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Sociology 621 Lecture 26 The Classical Marxist theory of the history Capitalism’s future December 2, 2009 The fundamental objective of historical materialism is to develop a theory of the probable trajectory of capitalism into the future. Why should we care about the grand narrative of historical transformations from feudalism to capitalism unless this helped informed our efforts to grapple with the problem of transforming capitalism itself? Few things would be of great value to revolutionary critics of capitalism than having a solid understanding of the course of history and what the obstacles and possibilities for challenging capitalism would be like in the future. The better the theory of those prospects, the longer the time horizon would be for strategic thinking and action. The Classical Marxist account of the theory of capitalism’s future – or what could be called the theory of capitalisms destiny – can be summarized in five theses: Thesis 1. The long-term nonsustainability of capitalism thesis: In the long-run capitalism is an unsustainable economic system. Its internal dynamics (“laws of motion”) systematically undermine the conditions of its own reproducibility, thus making capitalism progressively more and more fragile and, eventually, unsustainable. This prediction is based on four principle observations about empirical trends Marx observed in the 19th century combined with a theoretical argument about the underlying mechanisms which generate these trends. The empirical trends are these: 1. In the course of capitalist development the level of productivity increases enormously, particularly because of the productivity gains from the increasing capital intensity of production. 2. Capitalism expands relentlessly in a double sense: more and more domains of production are commodified and organized by capitalist firms, and capitalist markets extend to ever-wider reaches of the world. 3. Capitalist development tends to increase the concentration and centralization of capital: over time capitalist firms become larger and larger, and the percentage of production in the market controlled by those large firms steadily increases. This means that not only does the world become ever-more organized through capitalist markets, but these markets become ever-more dominated by giant firms. 4. The economic crises that periodically disrupt capitalist markets and production tend to become more serious and prolonged as capitalism develops. Those are observations about the trajectory up to the second half of the 19th century. In order to make a scientific projection of these trends into the future it is necessary to identify the underlying causal processes which generate the trends. This is what would differentiate a scientific theory of the future trajectory from simple linear extrapolation of empirical trends fromLecture 26. The classical theory of capitalism’s future 2the past into the future. It is this that will enable Marx to make his strong predictions about the history of capitalism’s future: this is the problem of the “laws of motion” of capitalism. The Pivot of this theory is the “law of the falling tendency of the rate of profit.” Two components to this theory: • First, there are periodic rises and falls in the rate of profit which generate what we now call business cycles. There are many factors which contribute to these, but mostly they can be subsumed under the heading “the anarchy of the market”, including, for example, the tendency of capitalist firms to produce more than the market can absorb (“overproduction”) or the tendency of capitalists to push the wages of their workers down in order to reduce costs, thus depressing demand in the market (“underconsumption”). These are processes closely related to the economic crisis mechanisms specified by Keynes in the 20th century. • Second, Marx postulated a long-term causal process which gradually reduces the average rate of profit in a capitalist economy across business cycles. This long term mechanism Marx argued is linked to the rising capital intensity of capitalist production. The key idea is that aggregate profits in capitalism depend upon the production of an economic surplus – that is, producing more than is required to simply reproduce the inputs used up in production, both the labor inputs and all of the nonlabor inputs (raw materials, means of production, etc.). The monetary value of this surplus is what we call “profits.” The rate of profit, then, is the ratio between the value of this surplus product and the value of all of the inputs used in production. Why should this ratio decline over time? Marx’s answer relies on the technical details of the labor theory of value. Roughly the argument is that the value of all products is determined by the amount of labor time embodied in their production (thus the labor theory of value). Since, according to the labor theory of value, only labor creates value, the value of the surplus – called “surplus value” – thus depends upon how much labor is performed in producing the surplus. As capital intensity increases, the amount of new labor used in production relative to the amount of means of production and raw materials declines. In a sense the surplus-value-generating-intensity of production declines even though overall productivity increases. Since with increasing capital intensity the ratio of surplus value to the value of all inputs will tend to decline, the monetary rate of profit – which is determined by this labor value ratio – will also decline. Since competition among firms forces each individual firm to innovate in the process of production, and since these innovations tend to raise the capital intensity of production over time, there is therefore a long term tendency for the rate of profit to decline. This long-term decline in the aggregate rate of profit in a capitalist economy means that over time the episodic crises that occur from things like overproduction and underconsumption will become more and more serious; the troughs of depressions will be deeper, and the peaks of expansion lower. The declining long-term rate of profit, in effect, reduces the room to maneuver in the system: small cyclical declines will push more firms into bankruptcy and it will be harder to regenerate the conditions for profitable capital accumulation. In the limit, as the long-term rate of profit


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UW-Madison SOC 621 - Sociology 621 Lecture 26 Notes

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