In fact, what happened, as I have documented elsewhere, is that the technological revolution, brought about by capital, in response to the labour shortages, and overproduction of capital, of the 1970's, not only replaced labour by machines, but, as always happens alongside it, older machines were replaced by newer, more productive machines.
The hand held spindle was replaced by the spinning wheel, the spinning wheel by the spinning machine, spinning machines with 10 spindles by machines with 100 spindles and so on. One new machine might cost more than one of the old machines, but, as it replaced 10 of them, it was relatively much cheaper, and as I have, again, set out, often the new technology was itself even absolutely cheaper. A transistor is cheaper than a glass valve, a PC cheaper than a mainframe computer and so on.
So, its not just that the value of this fixed capital is relatively lower than what it replaces, but much fewer such machines are also required, to produce the same or even greater output. To replace fixed capital, on a like for like basis, therefore, required a much smaller proportion of total output, producing a huge release of capital. Similarly, to increase fixed capital required a much smaller proportion of profits so that the rate of profit rises massively.
Its this huge release of capital, and rise in the rate of profit, which also means that realised profits, and so supply of money-capital rises much faster than the demand for money-capital to finance capital accumulation, and so causes interest rates to fall. Gross output rises much slower than net output, and, as the rise in productivity means that much less labour is required for any given increase in output, the relative surplus population grows, pushing wages down, itself again increasing the rate of surplus value and rate of profit.
As described by Marx above, wage share falls back once more, and profit share rises. Its that which also explains the stagnation of the 1980's and 90's, because, as unemployment rises, and employment grows more slowly, and wage share declines, there is a slower increase in demand for wage goods, meaning no incentive for, especially, oligopolistic producers to increase supply rapidly, with any increase being more easily accomplished, as a result of the higher levels of productivity the new technology had created.
As Martin correctly says, Marx pointed out capitalists are not primarily driven to produce more profit to increase their consumption, but in order to accumulate more capital. So, although this huge shift in favour of profit share results in a significant increase in the luxury consumption of capitalists, it does not compensate for a slower growth of aggregate demand from a slower growth of demand for wage goods.
But, Martin also fails to take account of the fact that, the ruling class, today, are not comprised of the same class of industrial capitalists, Marx described in Capital. Its quite true that industrial capital is driven by that same need to accumulate, but fictitious-capital - the form of property of the ruling class - is not! Industrial capital, today, is socialised capital, the collective property of the associated producers (workers and managers), but it is not under their control, except in worker cooperatives. It is under the control of the ruling class, in the form of shareholders, and their appointees.
As Marx describes in the later chapters of Capital, even in his day, that class of industrial capitalists, were being liquidated, their function taken over by professional managers drawn form the working-class, as industrial capital became socialised capital, and the capitalists themselves became merely “coupon clippers”, who owned their wealth in the form of fictitious capital, of shares and bonds. The interests of the ruling class, and of this fictitious-capital, are, as Marx sets out, antagonistic to the interests of industrial capital itself. They become like the old landlord class, merely parasitic, with no social function, and, indeed, become a fetter on the further development of capital.
For this ruling class, in fact, the accumulation of capital, becomes antagonistic to their short-term interests – though they can't escape the reality of the need for its accumulation for their long-term interests. Firstly, their revenues come from interest/dividends, not from profits (profit of enterprise), so the smaller proportion of profit going to capital accumulation, the greater proportion available to pay to them as dividends or coupon.
As Andy Haldane wrote, in the 1970's, dividends accounted for around 10% of profits, and today account for around 70%. But, the falling rate of interest, in the 1980's, also caused asset prices to rise sharply, as a consequence of capitalisation. As noted earlier, the Dow rose by 1300% between 1980 and 2000, in Britain, house prices quadrupled in the 1980's. Having squeezed ever greater proportions of profit into the payment of interest and dividends, and still seen bond and dividend yields progressively fall, as share and bond prices rose by even greater proportions, the ruling class, which owns its wealth in the form of this fictitious capital, increasingly looked, not to revenues, but “total returns”, which increasingly meant capital gains on these assets, gains which could be repeatedly, though partially, realised, to fund consumption.
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