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Surplus Absorption, Realization Crisis, and Imperialism

February 5, 2017

By DAVID GILBERT

David Gilbert, a political prisoner held in New York State since 1981, wrote the following text in 2015, examining the the ways in which capitalism is confronted by, and contends with, crises in surplus absorption and realization, in the imperialist age.

David was not entirely satisfied with this text in the end, however here at Kersplebedeb i thought it actually was pretty thought-provoking and useful, so he agreed that i could put it online, which is what i am doing. For more information about David, including his contact information, please click here


 

Synopsis

Left authors often describe various political developments as resulting from the economic imperative for “surplus absorption”—without much further explanation. This paper seeks to ground that phenomenon more explicitly in mature capitalism’s chronic and mounting “realization crisis”—the difficulty in selling what’s produced, at least at the expected price. There are two main reasons for developing this analysis: 1. This approach emphasizes that whatever wasteful methods capitalism generates, the system still totally depends on the exploitation of labor, especially on the high rates achieved through imperial expansion and through women’s un- and under-waged work. 2. Highlighting such realization costs provides one indication of modern capitalism’s colossal wastefulness, politically critical in an era when environmental destruction has become an urgent front-line struggle.

Introduction

When writers on the Left refer to economic drives and contingencies behind various political changes, they often cite the compelling need for “surplus absorption.” That formulation draws on Paul Baran and Paul Sweezy’s seminal 1966 book, Monopoly Capital, and also on many subsequent essays in Monthly Review (MR) magazine. Monopoly capitalism generates vast profits which are difficult to profitably re-invest due to a chronically stagnant economy. That problem within what was called “the industrialized countries” led to a mushrooming of certain sectors that previously were not seen as productive: the frenetic sales effort, the military industrial complex and many other state expenditures, the burgeoning of the financial sector. Their analysis, among other contributions, underscored the wastefulness of modern capitalism, along with providing an early alert about the dangers of the dizzying upward spiral of financial speculation.

Yet there’s a problem in how this analysis has been used by some writers in citing “surplus absorption” without more careful and detailed analysis. By itself the phrase can conjure up an image of simply disposing of the surplus in any old way—even in economic boondoggles or perhaps dumping it in a hole in the ground. In contrast, we need to be clear that for capitalism the compelling drive always is to make a profit, which entails exploiting labor along with, in a stagnant economy, finding ways to sell goods and services in order to realize the potential profit embodied in the results of earlier labor. This overriding need to always create and reap more profits makes the continued imperial expansion, with its very high rates of exploitation of labor and the extraction of resources, crucially important. (In addition to direct, poorly paid workers, imperialism extracts value from the global South’s small farmers and agricultural workers whose products sell on the world market for way below the value of the labor that went into them.) Similarly women’s unwaged labor in the domestic sphere to cheaply raise the next generation of workers (and thereby lowering the subsistence wage), along with their under-waged labor in social production, is also crucial. A major development in the current “globalized” stage of imperialism is the creation of hundreds of millions of workers in the informal sectors. E.g., a family may scour a garbage dump, despite the high toxicity, to find items that can be re-sold. Analogous to domestic labor, those cheap recycled goods can lower the survival costs for wage workers.

What’s crucial here is that stagnation does not eliminate but rather heightens capitalism’s compulsion to exploit labor. At the same time the increasing portion of society’s efforts that goes into realization, to finding ways to sell previously created products rather than create new value, is one measure of how scandalously profligate modern capitalism is, a major factor hurtling humanity toward the cliff of multiple ecological catastrophes, most dangerously global warming.

This paper is an attempt to re-root surplus absorption in realization crisis and thereby highlight the relationship to imperialism, the oppression of women, and the exigent environmental crises. First, though, I want to offer a brief personal note and then a word on method.

Personal Note

In the late 1960’s my analytical work focused on imperialism, consumerism, and growing waste in the economy. Baran and Sweezy’s Monopoly Capital was a welcome advance. At the same time I wanted to develop an analysis that closely related growing waste with the imperatives of imperial expansion. But by the late 1960s, the high tide of struggle in the streets, and then my joining the underground resistance in 1970, meant that I never fully developed, let alone wrote up, my approach. I haven’t returned to that type of work since. Some 45 years later, without ongoing study of the literature, I obviously can’t offer any rigorous exposition of what’s commonly called “Marxian economics.” (I use quotes because for Marx economics can’t be neatly separated out from the broader relations of production and the class and social struggles they engender.) Nonetheless, recent examples I’ve seen of using “surplus absorption” in isolation have led me to feel it might be useful to engage some of the broad concepts involved. My following word on method argues for a framework that avoids narrow economism.

Method

To me, the best starting point for analyzing a society is Marx’s “the sum total of the relations of production” (from the Preface to A Contribution to the Critique of Political Economy). He focused on, but did not reduce it to, wage-labor and capital, which were playing an especially dynamic role in the Europe of his day.

But we need to be clear that capitalism also subsumed the preceding foundation of patriarchy, using that to impose the massive exploitation of women’s un-waged reproductive labor (caring work), as well as lower pay for women in jobs. Homo- and trans-phobia have been key means for building and enforcing patriarchy, along with terribly pervasive violence against women. Imperialism, with its super-exploitation of the labor and resources of entire nations and continents, including the internal foundation of white supremacy in building and structuring this country, is a completely central and defining relation of production. And while I’m not sure exactly how to put it, ecology, imperialism’s rapacious plunder of humanity’s common wealth in nature, is also critical to defining today’s social and economic reality.

The validity of the following analysis does not depend on accepting my exact formulation above, as long as there is broad agreement that patriarchy, capitalism, imperialism and ecology are all of crucial importance and, while overlapping in many ways, not completely reducible one to the other. This paper doesn’t attempt to develop a comprehensive analysis of the economy as shaped by that set of relations, but rather that’s the context for examining the particular issue of surplus absorption.

A Few Building Blocks

People familiar with Marxian economics have undoubtedly seen the famous formula for the rate of profit, s/c+v. The rate of profit is of crucial importance because the only reason that capitalists invest is to make a profit. If the rate goes down for a company or for an entire industry, that will deter new investment and new economic activity in those areas. If it goes down for the economy as a whole, investments could dry up, leading to an economic contraction and even a depression. Marx created this formula as a way to show a powerful and disruptive tendency in the capitalist economy. Subsequently this formulation has been terribly misused as a kind of talisman directly precipitating economic crisis.

“v” stands for variable capital, the wages the capitalist pays to workers. “c” is constant capital, the investment in producer goods such as plant, equipment and raw materials.

Constant capital has been purchased at a price that covers both the wages of the workers who made it and the profits realized when it was sold. The new profits generated, “s” for surplus, come from the difference between what the workers produce and what they receive. Thus, s is directly proportional to v, but capitalists strive to make that ratio of exploitation as steep as possible by minimizing wages. s/c+v gives the overall profit rate, but not for each particular firm since those with market advantage extract some surplus from weaker ones; landowners and financiers also appropriate a portion of surplus. But it does give what will be the average rate of profit for society as a whole.

A contradiction arises from how c becomes disproportionately larger as capitalism develops. Each unit is compelled to “accumulate, accumulate, accumulate” (to quote Marx) on pain of extinction, especially to invest in machinery that raises productivity. The first firm that does so can make bigger profits by underselling competitors, some of whom will go under while others manage to catch up. After a while the industry as a whole evens out at a new level of constant capital, productivity and price; but, these dynamics entail a major increase in c. Since s is proportional to v, a growing c with all other things being equal would make s/c+v go down, for a falling rate of profit.

Unfortunately many Marxists parlayed this into an iron law that led to inevitable depressions. Marx himself, as a historical materialist, understood that the contradictions of capitalism got fought out in the arena of class and related political struggles. The rate of profit and the state of the economy depend on a number of factors like the length of the working day, battles over wage levels, new areas for exploitation, wars, and more.

Nor did his economic analysis hinge solely on s/c+v. There are many possible counter-tendencies. A key one, as it turns out, is that increases in productivity can mean that a smaller portion of what workers produce can be adequate for their survival and continued ability to work; thus, the rate of exploitation can go way up. To take a striking example, the mechanization of cotton production in California meant the labor that went into producing a bale of cotton went down from 423 hours in 1940 to 26 hours in 1960. This means a lot smaller proportion of labor time—or the wages needed to cover that—is required for workers to buy the clothes they need. While c continues to grow, s/v isn’t static and might rise at an even greater pace, keeping s/c+v high.

Other tensions, however, can create contradictory pressures. In Vol. II of Capital, Marx devoted considerable attention to the two main departments of production: I. — goods and services that go into production; II. — goods and services for final consumption. They have to complement each other in proper proportion for supply and demand to balance and to afford the basis for continued economic growth. But there’s a problem, a contradiction between what capitalism needs in production and what it needs for consumption. In production the capitalist seeks to maximize profits by minimizing labor costs, or v. But on the consumption end the vast majority of goods are purchased by the working class. Sure, the bourgeoisie is known for lavish luxury, but when you’re worth, for example, $30 billion, even buying 1/2-dozen mansions doesn’t make much of a dent. The capitalists accumulate such vast wealth mainly for purposes of investment. The working class and poor constitute the vast majority and are the main source of consumption.

On the production end the capitalists are hell bent to minimize wages, but on the consumption end it’s hard to sell all that’s put out, especially as productivity rises, with wages so constricted. There are conceivable mathematical solutions, but they don’t work in practice. The capitalist could invest almost all their profits into making new producer goods, but such investments lead to more consumer goods, already hard to sell. They could keep consumption apace by passing on all productivity gains to the workers in the form of higher wages, but they won’t do that because of the impact on class struggle. Workers who are that highly paid would be in a position to take time off or readily quit a job they didn’t like, thus undermining the class discipline so essential to continued exploitation.

This growing tension means that capital is caught in a kind of scissors, closing down as productivity rises, where moving away from one blade pushes them closer to the other. If they lower v to raise their profits, they have trouble selling enough consumer goods; if they raise v to boost consumption, they threaten profit and class discipline. Even this “scissors” isn’t any kind of inexorable iron law, but it does help illustrate capitalism’s instability and can be a catalyst for a range of class and social struggles.

In early, competitive capitalism when new productivity led to lower prices, economic crises often started with declining profits.
With the development of monopolies (really “oligopolies” with a few giant firms dominating, which leaves some aspects of competition) that can keep prices high, problems of selling all that was produced at the expected price became endemic. Thus capitalism’s mania to increase productivity at a faster rate than wages leads to “overproduction”—not in terms of human needs but rather for what a constricted market will bear for the products offered.

Historic Stages

Capitalism, with its compulsion to accumulate, is a system that powerfully channels society’s resources toward the rapid expansion of the means of production. For society that means—or meant 200 years ago—new factories and more powerful machines and processes.

Without at all forgetting the brutal human costs and the now accumulating environmental dangers, we can recognize that the drive to accumulate played a certain role in increasing the means of production. (Even in the attempt at a noncapitalist route to rapid industrialization in the Soviet Union, Stalin ruthlessly pushed to maximize the portion of value that went into developing means of production.)

That channeling of resources plays a partially productive role when infrastructure is being newly constructed. It takes a lot of capital—even before any consumer goods come out—to build a factory from scratch or construct a network of railroads to transport those goods. Capitalism is still uncoordinated and unstable, but the maximizing of investment does not directly lead to overproduction.

However, once that basic infrastructure is established new investment more immediately leads to new output of consumer goods; at this point the drive to minimize wages, restricting what working families can buy, becomes a crimp on what can be sold, thereby limiting the outlets for new, productive investment. That leads to stagnation, a chronic slowing of growth. As MR has elucidated often and so well, monopoly capitalism has a long-term and growing tendency toward stagnation.

Some economic historians mark the period of 1870-1900 as when the basic infrastructure was built. That makes sense to me because this period was the takeoff point for some major, structural changes: 1. Oligopolies became dominant in the economy. 2. Government and its role in the economy expanded qualitatively, in part to maintain standing armies but also with other expenditures to help bolster demand. 3. While capitalism always depended on the plunder of the global South, the form changed, as outlined by Hobson and Lenin, to center on finance capital and direct control of the subject economies. That need engendered fierce inter-imperialist rivalries leading to world wars. (Imperialism has in many ways entered a new stage since the 1970s, which I won’t address here. The above changes that started with mature capitalism are part of what has led to a new stage and continue to create mounting problems of surplus absorption today.) 4. The sales effort moved from a minor complement to production to becoming a major sector of the economy, leading to today’s giant scope of advertising, style changes, planned obsolescence, the manipulative creation of pseudo-needs, and the proliferation of luxury items. 6. Finance began its transformation from a small adjunct of production to becoming the largest, most dominant sector.

Surplus Absorption / Realization Crisis

Mature capitalism means that the system’s compulsion to maximize investment generates chronic stagnation. Economic tendencies are not fixed inevitabilities, and there are possible counter forces. For example Baran and Sweezy point to the impact of an epochal new invention, like the automobile, which can stimulate massive investment in new infrastructure such as roads. But such a stimulus is very unusual; even computers today do not call for such massive new infrastructure, and stagnation tends to be chronic and growing.

Thus the greatly increased rate of exploitation, a rising s/v, promises greater profits, but they can’t be realized due to constricted consumption, creating a growing problem of surplus absorption. Here, “surplus” is not the same as the total of surplus value created by exploiting labor, but rather the portion of the latter that can’t be reinvested productively. Still, from the capitalists’ point of view the only thing that matters is how to make a profit. Even parasitic sectors can’t snatch profits out of thin air; the surplus value had to be created somewhere. The capitalist imperative to maximize profits requires either the creation of new value or at least a recouping of surplus value created by social labor but not realized if the goods can’t be sold at the expected price. To me, realization has become a core problem within the centers of imperialism, one that has driven the explosion of waste in the contemporary economy.

How do we define “waste”? Here we’re not delving into the (completely apt) critique of capitalism’s totally backward social and environmental character. Socialism will be qualitatively different in that production will be determined by (democratically decided) use values—what’s useful to human beings—rather than the current basis of exchange values, what can sell for a profit. Here though, for the more limited purpose of highlighting some internal contradictions and the historic decadence of capitalism, I’ll define productive as all that contributes to future production. That very much includes the goods and services needed to reproduce the work force, to provide for their lives and ability to work and to raise a new generations of workers. (Today such consumption is also intertwined with much that is wasteful or even harmful.) Luxury goods and services for the bourgeoisie or other nonworking classes are not productive, even when provided by a company making a profit.

Waste

Many authors would argue that the old distinction between productive and non-productive labor no longer applies in our post-industrial economy. After all, finance, advertising, and military industries are some of the most profitable sectors today. Also, it becomes increasingly difficult to separate out the categories. Workers need footwear—but that doesn’t account for most of what’s spent on getting the latest Nike Jordans. Computers may be helpful in developing a modern work force, but not at the rate of the 47 million discarded a year in the U.S. Similarly, “government expenditures” can’t all be lumped together. Funds going to health and education help reproduce the work force; expenditures for wars and repression don’t.

As interpenetrated as this all is in the advanced economies, to me the distinction between producingsurplus value and realizing it is still critically important. The massive economic activity that doesn’t add to production exposes how capitalism is a decadent system even relative to its own claim to fame of expanding the forces of production. All of that waste, at the same time that basic human needs are not being met, is another count in the long indictment of this system’s rapacious destruction of human life and the environment. In addition, for analytical purposes, calling out the waste necessitated by mounting realization costs clarifies that the direct exploitation of labor—including the high rates achieved through imperial penetration and through the oppression of women—is the fundamental basis for generating surplus value.

The areas that bloomed under mature capitalism are mainly about realization. The one trillion dollars a year spent on marketing in the U.S. is primarily about promoting sales of other goods and services. A multi-million dollar aircraft carrier doesn’t add to production, regardless of whether it sits in a harbor or launches lethal attacks. Today’s financial frenzy is in large part an effort to make money independent of, really appropriated from, production, and has created a mountain of debt that is four time GDP. (It’s worth noting that consumer debt is a way to expand working class consumption beyond what can be covered by wages … at least until the credit bubbles burst. The imposition of irrational debt on many of the poorest countries has been a primary weapon for imposing “structural adjustment programs,” painful austerity measures, the project most destructive to human life and the environment in the world today.) Since areas like advertising and the military don’t involve the output of either producer or consumer goods, I believe (as Baran and Sweezy also posited) that they constitute a third department, one defined by waste. Within the U.S. it’s probably now bigger than either of Marx’s original two.

Let’s look at advertising. It functions like c in that it enables the firm to fight for market advantage and doesn’t raise the wages of production workers. But unlike productive investment, it doesn’t increase the output of the goods involved or raise productivity. On the consumption end it works like v in putting more money in circulation, which then can be used to buy consumer goods. Much of that is in the form of wages to workers, but not to those producing the goods involved. Rather than enhancing labor’s bargaining position, this different layer of jobs creates more stratification within the work force. (In my view, these nonproductive workers are still part of the working class because their families live by the sale of their labor power, but their role and status contribute to the very harmful divisions that have made it so hard to forge a conscious, international proletariat.)

Stagnation and Profits

Expenditures such as advertising, taxes and interest payments bolster consumption and thereby facilitate realization—but at a cost. What’s the impact of the mammoth realization efforts on profits? Please bear with me as I use some unfamiliar nomenclature, which hopefully helps clarify but is not essential for the concepts involved. To apply Marx’s s/c+v given stagnation, we need to distinguish sr for realized surplus value, from sp for potential surplus value. With stagnation and the challenge to realizing s, the gap between sp and sr, between potential and actually realized profits, grows. Now let’s call what goes into realization, our third department, “k”; k is a cost of production, whether in the form of marketing costs, taxes or interest payments, but it doesn’t generate new value the way productive investment in new c and v would. In other words, instead of our having a new s/c+v, k is an added cost to what was already produced. In terms of profit, it would be added to the bottom, with sr on top, and change it to sr/c+v+k, lowering the rate. But that’s not the only impact. To the degree it is successful it adds to what is realized, which I’ll call “kr.” So the way to express the profit rate under stagnation is sr+kr/c+v+k. That formulation doesn’t provide a predetermined mathematical result that covers all inputs. But the way it has generally worked under real world conditions is to provide a higher profit rate than would sr alone, but a significantly lower one than if sp could be fully realized without the costs of k at the bottom. Thus, to finish up with these formulas, under most real world conditions, sr+kr/c+v+k will be larger than sr/c+v, but smaller, and increasingly so as stagnation and waste mount, than sp/c+v.

Letters and subscripts aside, the point is that the bigger k is the further the economy is from its productive potential. Also, the way k bolsters realized profits but causes them to become progressively lower than potential profit rates is another indication of the continued importance of productive labor.

Here are some of the political implications of this analysis:

  • The ongoing creation of new surplus value via productive labor is still essential. Imperialist penetration is a cutting edge for that as is women’s un-waged and under-waged labor.
  • Clearly defining the now colossal Department III, the sectors of the economy devoted to realization, as waste helps to spotlight how capitalism has become a decadent system—even relative to its own claim to fame of developing the productive forces. The centrality of such waste can be an impetus for arenas of political struggle such as anti-consumerism and ecology.
  • Capitalism’s inherent drive to expand is incompatible with having an environmentally sustainable society. At the same time the colossal level of waste shows us that we can radically cut back on the energy and resources we use, still have considerable productive capacity to take major steps toward the long-range project of repaying the debt to people of color and the poor throughout the world, and still have a good—in many ways better—quality of life.

Conclusion

Economic tendencies are helpful to indicate possible tensions—but the outcomes are products of class and related social struggles. The system we face is built on the super-exploitation of the labor and resources of entire nations and continents, on the imposition of un- and under-waged labor of women, on the labor and abuse of a wide range of workers, and now on the rapacious destruction of the environment, an existential threat to humankind. These essential and overlapping relations of production—patriarchy, class rule, imperialism/white supremacy, and ecocide—are enforced through the incredibly pervasive use of force and violence, along with incessant cultural and political offensives. The summary term that I prefer for the system is “imperialism,” to emphasize its global nature along with the intense oppression and leading examples of resistance of 3/4 of humankind. But no single word is adequate unless it clearly and fully includes all these fundamental relations of production.

All these structures and dynamics overlap and reinforce each other in major ways, but they can’t be reduced to one or the other. If we gloss over the differences, we won’t be fully equipped for the complexity of building principled alliances or for the depth of struggle needed against these forms of oppressiveness within us.

Recognizing the power and scope of these interlocking structures makes the challenges we face far more daunting. At the same time, that reality expands the range of people in fundamental contradiction to this system and gives us all so much more to win.

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