[Marxism] Paul Mattick's 'best short account of the Great Recession so far' [Michael Roberts]

Ralph Johansen mdriscollrj at charter.net
Wed Nov 16 17:52:40 MST 2016

See Paul Mattick Jnr’s excellent account of Marx’s law and the business 
cycle pp48-51 
<http://www.reaktionbooks.co.uk/display.asp?K=9781861898012> in the best 
short account of the Great Recession so far, Business as usual.
- Michael Roberts Transformation and realisation – no problem 

from Business as Usual: The Economic Crisis and the Failure of 
Capitalism by Paul Mattick, Jr., London: Reaktion Books 2011, "Trends 
and Cycles" pp. 48-51:

It is the nature of capitalist society, in which production is based on 
wage labor and so organized by the exchange of goods for money, that has 
led historically to a strong tendency towards decreasing the labor 
employed in comparison to the amount it produces (while, of course, 
increasing the number of workers absolutely as the system grew). By 
lowering costs per unit of product, this increased profitability. 
Employers first made labor more productive by assembling workers into 
large workshops , within which their work was divided into smaller and 
smaller tasks. This led to the substitution of machines for people, 
whenever this raised profitability, and eventually to the invention of 
the modern assembly line, whose speed enforced high levels of labor 
intensity. By the end of the twentieth century most production had 
become mechanized mass production, requiring less and less labor 
relative to a growing quantity of machinery. In the United States, to 
take a nation with a long series of statistical data, the monetary value 
of machinery and equipment per person employed grew by one calculation 
from $281,000 in 1830 to $39,636,000 in 1992, while investment in 
non-residential structures went from $3,503,000 to $72,625,000 (in 1990 
international dollars). Similar numbers hold for France, Germany, the 
Netherlands, the UK and Japan (though only the latter reached US-level 
rates of investment by 1992).  And of course, as increasing 
mechanization raises labor productivity, growing amounts of raw 
materials must be used (and paid for) per person, because more materials 
are required for growing amounts of product.

This shift has obvious consequences for the profitability of capital. 
Profit, as we saw, is the money-representation of the labor performed by 
employees of all of society's productive business in excess of the work 
required to replace raw materials, tools and those employees themselves. 
If those businesses increasingly invest more  money in machines and 
materials than in labor, then the amount invested in doing the work, and 
so able to generate profit in addition to reproducing the labor force, 
will decline relative to total investment. There will therefore be a 
tendency (offset by the lowering of labor costs and the cheapening of 
machinery and raw materials) for profitability to fall: a tendency Marx 
called "the most important law of modern political economy." His 
explanation of the tendency to declining profits, hypothesized well 
before him by nineteenth century economists, is a controversial one, to 
say the least. But it led Marx to an analysis of the cycle of 
depressions and prosperities that explains the intimate relationship 
Marshall and others have observed to hold between the business cycle, 
changes in profitability and the centrality of money to the modern economy.

Marx argued that the growth of capitalism, with its bias toward 
mechanization, would lead to an increase in the amount of money needed 
to continue to expand production, and so to a tendency for the size of 
individual companies to increase. This prediction is acknowledged by all 
observers to have been fulfilled. One consequence of this is that if the 
profitability of capital falls, at some point the amount of profit 
available will be inadequate for further expansion of the system as a 
whole, though individual firms may be able to continue growing. Slowing 
or stagnant investment means a shrinking market for produced gods. 
Employers neither invest capital in the purchase of buildings, machinery 
and raw materials nor pay the wages that workers would have spent on 
material goods. A slowdown in investment is experienced by workers as a 
rise in unemployment and by businessmen as a contraction of markets (and 
explained by Keynesian economists as as a consequence of insufficient 
demand). This is a self-magnifying process, as declining demand causes 
business failures, higher unemployment and contraction of demand. At the 
same time, since businessmen (and other borrowers) are increasingly 
unable to meet financial obligations, the various forms of IOUs issued 
by banks and brokerage houses become increasingly valueless , causing a 
financial crisis, while while falling stock prices reflect the declining 
value of business enterprises. Individuals and institutions hoard money, 
rather than invest it. In short, capitalism finds itself in a depression.

But in a capitalist economy, what causes suffering for individuals can 
be good for the system. As firms go bankrupt and production goods of all 
sorts go unsold, the surviving companies can buy up buildings, machinery 
and raw materials at bargain prices, while land values fall. In this way 
the money-representation of goods produced at an earlier time is 
recalibrated at a lower level. There is also market pressure for a 
newer, more efficient and cheaper machinery. As a result, the cost of 
capital investment declines. At the same time, rising unemployment 
drives down wages. Capitalists' costs are thus lower while the labor 
they employ is more productive than before, as people are made to work 
harder, on newer equipment. The result is a revival in the rate of 
profit, which makes possible a new round of investment and therefore for 
expansion of markets for production goods and consumer goods alike. A 
depression, that is, is the cure for insufficient profits; iut is what 
makes the next period of prosperity possible, even as that prosperity 
will in turn generate the conditions for a new depression.

This is, of course, a highly abstract, schematic picture of developments 
that in each particular case present unique aspects and are complicated 
by historically specific phenomena. A depression may be initiated by a 
stock market crash,  as in 1929, or a banking crisis, as in 2007; the 
American depression of 1837 began with a collapse of inflated 
real-estate values. The last Great Depression led into a world war, 
which affected its history in unprecedented ways. But in all such cases, 
declining profitability, resulting from the decline in labor employed 
relative to capital investment as a whole, led to a slowdown or 
cessation of economic growth, which in turn produced the conditions for 
a new prosperity. Despite its abstraction, the picture sketched above 
provides a way to understand the pattern of boom and bust, and in 
particular its relation to the flow and ebb of business profits, which 
has marked the history of capitalism.

It will also help us understand the ways in which the pattern changed 
during the nyears after the Second World War. The idea of the business 
cycle was so well established and the Great Depression of the 1930s so 
severe and so terrible in its ultimate political and social effects, 
that after the war the fear of a new depression was only slowly 
displaced by the hope that Keynesian methods would be able to control 
the cycle. Neither the hope nor the fear was fulfilled: on the one hand, 
the business cycle did not end; on the other, despite recessions, debt 
crises, stock market crashes and other economic disasters, capitalism 
did not undergo a crisis like those that plagued it from the nineteenth 
centure to the 1930s - at least, until now. To understand how capitalism 
has altered since the war, and the consequences of this alteration for 
the current situation, we must review the history of the last 60 years.

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