Martin writes,
“The ability of bosses to keep ahead was shown by what happened after the great French general strike of 1968, which won a 35% rise in the minimum wage. By investing and expanding use of capacity, bosses were able to keep their profit rates up, while inflation ran no higher than 5% or 6% a year until the oil crisis of 1973-4.”
Of course, a 35% rise in the Minimum Wage is not the same as a 35% rise in all wages; a large one-off rise, largely catching up on previous price rises, is not the same as annual rises of that amount, thereafter, when prices were rising by an average 5-6%, but its also not true to say that bosses were able to keep their profit rates up.
As I have set out elsewhere, the 1960's, and, even more so, the 1970's, was the period when increasing labour shortages led to rising wage-share, and a consequent fall in the rate of profit. That is what Glyn and Sutcliffe demonstrated in Workers and The Profits Squeeze, in relation to Britain, and the same phenomena was demonstrated by Thirlwall for the US (See Thirlwall, “Changes in Industrial Composition in The UK and the US and Labour's Share of National Income 1948-69”, Bulletin of the Oxford University Institute of Economics and Statistics (Nov 1972) and Nordhaus (See W.D. Nordhaus, “The Falling Share of Profits”, Brookings Papers on Economic Activity (1974)), as well as Heidensohn, and Zygmant in relation to Germany (See: Heidensohn and Zygmant, “On Some Common Fallacies in Interpreting Aggregate Pay Share Figures” Zeitschrift fur die Gesamte Staatswissenchaft (Apr 1974))
What, inflation was able to do, during this period, was to cushion the effect of rising wage share, and the squeeze on profits, as central banks increased liquidity so as to enable firms to raise prices to cover some of their increased wage costs, but not all of it. Moreover, as wage share rose, and profit share fell, but continued strong economic activity, driven by the long wave cycle, and manifest in rising aggregate demand, itself driven by rising demand for wage goods, this inevitably led to rising market rates of interest, and a consequent fall in inflation adjusted asset prices. Despite the economic boom of the 1960's and 70's, inflation adjusted asset prices fell between 1965-1985, as a consequence of this rise in interest rates.
And, in fact, in the 1960's, and early 1970's, the investment undertaken by firms, contributed to this squeeze on profits. The peak of the Innovation Cycle had come in 1935, producing all the base technologies that were used in production during the post-war boom. By the 1960's, the effect of these new technologies, in production, to be able to raise productivity, as they replaced older technologies, was fading. A new machine that replaces 2 older machines, and the 2 workers that operated them, brings a sharp rise in productivity, but when its a matter of merely a worn out new machine being replaced by another machine of the same kind, no improvement in productivity arises. And, when capital expands by simply adding more machines of the same kind, each requiring additional workers, this simply reduces, rather than increasing, the size of the relative surplus population, creating the conditions for labour shortages, rising wages, stagnant productivity growth, and the squeeze on profits witnessed during that period.
Martin also refers to the fact that, in the post-war period, economists based their analysis on the so called Phillips Curve, by which there is a trade-off between inflation and unemployment. In fact, Phillips never made the link as being between unemployment and inflation, but between unemployment and wages. That link, in fact was nothing new, because Marx describes it in Theories of Surplus Value, where he also sets out a sequence in which as unemployment falls, and employment expands, first workers are employed to work longer hours, for additional pay at the normal rate, then at overtime rates, so that absolute surplus value stops rising, until, as labour shortages arise, workers demand higher hourly rates, and so relative surplus value is also reduced, squeezing profits, and leading to an overproduction of capital. He summarises it in Capital III, Chapter 15.
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
Associated with it is also the Beveridge Curve, measuring unemployment against job vacancies. It is Keynesian and Neo-Keynesian economists that took the Phillips Curve relating unemployment to wages, and turned it into one relating unemployment to inflation. But, as Marx sets out, in Value, Price and Profit and elsewhere, whilst there is clearly a link between the level of unemployment and wages, there is no such relation between unemployment and inflation, because it is not wages that cause inflation, but excess liquidity. It is quite possible to have both high levels of unemployment and high levels of inflation, simultaneously – stagflation – as was demonstrated with the Weimar hyperinflation, and with the stagflation of the 1970's and early 1980's. It is also possible to have high levels of wages and employment, with low levels of inflation, provided that there is no excess liquidity, but such a restriction would more quickly show up as a squeeze on profits, as firms were not able to raise prices to cover the higher wages.
No comments:
Post a Comment