SocialismToday           Socialist Party magazine

Issue 169 June 2013

A reply to a profitable question

I can understand Bruce Wallace’s scepticism about how profits can be rising yet demand declining. (Socialism Today No.168, May 2013)

Capitalists can increase their profits without increasing their sales in terms of value or volume. Their profit is made from sales less their costs, which can be things like loan interest, rent, depreciation on capital machinery, wages and a number of other things.

In fact, any bookkeeper worth their salt (which is the limit of understanding of most capitalist economists) could probably tell us that, by reducing costs in wages and other costs (assuming sales are not cut by the same ratio), a bigger share goes to profits. So, despite weaker demand there can still be an absolute and relative increase in profits. As Bruce rightly says, for Marxists, the struggle is over the share of surplus value created by workers and profit for the capitalists.

As Lynn Walsh wrote (Behind the Stock Market Surge, Socialism Today No.167, April 2013), another way is through investment capital or new technology to reduce the number of workers, thereby increasing productivity. Even without necessarily increasing sales, employing fewer workers has cut their labour costs leaving more profit for them.

Even without investing in new capital machinery or technology, the share going to profits has increased by a combination of workers taking actual cuts in wages, speeding up production lines, the intensification of work, fewer paid holidays, pay rises less than inflation, etc. Wages as a share of GDP are at their lowest at 61.7% and profits at their highest at 14.2%. In addition, investing in cheap labour economies increases the share going to profits.

Because of the lack of demand and overcapacity, the capitalists cannot fully utilise their current machinery. So why invest in new machinery to expand sales in volume when long-term demand for their goods is in decline? Therefore, only by reducing the share going to wages, or through minimal investment to reduce the number of workers, can they increase their profit without necessarily expanding sales. I believe there are figures showing that capital investment has declined, relatively, for decades.

Bruce is quite right to state that profits don’t come from thin air. It is surplus value or the unpaid labour of the working class, which is how Karl Marx explains the ‘mystery’ whereby the daylight robbery of workers takes place. The labour time taken to earn enough to provide for the workers’ needs (socially useful labour time) has fallen, and the unpaid time that goes to the capitalist (the surplus value) has increased. Therefore, the increase in profits is at the expense of workers.

Even in Marx’s day he described how capitalists had become mere coupon clippers in purchasing stocks and shares, increasingly divorced from real production. The nature of capitalism today is ever more parasitical.

It is difficult to explain all these processes, especially for first-time readers. There is more that can be said on the question of surplus value and capital, etc. I would recommend that readers of Socialism Today refer to articles on Marxism on the website and arrange discussions on the questions raised by Bruce.

Joe Foster, Birmingham

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