|SocialismToday Socialist Party magazine|
A crisis of profits?
I WOULD like to comment on Peter Taaffe’s excellent article in Socialism Today No.156, March 2012, headlined: Striking back in austerity Britain.
Peter mentions in his article that "[capitalism is] so ‘progressive’ that it is on a strike of capital, a refusal to invest. It is resting on a mountain of cash locked up in the vaults of big companies in Britain and the US: an eye-watering £120 billion in Britain and a colossal $2 trillion in the US".
Why does this ‘strike of capital’ say so much about capitalism in 2012? I think the answer lies in Marx’s law: the Tendency for the Rate of Profit to Fall (TRPF). In his three volume opus, Capital, Marx differentiates between constant capital (c) and variable capital (v). Constant capital being capital tied up in factories and machines etc. Variable capital being capital produced by the labour of human beings.
During the Second World War both constant capital (factories, machines etc) and variable capital (soldiers, sailors, airmen, and civilians) were both destroyed. Once the war was over, this immediately led to a rise in the rate of profit, leading to the post-war capitalist economic boom of 1945-1974.
However, during this period the rate of profit started to fall, especially in Britain. The response to this falling rate of profit was the destruction by the Thatcher government of constant capital, whereby 20% of manufacturing industry was destroyed. A higher percentage, incidentally, than that achieved by Hitler’s Luftwaffe.
However, Mrs Thatcher did not reduce the cost of variable capital. Wages for those in work held up. Hence, the Tory victory in the 1987 general election. At the same time, the cost of unemployment benefit was paid for with receipts from taxes on North Sea oil and gas. The newly-privatised industries also provided a new source of profit, leading to an overall rise in the rate of profit.
Today, in 2012, British capitalism is, again, being hit by a long-term fall in the rate of profit as advanced by Marx in Capital. However, current tax receipts on North Sea oil are a fraction of those in the 1980s. There is also the debt mountain which threatens to sink British capitalism. This is the dilemma faced by the Con-Dem government.
So how are the Con-Dems going to increase the rate of profit? One solution is the privatisation of the NHS, local government, the civil service etc. Another solution is to cut the cost of variable capital. Hence, the planned transfer of one million people from Incapacity Benefits onto the Job Seekers’ Allowance claimant count.
The reason for this lies in Marx’s idea of a reserve army of capital as a means of reducing the wages of those in work ie a cut in the cost of variable capital. Does Peter agree that the root cause of the Con-Dem’s policies, including their cuts, is an attempt to raise the rate of profit, which, as Marx pointed out, has a tendency to fall?
John Smithee, Cambridgeshire
Peter Taaffe responds:
WE WELCOME John Smithee’s letter. It is true that Karl Marx argued in the third volume of Capital that capitalism did evince a tendency for the rate of profit to decline because it led ineluctably to a growth of constant capital – the means of production – compared to variable capital, labour power.
However, he also indicated that this law would only manifest itself over time, and sometimes a considerable period. This was because capitalism, by constantly revolutionising, through technique, and therefore cheapening the elements of the means of production, etc, was able to the cut the value of constant capital. It could therefore, for a period, ‘counteract’ this tendency for the rate of profit to be pushed down. In Capital, after first elaborating "The tendency of the rate of profit to decline", in a following chapter he elaborates what he calls the "counteracting causes", which check this tendency. This has led some economists – even those claiming to be Marxists – to conclude that these "counteracting causes" in effect nullify Marx’s argument supporting the case for the tendency of the rate of profit to decline. I would not agree with this. I think the law will be manifested, but sometimes over time.
However, what the capitalists are mainly interested in is not the rate but the mass of profit. Marx makes the same point a few times: "…A drop in the rate was generally accompanied by an increase in the mass of profit, due to the increasing mass of total capital employed". (Capital, vol III, part III, chapter 14) They will continue to invest if the rate goes down yet the mass of profit is still greater than the capitalists’ outlay of capital at the beginning of the production process. In the 1970s, there was one year where the mass of profit did suddenly drop, which led to panic stations by the capitalists. It was one manifestation of the seriousness of the crisis at that stage.
Since then, however, the capitalists, first through neo-liberalism, which began in the 1970s, then through the favourable position created for them by the collapse of Stalinism – particularly the liquidation of the planned economy and the ideological counter-revolution which followed in its wake – have been able to massively change the balance of forces in their favour. This has resulted in wage repression in the US – where the average median wage has not increased for 30 years and is now at the level of the 1950s – and in Europe. Together with other factors, this has led to a colossal bonanza for the bosses. Record profits – accompanied by a colossal widening of the wealth gap – have been made.
Therefore this crisis is not primarily one of ‘profitability’, as John seems to imply. There are many and differing factors that can lead to or be the immediate cause of a capitalist crisis. The capitalists are presently swimming, literally drowning, in profits. In our Socialism Today article we underestimated the amount of unused capital, profits, stashed in the vaults of the big companies. Latest figures show that £750 billion is ‘fallow’ – not being invested by the capitalists – in Britain alone. It is a huge $2 trillion in the US! The capitalists refuse to invest because there is no ‘profitable outlet’. In this sense, it is a crisis of ‘profitability’. Not because profits have dropped or there is a ‘tendency’ for the rate of profit decline. Both the rate and the absolute amount of profit have increased, it seems, even during this terrible crisis. This is one of the manifestations of capitalist crisis Marx wrote about.
‘Unemployed’ capital exists alongside ‘unemployed’ workers. They seek to overcome this problem not through investment in industry – which is closed off to them in Britain because of its collapse – or in China or elsewhere, but by seeking to create new fields of investment by looting the state through privatisation. It is this fact that lies behind the irrational, ruinous policies to privatise the NHS, the police, and the state sector as a whole.
This is the crazy ‘logic’ of modern capitalism. Marxism alone is capable of analysing the processes of capitalism and preparing a socialist future for the working class.