Capital and The Falling Rate of Profit

[Workers-Control-Over-Prod]

The western capitalist States (and Japan) have taken over massive debts from the private economy to stimulate growth over the last ten years (especially last 4 years to bailouts), have thrown trillions at the banks to invest into the real economy, the FED and ECB have lowered central bank interest rates to historical lows (risking inflation), have taken over the debts from the banks, been the debtor of last resort, while even though the banks are having all this money thrown at them, corporations subsidised, capitalists gotten massive tax cuts etc.; no one is investing into the real economy. During 2010, there was a minuscule boom, small and very worrying to economists that this large crash in 2008 did not create a bigger boom.


While there already is high unemployment, the EU neo-liberal governments are cutting more jobs, social programs for people's basic needs and these policies causing/to cause a rising lack of consumer demand in the west. Until now, the Capitalists have gotten through the last ten years by using the profits they made from the (debt driven) Consumer production Industry to invest into the Capital Goods Industry in which they themselves control demand. But Machines do not buy machines, the consumer production sector is the basis of the economy; robots do not buy consumer items. An increased lack of consumer demand in the looming debt crisis means that the consumer production sector that has been been used by capital to invest heavily into the booming Capital Goods market, will crash. When the consumer production sector (which had always had [has in normal times] profits used for the Capital goods sector) sees defaults in a massive way (when this debt scheme collapses), the Capital Goods market will also crash. When the Capital Goods (machinery industry, cargo good etc.) market follows the crashed consumer economy, then the workers of that sector will be laid off and it is Exitus for Capitalism.

The underlying Low Rate of Profit, (such a low rate of profitability of the production process that Porsche makes 93% of its profits from financial speculation, "Hedgefond with car sales" as the german press called them. VW has 97% of its "Kapitalzusammensetzung" on machines and only 3% on workers wages), it is unfeasible that the private capitalist economy can be revived. Once the debt cycle is "renewed" (either in form of State Default, hyper-inflation [this on the most likely], austerity/privatisation, higher taxation or a mix of them) it still will not be profitable for capital to invest into the production process;
The production process in the most advanced capitalist countries such as Germany, Japan, USA etc. has nearly been fully automated, replaced machines with live exploitable labor, placing the Rate of Profit of the production process at 2% in the US (below the average banking interest rate since the last ten years), with only more piles of Debt, state subsidization, arms manufacturing from 9/11 and market bubbles having sustained the advanced economies, not to mention the "normal"-ised suppression of western workers' wages along increased productivity. According to Jeff Faux and his new book "The Servant Economy", the american and therefore hegemonic western, ruling class has set itself to to further lower workers' wages and rigidly hold on to this neo-liberal path.


The amount of machines that have replaced live exploitable labor, has spelled a near to complete automation of production in advanced capitalist countries' industry. Even if the old debts are rid, the Rate of Profit of the production process is too low for capital to invest into it, profitability has collapsed due to the advance of the productive forces. To quote Marx: "It is not what is made but how, and by what instruments of labour, that distinguishes different economic epochs. Instruments of labour not only supply a standard of the degree of development which human labour has attained, but they also indicate the social relations within which men work."

The looming crisis will be one in which the question will have to be asked why all the advanced means of production we have, should not be used to fulfill human needs, contrary to profits and capital, which do not function even for its own purposes anymore.

[Lynx]

A drop in nominal wages makes it profitable for investment to resume. In the case of a collapse, some capitalists will be wiped out and have their assets plundered by their brethren.

If you look at the participation rate of the labour force, it is in the 60-65% range. In some countries it may have dropped lower. Whether capitalism is sustainable at this level depends on how many people can survive on the income from those who still have jobs.

Production MUST continue. Without it, the technology and infrastructure we take for granted will decay, and people will die. I agree that automation will continue to erode the workforce, and at some point, socio-economic policy has to change.

[Workers-Control-Over-Prod]

A drop in nominal wages makes it profitable for investment to resume. In the case of a collapse, some capitalists will be wiped out and have their assets plundered by their brethren.

If you look at the participation rate of the labour force, it is in the 60-65% range. In some countries it may have dropped lower. Whether capitalism is sustainable at this level depends on how many people can survive on the income from those who still have jobs.

Production MUST continue. Without it, the technology and infrastructure we take for granted will decay, and people will die. I agree that automation will continue to erode the workforce, and at some point, socio-economic policy has to change.

This is very near sighted, in chapter 3 of "Capital Volume 3" Marx writes that


"The final cause of all real crises is always the [Relative!] poorness and consumption-barrier of the masses in contrast to the output of capitalist production, to develop the productive forces along the consumption-ability of society as if it were its borders."

But Marx was incorrect of the assumption of an equilibrium of the market.
Luxemburg writes about the dialectic between consumption sector (demand of the masses) and the capital goods sector in "The Accumulation of Capital" page 286, that


"[for the] the continuance of Accumulation the constant Capital C must necessarily grow in both sectors [of production, consumption sector and capital goods sector) not only absolute, but also relative terms to V(Wage) and M(Surplus Value) or the complete new Value (of societal expression of productivity of Labor)"

See, the Production economy is at the heart of the economy. When the debt scheme falls over in the west, the Capitalist Process of Production will collapse. We are currently in the "Third Industrial Revolution" as The Economist and many other business journals write. That means concretely that the measures already taken that have left the western working class either with high unemployment or starvation wages, will increase as machines replace live exploitable labor. 32% of the German economy for instance is Industry, and because the german economy is so highly advanced, we have had increasing measures in the last ten years to cut wages, threatening with unemployment and "HartzIV". But when the wages are cut, unemployment raving, the consumption sector of production collapses as well. But the consumption sector is at the basis of the ability of capital to invest into capital goods sector!
The German industry economy has only survived the last decade because the southern european economies took on massive debts to pay for german products, but since the southern european economies are being forced to go the "german way" of cutting wages etc., markets are being destroyed. And the Capitalists who make these austere policies don't just say "Oh, we'll just cut in the enterprises that produce commodities", they implement austerity on the whole working population to keep up profitability, to keep having their enterprises get investment. Within the next couple years Capitalism will strangle itself to death due to yet another contradiction of capitalism.

EDIT: By the way, i think i forgot to remind of the Falling Rate of Profit being at the heart of the cause for this. This was meant to be a more indepth description of the processes of the Low Rate of Profit in advance capitalist countries.

[Lynx]

V has been increasingly lagging M, and the extension of credit to top up wages only delayed the inevitable. If you are a business providing goods and services to customers who have less disposable income, or are paying off debts, your business will suffer. Laying off workers erodes consumer purchasing power. Spending is a measure of income. Thus the economy contracts further.
The old keynesian solution was to redistribute income or have the government spend money on infrastructure. Thus countering a deflationary spiral.
Instead, there were bailouts, followed by austerity in Europe, which are just about the worst policies that could have been chosen. But they were chosen because government has been captured by the elite. Policymakers are advised by economists, but mainstream economics is just another mouthpiece for the wealthy.
Austerity in a slowing economy is pro-cyclical. It's like pressing on the brakes when your car is trying to climb a hill. Expecting the car to accelerate is insanity. Yet that is the level of economic discourse in much of the world.

What of Germany? They are export-oriented, unlike the US. The Euro has allowed them to sell their stuff within the EU without the constraints of having a strong deutschmark. China has to peg its currency in order to enjoy what Germany has by design. The German elite don't care about helping the PIIGS, they would rather pillage them, for pennies on the dollar. Greece will be privatized, if they can get the government and the police to do their biding. Is this sustainable? Only if they can convince enough people that there is no alternative to impoverishment.

The counterpart to austerity is the attempt to ignite another bubble. That is no more of a solution, as we should all know better by now. All bubbles burst.

I don't know how much time capitalism has, but the wage share and levels of participation of the labour force indicate it has a ways to go. If the rate of profit discourages investment in the real economy, then the government will be forced to intervene. Debt is not a problem as long as the government can create money and impose taxation.

[Lynx]

Germany would be well-advised to increase domestic consumption, as China has done.

[Workers-Control-Over-Prod]

Yes, the German economy has very poor demand, but the overreaching crux is the Low Rate of Profit of the production process. If governments were to now increase taxes, there would be capital flight as we have seen in Greece and France before the Euro. Keynesianism was a historical appearance in its own time in its own material conditions. We in fact have had highly state intervened and subsidised economies in the last decade, it's just that the social aspect necessarily erodee in order to keep capitalism in thewest since 70's crisis. Thereis no way around this, a Keynesian debt ridden capitalist economy might be "stable", but it won't be able to supply any kind of significant growth rates and remains trapped within the system of capital.
Capitalism is over, you can see it, it has met its end, there's nothing more it can do.

[Lynx]

I meant that Germany should increase wages, in order to stimulate internal demand. China has done this, even though this will threaten their exports.

At the moment, economic ideology is killing capitalism, primarily in Europe. And austerity is being introduced in the US. It has been delayed due to concern about Europe, but the hysteria over the deficit is convincing most people that it is 'necessary'.

[Clifford C Clavin]

There will be wild austerity and/or war to destroy means of production to the point where capital can resume the required level of expansion.

[Workers-Control-Over-Prod]

I meant that Germany should increase wages, in order to stimulate internal demand. China has done this, even though this will threaten their exports.

At the moment, economic ideology is killing capitalism, primarily in Europe. And austerity is being introduced in the US. It has been delayed due to concern about Europe, but the hysteria over the deficit is convincing most people that it is 'necessary'.

Well, if Germany did that with this Low Rate of Profit, with this amount of constant capital compared to live labor in the production process, then investments into its industry would fall and the German economy is ruined. The German capitalist economy is already doomed since it has only survived because it rode on the backs of the rest of European national economies which indebted themselves to buy german products, devalued cheap Euro export currency, not to mention low wages on its german workers. There is absolutely no way out for capital. I don't necessarily see the current ruling reactionaries as being independent ideologues, the ruling reactionary governments are en effect of the cause of the massive financialisation of capital, i.e. of the falling rate of profit once again. The neo-liberal "economic ideology" being implemented through austerity and mass privatisation is a necessary factor for banks to feel comfortable to lend further money to the indebted governments. It is hence only a natural (or near to calculable) reaction of capital to Crises with a low exploitation rate in southern European countries compared to northern European countries. The social cuts and mass privatisations to bail outs are enriching the majority of capital (which today is finance) in the short term. The alternative to this austerity would be a Keynesian type of Marshal plan and economic policy centralisation (the political union) for the Eurozone countries, but that would require taking on more debt of governments (having to borrow from private banks and rich individuals which would call for privatisation, austerity etc. to feel comfortable) since taxation of the rich is first a political suicide of given party and second a large risk regarding capital flight in this economic situation.


originally posted by Clifford C Clavin
There will be wild austerity and/or war to destroy means of production to the point where capital can resume the required level of expansion.

Austerity is merely a measure taken by capitalist governments to calm their lenders, the bankers, which leads to nothing but deeper crisis. Even if a War comparable to WW2 were to happen in which 15% of Germany's industrial capacity was bombed to bits, it would not save capital. In War, certain things such as bomb factories, chemical industrial plants, steel industries, energy sites, and communication infrastructure are mainly targeted and bombed. But to revive capital-ism, the mercenaries of capital would have to go in all factories and destroy all machines, technological advances made in the last year hundreds, destroy databases and kill off all engineers who have knowledge how to produce these advanced productive forces! But doing this in one country is not enough, you would have to do this globally as far as possible to throw back humanity a couple of years. Basically, you would have to exert nuclear holocaust on humanity to force back the proportion of Constant Capital (machines) and have a higher amount of live exploitable labor in the production process. "Socialism or Barbarism" never was more true than now.

[Lynx]

Well, if Germany did that with this Low Rate of Profit, with this amount of constant capital compared to live labor in the production process, then investments into its industry would fall and the German economy is ruined. The German capitalist economy is already doomed since it has only survived because it rode on the backs of the rest of European national economies which indebted themselves to buy german products, devalued cheap Euro export currency, not to mention low wages on its german workers. There is absolutely no way out for capital. I don't necessarily see the current ruling reactionaries as being independent ideologues, the ruling reactionary governments are en effect of the cause of the massive financialisation of capital, i.e. of the falling rate of profit once again. The neo-liberal "economic ideology" being implemented through austerity and mass privatisation is a necessary factor for banks to feel comfortable to lend further money to the indebted governments. It is hence only a natural (or near to calculable) reaction of capital to Crises with a low exploitation rate in southern European countries compared to northern European countries. The social cuts and mass privatisations to bail outs are enriching the majority of capital (which today is finance) in the short term. The alternative to this austerity would be a Keynesian type of Marshal plan and economic policy centralisation (the political union) for the Eurozone countries, but that would require taking on more debt of governments (having to borrow from private banks and rich individuals which would call for privatisation, austerity etc. to feel comfortable) since taxation of the rich is first a political suicide of given party and second a large risk regarding capital flight in this economic situation.

Austerity is merely a measure taken by capitalist governments to calm their lenders, the bankers, which leads to nothing but deeper crisis. Even if a War comparable to WW2 were to happen in which 15% of Germany's industrial capacity was bombed to bits, it would not save capital. In War, certain things such as bomb factories, chemical industrial plants, steel industries, energy sites, and communication infrastructure are mainly targeted and bombed. But to revive capital-ism, the mercenaries of capital would have to go in all factories and destroy all machines, technological advances made in the last year hundreds, destroy databases and kill off all engineers who have knowledge how to produce these advanced productive forces! But doing this in one country is not enough, you would have to do this globally as far as possible to throw back humanity a couple of years. Basically, you would have to exert nuclear holocaust on humanity to force back the proportion of Constant Capital (machines) and have a higher amount of live exploitable labor in the production process. "Socialism or Barbarism" never was more true than now.
The ECB does not need the banks or private bondholders to fund debt. It could play the role of lender of last resort if it wanted to. The elite does not want it to. They prefer that everyone abide by arbitrary SGP rules that would limit deficits to 3% of GDP and debt to 60%. Japan has a debt to GDP of 200% and are doing better economically.

Taxes can be raised on the wealthy and on corporations. Capital flight from a market of 80 million people is just fear mongering. Exports would be affected, as German products become less competitive, but China is taking the same risk.

I'm just pointing out that there are ways to mitigate this crisis, but the elite are under no pressure to accept them. Which is just as well, for capitalism requires total discrediting if it is to be replaced.

[Workers-Control-Over-Prod]

If you mean by crisis the suffering of normal people, then yes, it is of course very much avoidable. But the crisis of capital accumulation is inevitable, we are right in the middle of more than three central aspects to this western capitalist crisis, that is 1) a historical low underlying rate of Profit of the Productionprocess 2) the overaccumulation of capital to 3) debt crisis, which this debt will need to be rid to start the cycle again; necessary destruction of capital value, of old debts mainly.

You are very correct that the persons in power/wealth are very reactionary, banking capitalists, who are the single cause to not increasing taxes to cut the deficits. I am not saying that if a workers party were in government in Germany, that i would not advocate higher taxes, but it would have to be (at least) done EU-wide as to make capital flight less. These higher taxes could then be used for more social programs and to make jobs programs to hire the workers who will necessarily be the victims of a necessary crisis, destruction of old debts, of capital value, of the private capitalist economy if it is to regenerate to the meager amounts of growth that the low rate of profit allows.

[Die Neue Zeit]

Crisis Theory is overrated, in my opinion.

[Rafiq]

Crisis Theory is overrated, in my opinion.


Be that as it may, it's still important.

[ckaihatsu]

Debt is not a problem as long as the government can create money and impose taxation.


Current events disprove this, since even national sovereign debt is subject to market valuations.





The ECB does not need the banks or private bondholders to fund debt. It could play the role of lender of last resort if it wanted to.





This week, Moody's cut its outlook for Germany’s triple-A rating to negative and downgraded its outlook as well for the Netherlands, Luxembourg and the European bailout fund (European Financial Stability Facility—EFSF)

http://wsws.org/articles/2012/jul2012/pers-j26.shtml

[Workers-Control-Over-Prod]

Crisis Theory is overrated, in my opinion.

Who is rating the crisis? No one is attributing any rate of revolutionary relevance to the immediate crisis. I personally believe this crisis will hit my country's working class at an untimely moment since the communist parties are splintered, and i do not get excited at the prospect of third world-ist human indexes here as well. But it is a time of change after decades of nothingness, and in the times where the bourgeois ideology blatantly contradicts the material conditions of capitalist society, a vacuum opens up in the political sphere that might just fill (and expand) the radical left with much needed optimism to its need to organize the working class to revolution.

Besides the obvious stated above, the analysis of where wealth is invested into and how its production is organized, has important insights to social conditions that force their ways on working people. Economics is as well a personal interest of mine for many reasons, mainly that most of the population (and socialists for that matter) are not educated on it, are actively diverted from it by the bourgeois propagandists to see its importance, and that it has profound and an all ruling impact on society. The increased Debt, anti-depressants, higher divorce rates, loneliness, authoritarian education policies, wars, social engineering and monopolized corporate media in the last decades are all dynamics of the evolution of the economic system of capitalism. I find the analysis of these dynamics very important to attain an overall view of social developments and to try to offer explanations to people who are not aware of the dynamics of the transfer of society's wealth in various sectors for various class interests, on the central reasons for these destructive outreaches. Capitalism is a system that functions in the interest of capital, to attain higher profits, and through economic statistics one can argument, debate and empirically show how this system precisely does not function in the interest of human needs.

[Lynx]

Current events disprove this, since even national sovereign debt is subject to market valuations.
If Germany were faced with higher interest costs, you would see the ECB taking a bigger role in issuing bonds itself. Nevertheless, Germany is not monetarily sovereign as is the UK, US, Canada, etc.

[ckaihatsu]

If Germany were faced with higher interest costs, you would see the ECB taking a bigger role in issuing bonds itself.


Okay, makes sense.





Nevertheless, Germany is not monetarily sovereign as is the UK, US, Canada, etc.


Not sure what you mean by "monetarily sovereign" here -- note that Germany's economy receives a financial rating of its own from Moody's, etc. (post #14).

[Dunk]

All that is necessary for the restoration of profitability is the devaluation or destruction of capital on a massive scale. Lots of bankruptcies, foreclosures, and war. Not that I want that, but I think toying around with the idea that "Capitalism has no way out this time - here comes the fatal crisis!" is just wishful thinking. Hey, here's to hoping that you're right, though. Cheers.

[Lynx]

Not sure what you mean by "monetarily sovereign" here -- note that Germany's economy receives a financial rating of its own from Moody's, etc. (post #14).
Germany does not issue its own currency, it uses the Euro. That is the arrangement all members of that union agreed to. Thus, none of them are monetarily sovereign in the way the UK, US and many other countries are.

States and provinces can also receive credit reports. These reports are not always credible, to say the least.

[Lynx]

All that is necessary for the restoration of profitability is the devaluation or destruction of capital on a massive scale. Lots of bankruptcies, foreclosures, and war. Not that I want that, but I think toying around with the idea that "Capitalism has no way out this time - here comes the fatal crisis!" is just wishful thinking. Hey, here's to hoping that you're right, though. Cheers.
I agree. But the elites are loathe to give up the claims to their wealth, even when it turns out much of that wealth is fictitious. So they continue to pursue austerity to the bitter end...

[ckaihatsu]

I think toying around with the idea that "Capitalism has no way out this time - here comes the fatal crisis!" is just wishful thinking. Hey, here's to hoping that you're right, though. Cheers.


Um, yeah, good luck with "your" communism, too....

(???)