profitability crisis and the erosion of popular …...capitalist world was feeling the effects of a...

Profitability crisis andthe erosion of popular

prosperity: TheCanadian economy,

1947-1991MURRAY E.G. SMITH AND

K.W. TAYLOR

The recession that began in Canada and the UnitedStates in 1990 and eventually engulfed most of thedeveloped capitalist world was notable in three major

respects: it produced one of the most severe internationaleconomic contractions since the Second World War; itbrought an end to one of the most long-lasting - if peculiar- economic expansions in the history of world capitalism;and, unlike previous recessions of the past twenty five years,it resisted tendentious and simplistic explanation in termsof causes (such as the mid-1970s increase in oil prices) thatcould be defined as exogenous to the normal dynamics ofcapitalist accumulation.

From a Marxist point of view, the early-1990s slump pro-vided striking confirmation of the continuing instability anddeepening malaise of the world capitalist economy. Actu-ally-existing capitalism, quite clearly, can inspire little con-fidence in the future; indeed, its ideologists have long sinceabandoned the attempt to convince the working-class ma-jority that a renewed prosperity is just around the corner.But the absence of a credible socialist pole of attraction hasallowed the political and ideological agents of capital toall-too-easily channel widespread pessimism concerning the

Studies in Political Economy 49, Spring 1996 101

Studies in Political Economy

future of the economy into "cynical realism," nihilistic preju-dices, beggar-my-neighbour competitive attitudes, and sun-dry other reactionary political sentiments. In such a climate,it is unsurprising that responsibility for the worsening eco-nomic malaise (which is now well over twenty years old),as well as for the counter-revolution of diminishing expec-tations that has accompanied it, is being assigned to a fa-miliar list of malefactors. Organized labour (especially pub-lic-sector unions), welfare recipients, the unemployed, im-migrants and-visible minorities, women in the labour force,baby-boomers, foreign competitors, "free-spending" politi-cians, and other "selfish," "short-sighted" or "undeserving"elements have all been targeted by those determined to ab-solve the prevailing economic system from blame. When suchfinger-pointing is eschewed by more enlightened analysts, no-less diversionary, quasi-superstitious "theories" are the fa-voured substitute: "we (yes, all of us) have been living beyondour means"; "our productivity performance does not warrantrising living standards"; "economic growth on a world scalehas been inhibited by obstacles to 'free trade"'; and, perhapsmost astonishingly, "the affluence of the West must sufferif we are to give the Third World a chance to improve itseconomic performance." Unfortunately, what is rarely con-sidered - even by most ostensible socialists - is Marx'sthesis that "the true barrier to capitalist production is capitalitself,"! that is, the proposition that the system of capitalistsocial production relations is itself to blame for the eco-nomic impasse that we have reached.

The reluctance of the Left, in Canada as elsewhere, toentertain Marx's thesis is both understandable and regretta-ble. In part, it stems from a deeply-felt conviction that "pro-gressives" should avoid the kind of crisis-mongering thathas become part of the stock-in-trade of the political Right.Exaggerated claims about the dire threat that large deficitsand "big government" pose to the health of the economyhave played an important role in legitimizing cuts to socialprograms and fostering a climate of austerity that battersthe poor while favouring the rich. A crisis mentality thatserves a redistribution of income from the bottom of societyto the top is obviously something that must be vigorously

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Smith & Taylor/Profitability Crisis

fought. But in failing to acknowledge that contemporarycapitalism is indeed in crisis, the Left risks being seen asout of touch with economic realities - and not least by itstraditional working-class constituencies. Indeed, such a per-ception will be accurate to the extent that the Left castsitself in the role of defending the continuing capacity ofcapitalism to promote rising average living standards, vig-orous (and environmentally-sustainable) economic growth,and enlightened social-welfare policies.

The current economic malaise of capitalism demands afundamental reorientation of the socialist Left. Traditionalsocialist complaints about the inequities in the distributionof income (the rhetoric of "obscene and record-high profits,""corporate welfare bums," etc.) must be powerfully supple-mented by an analysis of how and why capitalism is failingas a system of production to meet human needs. The precon-dition for such a reorientation, however, must be a renewedcommitment to a project of social transformation, as opposedto the election of "lesser evils" whose willingness to managea crisis-ridden capitalism can only result in policies that aremarginally better than those of the Right. It is in this contextthat Marx's analysis of the contradictions and crisis-tendenciesof the capitalist mode of production reasserts its salience; forthe whole point of Marx's critique of political economy, andof the conceptual system that is referred to as Marx's "eco-nomics," is to disclose the recurrent barriers to capitalisteconomic growth and the limits to human progress on a capi-talist foundation. Accordingly, in this paper we interrogate theidea that "capital" - understood as an ensemble of antago-nistic social relations of production and as a restless processof self-expanding value - is the source of the worseningeconomic crises that have marked the last third of the 20thcentury. Moreover, we seek to provide evidence supportingthe proposition that capital, metaphorically speaking, "shootsitself in the foot" and then forces the working class and theoppressed to pay its medical bills.

This paper builds upon earlier work by one of the authorsthat sought to demonstrate the continuing empirical salienceand theoretical plausibility of Marx's account of the originsof capitalist crisis in the tendency of the average rate of

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profit to fall as a consequence of the displacement of livinglabour from capitalist production.? This earlier work focusedon the performance of the Canadian economy over the periodfrom the end of the Second World War to the 1970s. Thepresent article extends this analysis in two ways. First, byupdating the empirical analysis to 1991, this paper permitsan examination of the response of Canadian capital to itscrisis of profitability, as well as a consideration of the effectsthat this response has had on the performance of the Cana-dian economy since the 1970s. Second, the present studyseeks to more clearly situate long-term trends in the Cana-dian economy in relation to some prominent manifestationsof the structural crisis of capitalism on a world scale. Webegin with a brief overview of: a) the contours of the currenteconomic malaise, and b) the distinctive lineaments ofMarx's theory of capitalist crisis.

I. Contours of Capitalist Malaise Canada's economic dif-ficulties are by no means unusual in the global context ofthe world capitalist economy. The per capita Gross DomesticProduct (GDP) of the industrialized capitalist nations aver-aged an annual increase of 3.6 percent in the period from1950 to 1973 and declined to 2.0 percent in the period from1973 to 1989.3 This trend coincided with a decline in theaverage annual percentage increase of industrial productionamong the G7 nations over the period 1960-90. Accordingto OECD historical statistics, the developed capitalist worldsaw a general growth slowdown from 1960 to 1990. From1960-1973, the OECD countries averaged an annual rate ofGDP growth of 4.9 percent, while from 1973-90 the averagerate of growth was only 2.7 percent." Moreover, world-wideGDP growth had "slowed from almost 5 percent per yearfrom 1948-73 to only half that in 1974-89 and to a merecrawl [by 1993]."5

The declining performance bf the advanced capitalistcountries was not due to any "closing of the gap" betweenthe industrially developed and underdeveloped regions of theworld economy. Indeed, GDP per capita of the underdevelopedworld (including so-called "newly industrializing countries")as a percentage of the developed countries declined from

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8.7 percent in 1960 to 7.4 percent in 1970 and 6.1 percentin 1987. Moreover what industrialization has occurred inthe capitalist-dominated "developing world" has been largelyconfined to a handful of countries representing a tiny per-centage of its population. Third World exports as a percent-age of world exports of manufactured goods increased from11.2 percent in 1966 to 13.8 percent in 1986; but once HongKong, South Korea, Singapore and Taiwan are removed fromthe picture, the trend is reversed. Excluding the "four drag-ons," the underdeveloped countries accounted for 9.6 percentof world exports of manufactured goods in 1966, but only6.8 percent in 1986.6

It should be emphasized that neither the dismantling ofobstacles to world trade nor other vaunted manifestationsof "globalization" over the period 1960-90 served to preventthe growth slowdown in the world capitalist economy. Sum-marizing the conclusions of their analysis of the impact andsignificance of recent globalization trends, Glyn and Sut-cliffe write:

[W]hilst the post-war period has seen a rapid increase in tradeshares [export shares of GDP] for the advanced capitalist coun-tries, (a) the increase has broadly returned these economies backto the position before the First World War; (b) it does not applyoutside the ACCs [advanced capitalist countries]; (c) if intra-European trade is excluded and Europe is regarded as one unit,then trade shares for the main blocs of ACCs, let alone Asiaand the ex-USSR, are extremely small (Europe's total commoditytrade was 22.9 percent of GDP, but extra-European trade only6.5 percent); and (d) further increases are limited by the risingimportance of services (even in the absence of more intenseprotectionism)."

The concerted efforts of transnational capitals to promote"globalization" (both as ideology and as corporate practice)aim, none-too-subtly, to create conditions favourable to aresolution of the global economic malaise on terms condu-cive to profitability and to the perpetuation of the capitalistprofit system. In this context it has become increasingly nec-essary to distinguish theoretically between "capitalist prosper-ity" and "popular prosperity." Capitalist prosperity refers toan economic situation marked by "adequate" rates of return

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on invested capital, that is to say, a high average rate ofprofit. In contrast, popular prosperity refers to an economicsituation characterized by low levels of unemployment andrising average living standards (defined in terms of suchvariables as the real wage, social protection afforded by thestate, the general availability and affordability of health andeducational services, life expectancy, and a narrowing ofsocial inequalities). The legitimacy of the advanced capitalistorder during the post-World War II epoch depended criticallyon its apparent capacity to reconcile these two forms of pros-perity, at least in the eyes of the working masses of thedeveloped capitalist world. However, such a reconciliation- which was problematic at the best of times - has provenincreasingly difficult to sustain. Indeed, since the mid-1970s,a basic condition for capitalist prosperity, in most developedcapitalist countries, has been a vigorous assault on popularprosperity.f

During the 1950s and the 1960s, the advanced capitalistorder succeeded in maintaining a certain economic momen-tum (sometimes referred to as "Fordism"), characterized si-multaneously by adequate profitability levels and rising liv-ing standards. However, by the 1970s, most of the developedcapitalist world was feeling the effects of a severe profit-ability crisis." Indeed, the "cyclical range" of the averagerate of profit had fallen to levels incompatible with robustgrowth, or with a rate of accumulation sufficient to sustainthe sort of productivity increases associated with a "Fordist"pattern of capital accumulation, predicated on expandingmass-production industries and strong consumer demand.

Evidence of a long-term profitability crisis, manifestedin secular downward trends in the average rate of profit andin rates of return on capital in the advanced capitalist world,is now well known and incontrovertible.U' Interestingly,however, cross-national data compiled by the Organizationfor Economic Cooperation and Development (OECD) alsoreveal a striking and increasing divergence between averageprofit rates and growth rates in the G7 capitalist countriesafter the early-1980s recession. I I

The trend for the accumulation rate (that is, average an-nual percentage growth rates of capital stock) within the

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advanced capitalist world began to decline with the onsetof the profitability crises of the 1970s and continued itsdecline even after the recovery of profit rates in the 1980s.The average "all-business" accumulation rate for the ad-vanced capitalist countries (i.e. the United States, capitalistEurope and Japan) declined from an average of 5 percentin 1960-73 to 4.1 percent in 1973-79 and 3.9 percent in1979-89. The corresponding figures for manufacturing alonewere 5.5 percent, 3.6 percent and 2.9 percent.t- It is notsurprising that under such conditions of slowdown in in-vestment in new capital stock the rates of increase in labourproductivity have also declined. "All-business" labour pro-ductivity growth rates fell in the US from an average of 2.2percent annually in 1960-73 to 0.5 percent in 1979-90; inJapan, from 8.6 percent to 3.0 percent; and in Europe from4.2 percent to 2.2 percent.l ' The general pattern is reflectedin the slowdown in the average rate of growth of real GDPper person employed. The latter rate was at least twice ashigh in 1960-69 as it was in 1979-88 for the US, Japan,West Germany, France and Italy.lf

Our findings to this point may be summarized as follows.Long-term trends in average profit rates fell throughout thedeveloped capitalist world from 1950 until the 1970s. Fromthe late 1970s through to the late 1980s, the trend in averageprofit rates was reversed. However, the renewed "capitalistprosperity" of the 1980s was not accompanied by a seriousrecovery in the rate of accumulation or productivity growth.Indeed, while the post-recession 1980s boasted respectablerates of GDP growth, this growth and related gains in profitswere accompanied by three highly negative economic indi-cators: a growing burden of debt (government, corporate andpersonal) that had the effect of sustaining high real interestrates; high levels of unemployment; and stagnant or declin-ing real wage levels.IS All three of these indicators pointedto a substantial erosion of popular prosperity amidst thelargely speculative boom of the 1980s, while also foreshad-owing a severe economic downturn. When the economy enteredinto serious recession in 1990, the ideologists of capital couldno longer credibly blame the malaise on "excessive wages"(as they had in the 1970s and even during the early-80s

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recession). But they could and did blame poor productivityperformance and "excessive government spending" - bothof which had been occasioned by capital's own desperateand draconian responses to the profitability crisis; these in-cluded corporate restructuring involving mass layoffs, non-productive capital investments, and a continuing decline inthe accumulation rate.

As already indicated, Canada's economic performance hasnot been unusual when compared to other OECD countries.Both profit and unemployment rates were somewhat higherthan the OECD average during the 1980s, as was the federaldeficit as a percentage of GDP. Even so, the basic trendswith respect to productivity growth, the average rate ofprofit, the rate of new capital stock formation in the privatebusiness sector, the real wage, and unemployment were typi-cal of the advanced capitalist world as a whole.lv This ob-servation is important, because it suggests that the malaiseof the Canadian capitalist economy cannot be attributed sim-ply to the allegedly superior competitive performance ofother capitalist nations. Indeed, in our opinion, such an at-tribution, whether embedded in neo-Iiberal/vpro-market" orsocial-democratic/"pro-industrial policy" discourses, servesonly to divert attention from those universal dynamics ofcapitalist accumulation that have produced worsening eco-nomic dislocation on a world scale.

II. Elements of Marx's Theory of Capitalist Crisis Con-ventional theories of capitalist crisis tend to focus on variousphenomena that present themselves in the sphere of com-modity exchange, or "the market." These phenomena in-clude: 1) deficient effective demand and the consequent in-ability of firms to sell their commodities at prices reflectingan adequate profit margin; 2) unfavourable terms of trade,resulting in a net transfer of wealth to foreign competitors;and 3) a wage-push/profit-squeeze, resulting in a distributionof national income more favourable to labour (and working-class consumption) than to capital (and growth-inducing capitalformation). When conventional analysis shifts from the sphereof exchange to the sphere of production, the principal concernis with trends in the rate of growth of productivity, especially

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labour productivity. For conventional economists of both theRight and the Left, the notion that improvements in labourproductivity must induce, ceterus paribus, improved profit-ability, accumulation, and growth is virtual1y an article offaith. At the same time, it is emphasized that "rising strengthof labour" at the point of production can have a negativeimpact on productivity and precipitate a profit-squeeze andgrowth slowdown.

While Marx affirms that the periodic crises of capitalismare certainly characterized by deficient effective demand 17

and are sometimes precipitated by declining terms of tradeor by rising labour strength (sometimes manifested in a"wage-push "),18 the burden of his analysis is to show thatthe stage is set for capitalist crisis by more fundamentaltrends in the accumulation and valorization (value-expan-sion) processes. Indeed, what sets Marx's "law of the fal1ingtendency of the rate of profit" apart from all conventionalaccounts of capitalist crisis is the thesis that crises of prof-itability are rooted in crises of valorization. These in turnare the consequence of a rising productivity of labour:

The barriers to the capitalist mode of production show them-selves as follows: I) in the way that the development of labourproductivity involves a law, in the form of the falling rate ofprofit, that at a certain point confronts this development itselfin a most hostile way and has constantly to be overcome byway of crises; 2) in the way that it is the appropriation of unpaidlabour ...[and] a certain rate of profit...that determines the ex-pansion and contraction of production, instead of the proportionbetween production and social needs, the needs of socially de-veloped human beings.I?

The key to grasping this seemingly "counter-intuitive"portrayal of the complex relationship between rising labourproductivity and declining profit rates is Marx's theory oflabour-value. For our purposes this theory may be reducedto two essential postulates: 1) living labour is the sole sourceof new value at the level of the capitalist economy as awhole; and 2) value exists as a definite quantitative magni-tude limiting profits, purchasing power, and the realizabilityof set prices.20 If, as Marx maintains, the social substanceof profit, rent and interest is "surplus value," and if the sole

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source of surplus value (as well as the "necessary" valuerepresented by the wages of productive workers) is livinglabour in the process of capitalist commodity production,then macroeconomic processes involving the displacementof living labour from production must tend to depress theaverage rate of profit and the general rate of return oncapital.U

This -process of displacement of living labour finds ex-pression in what Marx calls a rising technical compositionof capital (the ratio of means of production to productiveworkers employed). The value expression of this ratio isreferred to by Marx as the organic composition of capital(OCC), and may be designated as the ratio of the value ofthe constant capital stock (C) to the "new value" embodiedin profits (surplus value or s) and the wages of productiveworkers (variable capital or v); that is, as C/s+v. While thisratio does not rise as rapidly as the technical compositionof capital, its tendency to increase must have a negativeimpact on the average rate of profit (expressed as a ratioof surplus value over constant capital stock or s/C).22 Ingeneral, what will slow the increase in the OCC is a risein the rate of surplus value (expressed as the ratio of surplusvalue over variable capital or s/v), along with above-averageproductivity gains in industries producing "capital goods"(i.e. the elements of the constant capital stock). However,different methods of increasing the rate of surplus value (orexploitation) will have differing effects on the OCe. In-creases in the rate of surplus value that simply reflect theintroduction of productivity (or "relative surplus value") en-hancing technologies express the same tendencies whichwork to elevate the OCe. On the other hand, increases inslv that flow from a reduction of the real wage ("loweringwages below the value of labour-power") can have a genu-inely counteracting effect on the tendency of the OCC torise and therefore on the tendency of the average rate ofprofit to fal1.23

The tendency of the OCC to rise is not fortuitous; ratherit is rooted in the fundamental social production relationsof the capitalist mode of production. Inter-capitalist com-petition compels individual capitalists to seek out ways to

llO


reduce their costs of production in order to preserve or en-large market share (and therewith profits). Labour-savingtechnological innovation is the favoured way of achievingsuch cost savings, owing to the decisive influence of thecapital-labour antagonism on capitalist investment decisions.The microeconomic resolve of individual firms to reducetheir dependency on living labour (skilled and unskilled) inorder to enhance their competitive position has the unin-tended consequence of reducing the aggregate role of livinglabour relative to the contribution of "dead" (accumulated)labour in production as a whole. Hence, what is "rational"- and necessary - at the micro level turns out to be irra-tional in terms of the macroeconomic requirements of thetotal valorization process (which is pre-eminently a processof creating social surplus value for the social capital as awhole).

As already noted, Marx identifies a number of factorsthat may counteract the tendency of the rate of profit tofali. These include: specific methods of increasing the rateof surplus value (especially "absolute surplus value"); for-eign trade and investment (a two-edged sword, to say theleast); and a cheapening of the elements of constant capital.e'For Marx, however, none of these counteracting tendenciescan negate the primary tendency toward a fall in the averagerate of profit. Only crises can create conditions for a recov-ery of profitability through a "slaughtering of the values"of capitals.I> Yet Marx also suggests that while profit rateswill recover cyclically, they will also evince a long-termdeclining trend - implying that cyclical crises will becomemore severe and periods of recovery and expansion less ro-bust. The result is that capital is obliged to resort to evermore "extreme" measures to shore up profitability - meas-ures aimed at lowering working class living standards and/orresolving the crisis at the expense of other components ofthe world economy. In Marx's words, "the internal contra-diction seeks resolution by extending the external field of pro-duction. "26 The upshot of these tendencies disclosed by Marx'sanalysis is the emergence of a state of affairs that bears astriking resemblance to the current economic malaise assketched above: rising "structural" unemployment, declining

111


rates of accumulation and growth, increasing reliance on"globalization" andlor protectionism in the pursuit of na-tional economic policy objectives, declining average livingstandards, and so on.

On the face of it, Marx's fundamental prognosticationsconcerning the long-term dynamics of capital accumulationand tendencies in the average rate of profit seem to be con-sistent with the "real history" of the world economy sinceWorld War II. However a more rigorous test of Marx's theo-retical expectations requires analysis of the actual empiricalrelationships that obtain between the three fundamental ra-tios of Marx's theoretical system: the average rate of profit- siC; the organic composition of capital - C/v+s; andthe rate of surplus value - s/v. Such an analysis is under-taken in the next section.

III. Empirical Trends in the Marxian Ratios: Canada,1947-91 The most controversial issue in the statistical op-erationalization of Marx's theoretical ratios is the specifi-cation of the empirical content of his fundamental value cate-gories: constant capital, variable capital and surplus value.Constant capital is usually measured as the constant capitalstock,27 and this is the procedure that we have followed.The stock variable of constant capital should ideally includemeasurement of the value of "circulating constant capital"(i.e. raw materials, fuel, electricity and other inputs that areimmediately consumed in the production and circulationprocesses). However, due to gaps in the available data oncirculating constant capital, we have identified the constantcapital stock simply with the fixed capital stock in the non-agricultural, private, incorporated sector of the Canadianeconomy.P Statistics Canada figures on the net fixed capitalstock (straight-line depreciation) in millions of current dol-lars have been reduced by an estimate of the weight of theunincorporated business sector in the economy to arrive at"C" - our measure of the constant capital stock - for eachyear from 1947 to 1991.

Variable capital ("V" - a "flow" variable) has been de-fined as the net income of the productive labour-force, i.e. theafter-tax income of wage and salary earners directly involved

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in the production of marketed commodities (goods and serv-ices) embodying surplus value. Once again, Statistics Canadahas not made the task of measuring this Marxian variablean easy one, and certain compromises have been unavoid-able. Predominantly "productive" (in the Marxian sense) sec-tors of the economy (such as manufacturing) have beentreated as entirely composed of productive workers, whilepredominantly unproductive sectors (such as finance, insur-ance, real estate, and trade, as well as community, businessand personal services) have been treated as composed of"socially-necessary" but unproductive workers. Accordingly,variable capital is defined as the sum of wages, salaries andsupplementary labour income in the predominantly produc-tive sectors of the Canadian economy, reduced by estimatesof corporate officer compensation and by the (annually-vary-ing) effective tax rate on income. The income of socially-necessary unproductive labour finds no direct expression inany of the measured value categories, since, in our view, itis properly treated as part of the constant capital flow, i.e.as an "overhead cost" of the system, the "value" of whichis "preserved" and continuously "transferred" rather thanconsumed in the process of economic reproduction.J?

Finally, surplus value ("S") has been measured as the sumof after-tax "profits and other investment income" in all in-corporated sectors of the economy, plus corporate-officershare of "wages, salaries and supplementary labour income"and estimates of surplus value transferred to the state throughreal (annual) increases in the tax flow. This way of measuringaggregate surplus value produces results similar to those ob-tained by Shaikh and Moseley in their estimates of "netsurplus value" or "conventional profit" in the US econorny.I''Table I presents data on the ratios siC (average rate of profit,p '), s/v (rate of surplus value, s') and C/v+s (organic com-position of capital, q) for each year from 1947 to 1991.Charts 1, 2 and 3 reveal the course of the average rate ofprofit, rate of surplus value, and organic composition of capi-tal respectively.

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TABLE 1: THE MARXIAN RATIOS, CANADA, 1947-1991

YEAR SIC SN CN+S

1947 0.1366 0.4764 2.3621948 0.1418 0.4839 2.2991949 0.1564 0.5436 2.2511950 0.1788 0.6488 2.2011951 0.1716 0.6615 2.3191952 0.1739 0.6617 2.2891953 0.1521 0.5932 2.4491954 0.1355 0.5687 2.6751955 0.1569 0.6586 2.5291956 0.1542 0.6676 2.5961957 0.1281 0.5906 2.8981958 0.1221 0.6027 3.0791959 0.1319 0.6644 3.0241960 0.1171 0.6098 3.2351961 0.1162 0.6302 3.3251962 0.1249 0.6786 3.2371963 0.1232 0.6709 3.2581964 0.1421 0.7758 3.0761965 0.1305 0.7552 3.2961966 0.1287 0.702 3.2061967 0.1202 0.6789 3.3641968 0.1214 0.6978 3.3861969 0.1171 0.6967 3.5081970 0.1006 0.6297 3.8411971 0.0994 0.6382 3.9211972 0.1067 0.6825 3.8011973 0.1079 0.6856 3.7691974 0.1325 0.9403 3.6571975 0.0901 0.6073 4.1921976 0.1248 0.8192 3.6071977 0.1089 0.7316 3.8761978 0.1184 0.8147 3.7911979 0.1302 0.9205 3.6821980 0.1222 0.8822 3.8341981 0.1282 0.9463 3.7941982 0.0939 0.7714 4.6371983 0.1156 0.9029 4.1061984 0.1391 1.0541 3.6911985 0.1326 0.9755 3.7251986 0.1226 0.9038 3.8741987 0.1342 1.0047 3.7351988 0.1388 1.0141 3.6271989 0.1243 0.9308 3.8791990 0.1068 0.8632 4.3361991 0.0884 0.7366 4.801

Souxes: SeeAppend~

114

P 0.16

rofit 0.14

Rate

%

0.18

0.12

0.10

0.08


CHART 1: CANADA. 1947 - 91Average Rate of Profit

\•...• s/c

1951 1956 1961 1966 1971 1976 1981 1986 1991

Years

115


Rate

of

surpIus

VaIue

%

116

CHART 2: CANADA. 1947 - 91Rate of Surplus Value

1.1

..• SN

1.0

0.9

0.8

0.7

0.6

0.5

0.04

Years

------ -


CHART 3: CANADA. 1947 - 91Organic Composition of Capital

CapitaI

5.0

...• CN+S

4.5

composition

4.0

3.5

3.0

Ratio

2.5

2.0 j""",,,,,,,,, I " " " " " I I " " I " i " " " I I

1951 1956 1961 1966 1971 1976 1981 1986 1991

Years

117


In general, the data support Marx's expectations of a long-term rise in the rate of surplus value and in the organiccomposition of capital. Furthermore, the data suggest thata long-term decline in the average rate of profit occurredover the period 1947 to 1975. The falling trend in the profitrate was arrested over the period 1976-89, only to reassertitself in the early 1990s with the onset of the recession.Table II provides a decade-by-decade view of the evolutionof the three Marxian ratios.

TABLE II. THE MARXIAN RATIOS BY DECADE

p' s' q

2.613.293.813.894.57

1950-19591960-19691970-19791980-19891990-1991

.151

.124

.112

.125

.098

.632

.690

.747

.939

.800p' = annual average rate of profit;s ' = annual average rate of surplus value;q = annual average organic composition of capital.

Clearly, the average rate of profit, and with it "capitalistprosperity," made something of a recovery in the 1980s. Nev-ertheless, the recovery did not restore an average annualrate of profit to the level of the immediate post-war period(1950 to 1969). From 1947 to approximately 1976, the av-erage rate of profit experienced a secular decline that wassignificantly correlated to a rise in the organic compositionof capital. This was accompanied by a rising rate of surplusvalue which was apparently compatible with long-term gainsin working-class living standards. However, from the midto late 1970s on, the data indicate a dramatically ascendantrate of surplus value, which apparently had less to do witha rising accumulation rate and associated productivity gains(for which the OCC is something of an index) than with stag-nant or declining real wages. One might hypothesize that ex-ploding debt and the lagging of real wages behind productivitygrowth allowed for a short-term recovery of the rate of profitduring the 1980s without creating durable foundations for eitherlong-term economic expansion or "capitalist prosperity." The"economic fundamentals" - expressed in persistently high

118


levels of the organic composition of capital - had not beenaltered in such a way as to produce a long-term upwardtrend in the average rate of profit. If the recession of theearly 1990s is any indication, the economic malaise of Ca-nadian capitalism is not only persisting, it may be worsening.Indeed, the rate of profit fell in 1990-91 to levels not seensince the mid-1970s.

How then does this empirical analysis of the Marxianratios stack up against our knowledge of more "visible" anduncontested trends in the recent economic history of Canada?To answer this. it would appear to be useful to consider twodistinct time-frames: the period from 1947-75 and the periodfrom 1976-91.31

The first period of relatively robust expansion is charac-terized by a rapid rise in the acc, a pronounced decliningtrend in the average rate of profit, and a rate of surplusvalue that rises, but not nearly as dramatically as the acc.This period corresponds to Marx's classical theoretical sce-nario in a strikingly faithful fashion.

The second period is one of increasing economic malaiseand dislocation. Capital aggressively seeks more pronouncedincreases in the rate of surplus value to address the profit-ability crisis in which it is mired. The result is the elevationof the rate of profit into a higher range and a flatter trendfor the ace. In other words, the methods selected to resolvethe profitability crisis strike at "popular prosperity" and dis-courage new capital formation (at least on the domesticfront). The result is declining living standards, growing gov-ernment deficits, slower gains in productivity, higher realinterest rates, and massive unemployment. Yet none of this"economic medicine" is enough to prevent the onset of theworst economic contraction since the 1930s!

Did capital's agents have another option? Could they haveaddressed the profitability crisis in a way which would nothave sown the seeds of an even deeper economic malaise?In light of Marx's theoretical perspectives on capitalist cri-sis, it seems highly unlikely. In any case, barring continuingassaults on popular prosperity, the only strategic "option"that appears open to Canadian capital today would seem tobe one of resolving "the internal contradiction" by "extending

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the external field of production," that is, through seeking alarger share of the world market as well as by gaining accessto more profitable arenas of investment. This, of course, isthe real significance of Canada's involvement in NAFTA.Yet this "globalization" strategy is precisely what all of themajor capitalist countries are now competitively pursuing.It is obvious that in such a high-stakes and perilous gamethere can be only a few real winners; and yet the consolationprize to the capitalist losers is a politically and ideologicallyvaluable one: the perfect rationale ("the need to face com-petitive realities") for sustaining and intensifying assaultson popular prosperity on the domestic front.

IV. Conclusion The results of this empirical Marxian analy-sis of the Canadian capitalist economy do not conclusivelyestablish the veracity of Marx's theory of capitalist crisis.Compromises imposed on us by gaps in Statistics Canadadata call into question the reliability of our results; and itis certainly possible to argue that our basic empirical find-ings can be interpreted in such a way as to render themcompatible with rival theoretical perspectives on the originsof capitalist economic crisis. Nevertheless, we believe thatthis study strengthens the general claim that recent trendsin the world capitalist economy are consistent with Marx'stheoretical expectations concerning a) the laws of motionof capitalism, and b) the response of the agents of capitalto capital's endogenously-bred crisis tendencies. To that ex-tent, our study also supports the proposition that Marx'stheoretical approach offers a framework for understandingthe provenance and implications of these trends that is moreanalytically penetrating than those of rival, "conventional"approaches.

In our view, an understanding of the crisis tendencies ofcontemporary capitalism grounded in Marx's analysis canonly strengthen the Left's ability to counter the histrionicsof the crisis theorists of the Right, for whom the basic causeof the economic malaise is "bad government policy" result-ing in unacceptably high debt loads, and for whom the in-dicated solution is a "downsizing of government" throughthe elimination or curtailment of a range of social welfare

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programs. The Left is quite right to point out that the un-derlying cause of high deficits and interest rates is hardlyan "overly-generous" welfare state. But it is entirely inade-quate to blame the debt crisis simply on "corporate tax holi-days" or on interest rates set too high by "policy makers"deferring to greedy corporate interests. The introduction ofregressive, monetarist policies that have kept unemploymentand real interest rates high and corporate taxes relativelylow must be understood in the context of concerted stateefforts to reverse the profitability crisis. Similarly, the re-laxation of state controls over international capital flows areclearly aimed at allowing capital, on a worldscale, to restoreprofitability to "acceptable" levels. To be sure, the revivalof a mean-spirited, right-wing ideology, in the wake of the"collapse of Communism," may account for the unseemlyzeal with which neoliberal and neoconservative governmentsare approaching the task of "redefining the role of govern-ment." Yet this in no way gainsays the fact that the Leftwill remain seriously disoriented so long as it fails to rec-ognize that the capitalist state, by reducing social welfareexpenditures, is also seeking to effect a reduction in the"overhead costs" of the system as a whole with a view torestoring "capitalist prosperity." In addition to "free-market"ideology, there is a good deal of hard-headed capitalist re-alism involved in this strategy.32

Given all this, it is incumbent upon the Left (at leastupon a Left that is not simply a "loyal opposition" to thesocial capital) to point out that an economic system thatgenerates declining average living standards alongside on-going gains in productivity is an irrational system that meritsthe support of no one who must work for a living. A vigorousargument must be made that only a capitalist society, domi-nated by the logic of profit maximization, could give birthto so absurd - and monstrous - a phenomenon as a "crisisof overproduction," and that only such a society could trans-form the great potential benefits of labour-saving technologyinto declining average living standards, unemployment, bit"ter trade rivalries, depression, and war.

In sum, Marx's analysis of the crisis tendencies of thecapitalist profit system continues to provide a compelling

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basis for the conclusion that this is, at bottom, an "irrational"and historically limited system, one that digs its own graveby seeking to assert its "independence" from living laboureven while remaining decisively dependent upon this labourfor the production of its own life-blood: the surplus valuethat is the social substance of private profit.33 We wouldsuggest that those who have the most to lose from capital'sdesperate attempts to resolve its long-term profitability prob-lems will ignore this analysis at their peril. So long as thecontradictory logic of the capitalist economy remains un-questioned there can be no possibility of a serious strugglein defense of popular prosperity. Indeed, so long as capital's"rules of the game" are respected, there can be no progressiveresolution to what are clearly increasingly worrisome trendsin the world economy. The "solutions" that capital has tooffer - "solutions" that present themselves as unavoidablenecessities so long as alternatives to the capitalist socialorder remain unconsidered - are clearly realizable only ata very heavy cost to the exploited and the oppressed, bothat home and abroad.

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APPENDIX: Data Sources and Methods1. Constant Capital (stock): The current-dollar value of fixedcapital in both the sphere of production and the sphere ofcirculation (inclusive of commercial services, trading, andfinance, insurance and real estate) in the non-farm, incor-porated business sector of the economy. New and soon-to-be-published current-dollar figures on the fixed capital stockwere obtained from the Investment and Capital Stock Divi-sion of Statistics Canada. The current-dollar value of thecapital stock for the included categories of the economy werereduced by a percentage reflecting the share in GDP of non-farm unincorporated business sector income for each yearfrom 1947 to 1991 (as indicated by figures provided in theStatistics Canada series, National Income and ExpenditureAccounts). This was done in order to avoid a bias associatedwith the declining weight of the latter sector in the economyand therefore in the aggregate value of fixed capital. Figureson the net capital stock (adjusted for straight-line deprecia-tion) include the value of four components of fixed capitalexpenditure and investment: building construction, engineer-ing construction, machinery and equipment, and capital itemscharged to operating expenses.2. Variable Capital (annual flow): The after-tax income ofall workers employed by "productive capital" plus estimatedemployer and employee contributions to unemployment in-surance and pension plans. Current-dollar figures for "v"were obtained from the Statistics Canada series, NationalIncome and Expenditure Accounts. Excluded from consid-eration as variable capital were wages and salaries paid outin agriculture, wholesale and retail trade, the FIRE sector,Public Administration and Defence, and community, busi-ness and personal services. All figures from Statistics Canadarefer to before-tax income; consequently a comprehensivetax table was constructed to calculate after-tax estimates.3. Surplus Value (annual flow): The sum of profits and otherinvestment income (after tax and net of inventory valuationadjustment), the estimated corporate officer share of "wages,salaries and supplementary labour income," and the esti-mated amount of surplus value transferred to the state. Aswith variable capital, the after-tax calculation of surplus

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value required the use of a comprehensive tax rate table.The ratio of "total taxes" (received by all levels of govern-ment) to "net national income at factor cost" was definedas the "effective tax rate on income." The income flowswere calculated from data provided in the Statistics Canadaseries, National Income and Expenditure Accounts. For fur-ther discussion of methods used, see Murray Smith, "TheFalling Rate of Profit" (M.A. Thesis, University of Manitoba,1984).

Notes

The authors would like to thank Greg Albo, Bill Carroll, Bob Chernomas,June Corman, Michael Lebowitz and Mel Watkins for their comments andadvice concerning earlier versions of this paper. Thanks are also due tothe Dean of Social Sciences, Brock University, for providing funds thathelped to finance our research. It is perhaps more necessary than usual toemphasize our exclusive responsibility for all remaining errors and weak-nesses.

l. Karl Marx, Capital, Volume Three (New York: Vintage, 1981), p.358.

2. Murray Smith, "The Falling Rate of Profit" (M.A. Thesis, Universityof Manitoba, 1984); "Respecifying Marx's Value Categories: A Theo-retical and Empirical Reconsideration of the Law of the Falling Rateof Profit," Studies in Political Economy 35 (1991), reproduced inidem, Invisible Leviathan: The Marxist Critique of Market DespotismBeyond Postmodernism (Toronto: University of Toronto Press, 1994),Chs. 7 and 8; and "Productivity, Valorization and Crisis: SociallyNecessary Unproductive Labor in Contemporary Capitalism," Science& Society 57/3 (1993).

3. Harry Magdoff, "Globalization - To What End?" in Ralph Milibandand Leo Panitch (eds.), The Socialist Register 1992 (London: Merlin,1992), p. 48. The industrialized capitalist countries referred to areAustralia, Austria, Belgium, Canada, Denmark, Finland, France, WestGermany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland,United Kingdom, and the United States.

4. Andrew Glyn, "The Costs of Stability: The Advanced Capitalist Coun-tries in the 1980s," New Left Review 195 (1992), p. 5.

5. Jeremy Brecher, "Global Unemployment at 700 Million," Z MagazineNovember 1993, p. 46.

6. Magdoff, "Globalization - To What End?;" pp. 63, 69.7. Andrew Glyn and Bob Sutcliffe, "Global But Leaderless? The New

Capitalist Order," in Ralph Miliband and Leo Panitch (eds.), TheSocialist Register 1992 (London: Merlin, 1992).

8. It is beyond the scope of this paper to develop a method for measuringa "composite index" of popular prosperity - though we believe that

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the development of such an index would be a useful contribution toprogressive scholarship. The Human Development Index (HDI), for-mulated by the United Nations Development Programme and reportedannually in the Human Development Report, cannot serve as an ade-quate indicator since it measures "income per capita" (along witheducational attainment and life expectancy). Income per capita datatell us nothing about the distribution of income in a particular countryor how this distribution might change over time. A better indicatorwould be the "class-means adjusted HDI" that has recently been pro-posed as a basis for a "social index tariff structure" aimed at pro-moting a fairer regime in international trade. Among other things,the class-means adjusted HDI cancels competitive advantages flowingfrom the payment of wages that are low relative to productivity levelsattained. See George De Martino and Stephen Cullenberg, "AfterGATT: Towards a New Internationalism," Social Text 41 (1994), andURPE Newsletter 26/3 (1995). Evidence that popular prosperity hasdeclined in Canada since the 1970s includes: i) substantially higherlevels of unemployment (an average unemployment rate of 6.79 per-cent in 1970-74 compared with 8.83 percent in 1985-89 and 9.90percent in 1990-92); ii) the lengthening of the average work-weekfor those fortunate enough to have full-time jobs; iii) the growth ofpart-time employment among members of the labour force who wouldprefer full-time employment; iv) the shifting of the burden of taxationaway from corporations and high income earners toward the bottom80 percent of income earners; v) the general proliferation of regressivesales, excise and sin taxes; vi) the stagnation in median family (be-fore-tax) income from the late 1970s to the early 1990s, despite anincrease in the number of dual-earner households; vii) an over-alltrend toward cutbacks in social programs. Sources for data pertainingto these trends include the CCPA Monitor, published monthly by theCanadian Centre for Policy Alternatives, and Statistics Canada, Na-tional Accounts Statistics. Data on the trend of real (cost-of-living-adjusted) wages in the Canadian economy are subject to competinginterpretations. At best, the pre-tax average real wage saw no growthbetween 1977 and 1992; however, after-tax purchasing power un-doubtedly declined for the great majority of wage earners. OfficialCanadian data on real wages include data on salaries received bycorporate officers and professionals, whose share of the national in-come has increased considerably since the late 1970s. According tothe CCPA Monitor of March 1995: "The salaries of managerial andprofessional groups have .. .increased much more than average earn-ings." This points with certainty to a decline in before-tax real wagesfor the great majority of the Canadian labour-force over the periodfrom the mid-1970s to the early 1990s.

9. Smith, "The Falling Rate of Profit"; Glyn, "The Costs of Stability ... ,"p. 87; G. Dumenil, M. Glick and J. Rangel, "The Rate of Profit inthe United States," Cambridge Journal of Economics XI (1987); An-war Shaikh, "The Falling Rate of Profit and the Economic Crisis inthe US," in R. Cherry, et al (eds.), The Imperilled Economy, VolumeOne (New York: URPE, 1987); Fred Moseley, "The Decline of theRate of Profit in the Postwar US Economy: An Alternative MarxianExplanation," Review of Radical Political Economics 2212&3 (1990);

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and Gerard Dumenil and Dominique Levy, "Why Does ProfitabilityMatter? Profitability and Stability in the U.S. Economy since the1950s," Review of Radical Political Economics 25/1 (1993).

10. Reported in Chris Harman, "Where is Capitalism Going?" Interna-tional Socialism 58 (1993). Harman cites data and charts that areindicative of profitability trends as seen by official state agencies.These do not accord entirely with how the average rate of profit ismeasured by all Marxists. Nevertheless, the trends in conventional,"official" measures of profitability tend to broadly parallel Marxianestimates of the average rate of profit.

II. Reported in Michel Husson, "The Liberal Decade: Transition to Un-even Capitalism," Socialist Alternatives 1/2 (1992). Husson attributesthe recovery of the rate of profit to a decline in the share of wagesin national income. This decline, relative to the (slow) growth inlabour productivity, had the effect of depressing demand and therebyslowing economic growth. This finding is broadly consistent withour finding, reported below, of a dramatic increase in the rate ofsurplus value (rate of exploitation) in the Canadian economy.

12. P. Armstrong, A. Glyn and J. Harrison, Capitalism Since 1945 (Ox-ford: 1991), Tables A5, A6.

13. Glyn, "Costs of Stability ... ." p. 90.14. Harman, "Where is Capitalism Going?" p. 38.15. Husson, "Liberal Decade ... "16. OECD, Economic Outlook (December 1991).17. Marx, Capital, Volume Three, pp. 366-367.18. Ibid., Volume One, p. 763; and Volume Three, pp. 347, 365.19. lbid., Volume Three, p. 367.20. Murray Smith, "Understanding Marx's Theory of Value: An Assess-

ment of a Controversy," Canadian Review of Sociology and Anthro-pology 28/3 (1991); idem, Invisible Leviathan, Chs. 4-6.

21. Marx, Capital, Volume Three, Part III. A vast literature exists onMarx's "law of the falling tendency of the rate of profit" and itsrelationship to his theory of capitalist economic crisis. Some aspectsof the debate on the "technical" issues surrounding the falling-rate-of-profit (FROP) theory of crisis are treated in Smith, "RespecifyingMarx's Value Categories ... ": Invisible Leviathan, Ch. 7; and "Pro-ductivity, Valorization and Crisis .... " Critiques of the FROP theoryof crisis include: Michael Lebowitz, "Marx's Falling Rate of Profit:A Dialectical View," Canadian Journal of Economics IX/2 (1976);"Marx's Theory of Crisis," Studies in Political Economy 7 (1982);and Phillippe Van Parijs, 'The Falling Rate of Profit Theory of Crisis, "Review of Radical Political Economics 12/1 (1980). Works that defendthe centrality of FROP to capitalist crisis include: Anwar Shaikh,"Political Economy and Capitalism: Notes on Dobb's Theory of Cri-sis," Cambridge Journal of Economics 2 (1978); Bob Chernomas,"Keynesian, Monetarist and Post-Keynesian Policy: A Marxist Analy-sis," Studies in Political Economy 10 (1982); and, in more heterodoxterms, David Laibrnan, 'Technical Change, the Real Wage and theRate of Exploitation: The Falling Rate of Profit Reconsidered," Re-view of Radical Political Economics 14/2 (1982). The present articlebelongs to that literature on the falling rate of profit that is lessconcerned with technical-theoretic objections to FROP theory than

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with the long-term empirical trends of the relevant theoretical ratios.For a discussion of why empirical tests of Marx's propositions haveyielded such widely-diverging results, see Smith, Invisible Leviathan,Ch.8.

22. Smith, Invisible Leviathan, pp. 156-157.23. For an algebraic representation of the relationships between the OCC,

the rate of surplus value and the average rate of profit, see Smith,"Respecifying Marx's Value Categories ... ," or Invisible Leviathan, p.149.

24. Marx, Capital, Volume Three, Chapter 14.25. The following passages from Marx are particularly relevant: "How

are the relations corresponding to a 'healthy' movement of capitalistproduction to be restored? The method of resolution ... involves this,that capital should lie idle, or even, in part, be destroyed .... Thiswill also extend in part to the material substance of capital; i.e. partof the means of production, fixed and circulating capital, will notfunction and operate as capital, and a part of the productive effortthat was begun will come to a halt ... The chief disruption, and theone possessing the sharpest character, would occur in connectionwith capital in so far as it possesses the property of value, i.e. inconnection with capital values ... The devaluation of the elementsof constant capital ... itself involves a rise in the profit rate. Themass of constant capital applied grows as against the variable, butthe value of this mass may have fallen." Capital, Volume Three, pp.362-363. Marx makes clear that the competitive struggle betweencapitals plays a key role in this process; the "idling" of capital leadsto conditions in which some of the elements of constant capital eitherlose their "function" entirely or are purchased at bargain-basementprices from bankrupted firms. The resulting "concentration" of capitalallows for a devaluation of the capital stock as a whole - a devalu-ation quite distinct from that resulting from improvements in theproductivity of labour.

26. Ibid., p. 353.27. Shane H. Mage, "The Law of the Falling Tendency of the Rate of

Profit" (Ph.D. diss., Columbia University, 1963); Shaikh, "FallingRate of Profit"; Moseley, "Decline"; and Smith, "Respecifying Marx'sValue Categories."

28. Three points of elaboration on the data follow. First, the unit ofanalysis for this study is the non-farm, incorporated, and capitalist(wage-labour employing) sector of the Canadian economy. The dataset used consequently "abstracts from" the farm sector as a wholeas well as from the Statistics Canada category of "non-farm unin-corporated business." The reason for this procedure is that the large(though declining) category of the Canadian national income accountsknown as "Net Income of Farm Operators and Net Income of Non-Farm Unincorporated Business" cannot be disaggregated into its con-stant capital, variable capital and surplus value components. The ex-clusion of farm operations and unincorporated business from theanalysis imposes an unfortunate compromise on the study. Howeverit is not one that is likely to seriously bias the overall trends withrespect to the average rate of profit, the organic composition of capitaland the rate of surplus value. As the specific weight of the capitalist

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(wage-labour employing) sector of this category increases (which itdoes), there is every reason to believe that it will be subject to thetendency of the rates of profit to equalize and the tendency of theorganic composition of capital to rise. Accordingly, changes in theincorporated and non-farm sector of the economy will be mirroredin the farm and unincorporated sector as the latter is subjected tocapitalization. Second, a different sort of problem is posed by thenationally-limited character of the data set. There is undoubtedly anincreasingly strong tendency for rates of profit to be equalized on aglobal scale. However, those theorists who emphasize this phenome-non also assume that it is the more advanced capitalist countries likeCanada that benefit most from the resulting "unequal exchange" thateffects an international redistribution of surplus value. It seems al-together improbable that the trend for the average rate of profit ona world scale could be different than what it has been for the majorityof advanced capitalist countries. Moreover, to suggest that the prof-itability crises that have afflicted the United States, Canada, WesternEurope and increasingly Japan could be the result of a net transferof surplus value from these countries to the "newly industrializingcountries" would be to imply that processes of unequal exchangework to the advantage of low-wage and low-productivity regions ofthe world economy - a hypothesis inconsistent with every knownvariant of unequal exchange theory. For a discussion of unequal ex-change theory and processes of international and inter-regional valuetransfers, see Smith, Invisible Leviathan, Ch. 9. Third, comprehensivedata on the circulating component of the constant capital stock (i.e.,raw materials, energy and fuel consumed in the total production andreproduction process) is not available for the entire economy. Datapertaining to this category of constant capital is available, however,for the manufacturing sector. In an earlier study of the rate of profit(on this, see Smith, The Falling Rate of Profit, or idem, "RespecifyingMarx's Value Categories ... ''), an estimate of circulating constant capi-tal consumed in manufacturing for each year from 1947 to 1980 wasincluded in the value of the total constant capital stock. The problemwith its inclusion is that, if the fixed component of the capital stockincreases more rapidly than the circulating component (as Marxthought it would), then estimates of the value of the total capitalstock could be biased "downward" over time to the extent that theweight of the manufacturing sector declines in the economy (as itdoes). Calculations made on the earlier data set revealed a slightincrease in the specific weight of fixed as opposed to circulatingconstant capital in the manufacturing sector, and since similar in-creases were not reflected in the non-manufacturing components ofthe capital stock, the resulting estimates of "total constant capital"in all likelihood understated the growth in the value of the totalconstant capital stock from 1947 to 1980, and thereby understatedthe downward trend of the average rate of profit. It should never-theless be emphasized that, despite this skew in the data, the earlierstudy still revealed a significant downward trend in the rate of profitfrom 1947 to 1980 when the denominator in the ratio siC includedthe value of circulating constant capital in manufacturing (1'2= 0.46).Not surprisingly, the downward trend was somewhat more pronounced

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when calculations were made based solely on the value of the fixedcapital stock (r2= 0.66).

29. Mage, Law of the Falling Tendency... ; Smith, "Respecifying Marx'sValue Categories"; Smith, "Productivity, Valorization and Crisis";Smith, Invisible Leviathan.

30. Shaikh, "The Falling Rate ... "; Moseley, "The Decline ... " AppendixI and Note 28 provide a more detailed discussion of the methodsinvolved in measuring C, v and s. The authors agree with Shaikhand Moseley that variable capital should not include the income of"unproductive labour." But we disagree that "gross surplus value"should include tax revenues and unproductive expenditures. Shaikh'smeasure of "net surplus value" in relation to the constant capitalstock produces what we regard as a close approximation to the Marx-ian rate of profit for the United States. For a critique of the conceptof "gross surplus value" which includes circulation and state overheadcosts under surplus value rather than under the constant capital flow,see Smith, "Respecifying ... " and "Productivity .... " Briefly, the allo-cation of these overhead costs to "constant capital" rather than to"social surplus value" is predicated on the view that unproductiveexpenditures that are necessary to the reproduction process of capi-talism play a role, similar to physical means of production, in fa-cilitating the production of surplus value by productive labour. Webelieve that this procedure is not only in accord with a "non-fetishized" understanding of the role of constant capital in the val-orization process; it is also "realistic" inasmuch as it accords withwhat is usually considered "profit" in capitalist accounting practices.This study, like those of Shaikh and Moseley, follows the practiceof measuring the "value" of constant capital, variable capital andsurplus value (Marx's "value categories") in current dollars. Such acalculation leaves open the possibility that the labour-value expres-sions of the fundamental ratios might deviate from their money cor-relatives, owing to complications in the transformation of values intomoney prices. But there are good theoretical and empirical reasonsto believe that labour-value ratios and current-dollar ratios will evincesimilar long-term trends, even if their magnitudes will undoubtedlydiffer. The theoretical reason has to do with the fact that price-valuedeviations are a more significant problem at the level of individualcommodities than at the level of the economy as a whole. The em-pirical reason is that, when both current-dollar and labour-value cal-culations have been made, the trends in the relevant ratios have beenparallel. The calculation of labour-values - a cumbersome but, hap-pily, unnecessary task - is also precluded for the purposes of thisstudy by the unavailability of input-output data on the Canadian econ-omy for the period before 1961. On these points, see Shane Mage,The Law... and Andrew Sharpe, "The Structure of the Canadian Econ-omy, 1961-1974: A Marxian Input-Output Approach" (Paper presentedat the Annual Meeting of the Canadian Economics Association,UQAM, Montreal, June 1980).

31. These time frames were by no means selected arbitrarily. To beginthe analysis in 1947 is to recognize that the Second World War createda new material and social basis for capital accumulation - in effect,a "fresh start" for a world capitalist order that had been experiencing

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profound crisis before the war. By 1975 the rate of profit had fallento its lowest point of the post-war era. A turning point is marked by1976, which sees the beginning of a period of capitalist attacks onworking class living standards: Trudeau's wage controls launched atthe end of 1975, a turn toward policies of austerity on the part ofall levels of government, and a generally harder line by capital towardthe labour movement in all facets of collective bargaining. The bitterfruit of this "second period" - the period of capital's response tothe profitability crisis - was the deep recession of the early 1990s.

32. We would suggest that the clear-sighted determination with whichthe capitalist state is targeting what we have called "socially necessaryunproductive labour" provides eloquent testimony to the cogency ofour argument that unproductive expenditures (in both the state andprivate sectors) constitute elements of the constant capital flow. Theyare expenditures that are best seen as "systemic overhead costs" ratherthan as non-profit elements of social surplus value. See also MurrayE.G. Smith, "Unproductive Labor and Profit Rate Trends: A Rejoin-der," Science & Society 58/4 (1994-95).

33. Smith, Invisible Leviathan, p. 136.

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profitability crisis and the erosion of popular …...capitalist world was feeling the effects of a...

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