Cooking the Books: Marx and the City (2022)

The Cooking the Books column from the January 2022 issue of the Socialist Standard

The spectre of Marx seems to be haunting financial journalists. Patrick Hosking, the Times’s Financial Editor, opened his column on 7 December with: ‘Karl Marx was right about one thing. There are some remarkable contradictions at the heart of capitalism’. He instanced venture capitalists wanting to have their business quoted on the stock exchange when they chose their particular business model to avoid the regulations involved in being quoted. His explanation was materialist enough: it was because they wanted to convert their capital into shares that they could sell and rake in millions. Marx would not have regarded this as a capitalist contradiction, but would have seen it as normal financial capitalist behaviour once stock markets had emerged on a large scale, with the possible chance to engage in some dodgy dealing.

For Marx, the main contradiction within capitalism was, as explained elsewhere in this issue, that capitalism was essentially a system of capital accumulation out of profits but that the process of capital accumulation itself led to situations where profits fell, so interrupting accumulation. Such ‘crises’ would eventually be overcome and capital accumulation proceed only to be again interrupted at some future point by another crisis.

Engels pointed to another contradiction – that while production was a vast society-wide cooperative effort involving different producers in different places, the products were owned and controlled by a section only of society; a contradiction that could only be resolved by both the means of production and the product becoming the common property of society as a whole.

The previous week Chris Dillow began his column in the Investors’ Chronicle (2 December):

‘Like it or not, we need to think about class conflict because this is central to the question of where inflation is heading.’

He wasn’t talking about inflation strictly speaking (as a rise in the general level of prices caused by government policy) but about a rise in the price of a wide range of goods due to demand for them exceeding supply. Even the Bank of England is expecting prices to rise to a rate of as much as 5 percent in the not-so-distant future, but they are not worried as they expect this to be just a temporary misalignment between supply and demand which the market will correct. Agreeing with this analysis – and as if to answer in advance an article in the Times of 7 December by Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social research, headed ‘Bank should fire a warning shot to stop runaway wage rises’ – Dillow argued that the current increase in prices is not the result of ‘changes in class power’.

He is correct, but it is hard to think of any situation in which the working class would have the power to bring about a widespread rise in prices. Some, like Mortimer-Lee, invoke the 1970s when prices were rising at a much higher rate than today, sometimes in double-digits, with governments desperately trying to stop this by wage restraints and wages freezes. But this wasn’t workers triggering off a wages-prices spiral by using their ‘class power’ to push up wage costs and their employers responding by putting up their prices. It was workers trying to catch up with rising prices caused by governments creating extra money and thereby depreciating the currency. Rising prices started it, not ‘runaway wage rises’.

Dillow recognises that there is a class struggle going on between the capitalist class and the working class. That’s the big contradiction at the heart of capitalism and the only one that can bring it down.

Cooking the Books: Hoping for Profits (2013)

The Cooking the Books column from the April 2013 issue of the Socialist Standard

Since the current crisis broke out in 2008 some commentators have been prepared to admit that Marx was right about globalisation and even about capitalism being an unstable economic system that swings between booms and slumps. It is rare, though, for them to admit to a conflict of interest between workers and capitalists over the share of the wealth the workers produce. But an article by Chris Dillow in the Investors Chronicle (7 March) did.

Dillow wrote that ‘high unemployment could see profits grow nicely.’ His argument was that ‘there are more people out of work than headline figures suggest’ and that this ‘could force down real wages even further in the next 12 months.’ He added gleefully, ‘for investors, however, there’s an upside to this—lower real wages could mean a rising profit share and hence decent profit growth even if the economy grows only slowly.’ He explained:

  ‘There’s a simple reason for this. In conventional economic terms, an excess supply of labour bids down its price, increasing consumer surplus for its purchasers. Or in Marxian terms, mass unemployment shifts bargaining power from workers to capitalists.’

It certainly does. Since wages are a price (of someone’s ability to do a particular job), increased unemployment is a sign that the supply of this commodity has exceeded the demand for it. In accordance with the law of supply and demand, and despite trade union resistance, its price will tend to fall and with it the workers’ standard of living.

As investors like to think that investing in the stock exchange is a science, Dillow provided a more detailed prediction for them:

  ‘History suggests this usually happens. Since the data on economic inactivity began in 1993, there has been a good correlation (0.51) between a wide measure of unemployment—the unemployed plus ‘inactive’ who want a job as a percentage of the working age population—and the non-oil profit share four quarters later. High rates of joblessness, such as in the early 1990s, led to high profit shares. And lower rates, in the mid-2000s, led to lower profit shares.’

We don’t know that the link between unemployment and the share of profits in GDP is that precise, but there clearly is one. Lower real wages (what they will buy) do not necessarily mean higher real profits, since in a slump GDP falls (that’s what a slump is). So, both real wages and real profits can fall at the same time. Which is what does happen at the start of a slump. Eventually, however, the lower wages will be one of the factors helping to restore profitability, a necessary condition for any recovery.

Dillow concluded: ‘I suspect this year might be a better one for corporate profits than for workers.’ This is based on assuming that GDP will grow in 2013. In which case, with lowered wages, both real profits and profits share would increase. But he could be wrong. There could be a triple dip or a flat-line in 2013. If this happens, then 2013 would be a bad year for profits as well as wages. But, either way, it is going to be a bad year for workers.

Cooking the Books: More on Profits (2014)

The Cooking the Books Column from the November 2014 issue of the Socialist Standard

Chris Dillow’s article on ‘Robot Dangers’ raises other issues about profits. Noting that ‘profits don’t come merely from being able to produce goods cheaply’ but that ‘you have to sell these goods’, he asks:

‘And if millions of people are out of work, who will you sell to? In theory, therefore, robots aren’t good for profits and might be disastrous for them.’

This is the old one about mechanisation causing continually rising unemployment. It hasn’t happened in practice, though it could theoretically. It doesn’t happen if capital accumulation continues and the extra demand for labour it entrains rises faster than the displacement of labour by machines. This is what has happened in the past. So, Dillow’s investors needn’t worry too much on that score.

After noting that technology has been eliminating many routine white-collar jobs in recent years, Dillow continues:

‘… this process has not been accompanied by rising aggregate profits. Office for National Statistics data show that returns on capital have fallen since the late 1990s. this is not merely because of the recession; profit rates were lower in 2007 than in 1997. In this sense, the IT boom has lowered profit rates.’

It is true that profits rates do tend to fall at the end of a boom but Dillow’s conclusion here seems rather daring, especially as aggregate profits are not the same as profit rates and can go up even if rates go down.

Adam Smith, David Ricardo, Marx and even Keynes discerned a tendency for the rate of profit to fall in the long run, even though they offered different reasons.

Marx’s explanation was linked to increasing mechanisation. He argued that as profit came only from that part of capital invested in productive wage-labour and that as mechanization meant that the part of capital invested in buildings, machines and materials grew faster, there would be a long-run tendency for the rate of return on total capital to fall.

Perhaps surprisingly (or perhaps not, as he mentions that he has read Marxian economist Andrew Kliman), Dillow takes Marx’s view:

‘According to the standard work on historic economic data (Mitchell’s British Historical Statistics), the UK’s capital stock rose by a factor of almost 11 between 1850 and 1938 whereas profits rose by a factor of less than seven. Ninety years of massive technical progress – the Bessemer process, electrification, combustion engines, telegraph, radios and so on – saw profits fall.’ (He means the rate of profit).

He apologises to his investor readers for seeming ‘a little dystopian’, but they needn’t worry too much about this since robotisation reducing the rate of profit to zero is only a theoretical limit and in any event would be years and years away. Well before that, they will have something more urgent to worry about – a growing socialist movement aiming to end the profit system altogether.

Dillow ends by posing a very pertinent question:

‘What’s at stake here is a matter of utmost importance: how can we ensure that technical progress benefits everyone rather than just a minority, while encouraging that progress?’

Easy. Make the means for producing wealth the common property of everyone instead of just a minority. Since people would then no longer depend on wages to live but would have free access to what they needed, robotisation wouldn’t deprive anyone of a living but would just reduce the work load all round.

Cooking the Books: The Quest for Superprofits (2014)

The Cooking the Books Column from the November 2014 issue of the Socialist Standard

It can’t be often that Karl Marx gets a favourable mention in the Investors Chronicle. But he did in its 5 September issue. Chris Dillow, in an article discussing whether or not robotisation would be good for profits and dividends, quoted Marx as pointing out that new, more productive machines not only replace workers but also, as they spread, reduce the value of the older machines still in use. Part of the value of these machines is destroyed through what he called ‘moral depreciation’ (Capital, Vol 1, ch. 15, s.3b).

Dillow’s point was that this ‘moral depreciation’ reduced the value of the firm’s capital and so also of shares in it. There is another reason why an investor should steer clear of such firms. A firm with old machines will be less profitable as its machines won’t be able to produce its product as cheaply as its competitors who have installed the new machines.

Dillow claims that ‘profits come from monopoly power’ and, on this assumption, asks ‘will new technologies be a source of monopoly power or not?’ His answer: yes, at least for a while until the new technology becomes the norm.

In saying this he was pointing out that those firms that first employ a new technology will, because they can produce more cheaply than the average, be able to make an above average profit. This ‘superprofit’ attracts other firms to adopt the new technology, so bringing the average cost of production down and, with this, the end of the temporary superprofits of the innovating firms.

This is well explained by Ernest Mandel (despite his Trotskyism) in his Introduction to Marxist Economic Theory:

‘ … an enterprise or industrial sector with an above average level of productivity … economizes in its expenditure of social labour and therefore makes a surplus profit, that is to say, the difference between its costs and selling prices will be greater than the average profit. The pursuit of this surplus profit is, of course, the driving force behind the entire capitalist economy. Every capitalist enterprise is forced by competition to try to get greater profits, for this is the only way it can constantly improve its technology and labour productivity. Consequently all firms are forced to take this same direction, and this of course implies that what at one time was an above-average productivity winds up as the new average productivity, whereupon the surplus profit disappears. All the strategy of capitalist industry stems from this desire on the part of every enterprise to achieve a rate of productivity superior to the national average and thereby make a surplus profit, and this in turn provokes a movement which causes the surplus profit to disappear, by virtue of the trend for the average rate of labour productivity to rise continuously. ’ (www.marxists.org/archive/mandel/1967/intromet/index.htm)

So it is not true that ‘profit comes from monopoly power’. Profits come from the surplus value produced by the working class. Monopoly power only enables a firm to draw more than average from this pool of surplus value. If monopoly power was the source of profits then if there was none, as in the ideal of so-called ‘perfect competition’, there would be no profits. Which is absurd. In that situation firms would still be making a profit, only the average with none making a superprofit.