Crisis is a word like wolf: it has been cried too often. But for British capitalism it looks as if this time the wolf is really at the door. A number of facts about the recent evolution of the British economy are well known enough—the rise in unemployment at the same time as an unprecedently high rate of price inflation and money wage increase. What is not so well realized, and especially by the left, is the extent to which these trends are eating into the profits of capital. In this article we present and analyse some startling facts about the recent decline in the rate of profit on capital and the share of profits in the national income. From 1964 to 1969 there was a huge increase in the share of the national income taken by the working class. It is a qualitatively new situation which cannot be explained as the result of a cyclical change. 1970 saw a continuation of the trend during a moment of exceptional political weakness on the part of capitalism. Placed in their historical context and related to changes elsewhere in the capitalist world, the economic events in Britain in the last few years seem particularly dramatic. An evaluation of the possibilities open to British capital and the contradictions which it faces shows that while economic measures and structural changes could bring some relief to capital they are unlikely to offer more than a partial way out. This has decisive political implications for the next few years: the advances made in the fight for higher wages mean that wages cannot remain in the centre of the class struggle. Capital’s necessary counter-attack demands that the struggle assumes a more political character.

There are broadly two ways of assessing the relative behaviour of profits; one way is to compare profits to wages (or to national income) to show the share of profits; the other is to calculate the rate of profit on capital employed. Obviously the two measures are not independent. Writing P for profits, Y for income and K for the value of the capital stock (all in current prices) we have: P⁄Y=P⁄K×K⁄Y—the share of profits in income is the product of the rate of profit and the capital-output ratio. Although interdependent, both measures are worth studying. The share of profits in national income shows the outcome of the process or struggle by which the national income is distributed; the rate of profit shows the return earned by capital, expressed as a percentage of capital employed, which through expectations affects the incentive to invest and through the provision of finance influences the ability to invest.

Before showing our estimates of these measures for Britain there are two general points to be made—one on the share and one on the rate of profit. First, in assessing changes in the shares of the national income we have added together wages and salaries. This is important to our argument but may seem wrong. Salaries include professional salaries, payment to company directors and a good deal else which is unquestionably part of the income of the capitalist class. On the other hand, much the greater part of the income which is counted as salaries in official statistics is not of this kind: it is the income of so-called white-collar workers. The distinction between wages and salaries is in most instances a purely formal one concerning weekly or monthly payments. No doubt many employers attempt to use the wage/salary distinction as a means of blunting class solidarity. But the salaried portion of the working class is a growing one. And the most rapidly growing part of the total of salary earners in the last few decades has consisted of those in the lower paid salary earning categories such as administrative, technical and clerical workers. Thus over the long term the difference between the average wage and the average salary has narrowed considerably. footnote1 So while it is illegitimate to include directors’ salaries in labour income, the statistical inevitability of doing so does not matter to our argument since the important question is the change occurring in the distribution of income by shares and not the absolute size of the portion going to different classes.

Second, the rate of profit or rate of return on capital is not the same as the concept used by Marx in analysing the tendency of the profit rate to fall. The Marxian concept (the ratio of surplus to constant plus variable capital) is closer to the share of profits in value added, but it is not equal to that either. The rate of profit, however, does present very much the same type of concept which Marx had in mind: the relation between a flow of capitalist income and a stock of capital advanced; in other words it embodies the notions of profitability and the rate at which capital can be accumulated.

The behaviour of the share of profits and the rate of profit between 1950 and 1969 is summarized in the following table: