Figure 4

The crisis started at the prices prevailing at level 1. As a result the price level fell from B to C until they stabilised at their new and lower level 2 (line C—D). Taking all the capitals in their totality, further accumulation was quite pointless on the prevailing basis. Suppose there are four enterprises, of equal size but different organic compositions, in a particular branch of industry:

1. 50c : 50v

2. 40c : 60v

3. 35c : 65v

4. 25c : 75v

150c :250v

Assume that 150c represent the absolute limit of accumulation on the existing basis. At this point a crisis ensues and the companies are forced to reorganise, that is to rationalise their plants. For example companies 1 and 2 decide to merge so that the organic composition expands, say in the ratio of 7c: 3v. In the new enterprise with 90c only 38v (instead of 110) is thus used. Labour power to the value of 72v is set free; rationalisation leads to the formation of a reserve army. Once the merger is complete we have three enterprises as a result of the concentration process and a reserve army of 72v.

1. 90c: 38v

2. 35c : 65v

3. 25c : 75v

150c :178v

For the new enterprise resulting from the merger, the higher organic composition entails a restoration of its profitability even at the lower price level 2. Firstly because the higher organic composition of capital means an increase in the productivity of labour and thus a reduction in unit costs. Secondly because an increase in the productivity of labour also means a higher rate of surplus value. This increase in the rate of surplus value implies that as the other companies also decide to rationalise the total surplus value obtainable expands proportionately, quite irrespective of the fact that every year a new generation of workers is appearing on the labour market. It follows that the maximum possible limit to the accumulation of capital is pushed further back beyond the level 150c.

During the crisis there was overproduction. How was the upturn produced? Was the scale of operations reduced? On the contrary, it was expanded even further. And yet the crisis was surmounted.

That crises are surmounted although the scale of operations is extended even further is the best proof that crises do not stem from a lack of purchasing power, a shortage of consumers, or from disproportions in the individual spheres of industry. Because the crisis is rooted in a lack of valorisation it necessarily disappears once profitability is improved even if prices remain low.

The empirical evidence for this view confirms it word for word. Take the example of German shipping where, due to massive overproduction of tonnage and the ruinously low freight charges that followed, the biggest shipping companies incurred consistently heavy losses throughout the depression years 1892—4. How was this severe crisis overcome? R Schachner tells us that the depression in freight charges stimulated important changes in the technological structure of shipping. In 1894 and 1895, ‘encouraged by low construction costs, all the big companies went in for the large scale steamer’ (1903, p. 5). Due to this revolution in shipping enterprise, world shipping statistics show an increasing average size of ships: in 1893 the average was 1 418 gross register tons, in 1894 1 457 grt, in 1895 1 499 grt, in 1896 1 532 grt. The smaller companies could no longer compete on the freight market with these giant steamers and were forced to sell off their steamers at enormous losses. The position of the big shipping companies was entirely different, despite their intense competition with England. In 1895 the Hamburg—America line stated in its annual report: ‘Despite miserable freight charges, our new steamers were able to operate at a profit due to their large tonnage and their savings in (fuel) costs’ (p. 7). To overcome the crisis of overproduction of tonnage the tonnage was expanded even further, despite low prices.

The same process was repeated when, after the boom years of 1897—1900, a new crisis started in 1901. Again there was an attempt to relieve the impact of the depression through a general drive to cut costs in shipping by expanding the individual scale of operations still further (Schachner, p. 96). This happened a third time after the War. In spite of the huge losses due to the War, world shipping was afflicted by an oversupply of loading capacity. By 1926 world tonnage had increased by 31.7 per cent compared to its pre-war level.

Yet world trade had still to recover its pre-war levels, so it is not surprising that there was a state of severe depression in the world freight market. Rates declined steeply to rockbottom levels of profitability. How was this crisis overcome? Despite the massive oversupply of tonnage, international shipping converted to the latest type of vessels with a still larger scale of operations. As against an average capacity of 1 857 grt in 1914, the figure was 2 136 grt in 1925. Loading capacities increased even more sharply. Today a modern 8 000 ton steamer with a 10-knot speed consumes only 30 tons of coal per day. Prior to the War it consumed 35—6 tons per day. Yet the most significant technological change, decisive to the whole question of profitability, was the introduction of a new type of propulsion. In 1914 mechanised vessels formed just 3.1 per cent of the total world tonnage. By the end of 1924 their share was 37.6 per cent. As against the old coal-run steamers, the new mechanised ships were characterised by much higher loading capacities relative to size, by lower fuel costs and by savings in manpower. For instance on English vessels, despite a shorter working day, average crew size declined from 2.58 per grt in 1920 to 2.41 per grt in 1923.

In short, despite the trough in freight rates, the technological rationalisation of shipping restored profit levels and enabled the industry to overcome its crisis.

Because it is so recent, we hardly need to substantiate the fact that the last great depression following the German stabilisation of 1924—6 was overcome by the same methods of rationalisation — by a process of fusion and concentration, and increases in the productivity of labour through technological renovations. Profitability was revived and the crisis surmounted through increases in productivity and extensions in the scale of production. If we survey the process in its pure form over a longer period of several cycles and in abstraction from various countertendencies, it follows that prices show a declining tendency from one crisis to the next (in Figure 4, from level 1 to level 2 and so on), whereas the scale of production undergoes continuous expansion. In reality the process does not take this pure form due to the intervention of various subsidiary factors.

In a given branch of production the crisis is never overcome purely through the technological improvements within the branch itself. The capitalists also gain from the technological and organisational changes accomplished in other spheres of industry, either because these changes reduce their investment costs by cheapening basic elements of the reproductive process or because improvements in transport or monetary circulation shorten the turnover time of capital and thus increase the rate of surplus value. The more a movement of rationalisation spreads and penetrates into a whole series of new industries, the more the boom gains in intensity because improvements in one sphere of industry mean an expanding mass of surplus value in others.