Increases in the rate of profit through the expansion of productivity

In Chapter 2 I outlined the methodological considerations which prompted Marx to analyse the problem of accumulation and crisis on the assumption of constant prices. This assumption made it possible to prove that the cyclical movements of expansion and decline are independent of fluctuations in the level of commodity prices and wages. Here I want to show that the opposite assumption of the bourgeois economists, who take the price fluctuations as their starting point, simply confuses the issue.

We have already seen that in analysing the business cycle Lederer starts from rising prices as the decisive factor: ‘If we look at periods of boom, then we find that in such periods all prices rise’ (1925, p. 387). According to Lederer, expansions in the scale of production which characterise periods of boom are a result of rising prices. But how is the general increase in prices possible? Lederer argues that if the value of money is held constant a general increase in prices can only flow from changes on the commodity supply side. ‘However’, Lederer continues, ‘such changes in the volume of production are only consequent on changes in the level of prices’ (p. 388). So Lederer sees a vicious circle which can only be broken by new purchasing power being injected into the process of circulation by the expansion of credit. ‘Only credit creates the boom or makes it possible’ (p. 391) by raising the level of demand and therefore of prices. ‘Only through additional credit and thus newly created purchasing power is any significant expansion of the productive process possible’ (p. 387).

Lederer’s argument is unconvincing. Apart from its defective methodological starting point, it is both logically contradictory and contradicts the actual course of the boom. Firstly a general increase in prices is something meaningless apart from the case where the value of money falls. Yet such a general price increase is purely nominal - it has no impact on the mass of profit. Bearing this in mind the whole basis of Lederer’s deductions simply falls. Secondly the most important renovations and expansions in the productive apparatus occur in periods of depression when commodity prices are low. It is the demand generated by these programmes of expansion that raises the level of prices, assuming that this demand exceeds the supply.

In principle rising prices are by no means necessary in surmounting crises. They are only a consequence, not a cause, of booms. Extensions in the scale of production can, and do, occur without rising prices and even if the level of prices is low. This is basic to any understanding of the problem. According to Lederer rising prices and the programmes of expansion supposedly linked to them are a result of credit expansion. In which case it follows that credit is released when prices are still low. So Lederer has to be able to tell us who will take the credit to extend the scale of production when prices are low? Lederer is simply running in circles.

The fact remains that programmes of expansion are undertaken in periods of depression when prices are low. Any deeper analysis has to start here if we are going to understand the process in its pure form. At a certain level of the accumulation of capital there is an overproduction of capital or a shortage of surplus value. Overproduction does not mean that there is not enough purchasing power to buy up commodities, but that it does not pay to buy commodities for programmes of expansion because it is not profitable to extend the scale of production: ‘In times of crisis ... the rate of profit, and with it the demand for industrial capital has to all extents and purposes disappeared’ (Marx 1959, p. 513). Due to lack of profitability, accumulation is interrupted and production is carried out on the existing scale. Prices are bound to fall. The fall in prices is only a consequence of stagnation not its cause.

Because commodities are unsaleable when the crisis starts, competition sets in. Each individual capital tries to secure for itself, at the cost of other capitals, that which is unattainable by the totality of capitals. From a scientific point of view, this proves that competition is necessary under capitalism. We started by assuming the most favourable condition for capital, a state of equilibrium in which supply and demand coincide. Yet at a certain level of the accumulation of capital competition must necessarily arise. Earlier we looked at the capitalist class as a single entity. But in examining the crisis we must take account of the mutual competition of the individual capitalists.

Let us go back to the question posed earlier - how is the crisis surmounted? How does a renewed expansion of production come about? The answer is: through the reorganisation and rationalisation of production by which profitability is again restored even at the depressed level of prices prevailing. Figure 4 is a schematic illustration of the entire movement.