MIA > Archive > Fraina/Corey Archive > Decline of Am. Cap.
OPPOSING forces are always at work to check the tendency of the rate of profit to fall: capitalist production is an unceasing struggle against the tendency. The struggle and the forces it sets in motion are determining factors in capitalist expansion, cyclical breakdown, and decline.
Capitalist production strives to check the fall in the rate of profit by raising the productivity of labor. This may take the form of greater intensity of labor, and develops some of the most barbarous aspects of capitalist exploitation. It includes speeding-up the workers by making them attend more machines (“stretch-out” system), increasing the speed of machines, or “standardizing” work motions on a basis which strains human resources, an important element of “scientific management.” A greater intensity of labor tends to raise the rate of profit by increasing surplus value without an increase in the value of fixed capital. This may be achieved also by depressing wages below the value of labor power – so that workers are able to buy less of the customary necessaries of life – either through direct reduction of wages or rising prices. But all these efforts mean a decrease in relative wages, a greater lag of wages behind profits, and tends to upset the balance between production and consumption. Similar results follow a rise in the productivity of labor through the use of more efficient equipment. For this leads to an increase of constant capital, particularly the fixed portion, more excess capacity, and a stronger tendency of the rate of profit to fall. The efforts to overcome contradictions aggravate them and the forces of cyclical breakdown.
Increasing the productivity of labor is an aspect of rationalization, whose primary aim is to check the fall in the rate of profit. Rationalization means the more economical, intensive, and scientific utilization of constant capital. It involves more efficient use of existing equipment; development of new processes, particularly chemical, which may increase productivity with little if any new expenditure on fixed capital; introduction of more efficient equipment at the old or lower prices, accomplished on a large scale by the electrification of industry; and the more economical use of raw materials, including the utilization of their wastes in the form of by-products. But the result is an eventual aggravation of contradictions. The output of by-products increases the pressure on the markets of commodities with which they compete. Pressure on all markets is increased by the general rise in the productivity of labor, tending toward overproduction and unprofitable prices. In the long run all these efforts to enlarge the mass of profits and check the fall in the rate increase the proportion of constant to variable capital, and the rate of profit begins to fall again. Moreover, the more intense and economical use of constant capital depends upon measurably complete and continuous operation, and this is thwarted by an excess capacity become all the greater because of rationalization.
Destruction of capital and depreciation of capital values constitute another check upon the fall in the rate of profit. Bankruptcy, by destroying capital and moderating competition, eliminates a factor dragging down the rate of profit and tends to raise the rate on the surviving capitals; reorganization of an enterprise, by scaling down capital values (and the claims of investors), raises the rate of profit. The process of destruction and depreciation of capital proceeds most drastically in depressions, developing the conditions of revival and of a higher rate of profit. This check upon the falling rate of profit means serious losses to individual capitals, which the capitalists strive to unload upon each other and primarily upon small investors. But the losses are a condition of the accumulation of capital and its concentration, and of the prevention of a disastrous fall in the rate of profit. Social waste on a large scale is involved. Waste is one of the necessary conditions of capitalist production, prosperity, and accumulation – waste that, antagonistically, is accompanied by its scientific elimination in production itself.
Among the most important means of checking the tendency of the rate of profit to fall is cheapening the value of constant capital, of equipment and raw materials, whose quantity and productivity tend to increase more than their price.
The industries producing machinery and apparatus continuously increase the efficiency and decrease the price of their goods, usually more than the average in capitalist production as a whole. This was particularly marked in 1922-29 because of the very rapid progress in technology: the price of equipment moved downward while its efficiency rose substantially. But while cheapening the elements of fixed capital may check the fall in the rate of profit of industries producing consumption goods, it may result in a lower rate of profit in the industries producing capital goods. Moreover, this check of the fall in the rate of profit involves, in terms of values, a relatively lower output of capital goods, the major sustaining force in prosperity, and eventually aggravates the problems of excess capacity and overproduction.
Lower prices of raw materials contributed greatly to the profits of industrial capital in 1923-29. But this means of checking the fall in the rate of profit develops some of the most serious contradictions and antagonisms of capitalist production. Prices of raw materials are cheapened by more efficient production and an increase in supply, including the use of “scrap” and development of synthetic substitutes. There may ensue a fall in the rate of profit of raw material industries. Synthetic substitutes intensify competitive pressure on markets. The pressure is twofold where a substitute is both raw material and finished product: rayon seriously affected the prices and profits of the older textiles, raw and finished. Overproduction and disastrous price declines are stimulated, even among raw materials whose output and prices are under control of agreements or monopolist combinations, strengthening the tendency of the rate of profit to fall and the forces of cyclical breakdown.
Cheapening the prices of raw materials is, moreover, identified with the exploitation, by highly developed capitalist nations, of colonial and other agrarian peoples, who are forced to maintain an unbalanced economy and are ruined by disastrous price declines. This is in general an expression of the capitalist exploitation and the economic decline of agriculture; for it is economically and politically dependent upon capitalist production and supplies nearly half of industry’s raw materials. Capitalist production extorts ruinous profits from agriculture in several ways: opening up new agricultural regions, as in the United States in 1865-90 or in the Argentine, yields profits on the construction of railroads and on the subsequent traffic; increasing the efficiency of agriculture yields profits on the sales of machinery and implements; and there are direct profits on cheaper raw materials and indirect profits on the cheaper foodstuffs which increase real wages. Increasing the supply and decreasing the price of agricultural raw materials is profitable to capitalist industry but tends to ruin the farmers. As long as American agriculture was expanding, in area and sales, and farmers might capitalize prospective earnings, capitalist exploitation was partly offset by increasingly larger markets and higher land values. Now, however, agriculture is doomed to permanent crisis and decay by the impossibility of new expansion, declining markets, depressed land values, continued capitalist exploitation, and the accumulated burdens of previous exploitation. (Agriculture is afflicted also by the large fixed costs of investment in land and equipment, among whose burdens are a fall in the rate of profit and a rise in mortgage interest and tenancy. Agricultural equipment is costly and not used most economically on small farms; while it may at first increase the rate of profit, more efficient equipment tends to lower prices and profits when it comes into general use; because of fixed costs and competition there is a drive to produce and sell regardless of price, some income being better than none. Farmers, particularly in the epoch of capitalist decline, are inexorably transformed into peasants.) The exploitation of agriculture simultaneously weakens capitalism, however, by arousing class and political antagonisms, national and international, and by creating the objective basis for the socialization of agriculture and its union with socialist industry.
The most important means of checking a fall in the rate of profit is to increase the mass of profits faster than the rate tends to fall. This may be done by trickery, the seizure of extra profits wherever possible and the plunder of capitalist by capitalist [1*]; but essentially an increase in the mass of profits involves more fixed capital (and materials), larger output, and a larger share of the market: an enlargement of the scale of production. In enlarging capacity, however, an enterprise is seldom free to adjust the technical and the economic factors. The expansion program and the conditions of the market may require an increase of 25% in capacity, but technical requirements may impose an increase of 50% or 100%. The new equipment may be justified from the technical standpoint of efficiency and unjustified from the economic standpoint of realizing on all the output, of sales and profits. On the other hand, an increase in consumer demand usually results in new capacity much greater than the new demand. Thus, enlarging the scale of production tends to increase excess capacity; this, as the variable costs of labor decrease in favor of the fixed and semi-fixed costs of constant capital, may result simultaneously in a rise in the mass of profits and only a temporary, if any, check in the falling rate of profit. Moreover, the tendency toward an absolute increase in the scale of production, regardless of market conditions and the proportional relations of one industry to another, conditions the whole movement of recurrent cyclical crisis and breakdown.
Monopoly arises out of changes in the composition of capital and their results. Monopolist combinations are only partly a result of the technical aspects of the enlarged scale of production, they are also a result of the desire to seize any available profits and control output, markets, and prices to increase profits. Vertical combinations spread upward and downward to secure profits in the production of raw materials (and assure a steady supply) and profits in various stages of manufacture up to the final product. Horizontal combinations spread outward to control the output and markets of a particular product, and secure more profits by manufacture of allied products and general diversification of output. Some combinations may do both. These efforts to increase the mass of profits include combinations striving to secure a higher rate of profit in one activity to offset a falling rate in another activity. The process, which leads to monopoly, results in intensified competition because of larger output, the increase in the scale of production, and the persistent torments of fixed and semi-fixed costs and excess capacity.
Under the conditions of large-scale production, competition is not necessarily accompanied by a decrease in production or shutdown if prices fall or by the migration of capital to a more profitable industry if profits are low. That possibility was always more theory than reality: it was severely restricted by fixed capital, habit, and lack of knowledge of a new industry. It was, nevertheless, easier than to-day to decrease production or shut down or migrate to a new industry because of the large proportion of easily transferable variable capital. This becomes increasingly difficult in large-scale industry because of the greater investment in fixed capital and the greater specialization of machinery and output. To-day, large-scale enterprises, in manufactures, mining, petroleum, keep on producing regardless of unfavorable market conditions: to decrease production or shut down usually means heavier losses than selling below the price of production, means a disastrous depreciation of capital. Competition is intensified. Intensified competition, unprofitable prices, and large losses no longer necessarily result in decreased production. This aggravates the contradictions driving toward overproduction and cyclical breakdown.
Efforts to create monopoly are invigorated. Monopolist combinations succeed (an indication of capitalist decline) mainly by limiting output and raising prices, by control of markets and prices more than by gains in productive efficiency, and frequently in spite of real losses in efficiency. These combinations seize some of the profits of trade by extorting monopoly prices or by opening their own retail outlets, and they seize some of the profits of “independent” small producers by extorting higher prices for materials or by forcing them to accept low prices for parts of a product which they manufacture. Thus, monopolist combinations may check a fall in their rate of profit by imposing lower rates upon other groups of capitalists. But monopoly is rarely complete or enduring. Monopolist combinations or controls break down. New forms of monopolist competition arise. Monopolist combinations may clash with each other over prices of raw materials or by invading each other’s markets. Independents, using the newest and most efficient equipment and much more likely to operate at 100% of capacity, may earn a higher rate of profit than the larger companies – as was the case in the steel industry in 1923-29. If monopolist combinations succeed in suppressing competition in their own fields, competition in other fields is aggravated. This may result either from the greater pressure of capital seeking investment or from monopolist combinations invading non-monopolist markets to secure a larger “slice” of the consumer’s dollar. The “organization” of capitalist production provokes new disorganization. And in spite of all its efforts, monopoly capitalism is still tormented by the tendency of the rate of profit to fall.
The increasingly higher composition of capital, the absolute development of production and the relative development of consumption, the fall in the rate of profit, and the contradictions of accumulation in general are inseparably bound up with the development of the world market, the emergence of imperialism, and the international extension of the inner antagonisms of capitalist production.
Enlarging the scale of production makes more imperative the demand for foreign markets to supply raw materials and absorb finished manufactures. [2*] Foreign trade tends to increase surplus value and its realization and check the fall in the rate of profit by providing cheaper raw materials and foodstuffs and by reducing excess capacity through selling abroad goods which are unabsorbable in the domestic markets.
The efforts of monopolist combinations to increase the mass of profits and the rate result in their operations becoming international, particularly in economically undeveloped regions. They attempt to monopolize sources of raw materials and markets for finished manufactures, both capital goods and consumption goods. Frequently monopolist combinations establish branch plants where cheap raw materials and cheaper labor yield higher profits.
The international operations of monopolist combinations require an export of capital: nearly one-half of American capital in foreign countries consists of direct investments in branch plants, natural resources, communications, and distribution. This direct export of capital is augmented by the export of capital in the form of loans. In spite of the great demand for capital in the highly industrial nations, strengthened by changes in the composition of capital, there is always a surplus capital seeking investment anywhere, anyhow. The export of this surplus capital permits it to “earn” a higher rate of profit and eases the downward pressure on the rate of profit of capital invested in domestic industry.
In the epoch of monopoly capitalism foreign trade becomes entangled with imperialism: the export of capital, the international operations of monopolist combinations, the struggle to control economically backward regions capable of supplying raw materials and absorbing surplus goods and capital. But imperialism, an endeavor to escape the contradictions of accumulation and capitalist decline, creates new contradictions. The export of capital tends to become an export of interest paid on previously exported capital, which does not involve the export of goods; the check in the fall of the rate of profit is only temporary, as imperialism develops its own downward pressure on the rate because of surplus capital, intensified competition, and the development of large-scale industry on a world basis; the industrialization of economically backward regions and the constantly greater rivalry of imperialist nations weakens the economic base of imperialism and strengthens capitalist decline. Imperialist antagonisms become more violent, and explode into war and the threat of new wars, while exploited colonial and semi-colonial peoples rise in revolt against imperialism.
If the rate of profit falls it sets in motion all the contradictory and antagonistic efforts to check the fall. If the fall is checked or if the general rate rises there ensues an accelerated accumulation of capital and creation of more surplus capital: the situation becomes worse. Surplus capital desperately seeks profitable investment, forcing down the rate of profit. It flows into industry, producing more excess capacity; invades the domains of monopoly with old, new, or substitute products, producing more excess capacity; sharpens competition, inflames the passions of speculation, and strengthens the material and ideological bases of imperialism. The result is an intensification of economic disproportions, an increase in the instability of capitalist production, and the aggravation of cyclical breakdown and depression.
Capitalist production is held tightly, inexorably, as in a vise, in the contradictions of accumulation. What J.M. Clark, a liberal economist, says of overhead costs is true of all the contradictions of accumulation, of which overhead costs are an aspect:
“They [overhead costs] make regular operation peculiarly desirable and peculiarly profitable, so that business feels a definite loss whenever output falls below normal capacity, and yet it is largely due to this very fact of large fixed capital that business breeds calamities for itself, out of the laws of its own being ... There is something about the commercial-industrial system which bewitches business so that it does just the thing it is trying to avoid, and is held back from doing just the thing it yearns to do – maintain steady operation ... We may end our study with a curious wonder at the intricacies of the financial-economic machinery which man has built. Man did not design them; they are rather the unintended by-products of the inventions which he did design to serve his supposed needs. These unintended by-products he does not even understand. They appear with all the force of living things with purposes foreign to those of mankind, because they act in ways which man does not understand and did not plan. No man has yet comprehended them completely. Yet we do know enough to offer some prospect of controlling them, though we must well-nigh remake ourselves and our industrial organization in the process. And so we may look forward, not without hope, to the task of taming the New Leviathan. The stakes are heavy, for if we do not tame him, he may devour us.” [1]
The monster must “devour us.” For in its efforts to ease the burden of overhead costs and excess capacity, to avert a fall in the rate of profit, capitalist production lowers wages, multiplies unemployment, engenders crises and depressions, and throws the world into the bloody struggles of imperialism. And the monster must “devour us” even under the institutional arrangements of state capitalism urged by the liberal economists. How does Clark propose to “tame” the monster? By means of the “co-operation” of business “for certain purposes while competing for other purposes”; of a price and wage policy intended to “increase output” and “minimize” unemployment (which is contradictory); of the “partnership” of capital, labor, and the consumers; of national planning. These suggestions, made in 1924, are now part of the “philosophy” of Niraism: and they are not working. Nor are they working in the European nations where state capitalism is more highly developed. While Clark, whose study is original, comprehensive, and suggestive, measurably recognizes the determining relations of production, he overemphasizes the relations of exchange. This overemphasis, which accepts capitalist production as eternal, necessarily leads to proposals of superficial and unworkable reforms in the realm of exchange. It is with exchange that state capitalism tinkers, for it cannot tinker with the foundations of production. But the problem is one of the underlying antagonisms of capitalist production: the exploitation of labor, the composition of capital, the drive to beat down wages in favor of profits, the tendency to develop the forces of production beyond the forces of consumption, and the resulting excess capacity and “unearned” overhead costs. It is a problem of the contradictions of accumulation. The disastrous results of the contradictions and antagonisms appear in the realm of exchange, but they originate in the realm of production. It is, moreover, a problem of the social relations of capitalist production, of their fundamental exploiting character. For, under socialism, the higher composition of capital would mean more output or leisure or both; and there could be no excess capacity because the aim of production becomes social consumption and not private profit. There is no excess capacity in the Soviet Union: no unemployment, no overproduction, no cyclical crises and breakdowns ...
The monster of capitalist accumulation cannot be tamed: it is the law of his being to devour not only “us” but capitalism itself. For the contradictions of accumulation are always undermining capitalism, preparing its decline. But the undermining is relative in the epoch of the upswing of capitalism: the contradictions are solved dialectically, by the movement of crisis, depression, and recovery, while the long-time factors of expansion permit of accumulation on an enlarged scale. The mechanization of old and the development of new industries, the exploitation of the world’s economically backward regions (railways, public works and other construction, natural resources, new markets), particularly important in the United States because of its own continental areas and resources – all these long-time factors of expansion provided abundant demand for capital goods, the creation and absorption of new capital. There was an ebb and flow, crises and breakdowns and destruction of capital, but the long-time factors of expansion provided the conditions for enlarged accumulation, for an accelerated production and realization of surplus value. When expansion is exhausted or approaching exhaustion, and the decline of capitalism becomes the dominating fact of economics and politics, the contradictions of accumulation begin to undermine capitalism in an absolute sense because of the limitations imposed upon the production of capital goods, upon the creation and absorption of new capital.
The prosperity of 1923-29 marked the practical exhaustion of the inner long-time factors of expansion, which now depends upon the dangerous expedients of imperialism and its exploitation of international long-time factors of expansion. That upsurge of prosperity was the “Golden Age” of American capitalism precisely because it can never appear again: golden ages are always in the past. The unusually great accumulation of capital in 1923-29 completed a cycle of expansion and measurably exhausted the future possibilities of any considerable growth in old and new industries. This development is emphasized by the tendency of the population to become stationary. Under these conditions of decline, of exhaustion of the long-time factors of expansion, national and international, the contradictions of accumulation are no longer overcome by the stimulating growth of industry. Production of capital goods tends to become mere replacement. Accumulation proceeds on a lower level, the extortion of surplus value are limited. Capital becomes relatively more abundant (although it may experience an absolute decrease) because of diminishing investment opportunities. The contradictions of accumulation become more violent and explosive because the accumulation of capital, dependent upon the increasing production and absorption of capital goods, is limited, repressed. On a lower level, crises and breakdowns still act as a temporary solution of contradictions, but they are no longer overcome by accumulation on an enlarged scale; depressions become more grinding and recovery is limited because expansion no longer stimulates an upsurge of prosperity. Capitalist decline is accompanied by the desperate resort to imperialism and state capitalism – imperialism, to escape contradictions; state capitalism, to “lessen” and “solve” by state action the multiplying contradictions of accumulation.
State capitalism originates in the increasing contradiction between the older relations of competitive capitalism and the newer relations of monopoly capitalism, in the inability of monopoly capitalism to function without some form of state intervention in industry itself an indication of approaching capitalist decline. When the decline becomes definite and threatening, state capitalism becomes definite and inclusive. The institutional arrangements of Niraism must operate within the limits of the exhaustion of the forces of expansion, i.e., of the decline of capitalism, which is still, moreover, tormented by the contradictions of accumulation on a lower level. Niraism cannot alter the composition of capital, or destroy large-scale industry, or overcome the tendency of the rate of profit to fall and the results of efforts to check it [3*], or prevent wages lagging behind profits, or any of the other fundamental contradictions and antagonisms of capitalist production: these persist and more actively undermine the crumbling foundations of capitalism.
Where the “controls” of Niraism and state capitalism may modify any one contradiction, they create and aggravate other contradictions. State capitalism tends (primarily as a result of capitalist decline, not of state “controls”) to decrease the absolute mass of profits. While this may be accompanied by alternating scarcity and abundance of capital, the relative mass of profits and capital tends to increase, however, because of diminishing opportunities for profitable investment, intensifying the downward pressure on the rate of profit. That means a drive to raise profits by improving technological efficiency, displacing labor, and lowering production costs, thus aggravating the problem of excess capacity and the falling rate of profit by increasing constant capital and restricting markets. As a way out, an engineer [2] suggests that the NRA impose “an indirect tax which would tend to drive idle machinery out of existence and make further investment in unnecessary plants and equipment unattractive to capital.” As simple as all that! Almost as simple as the belief of some management engineers that the costs of excess capacity are a problem in the arrangement of machines and the more intensive exploitation of labor. As simple as the idea of progressives that income and inheritance taxes would break up the concentration of wealth (which has greatly increased since the taxes were imposed).
The proposal to tax unused capacity ignores the conditions which produce “idle machinery” and “unnecessary plants” – the change in the composition of capital, the tendency of the rate of profit to fall, and the surplus capital pressing for investment. Would not the tax intensify the fall in the rate of profit by adding the costs of the tax to the costs of unused capacity? And would it not encourage full use of capacity, sharpening the threat of overproduction and cyclical breakdown ? Is there to be no more surplus capital? What of wages necessarily lagging behind profits, of investment income increasing more than consumption income? Is surplus capital to be taxed out of existence? What of the efforts to increase the mass of profits to check the fall in the rate, thereby enlarging the scale of production and excess capacity? And what of the unpreventable efforts to increase profits by increasing the productivity of labor, which usually cannot be done without creating more excess capacity? If Niraism “fixes” wages and prices and “restricts” output, would that not tend toward more excess capacity? This is admitted by a bourgeois economist: “A premium will be put on efforts to lower the cost of production for the sake of much higher profits. This will be done by investing more capital in order to increase the productivity of labor and may very well result in new and revolutionary technical developments ... and can only lead to further overdevelopment of industries.” [3] Is a tax on unused capacity to overcome the antagonisms between the output of capital goods and consumption goods, between one industry and another, between production and consumption – antagonisms resulting from the exploiting relations of capitalist industry?
The tax proposal, moreover, ignores the fact that excess or unused capacity is not absolute, except in rare cases: it is relative. It is an excess only in relation to existing deficiencies in mass purchasing power and markets, not in relation to social needs, for these are clearly abundant and pressing. The tax proposal amounts to a restriction, instead of liberation, of production, and is thus wholly in line with the tendency to repress economic progress, which is characteristic of state capitalism and Niraism and of the decline of capitalism. What is necessary is not the capitalist abolition of excess capacity, used or unused, but its socialist utilization to fill social needs.
These problems constitute a whole chain of causes and effects, one problem linked to another with links of steel. The problems involve the fundamental, inescapable contradictions of accumulation, of capitalist production; these, in the epoch of the decline of capitalism must doom Niraism and devour capitalism, particularly when the contradictions explode in imperialist war. And final contradiction and synthesis: in large-scale industry, capitalism has prepared the objective basis of socialism and has set in motion the dynamic forces of class struggle by means of which the working class, organized by the mechanism of capitalist production itself, mobilizes for the overthrow of capitalism.
1*. “The rate of profit within the process of production itself does not depend merely on the surplus value, but also on many other circumstances: on the purchase prices of the means of production, on methods more productive than the average, on economies in constant capital, etc. And aside from the price of production, it depends on special constellations of the market, and in every business transaction on the greater or lesser smartness and thrift of the individual capitalists, whether, and to what extent, a man will buy or sell above or below the price of production and thus appropriate in the process of circulation a greater or smaller portion of the total surplus value.” Marx, Capital, v.III, p.439.
2*. American imports of raw materials rose from a yearly average of $91,000,000 in 1876-80 to $1,484 million in 1926-30, exports of finished manufactures from $98,000,000 to $2,126 million. Imports of raw materials rose three times as much as exports; exports of finished manufactures rose four times as much as imports. Department of Commerce, Statistical Abstract, 1931, pp.494-95. Foreign trade also supplies raw materials otherwise unavailable or nearing exhaustion.
3*. The downward pressure on the rate of profit becomes stronger under the conditions of capitalist decline. “Until the world again enters upon a period of great industrial expansion, requiring large expenditures of new capital, the rate of interest obtainable from the highest type of security is likely to be low, very low, lower at all events than any yet seen.” Thomas F. Woodlock, Money’s Hire, Wall Street Journal, June 20, 1933. Woodlock speaks the jargon of the investment broker and confuses profit and interest, but his point is clear.
1. J.M. Clark, The Economics of Overhead Costs (1923), pp.386, 486-87.
2. New York Times, July 2, 1933.
3. W.W. Hay, Plant Overexpansion As a Logical Result of the Industrial Recovery Act, Annalist, July 28, 1933, p.115.
Last updated on 29.9.2007