CAPITAL and Productivity

CAPITAL and Productivity

Marx set out his understanding of productivity in the first chapter of Capital, Vol. 1. He wrote:

The value of a commodity would therefore remain constant, if the labour time required for its production also remained constant. But the latter changes with every variation in the productiveness of labour. This productiveness is determined by various circumstances, amongst others, by the average amount of skill of the workmen, the state of science, and the degree of its practical application, the social organisation of production, the extent and capabilities of the means of production, and by physical conditions…

And he concluded:

In general, the greater the productiveness of labour, the less is the labour time required for the production of an article, the less is the amount of labour crystallised in that article, and the less is its value; and vice versa, the less the productiveness of labour, the greater is the labour time required for the production of an article, and the greater is its value (pp. 130 – 131, Penguin, 1990)

Marx’s discussion about the various circumstances which affect productivity has been completely ignored by futurologists who make exaggerated predictions about growth, unemployment and technology.

In 1930, for example, John Maynard Keynes predicted that technology and productivity would have advanced sufficiently that by the end of the century we would be enjoying a 15-hour working week. His prediction did not occur. Keynes’s failure to predict correctly has not stopped contemporary futurologists claiming that the increased use of robotics and artificial intelligence in production will render the use of labour superfluous.

In the popular media, professors from this or that university believe that with mass unemployment capitalism might collapse. The journalist Paul Mason believes that artificial intelligence, robotics and the information age of the internet will transform the profit system into “post capitalism” without any conscious and political action from the working class being necessary.

Mason’s understanding of productivity when contrasted to Marx’s labour theory of value is hopelessly wrong in as much as he misses Marx’s central point that under capitalism there is a huge difference between invention of technology and its application in commodity production and exchange for profit. Economists are increasingly worried that capitalists are not innovating at the moment but instead drawing upon deep reserves of cheap labour, much of it though immigration, the setting-up of companies abroad where cheap labour is to be found in abundance or the trend to aggressively use part-time labour or zero-contract hours employment.

Both before and after the publication of CAPITAL, economists and others made exaggerated claims for productivity or gave preposterous figures for future unemployment. They all have been wrong because they do not use a Marxian labour theory of value found in the pages of CAPITAL. A history of the fallacious claims for productivity, technology and unemployment should be sufficient to demonstrate how circumspect or sceptical we should be of the “experts”.

The Fallacious Claims Made For Productivity.

In THE WEALTH OF NATIONS (Ch. 1, 1776), Adam Smith illustrated the increase of output brought about by the division of labour by what he saw in a pin factory. The work of turning wire into pins was divided into 18 separate operations, with different workers doing each operation. Adam Smith reached the conclusion-if it can be called a conclusion- that the division of labour had multiplied the output of each worker by 240, or even 480 times. He was unable to be precise about these figures because, as he admitted, he did not know whether one man doing all the 18 operations would produce one pin a day or 20.

Adam Smith, in his account of the pin factory, dealt only with the last stage of the operation, that of tuning wire into pins, and took no account of the fact that by far the greatest part of the labour required to make pins had already been applied in producing the wire, including the mining of the ore, producing the metal from it, producing the machinery, buildings and so on.

In his book THE GREAT WASTE (1933), John Hodgson quoted Adam Smith on the pin factory, though he altered it to read that the output of the pin workers had increased “by many hundredfold”, and Hodgson’s own forecast was that if avoidable waste were eliminated output would be multiplied by ten.

The story of the Pin Factory caught on and is still being reproduced in economic textbooks. It has had the unfortunate result of leading many people to exaggerate enormously the rate at which output per worker has actually been increased by the division of labour and other changes in the methods of production.

Karl Marx, in his POVERTY OF THEORY (1847), quoted from Proudhon’s PHILOSOPHY OFMISERY, which had recently been published, the statement that between 1770 and 1840, the workers had multiplied their output 27 times. As the real increase of the worker’s output during that period had only about doubled, then Marx’s acceptance of Proudhon’s statement calls for an explanation. It is that it was not until many years after 1847 that Marx completed the formulation of his labour theory of value, which provided a valid measurement for output per worker and its rate of increase or decrease through the trade cycle. Proudhon and Marx had both made the same mistake as Adam Smith.

Three years after the death of Marx, Frederick Engels, in his preface to CAPITAL (1886), put forward the theory that Marx’s “cycle of stagnation, prosperity, overproduction and crisis” seemed to have run its course, and to have been replaced by “permanent and chronic depression”, with little or no further expansion of the market for commodities.

Echoing Malthus’s “law of population”, Engels wrote:

While the productive power increases in a geometric ration, the extension of markets proceeds at best in an arithmetic ratio.

He did not elaborate on his assertion and provided no evidence to support his belief that “productive power” was increasing at a rapid rate each year.

Engels’ formula meant that the rate of unemployment, which was 10% in 1886 (based largely on trade union returns of unemployment), would go on rising indefinitely. Events within commodity production and exchange quickly showed Engels that he was wrong. Engels had greatly exaggerated the rate of increase of productivity and was quite wrong about supposed failure of the market to expand. British capitalism in 1996 sold about four times the quantity of commodities it sold in 1886. He dropped his erroneous theory, as any scientist should in the face of contrary evidence, and reverted to Marx’s sound theory of the trade cycle with its period of boom, crisis, depression and up-turn.

In support of a campaign about unemployment the Independent Labour Party in 1909 published a pamphlet called THE MACHINE MONSTER. It contained the forecast:

Within the next decade…the productivity of the human unit will have multiplied a hundredfold.

And it concluded:

A machine operative in an up-to-date, high-speed engine shop is equivalent (as a producer)…to fully 50 skilled workers of 30 years ago.

But this argument failed to allow for the additional labour required for the production and maintenance of the machines.

Capitalism took no notice of the ILP. Output per worker increased, as usual, between 1% and 2% a year and unemployment, which was 8% in 1909, steadily declined in the next 10 years.

When unemployment was rising in the 1930’s (the official figure reached 23% in 1933), Major Douglas and his followers were telling the Labour Party that it would have to change its name because there would soon be few “labourers”, only the unemployed. The prediction never came to pass.

In 1952 the Labour Party published TOWARDS A WORLD OF PLENTY, in which it was stated that developments of machinery and technology from the industrial revolution onwards had raised productivity a thousand fold in the industrialised countries.

In fact the increase had been something like four fold.

A year or two earlier, Ernest Bevin, Foreign Secretary in the Labour Government, had called on the workers to strengthen his hand by increasing production by 10%. The workers might reasonably have told Bevin that if they had already increased their output a thousand fold, why worry about a piffling 10% more.

In December 1954 the European Productivity Agency of the Organisation for European Economic Co-operation (OEEC), published a report on the Technical Progress and Full Employment. It forecast “an unprecedented displacement of manpower”. And went on to say;

Some economists predict that within the foreseeable future the average worker will be able to produce at least the amount of goods now produced by five men.

Examples can be found where one worker operating the new equipment produces as much goods as 100 more produced before.

Taking 20 years as “the foreseeable future”, and as the number of workers in employment was approximately the same in 1974 as in 1954, the volume of national production in 1974 according to the OEEC report, should have been 400 times the level of 1954. It actually increased by only 60%. They were wrong too about their prediction of a huge “displacement of manpower”.

Unemployment in 1974 was still very low, at 2.6% compared with 1.5% in 1954. The OEEC failed to recognise that a necessary part of the labour required increasing productivity has to include the labour needed for the production and servicing the new equipment. How many businesses now employ an IT unit of computer specialists whose function it is to repair computers, which have failed to work and to repair the network when it crashes? Then there are the services IT specialists who come in and up-grade or replace the existing hardware or software. And so on.

In December 1963, almost a decade later, a conference called to discuss the question of full employment met in San Francisco. Dr. Arthur Carstens, Director of Labour Programmes for the Institute of Industrial Relations, University of California, addressed the conference with these words;

I think we will in the next decade, learn to produce all the goods we need in the US with 2% of the working population.

He thought that the rest of the workers would have to find what he called “made work”, such as “selling second mortgages to each other, or engaging in psychiatric work”.

Other speakers at the Conference forecast a vast increase in unemployment. But ten years later unemployment, which had been 5.7% in 1963, was down to 6% in 1973.

A year later, in an article in THE PEOPLE (6.12.1964), Arthur Helliwell reported that in the US;

Experts estimate that robots are gobbling up jobs at the rate of 40,000 to 70,000 a week. This means that between 2 million and 3.5 million men are being thrown out of work every day in a country where there are already 5 million unemployed.

If those experts had been correct, unemployment in the US would now be between 68 and 119 million - it is actually 8 million as of March 2016.

What is forgotten is the fact that computers break down and need to be serviced. The computer sector has actually generated employment in its own right, from production through to exchange, particularly with the growth of home computers. According to a report in Reuters, in June 2015:

As of June 2008, the number of personal computers worldwide in use hit one billion. Mature markets like the United States, Western Europe and Japan and Japan accounted for 58 percent of the worldwide installed PCs. About 180 million PCs (16 percent of the existing installed base) were expected to be replaced and 35 million to be dumped into landfill in 2008. The whole installed base grew 12 percent annually

It is forgotten by many economists that commodities like computers have to be sold, replaced and their production has given rise to large computer warehouses and outlet stores.

In his Reith lectures in 1965 the late Sir Leon Bagritt, Chairman of Elliot Automation, said:

In the United States…one man on the land produces more than enough food to feed fifteen men in the cities and in fact there is a surplus of food grown by this small proportion of the American labour force.

It is clear that he knew nothing about farming and food production. Most “farm” workers do not work on farms. Most of the labour required in the production of food is the labour of workers in industries supplying input for agriculture such as chemical fertilisers, weed killers, pesticides, machinery, tractors, oil, electricity, cattle foods and so on, and in the canning and food processing industries.

The 1970’s saw these extravagant claims continue. There was a report by The DAILY MAIL (16.7.73) of a statement made by Jack Peel, Director of Industrial Relations for the Common Market Commission, and formerly a trade union official. Mr Peel said: “Well before the end of the century less than 50% of the population of working age will be working”.

His prediction was utterly wrong. In the final decade of the 20th century there were in Britain some 27.8 million in work out of a potential working population of about 35 million.

Not to be outdone, Professor Stonier was reported in THE TIMES (13.11.78) as giving evidence to the Government Central Policy Review Staff in which he said;

Within 30 years Britain will need no more than 10% of its labour force to supply all its material needs.

In 1980, under the heading of “By 2001 only 1 in 10 may be working”, The EVENING STANDARD reviewed a book by Professor Stonier. No critical analysis was given by the newspaper to Professor Stoner’s preposterous claims. If the forecast had been correct and if unemployment had been rising from the 6% of 1978 to 90%, unemployment would now be 8 million and rising fast. It is in fact just under two million and has been falling for most months since the last economic depression.

Professor Stonier fell into the same error as Sir Leon Bagritt. THE TIMES (13.11.94) reported Professor Stonier as follows;

Professor Stonier says his analysis is based largely on historical experience. At the beginning of the 18th century 92% of the labour force worked on farms; today only 2% do so. In the United States about 3% of the labour force produces practically all the country’s domestic food needs plus substantial exports.

It is the elementary error of not comparing “like” with “like”.

In the 18th century a farm was almost entirely self-contained. Now its input is largely dependent on inputs from a number of other industries.

With the rise of robotics and artificial intelligence futurologists are again making extravagant claims about high levels of future unemployment. Moshe Vardi, professor of computational engineering at Rice University in Houston, Texas claims that the pace at which robots and intelligent machines are able to take over the jobs traditionally performed by humans will result in more than half the population being unemployed within 30 years (INDEPENDENT 13th February 2013).

Yet this ignores another important factor Marx discussed in CAPITAL (Chapter 25, The General Law of Capitalist Accumulation), that is, the industrial reserve army of the unemployed which is linked to the cyclical nature of capitalism as it passes through periodic booms and slumps. The error Professor Vardi makes is to link all unemployment with technological development while ignoring the more important unemployment associated with the trade cycle.

The Poverty of Forecasting

So why did the forecasters get it wrong? There is a common factor in most of the forecasters disproved by events. It is that the forecasters looked at what was happening in the final stage of each industry’s production process and failed to take into account the process as a whole.

As, for example, looking at the labour displaced by a machine and ignoring the labour needed for the production, maintenance and operation of that machine.

It was left to Marx to provide a valid measurement of productivity and its increase by the application of his labour theory of value. In accordance with that theory the value of a commodity corresponds to the total amount of labour socially necessary to produce it. But, that amount of labour is not merely the labour needed in the last stage of production but the whole production, from start to finish. Marx wrote;

The value of a commodity would therefore remain constant, if the labour time required for its production also remained constant. But the latter changes with every variation in the productiveness of labour. This productiveness is determined by various circumstances, amongst others, by the average amount of skill of the workmen, the state of science, and the degree of its practical application, the social organisation of production, the extent and capabilities of the means of production, and by physical conditions (CAPITAL, Chapter 1, Penguin, 1990, p. 130)

How important it is to make calculations on the “whole” labour and not the “last” labour alone can be illustrated from the bakery industry. Some years ago a writer, mistakenly, stated that if, through improved methods, the number of workers in a bakery was cut by half, that would halve the value of a loaf of bread.

By far the greater part of labour required to produce loaves of bread is the labour applied before the flour reaches the bakery producing the grain, milling it and transporting it, producing the machinery, the buildings, the fuel etc. It is probably not far wrong to assume that, of the labour of 100 workers needed to produce a given quantity of loaves of bread, 90 of the workers are “previous” labour, and only 10 are “last” labour in the bakery.

If the bakery labour is reduced from 10 to 5, the calculation of productivity based, wrongly, on the last labour alone makes it appear that output per worker has doubled, an increase of 100%. By the correct calculation, based on the fact that it now takes only 95 men to produce the quantity of loaves before by 100 men, average output per man has increased, not by 100 per cent, but by approximately 5%.

It is interesting to notice that the calculations of the increase of “output per person employed” compiled by the Government Statistical service, the Office for National statistics, are based on the same principles as that used in Marx’s formula.

However, it is feared that this will not prevent the continual appearance of false forecasts in the coming years of the new century, as in the past 150 years.


From a Socialist perspective the predictions of futurologists are largely academic. In 1867 when Marx wrote Capital unemployment was a major problem for the working class as it was in 1900 and in 1904 when the Socialist Party of Great Britain was formed and it has been ever since. Not because of machinery displacing workers through technological development but because the capitalist class own the means of production and distribution. If workers do not want to be unemployed either through the introduction of new technology or a as a result of a periodic trade crisis and depression then they will have to first, consciously and politically, establish Socialism.

The real question, which workers should be considering as a matter of urgency, is not the silly predictions about productivity and unemployment but the creation of a social system, which has neither unemployment nor employment. An unemployment statistic hides real social problems and real hardship. Unemployment is not a natural problem but a social one deriving from the anarchy of commodity production for exchange and profit. Unemployment cannot be isolated from all the other social problems workers face. The cause has to be dealt with and that cause is capitalism.

Throughout the entire 20th century and on into the 21st, social reformers have claimed that they would be able to resolve the problem of unemployment and that common ownership and democratic control of the means of production and distribution by all of society was unnecessary. Unemployment is still with us. Do workers really want to endure another century of unemployment? That the question they have to seriously consider: Capitalism or Socialism?

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Object and Declaration of Principles


The establishment of a system of society based upon the common ownership and democratic control of the means and instruments for producing and distributing wealth by and in the interest of the whole community.

Declaration of Principles


1. That society as at present constituted is based upon the ownership of the means of living (ie land, factories, railways, etc.) by the capitalist or master class, and the consequent enslavement of the working class, by whose labour alone wealth is produced.

2. That in society, therefore, there is an antagonism of interests, manifesting itself as a class struggle, between those who possess but do not produce and those who produce but do not possess.

3.That this antagonism can be abolished only by the emancipation of the working class from the domination of the master class, by the conversion into common property of society of the means of production and distribution, and their democratic control by the whole people.

4. That as in the order of social evolution the working class is the last class to achieve its freedom, the emancipation of the working class will involve the emancipation of all mankind without distinction of race or sex.

5. That this emancipation must be the work of the working class itself.

6. That as the machinery of government, including the armed forces of the nation, exists only to conserve the monopoly by the capitalist class of the wealth taken from the workers, the working class must organise consciously and politically for the conquest of the powers of government, national and local, in order that this machinery, including these forces, may be converted from an instrument of oppression into the agent of emancipation and the overthrow of privilege, aristocratic and plutocratic.

7. That as all political parties are but the expression of class interests, and as the interest of the working class is diametrically opposed to the interests of all sections of the master class, the party seeking working class emancipation must be hostile to every other party.

8. The Socialist Party of Great Britain, therefore, enters the field of political action determined to wage war against all other political parties, whether alleged labour or avowedly capitalist, and calls upon the members of the working class of this country to muster under its banner to the end that a speedy termination may be wrought to the system which deprives them of the fruits of their labour, and that poverty may give place to comfort, privilege to equality, and slavery to freedom.