Economics – Marx in a minute
Could it be that low profit rates are causing the problems of the economy? Not too much Government. Not too little Government. Not over-regulation. Not under-regulation. Not over-consumption. Not under-consumption. Not too many people. Not greed.
Low profit rates.
If so the way production is organised under capitalism is the real issue.
Capitalists invest more and more in machinery and other capital at a rate faster than they invest in labour. Competition forces them to do this as they search for ever more ’efficient’ and cheaper ways to ‘beat’ their competitors and make more profits.
Profit is what is left over after accounting for the costs of capital and labour. So for capitalists the rate of profit (the return on investment) is this profit amount divided by the cost of capital and labour.
Yet since labour is the source of new value, this means that profit rates will have a tendency to fall.
So for individual capitalists, while getting ahead through better productive processes than their rivals can be profitable in the short term, for the system as a whole the result is disastrous.
There are countervailing tendencies like destroying the value of capital, (often called write downs, not to mention idle factories), stronger companies taking over weaker ones in fire sales, lengthening the working day, cutting wages, increasing productivity, and cheapening the cost of necessities for workers.
But there are limits to these countervailing tendencies. For example you can’t force workers to work 24 hours a day or generally force wages below their replenishing value. Workers have to eat to be able to come to work.
And creative destruction – the fall in the value of assets leading to mergers and acquisitions on terms very favourable to the stronger, or wars to destroy actual assets - is a brutal and life destroying way to restore profit rates.
If profit rates globally are low (as they appear to be) the system grinds to a halt. The bosses don’t invest because it is not profitable.
Or they chase high risk high profit schemes like sub-prime loans and come a cropper. These schemes fail because the rate of return from them cannot be divorced for long from the low general profit rate in the productive sector of society.
The financial crisis for example has highlighted the low profit rates in the real economy and helped to further drag them down. The bosses and their Governments have responded according to script - panic, panic and more panic. And the long slide into deep recession world wide begins.
The response of capitalists to low profit rates is all too clear. Attack workers living standards. Let the market rip (or manage the process through State intervention) to destroy capital across the globe and with it jobs and lives. All so that profit rates can climb up again and the whole crazy process can begin again.
Why not organise production democratically through the workplace to satisfy human need?