Published: in Contemporary Issues (New York) No 52, Spring 1966.
Transcription: Adam Buick
HTML-markup: Jonas Holmgren
The Orwellian principles of newspeak, which include the interchangeability of words to enable them to express the opposite of what they appear to be, dominate today's political vocabulary. Just as peace stands for war and wars are fought to maintain peace, so many other terms have come to designate their opposites. It is then not surprising to encounter a book which declares that the opposite of crisis, namely prosperity, is itself in crisis. [Prosperity in Crisis by Joseph M. Gillman. Marzani & Munsel. New York, 1965. $5.00].
Gillman's new book develops the thesis "that the capitalist economies experience booms and depressions because they operate within a framework in which more profits, or social surplus, is produced than can be absorbed in the expansion of their productive assets on a continuing basis, and that this condition has worsened under the impact of the new technologies and concentrated business organization." In recent times, Gillman says, there has been no major depression because uninvestible capital has been absorbed in government-induced unproductive and wasteful expenditures. Unless new substitutes for private investments are found, these expenditures must continuously be increased to avoid another depression. In this, he says, "lies the crisis of America's postwar prosperity. It is a new form of economic crisis."
This "new form of economic crisis" does not seem to be a crisis at all. If a depression can be prevented by way of government expenditures, and if there is a large enough surplus to allow for such expenditures, why should not prosperity continue unabated? Although Gillman professes to being a Marxist, his theory is the exact opposite of Marx's theory of accumulation. To put it briefly—for Marx, the capitalist system experiences periods of crisis and finally comes to its end because of a lack of profit, or surplus-value, relative to the accumulated capital. For Gillman—to put it just as briefly—capitalism is in crisis because "the economy's profit-producing potentialities are greater than its profit-consuming potentialities." For Marx, the rate of profit falls in the course of capital formation; for Gillman there is too much "excess social surplus," which condemns the system to increasingly larger unproductive expenditures. If that were all that bothers the system it really has no problem, for nothing could be easier than to increase unproductive expenditures.
Of course, Marx could be wrong and Gillman right and the "law of the falling rate of profit" could very well have lost its validity. Indeed it has, says Gillman, because "present-day industrial technology is to an ever-increasing degree capital-saving as well as labor-saving." In Marx's view, we recall, capital invested in means of production grows more rapidly than that invested in wages—expressing by this means the growing productivity of labor. Because profits are surplus-labor, the relative reduction of labor depresses the rate of profit since the latter, though exclusively derived from the capital invested in wages, is measured on total capital investments. In Gillman's view, the growing discrepancy between the capital invested in means of production and that invested in labor-power is halted by technological changes which allow for a cheapening of the productive apparatus, in short, for capital-savings, which arrest the tendential fall of the rate of profit.
Capital development, however, has always been both a labor-saving and a capital-saving process and has, in this manner, maintained the profitability of capital despite the tendential fall of the rate of profit inherent in capital production. While labor-saving devices fostered the more rapid increase of capital investments relative to wages, capital-saving devices diminished to some extent the widening gap between the money invested in labor and that invested in capital. This could not be otherwise because the increasing productivity of labor also affects the production of the means of production. Although recognized by Marx as a "countertendency" to the falling rate of profit, he considered its effectiveness as temporary; in the long run the tendential fall of the rate of profit would lead to the downfall of capitalism.
In Gillman's view, the capital-saving effects of the new technologies go beyond anything Marx envisioned himself, and by affecting what Marx called the "organic composition of capital," i.e., the proportional relationship between capital and labor in both technical and value terms, arrested not only the decline of the rate of profit but increased the profitability of capital to an extent that it now exceeds investment opportunities. Automation in particular, according to Gillman, "is potentially the most drastic capital-saving as well as labor-saving device yet invented by man." Although this is undoubtedly true with respect to labor-savings, it is far from obvious with regard to capital-savings. A more extensive automation would require an enormous amount of new capital and an even larger destruction of old capital. In any case, as Gillman says, "the capital-saving aspect of automation has not been adequately documented." It is quite immaterial, moreover, whether or not automation is capital-saving because its great labor-saving capacity is reason enough to prevent its large-scale application to capitalist production. Where there is no labor there can be no surplus-labor. One has only to assume complete automation to recognize that it would mean the end of capitalism. Increasing automation can only mean the continuous reduction of labor and therefore of surplus-labor, or profits.
Capital-saving and labor-saving innovations are actually one and the same process. It means that relative to the quantities of commodities produced, less and less labor is employed in all branches of production and thus also in those manufacturing capital goods. Such goods are themselves nothing but congealed surplus-labor. If there is less and less congealed surplus-labor, capital finds itself in a state of disinvestment. To accumulate capital, the mass of capital must increase despite and because of the cheapening of the means of production, or of the constant capital, to use Marxian terminology. Capital is not only a production relation but also a value relation. No matter how much the constant capital is cheapened by capital-saving innovations, to speak of capital formation, the mass of capital in any one cycle of production must be larger than it was in a previous cycle. It is the same with labor, with variable capital, in Marx's terms; no matter how many workers may be displaced relative to the increase of capital, their absolute number increases with the accumulation process.
The source of Gillman's reversal of Marx's theory of capital formation may be found in his inability clearly to distinguish between production and capitalist—or value—production. He says, for instance, that "automation minimizes the rate of investment and hence retards the rate of economic growth in physical terms." Yet automation necessitates new investments and is resorted to in order to increase the profitability of capital. Even though it can only lead into a cul-de-sac, it is nonetheless a way to continue the accumulation process. It is the need to increase profits which induces automation, even though it will, in turn, reduce the profitability of capital still further. Capitalists are not interested in either the enhancement or the retardation of the rate of economic growth in physical terms; their sole concern is with the value of their capital, its preservation and expansion, and it is this concern which determines the rate of growth and the physical character of the production process.
While for Gillman capital-saving and automation minimize the rate of investments, they also in his view produce an abundance of profit which cannot find fresh capitalization because of the declining growth rate. On this point Gillman thinks that he is in disagreement with Keynes (who traced the decline of investments to a superfluity of capital) by saying that, contrary to Keynes, "the rate of investment declines not so much because capital becomes 'less scarce', but because it becomes more efficient,"—without noticing that if it becomes more efficient it also becomes 'less scarce'. Despite Gillman's criticisms of Keynes, which take up a considerable part of his book, it is more from Keynes than from Marx that his own position derives. In fact, Keynes is far closer to Marx than is Gillman, if only because the former at least bases his theory on the diminishing marginal efficiency, or profitability, of capital, whereas in Gillman's view capital suffocates in its own efficiency and profitability.
Except with respect to some practical policy proposals and the terminology employed, there is not much difference between Keynes' and Gillman's position. Both decry the declining rate of investments, which leaves a mass of idle capital because profits are not reinvested. They are not reinvested, according to Gillman, because the efficiency of capital is too great to allow for its further expansion. It should be obvious that this could only mean that additional investments would not yield additional profits; i.e., that a lack of profitability leads from expansion to stagnation. But the obvious is not for Gillman; for him the system is already too productive and too profitable to be able to afford still more affluency under the given conditions of capitalistic distribution and the principle of capital concentration.
Capital not reinvested, or invested capital not used, ceases to be productive, that is, profit-yielding capital, and becomes a hoard. To the extent that the hoard grows, capital itself declines, as may be gathered from any depression. The hoard itself, in so far as it appears in tangible form, depreciates, and in its money form it may be lost partly through inflation and partly by being consumed. Far from indicating a superfluity of profits, idle capital is itself an expression of the declining profitability of capital. In Gillman's view, however, the hoard represents a "social surplus" to be "siphoned off" by government to supplement private spending by government-induced production in order to secure a necessary level of employment. "Deficit spending", he writes, "has a special virtue in that it involves borrowing from the actual or potential pool of the community's savings which may not be planned to materialize as private investment. Deficit spending thereby becomes a withdrawal from the community of actual or potential social surplus."
However, there is not such an "actual or potential social surplus" in the form of the "community's savings." There are only idle productive resources which cannot be profitably employed. The money which the government "borrows" to set them to work, the government itself creates with the aid of the banking mechanism and through the extension of the credit system. All capitalist production is based on credit, but credit dries up with the decreasing profitability of capital. Where private credit expansion comes to a halt, government credit expansion steps up. The '"prosperity" thus brought about is not immediately different from that created by private credit expansion, only that the "profits" made in such a "prosperity" take on the form of the national debt. These "profits" arc not realized on the market, for there is no market far government-induced production, but are "realized" in form of claims on the national debt. Whether these claims are eventually repudiated or actually honored, in either case they reduce the profitability of the total private capital and to that extent hamper its further accumulation. The apparent prosperity is thus itself an additional sign of the decreasing profitability of capital.
In view of capitalism's real development, Gillman's reversal of Marx's theory of accumulation is entirely out of place. And this the more so because it rests upon a mistaken identification of productive capacity with the capacity to produce profits. It should be pointed out, however, that in spite of his affinity with Keynesian economics, Gillman does not share the Keynesian illusion of the reformability of capitalism. For him, capitalism is in crisis because it cannot use its productive powers to alleviate the capital needs of underdeveloped countries and to improve the living standards in the developed nations; instead it is condemned to dissipate its great wealth in war and waste-production. In order to utilize the new productive powers for the alleviation of human misery, Gillman sees the necessity for a radical alteration of society's political and economic structure. He would, however, have found a better substantiation for this conviction if he had tried to learn less from Keynes and more from Marx.
Last updated on: 9.8.2011