Having seen how surplus continues to rise absolutely, and as a share of total output, we come to how surplus is absorbed. There are three possibilities for surplus: 1) it can be consumed, 2) it can be invested, and 3) it can be wasted. 

Any extracted surplus not consumed by capitalists is available for investment. By estimating capitalist consumption, we can find a sustainable rate of investment for the surplus. With full employment and a rising productivity rate, total output (including worker and capitalist consumption) will rise fast enough to enable investment of the unconsumed surplus. This holds on paper, but does it align with monopoly capitalist reality? Chapter 3 showed that total surplus rises. So the question becomes, does capitalist consumption (as a relative share of surplus) also rise as the surplus grows? If not, the investable component will grow with the surplus. 

Let’s take a scenario where the capitalists consume all profit/surplus. This is obviously extreme, but if relative capitalist consumption doesn’t grow in such an extreme case, it definitely won’t when they consume less. B+S use the evidence of corporate dividends (annual payments to shareholders based on earnings per share). At the time, dividend rates were remarkably stable, and took time to adjust to surplus increases. 

For example: take a company earning revenue of $2/share for several years, and paying a dividend of $1 (a 50% dividend payout rate). The next year, earnings rise to $4/share. Based on the historical data, the company will not immediately raise the dividend payout to $2. Instead, it will slowly close the gap over several years, until it reaches the desired 50% payout rate. In this scenario, capitalist consumption (dividends) shrinks relative to overall surplus, as the dividend payout rate lags below 50%. With the structural forces driving up surplus, and the dividend rate lagging as such, capitalist consumption as a share of surplus and total income continues to shrink. This is despite consumption growing in absolute terms. A $1.50 dividend on $4 earnings/share is greater than a $1 dividend, but it's only a 37.5% dividend payout rate. So capitalist consumption can’t solve the surplus absorption problem, in this extreme example, or in more moderate cases.  This means that the investable surplus constantly grows, both absolutely and in relative terms. The question then becomes, can an economy offer the necessary investment opportunities for this growing investment base? 

Let's start by examining 'endogenous' or internal demand, with investment opportunities created by expanding demand within the system. This situation’s economic logic involves accelerating output growth, with a further expanding investable share of this growth, in a feedback loop. The loop leads to massive amounts of consumer goods being produced, only to increase even further in the next production cycle. Such an infinitely expanding investment, production, and consumption loop has never (or could physically never) exist. 

Since such an economy where accelerating production equals accelerating investment cannot happen, what must be true is that an economy’s capacity to produce grows faster than its actual output. We see this all the time in capitalist economies. Capacity outpaces output to a point where profitable investment opportunities are lacking. So investment declines, as do income, employment, and even surplus, as downstream effects. This is how economic recessions or depressions begin. 

To this point, we’ve assumed an economy working at/near capacity, where the surplus rises because of monopolistic pricing/cost structures. But what about an undercapacity economy? Let’s take ‘full capacity’ as the output rate where profits are maximized. Below this output, profits fall faster than output declines, to the breakeven point where revenue and costs equalize. The discrepancy between the profit and output rates is due to huge but stable overhead costs for giant corporations; so unit costs fall as production increases. This means surplus falls relatively rapidly at undercapacity production. The investable surplus falls even more rapidly because of dynamics like the lagging dividend rate discussed above. Surplus and investable surplus also rise relatively rapidly as an undercapacity economy moves towards full capacity. 

B+S express these relationships as follows: for a given cost and price structure exists a ‘profitability schedule,’ relating profit rate (Y axis) and operating rate (% of capacity - X axis). This involves a straight line, sloping up from left to right. The profit rate is negative on the left side, reaching zero at the breakeven point, and meeting its max at full capacity on the right. The line shifts up (higher profit rate) when prices rise or costs fall, and vice versa. The location along the line shifts left when the operating rate falls, and right when it rises. Plotting profit and operating rate reflects the long and short run elements defining surplus volume. Chapter 3’s tendency of the surplus to rise can now be seen as the profitability schedule of a monopolistic cost and price structure.

So far, B+S have analyzed ‘endogenous’ investment, investment outlets arising from internal mechanisms. These create a growing investable surplus, but not sufficient investment opportunities. A growing economy without expanding economic opportunities means a rising surplus but rising unemployment and industrial downtime. 

However, there is also ‘exogenous’ investment, independent of the system’s organic demand. We will look at three categories: 1) investment for the needs of a growing population; 2) investment in new methods and products; and 3) foreign investment. Can these, individually or in combination, provide the investment opportunities to absorb the growing surplus? 

Population: There was a split in economics at this time on a growing population’s ability to absorb surplus. Some argued that population growth alone could absorb surplus, while others argued that a growing population also needed growing purchasing power. 

• B+S say the first argument has the idea reversed. Rising surplus enables the investment to stimulate population growth, in turn expanding the labour force, enabling an ongoing high investment rate. 

• B+S say the second argument fails to note how population growth increases demand. I.e. to reduce overcrowding in the housing market, investors build speculatively based on population dynamics. Also, it’s necessary to understand population location, since much demographic change in early industrial capitalist periods was due to internal migration and rapidly urbanizing cities. 

So while population is dependent on economic factors (booming economies lead to higher population growth), population growth alone can’t solve the surplus absorption problem. 

New Methods and Products: The topic here is ‘normal technological innovations,’ the constant stream of new methods/products always honing technological capability. Are these innovations capable of surplus absorption on their own? At the time of writing, the mainstream answer was yes. That’s because of the previously discussed issue of economic analysis failing to mark the shift from competitive to monopoly capitalism. 

Innovations must be adopted under competitive capitalism, to ensure market survival. Under monopoly capitalism, innovations are only adopted in a way that maximizes profit. Since the giant corporation, rather than market pressure, dictates the pace of innovation adoption, it slows down under monopoly capitalism. Let’s see how this plays out. 

A new machine comes along that yields a 12% profit. Under competitive capitalism, investment in this machine always takes place if the interest rate (borrowing cost) is <12%. Under monopoly capitalism, adopting this machine leaves the giant corporation two options: 1) lower prices so the market will absorb the increased output from using both the new and old machines, or 2) let some of the old machines sit idle, to keep output steady. We know that price cutting is one of oligopoly’s prime taboos, so we can rule out the first option. The second option is only appealing if the new machine is more profitable than both the old one and other investment options. If the old machine’s profit rate is 10%, and the new 12%, the giant corporation will make the investment as long as the interest rate is <2%. 

The increased options and reduced adoption pressure under monopoly capitalism slow down the technological progress rate. Rather than immediately adopting, it’s usually more profitable to wait to replace old equipment with new once the old is worn down. Innovative discoveries will be made at the higher rates within giant corporations due to their size and emphasis on cost cutting. While new techniques won’t be suppressed, they will only be adopted when the time is right, determined by profitability, not competitive pressure. This retention of old equipment, which would have been obsolete under competitive capitalism, is backed up by B+S’s evidence. 

A 1958 industrial survey found $95B in obsolete equipment still in use, ~⅔ of the industrial base. Additionally, B+S note other innovations that can increase output without requiring industrial overhaul. This is perfect for the monopoly capitalist (no massive cost, more profit, more output), but completely incompatible with rising surplus absorption. Innovations like this exacerbate all the problems we’ve outlined above. So we can conclude that the link between technological progress and investment outlets under competitive capitalism is weakened, even severed, under monopoly capitalism. 

We also must examine the depreciation practices of giant corporations. Depreciation is the accounting method for machinery’s yearly ‘wear and tear’ costs. Technological change makes exact depreciation accounting impossible, with no standard on which to base depreciation; all is constantly in flux. Under competition, this extremely exact cost accounting would be incentivized, but not under monopoly capitalism. Instead, the giant corporation maximizes depreciation costs, since all gross revenue labeled as depreciation escapes corporate profit tax. 

The enormous scale of corporate revenue (only accelerating since this book’s publication), and murkiness of depreciation practices, leave no way to tell real production depreciation costs from profit occluded as such. This means that investment must be at least as high as depreciation before we can begin to discuss surplus absorption. Where ‘excessive’ depreciation is high enough, it can account for all production investment, without absorbing any surplus whatsoever. So technological progress, like population growth, can’t solve the surplus absorption problem. 

Foreign Investment: In regards to surplus absorption, monopoly capitalism’s imperialism functions to pump surplus out of underdeveloped/overexploited areas rather than to alleviate the surplus absorption problem. For example, during the British Empire’s peak (1870-1913), Britain earned ~70% more from foreign investments than net capital exports. The same holds for the United States during the period analyzed in this book. Hence foreign investment exacerbates, rather than solves the problem of surplus absorption. 

We’ve now seen monopoly capitalism as an economic system generating growing surplus, which it is unable to absorb through consumption or investment. This makes the normal state of monopoly capital stagnation, a chronic underutilization of resources and capital, with accompanying unemployment. However, monopoly capitalism has not collapsed under these forces (yet). So we must study the counteracting forces that give it resilience. 

The core economic problem here is not scarcity, but overabundance: unabsorbable surplus leads to unemployment for workers, unsellable crops for farmers, etc. A main method monopoly capitalists use to deal with this problem is the stimulation of ever greater demand, through the Sales Effort.