Over a hundred years ago a profound study of the laws of movement of capitalism was made by Karl Marx. At that time, in the 19th century, capitalism was in full bloom although, even then, it was already revealing its inherent contradictions and antagonisms. Today, as we enter the last quarter of the 20th century, we can see clearly that the inherent contradictions and antagonisms have developed to a point where the entire system of capitalism is on the verge of collapse, ready to give way to a new system of productive relations.
Capitalism is a system of productive relations marked by the following salient features:
1. The private ownership of the means of production and circulation of wealth;
2. The purchase and sale of labor where the laborer works at the point of production for wages and turns over the product of his labor to the owner hiring him;
3. The disposal in the market of the commodities produced to enable the owners to realize values greater than the value of the labor power expended and thus to realize a profit.
Capitalism has developed a:
The structure has three principal branches: industrial, commercial, and financial. The industrial stucture, in its broader sense, consists of such divisions as deal with extraction (mining, mineral wells, etc.), field products (agriculture, cattle-raising, etc.), basic metals, chemicals, transportation and communication, energy and power, machinery producer goods, construction, production of consumer goods (necessities and luxuries), and various auxiliary pursuits. Similar divisions can be made of the commercial and financial branches.
The substructure is the foundational part of the structure without which the rest of the structure could not be built. It consists of the wealth of the country and its resources (meteorological characteristics, climate, topographical features, continental shelf, mountains, forests, rivers, lakes, seas and such, metals, minerals, fauna, and flora.) It also consists of the labor force, including the size, distribution, and demographic and ethnological features.
The infra-structure deals with the ability of the human material, the labor force, to handle and control the subjects and instruments of labor. The physical aspects of the infra-structure, which can be called public or social capital, consist of such items as highways, schools, sanitation systems, water systems, etc. Infra-structure is concerned with the capability of the people to learn and to communicate arts, skills, crafts, techniques, and training, and includes the area of health (physical, mental, and moral) and language.
The superstructure embraces the totality of human relations flowing from the economic structure and includes religious and philosophical views, methods and contents of educational systems, literature and arts, scientific levels and achievements, ethnic and social groupings, trade unions, forms of sports and recreation, social organizations of control, political organizations, military-police systems, government, State, nation, and such.
The immediate purpose of the producer of goods is not to satisfy human wants but to sell the product for a price that will make it worth his while to continue to produce. Under capitalism, the producer produces not for himself but for a market. Through this market, where buyers and sellers meet, the producer can determine the demand for his goods; that is, whether his goods are useful to or wanted by others; whether he has produced his goods efficiently; that is, at a cost that matches the relative cost of competitive goods; whether he should expand or reduce his supply of goods, etc.
The basic purpose of the producer, however, is not the sale of goods for a price but the realization of profit, the sum of money that is over and above his cost of production and which makes it worth his while to continue production. The drive of the capitalist is to increase the rate and the mass of profit. Although, fundamentally, the rate of profit is more important than the mass of profit, the mass of profit is the more immediate goal. Naturally, the mass of profit can be increased, other things being equal, if the mass of products can be increased and placed on the market.
Production can be increased in the following ways:
1. The same methods of production can be employed but simply enlarged by increasing the number of laborers and the corresponding means of production.
2. The laborers may be induced or forced to work harder, and thus, by expending more effort, to produce more. But this, obviously, has natural limits beyond which no greater intensity of labor is possible.
3. the laborers may be induced or forced to work longer hours, and thus, by working longer, to produce more. But this extension of labor, too, has its physical and physiological limits.
4. The work may be reorganized with a better flow of work, a better subdivision of labor, the elimination of wasteful motions, improvement in cooperation or coordination and similar methods.
5. Or, finally, and most importantly, more products can be turned out in the same time and with the same efforts by means of the invention and introduction of new machines, tools, equipment, and processes that may reduce the number of laborers needed, decrease the wear and tear of machinery, diminish the necessary labor time, lessen the amount of raw materials required, etc. Chiefly in this way, by improving the productivity of labor, production has increased to a fantastic degree. Capitalism has come to depend more and more on improved productivity for its increased production.
Thus we can get increased production either by augmenting the labor force without necessarily changing the productivity; or by improving productivity so that fewer laborers may produce the same or greater mass of products. We can get increased production without increasing productivity, by means of more intensive and extensive exhaustion of the labor supply, or by better organization; we can also have improved productivity without necessarily increasing production, as in the case where markets can not absorb the increased production in spite of the improved productivity, because the products cannot be sold in the markets for one reason or another.
Generally speaking, what decides the price for which any item is sold in the market is its value set by the socially necessary labor embodied in that item, or, better, by the socially necessary labor required for the reproduction of that item. Given free competition in the market place, the prices of commodities are equal when the socially necessary labor embodied in those commodities is equal. This may not be true in any particular case, but it is true when all the sales and purchases in the markets are taken into consideration. The prices themselves are the names given to the standard weights of the precious metals serving as money, at any particular time, that is, as the measure of value by which the relative value of each product is measured.
This weight of precious metal, no matter what name it bears, is itself the product of socially necessary labor, a product in this case set aside for the purpose of measuring the value of all other products. This weight of metal, as a universal equivalent in exchanges, is an absolute necessity if prices are to bear any physical relation to values. Should only paper or other symbols of money be used without any metallic reserve, money as a value becomes illusion and fantasy.
If value is the socially necessary labor embodied in a commodity, which labor, as any activity, is measured by time, and if productivity increases the number of products produced in a given time by the same quantity of labor, it is clear that while improved productivity increases the mass of products put on the market, it also decreases the value of each item in the same proportion. The total mass of goods produced in a given time has increased but the newly created value of each item has been reduced proportionately so that total mass of values newly produced by the same labor time eventually remains the same.
Such a result is, however, not felt immediately. When the first batch of goods, now more efficiently produced than before, is put on the market, it is still sold at the old regular price; that is, as though the goods were produced in the previous less efficient way. The owners of these new products thereby make a greater profit than the owners of the other less efficiently produced items. With this super-profit the owner may increase his production, he may reduce his prices and outsell his competitors so as to drive them out of the market place. All this, in turn, forces his competitors also to improve their productivity and soon all are again at the same competitive, but higher level. The process can start all over again.
Thus, as a result of the uneven improvements in productivity we get a greater mass of products which, when placed on the market, not only brings a greater mass of profit but, because of decreased costs, also brings a greater rate of profit as well, and encourages the entrepreneur to continue this process to the maximum degree with optimum results.
Should the markets grow proportionately and absorb both old and new products, the less efficient marginal producer may be retained for a time in the market; but should the market grow at a lesser rate than the productivity, or not at all, or actually decrease, then the marginal producers are thrust out of the market. Their laborers are thrown out of work and must find new employment elsewhere. It is possible for the market to shrink in size to such a degree that it can absorb much less than before, in which case even the most efficiently produced items can not be sold. Here is an example where improved productivity does not realize increased production. The same result may be obtained even when the market grows but not at the same rate as productivity. The supply may become so great relative to the demand that it cannot be sold even at lower prices, even below the cost of production, so that even the most efficient producers must curtail or close down production.
Production and markets are closely intertwined and interrelated. The markets grow when purchases increase, either in numbers of transactions or in the mass of commodities exchanged.
The markets may be categorized as of three principal types. In the first type, the buyer, a consumer, is there to satisfy his immediate wants. In most cases the great mass of consumers are those who work for wages or salaries received in return for the expenditure of their labor power which they have sold to an employer. Consumer goods include food, soft goods, such as clothing, hard goods, such as household appliances, and many other items. (The real estate markets should be treated separately.)
In the second type, the seller is a producer of the means of production. He produces the raw materials, the machines, the implements and other items needed to produce consumers goods and to replace the producers goods worn out in the continuous process of production. The consumption here is not individual consumption but productive consumption and it is the capitalist who is both buyer and seller in this market. Naturally, if the end of production is consumption, the productive consumption depends on the markets resting on individual consumption. If these latter markets do not expand, or if they shrink, then the demand for producers goods also will shrink and to a greater degree which, in turn, will increase the number of unemployed and reduce the consumers markets.
The third type of market is the labor market. Here human beings, as the embodiment of the labor power they possess, sell their labor power as a commodity for wages and are hired for given lengths of time on condition that they expend their labor power in labor under the explicit and complete control of the capitalists, the buyers of the labor power which they sell. The wages given to the laborer is the price paid for the purchase of his labor power. This price is measured by the prices of the articles needed by the laborer and his family in daily consumption to replenish the labor power depleted at the end of his working day so as to enable him to work the following day (or his children after he has left the labor market.).
In this labor market buyer and seller do not occupy equal positions. The buyer is a capitalist with wealth and reserves. As a relatively small group, the capitalist may combine their forces against the laborers, sellers of labor power, and may make impossible those combinations of labor that can strengthen the bargaining power of the sellers.
The capitalist buyers have at their disposal an army of well-paid henchmen, politicians, soldiers, police, lawyers, brain-washing intellectual leaders and such as those controlling the communication and education media, the church and religious leaders who preach of "turning the other cheek," and similar worthies.
On the side of the laborers are hunger, poverty, ignorance, disease, filth, incompetence, babel of tongues, agents provocateurs and stool pigeons, and a thousand similar handicaps. In addition, should labor have any real chance of improving its lot, there are always methods of taking back the gains by manipulation of prices and money, tariffs and quotas, imports and exports. Capitalists can always increase unemployment through increased productivity in which a far smaller number of laborers are required to produce the same amount as before. Finally, should any group of workers really succeed in combining their forces, there are myriads of ways to control these labor organizations through bribes, force, and terror, so that finally the only union leaders that can hope to succeed are those thoroughly manipulated as the employer's specialized foremen outside of the shop and in the labor organization.
Workers may hope to receive more than the value of their labor power, that is, the value of the necessities of life, during the periods of expansion of markets when business is doing very well and the capitalist can pay above-average wages to allow the laborer to save for the times of depression when lower-than-average or no wages at all are paid. Generally, the only chance for the laborer to be well-off is when the capitalist is well-off, that is, when the mass and rate of profit is high and capitalist expansion is the order of the day.
In the markets, buyers compete among themselves; sellers compete among themselves; buyers and sellers compete with each other. Charity, love, mercy, and such ideals find little realization in the market place. Dog eat dog and the devil take the hindmost is the prevailing ethic.
The development of capitalism evokes an ever-increasing mass of commodity exchanges and velocity of circulation of goods. It also generates a vast increase in credit, especially as manifested by instalment buying and credit cards, stocks, bonds, mortgages, banknotes, bank checks, paper money, etc. and in the mass and velocity of debts. To this must be added an enormous expansion in the hoarding of money. Money, which was originally in a metallic form, and early stamped by the ruler as coins used as a universal equivalent domestically and even abroad, soon had to move from its original precious metals base to metallic tokens and then to symbols of money (paper) and to money of account.
Money as a weight of precious metal, such as gold, also has to be produced and also contains value, finally evolving into a universal equivalent for all the relative values exchanged of it. The name of the given weight of metal is called the price, and all values are given in terms of price. As the values of commodities fall the prices also fall, if the value of the metal base remains the same. The values of commodities may fall and yet the price remains the same, provided that the value of the precious metal contained in the given weight of metal used as universal equivalent also falls proportionately. If the value of the commodity falls but the value of the metal in money falls even more, the the prices may rise. Thus value and prices (or values in exchange for money) have separate relationships.
As a medium of circulation, or as a medium of payment of debts, money does not need to have a metallic base. It can be symbolized by paper money, easily printed by state authority and made acceptable as legal tender under penalty of the law. Instead of legal tender, personal checks and other paper may also by used as money-of-account between buyers and sellers, or between debtors and creditors.
Theoretically, the mass of money needed to circulate all the commodities exchanged would depend on the mass of sales and purchases divided by the velocity of the circulation of such exchanges in a given period of time. Also the mass of money needed to act as a medium of payment would depend on the mass of debts to be paid and the velocity of debt payments, as well as the degree of mutual cancellation of debts.
As has been noted, the chief method of production growth is through improved productivity where the number of workers is decreased as machines and instruments of production replace them. Productivity, however, does not depend, in the first place, on the market, but on the level of technical development in society, on the level of scientific knowledge and its application through technology and techniques to the productive process. Government agencies, laboratories, universities, and all sorts of technical schools further inventions and discoveries which lead to still other scientific advancements at an ever-accelerating pace. Thus, the growth of markets, even when they do occur, cannot possibly keep up with the enormous rise in productivity. The growth of science is unlimited and ever-accelerating. The growth of population and of markets is extremely limited and spotty. Production presses on the sales market with ever-increasing force even in the best of times. The growth of technology increases at a greater rate than that of productivity; that of productivity at a greater rate than that of production; that of production at a greater rate than that of market sales.
Improved productivity means that more machinery, equipment, or mechanization apparatus, replaces human labor in production. Capital investment thus has to shift from the purchase of labor power to the purchase of things. Capital invested in labor is paid out in instalments: daily, weekly, or monthly, as the case may be, and only after the laborer has performed his labor. The laborer can be let go at any time. But capital invested in machinery, plant, equipment, etc., that is, in fixed capital, is a substantial sum that must be accumulated beforehand and spent at one time, to some extent.
Thus the improvement in productivity means that greater capital is required per worker and the fixed investment relatively rises as wages relatively fall. If, previously, the capitalist had to invest, say, $1,000, in constant capital (fixed and circulating capital) per laborer employed, this could later become $1,000,000 or more per laborer.
Thus the organic composition of capital, the ratio of constant capital to variable capital, constantly increases. This is especially true when automation and computers take over and machines automatically process the work and turn it over to other machines as programmed by the computer.
Some of the changes involved in improvements in productivity can be illustrated as follows:
Let us assume that the average investment in a particular industry for the production of a certain amount of goods is $1,000,000 divided as follows:
$100,000 fixed capital consumed in the wear and tear of machinery, plants, etc.; $600,000 circulating capital used in the materials of labor $700,000 total constant capital $300,000 variable capital used in wage payments $1,000,000 total cost of production.
The ratio of constant capital to variable capital would then be 2-1/3:1 ($700,000 constant to $300,000 variable capital).
Let us also assume that there was an eight hour working day in which in four hours the workers were able to reproduce the value of their labor power ($300,000) and values of the other four hours went to the capitalists to form their surplus or profits ($300,000). The price of the products is thus $1,300,000; the mass of profit is $300,000; the rate is 30% (profit divided by cost of production) and the rate of surplus value is 100% (surplus value divided by variable capital).
Case No. 1: With the introduction of new machinery and methods the investments now are changed as follows so as to enable the company to produce the same amount of items with half the labor force:
$200,000 new fixed capital (wear and tear)
600,000 circulating capital $800,000 total constant capital
150,000 variable capital (half the laborers employed) $950,000 total cost of production
Now the ratio of constant to variable capital is $800,000:$150,000 or 5-1/3:1.
The cost of production has been reduced to $950,000 but the total price of the products has remained the same or $1,300,000 so that the mass of profit is now $350,000 and the rate of profit is about 37% while the rate of surplus value is 233%.
Case No. 2. Suppose with the same new machinery and methods the company decides to keep all its workers but to double production. We now have the following situation:
$400,000 new fixed capital (wear and tear double)
1,200,000 circulating capital (materials doubled) $1,600,000 total constant capital
300,000 variable capital (same number of workers as before) $1,900,000 total cost of production
Now the ratio of constant capital to variable capital is $1,600,000 to $300,000 or 5-1/3:1 again, as in Case No. 1. Assuming the prices remain the same, the price of the total product would be $2,600,000 which, with a cost of production of $1,900,000, leaves a mass of profit of $700,000; a rate of profit of about 37%; a rate of surplus value of 233%.
With high mass and rate of profit and with the doubled production and the increased need for greater sales, the company could lower prices to gain more customers and to drive out competitors. This, in turn, would force the competitors to use the same improvements or get out of business, and would further attract more capital to an industry drawing greater than the average rate of profit.
Case No. 3. If we assume that the company maintains its double production we must note that the workers produce the goods in half the number of hours than before and thus the value added to each item has fallen proportionately. The total value added to double the original amount of products is now equal to the original total added value. Assuming this increased productivity prevails throughout the capitalist markets, with a general fall in values of each product we get the following investment of the company for the doubled products now produced:
$200,000 new fixed capital (fallen cost of wear and tear)
600,000 circulating capital (materials doubled but price halved) $800,000 total constant capital 150,000 variable capital (cost of living cheapened and thus wages lowered) $950,000 total cost of production
And so the company is back to Case No. 1 but with doubled production all values have fallen but the old exchange values have been restored.
But this is not the whole story. Since the rate of profit has been maintained at 37% rather than the original 30% more capital would be attracted to this industry and prices would fall further. If it fell to the average rate of profit of 30% the mass of profit would have to be reduced to $285,000 and the price of the total product would have to fall to $1,235,000.
Case No. 4. Further, in Case No. 1 we have assumed that the new machinery and new methods cost only $100,000 more than the older machinery displaced. This is not the usual case. It might well be that the new machinery cost $300,000 instead of $100,000 to produce double the quantity in the same time. Thus to produce double the amount than before, as in Case No. 2, the investment would be
$ 600,000 fixed capital (wear and tear, production doubled)
1,200,000 circulating capital (doubled material) $1,800,000 total constant capital
300,000 variable capital (same number of laborers) $2,100,000 total cost of production
The ratio of constant to variable capital is 6:1.
Total price of goods $2,600,000. Total profit $500,000. Rate of profit about 24%. Rate of surplus value 167%. The mass of profit because of expansion increases but the rate of profit declines.
It is possible to assume that with the doubled sales of products the rate of sales has also doubled so that the company receives back its outlays in less time than before. If the rate of capital turnover is doubled, the same capital can buy twice as much goods, so that the profit of $500,000 is really made on an investment of $300,000 fixed and $600,000 circulating capital investment doubled during the year. This improvement in the circulation of capital would greatly increase the rate of profit on the investment in the cost of production.
Ordinarily, improved productivity cuts down the necessary number of laborers even with increased production. Even assuming that the labor force producing the new improvements had to be increased, it could never be equal to the amount of labor displaced since the prices of the items of the new means of production would also include the average rate of profit. Even if $1,000 worth of machinery were bought to save $1,000 in wages the value of the machinery containing the profit would have to contain less labor.
Case No. 5. Were the company in the really heavy basic section of industry, the organic composition of capital might be more as follows:
$ 2,000,000 fixed capital
8,000,000 circulating capital $10,000,000 total constant capital
500,000 variable capital $10,500,000 total cost of production
The ratio of constant to variable capital is 20:1.
Profit $1,000,000. Price $11,500,000. Rate of Profit 9.5%. Rate of surplus 200%.
In order for the company to make the average rate of profit of 30%, the price of the heavy product would have to be raised to over $14,500,000, containing a profit of more than $3,000,000. Thus heavy industry, because its rate of profit is low, must always sell its products above their value, if the average rate of profit is to be maintained. Similarly light industry, where the constant capital is relatively small, will always sell its products below their value. Only on the average, in good times and bad times, heavy and light industries average their rates of profit and sell their products at their values. With the increasing growth of heavy industry, however, the entire average rate of profit would constantly tend to sink, causing the most convulsive efforts on the part of capitalism to stop it.
Enterprises depend mainly on capital spent on wages are generally flexible, especially if there is a surplus of such labor available, since they can expand or contract their production relatively easily. Enterprises with heavy capital investment in machinery, plant, fixtures, etc., are more rigid; they can not so easily respond to rapid market fluctuations, since the values in such fixed items can be realized only as the machinery in use is allowed gradually to transfer its value to the finished product.
The values represented by the cost of machinery, plant, materials of labor, and such, are neither produced nor reproduced by this machinery. What happens is that in the wear and tear of this machinery and other fixed capital the value of that part worn out is transferred to the product by the laborer as is also the value of the materials worked on as the subject of labor. Since machinery and the raw materials, etc., already have their values embodied in them when they are bought and sold, no new values can come from them.
In working, the laborer reproduces the value of his labor power; but, more than that, the laborer also creates new values which now remain embodied in the products made by the laborer. The increased values obtained by the capitalist can only come from the laborers, and only they, who create new values, part of which remain as profit for the capitalists. Were the laborer to quit working after he has transferred the values from the constant capital used up to the finished product and has reproduced the values of the necessities of life consumed by him to reproduce this labor power, there would be no surplus left for the capitalist who has hired him. For the capitalist there would be no reason to hire the worker or to go into business. The worker must work longer than that; he must produce in this surplus time the surplus value which, when handed over to the owner and sold, realizes the profits which keep the owner in business.
Although the worker is paid only once to produce the necessary product, he at the same time is forced to do many other things without special pay:
With the evolution of capitalism, more and more capital is needed to enter business on a viable basis. Individual ownership turns to partnership, then to mutual stock companies, then to public corporations of giant size. The growth of these enterprises entails a constant growth in the concentration of capital.
The rise of the giant corporation does not mean the elimination of competition generally. The giant corporation may become a trust and dominate some given field of production, but it soon meets other giant corporations dominating other sections of industry to which it must give competitive battle. As the markets grow to national, and even international, size, the industrial corporation may form syndicates and cartels by which it apportions the territories for each collaborator to dominate without encroachment on the other, or it establishes quotas of production, minimum prices, and other arrangements to the mutual benefit of each.
The process of concentration and centralization of capital pervades every sector of capitalism. In the field of circulation the individual retailer gives way, on the one hand, to the chain store; on the other, to the department store and chain department stores and to international chains and mail order houses that, through their immense sales, control large areas of productive processes. In the field of money and finance, money lenders turn into bankers who become giant investors in stocks of corporations and control through interlocking directorates and other means the very largest of giant corporations.
The fact that scientific advancement knows no boundaries and leads to a constantly increasing stream of new inventions and discoveries does not mean that these advances can be automatically applied to industry to increase production. Two great factors stand in the way of this:
1. The constant growth in the organic composition of capital, that is, in the ratio of constant to variable capital, means that the investment in fixed and circulating capital becomes so great that it becomes ever more and more difficult to sweep away the great mass of antiquated capital to make way for the new. The dead hand of things weighs constantly more heavily on the living. Very often machinery, equipment, process etc., may become outdated even before they are first put into application, and no industry with a heavy investment in constant capital can afford to scrap the new before it has been worn out enough to pay for its production so that newer stuff can be introduced. Thus production places an ever increasing drag on productivity even while productivity is increasing production. Inventions are bought up and stifled; applications of inventions delayed.
One way out is for the corporations, giant as they are, to throw the costs of research and development onto the shoulders of the capitalist State which can spread the burden in various ways and then turn over the discoveries and inventions to the corporations for their maximum profits. But even here the costs soon become intolerable and the situation even offers dangers to the existence of the corporations. For when research and development is done not privately but by the State to save the corporations from the dangerous slide in the rate of profit, the ugly condition may arise in which the State, now the prime mover of science and development, may decide to take over the production for itself. The corporation is no longer the prime originator but the State is.
This is especially true when an interval of peace gives way to an era of war when the State and its war machine directs the operations of the capitalists in a life-and-death struggle with its enemy.
2. In the second place, the activity of the trust and of the monopoly in their stifling of competition (and of transferring competition to a higher plane as competition between opposing trusts and monopolies) to a certain extent deadens the motivation for improved productivity to increase the rate and mass of profits. The markets no longer become to the same degree the proving grounds to test whether the products are produced with socially necessary labor or with less efficient labor. The fluctuation of prices becomes much more controlled and thus with it the stimuli for improved productivity. Instead of the hectic fluctuations of the market place there arises the dead Sargasso Sea of monopoly manipulated prices. In this way all of capitalism pays tribute to the trust and monopoly.
As we have illustrated in our specific examples given above, given the same mass of production, the increase in productivity tends to throw workers out of employment; given the same productivity, the increased mass of production tends to increase the working force. Despite an uneven development of these processes throughout the world, the general capitalist development has resulted in an ever-increasing flow of unemployment, part time employment, under-employment, and disemployment, open and hidden. This, in turn, inhibits consumer buying power and restricts market sales.
Naturally, consumption can not exceed production but must be limited by production. Under capitalism, however, the wealthy squander a great deal of economic goods in wasteful display and vain, useless show. Both productive consumption and individual consumption can become very wasteful. On the other hand, consumption is severely limited by the fact that the great mass of consumers can buy, on the whole, only enough of the necessities of life to replenish their labor power and to maintain their families on a level to reproduce the necessary labor power in the future.
The severe restrictions placed on effective market demands and consumption for the great mass of people cause periodic gluts of products on the markets which, in turn, may cause the closing down of factories, still greater unemployment, depressions, a fall in real income, and a great rise in social unrest as a result of hunger, poverty, disease, and death. This is one method to reduce the surplus working population.
The section of productive industry that is generally the hardest hit in a depression is the section making producers goods; that is, the durable goods made by the section producing tools, machinery, and equipment for use by industries catering to individual consumers needs. It is this section that first of all turns to the State for help and to the military for war orders of military hardware. Peace is killing this industrial group and only war can save it. Thus the military and basic heavy industry, under the leadership of the financier, march shoulder to shoulder together at the expense of and as the leader of capitalism as a whole.
During periods of depression, when generally both mass and rate of profit move to low points, capitalism must make frantic efforts to improve productivity and lower costs, thus reproducing even more intensely the very causes leading to the depression. In the interim, however, the period of depression and economic despair can serve as a source of rejuvenation for capitalism. Plants closed down can now be modernized and retooled, and a great many new devices installed to enable plants to reopen at lower costs. Older working people, now out of date and out of touch, can be sloughed off the payrolls. Weaker firms can be forced into bankruptcy and can be bought for a song by the successful competitors. The petty-bourgeois, removed from their businesses, have nothing to turn to but the ranks of the already over-developed working class with its mass of unemployed underemployed and disemployed. Those students, professionals, government employed generally, who become unemployed find they are trained for no other jobs in industry and begin to rot.
Where monopolies exist unchallenged, these enterprises no longer need the spur of improved productivity to retain their markets. Thus decreased sales in monopolized fields tend to lead merely to stagnation without the need for prompt modernization.
Lower prices and surplus products can become weapons to win foreign markets and to extend sales generally. To win these foreign markets and to be able to obtain materials and supplies from abroad at adequate levels, bold international adventures, including wars, invasions, conquest of foreign territories, control of foreign governments and similar measures must be attempted and carried out throughout the world. These wars and foreign conflicts have the further results of destroying the surplus of products and surplus of laborers that accompany depressions, as well as of destroying competitive rivals. Wars and depressions become the dynamos of history.
As capitalists are still organized on a national basis, each capitalist State tries to throw the burdens of the depression on to the shoulders of other nations. The stronger industrial power tries first to force the weaker into losses by use of tariffs, quotas, subsidies, dumping of goods, forced price levels, money manipulation and devaluation, etc. Industrial countries try to foist the burden onto the agricultural countries. When price structures can not work, force may be tried. All these efforts, when integrated, are part of the autocratic or self-sufficiency policies adopted by the national State.
Every social system has shown a period of origin or birth, a period of growth and maturity, and a period of senescence or decay. This is true of capitalism. The features of capitalism in decay may be enumerated as follows:
1. Private ownership no longer directly controls the means of production and circulation of wealth. Private capital gives way to public capital (capital obtained through public sale of stocks and bonds), State capital, and social capital. Private investment gives way to public investment, State investment, social investment. Private profit gives way to public interest, to State interest, to social interest. State control paves the way for social control. Social control may function historically as an intermediary step to eliminate capitalism as a whole and transition to socialism.
The great growth of the giant public corporation marks a rapid transformation of economic and class relationships in a number of directions:
FOOTNOTE: Primarily under the influence of "bolshevik" ideology, the latter stages of capitalism have been designed by such terms as imperialism, colonialism, etc. This is an incorrect transfer of political terms into economic terms. We have avoided the use of such terms in this analysis.
In our view, Imperialism, designates the physical conquest of one State by another. Where the conquered are taken into the State of the conquerors they may form a national minority. Such is the case of the Russian conquests in Asian lands by the Czar. Imperialism existed before the export of capital, financial hegemony, and other economic items given by Lenin. Marx never used the term in this false sense.
Colonialism, for us, has been well defined by Marx; A colony was a land implanted by "Colonists," that is, by settlers coming from the home country to develop that more or less empty territory. The American Colonies, Canada, Australia, New Zealand, all these were explicit examples of colonies; India, China, Ceylon, Indonesia, and such were subjugated countries, not colonies.
2. The general increase in the organic composition of capital soon calls for such tremendous outlay of capital as to be beyond the ability of even the giant corporations, mergers, trusts, cartels, syndicates, and monopolies to raise such sums. Nor could this be done without the protection of the State behind them. In addition then, to government ownership (or close control) of railroads, telephones and telegraphs, public utilities, post office, military and government affairs, navy, armaments, space exploration, airlines, irrigation, conservation, pest control, pollution control, sanitation, roads and highways, education, and such capital investments, the State must now enter directly in the banking and investment field to provide private and State capital with adequate funds and also to engage in vast research and development projects. The leadership of private capital gives way to the calculations and projects of State capitalism still on behalf of the capitalists.
3. In particular, the great growth of fixed capital ratios gives such a rigidity to the entire capitalist enterprise as to make drastic change and improvement practically prohibitive for private capital, even though most essential for general capitalist modernization. A tremendous conflict arises between the capacity for modernization and the capability of doing so. Here the military needs of the State burst into the picture for forced modernization through subsidy and State support.
4. The tremendous growth of production places an unbearable strain on national capitalism. National capitalism becomes multi national, supra-national, and international. It is not enough for capitalism to sell goods abroad, to buy and sell stocks and bonds abroad, to form branches and affiliates in other countries, to open banks and investments everywhere, but it becomes advisable also to make huge direct investments in productive, commercial, and transportation concerns, to merge with foreign firms so as to be able to change a given loyalty as expediency dictates. In the beginning trade raised the flag of piracy; later it followed the national flag. Today it raises its own international flag of profit.
With all this, the national capitalist State takes on a multi-national, supra-national, and international coloration. Public and State corporations must seek raw material, sources of supply, productive bases, sources of labor all over the world.
And to aid this, each national State tries to control the world and all other national States, their military, their political governments, their political economies, if not peaceably then by force. The great national State does not lose its nationalism but becomes an international national State, a multi-national national State, a supra-national national State, striving to penetrate, dominate, and control all rival similar States. International trade tends increasingly to become centralized State trade with the State integrating the trade, setting its terms, and making the collections.
Together with this grows a tremendous need for international markets, for expanded exports and imports, for world trade at a profit. To aid in this, such methods as subsidies, quotas, tariffs, dumping, preferences, taxation changes, manipulation of values, loans, inflation, price-fixing, licenses, patents, remissions of profits abroad, and similar practices are constantly being employed.
5. In dealing with productivity increases we must deal not only with fixed capital in the form of machinery but also with circulating capital in the form of the materials on which the machinery works. The tremendous increases in the capacity to produce has already meant such a squandering of natural resources as to threaten the very supply of items that nature originally created; items such as petroleum, natural gas, wild life, forests, plant life, minerals, metals, chemicals, and such. As these supplies diminish the socially necessary labor to replace them becomes greater and greater and the products made of these materials must continuously cost more in spite of, or perhaps because of, increased capitalist productivity. In this sense, productivity under capitalism may mean such reckless squandering of raw materials and natural resources as actually to imperil the continuity of our mode of existence.
6. The atavistic character of reckless catastrophic capitalism throwing mankind ever backward from hard-won civilized positions can be seen by its modern wars in which the environment of given countries is totally destroyed, and in its modern spasms of peace in which our environment is thoroughly polluted and our very existence threatened.
7. Capitalism now is affected not only by a falling rate of profit due to the rise in the organic composition of capital, but by a drastic and violent increase in overhead costs due to the social reactions caused by mass pressure calling for the end of the disastrous contradictions of capitalism.
Capitalism can no longer use hunger and poverty to eradicate the growing mass of unemployed, disemployed, aged, children, disabled, sick, destitute, or institutionalized but must care for them. To do otherwise would stir up revolution.
Capitalism must also greatly improve the infra-structure or the ability of the labor force to cope with the ever new technological problems of industry. This also stems from increased productivity which calls for even greater schooling and training, for the creation of more efficient instruments for production, transportation, and control in a era of atomic energy, electronics, supersonic airpower, hydromatic vessels, computers, synthetic chemicals, bio-chemical advances, and such. Research and development calls for an ever increasing portion of capital and an ever more sophisticated general staff. Thus, while for most workers labor becomes increasingly automatic drudgery, at the same time, from sections of the general population, there must be produced more and more a reservoir of technicians and professionals, of organizers and scientists at greater expense. This also is at the base of the generation gap between older workers, adapted to an older technology, and the younger generation being trained for the new technological eras.
Thus capitalism must now augment at great expense the mass and extent of social capital or public capital needed, such as schools, roads, sanitation, housing, urban development, etc.
8. A further additional source of expense is the insurance programs that must be adopted, such as medicare, medicaid, hospitalization, unemployment, accident, and other insurance, pensions, welfare, and similar programs.
9. A still further expense must be the cost of conservation, of anti-pollution, of ecological, space, and geological research.
10. A great source of expense must be the military budget now grown to enormous size. War now becomes a principal means of cutting down the people who cannot be profitably used by capitalism. But this method also fails because of the vast increase in costs, the development of nuclear war threatening the very self destruction of the system itself, and the ever lessened need of masses of common infantry soldiers. Furthermore, as the wars get more frightful and deadly, there also arises the imminence of revolt and revolution.
11. Another increasing source of expense is the payment of the national debt, which grows at galloping rates of speed.
12. The rise in overhead and social costs can be met only be means of increased taxation, which lies as an enormous millstone around the neck of capitalism in decay. These costs the capitalists, and only the capitalists, can and must pay. Since the workers receive, on the average, only the value of their labor power in terms of wages, salaries, and other forms of compensation, that can allow them to purchase the necessities of life which in consumption replenishes their labor power, it is clear that, in the overall view, the wage workers pay no taxes at all. If taxes are placed on the workers, their wages must go up proportionately or there will be death by destitution and revolt.
The methods and tricks of taxation have become limitless; there are direct (income) and indirect (sales) taxes, progressive and regressive taxes, license fees, tariffs, price floors and price ceilings, etc. Of course, each class, or section of a class - large capitalist, small capitalist, professionals, store-keepers, workers - tries to throw the burden off its own back and on to the shoulders of others. Whoever controls the State controls the taxation. Among the chief ways the taxes are minimized or avoided by any group are omissions, exceptions, exemptions, rebates, preferences, loop-holes, faulty enforcement, impossibility of enforcement, treaty arrangements, subsidies, State contracts, guarantees, privileges, immunities, etc.
The reasons for taxing the consumers of the petty-bourgeoisie or small owners class include; 1) to reduce the power of that class vis-a-vis the large capitalists or wealthy bourgeoisie; 2) to impoverish certain sections and throw them into the ranks of the workers while taking over and merging the small enterprises under their control.
The chief reasons for taxing the workers who, as we have noted, fundamentally receive only the necessities of life may be stated, in the case of the income tax: 1) to reduce the historic standard of living (a worker may replenish his labor power by consuming meat, wheat, milk, bananas, water); 2) to increase the impoverishment and helplessness of that class; 3) to allow the employer to police this tax and make sure this portion is returned to the State without evasion or cheating, as happens in other cases. This last also holds true for the tax for Social Security and Medicare.
So great has become the struggle over taxation that today the chief concern of the capitalist is not gross profit, nor net profit before taxes, but rather the net profit after taxes. Capitalists will actually engage in losing ventures if, after deductions for losses, the net profit, after taxes is greater than without the losses. Here is one of the basic drives for the export of capital and investment abroad under the umbrella of favored taxation rates.
13. With the rise in productivity, as the number of direct and indirect production workers in industry relatively declines, the number of service and sales employees tends to rise. This is accelerated by the development of branch factories and affiliates abroad who remit their profits, their credits, and a good part of their wages back to the home country for use for services in the home country.
14. The increased burdens placed on decaying capitalism compels the most hectic search for the extension of consumption of the products. At the same time, however, world-wide anti-capitalist revolutions, culminating in a Soviet Union, a Peoples' Republic of China, people's regimes in East Europe, in the Far East, and in Indo-China, have removed vast market areas from capitalist control, thus hemming in capitalists markets still further. All this sharpens the international weaponry of tariffs, terms of trade, interpenetrations by investment abroad, bilateral trade deals, valuta manipulations, etc.
15. The need to hoard money, already part of the operations of big business and its need to meet huge payrolls, becomes enormously sharpened by the general increase in taxation and the national debt. These hoards of money, when used by multi-national corporations, can be used for wild speculation on the world's money market throwing it constantly into confusion and panic for the benefit of the big corporate and rival government speculators.
16. Wars, useful for the destructive consumption of goods, advance from local, temporary and transient events to permanent features of capitalism, world-wide and cataclysmic. At last the very foundations of capitalism are threatened by nuclear war advancing ever closer to a final holocaust.
17. With the decay of capitalism the tremendous increase in symbols of money and of money-of-account leads to complete inability to control the amount of paper money used for the circulation of commodities, for credit and debt purposes and for hoarding. Inflation, instead of being a temporary phenomenon, now becomes a permanent feature of capitalist development. Thus we reach a stage where, together with the steady advance in productivity and steady and accelerated decrease in the value of individual items produced, we also have a steady and accelerated increase in prices due to inflation. No matter how low values fall the value of symbols of money falls sharper, and prices rise.
Thus, simultaneously with the constant increase in the mass and rate of unemployment, partial employment, underemployment, and disemployment, we find inflation and the rise of prices affecting all the countries of the world, although with different degrees of intensity and spasmodic rhythms.
Inflation, affecting drastically as it does the value of international currencies, balances of trade, balances of payment, terms of trade, tariffs, foreign markets, savings, and profits, can be used as a great weapon in international capitalist competition and domination.
The loss in the purchasing power of savings makes it certain that older workers must become increasingly pauperized and dependent on the State system of taxation for aid. As the contributions made by the workers under State social security plans become increasingly insufficient to sustain them in retirement, more and more new tax funds must be found to make up the deficit.
In a system of constant increase in productivity, and with the values of goods produced constantly falling, the savings of a past era represent in exchange goods relatively insufficiently produced. Thus the very laws of values represented by socially necessary labor make the aged and their savings reduced to lower and lower levels.
A country which, in respect to other countries, is a creditor rather than a debtor, whose balances of trade and of payment are strong, whose government can pay its public debts, is one whose national currency is desired abroad and whose rates of exchange in comparison with other national currencies are high. Basically, in the long run, this valuta rests upon the relative efficiency of production and thus reflects capitalist productivity. As the strong country wins the foreign markets, this is reflected in the valuta of its currency. All this is directly related to inflation which is a sign that capitalism of that country is losing control.
Since, in a period of capitalist decay, inflation of each currency becomes an international and permanent phenomenon, it is only the degree and rate of inflation that distinguishes the weaker and bankrupt countries from the stronger.
Inflation is a great weapon to decrease the value of labor power by causing a rise in prices greater than any rise in normal wages. In periods of inflation creditors lose while debtors gain. The employee is a creditor to whom the capitalist owes wages. As the cost of living and the prices of necessities rise, the workers' wages can buy less and less. On the other hand, the worker, as debtor, has no money to pay off his own debts. Inflation, then, becomes a mechanism to increase the mass and rate of surplus value pocketed by the capitalist.
The savings of the middle classes also buy less as inflation grows, since the saver is the creditor while the banker is the debtor. The longer the saver saves his money the less it can buy, and soon all his savings of lifetime may be gone in periods of drastic inflation. Continued indefinitely, inflation must bring all commercial relations to an end.
As prices rise, the government, in order to buy the needed quantities for its services, must increase all taxes greatly or flood the money market with more paper money than ever before. A revolutionary situation can thus easily arise.
In a period of great surplus of goods which can not be effectively sold at the market we get a depression when there is great unemployment and a great fall in prices. Because wages generally fall slower than prices, those who are lucky enough to keep their jobs actually may increase their purchasing power. On the other hand, the numbers thrown out of work greatly increase the burdens of the entire working class. If now, at the same time, we not only have a depression, but also have inflation with the flood of all paper money and money-of-account becoming increasingly worthless, we get a totally impossible situation.
World wide inflation, when added to world wide depression, must bring on the death throes of capitalism in our time. The increased taxation, due to social reform and military budgets, by its deadening costs, must bankrupt the State and bring on revolution. World wide wars can only accelerate the process.
The senescent capitalist system will go the way of the senescent feudal system. A socialist society is on the order of the day already being prepared by the forces of capitalism itself.
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