In this week's Weekly Worker, Michael Roberts writes,
“However, huge investment in machinery and tech components over labour has led to a long-term fall in the profitability of capital (à la Marx).”
“In the first place, if we consider only the nature of the commodity, there is nothing to prevent all commodities from being superabundant on the market, and therefore all falling below their price. We are here only concerned with the factor of crisis. That is all commodities, apart from money [may be superabundant]. [The proposition] the commodity must be converted into money, only means that: all commodities must do so. And just as the difficulty of undergoing this metamorphosis exists for an individual commodity, so it can exist for all commodities. The general nature of the metamorphosis of commodities—which includes the separation of purchase and sale just as it does their unity—instead of excluding the possibility of a general glut, on the contrary, contains the possibility of a general glut.”
(Theories of Surplus Value, Chapter 17)
For Ricardo, this error derives from his false conception of money, as merely currency, means of circulation, which also formed the basis of his error in relation to the quantity theory of money. For Ricardo, money acts merely as currency, with the values of the commodities exchanged being quantitatively determined by the labour required for their production. For Ricardo, as for some of his modern-day equivalents, demand plays no role in this determination of that value. So, the total value of commodities is taken as given, and, so, whilst demand for some commodities might be less than the supply, causing their market price to fall, the demand for other commodities is, thereby, greater than supply, causing their market prices to rise.
“Money is not only “the medium by which the exchange is effected” (l.c., p. 341), but at the same time the medium by which the exchange of product with product is divided into two acts, which are independent of each other, and separate in time and space. With Ricardo, however, this false conception of money is due to the fact that he concentrates exclusively on the quantitative determination of exchange-value, namely, that it is equal to a definite quantity of labour-time, forgetting on the other hand the qualitative characteristic, that individual labour must present itself as abstract, general social labour only through its alienation.”
(ibid)
In other words, Ricardo makes the same mistake as that made by Proudhon, and criticised by Marx in The Poverty of Philosophy, and most pointedly by Engels in his Preface to it.
“whether it is expended under normal average social conditions or not. Whether the producers take ten days, or only one, to make products which could be made in one day; whether they employ the best or the worst tools; whether they expend their labour time in the production of socially necessary articles and in the socially required quantity, or whether they make quite undesired articles or desired articles in quantities above or below demand – about all this there is not a word: labour is labour, the product of equal labour must be exchanged against the product of equal labour.”
In other words, it is not simply a question of the quantity of labour (even abstract labour) expended on production that determines the value of the commodity, but whether that labour is itself socially necessary. This is not merely a question of ephemeral fluctuations in demand and supply that cancel each other out, and result in the movement of market prices now above and now below the market value of the commodity, but of a structural imbalance. As Marx puts it, setting out this role of demand, in determining what constitutes socially necessary labour, and so, value,
“Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”
(Grundrisse)
Consequently, as Marx describes, the idea that there can be partial overproduction of some commodities, compensated by an underproduction of others, is a poor way out, for Ricardo et al.
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.”
(Theories of Surplus Value, Chapter 17)
A generalised crisis of overproduction of commodities is, then, a potential without it being a crisis of overproduction of capital, for the simple reason that it can occur, in any money economy, be it a capitalist economy or not. However, as Marx sets out, the reverse is not true. A crisis of overproduction of capital (i.e. an overabundance of capital relative to the supply of labour/social working-day) is necessarily also an overproduction of commodities, because the components of capital are themselves commodities, i.e. machines, buildings, raw materials and so on. The crisis of overproduction of capital arises, as Marx describes in The Grundrisse, Capital, and Theories of Surplus Value, because, properly understood, capital is not a thing, but a social relation. Expansion of capital is expansion of this relation, expansion of the working-class. But, if one side of this relation – the expansion of the components of capital (machines, factories, materials) – expands faster than the labour supply, then the mass of surplus value cannot be expanded proportionately, or even at all.
If the working-class is not expanding, and is already working to the limits of the working-day, then absolute surplus value cannot be increased. Any expansion of capital, will bring no increase in absolute surplus value, and so a fall in the rate of profit, even if the rate of surplus value, remains constant. But, in such conditions, this excess demand for labour, leads to increased competition between firms for that labour, and a lessening of the competition between workers for employment. The first effects, as Marx describes in Theories of Surplus Value, is that capital seeks to employ the existing workers for longer, by paying them higher rates for overtime. That brings about the potential for additional surplus value to be produced – because more labour is undertaken – but, at the cost of a lower rate of surplus value, and consequently a lower rate of profit.
As this excess demand for labour continues – itself, now, also fuelled by workers having more wages to use to increase consumption of wage goods, and so increase the demand for labour and means of production to produce them – firms have to not only pay overtime rates, but also higher hourly rates of pay, further reducing relative surplus value, and the overall rate of surplus value, and consequently, rate of profit. As hourly wages rise, workers begin to demand a reduced working-day, more holidays and so on, thereby, reducing absolute surplus value, too.
“Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e., the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given...
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.”
(Capital, Vol. III, Chapter 15)
The crisis of overproduction of capital, therefore, is not a consequence of The Law of the Tendency for the Rate of Profit to Fall, as Roberts maintains, as his sole explanation of capitalist crises. On the contrary, the latter is a consequence of the measures adopted by capital, to the overproduction of capital relative to labour supply/social working day. The Law of the Tendency for the Rate of Profit to Fall, Marx sets out, is based upon the use of new labour-saving technologies that raise social productivity, thereby, removing the problem of inadequate labour supply, and creating a relative surplus population. It brings higher productivity, and consequently, higher relative surplus value, as well as increasing competition between workers and reducing it between firms, so making possible a clawing back of some of those reductions in the working day etc.
Taken in the long historic sweep of capitalist development, these new labour-saving technologies, raise productivity, and, thereby, the rate of surplus value. Compared to the conditions of crisis, contrary to Roberts' argument, they result in a rise, not a fall in the rate of profit, which is precisely why firms introduce them! Only comparing the rate of profit over one cycle compared to another, does this create the conditions for a fall in the general rate of profit, because, the consequence of the higher productivity is that a greater quantity of raw material is, now, processed by the same amount of labour so that c, the value of this processed raw material, rises relative to v + s. For example, if previously 100 kilos of cotton (£10) was processed by 10 hours labour, with the latter dividing 5 hours for wages (£5) and 5 hours for profit (£5), the rate of profit is 5/(10 + 5) = 33.3% If, a new machine means that, now, 200 kilos of cotton are processed, by this same labour, the rate of profit falls to 5/(20+5) = 20%.
However, as Marx also describes in Theories of Surplus Value, even this is an overstating of the role of the Law of The Tendency For The Rate of Profit to Fall.
“It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines. This is the only question with which both Ramsay and Cherbuliez are concerned. For us, however, the main thing is: does this fact explain the decline in the rate of profit? (A decline, incidentally, which is far smaller than it is said to be.) Here it is not simply a question of the quantitative ratio but of the value ratio.”
(Theories of Surplus Value, Chapter 23)
Marx makes clear that this long-term fall is “ far smaller than it is said to be”, and indeed, only perceptible, if at all, over the long-term. Hardly the fundamental driver of crises that Roberts seeks to make it out to be. Marx sets out in Theories of Surplus Value Parts I and II, that there is an interaction between these various factors that determine the technical composition of capital, and the value composition, with the former being the determinant of the organic composition. A rise in the technical composition means that productivity rises, so that the quantity of material processed, rises relative to the labour required to process it.
However, as Marx sets out in this chapter, that same rise in productivity, reduces the value of the materials being processed, causing a fall in the value composition of capital. If the rise in the technical composition is smaller than the fall in the value composition, then, rather than falling, the rate of profit would rise. For example, using the previous example, if the rise in social productivity caused the value of cotton to fall, so that the 200 kilos now processed, has a value of only £5, the rate of profit would rise to 5/(5 + 5) = 50%.
Similarly, this rise in productivity, means that the value of the fixed capital, also falls, if not absolutely, then relatively. If, previously, a spinning wheel (£10) was used to spin the 100 kilos of cotton (£0.10 per kilo), the rate of profit was 5/(10 + 10 + 5) = 20%. Now, if a spinning machine (£10) processes 200 kilos (£0.05 per kilo), the rate of profit rises to 5/(10 + 5 + 5) = 25%, and if the value of the spinning machine, itself, were only £5, 5/(5 + 5 + 5) = 33.3%.
Marx sets out, for example, in Capital III, Chapter 6, that this rise in social productivity progressively cheapens fixed capital, and a smaller portion of its value is also transferred to the end product. The Law of The Tendency For The Rate of Profit To Fall, depends upon the rise in the technical composition of capital bringing about a greater increase in the quantity of material processed than the fall in its unit value, brought about by that same rise in social productivity. Marx believed that would be the case, because, in his day, the large majority of those raw materials dependent upon primary, and particularly agricultural production, and the ability to reduce the unit value of these commodities was limited by nature.
However, even then, Marx notes that not only is the fall in the rate of profit, very small, and detectable only over long periods, but it is offset by these other factors. Fixed capital is cheapened, both relatively and absolutely, raw materials are cheapened, and, as became more apparent in the twentieth century, synthetic and manufactured alternatives are introduced, waste is reduced, and, moreover, the cheapening of wage goods, brings about a reduction in the value of labour-power, and rise in the rate of surplus value.
So, Marx notes that these changes cancel out the small fall in the rate of profit.
“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.”
(ibid)
Yet, despite all of Marx's explanation, Roberts insists on claiming that this tendential law is the deux ex machina behind all of capitalist crises, and, indeed, central to much of his other analysis of the world. But, his claim, in this article, set out at the start, is ridiculous. Let us assume that his argument in relation to the tendential law were correct, and that the accumulation of large amounts of fixed capital, relative to labour, brings about an actual fall in the rate of profit. That would still not support his argument in relation to Taiwanese semiconductor production, for several obvious reasons.
Firstly, Taiwan is not the only semi-conductor producer, and so its production does not determine the global market value of semiconductors, only the individual value of Taiwanese semiconductors. If that individual is lower than the global market value, which is what would be expected if it has raised its level of productivity by such investment, then, it will sell its output at the higher global market value, making a surplus profit, equal to the difference between the individual value of its production, and the global market value. In other words, not reducing its rate of profit, as Roberts argues, but increasing it. Marx, made the same point about the massive investment in fixed capital by British textile producers, in the 19th century, that enabled them, also, to make such surplus profits, compared to European and other producers, and even to do so, whilst paying higher wages.
“But the law of value in its international application is yet more modified by the fact that on the world-market the more productive national labour reckons also as the more intense, so long as the more productive nation is not compelled by competition to lower the selling price of its commodities to the level of their value.”
(Capital I, Chapter 22)
In addition, Roberts seems to have forgotten the real significance of The Law of the Tendency for the Rate of Profit to Fall, for Marx, which is its role in relation to the determination of the average rate of profit, prices of production, and, thereby, the allocation of capital to different spheres of production. Marx sets out that where the organic composition of capital is higher than the average (assuming the same rate of turnover of capital), then the rate of profit, in that sphere would be lower, for the reasons previously described. However, for that very reason, Marx explains that because capital is advanced in order to make at least this average profit (in fact, in search of the highest rate of profit) it would be necessarily under-supplied to such areas, causing the supply of those commodities to be less than the demand, at the market value, and so causing their price of production to rise, up to the point, at which capital employed in that sphere, could obtain the average rate.
If capital accumulated more rapidly in semiconductor production, than other spheres, this was driven by the fact of higher rates of profit in that sphere, and desire to grab some of it. Indeed, we have seen, in recent years, significant shortages of semiconductors, causing global market prices for them to rise sharply, and profits from those higher prices, along with it. As with all such periodic splurges of investment, it inevitably results in a glut, at some point, and consequent sharp drop in prices and profits, but it is, then, a consequence of an overproduction of those commodities, not of The Law of The Tendency for The Rate of Profit to Fall, which is Roberts' one-trick pony explanation for everything.
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