Low investment is the cause of low growth – surprise!

In its latest economic report, the IMF came to two important conclusions about the state of world capitalism in 2015 (http://www.imf.org/exter…/…/ft/survey/so/2015/NEW040715A.htm).

First, it reckons that global capitalism will remain in a depression. The IMF says that “a large share of the output loss since the crisis can now be seen as permanent, and policies are thus unlikely to return investment fully to its pre-crisis trend”. While potential growth in advanced economies will tick up in the next five years, it will remain well below levels before the financial crisis. Emerging nations will see their potential growth decline over the same period.


In advanced economies, real GDP growth that maximises potential capacity will ‘accelerate’ to an average of just 1.6% over the next five years, compared with 1.3% from 2008 to 2014. But this growth will remain weaker than the 2.3% pace from 2001 to 2007. The IMF economists failed to mention that this 1.6% a year growth was about half the post-war 20th century average. Growth in so-called emerging economies will also drop down.

The second conclusion was that the reason for this slower and crawling growth rate was that there had been a collapse in investment and this collapse was concentrated in the capitalist business sector. Yes, the collapse in the housing bubble in many advanced economies was one reason for the drop in private sector investment, but the collapse in business investment was much greater and long lasting.


The IMF found that business investment in the advanced economies was 13% lower in from 2008-2014 than it expected back in spring 2007 before the Great Recession. For the US, the gap was even bigger at 16% and 18% for Japan. How wrong can you get?

Recently, the Bank for International Settlements (BIS) latched onto the same point – that the Great Recession and the subsequent weak and slow recovery in the major economies was a product of the collapse in business investment, i.e. the fault of capitalism, http://www.bis.org/publ/qtrpdf/r_qt1503g.htm

As the BIS put it: “Business investment is not just a key determinant of long-term growth, but also a highly cyclical component of aggregate demand. It is therefore a major contributor to business cycle fluctuations. This has been in evidence over the past decade. The collapse in investment in 2008 accounted for a large part of the contraction in aggregate demand that led many advanced economies to experience their worst recession in decades. Across advanced economies, private non-residential investment fell by 10-25%”.


But what caused this fall in investment and why is it not recovering sufficiently to restore trend real GDP growth in the major economies? Well, the IMF comes up with a brilliant answer: it’s lack of demand. Capitalist companies are not investing enough because there is a lack of demand for their products. But this answer begs the question: why is there a lack of demand? And it also fails to recognise that the biggest component in the fluctuation in aggregate demand since 2007 has been investment. After all, investment is part of aggregate demand, as the BIS points out.

The IMF’s Keynesian answer is no answer at all but simply a tautology: there is no growth because there is no demand! As usual, the Keynesians have got their causal sequence back to front, see my post, https://thenextrecession.wordpress.com/2013/10/19/the-fallacy-of-causation-and-corporate-profits/.

At least the BIS attempts to look for a cause that is not circular reasoning. The BIS found that “the uncertainty about the economic outlook and expected profits play a key role in driving investment, while the effect of financing conditions is apparently small.”  The BIS dismisses the consensus idea that the cause of low growth and poor investment is the lack of cheap financing from the banks or the lack of central bank injections of credit. We have quantitative easing coming out of ears, with the latest burst coming from the ECB bond purchasing plan worth €1.8trn, or 3% of global GDP over the next 18 months.

Instead, the BIS looks for what it calls “seemingly more plausible, explanation for slow growth in capital formation”, namely “a lack of profitable investment opportunities”. According to the BIS, companies are finding that the returns from expanding their capital stock “won’t exceed the risk-adjusted cost of capital or the returns they may get from more liquid financial assets.” So they won’t commit the bulk of their profits into tangible productive investment. “Even if they are relatively confident about future demand conditions, firms may be reluctant to invest if they believe that the returns on additional capital will be low.” Exactly.

Ironically, the BIS reckons that, whereas investment in the stock market was more profitable for companies than investing in productive assets in the period before the Great Recession, the reverse is the case now. The profitability of capital stock has not risen, it’s just that the stock market is now so expensive that the likely return against stock prices has fallen. And returns on bonds have slumped.


Even so, it seems that companies and financial institutions prefer to hold ‘safe assets’ like government bonds rather than invest in production. So we now have the ridiculous phenomenon of government bonds being bought in the bond market at negative yields i.e’.bought at prices so high that the interest paid on the bond will not match the extra cost of the bond during its lifetime. And this applies now not just to very safe German bonds but even to Spanish and Irish bonds, economies just coming out of major debt crises.

I have attempted to explain before why companies in the major economies are not raising their capital expenditures to levels and growth rates seen before the Great Recession, let alone in the 1990s, see https://thenextrecession.wordpress.com/2013/12/04/cash-hoarding-profitability-and-debt/

The profitability of capital has got to be high enough both to justify riskier hi-tech investment and to cover a much higher debt burden (even if current servicing costs are low).  As I said in my previous post: “The capitalist sector of the major economies has been increasingly hoarding cash rather than investing over the last 20 years or so. It is not investing so much because profitability is perceived as being too low to justify investment in riskier hi-tech and R&D projects, and because there are better and safer returns to be had in buying shares, taking dividends or even just holding cash. Also many companies are still burdened by high debt even if the cost of servicing it remains low; the worry is that if interest rates rise or companies take on more debt, it will become unserviceable.”

The impact of high debt (especially corporate debt) on investment and growth has a long literature and remains controversial (see my many posts on this, https://thenextrecession.wordpress.com/2014/09/30/debt-deleveraging-and-depression/).  But it seems that increasingly confirmed that “high debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.” (The McKinsey Institute, “Debt and (not much) Deleveraging”).  As McKinsey put it in their latest debt report: “Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (see chart below). That poses new risks to financial stability and may undermine global economic growth.”  (https://thenextrecession.files.wordpress.com/2015/02/mckinsey-debt-not-much-deleveraging-040215.pdf).


By the way, my emphasis on the role of credit, debt or ‘fictitious capital’ in the current crisis lends the lie to charges of being a ‘mono-causal’ law of profitability Marxist that I am currently accused of (see https://thenextrecession.wordpress.com/2015/04/02/david-harvey-on-monocauses-multicauses-and-metaphors/).

Now even Paul Krugman, who in the past has reckoned that rising debt is not a problem is prepared to admit its role only today http://krugman.blogs.nytimes.com/2015/04/07/the-fiscal-future-ii-not-enough-debt/.  When arch-Keynesian Brad de Long reckoned that what the US economy needs is not less debt but more debt, Krugman noted that “Unfortunately, the biggest debt accumulations have come in economies that have much lower growth — mainly demography in Japan, productivity collapse in Italy.” , although Krugman reckons that low growth leads to high debt, not vice versa.

Moreover, it is an illusion that corporations are awash with cash at least in relation to their debts, see https://thenextrecession.wordpress.com/2014/03/24/awash-with-cash/.

If it is the case that the reason for the continuing Long Depression in the major economies (defined as below trend growth and below trend investment) is low profitability and still excessive debt, then the situation does not look set to improve. According to JP Morgan the investment bank, usually a super optimist about capitalist economic recovery, US corporate profit margins, i.e. the share going to profit for each unit of production, have been at a record highs, but now they are beginning to fall. “The share of business net value added going to capital, or net operating surplus, has edged down modestly since peaking in 2012. However, the share going to profits, which is essentially net operating surplus less interest payments, has been about unchanged since 2012. Adjusted corporate profits declined at a 5.5% annual rate in 4Q14, the latest available data point. However…we believe the natural progression of the business cycle will begin gradually squeezing business (and profit) margins.”

The recent fall in oil prices and the strengthening of the dollar is really hitting US corporate profits.  Bank America now reckons that average earnings per share for S&P 500 companies will fall this year for the first time since 2009.  And readers of my blog will know that GLOBAL corporate profits are now in negative territory. https://thenextrecession.wordpress.com/2015/03/27/profit-warning/.

But low profitability as a major cause of low investment is studiously ignored by the IMF in its report.

31 thoughts on “Low investment is the cause of low growth – surprise!

  1. A couple of things here. 1) It shouldn’t be a surprise that so much of the fictitious capital went into financial instruments rather than productive capital. Profit is like water in that it will find it’s own level. Water pools at the lowest level and profit at the (potentially) highest, which means that an exotic financial instrument that offers a higher rate of return than a “productive” investment is going to get the first shot at that investment opportunity. And that’s ESPECIALLY true if there is the potential of a taxpayer “bailout” involved for disastrously failed investments in those exotic instruments.

    2) And this is more of a question, isn’t part of that high debt load the QE that’s going on? Even if the servicing costs are currently low, it’s still debt on the books. So wouldn’t the Keynesian’s play with the money supply play a (negative) part in the cleansing of “dead” capital and the restoration of rate of profit?

    Sorry if these are silly observations or dumb questions. Just trying to understand better what’s going on.

    1. Marcus,

      A couple of points.

      “It shouldn’t be a surprise that so much of the fictitious capital went into financial instruments rather than productive capital.”

      It isn’t “fictitious capital” that went into financial instruments. As Marx discusses in Capital III, surplus value is realised as revenues – profit of enterprise, interest, rent (and taxes). A portion of these revenues must necessarily be consumed unproductively by capitalists, landlords and the state to ensure their reproduction, including what they spend in luxury goods.

      Another portion is used for productive consumption, particularly by the productive-capitalists, to fund accumulation of productive-capital. But, a portion is necessarily hoarded as money, which can be used to fund consumption, productive investment, or the loaning of this money-capital.

      What goes into buying these financial instruments is not fictitious capital, but this money. It is the financial instruments themselves that constitute fictitious capital, i.e. financial assets that give the appearance of being self-expanding value, but in reality have no potential to do so, separate from the actions of real productive capital in actually self-expanding via the production of surplus value.

      “Water pools at the lowest level and profit at the (potentially) highest, which means that an exotic financial instrument that offers a higher rate of return than a “productive” investment is going to get the first shot at that investment opportunity.”

      But, the reality is that the rate of return on all these financial instruments has been falling for the last 30 years! The yield on bonds in some cases is even negative! Yields in stock markets are very low, and rents are also low. That is because the loanable money-capital referred to above, and as Marx describes in Capital III, where he discusses rent, and the fact that land itself becomes a regularly traded commodity, can move from shares, to bonds, to land in search of the highest risk adjusted yield, and so it gets pushed down to the same low level in each of these asset classes.

      The reason speculative money is flowing to these financial assets – including property – is not because they offer a higher rate of return than does investment of capital in productive activity – plenty of which has been happening anyway – but that the speculators have been far more concerned with the potential to make huge capital gains, rather than to obtain income.

      That can be seen in the huge numbers of new expensive property blocks developed in London, which lie empty, because the speculators that have bought a share of them, are only interested in the capital gain to be made from them, rather than any rent they might obtain from tenants.

      Its in that context that the QE, and the so called “Greenspan Put” going back to the late 1980’s (after the 1987 crash) is important, precisely because it has underpinned those capital gains, but which is also behind the fall in yields as the asset prices have continued to soar, but the potential to increase the interest paid (dividend, coupon, rent) on those financial assets has risen much more slowly.

      It is actually almost identical to the situation that Marx and Engels describe in Capital III, in relation to the 1847 Financial Crisis. Engels describes how the long wave boom that began in 1843 had led to a massive expansion of profits, in a huge rise in productive investment, and yet the rise in realised profits was so great that it could not all be immediately used, so it pushed down interest rates and encouraged speculation.

      In particular, it encouraged speculation in Railway shares. The actual dividend on railway shares was pretty low, compared to the rate of profit on productive investment, but speculators only saw the huge rise in share prices. As Engels describes, despite the high rate of profit they were making on their productive activities, firms even drained their working-capital so as to borrow money for speculation in railway shares.

      Until that financial bubble burst. However, as engels points out, once that bubble did burst at the end of 1847, it created the conditions for money to flow into productive investment, and ensured a rapid recovery and continuation of the economic boom, which ran until the mid 1860’s.

      1. “What goes into buying these financial instruments is not fictitious capital, but this money. It is the financial instruments themselves that constitute fictitious capital”.

        This is an important point and one of confusion. The original source can only be ‘real’ money capital created elsewhere, ultimately as a portion of surplus value. The ‘fictitiousness’ is the claim of this capital on future profits that may never appear. This problem is grossly compounded by speculation and the creation of increasing obscure financial instruments, as in 2008. Here, the motivation of financiers is to extend the (non) paper chase and as the degree of indirection rises, it becomes impossible to determine if the original money capital has been successfully employed or not.

      2. Graham,

        I wouldn’t say it is the “only” source, but it is the major source of increase in real terms.

        So, for example, another “source” is the existing stock of fictitious capital. If there is $1 trillion of share capital in circulation, the individual owners of these shares can sell the shares they own in order to buy others they do not, or they can sell in order to buy bonds, or land, or simply to provide deposits used as loans.

        That applies to each of these financial asset classes. It does not provide any increase in the money circulating from one asset class to another, but so long as it remains in that circuit, it provides one source of demand.

        In terms, of other “sources”, credit, and money printing provides another, but this does not create anything other than an inflation of the prices of these financial assets. In fact, as I’ve written elsewhere, if the effect of this hyper inflation was taken into consideration, and its effect on workers inflation would be seen to be much, much higher.

        Property prices have rocketed, but this is not reflected in workers living costs, and the same applies to rents, which have risen sharply because of the rise in property prices (before anyone points out that I said above that rents are low, that was in terms of rental yields not absolute rent levels).

        The rise in share and bond prices means that workers regular pension fund contributions buy far, far fewer of them each month, so the quantity of them in their funds does not rise as fast as it did previously. That should have been compensated by higher wages to cover higher contributions or higher employed contributions into those funds, but it hasn’t.

        The bourgeois interpretation is that higher share and bond prices increases the actual value of the fund, but pensions are paid out of the revenue earned by the fund, not from capital sales. The other interpretation is that this higher capital value means that the income from the fund will then be higher, which simply shows that bourgeois economists do not understand why this capital is fictitious. They see the interest it earns as being some kind of natural quality of money-capital, rather than something derivative from the production of surplus value by productive capital.

        The other source, (besides some degree of primary accumulation of money-capital as Marx describes in relation to the pooling of small saving into bank deposits) is indeed, as you say that, which comes from surplus value.

        Marx makes clear in Capital III, (I think Chapter 49) that accumulation does not come from profits. Rather profit is the particular form in which one portion of surplus value is realised – the others being interest, rent and taxes. It is only when the surplus value is realised in the various forms of revenue that it becomes allocated to its particular uses in the form of money revenue or money-capital.

        I’ve set out elsewhere why the fall in the price of oil has a significant effect for financial markets, because a lot of oil revenue is appropriated by the recipients of rent, who traditionally use their revenues for unproductive consumption, speculation, and to simply pump large quantities of loanable money-capital into global money markets, thereby pushing down global yields, and pushing up financial asset prices.

        I’ve pointed out the extent to which, for example, the Norwegian Sovereign Wealth Fund, which is funded out of Norway’s oil revenues plays a significant role in that respect. As Marx describes, where surplus profits are made, this gives rise to rents, and this represents a drain of surplus value from elsewhere. High oil prices over the last period have created such surplus profits, and high rents.

        With oil producers now often becoming borrowers from global money markets, rather than huge net contributors to them, that has significant consequences for global interest rates and financial asset prices.

      3. Graham,

        I may have misunderstood what the “‘real’ money capital” created elsewhere was a source of, that you were referring to. I took it as meaning the source of demand for this fictitious capital, and hence my reply above.

        If you meant that it is this “‘real’ money capital” arising as a realisation of a portion of surplus value, which forms the revenue that is paid out as dividends, coupon, interest, and rent then that is absolutely correct.

        That has undoubtedly grown in huge proportions over the last 30 years, but not in such astronomical proportions as the rise in the prices of various forms of fictitious capital – for example, the 1300% rise in the Dow Jones between 1980-2000, compared with a 250% rise in US GDP over the same period.

      4. Yes Boffy, as in your second post here. It gets worse when people slip from ‘fictitious capital’ into ‘fictitious profits’ – that don’t exist.

  2. I should think that productivity will increase just because scientific and technological advances will flow into the industrial production process. Maybe, output per hour of labour won’t increase as quickly as in the past, but it should increase, no?

    With productivity increases, the rate of profit per commodity sale declines. So, more commodities must be sold in order to maintain and lift total profits. The dilemma, it seems to me is that with the call for austerity from the IMF and other representatives of the capitalist class, you get a shrinking market to sell into because declining social wages.

    The contradiction is clear. Workers can produce more and more wealth, but capitalists have less and less incentive to invest in employing them to produce wealth which cannot be sold. Thus, they squirrel their already realised capital in bonds, cash and perhaps real estate in certain parts of the planet.

  3. Dear Michael,

    I asked you a question, another day, but you did not see or though it was not worth answering, I will post it again:

    “I think there is a considerable part of the fixed assets do not constitute its real price. The reason it is that the price of the assets, as they were originally sold, were not realized in terms of law of value, since the money originally paid for it was not money but, non cancelled credit in fractional banking. Note that the amount of credit since the counteracting factor started, has been growing a lot.

    So, perhaps there should be a way to actually subtract from the fixed assets part the non realized price? I think this would reflect better the actual marxian rate of profit.”

  4. You may want to check out Mian and Sufi’s analysis of the crisis. Unlike Marx, they argue that consumption was not at its height before the downturn but already falling due to deflation of housing bubble and the drawing on equity, that being the reason for the downturn in the real economy.

  5. Michael,
    There is one thing that puzzles me regarding your argument here and in many other posts. I find it very convincing that low profitablity is the key reason for the crisis and the low growth we have now.
    But in a way all this effort to argue and show THAT low profitablity is the key reason only opens up another, apparently more difficult and important question: WHY is profitablity so weak and low? Unless this question is answered, it appears to me, not much insight is won.
    Now, of course there are many reasons presented why profits might be low, e.g. weak demand (Keynesians), industrial overcapacity (Brenner), high or growing organic composition of capital, maybe more reasons.
    Mostly, I find it convincing but also a bit unsatisfying and too easy to say that all these factors did play a role but it’s very hard to say to what degree.
    I would be very interested if you are or other readers of the blog could expand on this. Thanks

    1. MR would argue that it is a result of the LTRPF (it’s inevitable), and that things are particularly bad at the moment because we’re still reeling from the ’08 financial crisis and another bubble (blown by central banks over the past couple years) is about to pop.

  6. “But low profitability as a major cause of low investment is studiously ignored by the IMF in its report.”

    There could be a reason for that.

      1. But why is there really overaccumulation? Why are there not enough profitable investment opportunites?

        What relative importance have the different factors that are debated?

      2. That’s probably another discussion. But where is the correlation (never mind causality) when profit measures have only recently turned down from a high point in the US whereas investment has been relatively low since the Great Recession (and even before).

      3. MR’s assertion is that profitability is the key driver of investment. Investment is low because profitability is low. I think investment is low for another reason – relative surplus value via cost cutting.

      4. It depends on the phase of the cycle.

        In Value, Price and Profit (Marx relates the same condition in Capital III, Chapter 15) Marx describes the situation where profits, were low, in agriculture during the period from 1849-59, because this was a period of boom, with high levels of demand for labour – particularly agricultural labour – pushing up wages.

        “Take, for example, the rise in England of agricultural wages from 1849 to 1859. What was its consequence? The farmers could not, as our friend Weston would have advised them, raise the value of wheat, nor even its market prices. They had, on the contrary, to submit to their fall. But during these eleven years they introduced machinery of all sorts, adopted more scientific methods, converted part of arable land into pasture, increased the size of farms, and with this the scale of production, and by these and other processes diminishing the demand for labour by increasing its productive power, made the agricultural population again relatively redundant. This is the general method in which a reaction, quicker or slower, of capital against a rise of wages takes place in old, settled countries. Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height, but the appliance of machinery is but one of the many methods for increasing the productive powers of labour. The very same development which makes common labour relatively redundant simplifies, on the other hand, skilled labour, and thus depreciates it.”

        As I have demonstrated elsewhere, this is the typical response of capital in the Autumn phase of the long wave, when capital has expanded on an extensive basis, using up supplies of labour-power, during the Summer phase, as was the case here described by Marx.

        It means that there is a push for innovation to develop such new technologies to save labour, and thereby create a relative surplus population.

        But, we have only just entered a Summer phase. We are at the stage of extensive accumulation of those new technologies developed in the last innovation cycle of the 1980’s. Part of the reason for apparent low levels of investment is precisely as Graham says, that the new industries developed benefit from the huge rise in productivity stemming from the last innovation cycle, which has reduced the value of constant capital, but also because many of the new industries developed rely much more on the employment of relatively large amounts of complex labour, rather than constant capital.

        I’ve described that elsewhere. For example, a modern mobile phone uses far less materials than does a 1980’s land line, not to mention such devices perform the functions of other devices such as computers, cameras and so on. But, service industry naturally relies on the employment of labour rather than constant capital.

        The reason capital investment is likely to rise from here is that firms need to roll out on an extensive basis these new technologies, whereas until now the accumulation has been intensive, and because much more investment will now need to be put into developing alternative products, in order to retain market share.

        There are after all only so many customers who can be gulled into thinking that a different colour case for your iPhone constitutes something new.

      5. “I’ve described that elsewhere. For example, a modern mobile phone uses far less materials than does a 1980’s land line, not to mention such devices perform the functions of other devices such as computers, cameras and so on. But, service industry naturally relies on the employment of labour rather than constant capital.”

        That’s a swell claim. Any numbers to back it up? Like the value of the capital deployed in the back officer servers, the 4G networks, the antenna arrays, etc. etc. etc.? Any numbers on the proportions, the changing proportions of variable capital to the constant capital employed in the telecom industry?

        “The reason capital investment is likely to rise from here is that firms need to roll out on an extensive basis these new technologies, whereas until now the accumulation has been intensive, and because much more investment will now need to be put into developing alternative products, in order to retain market share.”

        You wanna bet? Capital spending is likely to rise from here? Rolling out these technologies on an extensive basis? What technologies are those? Horizontal drilling? 25% reductions in oil and gas capital spending are expected.

        Flat panel displays? There’s nothing there that hasn’t already been rolled out on an extensive basis?

        What new technologies are expected to be rolled out and where do we find any predictions for increased capital spending, based on industry budgets? On this planet, as opposed to planet Boffy?

    1. Graham,

      I should also have highlighted the other aspect of this, which I have pointed out elsewhere.

      Global oil consumption rose from 63 million barrels per day in 1980, to 85 million barrels per day in 2006. That is an increase of 35%. But, between 1980 and 2012, Global GDP increased from $18.8 Trillion to $71.8 Trillion (1990 dollars). That is an increase of 282%! Even allowing for the 6 years difference in periods that means that global GDP rose by around seven times the increase in oil consumption. That is also despite the huge growth in the number of cars in places like China, which is now the biggest car market in the world. The reason that oil consumption has increased by only a fraction of the increase in global economic growth is because huge advances have been made in the efficiency of oil use. That is why in the 1970’s a four fold increase in oil prices sparked a global slump, but from the late 90’s a ten fold increase in the price of oil did not.

      This phenomena can be seen in a range of industries, and as Marx points out, this also results in a release of capital. The same rise in productivity that is behind these changes, also brings about a significant rise in the rate of turnover of capital, which thereby creates an additional release of capital, and rise in the annual rate of profit.

      Elsewhere, I’ve pointed to similar phenomena. For example, take music. Forty years ago, to purchase 20,000 records involved the music industry in large scale capital investment in recording equipment, pressing equipment, in transport to get records sent to record shops, it required vast amounts of capital to be employed in bricks and mortar to build record shops to store all of this material. Now, far more than 20,000 records can be stored on a small memory stick, and there is no need for any constant capital to be tied up in record shops, vehicle fleets, or vinyl for records, because any piece of music can be bought, received, and paid for more or less instantaneously over the internet.

      1. The bio-technology and genetics industry also gives another example of this process, and the difference between intensive and extensive accumulation.

        The first decoding of the human genome required huge amounts of capital and labour-time. But, the development of computing power, facilitated an intensive accumulation of capital that reduced the labour-time required by a phenomenal amount. It also massively reduced the value of the constant capital required for this process. The original process cost many billions of dollars to decode a single genome. Now it costs around $1,000 per genome.

        The first application of this technology was a good example of intensive accumulation. There was not much of it, it was only employed by one private firm, and by the state. It massively reduced the labour-time required for the task.

        However, although further developments of technology mean that the cost of the constant capital required is likely to fall further, and the labour-time required to perform the function is likely to decline further, the additional reductions are likely to be less pronounced than they have been, as the major gains have been achieved.

        What we now see, is a growth of accumulation on a more extensive basis, because what we see is more firms entering this space, and the application of the technology on a wider basis. So, we now have a number of firms being established that offer DNA testing, for example, so an existing technology that was introduced as part of intensive accumulation to be labour-saving, becomes a technology that is rolled out more generally as part of a period of extensive accumulation, which, thereby results not in an absolute and relative reduction in labour, but which results in an absolute increase in labour employed, as new industries are developed on the back of it, and the demand for the products of these industries rise.

        The other example, was in relation to the motor car industry in the past. Mass production techniques reduced the price of cars, by raising productivity, and bringing about a relative reduction in the labour employed. That was intensive accumulation, because it was labour-saving. But, the lower price of cars, also meant that larger sections of the population could then afford to buy them.

        Accumulation then became more extensive, because although no new technologies arise that immediately raise productivity, to replace labour, the higher level of demand requires more of the same machines and capital to be rolled out to satisfy it.

      2. In fact, this last point “the higher level of demand requires more of the same machines and capital to be rolled out to satisfy it” is one reason that the policies of austerity, and other factors causing uncertainty about the potential growth of demand, because no matter how high the rate of profit, particularly oligopolistic firms will not undertake billions of dollars of investment, if they do not see the likelihood of rising demand to make additional supply worthwhile.

        As Andrew Kliman rightly says,

        “Companies’ decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)

      3. “but from the late 90’s a ten fold increase in the price of oil did not.”

        What ten fold increase in the price of oil? Oil dipped at one point, 1998, to $10/barrel. OPEC intervened around 1999 and the price moved upward into the $30 per barrel range.

        A recession that took place in 2001.

        In 2002, the price dipped back to $20 per barrel, and we all know what happened next. The (45 gallon) drum beat of war against Iraq, pushing the price of oil up 7 fold by 2008 and leading to…. guess what? The Great Recession.

      4. With the idea as after all it would never happen in practice that Iraq would become an oil colony, helping the US recover from having an ailing dollar. All was going according to plan, they even managed to get Japan to shut down its nuclear industry and what happened next? Iraquis didn’t play ball. So now US presence is waning in a series of Arab countries and eventually the lost cold war order they created based on Israel, Saudi, Egypt, Syria and Iraq has come crashing down.

  7. I am not an economist and I do not know why but i get the impression that a great war is the only solution for the problems of global capitalism today. This is the best solution for excessive capital to be destroyed, leaving room for the rest to be quite profitable. Investment will thus increase, giving birth to a new “golden era” of growth and economic development like the 1950s and 60s. After all that was the way global capitalism revived from the depression of the 1930s.

    1. There can’t be a great war. Civil wars yes. The old imperial powers e.g. G7 can’t give weapons to their people to start invasions. Won’t happen. We are not in 1914 or 1939. Imperialism is now unified and global. It has a pair military and paid para militaries. In alliance with local quislings e.g. Kabul, Baghdad, or Kiev politicians it intervenes. But the costs of all these interventions has bankrupted them…

  8. Value is destroyed over time. More producers enter the market making profit in general lower. Kodak made cameras then employed thousands of people. Then digital cameras came along employing far fewer making whole process easier and cheaper. Now even they are out of the window as most people use mobiles which have become mini computers.

    As for Boffys comments that property developers make money by keeping places empty, that is because London is money laundering central. There are 30k property companies offshore that buy property to legalize their investments no questions asked then they remortgage and export the same amount in cash. With 15% per annum or more increase in the value they can service the debt on an interest only basis. With foreign (ie non EU-US) passports if it all goes belly up they can ride off in the sunset and we are left with the Lego houses.
    This hyperinflation in property linked to banks and electronic money printing subsidising all the world’s crooks is the only game in town and politics is reduced to serving its needs.

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