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Cooking the Books: More on Profits

Chris Dillow’s article on ‘Robot Dangers’ raises other issues about profits. Noting that ‘profits don’t come merely from being able to produce goods cheaply’ but that ‘you have to sell these goods’, he asks:

‘And if millions of people are out of work, who will you sell to? In theory, therefore, robots aren’t good for profits and might be disastrous for them.’

This is the old one about mechanisation causing continually rising unemployment. It hasn’t happened in practice, though it could theoretically. It doesn’t happen if capital accumulation continues and the extra demand for labour it entrains rises faster than the displacement of labour by machines. This is what has happened in the past. So, Dillow’s investors needn’t worry too much on that score.

After noting that technology has been eliminating many routine white-collar jobs in recent years, Dillow continues:

‘… this process has not been accompanied by rising aggregate profits. Office for National Statistics data show that returns on capital have fallen since the late 1990s. this is not merely because of the recession; profit rates were lower in 2007 than in 1997. In this sense, the IT boom has lowered profit rates.’

It is true that profits rates do tend to fall at the end of a boom but Dillow’s conclusion here seems rather daring, especially as aggregate profits are not the same as profit rates and can go up even if rates go down.

Adam Smith, David Ricardo, Marx and even Keynes discerned a tendency for the rate of profit to fall in the long run, even though they offered different reasons.

Marx’s explanation was linked to increasing mechanisation. He argued that as profit came only from that part of capital invested in productive wage-labour and that as mechanization meant that the part of capital invested in buildings, machines and materials grew faster, there would be a long-run tendency for the rate of return on total capital to fall.

Perhaps surprisingly (or perhaps not, as he mentions that he has read Marxian economist Andrew Kliman), Dillow takes Marx’s view:

‘According to the standard work on historic economic data (Mitchell’s British Historical Statistics), the UK’s capital stock rose by a factor of almost 11 between 1850 and 1938 whereas profits rose by a factor of less than seven. Ninety years of massive technical progress – the Bessemer process, electrification, combustion engines, telegraph, radios and so on – saw profits fall.’ (He means the rate of profit).

He apologises to his investor readers for seeming ‘a little dystopian’, but they needn’t worry too much about this since robotisation reducing the rate of profit to zero is only a theoretical limit and in any event would be years and years away. Well before that, they will have something more urgent to worry about – a growing socialist movement aiming to end the profit system altogether.

Dillow ends by posing a very pertinent question:

‘What’s at stake here is a matter of utmost importance: how can we ensure that technical progress benefits everyone rather than just a minority, while encouraging that progress?’

Easy. Make the means for producing wealth the common property of everyone instead of just a minority. Since people would then no longer depend on wages to live but would have free access to what they needed, robotisation wouldn’t deprive anyone of a living but would just reduce the work load all round.