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Lewis Corey

The Decline of American Capitalism

PART THREE
Contradictions of Accumulation

CHAPTER VII
Accumulation and the Composition of Capital

CAPITALIST industry is unceasingly driven to force up profits by reducing labor costs and enlarging the scale of production. The resulting increase in constant capital and relative decrease in variable – the higher composition of capital – are most fully apparent in the structure of American industry (the most highly developed expression of capitalism). [1*]

In American manufactures, wages rose from $237 million in 1849 to $2,320 million in 1899, or 866%; raw materials (including auxiliary materials and power) from $555 million to $7,343 million, or 1,223%; capital, including the investment in machinery, apparatus, and buildings, from $533 million to $9,835 million, or 1,758%. In 1914, capital investment was 154% higher than in 1899, raw materials 118% higher, and wages 103% higher. [1] The capital figures are crude, but they indicate the upward trend more than the rise in wages and raw materials. From 1849 to 1919, the fixed capital per worker rose from $560 to $5,000, a ninefold increase compared with only a fourfold increase in the average worker’s money (not real) earnings. After seventy years of change in the composition of capital the worker in manufactures set in motion probably seven times as much capital equipment and five times as much raw material. While there was a decrease in the ratio of wages to constant capital and output, there was also a decrease in the ratio of output to fixed capital. This was again the case, naturally, in 1923-29 (Table I): constant capital, particularly the fixed portion, increased more than wages and output.

In 1923-29, constant capital in manufactures rose over four times as much as variable capital: 24.4% compared with 5-7%. Fixed capital rose five times as much as wages, 70% more than materials and 40% more than output. This was a considerably greater change in the composition of capital than in 1899-1914, when the increase in fixed capital ranged only up to 40% more than in the other factors. The average worker in 1929, while receiving practically the same wages as in 1923, set in motion nearly one-third more fixed capital and one-sixth more materials and produced one-fifth more output. The proportion of wages to fixed capital fell from 51.4% to 41.2%, of wages to output from 28.2% to 24.5%, and of wages to “value added by manufacturing” from 42.7% to 36%. Wages and labor costs fell, profits rose. [2*]

Wages must decrease as the composition of capital becomes higher: larger capital investment requires larger profits, and more capital is invested in the constant than in the variable form. Wages may fall relatively. They may also fall absolutely (as in 1925 and 1927) if an unusually rapid improvement in technological efficiency is not compensated by a sufficient increase in industrial expansion and employment. As wages are the price of labor power, of the worker’s skill and muscle and nerves, the fall in wages involves displacement of labor and unemployment. Where displaced workers are absorbed by the expansion of industry the displacement is relative. But it tends to become absolute: in every year except 1929 the number of workers in manufactures was lower than in 1923, and in all years lower than in 1919. Nor were lower total wages and employment in manufactures offset by larger wages and employment in other industries, which are also affected by changes in the composition of capital. In mining, wages fell from $1,161 million in 1919 to $1,066 million in 1929, or 8.2%, and workers from 888,355 to 788,357, or 11.3%; installed power, a rough measure of fixed capital, rose 42%, while output rose from $2,225 million to $2,392 million, or 2.4%. On the railroads, wages and salaries fell from $3,004 million in 1923 to $2,896 million in 1929, or 3.6% (the fall in wages alone was much greater) and employees from 1,857,674 to 1,660,850, or 10.6%; capital investment rose from $21,372 million to $25,465 million, or 19.1%, and net operating income from $974 million to $1,262 million, or 29.6%. [2] In the oil industry and in electric light and power, capital investment and profits rose more than wages and employment. While there was some increase in the wages of the workers as a whole, it was smaller than the increase in profits and property income in general. It was, moreover, accompanied by the absolute displacement of 1,000,000 workers, the average yearly number of unemployed workers in 1923-29 approaching 2,000,000.

Thus the higher composition of capital is the objective expression of the inner urge of capitalist production to displace labor and the wages of labor. In the epoch of the upswing of capitalism, the displacement was relative; it becomes absolute in the epoch of decline. The most characteristic expression of the decline of capitalism is the misery of an increasing “surplus population” of unemployed and unemployable workers (including professionals), who barely exist on the “rations” of reluctant charity, meager unemployment insurance, or poor relief ...

The higher composition of capital means an increase in the productivity of labor. More of the work of production is performed, and more efficiently, by mechanical equipment, which lessens labor and permits the transformation of larger amounts of raw material into goods. The higher composition of capital is, therefore, an expression of economic progress, the basis of potential plenty and leisure for all. But under capitalism it is identified with the urge to displace labor, lower wages, and raise profits. Because of this the higher composition of capital simultaneously and antagonistically:

1. Imposes limitations upon the purchasing power and consumption of the workers. Wages always lag behind profits, and wages always fall relatively to output and profits. This measurably restricts the growth of markets, creates disproportions in the output of means of production and means of consumption, and sets in motion the forces of cyclical crisis and breakdown.
2. Imposes limitations upon the production and realization of surplus value. The decrease of variable capital (wages) in favor of constant capital (equipment and materials) limits the production of surplus value in proportion to the total invested capital; while the increase in the output of goods and the restriction of mass purchasing power and consumption saturate markets and lower prices to unprofitable levels, thereby limiting the realization of surplus value in the form of profits. The mass of profits rises, but the rate of profit on the total invested capital tends to fall.

Thus the higher composition of capital is the basic objective factor in the contradictions of accumulation and of capitalist production and prosperity.

 
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Footnotes

1*. Precisely because it is the most highly developed, American industry offers the fullest confirmation of the analysis Karl Marx made of the laws of capitalist production. It is one of the tasks of this book, using the American statistical material, the most abundant in the world, to make a quantitative, as well as qualitative, demonstration of the Marxist conception of the fundamental aspects of capitalism – and this despite the tendency, on the part of bourgeois economists, to sneer at Das Kapital as an “outworn economic text-book.” Marx, in fundamental theory and analysis, is more contemporary than contemporary bourgeois economists.

2*. Labor costs in 1929 were 9.5% lower than in 1923, overhead costs and profits 10.6% higher. The elements of cost as decimal fractions of value output became: materials .663, overhead costs and profits .189, labor costs .148. Frederick C. Mills, Economic Tendencies in the United States (1932), p.409.

Notes

1. Computed from material in Department of Commerce, Statistical Abstract of the United States, 1923, p.289.

2. Statistical Abstract, 1932, pp.345, 371, 689.

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Last updated on 29.9.2007