On Secular Underconsumption

H. On Secular Underconsumption

The text of Chapter 15 of Capital 3 on “Internal Contradictions of the Law of the Tendency of the Rate of Profit to Fall” declares: “Growth of capital, hence accumu- lation of capital, does not imply a fall in the rate of profit, unless it is accompanied by . . . changes in the proportion of the organic constituents of capital” (MECW

37: 262). Now this declaration is misleading. The falling profit-rate trend reflecting rising organic composition of capital is restricted to the “creation” of surplus value not its “realization.” This latter may be impeded by inter-sectoral discordance and by limits to “the consumer power of society”:

The creation of this surplus value makes up the direct process of production. . . . As soon as all the surplus labour it was possible to squeeze out has been objectified in commodities, surplus value has been produced. But this production of surplus value completes but the first act of the capitalist process of production – the direct production process. Capital has absorbed so and so much unpaid labour. With the development of the process, which expresses itself in a drop in the rate of profit, the mass of surplus value thus produced swells to immense dimensions. Now comes the second act of the process. The entire mass of commodities, i.e., the total product, including the portion which replaces the constant and variable capital, and that representing surplus value, must be sold. If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited, but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus value pressed out of him, indeed even with the partial or total loss of the capital. The conditions of direct exploitation, and those of realising it, are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional relation of the various branches of production and the consumer power of society (242–3; emphasis added).

Two constraints on “the consumer power of society” are at play. First, constrained consumption by the working class: “But this last-named is not determined either by the absolute productive power, or by the absolute consumer power, but by the consumer power based on antagonistic conditions of distribution, which reduce the

21 In this case, even if 1−β K 1−β (1 + α) < 1, i.e., if the value composition tends to zero, 1 L

li m R(n) = li m n→∞

n→∞ 1+ PK (1−βK )n PL (1+βL )n · K (1+α) n = 0 since li m

n→∞ P L (1+β) n = 0.

PL (1+βL )n

Economic Growth and the Falling Rate of Profit

consumption of the bulk of society to a minimum varying within more or less narrow limits” (243; emphasis added). This may not relate to the downward wage-rate trend as such, but simply to an assumption of “minimum” wages. Second, there is

a constraint on capitalists’ consumption – it is not clear whether absolute reductions are intended – reflecting their “drive to expand capital,” leading to the conclusion that “the more the productive power develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest.” This second constraint relates to a view of capitalists as motivated by an exaggerated drive to accumulate, with “self-expansion of capital . . . its only purpose” (240). Citing the Grundrisse and the Economic Manuscripts (MECW 28: 339–40; 32: 126) Marx continues: “It will never do . . . to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence” (MECW

37: 242). The barrier to expanded output created by constrained consumption is very strongly expressed in a passage, also based on the Grundrisse and the Economic Manuscripts (MECW 28: 23; 34: 24–5), touching on extensions of the world market as providing one way out of the dilemma: “The capitalist mode of production is, for this reason, a historical means of developing the material forces of production and creating an appropriate world market and is, at the same time, a continual conflict between this its historical task and its corresponding social relations of production” (MECW 37: 249; emphasis added). Again, capitalist arrangement demands “that countries in which the capitalist mode of production is not developed, should consume and produce at a rate which suits the countries with the capitalist mode of production” (256).

Having said this we must point to an anomaly. For in Chapter 30 (“Money Capital and Real Capital”) Marx seems to ascribe to the secular version of the Law of Markets adopted by Ricardo, Say, and J. S. Mill to the effect that there are no constraints on expansion of aggregate activity emanating from some form or other of constrained markets: “[the] limits of consumption are extended by the exertions of the reproduction process itself. On the one hand, this increases the consump- tion of revenue on the part of labourers and capitalists, on the other hand it is identical with an exertion of productive consumption” (481). Shortly afterwards, however, he reverts to the original view of “restricted consumption” by labor and excessive investment by capitalists and indeed also adds the requisite of compen- satory consumption by the “non-producing classes” including landlords: . . . “as matters stand, the replacement of the capital invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class” (482–3).

In taking this line Marx was in effect siding with Malthus against the orthodox view of the Law of Markets as a secular proposition. (On Malthus see Hollander

H. On Secular Underconsumption 131 1997: Chapter 11). And in his Chapter 15 he objects to “economists who deny

overproduction of commodities, admitting overproduction of capital” the latter referring to a profit-rate decline due to labor scarcity (see Chapter 5.E); to those who deny general overproduction but allow “disproportion within the various branches of production”; to those who say that “overproduction is only relative”; and to those who propose that “capitalists have only to exchange and consume their commodities among themselves” for the problem to be solved (255–6). The Law of Markets conflicted with his own position, which allowed for an “imminent bar- rier” to expanded production created by the “limited dimensions of consumption” (255). Under capitalist arrangement wherein “the aim of capital is not to minister to certain wants, but to produce profit . . . a rift must continuously ensue between the limited dimensions of consumption . . . and a production which forever tends to

exceed this imminent barrier.” 22 The high significance of Marx’s Malthusian dec- laration cited above that, “as matters stand,” capital replacement “depends largely upon the consuming power of the non-producing classes” is apparent. It is all the more disconcerting to encounter a reference to “the fantastic idea of priest Chalmers [Chalmers 1832: 88–92; cf. MECW 32: 434–5] that the less of the annual product is expended by capitalists as capital, the greater the profits they pocket. In which case the state church comes to their assistance, to care for the consumption of the greater part of the surplus product, rather than having it used as capital” (244). This after all is the essence of Marx’s own position. 23

22 See also the insistence in Capital 1 that “the real aim of the capitalist” is neither use value nor “the profit on any single transaction,” but “[t]he restless never-ending process of profit-

making alone . . . . The never-ending augmentation of exchange value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation” (MECW 35: 164). Now Marx cites both Chalmers regarding money as “terminating object” (Chalmers 1832: 165–6) and also McCul- loch on “[t]he inextinguishable passion for gain” as the capitalist’s end (McCulloch 1830: 179), but charges the latter with nonetheless denying the possibility of overproduction: “when in theoretical difficulties . . . [he] “transform[s] the same capitalists into a moral citizen, whose sole concern is for use values, and who even develops an insatiable hunger for boots, hats, eggs, calico, and other extremely familiar sorts of use values.” 23 Joan Robinson understood Marx as “intending” a theory along the following lines having in mind his reproduction equations:

consumption by the workers is limited by their poverty, while consumption by the capitalists is limited by the greed for capital which causes them to accumulate wealth rather than to enjoy luxury. The demand for consumption goods (the product of group II) is thus restricted. But if the output of the consumption-good industries is limited by the market, the demand for capital goods (group

I) is in turn restricted, for the constant capital of the consumption-goods industries will not expand fast enough to absorb the potential output of the capital-good industries. Thus the distribution of income, between wages and surplus, is such as to set up a chronic tendency for a lack of balance between the two groups of industries (Robinson 1967 [1942]: 49).

Now to demonstrate rigorously that “maldistribution of consuming power is the root of the

trouble,” required a demonstration “that investment depends upon the rate of profit, and that the rate of profit depends, in the last resort, upon consuming power. It is necessary, in short, to supply a theory of the rate of profit based on the principle of effective demand”

Economic Growth and the Falling Rate of Profit

We have understood Marx’s underconsumptionism as relating to secular ten- dencies. We shall have more to say about the matter in Chapter 5, in the light of a declaration in Capital 3 that “[t]he ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit” (483).