THEORETICAL NOTES
On the Two Contradictions of Capitalism
By James O'Connor
The question has arisen in discussions with co-workers here
and abroad: What is the relationship between the first and second
contradictions of capitalism? Do they compound or offset their
respective effects on profits?
The first contradiction of capitalism may be stated simply:
The rate of exploitation is both a sociological and economic
category. It expresses capital's social and political power over
labor, and also capitalism's inherent tendency toward a
realization crisis, or crisis of capital over-production. If
capital exercises much power over labor, the rate of exploitation
will be high, and the risk of a realization crisis will be great;
hence, the need for a vast credit structure, aggressive
marketing, constant product innovation, and intensified
competition will be greater. The first contradiction of
capitalism is internal to the system; it has nothing to do with
the conditions of production, whether these are interpreted
economically or in socio-political terms.
The second contradiction of capitalism requires a more
complex terminology:[1] the size and value content of the
consumption basket and "basket" of fixed capital; the "costs of
the natural elements entering into constant and variable
capital;" ground rent as a deduction from surplus value; and
"negative externalities" of all kinds (e.g., congestion costs in
cities in so far as these enter into the costs of individual
capitals).
In the second contradiction, no single term has the
theoretical centrality that the rate of exploitation does in the
first contradiction (which is why there is a plurality of social
movements today, as well as a single labor movement). Yet all of
the above terms are socio-political as well as economic
categories (e.g., absolute rent reflects the power of landed
capital over industrial capital; the costs of congestion reflect
struggles over urban and regional transport systems; the cost of
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[1] James O'Connor, "Capitalism, Nature, Socialism: A
Theoretical Introduction," CNS 1, Fall, 1988.
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water reflects the power of ecology movements vis a vis capital;
etc.). The point of listing these examples is to suggest that
there is even less justification for an economistic-type theory
of the second contradiction than there is for the traditional
Marxist theory of the first.
The first contradiction strikes at capital from the demand
side. When individual capitals lower costs with the aim of
defending or restoring profits, the unintended effect is to
reduce market demand for commodities, and lower realized profits.
The second contradiction strikes from the cost side. It states
that when individual capitals lower costs, e.g., externalize
costs on to conditions of production (nature, laborpower, or the
urban) with the aim of defending or restoring profits, the
unintended effect is to raise costs on other capitals (and, at
the limit, capital as a whole), lowering produced profits. The
first manifests itself in its purest form as a realization
crisis; the second as a liquidity crisis. In the first case,
there is no problem producing surplus value, hence for that
reason there is a problem realizing values and surplus value. In
the second, there is no problem realizing value and surplus
value, hence for that reason there is one of producing surplus
value.
The basic cause of the second contradiction is capitalism's
economically self-destructive appropriation and use of
laborpower, urban infrastructure and space, and external nature
or environment -- "self-destructive" because costs of health and
education, urban transport, home and commercial rents, and the
costs of extracting the elements of capital from nature will rise
when private costs are turned into "social costs."[2]
In this account, capital and the state today can be
interpreted as totally confused as to the new form of regulation
which might provide a coherent framework for capital accumulation
in the 1990s. Individual capitals continue to lower costs in
every imaginable way; by so doing they inadvertently tend to
raise the costs of capital as a whole, at the same time,
threatening their own markets, as the first contradiction leads
us to believe. Today, capital is faced with both rising costs
and weak market demand, i.e., with both the first and second
contradictions. Is it any wonder that capital is thus obsessed
with both process innovation and product innovation and market
expansion? Any wonder that there occurs both a deterioration of
the conditions of production and equitable wage and salary
income, as well as dangerously inflated credit structures? Any
wonder that both Keynesian-type regulation and neo-classical,
laissez-faire policies seem to be bankrupt?
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[2] Frank Beckenbach, "Social Costs in Modern Capitalism," CNS
3, November 1989.
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