The tendency of the rate of profit to fall explains boom and bust cycles profitability will hit zero by 2054—but converging tipping points ensure collapse much sooner.

That capitalism is unsustainable has long been empirically observable. Most obviously, manufacturing costs and consumer commodity prices are trending towards zero. For example, whereas the world’s fastest supercomputer in 1975 was worth $5m ($32m in 2013’s money), the price of an iPhone 4 released in 2010 with the equivalent performance was $400. Aerospace companies producing propulsion systems in 2010 for $24m in 24 months are now 3-D printing their engines for $2,000 in two weeks. And rather than having globalised supply chains, such companies foresee the entire rocket being built in ‘at home’ [7]. While ‘offshoring’ manufacturing jobs to the ‘low-income economies’ is said to save up to 65% on labour costs, replacing human workers with robots saves up to 90% [8]. Unlike workers, robots do not need wages, breaks, sick days, holidays or pensions. And they work quicker in the first place, too. While industrialisation, particularly in Asia, saw 83 ‘developing countries’ achieving growth rates by the early 2000s that were more than twice the rate of the ‘developed’ OECD members, the rest of the world has seen the same opportunity end ‘prematurely’. Latin America and Africa are already deindustrialising (shifting to services-based workforces) – from a much lower starting point than Asia [9]. Whereas industrialisation peaked in western European countries at income levels of around $14,000, India and many sub-Saharan African countries appear to have reached their peak manufacturing employment at income levels of $700 (both at 1990 levels) [10]. Not only do robots and 3D-printing increasingly remove the incentive for capitalists based in the US and Europe to exploit workers overseas, the incentive to exploit transit workers – who add production time/value to the commodities they transport around the world – is also removed [11]. The emergence of cellular agriculture (lab-grown food), with falling prices and rising quality estimated to see the beef industry go bust by 2035, is going to have the same effect [12]. For the past 145 years, the imperialist powers – the US, Britain, France, Germany and Japan – have been increasingly compelled to export capital (invest) overseas in order to expand and cheapen their exploitable labour bases, thereby sustaining their own economies by living off profits generated by commodity-producing workers in the ‘developing world’. Britain, for example, exported capital equal to 560% of its GDP in 2014 [13]. Between 1980 and 2012 the net outflows of capital from ‘developing’ countries being funnelled into ‘developed’, ie imperialist nations, totalled $16.3 trillion [14]. But the economic relation that underpins imperialism is now unravelling. If prices are trending historically towards zero, so too must the ‘global’ aggregate rate of profit. According to Estaban Maito’s estimates, it fell in a secular trend from 43% in the 1870s to 17% in the 2000s, and is (as of 2014) on course to reach zero around 2054 [15]. Automation and absolute overaccumulation But as the criminally under-appreciated Polish Marxist Henryk Grossman warned in 1929, capitalism is bound to collapse “much earlier than a zero rate of profit” [16], because capital, inherently, does not accumulate harmoniously – the process tends to break down. Overaccumulated capital – surplus capital that has become unprofitable to reinvest – is inevitable. It causes every recession, a partial and temporary breakdown, and is at the same time an underproduction of surplus value; ie, too little profit has been generated to preserve and expand the value of total capital. (Surplus value, or surplus labour time, is the amount of value the capitalist appropriates from the worker, who, on average, keeps only what they need to subsist, their necessary labour time. Profit then is essentially unpaid labour, which tends to increase with innovation. Hence falling prices.) Debt therefore rises to ‘fill the gap’ caused by this underproduction, but can only cover the lag in profit for so long before recession becomes inevitable, since investors are bound to withdraw funds when growth becomes too stagnant, channelling this new surplus instead into tax havens, land and the competitive gambling of speculation that generates financial ‘bubbles’. Each breakdown is overcome through the sufficient destruction, cheapening and centralisation of capital. But the resulting innovation means fewer workers tend to remain employed relative to total capital. Despite the increased rate of exploitation that temporarily lifts profit rates, the next overaccumulation tends to be greater than the one which preceded it. There is no such thing as ‘technological unemployment’ though – alongside surplus capital grows unexploitable surplus labour (unemployment). Clearly, the closer we get to the completion of the historical trend towards fully-automated production, the closer capitalism gets to its final breakdown. Production is already highly automated. As James Manyika, McKinsey Global Institute director, said in June 2017: “Find a factory anywhere in the world built in the past five years  –  not many people work there.” But the services jobs – relatively unproductive since they tend to handle near-finished commodities, if they handle commodities at all – that replaced manufacturing work are now becoming increasingly automated, too. In Britain, where services count for 80% of economic activity, the number of supermarket checkout assistants fell by 25.3% between 2011 and 2017. At the end of March, after most countries had entered lockdown, almost half of company bosses in 45 countries said they were speeding up plans to automate their businesses. [17] Innovation always takes place most rapidly during a recession, when prices are low. With lockdown turning the home into the place of work, Microsoft could boast of having discovered a fresh way of reducing labour costs and extending absolute labour time as it announced “two years’ worth of digital transformation in two months”. As The Guardian reported at the end of April: “Bank branches were already closing in droves before the epidemic, but here is the perfect excuse to shut more. And that’s not all. The authors of an Oxford University study thought that by 2035 it would be possible to automate 86% of restaurant jobs, three-quarters of retail jobs, and 59% of recreation jobs. By unlucky coincidence, those are among the very industries hardest hit by an epidemic now demanding quantum leaps in efficiency if some companies are to avoid going under.” [18] But automation is abolishing the source of profit, ie, commodity-producing human labour. To be more precise, automation is the final expression of capitalism’s self-abolishing tendency. As Marx wrote in 1858: “As soon as labour in the direct form has ceased to be the great wellspring of wealth, labour time ceases and must cease to be its measure... Capital thus works towards its own dissolution as the form dominating production.” [19] But this dissolution does not happen in a seamless falling rate of profit towards zero, since – as explained, and as indicated by both zig-zagging profit rates and the recessions that tend to strike roughly every 10 years – capital does not accumulate harmoniously. As the Soviet Russian philosopher Genrikh Volkov wrote in 1967, increasing automation eventually leads to “the breakdown, instead of the consolidation, of the existing relations ... of the private ownership of the means of production…. Its consummation is incompatible with capitalism.” [20] In Capital, Marx anticipates an eventual “absolute overaccumulation” of capital. “The limit of capitalist production is the excess time of the labourers,” says Marx. [21] But stretching the rate of exploitation of the working class to anywhere near 100% is obviously impossible – for starters, capital cannot even afford to exploit an ever-increasing part of it, a surplus population that grows alongside surplus capital, while workers in the growing services sector are also relatively unproductive. “As the capitalist mode of production develops, an ever larger quantity of capital is required to employ the same, let alone an increased, amount of labour-power.” But there are other limits too: “As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working time supplied by this population, nor the relative surplus working time, could be expanded any further (this last would not be feasible at any rate in the case where the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore when the increased capital produced just as much, or even less, surplus value than it did before its increase, there would be absolute overproduction of capital.” [22] From zero interest rates to worldwide hyperinflation If the rate of profit is on course to hit zero around 2054, but the final breakdown is bound to happen much earlier than that, it at least becomes impossible to dismiss the theory that we are entering this uncharted territory right now. But empirically, there also seem to be several approaching economic limits or ‘tipping points’ which cannot be converging at the same time merely by coincidence. For starters, average GDP growth rates in what the World Bank defines as ‘high income countries’ are already closing in on zero, having fallen every decade for the past half century: from 5.59% in the 1960s, to 4.15% in the 1970s, 2.93% in the 1980s, 2.35% in the 1990s, and 1.78% in the 2000s. The figure rose slightly to 1.97% in the years 2010-2017, but this minor reprieve has already proven to be unsustainable. GDP in the imperialist nations, though, is inflated by the profits leached from the rest of the world, since much of the profit from each commodity goes towards the GDP of the nation in which it is sold, rather than where it was made. [23] Productivity growth in the high income countries has itself, since 2011, spluttered below 1%. Aggregate global debt (the total debt of governments, corporations and households), already mountainous before the Great Recession, has hit new heights, indicating record-high overaccumulation [24]. According to the IMF, global debt fell by 1.5% of GDP in 2017 compared to a year earlier, but remained more than 11 percentage points of GDP above the previous high in 2009. In June 2019, the IMF said global debt stood officially at $184 trillion, 225% of global GDP. This averages out at $86,000 for every person in the world, 2.5 times average annual per capita income. But according to financial analyst Ron Surz, once ‘off-the-books’ net obligations such as social security and health care are taken into account, official figures are understated by a factor of 2.5, making actual global debt $460 trillion, 560% of GDP and $215,000 per person (as of July 2019) [25]. He put the US figure not at the official 105%, but 390%. Even that is without taking into account the serious accounting problem in the US Department of Defense. In 2016, before Trump was elected, the department’s Inspector General said he could not properly track $6.5 trillion in defence spending. An academic study looking at the years 1998-2015 later put the figure at $21 trillion [26]. The US defence budget has ballooned to $748bn as the long-time imperialist superpower scrambles to hold on to its dying empire. Another financial analyst, Simon Thorpe, calculated in 2015 that global debt was 2.5 times higher than the global money supply (up from two times higher in 2013) [27]. This is despite the fact that the US’s monetary base exploded from $842bn in August 2008 to $2.9 trillion in January 2013 and then $4 trillion in August 2014. The sheer amount of debt is unsustainable since the tax base needed to pay it is obviously shrinking in relative terms. Though it has been socialised, it is now simply too large to work off. Something the capitalist state can do to ease the government’s ability to pay its debt is reduce interest rates, which also makes borrowing cheaper and stimulates lending, maintaining the circulation of money. But lifting the economy out of recession usually takes a 4-5% base interest rate cut. In the US and across Europe base rates are already at zero, having been cut by around only 2%. Central banks have said going negative would make the banks unviable. Therefore, it is highly probable – lockdown or no lockdown – that capitalism, as Pento says, is soon going to spiral for the first time in its history into a crisis of worldwide hyperinflation, since rates will have to start going back up to re-incentivise bond holding and sustain the tax base. But debt-to-GDP – already at record highs and rising – will surge, and so the tax base will continue to shrink; bondholders will realise that what they are owed cannot be repaid and increasingly transfer their funds into hard assets, especially precious metals. The only way to avoid hyperinflation is for states to default on their debt through hyperdeflation – which the record bailouts imply they are understandably trying to avoid – but that would happen after hyperinflation anyway. The US’s national annual deficit is now expected to soar from $984bn in 2019 to $3.8 trillion in 2020. The US has never meaningfully defaulted on its debt but, historically, countries that have failed to get their debt-to-GDP back below 90% have gone on to default, meaning they have had to go to the International Monetary Fund (IMF) for a bail out (usually in the form of high-interest loans and on the condition of privatising state assets). But given that the US dollar is the world’s reserve currency – all oil must be traded in US dollars, for example, making the solvency of all countries dependent on their ability to purchase US dollars – the IMF effectively is the US. The US dollar has lost more than 96% of its value, its purchasing power, since 1913. The figure is more than 99.5% for British pound sterling, compared to 1694, the year it was founded [28]. This is why negative rates would make the banks unviable – they would finish off the depreciation of fiat currency. Many countries, including Russia and China, have started diversifying their foreign currency reserves in the past few years, meaning the main source of financing US debt is disappearing. Even the biggest US bank, JP Morgan, told its clients in August 2019 to sell the dollar. The world economy will likely soon be without a reserve currency. While smaller economies have survived defaults through bailouts in the past, the US and western European countries are the richest and most developed in the world. They represent monopoly capitalism, or imperialism, the highest stage of capitalism. As mentioned, with their workforces now largely services-based, the imperialist nations have been largely living off of profit produced by the labour of commodity-producing workers in Africa, Asia and South America. If the imperialist economies collapse, it’s because the whole system has collapsed. Indeed, as of 7 March, investors had already pulled $83bn from developing markets, the largest capital outflow ever recorded, according to the Institute of International Finance. If all these converging factors – near-zero prices, flat productivity growth, unsustainably high debt, zero interest rates, exhausted currencies – do not constitute a final breakdown of the system, then what will?