Mmltalkno3april2018

Lecture 3 Accumulation and Profit (and Crisis) in a Capitalist Economy Simon Mohun s.mohun@qmul.ac.uk

Four Lectures at Marx Memorial Library March-April 2018

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Themes of Capital I 1. What are the commodity relations of money and value?

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commodity, use-value, exchange-value, value, relative and equivalent forms of value, money-form of value, functions of money

2. How does money become capital?

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CMC and MCM

3. How does capital produce surplus-value?

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origin of surplus-value in surplus labour; constant and variable capital, rate of surplus-value, working day, absolute and relative surplus-value, history of production processes (cooperation, manufacture, machinery and large-scale industry)

4. How does surplus-value become capital?

– reproduction and accumulation

5. What are the historical origins of capital?

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primitive accumulation 2

Absolute and Relative Surplus-value • Amount of surplus-value depends on – total social labour time – partitioning of that time between paid and unpaid labour (determined by vlp)

• To increase surplus-value – increase total social labour time, holding paid labour time constant • called absolute surplus-value – reduce that part of total social labour time that is paid, holding total labour time constant • called relative surplus-value

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Absolute Surplus-value

• Forms of absolute surplus-value – lengthen working day – fill in ‘holes’ in working day – family labour

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Relative Surplus-value I • Capitalism is a technically progressive mode of production –

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theme occurs throughout all of Marx’s writings ●

earlier class societies did not have systematic technical change

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only capitalism constantly revolutionises its methods of production

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capitalist production inherently dynamic

Competition = war fought through productivity rises – innovation (often involving larger scale of production) enables more usevalues to be produced in given period of time – in given period of time, total value produced is constant – so value of each individual use-value falls – so innovating capitalist can • undercut rivals and expand market share • gain extra profits through unequal exchange until innovation generalised across competitors 5

Relative Surplus-value II • Consequences – fall in vlp and hence rise in e

[note: vlp = 1/(1 + e)]

– rise in workers’ standard of living

• Cost-reducing innovations can be applied in any area of production and to any costs • Marx paid particular attention to labour-economising innovations 6

Summary So Far

• How does capital produce surplus-value?

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exploitation: source of surplus value is exploitation of workers

• How does surplus-value become capital?

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reproduction: circuit of capital as mode of reproduction

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expansion (accumulation): effects of technical progress

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Reproduction I • Central to Marx’s thinking – social relations can only exist if they can reproduce themselves in a systematic way – significance of isolated and individual transactions is transformed by considering them as systemically repetitive

• Proceeds via a series of abstractions – simple reproduction • net investment = 0 (stationary state; only replacement investment) – focus on pure process of repetition

– expanded reproduction • net investment > 0, but only to increase scale of what already exists – focus on absorption of more and more people (and more and more aspects of their lives) into capitalist relations, with no change in the structure of capital

– accumulation • transformation of processes of production – focus on ways scale economies and expansion of market change underlying parameters of structure of capital 8

Reproduction II • Consider sale of labour-power for a wage – as an isolated transaction: • owner of labour-power (worker) meets owner of money (capitalist) • as formal equals, they strike a bargain

– as a repetitive transaction: • worker receives wage for a period of time, and spends it over that time; at the end of the period: is ready to repeat the transaction owning nothing but her labour-power – worker has reproduced herself with nothing left over – worker must sell her labour-power again to survive

• capitalist receives use of labour-power for a period of time, and owns the commodities produced; their sale – reimburses him for » used-up means of production » the money advanced as wages, – provides a surplus-value 9

Reproduction III • Perspective of individual worker – wages are a value advanced from the capitalist’s funds – appearance: individual relations of independence • form of contract (between individuals: employee and employer) obscures the reality that repetition reveals

• Repetition shows a class perspective: wages are – a value produced by working class last period – advanced by capitalist class to working class at beginning of current period – returned to capitalist class via purchases of consumer goods by end of current period

• Contrast individual relations of independence and class relations of dependence. Re latter: – working class labour funds capitalist purchase of labour-power – only its class position ensures that capitalist class has any funds at all 10

Reproduction IV • Further consequence of repetition – purchased means of production are replaced over time through depreciation expenditures – eventually, all of a capitalist’s value becomes accumulated surplus-value • unpaid labour which the capitalist has appropriated without equivalent

• So repetition of the sale of labour-power shows 1. working class produces the capital advanced as wages 2. all capital is capitalised unpaid labour 3. capitalist production continually reproduces the capital relation • workers and capitalists as separate classes

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Accumulation I

Metaphor of ‘working day’ Capitalist competition = war fought through productivity increases Technical innovations reduce snlt required to produce use-values Only benefit is temporary one to innovator, until competition generalises the innovation • Indirect effect of innovation is to cheapen means of subsistence in socially determined standard of living • • • •

– reduction in snlt required to produce these commodities reduces vlp and increases e

• Production of ‘relative surplus-value’

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Accumulation II • Technical progress alters parameters that determine – – – –

rate of surplus value composition of capital outlays rate of capitalisation of surplus value turnover times of the various phases of the circuit of capital

• Accumulation transforms processes of production –

concentration of capital ●

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expansion of scale via growth of individual capitals

centralisation of capital ●

expansion of scale via agglomeration of existing capitals (M&A)

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Accumulation: Short Run Disturbances • Capitalist accumulation proceeds cyclically – predator-prey model (foxes and rabbits) • capitalists increase investment – increases demand for labour-power – wage rate rises – profit rate falls

• capitalists reduce investment – lay workers off – wage rate falls – profit rate rises

• capitalists increase investment – etc

– foundation of ‘profit-squeeze’ account of crisis 14

Wages and the Reserve Army of Labour I • Accumulation has 2 opposite effects on demand for labourpower – expansion of capital via reinvestment of surplus-value tends to increase the demand for labour-power • expansion of production requires more labour

– changes in technique accompanying accumulation tend to displace labour • smaller amount of labour to produce given set of use-values

• Alternation in developed capitalist economies between – labour shortage – growing unemployment

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Wages and the Reserve Army of Labour II • Displacement of labour creates a pool of people who have been employed, need to be employed, but who cannot find a job – floating reserve army of labour • decreases when accumulation creates more jobs than it destroys • increases when labour displacement dominates

• 2 other components of ‘relative surplus population’ – latent reserve army • people who reproduce themselves outside of specifically capitalist relations of production, and can be drawn or pushed into selling their labour-power – peasants in traditional agriculture within a country – migration from less to more developed capitalist countries – economies with low female labour force participation rates

– stagnant reserve army • people whose labour-power deteriorates (hysteresis) or whose skills never develop or become obsolescent 16

Wages and the Reserve Army of Labour III • Existence of reserve army is important determinant of level of wages – if households have 1 wage-earner, then household wages tend to cost of socially determined (“subsistence”) standard of living – if households have more than 1 wage-earner, then determinants of household standard of living more complex • but potential and actual competition from floating and latent sections of reserve army prevent household wages from rising very much or for very long above this historically determined standard of living

• For Marx, capital accumulation  – growth in reserve army – qualitative impoverishment of workers’ lives • attached and subordinate to ever-larger means of production via increasingly specialised and fragmented division of labour

– rising rates of exploitation • social gap between workers and capitalists continually increasing – even when standards of living of both are rising through time

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Accumulation: Long Run Developments • Pattern of change arising from relative surplus-value is not accidental or random, but a systematic effect of capital accumulation, through its technical progressivity • For Marx, characteristic patterns of dev’t of capitalist society – – – –

rising labour productivity rising real wages, but at a slower rate hence rising rate of surplus value falling proportion of capital outlays devoted to wages

• All of these are – aspects of inner tendency of capitalist development: accumulation through technical progressivity – largely uncontroversial

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A Falling Rate of Profit?

• Many argue for a further systematic effect (of capital accumulation, through its technical progressivity) – falling rate of profit

• Much controversy • Attraction: dialectics: capital creates its own gravediggers – falling rate of profit because • only labour produces value • labour-saving technical change

– necessity rather than contingency of crisis – capitalism inherently (systemically) unstable

• Problems: – – – – –

textual tendency and countertendency structure and agency identification cyclical versus secular trend

• Organisation of thinking (cf law of gravity)

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The Rate of Profit • Fundamental determinations generally show themselves in aggregate or average behaviour of a system • In money-making system, trends in rate of profit in economy as a whole indicate relative success or failure • Rate of profit defined as total profit ÷ total expenditure on inputs necessary to produce those profits ●

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rate of profit (r) = total surplus value (s) ÷ capital advanced (c + v) properly, this is the mark-up on costs, and we should include turnover time T = (c + v)/K

• Then r = {(s/v) ÷ [(c/v) + 1]} x [(c + v)/K] = [e/()]T • Henceforth assume T = 1 so that r = (s/v) ÷ [(c/v) + 1] or r = e/()

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“Marx’s” Argument ●

Capitalism revolutionises production techniques in pursuit of greater labour productivity (production of relative surplus value)

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Process involves large increases in nonlabour inputs

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This increases s/v

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Therefore [???] r falls

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r = s ÷ (c + v)

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r = (s/v) ÷ [(c/v) + 1] = e ÷ ( + 1)

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e↑ but (↑ by larger proportion  r↓

Why do capitalists innovate and voluntarily adopt techniques that lower their rate of profit?

Marx’s answer: they have no choice 21

Modern “Marx”: Capitalists’ Rational Behaviour I • Classic prisoner’s dilemma game – 2 capitalists: A and B – 2 strategies: innovate (I) and do not innovate (NI) • strategy is a complete plan of action specifying what to do in each possible contingency

– payoffs in terms of rankings of outcomes – 4 possibilities: • A: I and B: NI

payoffs: A = 4; B = 1

– super-profits and market share to A

• A: NI and B: I

payoffs: A = 1; B = 4

– super-profits and market share to B

• A: NI and B: NI • A: I and B: I

payoffs: A = 3; B = 3 payoffs: A = 2; B = 2

– (I, I) is worse than (NI, NI) because of more expensive nonlabour inputs

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Capitalists’ Rational Behaviour II: Simultaneous Game

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From A’s perspective: – if B = I, A should innovate because 2 > 1 – if B = NI, A should innovate because 4 > 3 – so whatever B does, rational for A to innovate From B’s perspective: – if A = I, B should innovate because 2 > 1 – if A = NI, B should innovate because 4 > 3 – so whatever A does, rational for B to innovate Each has dominant strategy to innovate; outcome is (2, 2) [Nash equilibrium] (NI, NI) is better for both (3, 3), but unattainable

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So individual profit seeking capitalists make rational decisions that reduce their r

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•

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But “Marx’s” Argument is Wrong ●

Capitalism revolutionises production techniques in pursuit of greater labour productivity (production of relative surplus value)

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Process involves large increases in nonlabour inputs: (↑

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This increases s/v

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But in principle we do not know anything about the relative magnitudes of the increases in c/v and s/v –

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hence movement in r is indeterminate

All that we can say is e↑ < (↑  r↓

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We can also say that if we assume that s/v is constant, then (↑ must lead to a fall in r –

which (funnily enough) was Marx’s argument (“the law as such”)

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but we cannot assume that s/v is constant

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Countertendencies I • Basic tendency for capitalist production: to increase labour productivity by substituting nonlabour inputs for labour inputs – if vlp held constant, the rate of profit will fall

• Real historical experience more complex • Qualifications to basic tendency called countertendencies – determinations that offset or modify the basic determination

• Example of layered determinations of theory to recreate concrete phenomenon • What if later determinations produce phenomena that appear to contradict the fundamental determinations?

– only an apparent contradiction as long as the explanation is consistent with the structure of the theory – then fundamental determinations continue to be valid and to operate in the more complex situation 25

Countertendencies II • Marx suggests 5: – s/v↑ as result of vlp↓ because of rising labour productivity • already analysed by Marx in discussion of relative surplus value

– depression of wages below vlp • capitalists gain temporary advantage

– cheapening of constant capital • general increase in labour productivity  lower value and price of elements of constant capital

– relative overpopulation • unemployment ↑ as workers are displaced by technical change, weakening bargaining power of employed and putting downward pressure on wages

– foreign trade • obtaining cheaper elements of constant capital and/or means of subsistence will reduce production costs, supporting r

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Tendency and Countertendencies • Complex picture • Technical progressivity of capitalism – constant increases in labour productivity via, typically, increases in nonlabour inputs – if vlp remains constant, LTRPF

• Inherent countertendencies – as labour productivity increases • pressures for vlp to fall (even if real wage is rising to some extent) • pressures for c to fall

• Law of tendency like law of gravity – buildings and people stand up despite gravity – cannot understand these offsetting processes without first understanding law of gravity

• If periods of capital accumulation do not produce falling r, need to focus attention on what is happening to – s/v and hence vlp – value of elements of constant capital 27

Inevitability of Falling Rate of Profit?

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Is LTRPF inevitable, a necessary tendency of CMP? – if so, it constitutes an internal (or essential) barrier to accumulation (not a contingent external one to be eliminated)

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Two criticisms 1. does technical progress have to take the form of substituting nonlabour for labour inputs?

– cost-cutting capitalists are interested in any reduction of costs – may be other kinds of technical change than labour-saving-andmeans-of-production-using

2. why is s/v↑ (because of technical change) a countertendency, rather than part of the basic tendency?

– discussion of relative surplus value implies that rises in labour productivity  vlp ↓ and s/v ↑

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Both criticisms seem correct Is this a problem?

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What Did Marx Mean? Centrality of Value • Marx does not focus on the real use-values produced and circulated (cf most later economics) • Rather, he insists on centrality of production and circulation of value • vlp divides value added between capitalists and workers • Hence from perspective of LTV, sensible to consider first what happens when vlp is presumed constant • Changes in vlp arising from labour productivity ↑ are not automatic – involve (often substantial) social and economic conflict

• So not arbitrary to consider – first, changes in labour productivity that initiate process – then second, effects of those changes

• What is empirical record that this approach has to explain?

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Rate of Profit Empirically • Rate of profit = Profit ÷ Capital Stock • Some problems of definition – US or world?

– within US • • • • • • • • •

whole economy? corporate only? what about self-employed? pre- or post tax profit? historic or current cost to measure capital stock? allowance for capacity utilisation? include inventories?

Include tenants’ housing? capital consumption (depreciation)? And at historic or current cost?

Rate of profit, USA 1918-2010

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Long run empirical evidence for the US economy • rate of profit for the whole economy • numerator = NDP less employee compensation • denominator = total (current cost) capital stock + inventories

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Three Crises: Does the rate of profit fall before a crisis?

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1918-1929: not obviously a falling r; culminates in economic crisis 1929-33

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1970-1981: unambiguously a falling r; culminates in neoliberal coup (fall 1979)

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1996-2007: not obviously a falling r; culminates in economic crisis 2007-09

The two great crises of last 100 years do not seem to have been falling-r-crises 32

Conclusion • How do capitalist economies develop as capital accumulates?

• Technical progressivity leads to – – – – –

rising productivity of labour rising rate of surplus value rising real wage (underplayed in literature) falling ratio of production wages to total capital outlays falling rate of profit (overplayed in literature)

• Overwhelming empirical support for first 4 in this list • Falling rate of profit much more controversial – no a priori deduction possible – movement in r depends upon • pattern of technical change • how changes in values affect vlp and constant capital • Which seems to leave ‘crisis’ a bit hanging in the air……….

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