In Part 2, I examined one of the many contradictions inherent in Capitalism. Faced with the drying up of the Latent Reserve based on the rural population, Capitalism finds its previous methods of reliance on the extraction of Absolute Surplus Value – lengthening the working day, intensifying the pace of work – no longer suffice. For one thing, they simply lead to the workers dying off even more quickly. It is forced to regulate itself, and place State imposed limits on these things in order to conserve the supply of Labour-Power. It is also led to introduce means of improving the health, and longevity of the workers. All of these measures, in turn become engrained in the determination of the Value of Labour Power. That being so, Capital is led to try to find ways of ensuring that the production of these necessities is done in the most efficient manner. In other words, the emphasis already begins to shift away from the extraction of Absolute Surplus Value, and towards Relative Surplus Value – increasing the amount of Surplus produced, by continuously reducing the amount of time required to produce the workers needs.
Of course, there are other measures introduced by Capital to try to overcome the fact that the Latent Reserve is drying up. It seeks other forms of Latent Reserve, so it uses female and child labour, and encourages immigration, but even these Latent Reserves become exhausted. The more effective means of dealing with the problem for Capital is the same solution it finds for reducing the Value of Labour Power – the increasing replacement of labour-power with machinery, which massively increases the productivity of the workers, and thereby continually creates a relative over-population. But, this process too is inherently contradictory. For one thing, in order to produce the machines, an increasing proportion of the population has to become more technically sophisticated. While on the one hand, therefore, old craft skills dwindle, other skills such as engineering increase. Increasing technology in production becomes enmeshed with increasing technicalisation of society in general, which in turn means that workers need to become more educated.
To begin with, Capital is happy for workers to make their own provision, which the workers did in Britain through their Co-operative and Mutual Societies, their Trades Unions etc. But, as these organisations develop as independent power bases within society for the workers, the Capitalists realise the danger this represents. Increasingly, just as they had introduced State regulation of their own activities, so the Capitalists see the need for State control over Education, and later Health, Social Services etc. i.e. the modern Welfare State. The Welfare State also resolves other contradictions faced by Capital. By the end of the 19th Century/beginning of the twentieth century, production was being carried on at a huge scale, and the rapid adoption of new forms of technology, such as the introduction of electricity, the internal combustion engine, and all that they made possible laid the basis for mass production.
Henry Ford, realised a number of things. Firstly, the more his workers did their jobs, the faster they became at them. To maximise that, it was necessary to retain them, otherwise the time spent to train them was wasted. To retain them, he increased their wages significantly, introducing the $5 day, and introduced a range of welfare measures that made the workers feel as though they were all part of a Ford family. Secondly, he realised that if the vast amount of mass produced goods were to be consumed, and thereby allow the Capitalists to realise the profits from them, then workers would need to have sufficiently high wages to be able to buy these goods. The two things went together. Higher wages for the workers would help retain them, and would make it possible for them to buy the newly produced commodities. So long as the workers' productivity increased faster than the increase in wages for the workers, both wages and profits could rise! This was the basis of Fordism, which dominated the relations between workers and bosses in the developed economies after WWII.
Just as with the mass production of consumer goods then, Capital sees the need for the mass production of those other commodities required for the production and reproduction of Labour-Power, Education and Health. There are a number of reasons why Capital sees its State as the best means of ensuring this. Firstly, the scale means that the State is best placed to mobilise the necessary resources, that individual Capitalists might not be able to achieve. Secondly, private Capitalists will only provide such commodities if they make adequate profits, and left to their own devices, workers might not be prepared to pay enough to generate such profits. Thirdly, the State can impose minimum standards, and impose its own curriculum. That is important for Capital, because already, the education being provided by workers themselves could challenge the ideas of Capital. The struggle for independent working-class education waged by the Plebs League at the beginning of the 20th century was a clear example of that. Fourthly, the State, by use of the Tax System, could force the workers to set aside the necessary amount from their wages to cover this minimum amount of education that Capital required them to consume, in order to become the kind of productive workers it now required. Finally, the scale of operation that the State could conduct on this basis meant that the same kind of principles of mass production that Fordism was introducing, could be utilised in the provision of the commodities of Health and Education, and both schools, and hospitals were organised, essentially as factories for producing and repairing workers.
China, illustrates another aspect of this problem for Capital. China has built its economy on producing masses of manufactured goods for export. Increasingly, it needs to develop its own domestic market. The wages of Chinese workers have risen sharply, but a large part of them goes into savings. That is because, without a Welfare State, Chinese workers have to set aside money to cover unforeseen events such as sickness, as well as to cover periods of unemployment, retirement, children's education and so on. The consequence is that far more is saved than is actually required to cover these expenses. That is limiting for Chinese Capital, which now wants to stimulate an increased amount of spending, and a lower savings rate. The introduction of a Welfare State will not only mean that the Chinese State will then collect those payments itself as taxes, but it will have a more direct control over the provision itself. At the same time, Chinese workers will then reduce their savings, and increase consumption.
Its not surprising then that, Germany, which was one of the first modern economies to move rapidly to the introduction of more technological production, was also the first country, under Bismark, to introduce a National Insurance Scheme, and the beginnings of a Welfare State. And all developed economies, even those like the US which has been able to rely on a large amount of immigration to provide it with a large Latent Reserve Army of Labour, and which has a highly developed individualist culture, have introduced some form of Welfare State.
The Welfare State, and the ability through it to produce an increasingly more educated working class also helps resolve a further contradiction faced by Capital. As Marx sets out in, Capital, Chapter 13 one of the consequences of the increasing substitution of machinery for Labour-Power is that the proportion of Surplus Value to the total amount of Capital laid out is steadily reduced. This is his “Tendency for the Rate of Profit To Fall”. The basic argument is this. If we have Constant Capital (Machines, Buildings, Raw Materials) worth £10,000, and we have Variable Capital (Labour-Power) worth £1,000, then, if there is a 100% Rate of Surplus Value/Exploitation, the Rate of Profit will be 1000/10,000 + 1,000 = 9.1%. Because, it is only the Labour Power that creates Surplus Value, it is only by increasing the amount of Labour-Power employed, or increasing the Rate of Exploitation that the amount of Surplus Value can be increased. But, as Marx points out, Capital has a tendency to reduce the amount of Variable Capital to Constant Capital, at least on a proportional basis. Consequently, if the amount of Labour-Power employed remains the same, but the amount of Constant Capital increases, the Rate of Profit must fall, because the total amount of Capital laid out will be higher, whilst the amount of Surplus Value will remain the same. So, we might have C 14000 + V 1000 + S 1000, which gives now a Rate of Profit of 6.66%.
In the following Chapters, Marx shows how the same causes of this falling rate of profit, can, amongst other factors, offset it. For example, it is usually only possible to increase the proportion of Constant Capital to Labour Power (the Organic Composition of Capital) if not just more, but better machines are introduced. But, this means that the productivity of Labour rises, and with it comes falls in the prices of the goods which make up the Value of Labour-Power, consequently the Rate of Surplus Value rises. He writes,
“In relation to employed labour-power the development of the productivity again reveals itself in two ways: First, in the increase of surplus-labour, i.e. , the reduction of the necessary labour-time required for the reproduction of labour-power. Secondly, in the decrease of the quantity of labour-power (the number of labourers) generally employed to set in motion a given capital .
The two movements not only go hand in hand, but mutually influence one another and are phenomena in which the same law expresses itself.”
But, the process by which the working-class become more educated also becomes a powerful means of offsetting the Falling Rate of Profit. The measurement of labour-time is undertaken in units of Abstract Labour, but as Marx points out, what is actually used to produce commodities is not Abstract Labour but Concrete Labour i.e. the Labour of the Engineer, the Software Designer and so on. Marx describes that Concrete Labour which is skilled, or otherwise more valuable as Complex, so that an hour of Concrete Labour of say a software designer, might be equal to 10 hours of Abstract Labour. It is clear how this acts as a powerful countervailing factor to the Falling Rate of Profit because, although a smaller number of actual workers may be employed, the amount of Labour-time these workers actually provide can be high, measured as Abstract Labour Time. I have described this process in my blog The Tendency For The Rate Of Profit To Rise.
What is also significant in this, is that it shows how, in advanced economies such as those in the UK, the role Education plays is significant – which is why there have been attempts to increase the number of people going to University. It illustrates another of those contradictions, which Capitalism faces. Capitalism cannot simply, “Make the Workers Pay”, by reducing the availability of Education – even Higher Education – without damaging its own ability to generate profits, without being forced to abandon higher value production, and the higher profits, and competitive advantage that go with it. But, likewise, for all the reasons that led the Capitalists to establish the Welfare State in the first place, there is little point in spending huge amounts of social labour time, educating workers, so that they are capable of this high value production, if those workers either die early, or are away from work sick for long periods. Consequently, although individual Capitalists – particularly small Capitalists – might seek to reduce State Spending on Health and Education, in the hope of reducing their taxes, from the perspective of Capital as a whole such a strategy is doomed to failure. The small Capitalists are more likely to support such a policy because, they generally rely on being able to pick up the small number of trained workers they need, those workers having previously been trained by larger employers, without having to pay for their training themselves.
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