CWO Introduction. The following article has been translated from the latest edition of Prometeo (May 2012), the theoretical journal of the ICT’s representative in Italy, the PCInt, otherwise known as Battaglia Comunista. Although the argument is directed towards the criticisms of another group in Italy ⁽¹⁾, its subject matter — the underlying cause of the present capitalist crisis — goes beyond local debate. Since the bursting of the financial bubble in 2007 the fact of the capitalist economic crisis is no longer in doubt yet too often this crisis is equated simply with the financial sphere, with speculation, ‘greedy bankers’ and the so-called bonus culture.
At the same time there is a widespread assumption amongst self-styled ‘anti-capitalists’ that a Marxist economic analysis is inadequate to explain this crisis of ‘post-industrial’, ‘post-modern’ capitalism which they see as weighed down more by an accumulation of debt than the problem of extracting more and more surplus value from the working class (whose existence is anyway no longer seen as key to understanding the society in which we live, much less how to get rid of it). However, for a growing minority who have read something of Marx’s ‘Capital’, who understand the intrinsic tendency of capitalism to propel itself into life-threatening crises and are searching to understand the present situation, this article provides a compelling overview.
This is not simply because the analysis focuses on the key role of the falling rate of profit, itself a consequence of the rising organic composition of capital. As the article states, there is no shortage of Marxist analyses proving the falling rate of profit with an almost equal number attempting to show otherwise. Many of them use data from the U.S. Bureau of Economic Analysis, as is the case with Pagine Marxiste, whose extrapolations from these official statistics to ‘disprove’ the falling rate of profit are contested here. Insofar as the debate turns round official statistics based on financial returns on a country- by-country basis they can only provide a rough indication of real value relations. This should not cloud the fact that the debate over the falling rate of profit is not simply an academic exercise. The article here helps to show why. It reminds us that the crisis — which is rooted in the basic, inescapable way in which capitalism is driven to extract more and more unpaid labour from the working class — has a history which has now gone on for more than four decades and which in strict economic terms can be seen in terms of capitalist attempts to offset and revive a decline in the average rate of profit. That history also shows that at every turn the working class has come under attack, so much so that in the old capitalist heartlands the very self-identity of the working class has been undermined. This situation is a product of the capitalist crisis. Moreover capital’s drive to reduce the cost of labour power, and to increase the rate of surplus value, ensure the attacks will continue because the capitalists have no other option. To argue, as Pagine Marxiste in Italy do — and many other political groups elsewhere — that the revival of working class consciousness depends on workers regaining a stronger bargaining position by raising piecemeal demands for ‘achievable’ economic goals is mistaken. This is not to say that revolutionaries do not raise demands which can unify workers in struggle. However, the key is to understand the present situation and that means recognising that the economic crisis is central, that it is permanent and closes down capital’s room for manoeuvre just as surely as it obliges wage workers, however reluctantly, to resist. The role of the political organisation can only be to pose a political way forward for the whole working class.

The present crisis, which began back in August 2007 and which is still having a devastating impact on the world economy and on the working and living conditions of the international proletariat, at least has the ‘merit’ of reopening an old unresolved debate on whether or not the Marxist law of the tendential fall in the average rate of profit exists and if it does, whether it is the primary cause of the crisis itself. According to the clear, inescapable framework set down by Marx the law is destined to make itself felt despite a series of counter-tendencies which slow it down and, in some instances, temporarily annul it altogether. For Marx the same cause which determines the law of the falling rate of profit (development of the social productivity of labour) also creates its opposite, or rather its slowing down in accordance with the proportional increase in productivity. The concept itself can be reversed: the same factors that impede the operation of the law are the very ones that determine its existence, with the conclusion that over the long term no increase in the productivity of labour can prevent the effects of the increased organic composition of capital, and thus the operation of the law itself. In other words, higher productivity of labour, higher rate of (relative) surplus value, these are the basis of the falling rate of profit. The concept is simple enough in itself, even if the person who discovered it needed a lifetime to elaborate on the details. It is based on three principal observations:

1. Increased productivity of labour, based essentially on the use of relative surplus value, means the progressive replacement of living labour by dead labour. That is, proportionally more investment in constant capital than variable capital limits the ground for the extortion of surplus value.
2. Thus, increasing the productivity of labour serves to heighten the organic composition of capital: the relationship between the quantity (value) of machinery, raw materials, etc. necessary for production, and the quantity (value) of labour power employed.
3. The law not only operates in this way, but — over the long term — the higher the organic composition of capital the less any increase in labour productivity is capable of creating a sufficient amount of surplus value to recompense the capital invested. Moreover, the counter-tendencies become increasingly less effective unless they involve increased productivity based on absolute surplus value (prolongation of the working day), on the intensification of exploitation by upping the pace of production, by lowering the cost of labour and by all those techniques of production which do not involve an increase in the organic composition.

According to some economists in the Marxist field, such as Gilman, Bihr and Husson, the law only has ‘value’ on paper since in reality capitalism’s development has demonstrated the opposite, or rather the rate of profit, instead of falling, has either remained unaltered or has directly increased. Thus the argument runs, not only is it a mistake to speak about the falling rate of profit but this crisis can never ever be caused by the law and its associated consequences as described by Marx. This is followed by a series of anathemas against anyone who says the contrary, ranging from accusations about giving a scholastic interpretation to the writings of Marx to the contention — with eyes closed to an empirical reality which demonstrates the opposite — that this is an attachment to an “ideological” position which is blind to factual reality. It is in this context that the position of PM (Pagine Marxiste or Marxist Pages) can be found. Even if they do not quote us, by virtue of the much abused principle whereby you ask the daughter-in-law about what the mother-in-law has in mind, they criticise our position on the crisis and on the falling rate of profit as its primary cause.

Even though they refer to Husson, PM goes further:

We are Marxists because we share the general monist and materialist perspective of Marx along with his dialectical method but this does not mean we uncritically accept every idea of his as revealed truth. Even the theory of Capital is verified step by step by the real development of capital, perennially changing and in perennial movement—otherwise we would not be materialists.

Well said. Marxism is a method of analysis and as such is constantly being verified. The purpose of studying Capital is not to make eschatological prophecies as if it were the Bible, the Koran or the Talmud but to confirm its validity in ‘corpore vili’ (real life, lit. ‘worthless body’), otherwise it can be criticised, corrected or accepted at will. Let’s see then if this is the case.

For PM Marx’s predictions on the question of the fall in the rate of profit and the changes in the organic composition of capital which underlies it have failed miserably. The underlying reason for this is that the counter-tendencies, particularly the devaluation of constant capital as a result of the development of the productive forces through technological innovation, have allowed the capitalist system as a whole to maintain a ‘just’ equilibrium between the two factors. Thus the law has been prevented from coming into force. In all, over a time period of at least eighty years, if not a hundred. In practice international capitalism, with American capitalism taken as the statistical model, has always been level and smooth, without problems of crisis apart from the ‘normal’ ones of periodic adjustment. In over a hundred years practically nothing has happened.

Certainly, amongst the counter-tendencies which contribute to offsetting the falling rate, if not temporarily annulling it, is the development of the forces of production and the increased quantity of commodities produced. The increased productivity of labour tends to reduce the value of the components of capital (both fixed and circulating), of the commodities produced and of labour power itself. The price of an individual commodity is lowered, the mass of commodities increases. The amount of profit realised by capital overall also increases, but the rate of profit diminishes. For the counteracting process to come into effect the devaluation of constant capital, of both the commodities produced and of labour power, all need to take place at the same time in every sector of production. Otherwise the development of the productive forces, and with this the increased rate of surplus value, reduces the quantity of profit made on each individual commodity produced and depresses the rate of profit itself, regardless of the reduced value of the constituent elements of production. The reduced value of machinery, as for other commodities, only means that any specific quantity of dead and living labour is materialised into a higher quantity of commodities. What in the short term can translate into an increased mass or rate of profit for an individual plant or capital, over the longer term — when competition re-establishes equilibrium — it turns into the opposite, or rather into the resumption of the falling rate. This is because:

1. Despite the increased rate of exploitation, along with the reduced price of commodities comes a reduction in the overall sum of unpaid labour in any single commodity;
2. The reduced portion of variable capital in relation to constant capital serves to modify the organic composition which implies a reduction in the proportion of living labour in relation to raw materials and capital goods.

These two elements, which are characteristic of the contradictory development of capitalist relations of production, are fundamental to at least beginning to discuss the law of value itself.

In this respect — Marx says: the possibility of compensating for the reduced number of workers by increasing the rate of exploitation of labour has insuperable limits; the fall in the rate of profit can be obstructed but not annulled.

Marx in the Third Volume of Capital ‘Conflict between the extension of production and valorisation’, p.303 Riuniti Italian ed.

Empirical Evidence to Support the Law

In fact this is the point. PM, with its ‘estimable’ research work, presents a series of data, tables and graphs which are intended to demonstrate:

1. that the organic composition of capital of the US economy has essentially remained constant. The USA is understandably taken as the reference model because of its dominant position in the world during the 20th century and because this is the area of interest of the analysts themselves who provide a wealth of data about the US in relation to the rest of the world;
2. that the subsequent fall in the average rate of profit has not occurred, contradicting Marx’s prediction and his whole analytical framework in the third volume of Capital.

‘Data cantant’ (facts speak for themselves), they admonish us: theory is one thing, it is another to empirically verify it with concrete evidence over the span of a century.

The first thing to ask ourselves is what method lies behind the assumptions about and focus on particular data — whether they can be categorised as Marxist or simply bourgeois statistics. Next, as far as graphics on the real or presumed fall in the rate are concerned, there are dozens of others which demonstrate the opposite. In the Marxist orbit there is a long line of economists who, data at hand, demonstrate exactly the reverse. They only differ about the significance of the occurrence, not its inexistence. From Mattick to Cagoy, from Brenner to Gill, from Freeman to Carchedi — just to mention the most notable — meticulously, detail by detail, they draw up a long time span graph which highlights a falling rate, save for the period 1986-2009 when the rate jumps up again, only to revert afterwards to its downward course. And here, where it registers the biggest reversal point (2009) we are very far from the indices of the 1940s–50s. At this point, either the statistics are unanimous or the authors are selecting figures to suit their own theories. For example, with the rate of profit, it can be calculated on the basis of financial firms, non-financial companies or a combination. In the three cases the outcome is very different. The same goes for whether the value of constant capital is calculated over a short or historical period of time. Whether it is calculated on the basis of annual turnover, as Marx did, or over a longer period; whether only private firms are taken into consideration and, not least, the method of calculating profit. We’ll take these in turn and present a graphic which shows a different story from that of the disclaimers.

Out of the many graphics we have chosen this one, proposed by Carchedi (in his article ‘Behind and Beyond the Crisis’) because it shows a similar course to our own graph in Prometeo no.2, series VII, October 2009, and because, along with the curve of the rate of profit, it also shows the organic composition of capital and directly relates the two tendencies over a sufficiently long time span.

Figure 1: Average rate of profit (ARP) and composition of capital (C/V) of USA productive sectors, 1950-2009. Source: profits—BEA (Bureau of Economic Analysis) tables 6.17A, 6.17B, 6.17C, 6.17D; fixed assets— BEA table 3.3ES; wages—BEA table 2.2A and 2.2B.

There is a very long list of analysts who have collected data on the falling rate of profit. For Mandel, in his work, ‘The Crisis’ (ed. La Salamandra, 1978) the rate of profit on the capital of non-financial companies in the USA (drawn from sources relating to the revaluation of shares) went from 16.2% in 1948 to 10.5% in 1973. For Gallino (‘The Irresponsible Firm’, Einaudi, 2005):

In the United States, despite frequent oscillations, the gross rate of profit for non-financial companies appears to fall from 24% to 12% between 1965 and 1982. Other estimations indicate a drop from 21% to 10% during the period 1968-80.

Changing the scenario but not the author, the preceding paragraph says:

… that in the major economies of the world, those of the G7 countries, the gross rate of profit — before taxes — of the large non-financial companies between the 1960s and the 1980s fell sharply, with an estimated fall of 50% between the beginning and the end of the period.

Battle of statistics? Maybe, but there is a curious detail.

The graph in question, as with a good part of the tables presented by PM, are derived from the same source as all the others, that is from the Bureau of Economic Analysis (BEA). The only difference is that, while the graphic above, like others, and like the data we present further on, are ‘nude and crude’, just as shown by the Bureau, these of PM have been partly re-worked. The rest of the, not particularly significant data, such as figures on the relationship between non-residential fixed capital and GDP or on gross returns from the former to the USA in the period 1929-2010, deserve at least a more sophisticated breakdown in terms of C-V and GDP. In fact, apart from the already-mentioned problems of calculation which are not even minimally clarified, putting C with GDP and V with GDP, i.e. with a particularly complex aggregate value such as the gross domestic product is a particularly oblique and misleading method. Thus they fail to mention that the key investigation should cover the direct relationship between the value of the units of labour power for a single unit of capital goods in the productive sectors, as shown in Figure 2, while other statistics are completely ignored, as if they did not exist in massive volume in the BEA.

So, let's begin with an important, unambiguous source that should be a common starting point for the discussion but which, however, PM has unexpectedly decided to dodge: i.e. the first chart clearly presented by the statistical survey of the BEA.

Fall in the Rate of Profit and Counter-tendencies

According to the BEA data, after reaching its highest point in 1950 (22%), the rate of profit (RoP) in the USA fell precipitously to 3% in 1986, then jumped back to 14% in 2006 only to return to its downward course, at 5% in 2009. Leaving aside for the moment the equal and opposite movement of the increase in the organic composition of capital, the period 1986-2006 — where the RoP goes against the overall trend over the long period from 1950 to 2010 — must be accounted for. Evidently, during the period in question the counter-tendencies have played a decisive role. If they had not come into play, the fall in the rate would have been even more direct and quantitatively more consistent. In fact you can see from the chart that an initial trough had already been reached in the early '70s, a time when a series of measures were unleashed in response to the fall that were only partially effective, and that only from 1986 to 2006 did the rate improve for a limited short-to-medium period. In 1971 the damage from the decreased RoP that choked the U.S. economy forced the Nixon administration, which was already struggling with the costly war in Vietnam, to take three drastic measures. On August 15, 1971 starting from the reduced competitiveness of American imperialism’s productive apparatus against its competitors, above all Japan and Germany; with an external balance of payments in the red for the first time since the close of World War II; with its gold reserves halved and the worrying decline in the RoP; President Nixon was forced to drive home three "historic" protectionist stakes in order to defend the world’s prime imperialist power against its own economic weakness:

1. 10% tax on all imported goods. A protectionist measure aimed at defending the domestic market and in favour of increasingly less competitive American goods.
2. Devaluation of the dollar, which went from $35 per ounce of gold to $38 an ounce in a 9% devaluation, again for competitive purposes, to revive the fortunes of ailing domestic industry.
3. Declaration of the inconvertibility of the dollar into gold, thus tearing up the Bretton Woods agreement of 1944 which stipulated the exchange rate between the dollar and gold, thus revolutionising the world of international finance and exchange.

At the same time, the first attacks on the labour force were launched in support of these three measures. Production was reorganised with increased work rates and wages were progressively contained.

The unavoidable comment is that that the measures of 15 August — i.e. the preliminary arming of American capitalism against the world of work — were the consequence of a RoP that was too low, not a series of decisions taken ‘spontaneously’ simply because no-one had thought of them before. Despite these measures the condition of the real economy did not change very much. The technical and organic composition of capital increased while the RoP continued to decline. The only significant point to note is that the first counter-tendencies were ineffective, or (more precisely) that their ‘positive’ effect was relatively less than the ‘negative’ effects of the increase in the organic composition of capital over the falling RoP which, aside from insignificant oscillations, continued until 1986.

Since the second trough of 1986 (4% lower than the already alarming 8% of 1971) the RoP started to rise thanks to a series of more effective counter-tendencies which have not only lasted longer but have been stronger.

Amongst the various factors which have boosted the counter-tendency has been the introduction of new technology to improve productivity. In the short term the organic composition of capital can be lowered when the value of constant as well as variable capital is reduced, thus breathing new life into the RoP. In reality the effect of technological innovation is ephemeral and brief. As can be seen from Figure 1, in spite of the devaluation of capital the organic composition has revived and shot up again, nullifying the ‘positive’ effects obtained by the improved methods of production. The explanation for what has been happening to the RoP over more than twenty years has to be sought elsewhere.

The years since the 1980s until the end of the first decade of this century have been characterised by the increased use of absolute surplus value (longer working hours), as well as the type of relative surplus value that does not alter the organic composition of capital (intensification of exploitation by increasing production rates). Meanwhile the use of relative surplus value, that is the sort which changes the organic composition, continued its course as in Figure 1. Furthermore, in the same period wages rates were contained below their previous value while the relocation of production, something which has always characterised the life of capitalism, accelerated sharply over the same period. In other words, we have witnessed a migration of productive capital from economic areas with a high organic composition to those with a lower composition. From ‘high’ labour cost zones to ‘paradises’ where the cost of labour power is ten or twelve times lower, if not more.

As well as all this the crisis itself has been financialised, or rather ever-increasing portions of productive capital are flying towards speculation and the variegated world of finance in search of the profit it is more difficult to make in the real economy. Even this is nothing new. Speculation has always existed and is a natural part of the capitalist economic system. However, this became abnormal once the difficulty of realising returns on capital in the real economy impelled it towards the mirage of extra-profits in the financial sphere. As we know, the financial sphere does not create new value. If someone gains by dealing in derivatives rather than government bonds, on the foreign exchange market or raw materials, somebody else loses. On the one hand speculation — which lies behind the financialisation of the crisis — simply represents the transfer of value which has already been produced. On the other, it inflates a gigantic bubble of fictitious capital (through the loan and credit system) which, once exploded, impacts on the crisis-ridden real economy which provoked the swelling of the bubble in the first place. The consequences have been devastating and the world economy is still feeling its effects.

A third point to consider is the depressive role played by speculation. If it is true that financialisation of the economy temporarily ‘paralyses’ the RoP, draining off surplus value produced elsewhere, over the long term — explosions apart — subtracting from productive capital to add to speculative capital ends up by shrinking the productive base itself.

Here it is clear that the measures taken by capital to extract itself from the grip of a progressively declining RoP are attempts to respond to the law and are not a normal part of its behaviour. Despite the counter-tendencies which have been brought into play over the last twenty years, the crisis exploded just the same.

It burst out in the financial sphere, that last link in the chain of contradictions which began in the realm of production where the valorisation of capital became increasingly difficult, fuelling declining profit rates and prompting the turn towards speculation, the financialisation of the crisis, the creation of huge amounts of fictitious capital that, once exploded, has brought in tow the wreck of a productive economic sphere that is ever more in crisis and in search of the oxygen ‘tank’ that is called profit.

Figure 2: profits in the financial sphere as a percentage of the total profit of companies in the USA. Source: BEA tables 6.16A, 6.16B, 6.16C, 6.16D.

The graph is extremely significant. The advance of profits in the financial sector really starts during the 80s, when the RoP in the real economy was at its lowest. The financialisation of the crisis grew on a geometric scale until the deafening explosion in the middle of 2007 (the subprime crisis), when the entire American financial system was not longer capable of meeting the voracious appetite for returns on the enormous mass of fictitious capital that had been created. It was a collapse which reduced the capitalisation of American finance to the level of the 1950s, burning up billions of dollars, literally reducing the most important finance institutions to nothing as if they were a house of cards. The ‘addiction’ for profit did not simply mean the transfer of portions of capital from production to speculation but some of the giant productive firms were themselves directly involved in speculation. Companies such as General Motors, General Electric, and many others in the raw material (oil companies) and manufacturing sectors, found independent sources of finance and became directly involved in the financial sphere. Their aim was to compensate for what they had lost in the field of production by speculation, thus contributing to the swelling of the speculative bubble and to its inevitable bursting. From another source (I. Joshua, ‘Note on the Trajectory of the Rate of Profit’ published in Contretemps, October 2009) we have the following figures for the profits of US financial companies between 1980 and 2008:

The chronology absolutely bears out the explanation above. The recourse to financialisation begins at the moment the RoP reaches its lowest point. The revival, stimulated by the ‘quick fix’ of profits from financial corporations, becomes stronger in the same period and the RoP temporarily reverses its downward trend.

The graph in Figure 2 shows that even after the nosedive of 2007 financial profits started to go back up in 2009. This reversal is due to three factors:

1. State intervention, not only to save America’s most important finance houses but which also literally provided the banks with new liquidity in order to resuscitate the credit mechanisms which had been paralysed during the first part of the crisis.
2. The impossibility of families, already up to their necks in debt, being able to divert even a minimum portion of their income to savings also meant the banks were unable to raise fresh money.
3. The continuation of the economic crisis with the associated failure of small and medium enterprises, not to mention the bankrupt condition of the huge manufacturing colossi, has led the banking system to remain in the realm of speculation, thus failing to meet the expectations of the government itself.

The conclusion in the short term is that banks, investment funds, financial institutions have seen fit to buy money from the Federal Reserve at a minimal cost (0.5%) to invest in Brazilian, Indian, Chinese government bonds which guarantee a rate of interest above 7-8%, or else they are buying the usual petroleum and raw material derivatives, including agricultural ones. Thus the situation is back where it ruinously began, bypassing yet again the tormented course of the real economy, slowing down the recovery and ultimately penalising the fundamentals.

Whilst the new wave of speculation recreates the condition for another profits’ ‘fix’, it also creates the conditions for the formation of new bubbles and their prospective explosion.

There is nothing more ‘normal’ than the index of financial profits momentarily rising. Nothing more mistaken than to maintain that the present crisis is due to the caprices of the financial world. The implosion of the financial sphere is not the cause of the present crisis but — and it’s worth documenting this — the effect of the difficulty the system of production has in obtaining a satisfactory return on capital invested productively.

The Evolution of the Organic composition of Capital Over the Course of the Crisis

Still focussing on Figure 1 (Source BEA), let’s consider the course of the organic composition of capital from 1950-2010. The curve shows no sign of discontinuity. It rises gradually, almost without interruption, until there is an exponential increase from 2000 onwards. It is the graphical representation of the constant and progressive increase in the organic composition of capital over sixty years. According to PM, however, even though the organic composition has increased considerably when it comes to the material mass of machine tools, of raw materials and so on, devaluation brought about by technological innovation means it has remained constant in value terms. In simple terms: technological innovations have consistently devalued constant capital, preventing the organic composition from changing, above all from becoming higher. Thus, no change in the organic composition of capital and no fall in the RoP. Curiously, in support of this thesis PM presents a series of figures, again from the BEA, but reworked, showing the growth of fixed capital from 1925 until 2010. According to this table:

Faced with an increase of 3.4 times in the number of employees, the equipment they work with has increased as a "mass" about 20 times, an increase of about 6 times per capita of this component in the "technical composition" of capital_ [... with the caveat that] _this affects the physical quantities (size, power, capacity, etc..) while from the point of view of value it is not the case that there has been a corresponding increase in the "organic composition" given that productivity in manufacturing machinery and plant has grown in parallel to their mass during the period.

In this case, therefore, only the technical composition of capital, not the organic composition, has increased thanks to greater productivity. At the outset it must be said that it is much more plausible that the figures refer to the value of fixed capital and not its "mass", by which they indicate the change in the organic composition as well as the technical. If this is not the case it would be interesting to know the method of measuring the "mass" of fixed capital. Is the increase a linear one or is it measured in square kilometres, or in cubic metres? Next, for a more precise estimate, you would have to consider not only the important changes in fixed capital, but also the changes in constant capital (fixed more than circulating). A third point to note is that an increase in labour productivity (‘capacity’, ‘output’, or rather technological advance) devalues variable capital as well as constant. Which means that in the formula for the organic composition of capital — C/V — not only is the numerator reduced, but also the denominator, whilst noting in passing that the technical composition of capital has gone from X to 6X. Or more exactly, an increase in labour productivity leads to a reduced value for C, increasing the rate of surplus value which can briefly increase the rate of profit but which also reduces the value of V, in absolute or relative terms. Thus the technical and organic composition of capital are higher so that in the long run the rate of profit tends to fall for the reasons we have already given in the first part of this article.

An example: if we start from a given average organic composition, expressing the relation between dead and living capital thus: C/V = 80/20 and we made a “virtual” increase, according to PM, the organic composition cited above, we would have 80x20 / 20x3.4, which gives 1600/68. This is pure abstraction given the fact that you not only have to calculate the fixed capital but also all the constant capital and take into account that the variable capital is reduced as well. Added to that you would need to devalue C over 80 years to keep the same ratio to V, taking into account that the number of workers per unit of capital employed is still diminishing, thus reducing the basis for the extortion of surplus value? As you increase the level of extortion of surplus value, as the productivity of labour grows, 100 units of production units will never provide the same amount of surplus labour and surplus value as 10,000. The response of PM is suitably vague:

We repeat that this refers to the physical quantity whilst from a value standpoint no corresponding increase has been verified for the ‘organic composition’, given that productivity in manufacturing machinery and equipment has grown in parallel with their mass during the period.

So we get back, very indistinctly, to the part played by the absolute counter-tendency to the rise in productivity. For it is really this (relative surplus value) which, in the long run, prompts the organic composition of capital to change and the rate of profit to fall by continually eroding the numerical base of the labour force from which surplus value and profits are drawn, despite (or because of) the increased rate of exploitation.

There is only one case where increased productivity does not lead to a higher organic composition of capital and which is therefore a counter-tendency to the falling rate of profit and that is when the process of capital valorisation is based essentially on the use of absolute surplus value (such as the lengthening of the working day). Unlike in the previous century, the development of capitalism in the twentieth century rarely resorted to this except in times of crisis, along with the use of relative surplus value (intensification of the pace of work) which — we repeat — does not entail significant changes in the organic composition of capital.

In reality for America during the period in question, and not just America, both the technical and organic composition of capital increased. In other words, in both value and material terms. Staying with the same source (BEA), Figure 3, showing the relationship between a single unit of labour power per unit of capital good in the industrial sector, is significant.

Figure 3: Single unit of labour power per unit of capital good in the industrial sector 1960-2009. Same source as preceding.

The progressively declining curve reveals how, in value terms, the quantity of labour power in each unit of capital good is continually being reduced. It substantiates the picture of an ever-increasing technical and organic composition of capital, confirming the “classical” Marxist paradigm and not refuting it. The ‘concrete’ nature of the graph well supports Marx’s theory about the presumed power of an absolute counter-tendency to the development of the productive forces.

As far as the labour power applied is concerned, the development of productivity again takes a double form — firstly, there is an increase in surplus labour, i.e. a shortening of necessary labour time, the time required for the reproduction of labour power; secondly, there is a decline in the total amount of labour power (number of workers) applied to set a given capital in motion.

These two movements not only go hand in hand; they mutually condition one another, and are phenomena that express the same law. … One of these factors, the rate of surplus value, is rising; the other factor, the number of workers, is falling (relatively or absolutely). In so far as the development of productivity reduces the paid portion of the labour applied, it increases the surplus value by lifting its rate; but in so far as it reduces the total quantity of labour applied by a given capital, it reduces the number by which the rate of surplus value has to be multiplied in order to arrive at its mass. Two workers working for 12 hours a day could not supply the same surplus value as 24 workers each working 2 hours, even if they were able to live on air and hence scarcely needed to work at all for themselves. In this connection, therefore, the compensation for the reduced number of workers provided by a rise in the level of exploitation of labour has certain limits that cannot be overstepped; this can certainly slow down the fall in the profit rate, but it cannot cancel it out.

Marx, Capital, Volume 3, ‘The Conflict Between the Extension of Production and Valorisation’ p.355-6 English ed. Penguin Books, 1981

All the graphics absolutely support this explanation, including the figures which follow. We’ll deliberately start from the early 1900s to trace the decreasing value of the quantity of labour per unit of capital. Or, which is the same thing, the increasing quantity of value of constant capital in relation to the quantity of labour power employed. Already in 1933 H. Grossmann, in a letter to Mattick, pointed out that with the relationship between dead and living labour at 10 or 12:1 the first was clearly higher than in previous decades.

According to M. Cagoy (in his piece inside ‘Il communismo difficile’ [the Difficulty of Communism’], Dedalo, 1978) the progression is this:

According to the calculations of G. Carchedi, in the article already quoted, whilst in 1960 133 workers were necessary per unit of capital in the industrial sector, in 2009 6 were enough. The figures are for the technical composition of capital, but it must be emphasised that by reducing the workforce it is increasingly difficult to extract a sufficient return of surplus value on the same unit of constant capital, no matter what its assumed or real devaluation. Remaining in Italy, Francesco Farina (l’accumulazione in Italia, 1959-1972 [Accumulation in Italy], De Donato, 1976_)_ estimates that the capital-labour power ratio for industrial production increased by a value of 1,464 in 1959 to a value of 2,778 in 1971. This is despite an increase in productivity over the same period, from 944 to 1789.

This, on the other hand, is what L. Gallino says in his book Se tre millioni vi sembra pochi, [If Three Million Doesn’t Seem Much to You],Einaudi, 1998:

These days, in engineering, consumer electronics, mass transport, chemistry, mass distribution, creating a single job requires 200 to 800 million lire or more, while in developing countries it takes five to ten times less. Thus, Fiat has invested in Melfi, with State assistance of 3500 billion lire, to create 7000 jobs which means 500 million for each one. Toyota, in Valenciennes in France, has invested 10 billion Swiss francs, equivalent to 3000 billion lire, to give employment to 3000 people — a billion per head.

Getting all the debts to pile up over the whole length of the turnover period and given the counter-tendential role of the techniques of computer science and microprocessors, which certainly have raised the rate of profit, the change in the organic composition of capital is evident.

But for PM nothing has happened. The only thing that might have gone up is the consumption of fixed capital which, in the worst of cases, may have led to a modest increase in “dead labour”, bringing it up to “around 1:10 of living labour”. This allows them to conclude that “the reduction in price of the elements of constant capital over the last eighty years and in the United States has counter-balanced the tendency and made it inoperative”. What a problem that, on the threshold of the most serious economic crisis since World War II, necessitates squabbling over the most recent figures about the state of capitalism a dozen years ago. From the law of the average rate of profit to fall we have passed to the law of the constancy of the average rate of profit.

The political conclusions reached by PM are in keeping with their analysis of the crisis:

Wages are stagnant not because capitalism is ‘up to its neck in it’ but because the workers’ movement is splintered, without a class organisation, unable to defend itself from the attacks of the bourgeoisie.

We can only agree on the second part of this. The proletariat is indeed without a political compass, at the mercy of the ruling ideas of the ruling class. Its responses to the attacks of capital are scarce and hesitant, infinitely inferior to the aggressive violence of the economic system. But if wages are low, pensions are being reduced, the pace of work is more intense, the working day gets longer, there is less welfare, worse health care, fewer benefits and allowances; if there is more unemployment, if the elderly have to remain at work longer whilst the young are unable to enter the world of work and, when they succeed, are penalised by "atypical" contracts with infinitesimally small wages; if the cuts in public spending and tax increases are endless ... If all this has occurred over the past twenty years in the shape of the most colossal attack by capital on the workforce, it tell us that the crisis of capitalism has made ​​its previous living standards unsustainable. It means that capitalism is ‘up to its neck in it’, much more than it has ever been since the end of the second world war. It means that for capitalism to survive its contradictions — which have exploded in the financial sphere but which developed inside its productive system as a result of the progressive fall in the rate of profit — with the enormous problems for accumulation and the valorisation of capital, it has to attack working class living standards and up the rate of exploitation. The fact that the working class, for innumerable reasons, has not yet found a way to make a significant response is one thing. It is another matter completely to say that capitalism is not ‘up to its neck’, that it would not be in crisis if it were not for the ‘habitual cycle’ which hampers capitalist production every so often.

Our reply to their typical nagging rebuke, "hence the communists rather than pinning their hopes on a deadly disease of capitalism (the falling rate of profit), must turn their gaze to the weakness of wages in relation to the value produced ... " is to repeat as many times as need be, that we hold to the conception that the crisis stems from the falling rate of profit.

This does not mean that capitalism is about to self-destruct in a sort of death spiral. Escape routes exist for capital, such as the destruction of capital value through wars to recreate the conditions for a new cycle of accumulation at a higher level, even if the same old contradictions remain. Among the others, and by far the most important and most utilised, is to attack the economic and living conditions of the international proletariat, which in this crisis, like the previous ones, is called upon to pay the bill. Only the revival of the class struggle for a different kind of society, which breaks from the infernal capital-labour relationship, where the production and distribution of wealth are no longer the means for capital valorisation, where profit is no longer the god and the proletariat the sacrificial lamb, and finally where the condition for the fulfilment of social needs is in keeping with the interests of those who socially produce and socially consume.

From Prometeo, as cited above.

Nor is there any validity in their false and baseless accusation of (our) giving up on the economic struggle because the prospect for winning demands is so limited. If anything, this attitude belongs to trade unionism since when the unions do act, they do so within the frame of what is compatible with the system that should never even be disturbed. It is a fact that capitalism’s pressing need to survive its crisis means there is scant opportunity to raise or win demands. This demonstrates the economic and social context that for years, it would be better to say for decades, has characterised the social conflict. No longer is the proletariat picking up the crumbs that capitalism was forced to concede under pressure from its own demand struggles (welfare state, wage increases, shorter working hours, etc..). Rather, the bourgeoisie is attacking workers’ living standards and economic rights. When the proletariat does react it does so in sporadic outbursts to try to defend itself against capital’s increasingly violent and deep attacks. The profits crisis has shifted the ground for how the class struggle is played out. From the offensive for … it has turned into, the defence of …

Today’s struggles have to be geared towards defending jobs against rising unemployment. Action aimed at stemming the disastrous consequences of a policy of sacrifices which includes the extension of working life, forcing the old to work longer and young people to be excluded from paid employment; which demands lower wages at higher rates of exploitation, all in the context of an increasingly slimmed down welfare state that is destined to become almost extinct. Struggles against growing impoverishment, against starvation wages, for those who have a wage, and against the ineffectiveness of social safety nets. There are clashes because the reform of the labour market does not create enough flexibility for capital to hire and fire. The struggles go on because the proletariat cannot simply stand by without resisting as capital makes its inhuman attempt to push the effect of its contradictions onto the proletariat. Like it or not, it is not the class, nor the political advance guard, who can choose the ground and terms of the battles. Rather, these will be shaped by the evolution and maturing of the system’s economic dynamics which widen or, in this case, narrow the options available to it.

This does not mean giving up making demands because there is limited room for bargaining, it just means being aware that the framework in which the class struggle can and must be revived is shaped by the economic crisis and that this needs to be changed in order to go beyond the boundaries set by capital. For the class struggle to move on to anti-capitalist political ground it must, necessarily, start at the level of demands or, as at present, from a defensive position, under the leadership of a political vanguard that has long understood how to develop a strategy and tactics for struggle, based on its analysis of capitalist reality. For us, the second phase is impossible (moving onto a political struggle) unless the first (economic struggle, whether of attack or defence) at least already exists. But in our case no one is thinking of playing a role of primarily making demands, radical or otherwise, whilst pretending that the epochal crisis is irrelevant (everything is as usual), so that the second phase is postponed to a more mature time, when the crisis is "real and definitive."

(1) Pagine Marxiste is the theoretical organ of a group which was formed in 2003 from a fairly obscure split with Lotta Comunista, a group originating from the anti-fascist partisan movement way back in 1943, which recognised that the USSR was a state capitalist system and was thus opposed to Togliatti’s new ‘Italian Communist Party’. Pagine Marxiste, like Lotta Comunista, believes that the unions can still be an arm of the workers’ movement.