As a consequence, the fate of the welfare state is bound to the fate of the capitalist economy. During a few decades after World War II, it could seem as if social democracy had found a way to tame capitalism and put it to work for the common good. Yet the crisis in the world economy in the 1970s—and the slow compound growth ever since—clearly recalls that capitalism is in control of the welfare state and not the other way around. The welfare state depends on capitalism (since the social democratic welfare system literally lives off the wealth generated by wage labor), but capitalism does not depend on the welfare state. Thus, with less wealth to distribute across society because of economic crises, the neoliberal strategies to generate more compound growth—deregulation of the job market, privatization of public services, and so on—won political assent.
The neoliberal reforms we have witnessed over the past decades are no doubt pernicious. The downfall of the welfare state, however, is due not only to neoliberal ideology but also to the general reliance on the generation of capital wealth, which makes the welfare state hostage to economic crises. To criticize neoliberal ideology merely from the standpoint of the welfare state (or some other form of redistributive justice) is to disregard how both social democracy and neoliberalism are plagued by the contradiction in the capitalist measure of value and its mode of production.
An illuminating example is the current debate regarding universal basic income (UBI). The idea of a UBI is one of the most widely discussed political issues of our time, largely due to the automation of previously necessary labor and the increasing problem of unemployment. The idea of a UBI has supporters both on the neoliberal right and the social democratic left. For the neoliberals, a UBI is a way to ensure that even the unemployed have sufficient purchasing power to participate in the market economy, while enabling the removal of other forms of welfare support from the state. For the social democrats, by contrast, a UBI should be a supplement to the welfare state (rather than its replacement) and it must be generous enough to give workers the power to stand up against their employers, making it possible to leave an alienating, exploitative job without being thrown into poverty.
Accordingly, many influential figures on the Left have advocated a form of UBI that would give every citizen enough money to maintain a reasonable standard of living. Such a basic income would supposedly release us from the indirect form of coercion that characterizes a capitalist labor market, in which those who do not own capital are formally “free” to do what they want but in fact have to labor for a capitalist in order to survive. As the sociologist David Calnitsky argues in the most thoughtful defense of a universal basic income: “The main reason UBI ought to be a part of a Left normative vision is because it facilitates exit from relations of exploitation and domination.”20 A sufficiently generous UBI gives people not only abstract freedom from direct coercion but also “the material resources to make freedom a lived reality. It gives people the power to say no—to abusive employers, unpleasant work, or patriarchal domination in the home.”21 For example, as part of a very interesting empirical study, Calnitsky shows that a three-year experiment with guaranteed annual income in Canada helped to decrease domestic violence, since it reduced the material dependence of women on their abusive partners and facilitated an exit from destructive relationships. More generally, a UBI “changes the background conditions under which negotiation takes place, both at work and at home,”22 since “if a stable flow of cash gives you the power to threaten to leave a marriage or a job—that is, if your threat of exit has real credibility—you are in a better position to speak your mind.”23
A universal basic income can thus have emancipatory effects. Yet it is seriously misleading to describe UBI—as Calnitsky and many others do—as a potential solution to the problem of wage labor that Marx analyzed. Calnitsky rightly underscores that “socialism lost something in the reorientation from a vision defined by the abolition of the wage relation to one that fastens us all to it.”24 Moreover, he avows the normative goal of abolishing wage labor, since “the objective is to free workers not only from a given capitalist, but also from capitalists as a class.”25 Calnitsky fails to grasp, however, that a UBI cannot even in principle overcome the dependence on wage labor. On the contrary, any form of universal basic income is altogether dependent on the social form of wage labor, since any form of UBI consists in a redistribution of the capital wealth that is generated by wage labor. Under capitalism, wage labor in the service of profit is the necessary source of social wealth. This dependence on wage labor is perpetuated rather than overcome by a UBI. Calnitsky himself observes that wage labor is required to finance a universal basic income, but he ignores that this contradicts his claim that a UBI can liberate us from the dependence on capitalists as a class. No form of universal basic income can free us from capitalist exploitation, since only wage labor in the service of profit can generate the wealth that is distributed in the form of a UBI.
The basic problem here is not limited to Calnitsky’s analysis but symptomatic of the limitations of any social democratic politics. The emancipatory vision is restricted to the redistribution of wealth, while blind to the fundamental question of how wealth is produced under capitalism. Advocates of a universal basic income (or other forms of redistributive justice) never question the measure and production of value under capitalism but focus only on the distribution of wealth across society. For the same reason, they cannot grasp the contradiction in which any progressive reform of capitalism will be caught, whether it seeks to strengthen the welfare state, provide a universal basic income, or combine the two. “We ought to be able to afford,” Calnitsky asserts, “both a basic income and high quality public goods.”26 Given the capitalist measure of value, however, such a program will always be trapped in a contradiction that makes it liable to degenerate and dissolve. The less our lives are exploited for the sake of profit—i.e., the more we devote our lives to the public goods of the welfare state or to non-profit projects supported by a UBI—the less wealth there is to finance the welfare state and the universal basic income. This practical contradiction in the redistribution of wealth is unavoidable under capitalism, since the measure of value is socially necessary labor time rather than socially available free time. The more we emancipate ourselves from the exploitation of living labor time, the less wealth we have to support our state of freedom.
III
To understand the consequences of the capitalist measure of value for the possibility of democracy, it is instructive to turn to Thomas Piketty’s widely celebrated study Capital in the Twenty-First Century. Piketty’s argument is a paradigmatic example of a social democratic critique of neoliberal capitalism, which is centered on redistribution and does not recognize the question of revaluation. Piketty’s goal is not the overcoming of capitalism, but rather a reformed and regulated capitalist system that limits inequality of wealth.
Piketty’s most important contention is that “free market” capitalism—if left to its own devices—does not promote the distribution of wealth and does not protect individual liberties. Through the deployment of innovative statistical techniques that track the relation between wealth and income over long historical periods, Piketty shows that capitalism exhibits a tendency toward the concentration of wealth in the hands of the few rather than the many. The dynamic of capitalist wealth accumulation leads to the formation of family dynasties and oligarchies with the resources to manipulate politics for their own interests rather than the interests of the majority, a dynamic that Piketty rightly describes as “threatening to democratic societies and to the values of social justice on which they are based.”27
According to Piketty, the mechanism that accounts for why capitalism tends toward a growing inequality of wealth is captured by the formula r>g. The rate of return on capital (r) grows faster—or falls slower—than the growth rate (g) of the economy as a whole. Thus, the dynamic of capitalism favors the accumulation of existing wealth
over the wealth that is based on income. The growth of inherited and accumulated wealth outruns the growth of income, leading to what Piketty calls a “terrifying”28 spiral of unequal wealth distribution between those who own capital and those who must subject themselves to wage labor in order to survive.
Nevertheless, Piketty holds that democracy in principle can “regain control of capitalism”29 through reforms such as increased taxes and job creation by the state. In contrast to those who promote neoliberal deregulation of the market, Piketty advocates a social democratic welfare state that would offer universal health insurance and universal education (including higher education), while restricting inequality and redistributing wealth through a progressive annual tax on global capital.
Piketty’s proposed solution to the problem of wealth inequality has often been described as unrealistic in pragmatic terms, but the deeper problem with his analysis is that he does not display any systematic understanding of the structural dynamic of capitalism. For Piketty—as for the advocates of a UBI—the problem of capitalism merely concerns the distribution of wealth, whereas the production and measure of wealth under capitalism are never interrogated. Indeed, Piketty explicitly dismisses Marx’s analyses of the inherent contradiction in the capitalist mode of production, while it is clear that he does not understand the logic of Marx’s argument. According to Piketty, “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of private capital. He no doubt lacked the statistical data to refine his predictions.”30 This is a very misleading claim. Technological progress and increasing productivity are at the core of Marx’s analysis of the dynamic that drives the process of accumulation and concentration of capital. Furthermore, Marx is not collecting statistical data to make “predictions” about how capitalism functions. Marx analyzes the inner purposiveness of capitalism (producing for the sake of profit rather than consumption) and explicates the constitutive tendencies of such a dynamic.
If Piketty had grasped the logic of Marx’s analysis, he would have had the resources to render intelligible the meaning of his own data. While Piketty shows statistically that capital has a tendency to become concentrated in fewer hands, he does not understand the dynamic that accounts for this tendency and its relation to technological productivity, since he ignores the specificity of the capitalist mode of production and treats the measure of social wealth under capitalism as though it were a natural necessity. As a result, Piketty ignores how both unemployment and the tendency toward crises are necessary features of the production of capital wealth. Economic crises cannot be avoided either through regulations of the market (social democracy) or deregulations of the market (neoliberalism), since the tendency toward crises is inherent in the capitalist mode of production itself.
To understand the inherent tendency toward crises in the capitalist mode of production, we must turn to Marx’s analysis of “the law of the tendential fall in the rate of profit,” which he pursues in the third volume of Capital.31 Marx’s analysis of the tendency of the rate of profit to fall is one of his most famous, but also one of his most widely misunderstood. Contrary to what Piketty and many others allege, Marx is not offering a prophecy that the rate of profit will fall irreversibly and lead to the self-destruction of capitalism. While such an apocalyptic vision of the fate of capitalism is often ascribed to Marx, it is incompatible with his actual analysis. Marx is not making any empirical predictions. Rather, he is analyzing the “moving contradiction” in the capitalist mode of production. Because the contradiction is dynamic and moving, there can be any number of “counteracting” strategies that manage to sustain the continued life of a capitalist system. The point is not to establish that capitalism inevitably will kill itself, but to show that capitalism can keep itself alive only through a pernicious and self-contradictory dynamic, which is inimical to the production of real social wealth.
Let us here return to the example of our village and its water supply, in order to understand why the capitalist mode of production entails that the rate of profit has an inherent tendency to fall. The rate of profit is the relation between the total amount of capital I invest in the production of a commodity—e.g., the sum total of the cost of wages, machinery, and raw materials that are required for the production of a gallon of water—and the amount of surplus value I am able to extract from the production of the commodity.
Striving to make the rate of profit rise is intrinsic to any capitalist enterprise. In order to sustain my water business, I have to keep making a profit from the production and distribution of water. Such profit depends on converting the surplus time of living labor into surplus value for my capitalist enterprise. Given the limits of the workday and legal constraints on labor conditions, however, there are restrictions on how much I can exploit the lifetime of my workers. The major method for making my business profitable and staying competitive is rather to extract relative surplus value from my workers by making the technological means of production more efficient. This is why I built a hyper-well in the middle of our village when I sought to increase the rate of profit for my water business. The hyper-well makes it possible for my workers to produce more water in the same amount of time and thereby increases the relative surplus value I can extract from their labor.
Striving to make the rate of profit rise is thus inseparable from pursuing a technological development that reduces the socially necessary labor time for a given commodity. If I seek to make the production of a commodity more profitable, I seek to make the production of the commodity more efficient, which is to say less time consuming.
By the same token, however, I am caught in the contradiction that characterizes the capitalist mode of production. As a capitalist, I can extract surplus value only from living labor time. Yet, in seeking to extract more surplus value from my workers, I am led to develop technologies that increasingly replace living labor time (from which I can extract surplus value) with nonliving production time (from which I cannot extract any surplus value).
As a result of such technological development, the rate of profit for my water business has an inherent tendency to fall. When my production of water becomes more efficient, there is a shift in what Marx calls “the organic composition of capital.”32 The ratio of living labor time (from which I can make a profit) decreases, while the ratio of nonliving production time (from which I cannot make a profit) increases. Thus, even if the mass of surplus value and profit increases due to the efficiency of the hyper-well as a means of production, the rate of profit for my water business will tend to fall for the same reason.
Hence, we can specify the dynamic of the contradiction in the capitalist mode of production. On the one hand, in striving to make a profit, I develop ever more efficient technological means of production. On the other hand, the more efficient my technological means of production become, the more my rate of profit tends to fall.
To sustain a rate of profit, the capitalist mode of production must inhibit its own drive toward increased technological productivity. If the proportion of nonliving production time is allowed to increase indefinitely, the proportion of living labor time will decrease indefinitely and the possibility of making a profit will diminish. When I have perfected my hyper-well to such a degree that it barely requires any living labor time to operate, I am left with almost nothing from which I can extract surplus value in order to make a profit.
The law of the tendential fall in the rate of profit is not a prediction but a structural dynamic that renders intelligible the counteracting tendencies under capitalism. It is because the rate of profit tends to fall that capitalist employers must intensify the exploitation of living labor and/or export the production facilities to locations where labor is cheaper to buy. Given the reduction of socially necessary labor time, the only way to increase t
he extraction of relative surplus value—on which profit depends—is to intensify the exploitation of workers by lowering the relative value of their wages. Unemployment and the exportation of jobs are not something that can be removed under capitalism, but a necessary condition for the production of capital wealth. Lowering the relative value of wages and sustaining a rate of profit depends on a surplus population of the unemployed who are willing to work for less, either domestically or in poorer countries to which production is moved.
Most importantly, the law of the tendential fall in the rate of profit renders intelligible the tendency toward crises under capitalism. A continuously increasing technological productivity leads to crises under capitalism, since the replacement of living labor time with nonliving production time makes the rate of profit fall. The falling rate of profit can be counteracted through numerous strategies, but ultimately it requires the destruction of large amounts of capital, either through crises of devaluation or through full-on destruction of existing capital in war or through other means. Only such a “bust” in the economy can lead to a new “boom.” When large amounts of machinery and other forms of productive capital are destroyed, the capacity for nonliving production decreases while the need for living labor increases. This is why the destruction of war can lead to a boom in capitalist economies. The destruction removes large parts of nonliving production capacities and the process of rebuilding requires large amounts of living labor time, from which we can extract surplus value that is converted into the “growth” of capital wealth in the economy.
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