Recently we had a forum on political economy and the current crisis. At this forum there seemed to be some confusion about three concepts: how the bosses realize their profits, the crisis of overproduction and the tendency for the rate of profit to fall. These three important ideas deserve to be understood individually and in their dialectical connections.
The realization question is an important basic concept in Marxist political economy. Marx posited that while economic value is created in the production process by human labor, this does not put money in the hands of the boss. That is, the boss has to actually sell products in the market to translate into the money form the surplus value (profits) produced by workers being paid less than the value their labor adds in the production process.
A major problem is that workers are not paid enough to purchase everything that they make. This is the realization question. There are numerous ways that the bosses deal with this issue. The bosses can buy up a lot of goods themselves. They can extend credit to the working class, which forces the workers to work off their debt in a kind of credit-card-slavery. Most important, though, the bosses answer the realization question through competition and expansion. The bosses look to find new “markets” by trying to undercut their competitors or by selling their goods to new people who have never had access to them before. This is part of the initial drive toward imperial expansion.
Crises of Overproduction
Crises of overproduction are a periodic but consistent part of the capitalist system. They are seemingly easy to understand: the bosses produce too much stuff, can’t sell it all and then many go out of business. In order to survive, bosses compete to maximize their profits by expanding production to steal market share from their competitors. All capitalists are doing the same thing — making more than their “fair share” of goods — leading to way too many goods being produced.
These goods are now devalued as they sit unsold. Companies collapse, workers are laid off and factories are shuttered. These types of crises can begin industry specific, but they often (as now) expand into nationwide recessions and sometimes (as in the 1930s) to worldwide depression.
The tendency for the rate of profit to fall is a much more difficult concept to understand. As argued above, the capitalists’ profit comes only from paying workers less than the value that their labor power produces in value. The capitalists’ rate of profit is the amount of that “surplus value” they pocket as a percentage of their total investment (in machinery, raw materials and labor). If the amount of the total investment increases and the number and degree of exploitation of workers remains constant, the rate of profit falls.
The dog-eat-dog nature of capitalist competition makes increased investment in machinery as against labor inevitable. Bosses must make their production more efficient and less costly or their competitors will be able to undersell them. Mechanization and automation can give one boss at least a temporary edge and allow him to sell more of his products and increase his own profits. Others will soon imitate the more “efficient” boss, though, and soon the playing field will be leveled. However, now all the capitalists’ total investment has increased and their profit percentage has decreased. This process goes on over and over again as long as capitalism exists.
If the capitalists’ rate of profit must fall and fall, it is fair to ask why (in the face of this “self strangulation”) capitalism doesn’t just collapse of it own weight. The answer lies partly in the actions bosses take to increase the level of exploitation of the working class and partly in the periodic destruction of capital (in depressions and war). But in reality, capitalism can never end unless a revolutionary party exists to lead the working class to overthrow it.
If workers can be paid a smaller percentage of the value they produce, then that extra surplus (profit) can offset increased investment in machinery. Moving auto workers $30+/hour jobs from Detroit to the $8 wage levels in the South and Southwest is one capitalist answer to their falling profits. Attacks on government workers and cutbacks in education, health care and pensions also allow capitalists to increase how much they can profit off the working class by reducing how much they have to pay in the taxes and fringe benefits that keep their rotten system running. All this has increased the level of racist and sexist exploitation — yet another bosses’ strategy to prop up profits (and keep workers divided).
An even more important strategy of the bosses is to transfer and expand production in imperialist ventures around the world. Wages race to the bottom of a few-dollars-a-day-starvation level, making workers misery the price to be paid for the capitalists’ drive to survive. Overthrowing this system with communist revolution is indeed the only answer.
The capitalists find, though, that even these desperate measures to squeeze every dollar possible out of the world’s working class isn’t enough to keep the profit levels high enough for their system to function. Even fascist measures can force wages down only so much until workers can no longer survive and reproduce. Eventually imperialism has expanded into all corners of the world and there are no more new workers to be exploited at lower and lower wage levels (a situation, for the most part, that capitalists increasingly face today).
Imperialists Resort to War
When this happens, rival imperialist powers resort to the deadly destruction of world war to expand their areas of potential workers to be exploited and reverse their falling profit rates. A secondary result of these wars is the destruction of vast amounts of machinery and capital investment (and millions of workers’ lives). The surviving bosses are then able to re-establish high enough rates of profit to again jump-start capitalist production. Capitalism can only survive by destroying worker-soldier lives so that other workers can be forced into a dead end system of exploitation.
As Marxists we strive to understand the world. When we reach a better understanding of economics we can explain why the problem for workers is not a bad boss or a rotten politician. The competitive nature of capitalist competition forces all bosses to sharpen the oppression of the working class. Gaining a greater understanding of the real political economy of capitalism can put the working class one step closer to realizing that reforming capitalism into a “fair” system just isn’t possible. Only an egalitarian communist world can put an end to the poverty, wars, racism and sexism of the bosses’ rule.