The Raw Material Constraint and Upper Turning Point

D. The Raw Material Constraint and Upper Turning Point

We shall now take account of Marx’s further rationalizations, in addition to rising c/v, of the downward pressure on the profit rate setting in late during the upturn. These include the “natural” characteristics of agricultural products acting via the prices of raw materials.

We recall first Marx’s valid objection that Ricardo, by his inverse wage-profit relation, effectively identified the rate of exploitation (s/v) with the rate of profits s/(c + v), neglecting the effect on the latter of changes in materials’ prices (MECW

37: 108, cited Chapter 1, Section I). “Other conditions being equal,” Marx con- cludes, “the rate of profit therefore falls and rises inversely to the price of raw material” (see also 113). 12 Of particular interest are the cyclical consequences flow- ing from natural constraints on the output of “vegetable and animal substances”:

It is the nature of things that vegetable and animal substances whose growth and production are subject to certain organic laws and bound up with definite natural time periods, cannot be suddenly augmented in the same degree as, for instance, machines and other fixed capital, or coal, ore, etc., whose augmentation can, provided the natural conditions do not change, be rapidly accomplished in an industrially developed country.

11 Nothing is said explicitly of the positive effects of cheaper raw materials during the downturn and depression, the reverse of those touched on in discussing the period of “prosperity” to be

discussed in the next section. What is said of cheaper raw materials of a seasonal variety as providing “the added stimulus of the . . . influence on the rate of profit” (MECW 37: 122), is in principle applicable. And the same presumably holds good of falling wages. 12 On the objection to Ricardo, see also MECW 37: 239–40. Yet on at least one occasion Ricardo allowed that a rise in material prices directly affected the profit rate, the value of the capital stock rising with the increased cost of agricultural produce (Ricardo 1951–3 1: 117). Marx was aware of this specific allowance (MECW 37:116). J. S. Mill neglects the direct effect of changing materials prices on the profit rate allowing only an indirect effect via the cost of wage-goods

The Cyclical Dimension

It is therefore quite possible, and under a developed system of capitalist production even inevitable, that the production and increase of the portion of constant capital consisting of fixed capital, machinery, etc., should considerably outstrip the portion consisting of organic raw materials, so that demand for the latter grows more rapidly than their supply, causing their price to rise (119–20).

Allowance is made for a degree of moderation of the materials’ price increase because of supply adjustments of various sorts (120). Nonetheless, the stage arises when materials’ price increases begin to act as a break upon the expansion of output – one may presume it manifests itself as pressure on the profit rate as explained earlier – at which point the entire process is reversed. The account thus accords the movement of materials’ prices due to a species of diminishing returns, a causal role in the cycle in accounting for the upper turning point and the reaction that follows: “When this rise of prices begins to exert a marked influence on production and supply it indicates in most cases that the turning-point has been reached at which demand drops on account of the protracted rise in the price of the raw material and of all commodities of which it is an element, causing a reaction in the price of raw material.”

We take account now of an aspect of the secular-cyclical relation, namely the proposition that the more developed the capitalist economy the stronger the upward cyclical pressure on materials prices: “The greater the development of capitalist production, and, consequently, the greater the means of suddenly and permanently increasing that portion of constant capital consisting of machinery, etc., and the more rapid the accumulation (particularly in times of prosperity), so much greater the relative overproduction of machinery and other fixed capital, so much more frequent the relative underproduction of vegetable and animal raw materials, and so much more pronounced the previously described rise of their prices and the attendant reaction.” Marx goes on immediately: “And so much more frequent are the convulsions caused as they are by the violent price fluctuations of one of the main elements in the process of production.”

That cyclical instability worsens with general capitalist development is thus at least partially accounted for. Consistently with this view, Marx – here assuming an open economy – focuses on the circumstance that notwithstanding the contraction in demand for raw materials after the upper cyclical turning point, and the resultant contraction of margins of cultivation, “the basis on which production carries on after the extension of machinery, etc., and which, after some fluctuations, is to serve as the new normal basis, the new point of departure, is very much extended by the developments in the preceding cycle of turnover” (121). Accordingly, “[t]he aforesaid process of production of raw materials being gradually overtaken by the production of machinery, etc., is then repeated on a larger scale” (122); while “the closer we approach our own time in the history of production, the more regularly do we find, especially in the essential lines of industry, the ever-recurring alternation between relative appreciation and the subsequent resulting depreciation of raw materials obtained from organic nature.”

E. The Labor Constraint and Upper Turning Point 145 Empirical evidence for the cyclical role of material prices – or it may be that

this evidence provided the basis for the analysis in the first place – is drawn from

a witness examined in October 1858 before the English Factory Commissioners regarding the crisis year 1857 (123–4). 13 The experience of the cotton industry, especially the years 1861–65, is also referred to as evidence: “ . . . the sphere of production of raw materials is, by fits, first suddenly enlarged, and then again violently curtailed. All this, and the spirit of capitalist production in general, may

be very well studied in the cotton shortage of 1861–65, further characterized as it was by the fact that a raw material, one of the principal elements of reproduction, was for a time entirely unavailable” (122).