Monthly Archives: October 2014

How profit killed capitalism and why the super rich can’t afford to pay tax


It sounds strange doesn’t it to hear it suggested that a system based on profit has become the victim of too much of the stuff? Even stranger to be told that the richest people on the planet cannot afford to pay tax? But here is how and here is why.

Let’s start with an examination of profit. A worker sells their labour power, their ability to work, to the employer and is paid a wage in return. The unique thing about the commodity labour power is that when deployed it produces more exchange value than it costs. This surplus value is appropriated by the capitalist when he sells the commodities that the worker has produced. When you deduct the capital invested in constant capital (plant, machinery, energy, buildings, etc) and that invested in variable capital (wages) from the income the capitalist gets selling the commodities sold you are left with the profit. This is the capitalist’s sole and only motivation for investing in production.

It follows, then, that the more additional labour power contained in the commodities produced after accounting for constant capital the bigger the surplus value stolen by the capitalist and the bigger therefore the profit.

Capitalism is in constant competition with itself which drives the capitalist on a restless search to reduce costs which he does by replacing workers with machines. The unintended consequence of this is that the amount of socially necessary labour power contained in the soon to be sold commodities is reduced and so, therefore, it naturally follows, is the amount of surplus value that the capitalist can appropriate. The rate of profit on these particular commodities falls as they get cheaper. Just as in the production of a particular commodity the rate of profit is determined by the surplus value stolen by the capitalist so it is the case with the system of commodity production as a whole so that capital is driven to move around looking for the best returns and in so doing establishes a general rate of profit. Over time this general rate of profit declines.

Of course, there are counteracting phenomena that sometimes temporarily reverse or arrest this decline such as when the constant capital needed to produce a commodity cheapens against the variable capital increasing the amount of socially necessary labour power in each commodity compared to the plant and machinery. These counteracting phenomena means that the law of the declining rate of profit manifests as a tendency but the law is far stronger than the counteracting phenomena that make it a tendency and it tends towards a rate of zero. Imagine if there was no labour power being bought and sold but that robots made everything including the robots that made everything. Under these circumstances with no surplus value to appropriate the general rate of profit would be zero. Under those circumstances the capitalist would have no reason to invest and production would come to a shuddering halt.

Of course things will never get to that point. They system will collapse around its ears long before that.

The same competition that drives rising productivity also leads to concentration and monopoly. Global output today is truly colossal and the investment contained in the non-human means of production just to churn that out every year is equally colossal. Finding that is hard enough but growing it by even a quarter of one per cent requires huge amounts of wealth.

At base of course capitalism is a political economy with workers and capitalists engaged in a daily struggle for survival and this is what makes the problem of declining general profit rates a problem for the capitalist because without growth he cannot give ideological disguise to the system of wage slavery and pretend that he is acting not in his own self-serving interests but for society as a whole. Divide and rule is not so easy and requires more and more naked violence. So, in order to avoid the consequences of the declining rate of profit Messrs Capitalists attempt to compensate themselves by increasing its mass. They churn out more and more and more of whatever particular commodity they are involved with.

The profits the capitalists make today are indeed eye-watering in terms of numbers but they are made from a more or less stagnant economic base and compared to the investments needed they represent a very meagre return for the system as a whole. The capitalists have tried everything over the years to mitigate this problem from colonialism to Victorian philanthropy to imperialism to scorched earth to financial de-regulation which resulted in the most spectacular Ponzi Schemes the world has ever seen organised by the world’s financial centres lasting 30 years and finally exploding in 2008 leaving the global capitalist system not just stagnant and sclerotic but bankrupt as well.

Nothing has been able to prevent capital concenration and monopoly and arrest the fall in the rate of profit such that today some 85 individuals control more personal wealth than 3.5 billion individuals and a handful of corporations rule the world. The Egyptian Pharaos would have blushed.

But it gets worse because now the austerity that capitalist governments are piling on the poor and working class to bail out the banks and which is adding to the shrinking of the world economy is being added to by the monopoly profiteering of the enormous corporations who in order to keep their profits up are selling commodities above their value which means that others in a weaker position must sell theirs below their value and this is adding to the monopolisation of the means of production and the shrinking of overall economic activity. It is a perfect storm indicating the end of capitalism’s life. In order to make any kind of profit the amount of capital required is truly huge but by making more profits the corporations are destroying the economic activity they need to make those profits.

Millions of non-workers live off the surplus value created by the working class which helps the tiny elites at the head of capitalism to control the general population and propogate its ideology. This largesse comes to them in all manner of ways but mainly through the capitalist state and the taxes it levies on capitalist profits. But now, with profit rates tiny and monopoly so advanced the capitalist class cannot afford for their capital to be eaten into by taxes or they will be gobbled up by their competitors. This addes to the bankruptcy of the state and drives austerity.

So there we have it the super rich cannot afford to pay taxes and profits are destroying the profit system. The result is that the capitalist system which became truly globalised under US tutelage is going into rapid reverse and decline. Politically the system is reverting to five or six squabbling great powers intent on redividing the world as America buckles under the strain. It points to a New Dark Ages and a regime of global barbarism from which we might never escape.

Our only hope is that world proletarian revolution will transcend capitalist globalisation and take human kind into a new phase of its existence. Control of the distribution of the surplus value created by the working class will pass to the working class itself until there are no classes and no states.