Full Title:
The Historical Dialectic of the Capital-Relation --
Thorstein Veblen’s Version of Marx’s “Law of
the Tendency of the Rate of Profit to Fall”.
A Commentary on a Potent Passage from
Veblen’s circa 1904 Theory of Business Enterprise.
Introduction. In F.E.D. Dialectics,
the driver of the immanent aspects of the historical dialectic of a given dialectical ‘‘‘eventity’’’ is held to be
what F.E.D. names as the ‘self-duality’, or ‘intra-duality’,
of that ‘‘‘eventity’’’ itself.
F.E.D.
conceives such ‘intra-dualities’, generically, as a
kind of ‘‘‘self-opposition’’’, or ‘‘‘internal antithesis’’’, that
inheres in the innermost ‘internity’ of such an ‘‘‘eventity’’’,
as an ineluctable aspect of its very essence -- of its thus inescapably dual
essence -- and that energizes the immanent aspect of its development -- its ‘‘‘self-development’’’, via its «causa
immanens», or «causa sui» -- in counterpoint with the forces impinging
upon it from its ‘externity’,
from its external environment, from other ‘‘‘eventities’’’ -- its «causa
transiens». Together, in
combination, «causa immanens» and «causa transiens»
co-determine the total development, the full
life-history, of the individual ‘‘‘eventity’’’.
The classic examples of such
‘intra-duality’ for F.E.D, in the context of
pre-human physics -- of the pre-human and extra-human «physis» -- are
those ‘hot, shining orbs’, the stars, the ‘stellar eventities’. Their immanent development is driven by the
‘intra-dueling’ of their self-gravitational self-implosion
and their thermonuclear fusion self-explosion, twin,
self-generated -- internally-generated -- ‘self-forces’ that oppose one another
at every point of the stellar body ‘internity’, as one core fusion fuel is
exhausted, followed by resumed self-implosion, compressing and igniting the
core fusion “ash” into a new -- the next -- core fusion fuel, until, typically,
a stellar core of consisting of iron arises, terminating the very existence of
the star as such in a combined core implosion and ‘exo-core’ explosion,
enriching the interstellar medium with the dying star’s evolved, “metallic”,
higher atomic species from which, eventually, ‘contra-stars’ -- “planets”,
cold[er], ‘shine-less’ orbs -- are formed, in subsequent generations of
stellar/planetary system-formation.
But the «genos»
of ‘intra-duality’ manifests «species»
and instances also within the domain of ‘human
physics’ as well -- within the human-social epoch of cosmological
‘self-meta-evolution’.
A prime, and salient example
of such a systemic ‘intra-duality’
for that epoch, is the primary ‘intra-duality’ of “the capital-relation” as the
predominating “social relation of production” of modern society, i.e., of
“capital-value”, and its “law of motion” -- the ‘‘‘law’’’ of its motion of
“accumulation” [and of ‘‘‘dis-accumulation’’’] -- as uncovered by Karl
Marx. For “the capital-relation” [Marx],
the primary ‘intra-duality’
is the internal opposition, within the movement of the “total social capital”
[Marx], between capital as “self-expanding value”, and capital as
‘self-contracting value’, which is such that both of
these opposing processes are ineluctably self-caused, self-imposed, by capital,
upon capital, as a result of the very nature of the capital ‘‘‘eventity’’’ itself.
Capital as “self-expanding value” [Marx] arises via the productive
reinvestment of produced surplus-value -- e.g., in the form of profits of
enterprise -- in the enterprise that produced that surplus-value, or in other
productive enterprises -- thus expanding the capital-value of total social
capital-assets.
Capital as “self-contracting value” [Seldon] arises via the
competitive-survival-incentives that the capitals-system imposes on individual
capitals in general -- on those individual “personifications” of the
capital-relation, the capitalist -- to boost the [relative] surplus-value /
profits that their enterprises produce, by inventing and/or purchasing and
installing -- investing in -- new, better capital plant and equipment, capital
plant and equipment which produces more units of output per unit time than do
older vintages, or that costs less to purchase while delivering the same output
rate, or that costs less to operate while delivering the same output rate, or
which realizes some combination of such “better” features.
The consequence of the
installation and operation of such “better” capital plant and equipment, by one
enterprise, upon the other enterprises that compete with it, and which have not
[yet] so-installed, is to lower their profit margins as a result of the underselling
of their prices of output by the prices of the installing
competitor-enterprise, or to force them to de-install and write-off their old
capital plant and equipment, and to install the new, to remain
price-competitive, causing a drop in their net profits, at least for the
accounting-period(s) in which that write-off, and the initial expenses of
purchasing and installing the new capital plant and equipment, occur, or some
combination of the two, after which their rate of return on the new equipment itself
should recover.
Over time, in the ongoing
continuity of innovation, installation, and operation of progressively
improving industrial capital plant and equipment -- the continuity of “the growth of the social forces of production” [Marx],
i.e., of the rising rate of human societal self-reproduction, i.e., of the
rising rate of ‘self-productivity’ of humanity/of ‘human socio-mass’ -- this
process that we have named ‘the self-depreciation of capital’, and ‘technodepreciation’,
drives a continual devaluation of accumulated capital-value, a
‘dis-accumulation of capital’, that is “netted out” against the equally ongoing
self-expansion of capital value that is driven by the reinvestment of
industrial, etc., profits, into industrial, etc., production.
During the initial phase of
capitalist development, which we term its ‘‘‘ascendance phase’’’, when the
capital plant and equipment composition of total capital is still relatively
low, reflecting lower productivity, so that the proportion of capital that is
exposed to devaluation is also relatively low, the expansion of profits, and of
capital, tends to outstrips their ‘technodepreciation’-driven contraction.
The accumulating, growing
proportion of capital plant and equipment in total capital, and the rising rate
of occurrence of ‘technodepreciating innovation’, as a result of the
capitalism-immanent incentives already cited, and reflecting a rising rate of
rising social productivity, eventually generates a turning point, after which
the technodepreciation-driven contraction of the total social capital value
outstrips capital’s co-occurring expansions.
This second main phase of capitalist development is that which we name
the “descendance phase” of capitalist development, which, to our data, appears
to have occurred circa 1887, at least for North American
industrial capital [ for more
about this determination of timing, see http://capitalismsfundamentalflaw-wayforward.blogspot.com/2012/12/part-5.html
].
It is, psychohistorically,
very telling, indeed, to see how these processes, and their consequences, are
observed by Thorstein Veblen, writing circa
1904, some 17 years after the silent turning point
that we have ascertained, but at a time by which the profound consequences of
that turn had become more widely -- and more “loudly” -- evident.
Extract and Commentary. Below we extract a
particularly pregnant passage from Veblen’s 1904 Theory
of Business Enterprise, adding our own commentary regarding his
perceptions, and regarding the -- psychohistorically predictable --
ideological, policy, and institutional responses of the ruling plutocracy in
light of Veblen’s insights, and those of Marx, and those of others, into the
inherent self-destructive
destiny of capitalism -- responses which we have characterized elsewhere under
the headings of ‘Anti-Marxian Marxianism’, ‘Capitalist Anti-Capitalism’, and
‘Human Anti-Humanism’.
Veblen predicted “chronic
depression” as the new norm for the global capitalist economy, as a result of
what we would term the turn from the ‘‘‘ascendance phase’’’ to the
‘‘‘descendance phase’’’ of the global capitals-system:
“Chronic
depression, however, does not seem to belong, as a consistent feature in the course of
things, in
this nineteenth-century period, prior to the eighties or the middle
of the seventies.”
“The usual course, it is commonly held, was rather: inflation, crisis, transient depression, gradual advance
to inflation, and so on over again.”
[M.D.]: We
interpret the passage above as noting a change in the dynamics of capitalism,
reflecting what we would describe as the turn from the ‘‘‘ascendance phase’’’
into the ‘‘‘descendance phase’’’ of the global capitalist system.
Veblen continues --
“On the view of these phenomena here spoken for, an
attempt at explaining this circuit may be made as follows:
A crisis, under this early nineteenth century
situation, was an abrupt collapse of capitalized values, in which the
capitalization was not only brought to the level of the earning-capacity which
the investments would have shown in quiet times, but appreciably below that
level.”
[M.D.]: In the
passage above, Veblen defines what we would term “ascendance phase crisis” as a
critical and precipitous ‘self-contraction of capital-value’, overshooting even
the restoration of a normal ratio of net earnings to fixed-capital value -- a
normal rate of “return on [capital
plant and equipment] investment” --
that would register the accumulated ‘technodepreciation’ of capital plant and
equipment, accumulated over the course of the “inflationary” period. The very non-registration, up until the
crisis, of this ‘technodepreciation’, was, itself, a major hidden cause of that
crisis -- of that eventual precipitous contraction/deflation of
plant-and-equipment capital-value, and of other, related, capital-value, which is the crisis.
The crisis-induced drop in the value of the “return on
investment” ratio’s capital-plant-and-equipment-value denominator, relative to
that ratio’s net-earnings [“return”] numerator, has a post-crisis salutary
effect. It raises the magnitude of that
“profit-rate” ratio as a whole. That
ratio had tended to fall as a whole, during the “non-crisis” phase. It tended to fall because productivity-increase-induced,
competitive drops in prices, hence in the net earnings numerator of that ratio,
owing to the productivity-increase-induced drop in unit costs of production,
failed to be compensated by a commensurate drop in the valuation of the ratio’s
capital plant and equipment value denominator, such as would have registered
the ‘technodepreciation’ of that capital plant and equipment value denominator,
owing to the accumulated ‘non-crisis
period’ -- or ‘pre-crisis-period’
-- productivity improvements.
Veblen then advances his argument as follows --
“The efficiency and the reach of the machine industry
in the production of productive goods was not then so great as to lower the
cost of their production rapidly enough to overtake the shrinkage in capitalization
and so prevent the latter from rising again in response to the stimulus of a
relatively high earning capacity.”
[M.D.]: Above,
Veblen locates the key locus of ‘technodepreciation’ in what Marx termed
“Department I”, the department of “the production of means of production”, of
‘the machine production of production machinery’, for what Marx termed
“Department II”, the department of the production of the means of
population-sustaining consumption.
Veblen holds that, in what we term the ‘ascendance
phase’ of the capitals-system, the velocity
of improvement in the efficiency [and in the design] of the means of
production, thus technodepreciating older vintages of those means of
production, already installed, was insufficient to match and, indeed, to exceed
the crisis-induced over-shrinkage of the “capitalization” -- of
the capital-valuation -- of the already-installed, ‘technodepreciated’ means of
production. Thus, there remained a
margin of that overshoot, leading to a higher net-earnings numerator value relative to that ‘over-shrunk’ capital
plant and equipment denominator value, after the crisis-shock waned, sufficient
to stimulate a rise in the valuation of
that denominator, partially restoring the pre-crisis capital-valuation of that
denominator, given the higher-than-normal earnings relative
to that ‘over-shrunk’ denominator. The latter rise tended to restore a
normal/expected value of that net-earnings-divided-by-capitalization ratio as a
whole, correcting the initial post-crisis ‘high-side super-normal value’ of
that ratio, owing to the crisis-induced undervaluation of that ratio’s
denominator.
Veblen then summarizes these dynamics of ‘ascendance
phase’ capitalist crisis as follows --
“The shock-effect of the liquidation passed off before
the cheapening of the means of production had time to catch up with the
shrinkage of capitalization due to the crisis, so that after the shock-effect
had passed there still remained an appreciable undercapitalization as a sequel
of the period of liquidation.”
“Therefore there did not result a persistent
unfavorable discrepancy between capitalization and earning capacity, with a
consequent chronic depression,”
“On the other hand, the earning-capacity of the
investments was high relatively to their reduced capitalization after the
crisis.”
“Actual earning-capacity exceeded nominal
earning-capacity of industrial plants by so appreciable a margin as to
encourage a bold competitive advance and a sanguine financiering on the part of
the various business men, so soon as the shock of liquidation had passed and
business had again fallen into settled channels.”
[M.D.]: Veblen
then sets forth his view of the causes -- and of the consequences -- of the
then-recent, “permanent” change in those dynamics of ‘‘‘ascendance phase’’’
crisis, that characterize what we term the pre-1913, early ‘‘‘descendance
phase’’’ ‘neo-dynamics’ of
capitalist crisis --
“Since
the [M.D.: eighteen-]seventies, as an approximate date
and as applying particularly to America and in a less degree to Great Britain,
the course of affairs in business has apparently
taken a permanent change as regards crises and depressions.”[M.D.: Our --‘transition
from the ascendance phase to the descendance phase of the global capitals-system’. ].
“During this recent period, and with increasing
persistency, chronic depression has been the rule rather than the exception in
business.”
“Seasons of easy times, “ordinary prosperity”, during
this period are pretty uniformly traceable to specific causes extraneous to the
process of industrial business proper.”
“In one case, the early [M.D.: eighteen-]nineties, it seems to have been a peculiar crop
situation, and in the most notable case of a speculative inflation, the one now
(1904) apparently drawing to a close, it was the Spanish-American War, coupled
with the expenditures for stores, munitions, and services incident to placing
the country on a war footing, that lifted the depression and brought prosperity
to the business community.”
“If the outside stimulus from which the present
prosperity takes its impulse be continued at an adequate pitch, the season of
prosperity may be prolonged; otherwise there seems little reason to expect any
other outcome than a more or less abrupt and searching liquidation.”
“ ...It was said above that since the [M.D.: eighteen-]seventies the ordinary course of affairs in business,
when undisturbed by transient circumstances extraneous to the industrial system
proper, has been chronic depression. The
fact of such prevalent depression will probably not be denied by any student of
the situation during this period, so far as regards America and, in a degree,
England ...”
“The explanation of this persistent business
depression, in those countries where it has prevailed, is, on the view here
spoken for, quite simple.”
“By an uncertain date toward the close of the [M.D.: eighteen-]seventies the
advancing efficiency and articulation of the processes of the machine industry
reached such a pitch that the [M.D.: fall in the] cost of production of productive goods [M.D.: i.e., of
capital plant and capital equipment, functioning as “means of production ”] has since then persistently outstripped such [M.D.: downward] readjustment of capitalization as has from time to
time been made [M.D.: e.g., due to crises].”
[M.D.]: Thus,
it is the increase, past a certain critical point, in the “pitch”
-- the acceleration -- of the
rate of improvement of the overall productivity of the means of production, for
Veblen, that explains this change, which
we term the turn, from ‘‘‘ascendance phase’’’, self-overcoming aperiodic economic crises, to
‘‘‘descendance phase’’’, self-perpetuating, chronic depression-crises -- change
in the crisis-dynamics of capitalism.
This change, per Veblen, manifests also as a “persistent
decline” in [the rate of] “profits” [in the value of profit returns divided
by the value of the “industrial apparatus” used in producing those
profits] --
“The persistent
decline in profits, due to the relative overproduction of industrial apparatus,
has not permitted a consistent speculative expansion, of the kind which abounds
in the earlier half of the nineteenth century, to get under way.”
“When a speculative movement has been set up by
extraneous stimuli, during this late period, the inherent and relatively rapid decline in earning-capacity on the part of
older investments has brought speculative inflation to
book before it has reached such dimensions as would bring on a violent crisis.
“And when
a crisis of some appreciable severity has come and has lowered the
capitalization, the persistent efficiency and facile balance of
processes in the modern machine industry has overtaken the decline in capitalization without allowing
time for recovery and subsequent boom.”
“The
cheapening of capital goods has overtaken the lowered capitalization of investments
before the shock effect of the liquidation has warn off.”
“Hence
depression is normal to the industrial situation under
the consummate regime of the machine, so long as competition
is unchecked and no deus ex machina interposes.”.
[Thorstein Veblen, The
Theory of Business Enterprise, Charles Scribner’s Sons [New York: 1904], pp. 248-255, emphases
added].
The questions which should
leap to mind, in the aftermath of reading this circa 1904 description of the ‘‘‘law’’’ of a
‘technodepreciation-induced’ fall in the rate of profit on industrial capital,
since a ‘‘‘turning point’’’ after the 1870s in the U.S., and, in lesser degree,
also in the U.K., leading to a condition of “chronic depression”, of “persistent
business depression”, include the following --
1. ¿What
was the capitalist class moved to enact -- in terms of new economic policy, new
“popular” ideologies, and new political-economic institutions -- in response to
the prospect of ‘‘‘permanent depression’’’, and the specter of a popular search
for alternatives to capitalism -- for alternatives to the rule of that ruling
class -- leading to the overthrow of the power and the “perks” of that ruling
class?
2. ¿Did
the circa 1913 imposition in the U.S.,
by that ruling class, of the Federal Reserve System, of the Federal Income Tax,
and of World War I, serve to mitigate the trend to “chronic depression” that
Veblen observed, and essayed to explain, and to further mutate the dynamics of
the global capitals-system itself, leading to the principle historical
phenomena that humanity has experienced since World War I?
Perhaps key clues to the
answers to these questions were captured in the paper that we have cited here
before [ Geert Reuten, "The Incompatibility of
Prolonged Technical Change and Competition: Concurrence and the
Socialization of Entrepreneurial Losses through Inflation" http://www1.fee.uva.nl/pp/bin/642fulltext.pdf ], in which the
author, Geert Reuten, summarizes as follows [emphases added]:
“To the
extent that technical change accelerates, price competition precludes the full
amortization of capital investments.”
“In contrast with the common opinion that
both technical change and competition are key characteristics of the capitalist
system, they are incompatible, at
least when technical change accelerates.”
“Such acceleration then gives rise to forms of
concurrence — abstinence from price competition, price leaderships, cartels.”
“The particular form depends
on the structure of production of enterprises (i.e. the make-up of the
stratification of capital).”
“Concurrence is a major determinant of the inflationary form of
the accumulation of capital.”
“Because it is in their interest, banks
tend to accommodate the concurrent price settings of enterprises and so to
accommodate a socialisation of private losses that would be due to the devaluation
of capital in the case of price competition.”
“Price inflation also puts enterprises in
a relatively advantageous position vis-á-vis labour.”
Amplifying upon Reuten’s
final point, above, we note that “permanent inflation” is, precisely, a
permanent tendency to reduce
real wages and salaries, if nominal wages and salaries remain constant, or even
if wages and salaries increase, but at a rate of increase (s)lower than the
rate of general consumer price inflation.
And exponential
“permanent inflation” [excepting the 1930’s “Great Depression” ‘Great deflation’
aftermath to the 1920’s “roaring” inflation]
is exactly what the U.S. has had, ever since the “Fed” was imposed, by the
ruling class, in 1913, as shown by the data unified in the following remarkable,
and little-known, graph, also cited here previously --
Certainly, the continual de facto reduction of wages, by
Fed-managed chronic, exponential inflation, helps to shore up capitalist
profits, and their rates, and to mask, to delay, or even to avert
technodepreciation losses.
For a ruling class hell-bent
on averting the massive technodepreciation of its older-vintage, legacy capital
plant and equipment in its U. S. and U. K. core, due to the price competition
of newly-industrializing, lower-wage nations in its periphery, installing the
latest, most advanced vintages of capital plant and equipment from the start --
i.e., for a ‘Capitalist Anti-Capitalist’ ruling class, hell-bent on suppressing
capitalist industrialization in the periphery of its core, hence hell-bent on
creating a “Third-World” of military dictatorships and rising poverty -- it
certainly helps to have a “Federal Income Tax”.
That tax allows that ruling
class to, in effect, create a new category of “surplus-value”, draining away
part of the wages of the working class as personal income losses, paid to the
national state, and using the vast proceeds of those income taxes to force the
core working class to pay for “foreign aid” to the military junta’s that the
ruling class sets up in those “peripheral” nations, to suppress industrial
development there, and to massacre democratic nationalists there who oppose
that suppression.
Veblen pointed out how episodic
wars can temporarily mitigate the tendency to chronic depression that he
describes: “it was the Spanish-American
War, coupled with the expenditures for stores, munitions, and services incident
to placing the country on a war footing, that lifted the depression and brought
prosperity to the business community.”
World War I,
launched by the core ruling class about the same time that it imposed the Fed,
and the Federal Income Tax, upon the U. S. working class, certainly represented
a big boost for manufacturers of munitions, and for the financiers who financed
them, enabling them to shamelessly sell military “goods” to all sides of the
conflict -- military goods that would not “last” on shelves, but that, instead,
would be used -- and used up -- in short order, requiring rapid replacement,
hence new repeat sales in rapid succession.
Making war, and preparation
for war, into a permanent institution, a “military-industrial complex”
[Eisenhower], massively supported by the working-class income, and by the
profits of subordinated capitalists, taxed away from them by the Federal Income
Tax, would give a lasting boost to “business”, at the cost of diverting vast
former forces of production into forces of destruction of forces of production,
whenever those resulting military “goods” were used, or to mere waste of
productive forces when those military “goods” simply sit idly in arsenal.
¿But what new kinds of capitalist “crises” -- of global
“Great Depressions” and “Great Recessions” -- and the Totalitarian
Dictatorships, the Genocides, and the Global Wars to which they lead -- arise
out of the dynamics of a capitalism mutated by National Income Taxes, National
“Military-Industrial Complexes”, and National, fiat-currency-foisting “Central
Banks”, a la the U.S. “Fed”?
To those questions, we plan
to devote many subsequent blog-entries.
