The exhaustion of the current historical phase of capitalism

Image: Mohamed Abdelsadig


Capitalism tends to die. But it cannot die without being replaced by a superior system and, therefore, without class subjectivity intervening.

A key argument for Karl Marx's theory of history and revolution is that “no social order perishes before all the productive forces it can give rise to have developed” (Critique of Political Economy, preface). Now, if Marxism is a science, it must be empirically verifiable. But this verification is also important for another reason. As Antonio Gramsci says, “The crisis consists precisely in the fact that the old dies and the new has not just been born.” Empirical analysis also allows us to understand why and above all how the old dies.

In the current phase of history – that is, from the end of the Second World War to the present – ​​capitalism is faced with an increasingly insoluble limit due to the contradiction between the growth of labor productivity, on the one hand, and relations of production between labor and capital, on the other. This contradiction is increasingly stronger and capitalism is exhausting its capacity to develop in the context of this historical phase. The concrete form adopted by this contradiction, its increasing inability to develop, consists of increasingly violent crises.

The key point is the profit rate, the key indicator of the health of the capitalist economy. Within a nation or group of nations, what counts is the rate of profit. Let us first consider the average profit rate of the United States, the country that is still the most important. Statistics show that the US profit rate is in an irreversible state of decline. The fall is trendy, that is, through ascending and descending economic cycles. However, the trend is clearly downwards.

graphic 1. Average Profit Rate, USA, 1945-2010[1]

The profit rate falls due to the specific nature of technological innovations, the main factor in their dynamism. Innovations, on the one hand, increase labor productivity, that is, each worker creates an increasing quantity of goods with the help of increasingly advanced means of production. On the other hand, innovations replace workers with means of production.

graphic 2. The productivity of labor and workers of the means of production

Productivity increased from 28 million dollars per worker in 1947 to 231 million in 2010, while workers per means of production reduced from 75 in 1947 to 6 in 2010. Since only work produces value, a hypothesis that If it can be demonstrated empirically, a greater quantity of product always contains a lower value.

This also applies to mental work. There is a lot of talk these days about the Internet as a new horizon in the development of capitalism. In a recent article[2] I analyze the nature of mental work and argue that it can be productive of value and surplus value, just like objective work, mistakenly called material. However, even mental work is subject to the same rules that determine work in capitalism. On the one hand, new forms of mental labor give rise to new and more terrible forms of exploitation and new possibilities for further increasing the rate of exploitation of mental workers. On the other hand, new technologies replace mental work with means of production, just as happens in objective work. Despite its specific characteristics, mental work is not the elixir of eternal youth in capitalism.

Let us now consider the world economy. The same profit rate trend in the USA can be observed worldwide.

graphic 3. Profit rate worldwide and in the G7, 1963-2008 (1963 index = 100)

Note the difference between the profit rate of the G7 and the rest of the world. To begin with, since the last years of the 1980s the G7 countries have suffered a profitability crisis (negative trend), while the profit rate has an overall positive trend. This means that other countries played an increasingly greater role in maintaining the rate of profit around the world.

The following table places the current phase of capitalist development in a broader historical context.

graphic 4. Average profit rate in core countries (1869-2010)

Graphs 1, 3 and 4 show that the profit rate does not fall in a straight line but rather through ascending and descending cycles. And the downward trend is stopped and reversed due to temporal counter-trends. There are three main trends against the falling rate of profit. The three are only capable of stopping this fall temporarily.

The first is that technological innovations reduce the value of each unit of product. This also applies to the means of production. The denominator of the profit rate can fall and the profit rate can grow. This is certain in the short term, but in the long term there is uncertainty. If the rate of profit falls, the value of the means of production must rise. This is what the following graph highlights.

graphic 5. Value of means of production (% of GDP), USA, 1947-2010

This graph confirms what Marx anticipated in the floorplans: a single machine may cost less, but the total price of the machines that replace that machine increases not only in absolute terms but also in relation to the output price. In the long term, this counter-trend did not work.

The second countertrend is the increase in the rate of exploitation. Workers produce more value and surplus value if they work longer and with greater intensity. And the more surplus value they produce, the higher the rate of exploitation, the higher the rate of profit. This is what happened from 1986 onwards, with the advent of neoliberalism and the savage attack on wages. The rate of exploitation rose to its highest post-war levels, with the exception of 1950.

Graph 6. Exploration rate, USA, 1945-2010

The following graph relates the exploitation rate to the profit rate.

graphic 7. Exploitation rate and profit rate, 1947-2010

The two rates are closely related. This table can be read as if the profit rate were determined by the exploitation rate: until the mid-1980s, the more the exploitation rate decreased, the lower the profit rate. From the 1980s to 2010, on the contrary, the higher the exploitation rate, the higher the profit rate. The conclusion of any neoliberal economist is that, to increase the rate of profit, the rate of exploitation must increase, that is, that one must resort to austerity policies (for labor, not for capital).

Well, it is certain that the rate of profit increases when the rate of exploitation increases. But it does not follow that the economy will improve and that the crisis can be overcome by increasing the rate of exploitation. The average profit rate can increase due to the increase in the rate of exploitation, although, unlike the case of an individual capitalist, far from meaning an improvement in the economy, it can hide a worsening. In other words, it can hide a decrease in the production of surplus value per unit of capital invested and a greater allocation in favor of capital. But only the production of surplus value (not its distribution) per unit of invested capital reflects the state of health of the capitalist economy.

The measurement of the profit rate determined solely by the surplus value produced is obtained by calculating the profit rate with a constant exploitation rate.

Graph 8. Profit margin at constant exploitation rate, USA, 1947-2010

As shown, the production of surplus value per unit of invested capital tends to decrease throughout the current historical phase. This graph can be divided into two periods, from 1947 to 1986 and from 1987 to 2010, and in both periods the profit rate falls.

Graph 9.

Graph 10.

In this [last] period, the profit rate with a constant rate of exploitation also falls in the period between the mid-1980s, which is that of neoliberalism. From the end of the Second World War until now, the system is less and less capable of producing surplus value per unit of capital invested, a fact hidden by an increasing rate of exploitation, but revealed if the rate of exploitation remains constant. The increase in the rate of profit with a variable rate of exploitation from the mid-1980s onwards does not mean an improvement in the economy but rather its deterioration, as demonstrated by the trend in the rate of profit with a constant rate of exploitation. The pie shrinks, while the share of capital appropriated increases.

Let us now look at the third countertrend. The increase in the average rate of exploitation at a global level and, therefore, the compression of wages, means, on the one hand, that the purchasing power of the masses is reduced and, on the other, that the surplus value produced cannot be invested in productive sectors due to the fact that the profit rate falls in these sectors. As a result, capital emigrates to unproductive sectors, such as commerce, finance and speculation. The profits from these sectors are fictitious, they are deductions from the profits obtained in the productive sphere.

Graph 11. Real profits and financial profits, billion dollars, 1950-2010, USA

While in the 1950s financial profits were 3,1% of real profits, in 2010 they had become 136,5%.

Implicit in this movement is the growth of global debt. The growth of fictitious profits occurs through the creation of fictitious capital and the issuance of debt securities (bonds, for example) and subsequent and successive debt securities on top of those debt securities. This created a mountain of interconnected debt securities due to an explosive growth in global debt.

Graph 12. Currency and debt as a percentage of world GDP, 1989-2011 USA

The real currency that is the representation of the value, of the work contained in the products. This is called ower money. This is a minimum fraction in relation to the other three forms of credit. But credit represents debt, not wealth, and debt is not currency, even though it can fulfill some of the functions of currency.

The enormous increase in debt and the financial crisis that follows are a consequence of the crisis in the productive sectors, of the fall in the rate of profit with a constant rate of surplus value, and not its cause. This enormous increase in debt in its various forms is the substrate for speculative bubbles and financial crises, including the one that is about to come. Although, in this case, the increase in the profit rate due to fictitious profits reaches its limit, recurrent financial crises.

Capitalism is on a collision course with itself. Counter-trends act less and less and for this reason: (i) The means of production are increasingly expensive, as they require an increasing proportion of GDP, instead of being increasingly cheaper; (ii) The increase in the rate of exploitation increases the rate of profit, but this increase is misleading since it does not indicate an increase in the surplus value produced but rather its decline, together with a greater appropriation of it by capital; (iii) The exponential growth of fictitious capital does nothing more than inflate the speculative bubble until it explodes. This will be the catalyst for the crisis in the productive sectors.

The signs that the next crisis is approaching are clear: on the one hand, the continuation of the trend, but irreversible, decline in the global profit rate, albeit with counter-trend spasms. On the other hand, the factors that are catalysts for the profitability crisis are: (a) The first signs of trade wars which, if they occur, reduce international trade and, therefore, the production of value and surplus value . (b) Hot spots of war, especially in oil-rich regions, which can suddenly expand and become wars between the great powers. The capital of arms-producing countries would increase their profits, but conflict zones would suffer a destruction of capital and, therefore, the ability to produce value and surplus value. The latter would be affected if the conflict spread beyond local borders. (c) The growth of right-wing and ultra-nationalist movements, also fueled by neoliberal policies and which constitute a breeding ground for military adventures.

It could be argued that capitalism can recover not in the Western world, but in so-called emerging economies. This is an ideological expression to qualify those economies that, in the imperialist area, were dominated and whose function is to contribute more than other subject economies to the reproduction of the world capitalist system. The fallacy of this argument is that the productive forces of the so-called emerging economies are those of technologically advanced countries and, therefore, run into the same limits, that is, the increase in labor productivity, on the one hand, and the continuous reduction of labor force. of work, on the other, causing a tendency to fall in the rate of profit.

After an initial period of expansion, the tendency for the profit rate to fall again emerges, including the excess production that results from this fall. China, India and the BRICS suffer the same illness that afflicts the Western world. To give just one example, the degree of technological dependence of the steel industry on technology from advanced countries varies from 65% for energy production, 85% for casting and processing of semi-finished products and 90% for production systems. control, analysis, security, environmental protection, etc.

It could also be argued that capitalism could have a new stage of development through Keynesian redistribution policies with massive state investment. In a situation where neoliberal policies of social carnage have failed miserably, the Keynesian option returns to the forefront. But who can finance them? Not the workers, since in a situation of crisis, that is, of stagnation or reduction in the production of surplus value, higher wages mean lower profits.

Not capital, because profitability is already so low that profits would be reduced even further. The State, then? But where can you find the money? It cannot take it from labor or capital, for the reasons mentioned. Therefore, it must resort to public debt. But this is already high and also contributes to the growth of the bubble. The Keynesian answer is that the State must resort to public debt temporarily to finance large public investment projects. Initial investments could favor other investments and these even more others, in a multiplicative cascade of employment and wealth creation. At this point, the State's increased income could be used to reduce public debt. This is the Keynesian multiplier. But it does not work.

After the first investments induced by the State, capitalists in a position to carry out public works have to place orders with other capitalists. These are those who offer the cheapest prices, the capitalists whose workers are most productive and whose capital is most efficient and, therefore, those who employ proportionately more means of production than labor. In other words, it is the capitalists who produce less surplus value per unit of capital invested.

At each step of the investment chain, labor increases in absolute terms but decreases in percentage, so the average rate of profit falls. On the other hand, greater capital growth implies the disappearance of the weakest capitalists, those who proportionally use more labor than means of production. When the investment chain closes, there are fewer workers employed, less surplus value is produced and the average rate of profit falls. Empirical analysis confirms: increasing public spending corresponds to a fall in the profit rate.

Graph 13. Public spending (% of GDP) and profit rate with variable rate of surplus value, USA, 1947-2010

The correlation is negative (-0,8). This graph shows that until the 1980s, the increase in state spending was unable to stop the fall in the profit rate. The Keynesian argument fails. From 1980 onwards, the profit rate increased along with public spending. However, it grows because the exploitation rate grows and not because state spending grows. In fact, if the rate of surplus value remains constant, the negative correlation is valid for the entire secular period, including the period of neoliberalism, from the 1980s onwards.

Graph 14. Public expenditure (% of GDP) and profit rate with a constant rate of surplus value, USA, 1947-2010

This graph shows that throughout this historical phase the growth of State spending was not able to halt and reverse the fall in the production of surplus value per unit of capital invested, that is, the fall in the profit rate that measures the state of health of capital, the rate of profit at a constant rate of surplus value. This result is found again in each concrete crisis: government spending increases in the year preceding the crisis in all ten cases. They cannot avoid the crisis.

Graph 15. Differences in percentage points of public expenditure from the year before the crisis to the last year of the crisis

The fallacy of Keynesian reasoning is that it does not take into account the consequences of government investment policies for the rate of profit, which is the key variable in the capitalist economy. The reason for the negative correlation is, as I just said, that in each investment cycle, investment in means of production is, as a percentage, higher than in labor force, as predicted by Marxist theory.

But if public spending policies cannot stop the crisis, can they be the way out of the crisis? The Keynesian thesis would only be valid if in the year after the crisis government spending increased along with the average rate of profit. With the profit rate at a constant rate of exploitation, the thesis that the recovery is due to an increase in government spending fails in all ten cases. Keynesian policy cannot increase the production of surplus value per unit of capital invested.

Graph 16. Differences in public spending (% of GDP) and profit rate with constant rate of surplus value from the last year of the crisis to the first year after the crisis

In short, increasing public spending from the year before the crisis to the year after the crisis cannot prevent the crisis from exploding; and the increase in government spending in the last year of the crisis and in the first year after the crisis fails to reactivate the system's profitability. Both results contradict Keynesian theory.

Faced with the failure of both Keynesian and neoliberal economic policies, there does not seem to be any other way out than that which is spontaneously generated by capital itself: a massive destruction of capital. The crisis of 1933 was only overcome through the Second World War. We emerged from the crisis not because physical capital was destroyed. If capital is above all a relation of production, a relation between capital and labor, the war caused the destruction and regeneration of capital as a relation of production.

With the war economy, we went from the civil sphere, plagued by high unemployment, with a low level of use of the means of production and a falling profit rate, to a military economy characterized by full employment of both the labor force and of the means of production, with the State-guaranteed production of military material, with high levels of profits and profitability and high levels of savings. After the war, the military economy was converted into a civilian economy.

Government spending as a percentage of GDP fell from around 52% in 1945 to 20% in 1948, that is, in the so-called “golden age” of capitalism. High levels of savings guaranteed the purchasing power necessary to absorb new means of consumption, which in turn required the production of new means of production. A whole series of inventions originating during the war were applied to the production of new products. In the USA, the productive apparatus was unscathed. But in the other belligerent countries there was an immense destruction of means of production and labor force.

Capitalism has been revitalized for a quarter of a century. But at what price? A quarter of a century of expanded reproduction has cost tens of millions of deaths, atrocious suffering and immense misery. Thus, workers, in addition to financing the war, had to pay to give new vitality to the system.

After the so-called “golden age”, which, however, was not free from the fall in the rate of profit (see graphs 1 and 6 above), the system entered a long decline that has lasted around half a century, without seeing any light at the end of the tunnel. Are we heading towards an inevitable collapse that will put an end to capitalism? I don't believe that capitalism will destroy itself. It is not in the nature of the beast. Capitalism will emerge from the crisis, but only after sufficient destruction of capital, whether financial or in the productive sphere.

But it is difficult to imagine at this point what form this destruction of capital could take. The way in which surplus capital is destroyed will determine the form that capital will take if and when it exits this historical phase. The crisis of 1929 only came out with the Second World War.

A fundamental principle of Marxist theory is the contradiction between productive forces and relations of production. The productive force is the productivity of work; production relations are the capital/labor relationship. The contradiction is this: the more labor productivity increases, the more labor drives out capital. The fall in the rate of profit is the concrete expression of this contradiction. This contradiction is a cornerstone of the capitalist system and, therefore, also in its current stage of development. The specific characteristic of the present historical phase is that this contradiction becomes more difficult to resolve and is increasingly explosive.

The survival capacity of the current historical phase is running out, capitalism tends to die. But it cannot die without being replaced by a superior system and, therefore, without class subjectivity intervening. Without this subjectivity, he will be renewed and enter a new phase in which his control over his work will be even greater and more terrible. A condition for this not to happen is that the sacrosanct struggle of workers for greater state investments, for reforms and for better living and working conditions is conducted from the perspective of the irremediable opposition between capital and labor and not from the Keynesian perspective of class collaboration. .

*Guglielmo Carchedi is a senior researcher at the Department of Economics and Econometrics at the University of Amsterdam. Author, among other books, of On the economic identification of social classes (Routledge Revivals).

Translated by the website []


[1] The data is deflated and refers only to value-producing sectors.

[2] Carchedi, 2014, 'Old wine, new bottles and the Internet', Work Organization, Labor & Globalization, flight. 8, no 1.

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