Archive for the ‘Falling Rate of Profit’ Category

Che Guevara and Marx’s Law of Labor Value

March 1, 2015

This March marks the 30th anniversary of the election of Mikhail Gorbachev to the post of general secretary of the then-ruling Communist Party of the Soviet Union. At first, the election of Gorbachev seemed to involve a long overdue shift of power to a new generation of Soviet leaders. As we now know, it involved a lot more.

A process was unleashed that was soon to be called “Perestroika.” In the name of “radical economic reforms,” the Soviet planned economy was progressively dismantled. Perestroika ended not only with the restoration of capitalism but the breakup of what had been the Soviet federation.

The combined process of the restoration of capitalism and breakup of the Soviet federation was accompanied by a massive collapse of both industrial and agricultural production. The living standards and life expectancy of the working class plummeted. A generation later, the economies of not only the Russian federation but the economies of the other former republics are yet to recover.

Perestroika led to a wave of capitalist counterrevolutions that in 1989 swept through eastern Europe with the active support not only of imperialism, as would be expected, but also the Gorbachev government. As part of this process, Germany was reunited on a capitalist basis while staying in NATO. The former socialist countries that had been members of the now dissolved Warsaw Pact joined NATO as did the former Soviet Baltic republics of Latvia, Lithuania and Estonia. The Georgia Republic—Stalin’s homeland—is very close to NATO and openly striving to become a formal member, while the new right-wing government in Ukraine has joined NATO in all but name.

Perestroika, therefore, resulted in a massive expansion of the U.S. world empire into the one area of the planet—the Soviet Union and its allies—that remained outside the Empire after World War II.

The destruction of the Soviet Union and the Soviet bloc and their planned economies would have been enough if that was all that was involved. But it was not. The capitalists and their spokespeople everywhere pointed to the Soviet collapse as final proof that “socialism had failed.” The result was a wave of demoralization that spread through a workers’ movement that was already in retreat before the neoliberal capitalist offensive symbolized by such political figures as Ronald Reagan and Margaret Thatcher.

National liberation movements were also pushed back, though the hopes of political figures such as Ronald Reagan and George W. Bush that the old-fashioned colonialism that had dominated the world in 1914 would return—with the difference that the United States and not Britain or France would be the chief colonizer—has not been so easy to achieve.

Between November 7, 1917, when the Bolshevik-led Congress of Soviets seized power, and the election of Gorbachev as general secretary of the CPSU Central Committee in March 1985, the peoples of the oppressed nations got accustomed to the idea that they should be independent and not colonial slaves of the West. Therefore, attempts by the U.S. world empire to push these nations and peoples back into something like pre-1914 colonial relationships have met, to the chagrin of the imperialists, unexpected and growing resistance.

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David Harvey, Michael Roberts, Michael Heinrich and the Crisis Theory Debate

February 1, 2015

Recently David Harvey, the well-known writer on Marxist economics, criticized Marxist economics blogger Michael Roberts’ views on crisis theory. According to Harvey, Roberts has a “monocausal” crisis theory. What Harvey objects to is Roberts’ emphasis on Marx’s theory of the tendency of the rate of profit to fall (FRP for short) as the underlying cause of capitalist crises.

Harvey goes further than simply criticizing Roberts’ FRP-centered crisis theory. He says that he is skeptical that a tendency of the rate of profit to fall even exists. He indicates that he agrees with the views of the German Marxist economist Michael Heinrich on the invalidity of Marx’s theory of the falling rate of profit. Heinrich’s views are developed in “An Introduction of the Three Volumes of Karl Marx’s Capital” (Monthly Review Press, 2004). He elaborated them in this article.

In this work, Heinrich tries to demonstrate that Marx himself in the final years of his life moved away from his own theory of the tendency of the rate of profit to fall. Heinrich holds that an examination of Marx’s manuscripts that form the basis of Volume III of “Capital” show that Marx had moved toward a theory of crises centered on credit. Heinrich accuses Frederick Engels of editing the manuscripts in such a way as to hide Marx’s alleged movement away from an FRP-centered theory of crises to a credit-centered theory of crises.

In his defense of the falling rate of profit school from the criticism leveled by Harvey, Roberts makes an indirect reference to this blog: “… recently, one Marxist economist from the overproduction school called me a monomaniac in my attachment to Marx’s law of profitability as the main/underlying cause of capitalist crises (see Mike Treen, national director of the New Zealand Unite Union, at the annual conference of the socialist organization Fightback, held in Wellington, May 31-June 1, 2014, and a seminar hosted by Socialist Aotearoa in Auckland in November 10, 2014”

Mike Treen, a New Zealand Marxist, is indeed an organizer of the New Zealand trade union Unite (not to be confused with the U.S. trade union of a similar name, UNITE HERE, which also organizes fast food and other low-wage workers). The “overproduction school” Roberts refers to is actually the position of this blog, of which Mike is an editor.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 4

September 29, 2013

Heinrich on crises—some background

A century ago, a discussion occurred in the Second International about the “disproportionate production” theory of crisis. This theory holds that crises arise because of disproportions between the various branches of industry, especially between what Marx called Department I, which produces the means of production, and Department II, which produces the means of personal consumption.

This led to speculation on the part of some Social Democrats that the growing cartelization of industry would be able to limit and eventually eliminate the crisis-breeding disproportions. This could, these Social Democrats speculated, give birth to a crisis-free capitalism, at least in theory. The revisionist wing of the International, led by such figures as Eduard Bernstein—the original revisionist—put its hopes in just such a development.

Assuming a rising organic composition of capital, Department I will grow faster than Department II. The Ukrainian economist and moderate socialist Mikhail Tugan-Baranovsky (1865-1919), who was influenced by Marxism, claimed there was no limit to the ability of capitalism to develop the productive forces as long as the proper relationship between Department I and Department II is maintained. The more capitalist industry grew and the organic composition of capital rose the more the industrial capitalists would be selling to their fellow industrial capitalists and relatively less “wage-goods” to the workers.

Tugan-Baranovsky held that capitalism would therefore never break down economically. Socialism, if it came at all, would have to come because it is a morally superior system, not because it is an economic necessity. This put Tugan-Baranovsky sharply at odds with the “world-view Marxists” of the time, who stressed that socialism would replace capitalism because socialism becomes an economic necessity once a certain level of economic development is reached.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 3

September 1, 2013

In this month’s post, I will take a look at Heinrich’s views on value, money and price. As regular readers of this blog should realize by now, the theory of value, money and price has big implications for crisis theory.

As we have seen, present-day crisis theory is divided into two main camps. One camp emphasizes the production of surplus value. This school—largely inspired by the work of Polish-born economist Henryk Grossman, and whose most distinguished present-day leader is Professor Andrew Kliman of Pace University—holds that the basic cause of crises is that periodically an insufficient amount of surplus value is produced. The result is a rate of profit too low for the capitalists to maintain a level of investment sufficient to prevent a crisis.

From the viewpoint of this school, a lack of demand is a secondary effect of the crisis but by no means the cause. If the capitalists find a way to increase the production of surplus value sufficiently, investment will rise and demand problems will go away. Heinrich, who claims there is no tendency of the rate of profit to fall, is therefore anathema to this tendency of Marxist thought.

The other main school of crisis theory puts the emphasis on the problem of the realization of surplus value. This tendency is dominated by the Monthly Review school, named after the magazine founded by U.S. Marxist economist Paul Sweezy and now led by Monthly Review editor John Bellamy Foster.

The Monthly Review school roots the tendency toward crises/stagnation not in the production of surplus value like the Grossman-Kliman school but rather in the realization of surplus value. The analysis of this school is based largely on the work of the purely bourgeois English economist John Maynard Keynes, the moderate Polish-born socialist economist Michael Kalecki, and the radical U.S. Marxist economist Paul Sweezy.

Kalecki’s views on markets were similar to those of Keynes. Indeed, it is often said that Kalecki invented “Keynesian theory” independently and prior to Keynes himself—with one exception. Kalecki, like the rest of the Monthly Review school, puts great emphasis on what he called the “degree of monopoly.” In contrast, Keynes completely ignored the problem of monopoly.

Needed, a Marxist law of markets

A real theory of the market is necessary, in my opinion, for a complete theory of crises. Engels indicated in his work “Socialism, Utopian and Scientific” that under capitalism the growth of the market is governed by “quite different laws” than govern the growth of production, and that the laws governing the growth of the market operate “far less energetically” than the laws that govern the growth of production. The result is the crises of overproduction that in the long run keep the growth of production within the limits of the market.

This, however, is not a complete crisis theory, because Engels did not explain exactly what the laws are that govern the growth of the market. Unfortunately, leaving aside hints found in Marx’s writings, Marxists—with the exception of Paul Sweezy—have largely ignored the laws that govern the growth of the market. This, I think, would be a legitimate criticism of what Heinrich calls “world view Marxism.” As a result, the theory of what does govern the growth of the market has been left to the anti-Marxist Keynes, the questionably Marxist Kalecki and the strongly Keynes- and Kalecki-influenced Sweezy.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 2

August 4, 2013

In this post, I examine two questions: One is whether Heinrich’s critique of Marx’s theory of the tendency of the rate of profit to fall—TRPF—is valid. After that, I will examine Heinrich’s claim that Marx had actually abandoned, or was moving toward abandoning, his theory of the TRPF.

The determination of the rate of profit

If we assume the turnover period of variable capital is given and assume no realization difficulties—all commodities that are produced are sold at their prices of production—the rate of profit will depend on two variables. One is the rate of surplus value—the ratio of unpaid to paid labor. This can be represented algebraically by the expression s/v. The other variable is the ratio of constant to variable capital, or c/v—what Marx called the composition of capital.

Composition of capital versus organic composition of capital

The composition of capital will change if wages, measured in terms of values—quantities of abstract labor measured in some unit of time—changes. For example, if wages fall in terms of value, everything else remaining unchanged, there will be relatively more constant capital and less variable capital than before. The composition of capital c/v will have risen.

However, though less variable capital relative to constant capital will have been used than before, a given quantity of variable capital will now produce more surplus value. All else remaining equal, a rise in the composition of capital produced by a fall in the value of the variable capital will result in a rise in the rate of profit.

Suppose, however, that the capitalists replace some of their variable capital—workers—with machines. Remember, we are measuring the machines here in terms only of their value. Here, in contrast to the first case, we assume the value of variable capital and the rate of surplus value s/v remains unchanged.

Now, more of the total productive capital will consist of constant capital, which produces no surplus value, and less will consist of variable capital, which does produce surplus value. Since here, unlike in the first example, the rate of surplus value has remained unchanged, the fall in the portion of the capital that produces surplus value will produce a fall in the rate of profit.

In order to differentiate between these two very different cases, which produce opposite effects on the rate of profit, Marx called a rise in the composition of capital produced by a rise in the use of machinery a rise in the organic composition of capital.

Capitalist competition forces the individual industrial capitalists to do all they can to lower the cost price of the commodities they produce. The term cost price refers the cost to the industrial capitalist of producing a given commodity, not the cost to society of producing it. (1) The cost price represents the amount of (abstract) labor that the industrial capitalists actually pay for. It is in the interest of the industrial capitalists to reduce as much as possible the amount of labor that they pay for while increasing as much as possible the amount of the labor that the industrial capitalists do not pay for—surplus value.

The cost price of the commodity is, therefore, the capital—constant plus variable—that industrial capitalists must productively consume to produce a given commodity of a given use value and quality.

As capitalism develops, the amount of capital that is used to produce a given commodity of a given use value and quality progressively declines. But capitalist production is a process of the accumulation of capital. Leaving aside temporary crises, the quantity of capital defined in terms of value must progressively increase over the life span of the capitalist mode of production.

Therefore, the fall in the capital used to produce the individual commodities must be compensated for by a rise in the total quantity of commodities produced if the value of total social capital is to grow. Outside of crises and a war economy, the history of capitalist production sees a continuous rise in the total quantity of commodities produced. This is why the capitalists must find new markets or enlarge old ones if capitalism is to continue. Contrary to Say’s Law, the increase in commodity production does not necessarily equal an increase in markets.

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Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 1

July 7, 2013

The April 2013 edition of Monthly Review published an article entitled “Crisis Theory, the Law of the Tendency of the Profit Rate to Fall, and Marx’s Studies in the 1870s” by German Marxist Michael Heinrich. This is the same issue that published John Bellamy Foster’s “Marx, Kalecki, and Socialist Strategy,” which I examined the month before last.

Michael Heinrich teaches economics in Berlin and is the managing editor of “PROKLA A Journal for Critical Science.” His “new reading” of Marx apparently dominates the study of Marx in German universities.

The publication of Heinrich’s article brought about a wave of criticisms on the Internet from Marxists such as Michael Roberts who base their crisis theory precisely on Marx’s law of the “tendency of the rate of profit to fall,” or TRPF for short.

Today on the Internet, partisans of two main theories of capitalist crisis—or capitalist stagnation—are struggling with one another. One theory attributes crisis/stagnation to Marx’s law of the TRPF that Marx developed in “Capital” Volume III. The rival theory is associated with the Monthly Review school, which is strongly influenced by John Maynard Keynes and even more by Michael Kalecki. Unlike the supporters of a falling rate of profit theory of crisis, the Monthly Review school, like Kalecki, puts the question of monopoly and monetarily effective demand at the center of its explanation of capitalist crisis/stagnation.

In addition to publishing Heinrich’s attempt to prove that there is in fact no tendency for the rate of profit to fall, Monthly Review Press published an English translation of Heinrich’s “An Introduction to the Three Volumes of Karl Marx’s Capital,” originally published in German under the title (in English) “Critique of Political Economy—an Introduction.”

Is Michael Heinrich a new recruit to the Monthly Review school? In fact, we will see later that the Monthly Review school and Heinrich have radically different views on the questions of capitalist monopoly and imperialism. So at this point, it is more a question of an “alliance” between the Monthly Review school and Heinrich’s “new reading of Marx” trend against the TRPF school, whose leading academic representative today is Andrew Kliman, a professor of economics at Pace University.

The first thing I must say about Heinrich is that it is clear that he knows his Marx at least as well as any writer whose works have been published in English. He is also a remarkably clear writer. This reflects the fact that he has thoroughly mastered his material. This does not mean that Heinrich agrees with Marx on all questions. Indeed, Heinrich is more than willing to express his disagreements with Marx. And as we will see, Heinrich disagrees with Marx on some very important issues.

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John Bellamy Foster’s Latest Attempt To Reconcile Marx and Kalecki

May 12, 2013

In the “Review of the Month,” entitled “Marx, Kalecki, and Socialist Strategy,” in the April 2013 edition of Monthly Review, John Bellamy Foster once again attempts to show that the views of economist Michal Kalecki (1899-1970) are fully compatible with Marx. Foster even quotes Marx’s “Value, Price and Profit” to show that Marx agreed with Kalecki—and Keynes—that higher wages lead to higher prices.

Foster writes, “Although a general rise in the money-wage level, Marx indicated, would lead to a decrease in the profit share, the economic effect would be minor since capitalists would be enabled to raise prices ‘by the increased demand.’”

Foster’s promotion of the theory that higher money wages cause prices to rise is so out of line with Marx’s whole body of work in general and “Value, Price and Profit” in particular that I could not let it pass without comment.

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The ‘Implications’ of Paul Baran, Pt 3

September 30, 2012

Forty-six years after ‘Monopoly Capital’

The special July-August 2012 edition of Monthly Review, devoted to the critique of economics, not only includes Paul Baran’s “Implications” and correspondence between Baran and Sweezy that is invaluable in understanding the past of Marxist political economy and monopoly capitalism. It also contains an article by John Smith of Kingston University in London that points to the kind of Marxist economics that is necessary to understand the monopoly capitalism of the early 21st century.

“Monopoly Capital” was published 56 years after Rudolf Hilferding’s “Finance Capital” and 50 years after Lenin’s pamphlet “Imperialism.” The period of time that now separates us from “Monopoly Capital” is approximately the same as that separating Rudolf Hilferding’s “Finance Capital” and Lenin’s Imperialism from Marx’s “Capital.”

The world of ‘Monopoly Capital’

As we have seen, “Monopoly Capital” was very much a book of its time. It reflected the changes that had occurred between the era of Hilferding and Lenin and the time that “Monopoly Capital” was written in the late 1950s and early 1960s. Let’s review what those changes were.

The most important was the impact of the Russian Revolution of October 1917, which proved to be the defining event of the entire 20th century. For the first time in history, the working class seized and held state power for a substantial period of time. The working class held power long enough to embark on the construction of socialism. As a result, for the first time world capitalism faced a rival economic system that proved in practice, not just in theory, that capitalists are not necessary for modern industrial production.

The other defining event of the last century was the great Chinese Revolution of 1949. Only today can we fully appreciate the significance of this revolution. It began a process of shifting the center of human civilization from Europe and its “white colonies”—including the United States—toward Asia. The days of using the term “Asiatic” as a synonym for backwardness are gone for good.

These revolutions—and there were many others—forced the capitalist classes to make unheard-of concessions to the working classes of the imperialist countries in order to maintain capitalist rule. These revolutions also completely undermined the old European colonial empires—most importantly the British Empire. In contrast, the European empires were near the peak of their power when Hilferding published “Finance Capital” in 1910.

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Reply to Comments by Andrew Kliman and Doug Henwood

May 13, 2012

Andrew’s comments to my extended review of the “The Failure of Capitalist Production” has clarified both the points of agreement and the differences that exist between us in the field of Marxist economics.

First, the agreements. We both agree that the Keynesian-Marxism of the Monthly Review school as it stands is inadequate both as an analysis of monopoly capitalism and as a response to the current historic crisis of the capitalist system that began with the onset of the “Great Recession” in 2007.

We also agree as against Sweezy and Monthly Review that Marx’s law of the tendency of the rate of profit to fall is necessary both to understand the laws of motion of the capitalist system and the problem of capitalist crisis. We agree that Marx and not Keynes provides the answers.

We also agree that the “neo-Ricardian” claim that there are basic inconsistencies in Marx’s theory is value is incorrect. We both uphold Marx’s law of labor value.

We have important differences, however, on our interpretation of Marx’s law of value. I believe that Marx’s law of labor value requires the existence of commodity money, notwithstanding the end of the gold standard at the end of the 1960s and early 1970s. Andrew disagrees. This difference of opinion affects both our interpretation of capitalist crises and our approach to the transformation problem.

In addition, I think there are some misunderstandings on Andrew’s part on what defines a capitalist that should be clarified. In addition, I need to say a little more on the evolution of the rate of surplus value since the end of the post-World II prosperity 40 years ago.

Despite my differences with Andrew, I want to stress what I said at the beginning of this extended review. I liked “The Failure of Capitalist Production” and recommend it to all serious students of the Marxist critique of political economy and students of the present extended economic crisis of capitalism, which is increasingly becoming a grave political crisis—as the recent elections in France and especially Greece reveal.

I also found Doug Henwood’s remarks to be useful as well, since it sheds light on my critique of the attempts to mix Marx and Keynes.

I must stress that the aim of this blog is not to destroy or crush other Marxists with whom I disagree on one and other point, but to advance Marxist economic science in order to get nearer to the truth.

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‘The Failure of Capitalist Production’ by Andrew Kliman — Part 3

April 15, 2012

The evolution of the rate of surplus value

Kliman’s discussion of the evolution of the rate of surplus value over the last 40 years is, in my opinion, the weakest part of his book. Most Marxists—and non-Marxists, including the great bulk of U.S. workers—would agree that the portion of income going to the rich—the capitalist class—has risen considerably in the U.S. since the early 1970s. This widespread popular belief is clearly reflected in the rise of the Occupy movement.

Kliman strongly disagrees with this. Using U.S. government statistics, he attempts to demonstrate that the share of the U.S. national income going to the workers has risen at the expense of the share going to the capitalists. Or in Marxist terms, the rate of surplus value has actually fallen. A falling rate of surplus value, even if the organic composition of capital remains unchanged, implies a fall in the rate of profit. If a fall in the rate of surplus value is accompanied by a rise in the organic composition of capital, the result will be a marked fall in the general rate of profit.

Which is right: the general popular perception and the view of the Occupy movement that American capitalism and world capitalism is growing more exploitative, or Kliman’s contrary view?

Kliman quotes John Bellamy Foster and Fred Magdoff—leaders of the Monthly Review school: “…wages of private non-agricultural workers in the United States (in 1982 dollars) peaked in 1972 at $8.99 per hour, and by 2006 had fallen to $8.24 (equivalent to the real hourly wage rate in 1967), despite the enormous growth in productivity and profits over the past few decades.” (p. 155)

These figures would seem to clinch the case for a considerable rise in the rate of surplus value in the decades preceding the “Great Recession.” It would seem that on the eve of the Great Recession in 2006, a typical U.S. worker got less in use value terms for each hour of labor power she sold to the capitalists than her mother earned for similar work 34 years earlier. Furthermore, the productivity of human labor has hardly stood still over the last 34 years. This means that the commodities that a worker consumed in 2006 embodied a considerably smaller amount of human labor value than was the case in 1972.

This is true for two reasons. First, the worker in 2006 received less use value  for every hour of labor power she sold to the capitalists. Second, each unit of use value she did receive in exchange for her sold labor power represented less embodied abstract human labor—value—than it did in 1972.

This would mean that there has been a marked growth in what Marx called relative surplus value when if the total work day remains unchanged workers will be working a smaller amount of time for themselves and a greater amount of time for the capitalists. This can be the case even if the standard of living of the workers actually increases, if the increased number or quantity of commodities  the workers get to consume in exchange for their sold labor power represents a smaller quantity of value.

Kliman disagrees. He thinks that if anything the rate of surplus value, at least in the U.S., has fallen over the last 40 years. In attempting to prove this, he quotes economist Martin Feldstein as an authority. Feldstein wrote that it is a “measurement mistake” to “focus on wages rather than total compensation.” Feldstein complains that this has “led some analysts to conclude that the rise in labor income has not kept up with the growth in productivity.” (p. 153)

Kliman doesn’t inform his readers that Martin Feldstein is an extremely reactionary economist who has dedicated his life to defending and prettifying U.S. capitalism, though he does mention that he was the head of the National Bureau for Economic Research.

Marxists, beginning with Marx, have often quoted bourgeois economists when these economists’ research exposes some of the truths about capitalism and its exploitation of the workers. When the hired apologists for capitalism are obliged to admit a portion of the truth about the exploitative nature of capitalism, it is especially telling. The more reactionary the particular apologetic economist is the better.

But for a Marxist to quote reactionary economists when they use statistical data in a way that actually strengthens their apologetic views of capitalism is rather unusual, to say the least. While we can’t prove that American capitalism has grown more exploitative simply because Feldstein claims it hasn’t, Kliman’s conclusion is strongly in line with Feldstein’s natural ideological bias.

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