The Labor Constraint and Upper Turning Point

E. The Labor Constraint and Upper Turning Point

We recall (above, p. 134) the general declaration in Capital 3 attributing “[t]he ulti- mate reason for all crises” to “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 consuming power of society constituted their limit” (MECW 37: 483, also 242–3). Yet Marx actually rejected “underconsumptionist” rationaliza- tions of crises, on the grounds that employment, wages and expenditure by labor – and also consumption outlays by capitalists – were highest during “prosperity”: “In times of prosperity, intense expansion, acceleration and vigour of the reproduction process, labourers are fully employed. Generally, there is also a rise in wages which makes up in some measure for their fall below average during other periods of the commercial cycle. At the same time, the revenues of the capitalists grow consider- ably. Consumption increases generally. Commodity prices also rise regularly at least in the various vital branches of business” (444; emphasis added). A more technical account expresses the matter in terms of the “absolute overproduction of capital” or “overaccumulation,” when there occurs a “steep and sudden fall in the general rate of profit” resulting from pressure of demand for labor on scarce supply which cuts the rate of exploitation (250). The situation is deemed to be one of “overpro- duction, because capital would be unable to exploit labour to the degree required by a ‘sound,’ ‘normal’ development of the process of capitalist production, to a degree which would at least increase the mass of profit along with the growing mass of the employed capital; to a degree which would, therefore, prevent the rate of profit from falling as much as the capital grows, or even more rapidly” (254).

Ricardo had certainly recognized a falling profit rate due to labor shortage but always insisted that this simply transferred purchasing power to labor; economic growth would decelerate and even come to a halt only to be renewed if and when expansion of labor supply took place in response to the high wages (Ricardo 1951–

73 1: 406–7). The difference lies in that Marx placed labor shortage in cyclical

13 Marx’s The Class Struggles in France refers to the “retarding influence” of rising materials prices in France and in England on the upturn in 1850 (MECW 10: 132).

The Cyclical Dimension

context, his “overaccumulation” forcing down s/v and generating crisis: “Over- production of capital is never anything more than overproduction of means of production – of means of labour and necessities of life – which may serve as cap- ital, i.e., may serve to exploit labour at a given degree of exploitation; a fall in the intensity of exploitation below a certain point, however, calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of cap-

ital” (MECW 37: 254). 14 Again: “too many means of labour and necessities of life are produced at times to permit of their serving as means for the exploitation of labourers at a certain rate of profit” (257;emphsis added). 15

“Overproduction of capital,” we have seen, entails overproduction relative to scarce labor to which is attributed those sharp reductions in the profit rate that occur near the cyclical peak. It would be misleading, however, to describe this strictly as a “full-employment” situation though Marx himself does so on occasion (e.g., above p. 145), to the extent that part of the labor force is not in the running, implying in effect a dual labor force (see Chapter 3.F).

We take account now of an important passage in Capital 2 relating to the cycle, which confirms the general phenomena of rising wages and high consumption spending by labor – and also by a variety of “non-productive” consumers – when the market is turned in its favor; it alludes also to the upward pressure on the prices of raw materials, including imports, during the period of “pressure on soci- ety’s available productive capital” (MECW 36: 314). Marx then elaborates with particular attention accorded the speculative characteristics of late prosperity:

To this must be added that stock-jobbing is a regular practice and capital is transferred on a large scale. A band of speculators, contractors, engineers, lawyers, etc. enrich themselves. They create a strong demand for articles of consumption on the market, wages rising at the same time. So far as foodstuffs are involved, agriculture too is stim- ulated. But as these foodstuffs cannot be suddenly increased in the course of the year, their import grows, just as that of exotic foods in general (coffee, sugar, wine, etc.) and of articles of luxury. Hence excessive imports and speculation in this line of the import business. Meanwhile, in those branches of industry in which production can

14 See also an intriguing passage referring to capital growing faster than population which proba- bly entails the period of cyclical upturn: “The stupendous productive power developing under

the capitalist mode of production relative to population, and the increase, if not in the same proportion, of capital values (not just of their material substance), which grow much more rapidly than the population, contradict the basis, which constantly narrows in relation to the expanding wealth, and for which all this immense productive power works. They also con- tradict the conditions under which this swelling capital augments its value. Hence the crises” (MECW 37: 265). 15 The text then introduces a “realization” problem that seems inappropriate during a period of labor shortage preceding the crisis, when prices are prismably rising: “Too many commodities are produced to permit a realization and conversion into new capital of the value and surplus value contained in them . . . i.e., too many to permit of the continuation of this process without constantly recurring explosions” (MECW 37: 257).

E. The Labor Constraint and Upper Turning Point 147

be rapidly expanded (manufacture proper, mining, etc.), climbing prices give rise to sudden expansion soon followed by collapse (314–15; emphasis added).

There follow observations on the role of the Reserve Army of Unemployed in servicing employers’ requirements late in the upturn, confirming one of the main themes of Chapter 3.E:

The same effect is produced in the labour market, attracting great numbers of the latent relative surplus population [the reserve army], and even of the employed labourers, to the new lines of business. In general such large-scale undertakings as railways withdraw

a definite quantity of labour power from the labour market, which can come only from such lines of business as agriculture, etc., where only strong lads are needed. This still continues even after the new enterprises have become established lines of business and the migratory working class needed for them has already been formed, as for instance in the case of a temporary rise above the average in the scale of railway construction.

A portion of the reserve army of labourers, which kept wages down, is absorbed. A general rise in wages ensues, even in the hitherto well employed sections of the labour market. This lasts until the inevitable crash again releases the reserve army of labour and wages are once more depressed to their minimum, and lower (315; emphasis added).

At this point we encounter the same complexity as in Capital 3 (above, p. 145). I refer to a note inserted by Marx for future elaboration (reported by Engels) referring to periodic “overproduction” relative to labor’s constrained consumption power apparently with secularly low wages intended:

Contradiction in the capitalist mode of production: the labourers as buyers of com- modities are important for the market. But as sellers of their own commodity – labour power – capitalist society tends to keep them down to the minimum price. – Further contradiction: the periods in which capitalist production exerts all its forces regularly turn out to be periods of overproduction, because production potentials can never be utilized to such an extent that more value may not only be produced but also realised; but the sale of commodities, the realisation of commodity capital and thus of surplus value, is limited, not by the consumer requirements of society in general, but by the consumer requirements of a society in which the vast majority are always poor and must always remain poor (315n).

This position conflicts with high consumption by laborers prior to the upper turning point.

Moreover, the rejection of underconsumptionism as causal feature in cyclical analysis is in fact made explicitly later in Capital 2. The case turns formally on the demonstration that sectoral balance requires purchase of necessaries by luxury- producing workers to correspond with purchase of luxuries by capitalists engaged in the production of necessaries (see Chapter 2, pp. 73). This requirement had implications for any expansion of the luxury sector:

Since (IIb) v is realized in an equivalent part of (IIa) s , it follows that in proportion as the luxury part of the annual product grows, as therefore an increasing share of the labour power is absorbed in the production of luxuries, the reconversion of the variable capital advanced in (IIb) v into money capital functioning anew as the money form of the

The Cyclical Dimension

variable capital, and thereby the existence and reproduction of the part of the working class employed in IIb – the supply to them of consumer necessities – depends upon the prodigality of the capitalist class, upon the exchange of a considerable portion of their surplus value for articles of luxury (408–9).

And here we come to the cyclical implications. A reduction in capitalists’ demand for luxuries – as in a “crisis” (Marx is perhaps using the term to mean “depression”) – had implications for employment and thus spending more generally: “Every crisis at once lessens the consumption of luxuries. It retards, delays the reconversion of (IIb) v into money capital, permitting it only partially and thus throwing a certain number of the labourers employed in the production of luxuries out of work, while on the other hand it thus clogs the sale of consumer necessities and reduces it”

(409). 16 Conversely – and of immediate relevance to us – “[t]he reverse takes place in periods of prosperity, particularly during the times of bogus prosperity, in which the relative value of money, expressed in commodities, decreases . . . (without any actual revolution in values), so that the prices of commodities rise independently of their own values.” Here Marx points out that luxury consumption by labor during periods of full employment is partly responsible for general price increases: “It is not alone the consumption of necessities of life which increases. The working class (now actively reinforced by its entire reserve army) also enjoys momentarily articles of luxury ordinarily beyond its reach, and those articles which at other times constitute for the greater part consumer ‘necessities’ only for the capitalist

class. This on its part calls forth a rise in prices.” 17 And at this point we encounter the firm rejection of “underconsumption” explanations of crisis – in particular underconsumption by labor – since to the contrary wages are highest just before the upper turning point: “It is sheer tautology to say that crises are caused by the scarcity of effective consumption, or of effective consumers. . . . ” Were one to say “that the working class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working class actually gets a larger share of that part of the annual product which is intended for consumption” (409–10). 18

16 Marx adds here: “And this is without mentioning the unproductive labourers who are dismissed at the same time, labourers who receive for their services a portion of the capitalists’ luxury

expense fund (these labourers are themselves pro tanto luxuries) and who take part to a very considerable extent in the consumption of the necessities of life, etc.” (MECW 36: 409). 17 The reference to absorption of the “entire reserve army” provides another instance of true full employment; see above, p. 146. 18 The initial objection to the (unattributed) “tautology” is purely formal: “The capitalist system does not know any other modes of consumption than effective ones, except that of sub forma pauperis or of the ‘thief.’ That commodities are unsaleable means only that no effective pur- chasers have been found for them, i.e., consumers (since commodities are bought in the final analysis for productive or individual consumption)” (MECW 36: 409).

E. The Labor Constraint and Upper Turning Point 149 Eduard Bernstein opined that the passage from Capital 3 regarding “[t]he ulti-

mate reason for all crises . . . ” (cited above, pp. 134, 145) had in common with Rod- bertus’s approach that “crises are not occasioned simply by under-consumption by the masses, but . . . by it in conjunction with the increasing productivity of labour” (Bernstein 1961 [1899]: 75). The contrast between this qualified passage and the wholly rejectionist passage from Capital 2 beginning “It is sheer tautology to say that crises arise from a want of consumers to pay . . . ,” he believed reflected the cir- cumstance that the Capital 3 had been written by 1864 or 1865, whereas the Capital

2 passage must have been written about 1878. Be that as it may, we have encoun- tered passages in Capital 3 that reject underconsumptionism quite as unreservedly as the strong passage in Capital 2, and on precisely the same grounds.

Thus far our concern has been with the irrelevance of underconsumption in the cyclical context from the perspective of the laborers. But we can go further. Chap- ter 18 of Capital 3 (“Turnover of Merchant’s Capital”) describes the state of full employment just prior to the upper turning point as one of high consumption out of revenue by capitalists, not only by laborers; and continued production of capital goods in expectation of continued high final demand (“prospective demand”):

Consumption is then generally at its highest, either because one industrial capitalist sets a succession of others in motion; or because the labourers employed by them are fully employed and have more to spend than usual. The capitalists’ expenditures increase together with their growing income. Besides . . . continuous circulation takes place between constant capital and constant capital (even regardless of accelerated accumulation). It is at first independent of individual consumption because it never enters the latter. But this consumption definitely limits it nevertheless, since constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption. However, this may go on undisturbed for some time, stimulated by prospective demand, and in such branches, therefore, the business of merchants and industrialists goes briskly forth (MECW 37: 303–4).

The phenomenon of continued high consumption by capitalists just before the crisis, we shall find, plays an important part in the empirical accounts of the operation of the credit system.

Only one feature of underconsumption remains at play during the upturn – and it is scarcely much emphasized – that relating to the “unproductive” classes (landlords presumably included) and fixed-income recipients whose purchasing power tends to decline: “The incomes of the unproductive classes and of those who live on fixed incomes remain in the main stationary during the inflation of prices which goes hand in hand with overproduction and overspeculation. Hence their consuming capacity diminishes relatively, and with it their ability to replace that portion of the total reproduction which would normally enter into their consumption. Even when their demand remains nominally the same, it decreases in reality” (490).

The Cyclical Dimension

Though this theme is not expanded it at least implies a causal feature contributing to the downturn.

It is an inconvenient fact that Marx did formally ascribe cycles to undercon- sumption in the note to Capital 2 uncovered by Engels (above, p. 147) and in the passages from Capital 3 (above, pp. 134, 145). Our investigation of the texts has led us to conclude that the ascriptions are not substantiated.