In this final post in the series that began in January 2009, I will summarize the various factors that make impossible the permanent existence of the capitalist system of production.
First, let’s examine the effects of the tendency of the rate of profit to fall. Many Marxists see this tendency as the crucial factor that dooms the capitalist system to perish in the long run.
Capitalism is above all a system of production for profit and only profit. But Marx showed that with the growth of the productivity labor—expressed under capitalism by a rise of the organic composition of capital—the rate of profit tends to fall. A major contradiction of capitalism is that though it is a system of production for profit its very development tends to lower the rate of profit. Doesn’t this make the downfall of capitalism inevitable sooner or later?
Three basic laws of the capitalist system that involve the evolution of profit
Let’s examine three basic laws of motion of the capitalist mode of production discovered by Marx that involve an evolution of the mass and rate of profit.
1) The tendency of the rate of surplus value to rise
The whole point of capitalist production is to increase the amount of unpaid as opposed to paid labor performed by the working class. The more the productivity of labor increases, the more the ratio of unpaid labor to paid labor can rise without reducing the standard of living of the working class below the level that would prevent it from being able to reproduce itself. Indeed, as labor productivity develops, the living standard of the working class can actually rise even as the rate of exploitation—the ratio of unpaid to paid labor—increases. (1)
2) The rise of the organic composition of capital
The competition between the various industrial capitalists, and more importantly the competition between the sellers of labor power—the workers—and the buyers of labor power—the capitalists—means that the capitalists will introduce machines to replace workers whenever the rate of surplus value threatens to fall. The competition between the industrial capitalists and the workers therefore also takes the form of a competition between machines and the workers.
Under capitalism, the development of science and technology strengthens the hand of the capitalists versus the workers. However, the consequent rise in the productivity of labor creates the material preconditions for a higher mode of production. This is one of the most important consequences of the trade union struggle against the increasing rate of capitalist exploitation. (2)
But the replacement of living labor by dead labor means that the ratio of constant to variable capital grows. Since only living labor—variable capital—produces surplus value—the rate of profit tends to decline despite the rise in the rate of surplus value. (3)
3) The growth in the total amount of profit
Although the rate of profit tends to decline, the mass of profits grows progressively with the development of capitalist production. This is reflected by the rising levels of stock market prices (4) over time—outside of crises. (5)
To maintain the growth in the mass of profit in the face of a decline in the rate of profit, capital must first exploit the existing workers more intensely—something that is made possible by the rising productivity of labor—and by transforming ever more people into surplus value producers. However—even leaving aside the resistance of the workers—since no worker can work more than 24/7, the amount of surplus value that a given number of workers can create is limited by both biological and mathematical laws. Therefore, if capitalism is to wring enough surplus value out of the working class to keep the system going in the long run, the size of the population must grow relentlessly over time.
The exploding human population over the last few centuries has nothing to do with the alleged Malthusian law that claims that the human population rises in step with the growing means of subsistence. This “law” Malthus and his followers claimed dooms the great mass of the population to a miserable subsistence living no matter how much the productive forces of humanity develop. (6) In reality, the “population explosion” of the last few centuries reflects the need of capitalist production to exploit an ever growing—outside of temporary cyclical fluctuations—number of workers. (7)
The effects of a fall in the rate of profit on capitalist production
While the rate of profit tends to fall as capitalism develops, the mass of profits grows progressively. Rosa Luxemburg claimed in her “Anti-Critique” that the rise in the mass of profit rendered the fall in the rate of profit harmless to capitalism, so that capitalism would not collapse due to the fall in the rate of profit “before the sun burned out.” Why was Luxemburg mistaken on this key question?
1) A falling rate of profit leads to the centralization of capital.
How does a rise in the total profit compensate for a fall in the rate of profit? For example, if a capital in the form of an ongoing business is $1,000,000 a rate of profit of 10 percent yields an income of only $100,000 to its owner, a barely adequate income for even the smallest of capitalists. If our individual capitalist has to capitalize half the profit—plow it back into the business—an income of $100,000 will leave $50,000 for personal consumption, about what a skilled union worker might earn in an imperialist country.
On the other hand, a mere 10 percent rate of profit on a capital of $100 million yields a “comfortable” $10 million dollar annual income. Even if half of this income has to be capitalized, this still leaves $5 million left over to meet the annual personal consumption needs of the capitalist and his or her family. It is no great hardship to limit your consumption to “only” $5 million dollars a year.
The same is true of the capital owned by money capitalists insomuch as the fall in the rate of profit is reflected in a fall in the rate of interest. Remember that interest is just a portion of the profit, and the rate of interest cannot in the long run exceed the rate of profit. A low rate of profit, therefore, will mean an even lower rate of interest.
The lower the rate of interest the greater must be the size of the capital if the money capitalist owner is to have a large enough interest income to live at a standard of living that is adequate for “a gentleman and gentlewomen.”
For example, if the rate of interest is 10 percent, a “moneyed capital” of $1,000,000 would yield its owner an income of $100,000. This is, with few exceptions, more than even the unionized workers in the imperialist powers can make, even if they work massive amounts if overtime.
But if the rate of interest falls to 1 percent, the owner of a “moneyed capital” of $1,000,000 would earn only $10,000, which is a poverty level of income in an imperialist country. Our money “capitalist” would receive such a small income on this capital that he or she would be forced to put his or her labor power up for sale on the labor market. Or what comes to exactly the same thing, a fall in the rate of interest from 10 percent to 1 percent would knock a mere “millionaire” right out of the capitalist class.
If the rate of interest falls to 0.1 percent, our money “capitalist” would earn only $1,000 a year in interest income, a quite modest supplement for any wage that our money “capitalist” manages to earn.
Therefore, the lower the rate of profit—and interest—the larger the individual capitals must be if they are to compensate their owners for the falling rate of profit—or interest—through a rise in the mass of profit. Small capitals—and small businesses—become less and less viable the more the rate of profit—and interest—falls.
2) Capital can only exist in the form of many capitals.
Capital consists of commodities. Commodity production requires private ownership of the means of production where each private owner works for his or her private account. Each individual commodity producer finds him or herself under pressure—competition—from other commodity producers. Indeed as Marx pointed out, under a system of commodity production, the producers recognize no higher authority then the mutual competition that rages among themselves.
Capital, like money, as Marx pointed out, is a form of the commodity relationship of production. It can therefore exist only in the form of many capitals that exert constant pressure—competition—on each other. The many capitals find themselves in a war of “all against all.” Each individual capital must expand or die. Huge numbers of capitals die, but a few expand to immense size.
A falling rate of profit increases the intensity of competition. Each capital must strive to become big quickly if it is to be in a position to compensate its owner for the lower rate of profit by increasing the total size of the profit. But the growth of the individual capitals means the development eventually of gigantic businesses that centralize the productive forces in a few hands. The point is reached where a few or even one capital can produce so many commodities that it can satisfy the entire market demand. (8) Competition begins to devour itself and gives birth to capitalist monopoly.
3) Innovation is undermined by a low rate of profit.
A low rate of profit is an obstacle to capitalist “innovation.” As a rule, innovative technologies are pioneered by small capitalists. But a low rate of profit makes small capitalist enterprises increasingly unviable. If small innovative “startups” can survive at all, it is because the rate of profit in a new, fast-developing industry is well above the average rate of profit.
We certainly see this in places like California’s Silicon Valley. The vast majority of these startups prove unviable and soon go bankrupt. (9) But once in a while, startups win the support of existing large capitalists and quickly grow into huge monopolies—Apple Computer, Intel and Cisco are examples—which find themselves in a position to make super-profits—that is, profits above the average rate of profit. In addition, perhaps one or two large existing monopolies will enter the field.
The process of formation of monopoly, which in the past took decades or even centuries, now often takes place within a few years. The lower the rate of profit, the shorter is the stay of small capitalists in new branches of industry, as Rosa Luxemburg pointed as long ago as 1898, and therefore the quicker new branches of production become centralized in the hands of a handful of companies or even a single capitalist corporation.
Interest, the profit of enterprise and the tendency of the rate of profit to fall
Very large capitals can generate huge profit incomes for their capitalist owners, even if the rate of profit is very low. However, this doesn’t mean that the a low rate of profit is harmless to the capitalist system. The rate of profit—realized surplus value minus rent—is itself divided into two fractions: interest and the profit of enterprise.
As I have stressed throughout these posts, only the profit of enterprise provides an incentive for the capitalists to actually produce surplus value. If the rate of profit is no higher than the rate of interest—or not significantly higher than the rate of interest—the capitalists will have little or no incentive to act as industrial capitalists and will instead transform themselves into money capitalists.
The whole “financialization phenomenon” that arose from the extremely high interest rates that followed the 1968-1982 stagflation crisis shows what happens when the rate of profit is not substantially higher than the rate of interest. If such a situation were to persist, the capitalist system would progressively disintegrate.
As we saw in the years after 1980, however, interest rates did gradually fall back to levels that were well below the rate of profit, though huge amounts of means of production had to be destroyed and consequently jobs lost to achieve this necessary fall in the rate of interest. In order to calculate the total cost of the post-stagflation high rate of interest relative to the rate of profit, in addition to the jobs and means of production that were destroyed we also should include the jobs and means of production that were not created.
But the situation would be far more serious for capitalism if it was not a matter of an extraordinarily high rate of interest but rather an extremely low rate of profit.
If the rate of profit is 100 percent, it is possible to have a vast range of interest rates and still have a positive profit of enterprise. At a rate of profit of 100 percent, the rate of interest could be 95, 50, 5, 1 or even 0.25 percent, for example. But if the rate of profit falls to 5 percent, the highest sustainable general rate of interest must be below 5 percent. If the rate of profit falls to 1 percent, the rate of interest would have to fall below 1 percent.
This would be the feared “liquidity trap” of the Keynesian economists. At a 1 percent rate of profit, the rate of interest would have to be lower than 1 percent to have any incentive to produce surplus value at all, and even then the profit of enterprise would always be below 1 percent.
Therefore, a very low rate of profit kills the incentive to produce surplus value, no matter how large the mass of profit is. At very low rates of profit, even a slight rise in the rate of interest threatens to wipe out the profit of enterprise entirely. The system would have to produce tremendous quantities of money material—gold—just to keep the rate of interest below the rate of profit.
Therefore, there are two ways a low rate of profit undermines the capitalist system. The lower the rate of profit the stronger will be the trend toward an increased centralization of capital and the lower the rate of interest must be to ensure a positive profit of enterprise. Therefore, contrary to Rosa Luxemburg’s belief, no increase in the mass of profit can make the fall in the rate of profit harmless to capital.
The depletion of raw materials and the rate of profit
Marx was fond of quoting Sir William Petty (1623-1687)—the founder of English political economy—to the effect of “land is the mother of wealth while labor is its father.” Capitalist production as it develops assaults not only labor—the working class—but also the “land”—that is nature itself.
“Let us not, Frederick Engels wrote in “Dialectics of Nature,” “flatter ourselves overmuch on account of our human conquest over nature. For each such conquest takes its revenge on us.”
Marx showed that the tendency of the rate of profit to fall is rooted in the rising organic composition of capital. While the main cause of this rise is the growing role of machinery, the value of raw and auxiliary materials also plays an important role in the determination of the organic composition of capital. Like fixed capital, raw and auxiliary materials form part of the constant capital. The more that mines, oil wells, natural gas fields and so on are depleted—all other things remaining equal—the higher will be the value of these commodities and the higher will be the organic composition.
Even if the supplies of these raw materials are not exhausted, any rise in their values increases the organic composition, and all other things remaining equal will lower the rate of profit—with all the consequences that I explored above.
For example, the capitalist media is not only concerned about the possibilities of “peak oil” but also the end of “cheap” oil and cheap energy in general. Even if oil production can increase—for example, by exploiting so-called heavy oil deposits—the value of a given unit of energy derived from this more costly fuel will mean a higher organic composition of capital, since energy in one form or another is an “auxiliary material” in every branch of production. A rise in the value of energy means, all other things remaining equal, a higher organic composition and a lower rate of profit. This is why the struggle for cheap sources of raw materials is so important for the capitalists.
The increasing difficulty realizing value and surplus value
As I have shown in these posts, with both theoretical and empirical arguments, the market grows in the long run through the production of ever-greater amounts of money material—gold. As we saw last week, the modern gold industry involves a particularly vicious assault on both the mother of wealth—nature—and its father—the workers. Today the Earth bares huge scars visible from space, which testify to the growing difficulties in realizing the ever-greater amounts of value and surplus value that must be produced if capitalist production is to continue.
Even if “peak gold” turns out to be far distant, the gold mining companies will be forced to find new gold in increasingly inaccessible places—perhaps the ocean bottoms as well as ever-deeper shafts within the Earth. This will tend—besides doing enormous damage to the natural environment and risking the lives of large numbers of workers—to increase the value of gold relative to the value of other commodities. As gold rises in value relative to most other commodities, the prices of these commodities expressed in the use value of gold will tend to decline. This will mean a tendency for economic crises to grow more intense and prolonged.
Any slowdown in the growth of the market means more intense competition among the various capitals that make up capitalist production. If the size of the market is fixed—the market doesn’t grow at all—competition is a zero sum game. The gain of one capitalist is offset by a loss for another. But in a rapidly expanding market, even if a particular capitalist loses market share, the capitalist might still gain absolutely in terms of rising sales. This softens the competition among the capitalists.
Just like falling rates of profit brought on by a rising organic composition of capital, an overproduction crisis and its aftermath intensifies competition. The more intense the competition becomes, the greater the tendency towards capitalist monopoly. It is no accident that the modern capitalist monopolies first appeared on a large scale in the wake of the economic crisis of 1873, a period not coincidentally marked by falling gold production and a rise in the relative value of gold compared to the value of most other commodities.
Environmental crises, crises of overproduction and the centralization of capital linked
Here we also discover a “direct tie” between the environmental crisis, the increasing strain on the Earth’s ability to tolerate the ever-greater assault of capitalist production on the mother of all wealth—nature—and the ability of the world market to keep on expanding.
Though it is not obvious at first glance, the growing environmental crisis is linked both to the tendency for the cyclical crises of overproduction to worsen—which we have all seen an example of over the last several years—and the consequent strengthening of the tendency toward capitalist monopoly. Indeed, the latter is strengthened by the tendency of crises of overproduction to grow more intense as the world’s gold mines are depleted, and by a rising organic composition of capital brought on by the growing depletion of mines, oil wells, natural gas fields and so forth.
Capitalist production must strive to squeeze ever more of the yellow metal out of increasingly depleted gold mines—no matter the cost to the environment and the workers—if the world market is to keep on growing in a way that will enable capital to realize the ever-greater mass of surplus value that it must squeeze out of the workers if a collapse of capitalist production is to be staved off.
Why the ‘stationary state’ is impossible for the capitalist system
John Stuart Mill, who was well aware of the falling tendency of the rate of profit, hoped that capitalism would evolve into a “stationary state.” John Maynard Keynes, who was also well aware of the tendency of the rate of profit to fall, expressed similar hopes. Essentially, both these bourgeois economists hoped that “reproduction on an expanded scale,” to use Marxist language, was just a passing phase of capitalism and that it would eventually be succeeded by a mere “simple reproduction” that would allow the population to be stabilized. But the very nature of capitalism precludes this. Marx insisted that capitalism could only exist in the form of “expanded capitalist reproduction.”
But why is this? If expanded reproduction of capital becomes impossible or at least is greatly impaired either because no more—or very little additional surplus value can be produced and/or not enough additional surplus value can be realized in money form—competition between the various capitals that make up the capitalist system of production will intensify to such an extent that competition will devour itself completely. Or what comes to exactly the same thing, the tendency towards an ever-greater centralization will overwhelm those counter-tendencies toward the decentralization of capital that, as Marx put it, prevent a “quick collapse” of capitalist production.
The breakdown theory in Engels
First, let’s look at how Frederick Engels explained the inevitable “breakdown” of capitalist production.
“We have seen,” Engels explains, “that the ever-increasing perfectibility of modern machinery is, by the anarchy of social production, turned into a compulsory law that forces the individual industrial capitalist always to improve his machinery, always to increase its productive force. The bare possibility of extending the field of production is transformed for him into a similarly compulsory law. The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance.”
But Engels then points out that the industrial capitalists do meet resistance as they attempt to expand production “both qualitatively and quantitatively” without limit. And what is it?
“Such resistance,” Engels goes on, “is offered by consumption, by sales, by the markets for the products of modern industry. (10) But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically [emphasis added—SW]. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. Capitalist production has begotten another ‘vicious circle.'”
But it not just a circular—or cyclical—moment, it’s a spiral movement.
“As a matter of fact,” Engels explains, “since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange … are thrown out of joint about once every 10 years. Commerce is at a stand-still, the markets are glutted, products accumulate, as multitudinous as they are unsalable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution.”
Doesn’t this explain what we have all witnessed over the last few years? Everything is here from the “credit crisis” and waves of bankruptcies to the factory shutdowns and mass layoffs. (11)
“In these crises, Engels, continues, the contradiction between socialized production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange.”
I hope that the above posts have finally cleared up why the growth of the market—sales—cannot keep up with production under a capitalist economy once it has reached a certain degree of development. Crises of the generalized relative overproduction of commodities are just that. They cannot be reduced to crises of disproportionality, though such crises arise every day in the course of capitalist production, or to the inability to squeeze “sufficient” amounts of surplus value out of the workers, nor can they be reduced to “underconsumption”—the view that if only the wages of the workers were raised the problem of crises would disappear.
The tremendous confusion about “overproduction” and the sliding into Say’s Law that has marked so much of Marxist economic thought since the death of Engels in 1895 has formed much of the theoretical basis of the opportunism and revisionism that has led to disaster so often in the the history of workers’ movement.
I think it is high time that we bury “that wretched man—Say” once and for all.
What is the effect of these returning periodic crises of generalized overproduction on the capitalist system?
“This rebellion of the productive forces,” Engels explains, “as they grow more and more powerful, against their quality as capital, this stronger and stronger command that their social character shall be recognized, forces the capital class itself to treat them more and more as social productive forces, so far as this is possible under capitalist conditions. The period of industrial high pressure, with its unbounded inflation of credit (12), not less than the crash itself, by the collapse of great capitalist establishments [such as General Motors—SW] tends to bring about that form of the socialization of great masses of the means of production which we meet with in the different kinds of joint-stock companies. Many of these means of production and of distribution are, from the outset, so colossal that, like the railways, they exclude all other forms of capitalistic expansion. At a further stage of evolution, this form also becomes insufficient. The producers on a large scale in a particular branch of an industry in a particular country unite in a “Trust”, a union for the purpose of regulating production. They determine the total amount to be produced, parcel it out among themselves, and thus enforce the selling price fixed beforehand. But trusts of this kind, as soon as business becomes bad, are generally liable to break up, and on this very account compel a yet greater concentration of association.”
“In any case … the official representative of capitalist society—the state—will ultimately have to undertake the direction of production,” according to Engels. “This necessity for conversion into State property is felt first in the great institutions for intercourse and communication—the post office, the telegraphs, the railways.”
But things don’t stop there—remember, the above was written in the year 1877. The Obama administration has been forced against its will to take over what had been the General Motors Corporation—not so long ago the biggest industrial corporation in the world.
However, this kind of “state ownership” is not socialism and is “progressive” only to the extent that it prevents a still further destruction of the productive forces.
“But, the transformation—either into joint-stock companies and trusts, or into State-ownership—does not do away with the capitalistic nature of the productive forces,” Engels wrote. “In the joint-stock companies and trusts, this is obvious. And the modern State, again, is only the organization that bourgeois society takes on in order to support the external conditions of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists. The modern state, no matter what its form, is essentially a capitalist machine—the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers—proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over. State-ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.”
But while the Obama administration and the U.S. Democratic Party desperately attempt through slashing the wages, benefits and working conditions of the GM workers to create a new private for-profit General Motors Corporation, the real solution is to remove the direction of these great industries that are being destroyed by a capitalist class that is no longer fit to manage them—whether directly or even through their state—and place it in the hands of the workers organized in a great association of the workers of the world, which alone is qualified to manage such powerful—and in the wrong hands potentially destructive—industries.
The breakdown theory in Marx
“As soon,” Marx wrote in volume I of “Capital,” “as this process of transformation has sufficiently decomposed the old society from top to bottom, as soon as the laborers are turned into proletarians, their means of labor into capital, as soon as the capitalist mode of production stands on its own feet, then the further socialization of labor and further transformation of the land and other means of production into socially exploited and, therefore, common means of production, as well as the further expropriation of private proprietors, takes a new form.”
And what is this new form?
“That which is now to be expropriated,” Marx explains, “is no longer the laborer working for himself, but the capitalist exploiting many laborers. This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the centralization of capital [emphasis added—SW]. One capitalist always kills many. Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labor-process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labor into instruments of labor only usable in common, the economizing of all means of production by their use as means of production of combined, socialized labor, the entanglement of all peoples in the net of the world-market, and with this, the international character of the capitalistic regime.”
Today, the capitalist media talks about “globalization” as though it was something new. But Marx was talking about globalization in the 1860s and even earlier in the “Communist Manifesto,” which he wrote with Engels in the winter of 1847-1848.
“Along with the constantly diminishing number of the magnates of capital,” Marx explains, “who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. [This] integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.”
In these posts, I have explored exactly how the economic laws of capitalism discovered by the classical political economists and Marx work in practice, with special emphasis on how they produce and reproduce the periodic crises of the generalized overproduction of commodities. Each crisis, in turn, gives a new impulse to the centralization of capital and further socialization of labor.
What is true of the crisis is also true of the reckless inflation of credit and its associated over-trading, which pushes production far beyond its capitalist limits and precedes each successive crisis.
We have seen how the credit system itself grows out of the capitalists’ need to artificially extend the market as the productive forces they themselves are forced to create by the pressure of competition expand far beyond the limits set by ability of the market to grow. The development of the credit system, far from being “a means of adoption” of the capitalist system, as Eduard Bernstein thought, instead pushes the contradictions of capitalist production to the point where they explode in the form of a crisis of the generalized relative overproduction of commodities.
Just as within an individual industrial cycle, where the inability of the the market to keep up with the rising level of commodity production causes the boom to collapse well before “full employment” is achieved, so the increasing socialization of labor and centralization of capital will force the working class under pain of its own destruction to organize itself and finally overthrow the rule of capital long before it reaches the ultimate limits set by the maximum amount of surplus value that can ever be produced—given the limits set by our material world.
In the end, capitalism will collapse because the workers of brain and brawn will at last be given no alternative but to cease being surplus value producers and instead organize themselves as the “associated producers of the world” and take charge of their own collective destiny.
1 Whether this potential for a rise in the standard of living is realized depends largely on the degree of organization of the working class, both in trade union terms and politically. The natural tendency of capitalism is always to push the standard of living of the working class downward towards the minimal levels established by the laws of biology.
If well organized in trade unions and politically in their own party, the workers can to a certain extent take advantage of the rise in the productivity of labor and, as Marx put it, take part in the advance of civilization. What the workers cannot do in the long run under the capitalist system is prevent the rate of surplus value from rising. Therefore, even if the living standard of the workers is rising, the workers will still face a rising rate of exploitation.
Henryk Grossman showed why this is so by extending Otto Bauer’s model of expanded reproduction with a rising organic composition of capital built in but with an unchanging rate of exploitation. If the rate of surplus value does not rise, sooner or later the rate of unemployment will rise, which will inevitably shift the balance of forces on the labor market back in favor of the capitalists.
This is all the more so in practice, since the Bauer-Grossman model ignores the effects the inevitable crises of the generalized overproduction of commodities, which periodically raise the rate of unemployment independently of the rising organic composition of capital.
Therefore, as Marx pointed out in “Value, Price and Profit,” the long-term evolution of the capitalist system works against the trade unions if the unions confine themselves to simply improving the position of the workers under the capitalist system.
2 The United States suffered a relative shortage of labor in the 19th and into the early 20th century compared to the European countries. As a result, wages were from the beginning much higher in the United States than in Europe. This obliged the American capitalists to introduce machinery to a much greater extent than was the case in Europe. This gave the United States the highest labor productivity in the world.
While the relatively high standard of living of the U.S. workers reflected the shortage of labor rather than the strength of the trade unions—though American workers did create powerful trade unions at times—this shows that to the extent the trade unions can slow down the growth in the rate of exploitation, they not only defend and at times advance the workers’ standard of living—they also force the capitalists to introduce the very productive forces into production that later on will form the material basis of a socialist economy.
3 Marx’s demonstration that the rate of profit can decline while the rate of surplus value rises is one of his greatest advances over Ricardian economics. Ricardo, because he accepted Adam Smith’s mistaken view that constant capital can be reduced “in the final analysis” to variable capital, made no distinction between the rate of surplus value and the rate of profit.
4 Leaving aside the ebbs and flows of speculation and the effects of taxation, stock market prices are determined by the capitalization of the dividends paid divided by the rate of interest. Marx pointed out insomuch as the falling rate of profit leads to a fall in the rate of interest, stock market prices are increased assuming the mass of dividends remains unchanged. However, the main force driving the stock markets higher over time is the growing mass of dividends, which reflects the growing mass of profits—the growing quantity of unpaid labor performed by the global working class.
5 While the worst “bear markets” in the stock market reflect cyclical crises of generalized industrial overproduction, the stock market is also prone to its own internal crises that temporarily reverse the long-term rise in stock market prices.
Needless to say, the long-term upward march of stock market prices as a whole is not necessarily true of the stocks of individual companies. When a company listed on the stock exchange is forced into liquidation, its stock falls all the way to zero. This is what happened in 2009 to the stock of the once mighty General Motors Corporation.
6 If Malthus was right, the fastest growth in the population would be seen in the richest imperialist countries, where the means of subsistence are most abundant, but precisely the opposite is the case.
7 While it has become fashionable in recent decades for radicals and even some Marxists to flirt with Malthus, Marx, Engels and Lenin strongly opposed any concessions to the Malthusians. Marx pointed out that capitalism requires a relative surplus population if only to ensure the needed growth of the rate of surplus value over time. The Malthusian claims that the existence of mass poverty proves that the world is “overpopulated” covers up the real cause of mass poverty—the need of the capitalist system to maintain a large and growing relative surplus population.
Of course, the material nature of the world does put some limit on the size of the human population. But it is the capitalist system itself that requires an unlimited growth of the human population if capitalism is to go on forever like its supporters insist it will, rather than it being simply a definite if necessary stage in the history of human production. Again, this is obscured by the Malthusians, who claim that the “crisis of overpopulation” is threatening the world with destruction without ever referring to the peculiar need of capitalist expanded reproduction for an unlimited growth of the population.
9 An interesting example of a Silicon Valley startup is Tesla Motors, which builds cars that use electric motors, not internal combustion engines. In the early days of the automobile industry, in addition to cars using internal combustion engines there were electric cars and even steam engine cars. But the internal combustion engine cars soon won out in the 20th century.
Now, however, with the fears about “peak oil” and a long-term rise in the price of gasoline, combined with concerns about global warming, which might at some point force governments to curb or even ban the production of gasoline-powered cars, the possibility is raised that the electric car will triumph in the 21st century.
If this comes to pass, Tesla Motors—or one of its corporate descendants—might mushroom into a new “General Motors”—transforming its owners into multi-billionaires. But more likely, if electric cars completely replace gasoline-powered cars in the coming decades, Tesla Motors will be long gone before this happens. After all, a whole huge infrastructure of recharging stations will have to be created before a mass market in electric cars—as opposed to electric-gasoline hybrids—can be created.
However, no doubt large capitalists are watching Tesla Motors—including but not limited to those who are now engaged in automobile production—to determine the chances that the large-scale production of electric cars will provide a highly profitable field of investment for their capital later in the current century.
10 Here Engels put great emphasis on crises of overproduction brought on by the inability of markets to expand as fast the capitalists can increase their production. Unlike the Grossman-Mattick school, Engels did not attribute the periodic crises that mark the concrete course of capitalist production to the inability to produce surplus value, or the limited number of workers. It should be kept in mind that “Anti-Duhring,” from which “Socialism, Utopian and Scientific” is taken, was carefully read over by Marx himself, who was still alive. It therefore carries Marx’s endorsement.
11 The capitalist media have called the crisis that we have all been passing through a “financial crisis.” Many Internet Marxists have also adopted this terminology. This, however, hides the essence of the crisis of the capitalist system that we have been passing through over the last few years—a crisis of the generalized relative overproduction of commodities.
12 The “inflation of credit” that Engels mentions here is, like the crisis itself, a manifestation of the fundamental inability of the market to expand as fast as the production of commodities under the capitalist mode of production. If Say’s Law were valid, there would be no need for this periodic credit inflation as recently manifested, for example, in the huge “sub-prime mortgage” swindle in the United States and other capitalist countries.