitalist who owns a spinning-machine must possess a greater amount of capital than the individual spinner who buys a spinning-wheel. But the spinning-machine is cheaper than the spinning-wheel in relation to the number of workers it employs. Otherwise it would not have displaced the spinning-wheel. The place of the spinner is taken by a capitalist. But the capital which the former laid out on the spinning-wheel was larger relative to the size of the product, than that which the capitalist lays out on the spinning-machine.”
(Theories of Surplus Value, Chapter 23)
Precisely because, in the crisis phase of the cycle, capital's primary objective is to deal with labour shortages, and high wages squeezing profits, rather than significantly expanding output, the replacement of spinning wheels with spinning machines, hand looms with power looms, and so on, is not to massively expand output (why would you in a period when demand is not growing rapidly, and is interrupted by sudden stoppages) but to produce your existing levels of output more cheaply, to reduce its individual value relative to market value, and, thereby, obtain competitive advantage.
Fixed capital is massively depreciated, whilst the demand for circulating constant capital (raw and auxiliary materials, energy) does not increase substantially, because, although each new machine is more productive than the machines it replaces, the number of these new machines is smaller than the machines replaced, i.e. 1 new machine replaces several older machines, and, also, thereby, replaces the workers that operated those additional machines. When the print industry, introduced new technologies in the 1980's, for example, its greater productivity did not result in lots more newspapers being printed, and so lots more paper being consumed in their production. It simply meant that more or less the same quantity was printed, but, now, at much lower cost, and producing a higher rate of profit, and greater mass of profit.
A spinning machine is 100 times more productive than a spinning wheel, so when 100 spinning wheels are replaced, they are not replaced by 100 spinning machines, but by only 1, or maybe 2, so that the consumption of raw material does not rise 100 fold, and it also means that the 98 or 99 workers that operated the replaced spinning wheels are no longer employed in that activity. Indeed, Marx describes, what happens, when such new technology is introduced, and these proportions are not maintained. It leads to overproduction, and a sudden fall in the market prices of the overproduced commodities, until the disproportion is corrected.
“(When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.)”
That is why, in such periods, gross output grows more slowly than net output. The fact that these workers begin to be laid off, and so their income, and demand for commodities is reduced, is one reason that aggregate demand growth, during such periods slows.
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