Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 8 of 8

The logic of Roberts position, is indeed, catastrophist and implies that we should see a permanent state of crisis. Anyone who has read his blog – with the telling URL “thenextrecession” - will indeed, be familiar with his perennial claims that this “next recession” is at hand, always, when it fails to materialise, as with the predictions of the Endtimers, with their sandwich boards around Hyde Park Corner, to be simply rolled forward to the next year. It was seen in his prediction a few years ago, about the inevitability of a “post-Covid Slump”, resulting from the fall in the rate of profit, just as the ending of lockdowns led to a massive boom.

The reality is that, Marx, nowhere attributes the crisis of overproduction of capital to the tendential law. In Theories of Surplus Value, he sets out that the overproduction of commodities is most clearly associated with periods not of falling rates of profit, but of rising rates and masses of profit, which stimulates investment to meet the needs of a rapidly expanding market, but, which, then, expands that production even faster than the market demand. Again, I've set out, Marx's explanation shows why this has a number of different aspects, such as disproportions arising in the expansion of supply in one sphere, relative to that in another. Marx also, notes, that, similarly, higher profits mean at least a relatively smaller proportion of the total social product consumed by workers, leaving a larger proportion of surplus product. The Ricardian author of the “Inquiry” says,

“... and if it be said that this, by diminishing consumption, increases glut, I can only answer, that glut […] is synonymous with high profits…” (op. cit., p. 59).”

Marx responds,

“This is indeed the secret basis of glut.”

(Theories of Surplus Value, Chapter 20)

That is the condition in periods of stagnation such as the 1870's/80's, and 1920's/30's, and 1980's/90's, but it also continues into the subsequent periods of prosperity and boom, as real wages expand, whilst relative wages fall, as in the period of the 1950's, for example. This cannot be described as a crisis of overproduction of capital during such periods, as the rate and mass of profit rises, often significantly. This rapidly increased mass of profit, such as in the 1930's, and 1980's, cannot be applied to accumulate capital, for various reasons that I have described in my book, and elsewhere. For example, these periods are associated with new technological revolutions whose aim is to resolve the problems of a previous, actual overproduction of capital, and squeeze on profits arising from labour shortages, and rising wages. So, not only are workers laid off, as a result of these machines replacing them, in a period of intensive accumulation, but even as the economy expands, any given increase in output can be accomplished with relatively fewer workers.

The amount of labour employed, thereby falls relative to output, i.e. the conditions described by Marx as leading to the long run tendency for the rate of profit to fall, which comes about not as the cause of the crisis, but as part of the means of its resolution! What does this long-run tendency mean, then, given that such a period is characterised not by a fall in the rate of profit, but a significant rise? It means only, if anything at all, that taking one long wave cycle as against another, the average rate of profit, over the cycle, will tend to fall. It most certainly does not mean that the rate of profit falls, and, thereby, causes the crisis. The crisis is caused by a shortage of labour, rising wages and, thereby squeezed profits – a fall in the rate of surplus value. It is resolved by a technological revolution that replaces labour, raises productivity, lowers wages, and the value of constant capital, increasing the rate of surplus value, and rate of profit.

As the workforce grows more slowly, during such a period, therefore, the demand for wage goods grows more slowly, with a consequent effect on aggregate demand. There is no point in accumulating additional capital, if there is no demand for any great increase in the supply of consumer goods. This was the condition recognised by Sismondi, as Marx notes, in Theories of Surplus Value, Chapter 9, and was subsequently plagiarised by Malthus, and forms the basis of the under-consumptionist theory of Keynes a century later. The excess supply of realised profits, brings about a fall in the rate of interest, as described by Marx in Capital III, Chapter 30. This fall in the rate of interest creates a rise in asset prices that also encourages financial speculation, and bubbles, as seen in the 1980's.

That is, the, the basis of subsequent financial, as against economic crises, such as the global financial crisis of 2008. But, that, as they, say, is another story.

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Forward To VI - Inflation, and Roberts' Confusion of Money With Money Tokens and New Value With Total Value of Commodities

Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 7 of 8

In my book on Marx and Engels' Theories of Crisis, I pointed to the same phenomena in relation to containerisation, for example.

According to this World Bank Report, using data from the McKinsey Report, the productivity in 1965 of dock labour (prior to containerisation) was 1.7 tons per hour. Post containerisation, in 1970, that had risen to 30 tons per hour. The average ship size went from 8.4 GRT to 19.4 GRT, insurance costs fell from £0.24 to £0.04, and capital tied up in transit halved from £2 per ton to £1 per ton. Today, 90% of goods are transported by container, in an integrated road, rail and sea system. As the report suggests, the reduction in cost, and increase in speed, has also had a significant effect in stimulating the circulation of commodity-capital in the process.

This is perhaps one of the most notable increases in transport productivity, but it should not be missed that, alongside it, many more such improvements continually occur, for example, in increasing the size of carriers, improvements in speeds of carriers, development of additional road and other transport networks and so on. Moreover, alongside these physical improvements in transport speed, through technological development come others. For example, the development of common markets, like the EU, across the globe, has speeded up the movement of goods and services by the removal of various legal barriers - an advantage which Britain will lose as a result of Brexit. The introduction of the Schengen Agreement in Europe, means that time spent at border crossings has been slashed. Even, things such as the introduction of satellite navigation systems, has acted to speed up deliveries.

But, changes in production have also acted to speed up circulation. The introduction of flexible specialisation systems, alongside the introduction of Just In Time, means that the suppliers of the large companies operating such systems, have themselves to introduce similar systems, in order to be able to provide the guarantees to customers that they will be able to provide the inputs of the right type, quality, and in the necessary quantity, at short notice, to be delivered precisely when required. This means that the quantity of commodity-capital at any one time lying fallow is reduced.

The development of the Internet, and of electronic payments systems, has further revolutionised the rate of turnover of capital, with a consequent effect on the average annual rate of profit. But, let us ignore all of these factors set out by Marx and Engels, and clearly visible, today, that not only counter any long-run tendency for the rate of profit to fall, but to actually produce the opposite result. Let us assume that, from the point that capitalist production starts to become dominant, as the Industrial Revolution takes off, from around 1760, that this steady grind downwards of the average annual rate of profit was actually taking place, as Roberts claims. Its, then, still not clear why this continual and gradual decline leads to any crisis of overproduction at all, certainly not one of an overproduction of commodities, which Marx and Engels ascribe to quite different factors, as production outstrips the growth of the market, but, also, not of an overproduction of capital either. Certainly, there is no reason apparent as to why this slow gradual, and continuous decline, would, then, lead to crises being periodic, rather than being a permanent state of affairs.

If we take the overproduction of commodities, there is, in fact, no such generalised crisis until 1825, as Marx and Engels describe. It is, then, that the massive rise in production, resulting from the introduction of steam engines, on a large scale, is unable to find sufficient demand, as the market failed to grow in proportion. So, although, by 1825, we would have had more than 60 years, at the very least, considering that capitalist production itself began 400 years earlier, in which the tendential law should have been operating, and leading to the crisis Roberts attributes to it, but no such previous crisis occurred. It was that which led Mill, Say, and Ricardo to deny the possibility of such a generalised crisis of overproduction of commodities. Earlier crises did occur, but as Marx notes, these earlier crises were not crises of overproduction, but financial crises resulting from banks issuing excess bank notes and so on, or as with the South Sea Bubble.

But, given the claims for the operation of the tendential law, and its significance in relation to crises of overproduction of capital, why, then, after 1825, did we not see a continual period of crisis, rather than periodic crises? Marx certainly rejected the catastrophist notions about it reflecting some “historic decline of capitalism” claimed for it by Roberts. If that were the case, then, the decline should have started from the moment that capitalism came into existence, and with it the “tendency”. We would then have a problem certainly explaining the repeated periods of rapid capitalist expansion and accumulation, in the 18th, 19th and 20th centuries, not to mention the huge technological advances that capitalism has continued to bring with it, up to today.

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Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 6 of 8

So, its possible to argue that, in this first flush of capitalist production, capital, slowly, spreads from these high organic composition/low profit spheres, into other spheres of production, where capital does not currently exist, and, as it does so, it moves into spheres of production where the rate of profit is higher, bringing an increase in the general rate of profit itself. Indeed, that continues to be the case, as Marx sets out in Capital III, Chapter 14.

“...new lines of production are opened up, especially for the production of luxuries, and it is these that take as their basis this relative over-population, often set free in other lines of production through the increase of their constant capital. These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high. Since the general rate of profit is formed by levelling the rates of profit in the individual branches of production, however, the same factor which brings about the tendency in the rate of profit to fall, again produces a counterbalance to this tendency and more or less paralyses its effects.”

In fact, as I've set out, elsewhere, it need not be the case that in these new spheres, wages are low. Precisely because many of these new spheres of production, and services are high-tech/high value spheres, they employ relatively small numbers of highly paid/highly skilled workers, whose labour is itself complex, i.e. one hour of their labour is equivalent to tens, hundreds, or even thousands of hours of simple labour. Many of these spheres are those which, in Marx's time, were insignificant. Think of the billions involved in the media industry, in entertainment, including professional sports, the computer games industry and so on.

In addition to these new spheres of production, with low organic compositions and high rates of profit, which act to raise the general rate of profit, there is also, the investment of capital overseas, in economies where low levels of economic development, and capital accumulation, mean low levels of organic composition, and so higher than average rates of profit, which also acts, thereby, to raise the global average rate of profit. Moreover, as I have set out elsewhere, when Marx talks about the general rate of profit, he means the average annual rate of profit, and that annual rate of profit is determined not just by the organic composition of capital, but also, by the rate of turnover of capital. That expansion of global trade, involved the introduction of ever increasing amounts of technology to transport and communications, which speeds up the rate of turnover, and so, also, the average rate of profit. As Engels put it,

“[The two large centres of the crises of 1825-57, America and India, have been brought from 70 to 90 per cent nearer to the European industrial countries by this revolution in transport, and have thereby lost a good deal of their explosive nature. The period of turnover of the total world commerce has been reduced to the same extent, and the efficacy of the capital involved in it has been more than doubled or trebled. It goes without saying that this has not been without effect on the rate of profit.]”

(Capital III, Chapter 4)

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Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 5 of 8

How could it be that a tendency for the rate of profit to fall that is both so small, and visible, if at all, only over long periods, measurable only against the average in one cycle as against another, and which is, by definition, thereby, gradual be the cause of periodic crises of overproduction, either of commodities or of capital? It is inconceivable. The law explains why, at any one time, and as part, itself, of a process, capital migrates from low profit spheres to high profit spheres, but not that it migrates out of production in aggregate.

Even the process of migration between spheres, Marx explains, is usually not a question of it being physically reduced in the one sphere, and moving to another, but simply of it accumulating faster in one sphere rather than another, so that as the economy, and capital accumulation increases, a greater proportion is accumulated in the high profit spheres, and and a smaller proportion in the low profit spheres. By this means, supply of commodities in the former rises relative to the increased demand in that sphere, whereas, in the latter, supply falls relative to the rise in demand, so that prices and the rate of profit, in the former, fall, whilst, in the latter, they rise.

In Theories of Surplus Value, Chapter 17, Marx does not equate a crisis of overproduction of commodities with a crisis of overproduction of capital. Although the latter necessitates the former, he sets out why the former does not necessarily require the latter. As already noted, a crisis of overproduction of commodities is inherently possible in all commodity production and exchange, whether based on capital or not. Indeed, independent commodity producers, frequently, throughout history, overproduced commodities, and went out of business. They became debt slaves, serfs or paupers.

It was precisely the fact that such overproduction could arise, that enabled capitalist production to, eventually, take hold, because, once markets were of a sufficient size, in the towns of the Middle Ages, so that larger-scale production becomes efficient, it means that these failed producers can be employed by their more successful neighbours, or by merchant capitalists, who become industrial capitalists. The means of production become capital, and the failed producers become wage-labourers, employed by it.

Its for that reason, as Engels sets out in his Supplement to Capital III, on The Law of Value, that it is actually in those spheres of production where the organic composition of capital is high – and so the rate of profit is low – that capitalist production first occurs. It is in those spheres, where the commodity producer must be able to sell, and, thereby, reproduce the value of the constant capital that any failure to sell all of their output at its value, most obviously leads to failure. At a time when most such producers, still had access to a small plot of land to meet their need for food, they could always reproduce their own labour-power, but that was not the case with expensive materials and so on. So, any such failure, means that they would become prey to the merchant capitalist, or to a more efficient neighbour, able to provide those means of production, on condition of them becoming a wage-labourer, and providing an amount of free labour.

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Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 4 of 8

As Marx, notes, in Theories of Surplus Value, Chapter 17, crises of overproduction of commodities, can occur in even pre-capitalist economies, and so where there is no such tendency for the rate of profit to fall, as described, as a feature of capitalist production. That is inherent within the commodity, as it has the potential for use-value and exchange-value to become separated, as production and consumption, supply and demand are separated. It is also, inherent in a money economy, in which the demand for money may be greater than the demand for commodities, and so on.

Its not surprising that the modern catastrophists, Malthusians and petty-bourgeois socialists, in claiming to be defending the Marxian law, and, at the same time, claiming for it a role in crises that Marx never gave it, in practice, conflate Marx's law with the Ricardian, or Smithian laws that Marx rejected, and demolished. That is because Marx, in his actual theory of a crisis of overproduction of capital, utilises the explanations of those previous theories, and not the tendential law!

Marx's analysis of a crisis of overproduction of capital, which, itself, involves an overproduction of commodities, because capital is comprised of commodities, is, itself, based not on the law of the tendency for the rate of profit to fall, as he defines it, but, is based on an overproduction of capital relative to the available labour-power, and so on a fall in the rate of surplus value, which, in turn, brings a sharp, and severe fall in the rate of profit. This is quite the opposite condition to that he describes in relation to the long-run tendency for the rate of profit to fall, which is gradual, and “far smaller than it is said to be”.

Yet, the proponents of the tendential law as the cause of crises, of overproduction of capital, never refer to what Marx sets out in his actual theories of crises in Theories of Surplus Value, Chapter 17 and 20, but, instead, refer to Capital III, Chapter 15, which is, odd, because in Chapter 15, Marx sets out the basis of such overproduction, not as arising from the tendential law, but arising from its opposite, the fall in the rate of surplus value. In other words not from rising social productivity, a rise in the technical composition of capital, creation of a relative surplus population, and rising rate and mass of surplus value, but from a shortage of available labour, rising relative wages, falling rate of surplus value, and a sudden drop in the rate of profit!

He writes,

“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.”

This is also, the same description that Marx sets out, in Theories of Surplus Value, Chapter 21, looking at the growth of capital, and employment of labour, to a point whereby, absolute surplus value cannot be expanded, and where labour shortages also cause, rising wages to limit also, relative surplus value. But, as Marx points out, in relation to the argument by Hodgskin, as with the response to Adam Smith, whilst this expansion of capital relative to labour supply, then leads to a crisis of overproduction of capital, it is precisely that crisis, which leads capital to engage in a technological revolution, and so replace labour, creating a relative surplus population, and rising rate of surplus-value, and a rise in the rate of profit. In other words, it is these conditions, created as a response to, and bringing a resolution to, the crisis of overproduction of capital, that are those described by Marx, as required for the tendential law, i.e. not as a cause of crises, but as the cure for them.

As Marx puts it, in Capital III, Chapter 15,

“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.”

The overproduction of capital is an overproduction relative to the available labour supply/social working-day. The solution is a technological revolution that replaces labour, creates a relative surplus population, raises social productivity, and the rate of surplus value.

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Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 3 of 8

Marx does refer to the tendency, however, in Theories of Surplus Value, Chapter 23, and does so in a way, not at all helpful or supportive of Roberts' statement. Marx, rather, denies that it has any significant role in causing crises, as against his explanation of its role in the resolution of crises of overproduction of capital. He says, on the question of whether this rise in the proportion of total output going to the reproduction of constant capital, relative to variable-capital, explains the tendency for the rate of profit to fall.

“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.”

So, first of all, we see, here, that Marx describes the tendency for the rate of profit to fall, to be “far smaller than it is said to be”. In fact, as he goes on to say, here, because its not just a question of the quantitative ratio, i.e. the technical composition of capital, but also, the value composition of capital, this tendency basically disappears to nothing, because, although the mass of material processed rises, disproportionately, as productivity rises, this same rise in productivity reduces the unit value of that consumed material sufficiently to offset it.

He shows that, for example, the use of a spinning machine rather than a spinning wheel, will result in a given amount of labour spinning much more cotton. However, if similar technological developments, such as the introduction of the cotton gin, mean that a given amount of labour, also, now produces the same proportionately greater quantity of cotton, the total value of the cotton consumed would not change, even though much more of it is now processed. The technical composition would have risen, but the value composition fallen by an equal amount, meaning no change in the organic composition.

Its true, Marx notes, that the value of the spinning machine, in absolute terms, is greater than that of the spinning wheel, but, it is invariably less in relative terms, as he also sets out in Capital III, Chapter 6. In other words, if the value of a spinning wheel is £10, and spins 100 kilos of yarn, it transfers as wear and tear, £0.10 per kilo to the value of the yarn. A spinning machine, however, may cost £100, but produces 10,000 kilos of cotton, so that it transfers only £0.01 per kilo. In fact, as I have set out, elsewhere, its not even the case that this more productive machinery, required for this rise in the technical composition, is, necessarily, more valuable absolutely, rather than just relatively. The same rise in productivity, acts to cheapen machines too, just as with the cheapening of materials. As I have described, a £500 personal computer, in 1985, had the same processing power as a £2 million mainframe computer in the 1970's, for example. There were far more personal computers bought as fixed capital by businesses than there were mainframe computers!

Marx notes that if

“one worker produces a spinning-machine whereas previously he produced only a spindle, then the ratio of value remains the same...”

(ibid)

Marx argues that, in the case of raw materials, because they depend on nature, this ability to reduce their value, is less than it is for machines, or manufactured materials, so that, its in this sphere that the rise in the technical composition is not fully offset by a fall in the unit value, and consequently value composition of the capital. However, even here, Marx notes, after having taken into consideration a range of those other factors, including the fact that, the value of labour-power is reduced, as productivity rises, so that the rate of surplus-value rises, the tendency for the rate of profit to fall, as a result, is near zero.

“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)

But, a large part of raw materials, nowadays, are themselves industrially produced, so that this no longer applies. Synthetic materials have replaced natural fibres and so on, but even in primary production, today, a vast amount of fixed capital is used, just as in other industrial production. Moreover, Marx's argument is based upon this rise in the technical composition, a proportionally greater rise in the quantity of material processed relative to the fall in its unit value. That is only relevant in economies where the greatest proportion of output is of such production. In economies where 80% of new value, and of surplus value is created in service industry, where no such relation to the processing of raw material is involved, that is no longer relevant.

As I have set out elsewhere, that does not change the importance of Marx's analysis of the tendency of the rate of profit to fall, in those spheres where the organic composition of capital is higher than the average, because the importance of that analysis is precisely its role in the distribution of capital throughout the economy, i.e. away from lower than average profit areas, into higher than average profit areas, and, thereby, the formation of an average rate of profit, vital for the analysis of rent, and the rate of interest, as well as of prices of production. But, that has nothing whatsoever to do with Marx's explanation of the cause of crises, whether crises of the overproduction of commodities, or the overproduction of capital. As Marx points out, in Capital III, Chapter 13, the bourgeoisie, did see it as an important law, because, on the basis of its Ricardian interpretation, it spelled catastrophe. Its that interpretation that modern catastrophists and Malthusians have adopted, and not the Marxian interpretation, even though they, frequently claim to be defending it.

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Michael Roberts' Fundamental Errors, V - The Tendency For The Rate of Profit To Fall Is Not The Cause of Crises - Part 2 of 8

Explaining, to Wallace and Dobbs, the fall in the rate of profit, due to a rise in the value composition of capital, as against a fall due to a rise in the technical/organic composition, which they had cited, I wrote, setting out Marx's position,

“The relevant bit of the quote precedes the bit you have snatched out of context. It says,

"The reconversion of money into capital. A definite level of production or reproduction is assumed. Fixed capital can be regarded here as given, as remaining unchanged and not entering into the process of the creation of value. Since the reproduction of raw material is not dependent solely on the labour employed on it, but on the productivity of this labour which is bound up with natural conditions, it is possible for the volume, the amount of the product of the same quantity of labour, to fall (as a result of bad harvests). The value of the raw material therefore rises; its volume decreases, in other words the proportions in which the money has to be reconverted into the various component parts of capital in order to continue production on the former scale, are upset. More must be expended on raw material, less remains for labour, and it is not possible to absorb the same quantity of labour as before. Firstly this is physically impossible, because of the deficiency in raw material. Secondly, it is impossible because a greater portion of the value of the product has to be converted into raw material, thus leaving less for conversion into variable capital. Reproduction cannot be repeated on the same scale. "

In other words, it is talking not about the law of falling profits but a rise in the price of materials such as cotton due to a bad harvest!!! Rather than there being a rise in the organic composition of capital based on increasing productivity and due to technological improvement and rising levels of output, what we have here is a rise in the price of cotton, which results in CURTAILMNENT of output, because increased capital has to be spent on buying these materials.)

Wallace and Dobbs could not even understand these differences even when they were staring them in the face, as shown by the fact that they even quoted the example of Ricardo's argument about rising agricultural prices causing wages to rise/rate of surplus value to fall, in support of the claim about the role of the tendential law, despite the fact that Marx rejects that Ricardian theory! They cited Marx's comment, in Theories of Surplus Value, Chapter 17,

“According to Ricardo’s theory of rent, the rate of profit has a tendency to fall, as a result of the accumulation of capital and the growth of the population, because the necessary means of subsistence rise in value, or agriculture becomes less productive. Consequently accumulation has the tendency to check accumulation, and the law of the falling rate of profit—since agriculture becomes relatively less productive as industry develops—hangs ominously over bourgeois production.”

In other words, not Marx's tendential law based on rising social productivity, and a rising technical composition of capital, alongside a rising rate and mass of surplus value, but the opposite, falling social productivity, causing rising relative wages, and a fall in the rate of surplus value! As I pointed out to them, its also, what Marx sets out in Capital III, Chapter 13,

"But if the same causes which make the rate of profit fall, entail the accumulation, i.e., the formation, of additional capital, and if each additional capital employs additional labour and produces additional surplus-value; if, on the other hand, the mere fall in the rate of profit implies that the constant capital, and with it the total old capital, have increased, then this process ceases to be mysterious. We shall see later [K. Marx, Theorien über den Mehrwert. K. Marx/F. Engels, Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to what deliberate falsifications some people resort in their calculations to spirit away the possibility of an increase in the mass of profit simultaneous with a decrease in the rate of profit."

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Economies Are Not Overheating

The narrative from bourgeois economists and speculators is that developed economies are overheating. That is that aggregate demand is exceeding aggregate supply, and this is the cause of rising prices. Its bunk. The general level of prices can no more be explained by supply and demand than can the price of any individual commodity.  Even if supply and demand were in balance, prices would be rising, because the measure of those prices, the standard of prices/currencies, has been significantly reduced in value, as a result of QE and excessive liquidity injections. Measure anything with a smaller measuring stick and you get a higher number!  Moreover, they do not examine why it is that aggregate supply has not been rising quickly enough.

When bourgeois economists talk of economies overheating, what they mean is the same thing that Marx means when he talks about an overproduction of capital. In other words, they mean that the economy/capital is growing at a pace in which the reservoirs of surplus labour are being used up. Capital always requires that the aggregate supply of labour is greater than the aggregate demand for it, so that workers have to compete with each other for available employment. That means they have to sell their labour-power – the only commodity they have to sell – at a price that is significantly below the amount of new value they create by the employment of that labour-power. That is the source of surplus value, which is converted, in the sale of commodities into profit, which is then divided into rent, interest, taxes and profit of enterprise.

When that excess supply of labour-power starts to get used, the competition between workers for jobs is reduced, whilst the competition between firms to get their hands on available workers increases, so the price of labour-power/wages rises, and the amount left over as surplus value, and so for rent, interest, taxes and profit of enterprise is reduced. As Marx sets out, in Capital III, Chapter 15, and in Theories of Surplus Value, Chapter 21, if this process continues, wages rise to a level at which any further expansion means that capital cannot act as capital, because it is unable to produce any additional surplus value (wages rise to a level greater than the new value created), and even may reduce the existing amount of surplus value. It is a crisis of overproduction of capital.

That is not the condition that developed economies currently face. The current conditions are those that capital faced in the late 1950's/early 1960's, in which, yes, the reservoirs of surplus labour that were built up during the 1980's and 90's, have been significantly diminished, if not entirely used up, so that workers are increasingly under less pressure to compete against each other for available work, by taking lower wages, accepting worse conditions, greater precarity and so on, and firms, especially in specific areas, are forced to compete with each other for the available labour, by having to pay higher wages, but that is not at all, yet, the condition that existed in the 1970's, in which capital is facing a crisis of overproduction.

What it is is a condition in which, particularly in specific industries, and specific locations, capital is having to pay higher wages, and that impacts its ability to increase its profits. But, an inability to further increase profits at the same rate, is not the same thing as not increasing profits themselves, let alone, having those profits reduced, or turned into losses. A look at developed economies shows not only are rates of profit still high, but the amounts of profits being reported by firms, in aggregate continue to grow considerably.

US Corporate Profits

One reason for that is that the economic expansion means additional sales of goods and services, and, so long as the quantity sold rises by more than any fall in the profit margin/rate of profit, the total profit will rise. In other words, a firm that sells 1,000 units with a profit margin of £0.10, per unit, makes £100 profit, but if it sells 2,000 units, with a profit margin of only £0.08, its total profit will still rise to £160, a 60% increase, despite the 20% drop in its rate of profit. As I have set out elsewhere, this also understates the annual rate of profit, which is also affected by the rate of turnover of capital, which rises over time in line with rising productivity, and means that the annual rate of profit is many times larger than the rate of profit/profit margin.

The other reason is that, because central banks have increased liquidity to enable firms to increase prices, so as to recoup increased wage and other costs, the nominal value of sales has risen, as well as the volume, and that is reflected in higher nominal profits. It doesn't change the underlying value relations, and effect on profitability, but it does disguise it for a while, at the expense of setting in place a price-wage spiral, because as nominal prices rise, so as to protect nominal profits, so the price of wage goods rises, causing the value of labour-power to rise, which, especially in these conditions of a relative shortage of labour, is quickly translated into higher nominal wages, which again, then impacts profits and so on.

What the bourgeois economists and speculators really mean by overheating, currently, is that the condition they enjoyed for the last 30 years, in which they could continue to increase profits at a rapid rate, at the expense of wages, has come to an end. They are only able to do that, now, by continuing to inject excess liquidity into economies/inflation, and that, in itself threatens to destabilise the system. Only if they could prevent workers from protecting themselves against the higher prices, by raising their wages, could they stop that, hence the calls by Larry Summers for millions of workers to be thrown on to the dole, and the demands of politicians for workers to moderate pay demands, and action of governments to force real wage cuts on their employees, even as they face massive shortages of workers, because they can't recruit them, on the existing low wages.

But, an indication that we are not in a crisis of overproduction of capital can be seen not only in the fact that rates of profit remain high, and total profits continue to grow significantly. That is from the fact that firms are not yet feeling the need to use their profits to expand their business, rather than continuing not only to pay significant dividends, but also to use profits to buy back shares, so as to boost share prices, as well as transferring capital to shareholders by other means. In the conditions of a crisis of overproduction of capital, the economy expands rapidly, and firms under pressure of competition to grab their share of this market, use their profits to accumulate additional capital, particularly circulating capital. As a result, they throw less of these profits into the money markets, causing the supply of money-capital to fall, and interest rates to rise. That causes asset prices to drop. Although we saw an up to 40% drop in some share price indices last year, as interest rates began to rise, a large part of that was reversed, earlier this year, as central banks continued to inject liquidity, and so nominal profits continued to rise.

One reason that asset prices fall, is that, in order to expand, particularly to acquire additional fixed capital, in the shape of new buildings, and machinery, firms are led to borrow money-capital, by issuing new shares and bonds, and this increased supply reduces their price. Particularly, with the need to use profits to finance expansion rather than pay dividends, higher yields can only be obtained if the price of the assets fall. One reason that supply of goods and services has not expanded as fast as monetary demand is that firms have, so far, attempted to continue as they have for the last 30 years, using profits to buy back shares, and hand dividends to shareholders, so as to keep asset prices inflated, rather than investing in additional fixed capital to raise productivity. They have employed more labour, and largely financed it from an extension of commercial credit.

They hope to continue doing that, but material conditions have changed, making it impossible. Britain is particularly affected, because of Brexit, which makes it harder to get the labour required. But, the EU also suffers, though to a lesser degree, because it is not truly a single market. A real single market requires that labour is able to move within it without any frictions, but that also requires that workers be able to obtain the same pensions and benefits, wherever they live or move to within it. That would require a single fiscal regime in the EU, so that harmonised pensions and benefits were paid out of a central fund.

In Britain, the EU, and US, as elsewhere, another restriction is the astronomical rise in property prices, alongside a shortage of secure rented accommodation. To be able to move to available, or higher paid work in a different location, its necessary to be able to sell the house you own, quickly, and be able to buy an equivalent house at around the same price in the location you wish to move to. None of that exists, as a result of speculation in property having driven prices higher. The EU is stopping its Golden Visa systems (whereby you get a visa allowing you to work if you buy a property whose price is over €500,000) because it is driving up these property prices.  Not, only is the process of selling a house protracted, but the ability to buy an equivalent house for about the same price, elsewhere, does not exist, because, as house prices have soared, so the absolute differences in price of houses in different areas has also widened massively. There is no point in moving to a job that pays you 20% more, in a different location, if, to buy a house there, will cost you twice as much as your current house.

And, the same thing applies with rental accommodation. There is no guarantee of being able to obtain secure rental accommodation, at a reasonable rent, if you move to another location. Here, in North Staffordshire, you hear many Welsh, Scottish and Geordie voices, mixed in with the local dialect, and that is because, in the decades after WWII, many miners, from those other areas, moved to employment in local collieries, and were provided with rental properties in NCB owned, miners houses. Large numbers of local authority houses were also built, and provided secure tenancies for workers moving into the area, as well as for locals, but no such provision exists today, with existing social housing in severe short supply, and usually only available to the homeless, or those in severe hardship.

Addressing those housing problems would facilitate a freer movement of labour, just as reversing Brexit, and establishing a real single market for labour in the EU, would reduce existing frictions, making it easier for labour to move to where its needed. But, that is a project that will require several years to achieve. But, there are other sources of available labour that means that there is no real overheating or shortage of labour, to an extent that results in overheating. As large scale capital has continued to use its large and growing profits to pay out dividends, and buy back shares, rather than expand production, so smaller capitals have filled the void in the market. But, these smaller capitals are inefficient, hence the low levels of productivity growth in developed economies.

Some of these smaller capitals will become bigger, more efficient capitals by taking over their competitors, and in the process, they will become more productive, by enjoying economies of scale, and shedding labour. The current data showing the number of jobs exceeding the number of workers available to fill them, is, then, misleading, because a lot of those jobs, and of the available workers is tied up in these small inefficient businesses, and zombie companies, some of which will also go under as interest rates and wages rise. Much as with the process of expelling labour from the land, in the 19th century, that moved to the towns, this process will also provide a continued supply of labour-power.

Large firms themselves will have to also begin to invest in additional production, and that becomes more attractive as asset prices continue to fall, bringing an end to the neoliberal model that existed for the last 30 years, in which the ruling class looked to speculative capital gains from appreciating asset prices, comes to an end, and they have to look again to revenues produced by the investment of real capital in production. But, these large firms are far more efficient than small firms, and so as they increase that production, they will do so without the need to employ the same levels of labour that the smaller capitals do.

In short, we are not going back to a relative surplus population as existed from the 1980's, but nor are we facing a severe and persistent shortage of labour, causing profits and the rate of profit to fall sharply either. That is another ten years or more in the future. As in the 1960's, it is a process that develops over time, and reinforces itself, before resulting in a crisis of overproduction of capital.

Michael Roberts, AI and Catastrophism - Part 6 of 6

The introduction of the machines makes possible the development of spheres of production, and markets that otherwise would not have been possible, and thereby, both raises living standards and makes employment more secure. For example, in 1865, Britain did not have 100 million workers to have been able to produce the yarn, with spinning wheels, that was then spun by 500,000 people using spinning machines. Or take another example. Engels owned shares in the Anglo-French Submarine Railway Company that was established to build a Channel Tunnel. Such proposals had existed for nearly a century, but been impractical due to the costs. The company developed a tunnel boring machine, that reduced these costs, and was used to dig the Mersey Tunnel between Liverpool and Birkenhead.

So, theoretically a Channel Tunnel might have been dug using say, 100,000 navvies, but never would have been because the cost of doing so would have made it unprofitable. The tunnel boring machine of the Anglo-French Submarine Railway Company, reduced that cost, but was still too high. In the end, it was the technology of TML, and its tunnel boring machine that made it feasible. It may only have employed say, 10,000 workers, as against the 100,000 navvies, but the difference is these were real, actually employed workers, not theoretical, never employed workers. Moreover, these workers tended to be more skilled than were navvies. The consequence was also a basis for a much greater expansion of the market and capital accumulation.

A similar thing can be seen with the development of personal computers used, now, almost ubiquitously, as against mainframe computers that were used only by large government departments and corporations. The automation of the process of decoding the human genome, the cost of which has come down to less than 1% of its original cost, has spawned a range of industries from it, that now provide outlets for capital accumulation, and relatively high value employment, and so on. The experience of all technological development and automation has far from been an increase in unemployment, precarity and falling incomes.

So far, the development of AI systems has been pretty much of the nature of previous long wave cycles, in which one or another sector sees development, whereas it is only as a result of a crisis of overproduction that capital engages in wholesale technological innovation. Despite Roberts' claims about current low levels of profits, the rate of profit remains high, apart from a fall due to the imposition of lockdowns. Labour is no longer plentiful as it was in the 1980's and 90's, and Brexit and other nationalistic impediments have made labour markets more rigid. But, existing annual productivity gains, plus the potential for additional labour supplies as the plethora of zombie businesses go bust, releasing capital and labour, means that we are not at the stage of the 1970's, where capital needs such a thoroughgoing transformation, and the costs of investment in technological development.

The long wave cycle was hibernated as a result of the fiscal austerity measures, and QE introduced after 2010, and the policies of trade restrictions, and lockdowns imposed in the last years of the last decade. The US alone has trade sanctions on a third of the world's economies! Consequently, the uptrend phase that would have ended around 2025, is now likely to extend out to around 2035, and only at that point is capital likely to face a new crisis of overproduction of capital requiring a new technological revolution to replace labour and create a relative surplus population. AI, will undoubtedly form a part of that development.

As for AI itself, it should be seen as the child of humanity. The human body as it is presently constituted is not suited for the future, because, despite the developments in genetics, epigenetics and medical science that make the possibility of extending lifespans closer than it has ever been – developments themselves facilitated by the use of computer technology and AI – our organic bodies are subject to wear and tear, and easily damaged. To live for millennia, and so explore the universe, a new vessel for human consciousness is required. AI provides the potential for that. After all, homo sapiens interbred with Neanderthals, and the fact that we are more intelligent than other species does not lead us to wipe them out, especially those of us that are vegetarians. On the contrary, we have developed a more keen awareness of the need to protect them, and share the planet with them, which is a code we might well wish to embed in developing systems of AI.

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Michael Roberts, AI and Catastrophism - Part 5 of 6

What machines and technology do, is to raise productivity, and whilst the effect of this is to create precarity and misery for those that are actually thrown out of work by it, for a time, it acts to raise living standards overall, to raise the rate of profit, and to stimulate new spheres of production and consumption, and an overall extension of the market, and of employment. Marx, in Capital noted this difference, between machinery that replaces actual already existing workers, throwing them on the dole, and machines that only replace theoretical numbers of workers that would have been required to undertake a given amount of production.

“If it be said that 100 millions of people would be required in England to spin with the old spinning-wheel the cotton that is now spun with mules by 500,000 people, this does not mean that the mules took the place of those millions who never existed. It means only this, that many millions of workpeople would be required to replace the spinning machinery. If, on the other hand, we say, that in England the power-loom threw 800,000 weavers on the streets, we do not refer to existing machinery, that would have to be replaced by a definite number of workpeople, but to a number of weavers in existence who were actually replaced or displaced by the looms.”

(Capital I, Chapter 15)

In actual fact, by raising productivity, it means that the value of labour-power is reduced, and so surplus value is increased, and the value of constant capital is also reduced, so that the rate of profit is raised, and a release of capital available for accumulation is also created. It creates the conditions for a significant increase in capital accumulation, and also of employment.

“This first period, during which machinery conquers its field of action, is of decisive importance owing to the extraordinary profits that it helps to produce. These profits not only form a source of accelerated accumulation, but also attract into the favoured sphere of production a large part of the additional social capital that is being constantly created, and is ever on the look-out for new investments. The special advantages of this first period of fast and furious activity are felt in every branch of production that machinery invades. So soon, however, as the factory system has gained a certain breadth of footing and a definite degree of maturity, and, especially, so soon as its technical basis, machinery, is itself produced by machinery; so soon as coal mining and iron mining, the metal industries, and the means of transport have been revolutionised; so soon, in short, as the general conditions requisite for production by the modern industrial system have been established, this mode of production acquires an elasticity, a capacity for sudden extension by leaps and bounds that finds no hindrance except in the supply of raw material and in the disposal of the produce.”

(Capital I, Chapter 15)

This is also why Michael Roberts' concern over fixed capital investment as a proxy for economic expansion is wrong, because, as Marx sets out, here, capital can utilise existing fixed capital as the basis of a considerable extension of output. What does occur is the introduction of lumpiness in fixed capital investment, so that existing levels suffice for a given period, followed by large clumps of investment when the existing fixed capital is no longer adequate, particularly apparent in infrastructure in roads, rails, power grids, telecommunications and so on.

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Michael Roberts, AI and Catastrophism - Part 4 of 6

Roberts' cites Engels comments in The Condition Of the Working-Class that machines not only caused jobs to be shed, but also created new jobs in other spheres, but feels forced to counter it, by quoting Marx's comment, in Capital III, which, whilst reinforcing Engels' comments about the development of new jobs and spheres, also details the fact that those actually thrown out of work, at that time, were thrown into destitution and starvation. Roberts comments,

“The implication here is that automation means increased precarious jobs and rising inequality.”

Is that true? No. If we take the first introduction of machines, it required that capitalist production had reached a reasonable level of development and scale of production. Something like the power loom certainly impoverished the independent, self-employed hand loom workers, but for those now employed as machine minders of the power looms, their jobs and livelihood was, if anything, more secured, by the cheaper prices of cloth, and expansion of the market that resulted. Its also certainly true that the wages of these machine minders were less than the previous incomes of the hand-loom workers, but those incomes, as with all such craft labour, itself represented a higher degree of income inequality between workers. And, the reduction in the value of wage goods meant that all living standards/real wages rose. As Engels points out, in his Preface to the Poverty of Philosophy, capitalism brings about an equalisation and homogenisation of labour, resulting from competition, reducing it all towards a single universal labour.

Machinery and automation, Marx says, in opposing Proudhon, does away with “craft-idiocy”, and brings about greater equality.

“This is what the state of affairs in modern industry amounts to in the last analysis. It is upon this equality, already realized in automatic labour, that M. Proudhon wields his smoothing-plane of “equalization,” which he means to establish universally in “time to come!””

And, at the time he was writing, Marx says, that this was most clearly the case in the US, where the greatest use of machinery, and the modern factory was to be seen. And, what was true of the function of capitalism, was also true in relation to imperialism, as Marx, Engels, Lenin and Trotsky also set out, as industrial capital settled across the globe in search of exploitable labour-power. The Stalinists, and petty-bourgeois liberals and third worldists, with their theory of unequal exchange, and underdevelopment as the basis of imperialism, denied that, and continue to deny it, arguing that the concept of combined and unequal development was unknown to Marx.

Trotsky, responding to this claim by the Stalinists, noted,

“The law of uneven development of capitalism is older than imperialism. Capitalism is developing very unevenly today in the various countries. But in the nineteenth century this unevenness was greater than in the twentieth. At that time England was lord of the world, while Japan on the other hand was a feudal state closely confined within its own limits. At the time when serfdom was abolished among us, Japan began to adapt itself to capitalist civilization. China was, however, still wrapped in the deepest slumber. And so forth. At that time the unevenness of capitalist development was greater than now. Those unevennesses were as well known to Marx and Engels as they are to us. Imperialism has developed a more “levelling tendency” than pre-imperialist capitalism, for the reason that finance capital is the most elastic form of capital.”

(Speech To The Fifteenth Congress)

Well, it may be argued, but does it not lead to an even greater inequality between capital and labour. Not according to Marx, who, in Capital III, Chapter 27, writes,

“The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself.

Transformation of the actually functioning capitalist into a mere manager, administrator of other people's capital, and of the owner of capital into a mere owner, a mere money-capitalist. Even if the dividends which they receive include the interest and the profit of enterprise, i.e., the total profit (for the salary of the manager is, or should be, simply the wage of a specific type of skilled labour, whose price is regulated in the labour-market like that of any other labour), this total profit is henceforth received only in the form of interest, i.e., as mere compensation for owning capital that now is entirely divorced from the function in the actual process of reproduction, just as this function in the person of the manager is divorced from ownership of capital.”

The functions of the capitalist become those of paid managers, whose wages fall significantly due to competition in the labour market. Profit is the property of the company, and the private capitalist, now become coupon-clipping money-lender is only entitled to a small portion of it as interest/dividends.

“In the last instance, it aims at the expropriation of the means of production from all individuals. With the development of social production the means of production cease to be means of private production and products of private production, and can thereafter be only means of production in the hands of associated producers, i.e., the latter's social property, much as they are their social products.”

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Michael Roberts, AI and catastrophism - Part 3 of 6

Roberts, of course, presents his petty-bourgeois pessimistic view, in which capitalism is in a long recession. In fact, in the period after 1999, it was far from being in any such recession. I have set out previously why GDP is only a measure of new value created, and even then has to be modified for the effects of the tie-up or release of capital. It is not a measure of total output, and so also GDP growth figures are not a measure of actual output growth either. However, with that caveat, in 2000, world growth was 4.5%, in 2001, 2.0%, in 2002 2.3%, in 2003 3.1%, in 2004 4.5%, in 2005 4%, in 2006 4.4%, and in 2007 4.4%. Only in 2008/2009, as a consequence of the GFC, did world growth fall sharply, but then, in 2010, rose again sharply to 4.5%.

Its true that in the period since 2010, the growth has been anaemic, with 3.3% in 2011, 2.7% in 2012, 2.8% in 2013, 3.1% in 2014, and 2015, 2.8% in 2016, 3.4% in 2017, 3.3% in 2018, 2.6% in 2019, falling sharply by 3.1% in 2020, as a result of lockdowns, but rising by 5.9% in 2021, as those lockdowns started to be lifted. In short, the average up to 2008, was around 4%. What accounts for the slower growth after 2010? It is not, as Roberts maintains, some fundamental problem with the rate of profit – which has in any case been relatively high – but has been a deliberate attempt by the ruling class of speculators, and its state, to restrain that growth, which led to rising wages in the period prior to 2008, and also led to rising interest rates that caused the huge asset price crash of 2008. It shows that their interest is no longer coincident with that of capital itself, at least in the short-term.

Given that, after 2010, governments almost everywhere implemented harsh policies of fiscal austerity, which reduced aggregate demand, is it any wonder that growth rates fell? In fact, that austerity was not driven by a need to reduce borrowing to prevent interest rates surging to very high levels either. Even with the massive borrowing to bail out the financial sector after 2008, yields on government bonds were lower than they are today, and at historically low levels around 3%. The austerity was a deliberate attempt to slow growth, so as to prevent wages growing and to be able to reduce yields even from these historically low levels – even going down to zero and below – so as to inflate asset prices.

Moreover, not only did governments deliberately scupper economic growth with that austerity, but they also continued a policy of QE, pumping liquidity directly into those asset markets to goose prices, and they introduced other measures to inflate property prices by direct measures such as Help To Buy, and so on, all of which drained money and money-capital from the real economy into that speculation. When even that was not enough to restrain growth, which began to pick up again, they introduced the physical lockdowns of economies under cover of COVID.

Roberts also conflates crisis (overproduction of capital) with recession (stagnation), whereas these are two different things and phases of the cycle, as Marx describes in Capital. The period of crisis is the period of overproduction of capital, i.e. where capital has expanded relative to the available labour/social working-day, to a degree where any further expansion means that not only can absolute surplus value not be expanded (and may contract, as workers demand a shorter working-day), but also relative surplus value does not rise, and starts to fall, because a shortage of labour pushes wages higher.

The period of stagnation/long recession, follows such a period of crisis, and arises because capital responds to the crisis by innovation, introducing new labour saving technologies that create a relative surplus population, reducing wages and boosting profits, and also reducing the value of labour-power, raising surplus value, but also reducing the value of fixed capital via moral depreciation, so boosting the rate of profit. Its what occurred in the late 1920's and 30's, and again in the late 1980's and 90's. If we were in a period of stagnation or long recession, it would signify that capital has already gone through a period of crisis, preceding it, and would be seeing rising not falling rates of profit, currently. And, because such periods are characterised by this rising rate and mass of profit relative to capital accumulation, they are also characterised by falling rates of interest, as against the rising rates of interest currently being seen.

If we really were in such a period of stagnation/long recession, capital would not need AI or any other technology to provide a solution, because it would have already gone through that stage to overcome the crisis of overproduction of capital/profitability in the preceding period. In fact, that period occurred in the 1980's/90's. It was seen in the rise in unemployment and slower growth of employment during that period. But, that too, also illustrates a further fallacy in Roberts' argument, because, although it results in a rise in unemployment, and slower growth of employment, employment itself still grows, as capital also still accumulates. The difference is that the ratio of output to capital, and output to labour rises. It is also marked by the development of new spheres of production, themselves spheres in which the rate of profit is higher. The reason for the development of these new spheres is set out by Marx in his concept of the Civilising Mission of Capital.

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