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
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.
So while it is illegitimate to include directors’ salaries in labour income, the statistical inevitability of doing so does not matter
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.
Our measure of the share is the proportion of company profits in value added (roughly wages plus profits) by the company sector, after deducting capital consumption (depreciation) and stock appreciation (that part of profits attributable solely to the increased valuation of stocks as a result of rising prices). A lengthy justification of this particular measure is given in the Appendix. It can be seen that the share declined somewhat throughout the ’fifties and early ’sixties but the decline between 1964 and 1969 from 21·2 to 14·2 per cent (or about one third) is quite out of all proportion to what occurred earlier. footnote2 Hidden in the five-year averages is a cyclical pattern which is quite marked. Sharp falls in the share occurred in 1956 (from 24·9 per cent to 22·6 per cent) and in 1961 (from 23·3 per cent to 20·5 per cent), two years in which capacity utilization began to fall after reaching cyclical peaks. The accepted explanation for the cyclical behaviour of profit margins is that firms base their prices on some normal level of capacity utilization (and thus productivity) and that it is the fall off in productivity (and thus increase in unit costs) as utilization declines which causes lower margins. footnote3 To this might be added the point that wages were rising particularly rapidly in those years.
Unemployment in January 1971 was at its highest level since the war, so that the analysis above might suggest that the fall in the share of profits since 1964 could be explained by this. It is crucial to the argument that this is not so. Firstly, while unemployment is at this high level there is evidence that spare capacity is, in fact, less than in previous