2020s >> 2022 >> no-1419-november-2022

Cooking the Books 2 – Profits, profits, and profits

‘A Labour government’s priorities would be “growth, growth and growth”’ (Keir Starmer speech, 25 July, labour.org.uk/press/keir-starmer-speech-on-labours-mission-for-economic-growth).

‘I have three priorities for our economy: growth, growth, and growth’ (Liz Truss speech to Tory Conference, 4 October, Times, 5 October).

Growth is generally measured as an increase in GDP, or Gross Domestic Product. This can be calculated in a number of ways. The main one is to work out, for each industry, the difference between what was paid for materials and intermediate goods and what the product was sold for, and to add these all up. This is what statisticians call ‘value added’ (and is what VAT is levied on). It is not the same as cost of production, but is wage costs + the profit margin. Conventional economists are less keen to use this term as they have banished the concept of ‘value’ from economics (even if here it is only market price). On the other hand, it corresponds more to what Marxian economics would understand by the term – the new value created in production, which is divided into wages and profits.

Adding the income from work or from property ownership that individuals receive is a second way of calculating GDP. It gives a share of ‘labour’ in what is produced (though this also includes income from self-employment as well as from wages).

The third way is by adding up how this ‘National Income’ is spent: on business investment, consumer spending, and on government spending.

If GDP in one year is higher than it was the year before then there has been growth. GDP doesn’t always go up. It also goes down. In fact, statisticians and economists define a ‘recession’ as a fall, however small, in GDP in two consecutive quarters.

Most of GDP – around 80 percent – is consumed in the course of the year, by individual consumers or the government. The rest is invested mostly by businesses, with some by the government (as in infrastructure projects). The statisticians call this ‘gross fixed capital formation’.

‘Net fixed capital formation’ (which is the gross – or total – amount less the part used to replace the wear and tear of fixed capital) is the nearest to what Marx understood by the ‘capital accumulation’ which he saw as the aim of capitalist production. The source of this accumulation is the profits that come from business investment (including what the government invests, as this ultimately comes from taxing business profits). It is this pursuit of profits to accumulate as new capital that drives the capitalist economy and results in ‘growth’. It means that there can be no growth without a growth in profits.

Growth as such is not the driving force of capitalist production, but capital accumulation of which it is a consequence. The call for ‘growth, growth and growth’ is, therefore, a call for ‘profits, profits and profits’. The current Tory government makes no bones about this. Starmer is more mealy-mouthed but he too accepts that growth can only come about if the profits to sustain it are allowed to be made or, as he put it in his 25 July speech, if the government has a strategy that ‘builds confidence for investors that will boost long-term growth and productivity’.

Governments cannot bring about growth. They can try to create conditions favourable for profit-making but, beyond that, they have to wait for business investment to increase as capitalist production moves through its boom/slump business cycle. Sometimes they are lucky as Blair was and can claim the boom phase of the cycle as a result of their policies (though this went to Gordon Brown’s head and led him to claim that he had eliminated this cycle, not long before the Crash of 2008). Sometimes they are not so lucky, as both Truss’s successor and/or Starmer look like being.

Next article: The Amazon revisited ⮞

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