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

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.

Two types of depreciation of fixed capital

Fixed capital, unlike circulating capital, transfers its value little by little to the commodities it helps produce. If all goes well, the entire value of a given piece of fixed capital should be transferred to the commodities by the time it can no longer physically function. But what happens if the value of commodities changes during the lifetime of the elements of fixed capital?

Circulating capital has as a rule a short lifetime, and while prices can sometimes change dramatically even over short periods, changes in values—outside of agriculture—should be more or less insignificant during the lifetime of most circulating capital. But this is not the case with fixed capital.

Therefore, in addition to the gradual transfer of value from a piece of fixed capital to the commodities being produced, the value of a machine, for example, will fall as the quantity of abstract human labor necessary to produce that machine falls. Marx called this second type of depreciation moral depreciation, or what is called by accountants functional depreciation. Periodically, individual industrial capitalists or corporations are obliged to “write off” a considerable amount of the value represented by their fixed capital.

A similar effect occurs if more powerful machines are invented that though they have the same value as the existing machines will increase the quantity of commodities produced. These newer machines transfer the same quantity of value as the older machines to the commodities they help produce, but the same quantity of value is spread out over a greater quantity of commodities. As a result, the value of each individual commodity falls.

For example, with the newer machine it might be possible to produce twice as many commodities as it was with the old machine. Once the newer machine has become generalized in industry, the old machine will only be able to transfer half the value to the commodities it helps produce than before. Competition will see to it that the commodities produced with the old and new machines will sell at exactly the same price. As a result, the value of the older machines will fall in half, obliging their owners—if they do their bookkeeping correctly—to write off half their value on their books.

For reasons of simplification in his discussion of the evolution of the rate of profit in “Capital” Volume III, Marx assumed that fixed capital transfers its full value to the commodities it helps produce once it has been fully consumed by its industrial capitalist owners. This assumption, though it has great value as an abstraction, ignores the fact that capitalist production involves a continuous revolution in the means of production.

Sharp changes in the values of agricultural raw materials can also occur before the capital they represent is productively consumed by their industrial capitalist owners. For example, a harvest failure in a major cotton-growing region will cause the value—as well as the market price—of cotton to rise. If there is a bountiful harvest the following year, the value of the capital represented by the cotton will fall. If industrial capitalist spinners had purchased the cotton at a price that reflected its value during a bad year for growing, they will likely incur a major loss.

However, what is a mere possibility with the value of short-lived commodities that represent circulating capital becomes a certainty in the case of the long-lived commodities that represent fixed capital. With the progress of science and technology and its inevitable application into capitalist production, the value of the existing fixed capital must fall independently of the physical wear and tear on machines.

Realistically, the industrial capitalists can hope to recover only a fraction of the value of their fixed capital. As a result, they attempt to consume the value of that capital as fast as possible—for example, by running factories around the clock.

Here we find that a major internal force that checks the fall in the rate of profit—the cheapening of the elements of fixed capital—also causes major losses for the industrial capitalists. The cheapening of the commodities that make up fixed capital holds down the growth of the organic composition of capital c/v by lowering the value of c.

The rise in the organic composition of capital is therefore considerably less than an examination of the technical composition of capital would suggest at first glance. When we are inside a modern factory packed with highly computerized machines but employing far fewer workers than in former times, we might get the impression that the organic composition of the capital represented by the factory is higher than it actually is.

To visualize in our mind’s eye the organic composition of the capital that is represented by the factory, we have to imagine these machines as quantities of (abstract) human labor and not the physical machinery. It is the ratio of the abstract labor—value—that the machine and the elements of constant circulating capital represent, on one hand, to the value represented by the purchased labor power of the workers who work in the factories, on the other, that determines the organic composition of the capital of the factory.

However, the same force that holds in check the rise in the organic composition of capital—the devaluation of the existing mass of fixed capital independently of its physically wearing out—also leads to major losses for the industrial capitalists and thus reduces their rate of profit independently of the organic composition of capital at any fixed instant in time.

Therefore, in order to fully understand the forces in the real world that determine the rate of profit, we have to think in terms not only of fixed quantities but also rates of change. Here crises play a major role. During a crisis, market prices will fall to levels that reflect the new lower value of the commodities, including those commodities that make up fixed capital. The social value represented by the total social capital that has been expanding suddenly contracts, and the social value of the the capital of individual factories and whole firms can even vanish entirely. (2)

Over time, however, the amount of capital that vanishes during crises must be less than the amount of capital that is accumulated between crises if capitalist production is to continue.

What regulates the growth in the organic composition of capital?

The maximum rate of growth in the organic composition of capital is determined by the development of science and technology at a given point in time. In reality, the rate of growth in the organic composition of capital will be much less because the industrial capitalists are interested only in minimizing the labor they actually pay for.

On average, the industrial capitalists pay for the entire quantity of dead labor they productively consume but pay for only a fraction of the living—or direct—labor. This gives capitalism its vampire-like nature, where dead labor—represented by a capitalist—exploits living labor—represented by workers. Therefore, the higher the rate of surplus value—the less living labor the industrial capitalists actually pays for—the slower will be the rate of increase in the organic composition of capital. Indeed, if the rate of surplus value increases sufficiently, the organic composition might even fall.

Therefore, the higher the rate of surplus value s/v, the lower will be the rate of growth of the organic composition of capital c/v. But the lower the rate of growth of the organic composition of capital, the higher will be the growth in the demand for labor power. At some point, the growing demand for labor power will shift the balance of forces on the labor market from the buyers of labor power—the capitalists—to the sellers of labor power—the workers. The rate of surplus value will stop growing and even start to fall. At this point, we would expect to see a renewed rise in the rate of growth in the organic composition of capital.

How crises raise the rate of profit

A crisis—once the problems of realization that caused the crisis in the first place are resolved by the crisis—will raise the rate of profit in three ways. One, directly through a rise in the rate of surplus value. Remember, if the organic composition of capital is given, the higher the rate of surplus value the higher will be the rate of profit.

Second, a crisis lowers the value of the existing constant capital in terms of market prices, and it is market prices that count for the capitalist. And third, a crisis raises the rate of profit by slowing the rise in the organic composition of capital in the period that follows the crisis. The rising rate of surplus value encourages the capitalists to use more “labor-intensive” methods of production—to use the slang of the (bourgeois) economists—which checks the rise in the organic composition of capital.

All else remaining equal, the deeper a crisis and the longer the mass unemployment created by the crisis lasts, the slower will be the growth in the organic composition. The result will be that the more the value of old fixed capital that has been destroyed is written off, the higher will be the rate of profit in the post-crisis period.  (3)

Therefore, in the wake of a crisis it is likely that the rise in the rate of surplus value will exceed the rise in the organic composition of capital for a certain period of time.

These forces work in the exact opposite way during a boom. As the demand for the commodity labor power rises, wages rise, and the rate of surplus value stagnates or even falls. The capitalists respond by increasing the role of machinery in production, which leads to a rise in the organic composition of capital. The combination of a falling rate of surplus value and an accelerating rate of growth of the organic composition of capital puts downward pressure on the rate of profit. This downward pressure becomes considerably greater once the turnover of variable capital approaches the maximum allowed by the technical conditions of production and transportation.

Therefore, the more rapidly capitalist production develops the greater will be the downward pressure on the rate of profit. Since the tendency of capitalism is to develop production without limit—a tendency that is held in check in the real world by the periodic crises of generalized overproduction of commodities—the tendency of the rate of profit is indeed, contrary to Heinrich, downward. But crises and the post-crisis periods of depression and stagnation that crises breed provide a powerful check on the tendency of the rate of profit to fall.

Heinrich’s attack on the law of the tendency of the rate of profit to fall

Heinrich, as we know, does not accept the above arguments. Contrary to Marx, Heinrich claims that there is no downward tendency in the rate of profit. Ignoring the tendency of capitalism to develop without limit, which creates a tendency for the organic composition of capital c/v to develop more rapidly than the rise in the rate of surplus value s/v, Heinrich holds that it is purely a matter of chance whether it is the rate of surplus value s/v or the organic composition of capital c/v that rises faster. The rate of profit, Heinrich insists, is just as likely to rise as it is to fall. Heinrich concludes that the historical tendency of the rate of profit is indeterminate. Therefore, Heinrich concludes that Marx’s law of the tendency of the rate of profit to fall is false.

Heinrich without knowing it produces a mathematical model of the collapse of capitalism

As part of his attempt to refute Marx on the historical tendency of the rate of profit to fall, Heinrich takes an example from Marx himself. Suppose 24 workers perform two hours of surplus labor every day. The total amount of surplus labor—surplus value—produced every day will come out to 48 hours. Now suppose due to a radical rise in the productivity of labor, only two workers are employed in place of the previous 24. Even if the two workers were to “live on air,” as Marx liked to say, and never slept, they could only perform 48 hours of unpaid labor in a day.

In other words, in the face of a decline in the number of productive of surplus value workers, the mass of surplus value cannot grow indefinitely. That is, if the number of workers declines, sooner or later the mass of profit measured in terms of value must stop growing and then decline.

“Marx,” Heinrich writes, “thought that he had sufficiently proven the law of the tendency of the rate of profit to fall using this consideration.” “But,” Heinrich concludes, “that was not the case.” (p. 153) And why not?

Here Marx is using the example of the 48 workers as a representative of the total social capital. We should imagine many zeros after the numbers 48 and 2. Keeping this in mind, Heinrich provides the following example.

“If constant capital does not increase strongly enough to compensate the reduction of variable capital, then the total capital advanced declines. In this case, we have a declining mass of surplus value and declining capital.” (p. 153)

In other words, the mass of profit declines, but as long as the total capital of society contracts sufficiently, a smaller mass of profit will represent a higher rate of profit because it will be calculated on a smaller total advanced capital.

Arithmetic is correct, but attempted refutation is invalid

The arithmetic is correct. So hasn’t Heinrich proven his point?

In their review of Heinrich’s “The Unmaking of Marx’s Capital,” entitled “Heinrich’s Attempt to Eliminate Marx’s Crisis Theory,” Andrew Kliman, Alan Freeman, Nick Potts, Alexey Gusev, and Brendan Cooney point out, “Heinrich’s attempted refutation is invalid because it presumes that capital is dis-accumulated and thereby violates a crucial premise of the LTFRP.”

I would go even further. It not only violates a crucial premise of the LTFRP, it stands in contradiction to the very essence of the capitalist mode of production. The capitalist mode of production is above all a process of the accumulation of capital. And remember, capital is measured not in terms of the use values that make up the commodities that represent capital but in terms of value. Therefore, the kind of development of the productive forces that Heinrich imagines in the above example is simply not compatible with the capitalist mode of production.

In Heinrich’s example, once the losses the capitalists suffer as result of the moral devaluation of their constant capital is subtracted from their profits, the capitalists are not only not successfully raising the rate of profit in the face of a rising organic composition of capital, they are operating at an actual loss. In his attempt to refute Marx, Heinrich has actually produced a mathematical model—without realizing it—of the collapse of capitalism! (4)

In fact, Heinrich’s example—borrowed from Marx—implies the opposite of what he thinks he is demonstrating. It shows that while it is possible to create mathematical examples that show a faster rise in the rate of surplus value than the rate of growth of the organic composition, the rate of profit of the system as a whole is biased in the other direction, toward a fall in the rate of profit. Hence the TRPF. This, however, does not mean that there cannot be periods where the rate of profit indeed rises as we will see below.

Marx’s laws of motion of capitalist development

The competition between workers and capitalists, combined with the progress of science and technology, means that the organic composition will rise over time. However, the unemployment that is both directly created by mechanization and today’s computerization and indirectly created through the crises that are caused in part by the destruction of part of the value of the existing, mostly fixed, capital, along with the cheapening of the means of subsistence, makes possible the reduction of wages in terms of value. The latter causes the rate of surplus value to rise. The rising rate of surplus value holds in check the rise in the organic composition—and saves capitalism from the fate that befalls it in Heinrich’s model.

Instead, over long periods of time we will probably see a gradual decline in the rate of profit that is compensated for by a tremendous growth in the mass of profit. If the mass of profit fails to grow for any extended period of time, capitalism will end. Therefore, we can expect the capitalists and their governments to stop at nothing to keep both the rate and mass of surplus value growing. These in a nutshell are Marx’s laws of motion of capitalist development.

The tendency of the rate of profit since 1970

Marx’s theory of the evolution of the rate of profit implies that if capitalism can find vast new quantities of cheap labor to exploit, the rate of profit will likely rise until the cheap labor is exhausted. Isn’t this exactly what has been happening since the “Volcker shock” of 1979-82?

First, we have seen a shift of industrial production from the old centers of capitalist production—the imperialist countries of the United States, Western Europe and Japan—to low-wage, high-population countries located mostly in Asia that possess huge peasant populations. These peasants are accustomed to an extremely low standard of living and hard manual labor. They therefore provide an ideal recruiting ground for factory workers largely absent in the imperialist countries, including the traditional “white colonies” of the British Empire—Australia, Canada and New Zealand.

Indeed, the tendency of capitalist industrial production to shift from Western Europe and Japan to Asia has been going on since before the First World War.

First came the rapid industrialization of Japan that began well before the outbreak of World War I and reached its climax in the generation that followed World War II. Towards the end of the 20th century, the rapid industrialization that had completely transformed Japan finally led to a substantial rise in wages.

The rise in Japanese wages was followed by the development of economic stagnation in Japan as industrial production shifted to areas where cheap labor remained abundant. First, we saw the rapid industrialization of South Korea and Taiwan. However, the amount of potential new recruits from the peasant populations of those countries to the industrial working class was limited by their relatively small size.

As a result, we saw first a considerable rise in the wages of South Korean and Taiwanese workers and now signs of industrial stagnation in those countries. In order to fight the tendency toward declining profit rates, capital has been obliged to shift industrial production to countries with far larger populations—India and, above all, mainland China.

The rapid industrialization of China has, however, begun to cause a noticeable rise in wages in that country. There are now growing signs of slowing economic growth in China as the business press begins to complain about shortages of labor and rising wages. In order to resist the fall in the rate of profit, capital is being forced to look for even cheaper labor, which can be found in the Indian subcontinent.

Fleeing rising wages in the, at least until recently, rapidly industrializing countries of Asia, capital has developed a huge garment industry in Bangladesh, where wages and working conditions are rock bottom and therefore ideal from the viewpoint of capital. As a result, on April 24, 2013, a whole block of factories and an associated shopping center simply collapsed, killing at least a thousand people. By cutting so many corners in the construction of these factory buildings, the garment capitalists held down the value of their constant capital—buildings are, after all, a part of constant capital—that, combined with the rock bottom wages they pay their largely women workers, effectively resisted the tendency of the rate of profit to fall.

Or at least it did until the factories simply collapsed. This is an example of capitalist production taken to the extreme—collapsing quite literally and taking the lives of a thousand or more workers with it. This horrible event shows to what extent the capitalists will go to resist the tendency of the rate of profit to fall! Not for nothing did Marx describe the falling tendency of the rate of profit as the most important law in all political economy.

Only two weeks later, an additional eight workers were killed in Bangladesh in a factory fire.

The law of the tendency of the rate of profit to fall explains why capital is so hostile to wage increases or improved working conditions and why the industrial capitalists have been driven from country to country in a never-ending search for ever lower wages and even worse working conditions.

To its great credit, Monthly Review has published many articles—for example, John Smith’s article in the July-August 2012 issue, which illustrates to what extent capital has shifted industrial production from the old imperialist countries, where wages are relatively high, to the “global South,” where wages are horribly low. As it stands, there is a growing gap between Monthly Review’s empirical view of the world and the economic theories that Monthly Review has been supporting. (5)

As we saw last month, the rate of profit, unlike the rate of interest, is not directly observable, which explains why there can be so much disagreement among Marxists about the actual direction of the rate of profit over the last four decades. Andrew Kliman believes that the rate of profit has failed to recover from its fall in the 1970s. Bill Jeffries draws the opposite conclusion, holding that the rate of profit has risen because of growth in the rate of surplus value.

Let’s imagine an alternate history. What would have happened to the rate of profit if the Soviet Union and Eastern Europe had maintained the path of socialist construction and China and Vietnam had developed along the lines of the Soviet economy rather than along the capitalist lines that they have done in reality. Let’s further assume that India and Bangladesh had joined the socialist bloc, something that many believed would soon happen in the revolutionary years that followed World War II. In that case, the rate of profit would be far lower today than it actually is.

Therefore, Marx’s theory of the tendency of the rate of profit to fall, which Heinrich and the editors of Monthly Review dispute, provides powerful clues as to why the policies of the U.S. and its world empire are what they are. Isn’t the key to much of U.S. foreign policy found precisely in the tendency of the rate of profit to fall?

The law of the tendency of the rate of profit to fall and the fate of capitalist production

If the rate of profit continues to fall, won’t this eventually cause capitalist production to break down due to the fall forcing the working class to make a revolution? This idea has been a subject of much debate in the Marxist movement for more than a century.

Rosa Luxemburg denied that the fall in the rate of profit would ever cause capitalism to collapse because, according to her, the fall in the rate of profit would always be compensated for by the rise in the mass of profit. Instead, she sought the inevitable end of capitalism in the alleged impossibility of realizing surplus value in a pure capitalist economy where simple commodity production has disappeared. Other Marxists, including Heinrich, deny that there is any tendency for the rate of profit to fall at all.

Marx, however, did believe that the tendency in the rate of profit to fall had implications for the inevitable transformation of capitalism into socialism. He wrote: “the main thing about [the horror expressed by economists like Ricardo] of the falling rate of profit is the feeling that the capitalist mode of production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; but this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production….” (“Capital,” Volume III, Chap. 15)

I will not deal with this question any further here. Instead, I will deal with it when I examine Heinrich’s critique of the economics of “world view Marxism” as a whole.

Did Marx abandon his theory of the tendency of the rate of profit to fall?

In his article published in the April 2013 Monthly Review, Heinrich attempts to show that Marx “probably” pretty much gave up on his LTRPF. We, of course, cannot be certain what was in Marx’s head. Heinrich believes that Marx’s coworker Frederic Engels failed to realize it and edited Volume III of “Capital” to make it appear that Marx had to the end of his life upheld a theory that he had in reality largely given up on. The blundering, if well-meaning, Engels therefore helped lay the foundation of the “world view Marxism” that was to dominate the left wing of the world working-class movement for the following century.

A lot of what Heinrich writes is mere speculation. Marx lived quite close to Engels in London during his final years and presumably the two men had many discussions on political economy among other things that have not been preserved. (6) If Marx had growing doubts about the falling tendency of the rate of profit, he apparently failed to get this point across to Engels. In the end, we have no idea what thoughts occurred to Marx unless he wrote them down.

But Heinrich does refer to an obscure note by Marx meant for a later edition of “Capital” Volume I that Heinrich thinks indicates that Marx had indeed abandoned the LTRPF. Here, Marx leaves a written trail so we can examine it. As Heinrich documents, the note was written after the manuscript that became Volume III of “Capital” was written. Unlike Heinrich’s speculations on what Marx was thinking, here we have something concrete that we can work with.

Marx writes: “Note here for working out later: if the extension is only quantitative, then for a greater and a smaller capital in the same branch of business the profits are as the magnitudes of the capitals advanced. If the quantitative extension induces a qualitative change, then the rate of profit on the larger capital rises at the same time.” (Marx, Capital, Vol. 1, 781, as quoted by Heinrich)

The phrase “are as the magnitudes of the capitals advanced” indicates that Marx has in mind the rate of profit.

The context of the quote makes clear that in using the term “quantitative extension” and “qualitative change,” Marx is referring to the organic composition of capital. Marx indicates that if we have two capitals of different sizes working in the same branch of industry but of equal organic compositions they will have equal rates of profit, though the larger capital will yield a larger mass of profit.

But, and here Heinrich thinks he has found something of a “smoking gun,” Marx also indicates that if the larger capital has a higher organic composition, it will realize a higher rate of profit. But since the larger capital has a higher organic composition of capital, shouldn’t the larger capital have a lower rate of profit, though it might still have a higher mass of profit?

But Marx draws opposite conclusions. Instead of seeing the rise in the organic composition of capital leading to a lower rate of profit, Marx here assumes that the higher organic composition of capital leads to a higher rate of profit. Heinrich reasons that by the time Marx wrote this note, he no longer believed in the law of the tendency of the rate of profit to fall.

Marx never got around to developing his idea. So, let’s attempt to develop Marx’s idea here. I am forced to do this in order to see whether the note gives any support to the claim that Marx had abandoned his theory of the tendency of the rate of profit to fall.

The context of the quote makes clear that Marx here had in mind a situation where we have two different capitals that are producing commodities with identical use values and qualities. One capital is larger than the other. Let’s call the owner of the smaller capital capitalist number one and the owner of the larger capital capitalist number two.

In this case, one where the two capitals have identical organic compositions and identical labor productivities, the larger capital will exploit more workers and will therefore realize a larger mass of profit for its owner, capitalist number two. But the rate of profit yielded to its owner will be identical with the rate of profit on the smaller capital, just as Marx indicates in the text of the note.

But suppose the second larger capital has a higher organic composition of capital. Marx here indicates that the larger capital with a higher organic composition of capital yields a higher rate of profit to its owner than the smaller capital with a lower organic composition. Heinrich reasons if Marx still believed in his law of the tendency of the rate of profit to fall, he wouldn’t have written this.

What Heinrich forgets is that in formulating his law of the tendency of the rate of profit to fall, Marx had in mind the organic composition of the total social capital, not separate competing capitals. In the passage under consideration, Marx had in mind two different organic compositions of two different individual capitals operating in the same branch of industry.

Let’s examine the case where the two capitals have two different organic compositions of capital. The laws of competition require that our two fellows have to sell their commodities at exactly the same price. In Volume I, Marx assumes that the industrial capitalists sell their commodities at prices that directly reflect their values. For the most part in Volume I, and indeed in Volume II as well, Marx in effect assumes that all industrial capitals have the same organic composition of capital, and have the same turnover periods of their variable capitals.

Under these admittedly highly unrealistic assumptions, the direct prices of commodities will equal their prices of production. As long as commodities sell at their direct prices, equal capitals will realize equal profits in equal periods of time.

The other consequence of the above assumption is that the commodities produced by different individual capitals have the same individual values. Competition indeed tends toward such a situation, since it forces each individual capital under pain of ruin to adopt the cheapest possible method of production—that is, produce with the lowest possible cost price.

However, competition never achieves this in practice, because the means of production are continuously being revolutionized, so what is the cheapest method today will not be the cheapest method tomorrow. At the same time, competition among workers and among the capitalist buyers of labor power will mean that the workers with the same skills will sell their labor power at the same price. Therefore, despite their different organic compositions our two capitalists have to pay exactly the same wage to their workers.

Since capitalist number two works with a capital with a higher organic composition of capital, we must assume that the productivity of labor of his workers is higher than the the productivity of labor of the workers who work for capitalist number one.

Under these assumptions, implicit in Marx’s note, the individual values of commodities must diverge from their social values. Since the second capital with the higher organic composition of capital is assumed to be larger, we can assume that the social value will be somewhere in between the individual values of commodities produced by the two capitals but closer to the lower individual value of capitalist number two, who works with a capital that is both larger in terms of value and has a higher organic composition of capital.

Therefore, our second capitalist will be able to sell his commodities at prices that are somewhat above their individual values, yielding him a super-profit, while the first capitalist will be forced to sell his identical commodities well below their individual value. He will therefore realize a profit that is markedly below the average rate profit.

But since the productivity of the labor of the workers employed by the second capitalist whose capital has a higher organic composition will be higher, a given amount of concrete labor of those who work for the second capitalist will represent a greater amount of abstract human labor than the same amount of concrete labor performed by a worker who works for the smaller industrial capitalist, who uses a capital with a lower organic composition.

That is, a worker who works for capitalist number two will in terms of abstract human labor have a longer work day than the workers who work for capitalist number one, even though in terms of concrete labor they will have identical work days. Remember, the wages of the workers who work for capitalist number one and capitalist number two are identical. Therefore, the second, larger capitalist with a higher composition of capital will employ relatively fewer workers, and the workers he does employ will produce more surplus value.

It is important here to note that our second capitalist with a higher productivity of labor will enjoy a higher rate of surplus value for reasons that are different than the general tendency of the rate of surplus value to grow due to the cheapening of the means of subsistence that is the consequence of the growth of the productivity of labor. If the means of subsistence are cheapened, a capitalist boss can pay his workers less in terms of value while the real wages—the wages in terms of the use values of commodities—remains unchanged or even rise.

However, this is not the reason why the capitalist who works with a higher organic composition of capital enjoys a higher rate of surplus value in the case of competing capitals with different organic compositions of capital. Here we assume that our two capitalists pay the workers the same money wage, the same real wage, and, what really interests us here, the same value wage.

However, as we saw above, while the workers who work for our second capitalist—the one who works with capital with a higher organic composition—perform the same quantity of labor in terms of concrete labor, that labor counts for more abstract labor because of its greater productivity. Therefore, in terms of abstract labor—value production—the workers who work for capitalist number two perform more hours of unpaid labor and therefore produce more surplus value.

The same argument restated in the language of simple bookkeeping

In the language of bookkeeping, the cost price per commodity unit of our second capitalist c + v will be less than the cost price c + v of the first capitalist. We assume that our second fellow has a higher c, but this will be more than compensated for by a lower v. If it were otherwise, our second fellow would not work with a higher organic composition in the first place. He only uses the method that employs a higher organic composition of capital because it lowers his cost price. Like all industrial capitalists, he is interested in achieving the cheapest possible cost price to defeat the competition and maximize his profit.

Despite being able to produce commodities of a given use value and quality at a lower cost price, our second capitalist will be able to sell them at exactly the same price as the first smaller capitalist who works with a capital that has a higher cost price. Therefore, our second fellow will not only have a higher mass of profit due to having more capital but a higher rate of profit because his cost price is lower than capitalist number one.

Therefore, capitalist number two, who works with a capital with a higher organic composition of capital, will realize in addition to the average rate of profit an additional profit, a super-profit. Our first capitalist will have to settle for a rate of profit that is below the average rate of profit. If in time, he cannot correct this situation, he will sooner or later be forced out of business.

This does not mean, however, that if the higher composition of capital becomes generalized throughout the branch of industry in which our capitalists are working—which under the pressure of competition will indeed be the case sooner or later—the rate of profit throughout capitalist industry will rise, which is Heinrich’s implicit assumption here.

Remember, thanks to competition the rate of profit will tend to be equalized not only within the branch of industry in which our two capitalists are working but between that branch of industry and all other branches of industry.

Therefore, as soon as the superior method of production employed first by capitalist number two becomes generalized, the higher rate of surplus value enjoyed by the second capitalist will disappear. Our second capitalist will then be obliged under the pressure of competition to lower the price of his commodities to their individual values. The temporary super-profit he enjoyed will disappear and he will only realize the average rate of profit. Not only that but if we assume the average rate of surplus value remains unchanged, this new general rate of profit will now be lower than before. Our second capitalist will have lost in two ways. The super-profit that he realized above and beyond the average rate of profit will have vanished, and the average rate of profit will be lower than it was before.

Therefore, contrary to Heinrich, Marx’s note in fact gives no support whatsoever to the theory that Marx had abandoned his theory of the tendency of the rate of profit to fall. In the future, Heinrich would be well advised to drop this argument.

Some final thoughts

Not surprisingly, Heinrich is eager to choose examples that draw attention away from the huge growth in the quantity of fixed capital that marks the real-world history of the capitalist mode of production. He prefers to calculate the rate of profit by the “flow” method that divides the surplus value by the capital that is used up instead of dividing the surplus value by the total mass of accumulated productive capital.

An example of Heinrich playing down the role of fixed capital, and indeed constant capital in general, is provided by the following quote from his “Introduction”:

“At the beginning of this chapter,” Heinrich writes, “it was pointed out the rate of profit can be raised through the economization of constant or through the acceleration of capital turnover….” (p. 150) Heinrich leaves out the fact that the rate of profit can be raised only by an acceleration of the turnover of variable capital.

There is nothing very original in Heinrich’s critique of Marx’s law of the tendency of the rate of profit to fall. These arguments have been repeated by many academic Marxists and other Marx critics for decades. Indeed, Paul Sweezy made the same basic arguments in his “Theory of Capitalist Development,” published in 1942. The real question is why Heinrich is so obsessed with disproving Marx’s law of the tendency of the rate of profit to fall even to the point of committing absurdities such as assuming the dis-accumulation of capital. And why did the editors of Monthly Review choose to publish and prominently display Heinrich’s far from fresh critique of Marx in their April 2013 issue?

Before we can answer these questions, we still have more work to do. We have to examine Heinrich’s interpretation of Marx’s theory of value as a “monetary theory of value.”

_______

1 This is what the common term “the cost of production” blurs, since we don’t know whether it refers to the cost that the capitalist incurs or the cost society incurs. Marx’s theory of surplus value demonstrates that these are and must be quite different things.

2 Nothing illustrates this better than the videos taken in the early 1980s of U.S. steel factories being blown up by their capitalist owners because the value of the capital that these factories once represented had vanished.

3 Here we have major pieces of a complete theory of capitalist crises. The main thing still missing is a theory of what determines the rate of growth of the markets for commodities. Once we have solved the laws that govern the expansion of markets, we have developed a full theory of capitalist crises.

4 This is not say capitalism will necessarily actually collapse like it does in Heinrich’s model. If the productive forces were to develop in the way they do in Heinrich’s model—labor productivity grows so fast that the number of productive workers declines—the resulting rise in unemployment would cause wages in terms of value to fall so sharply that the resulting rise in the rate of surplus value would once again slow the the development of the productive forces sufficiently to allow the quantity of productive workers to grow once again, allowing the mass of surplus value—profit—to resume its positive growth.

However, what this does demonstrate is that if capitalism is to last forever, there must be a continuous increase in the quantity of productive workers, which means the population must grow forever—not for Malthusian reasons but because of the needs of the capitalist mode of production.

5 One of the reasons why Foster may have published the Heinrich piece was that Paul Sweezy in his “Theory of Capitalist Development” also drew the conclusion that the tendency of the rate of profit is indeterminate for much the same reasons that Heinrich gives. Foster is perhaps partially motivated by his loyalty to Sweezy’s legacy. However, this hardly requires that Foster defend everything Sweezy ever wrote; Sweezy himself didn’t defend everything he ever wrote. No serious thinker including Marx did that.

However, it is true that Sweezy, much like Foster today, was a supporter of the Popular Front, or its American expression—New Deal politics. I will examine this question at end of the series of posts on Heinrich.

6 If only something like the present-day U.S. National Security Agency had existed, we would probably have a virtually complete record of Marx and Engels’ private conversations on political economy and all other subjects they discussed as well. Indeed, we would have records on every other private conversation likely to be eavesdropped on. But alas, Marx and Engels lived before the age of modern surveillance technology, depriving us of records of their private conversations, which might have thrown much light on this question!

37 Responses to “Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 2”

  1. Boffy Says:

    “However, the same force that holds in check the rise in the organic composition of capital—the devaluation of the existing mass of fixed capital independently of its physically wearing out—also leads to major losses for the industrial capitalists and thus reduces their rate of profit independently of the organic composition of capital at any fixed instant in time.”

    The fall in the capital value of the machinery represents a capital loss not a reduction in surplus value, and therefore does not affect the rate of profit. Moreover, to the extent that this does not impact the amount of surplus value produced, the lower value of the fixed capital means that in terms of a rate of profit calculated on the productive capital it actually rises, because any given quantity of surplus value will now by a greater physical quantity of fixed capital.

    For example, if a firm produces £1,000 of surplus value, and the current value of a machine is £1,000, it can expand by buying one additional machine. If the value of the machine falls in half, the firm suffers a capital loss of £500, but this is really just a paper loss, unless it has borrowed the money and cannot pay it back. In fact, at the end of the amortisation period, it will still have accumulated enough in its depreciation fund to replace the existing machine.

    However, its £1,000 of surplus value will now buy not just one, but two additional machines, thereby allowing it to expand faster. As a rate of profit measured against its productive capital via the circuit of productive capital P…P, as Marx does, it can be seen that this reduction has increased the rate of profit, and rate of accumulation, not reduced it.

  2. Boffy Says:

    “Over time, however, the amount of capital that vanishes during crises must be less than the amount of capital that is accumulated between crises if capitalist production is to continue.”

    That is true, but it has to be remembered that in this process it is not just the constant capital that is physically expanding, and expanding in value. The variable capital is expanding also. In the first ten years of this century the global working-class grew by 30%, or about 500 million additional workers.

    Moreover, a larger proportion of the workforce today represents complex rather than simple labour because of the fundamental change in the nature of production and consumption that has occurred away from manufacturing industry towards service production.

  3. Boffy Says:

    “The total amount of surplus labor—surplus value—produced every day will come out to 48 hours. Now suppose due to a radical rise in the productivity of labor, only two workers are employed in place of the previous 24. Even if the two workers were to “live on air,” as Marx liked to say, and never slept, they could only perform 48 hours of unpaid labor in a day.”

    That assumes there really are only 24 hours in a day. In fact, for abstract as opposed to cocnrete labour there is no real limit to the number of hours in a day, because any concrete labour could be a multiple of one hour of simple labour. There are not only 24 hours of abstract labour in the day of a brain surgeon for instance.

  4. jlowrie Says:

    Sorry but fail to follow Boffy’s reasoning:
    Assume a capitalist A who invests a Capital of £3000 in 2 machines that enable him to make 1000 dolls, thus

    c v s r/p cost per doll
    £2000 £1000 £1000 331/3% £3

    He now buys another machine for £1000
    £3000 £1000 £1000 25%

    Meanwhile the value of a machine falls to £500, so now he can buy 2 additional machines, thus:

    £4000 £1000 £1000 20% £2 (5 machines now make 2500 dolls)

    Boffy seems to reason rather:

    £2500 £1000 £1000 28.5% 71p

    Now if capitalist A tries to sell his machines it is true that he can only realise £2500 for them due to devaluation, but it is his commodities, not his machines, he has to sell and they have cost him £5000 not £3500! Of course a new capitalist B entering the field will need to employ a capital only of £3500 to carry on production on the same scale. Were this not the case, then it would be difficult to make sense of Marx’s argument about market value (Capital 3 p279) that ”the commodities whose individual value stands below the market price will realise an extra surplus value(ie those of capitalist B) or surplus profit, while those whose individual value stands above the market price(i.e. those of capitalist A) will be unable to realise a part of the surplus-value which they contain.”
    As Marx argues ”Only in extraordinary situations do commodities produced in the worst conditions or alternatively the most advantageous ones, govern the market value …..these being the same for all commodities of the same species.”

    • Boffy Says:

      What the machines cost him to produce has nothing to do with their current value, or the value of the commodities they produce. The value of the dolls produced falls as the value of the machines used to produce them falls.

      Just because the dolls cost £5,000 to produce does not in any way mean they can be sold for that amount, precisely because the value of the capital used for their production has fallen, so the value of the dolls themselves has fallen. The value of any commodity according to Marx is its current reproduction cost, i.e. the labour-time currently required for its reproduction, and that has fallen because the value of the machines has fallen.

      The capitalist here would as a result of competition see the value of the dolls falls from c 2000 + v 1000 + s 1000 = 4000/1000 = £4, to

      c 1000 + v 1000 + s 1000 = 3000/1000 = £3.

      Out of the £3000 they would pay £1,000 for wages, and £1,000 to replace the machines consumed in production. If it were simple reproduction they would consume the £1,000 of surplus value unproductively.

      If it is extended reproduction they would now be able to use the £1,000 of surplus value to buy two additional machines whereas previously they could only buy 1.

    • Boffy Says:

      “Were this not the case, then it would be difficult to make sense of Marx’s argument about market value (Capital 3 p279) that ”the commodities whose individual value stands below the market price will realise an extra surplus value(ie those of capitalist B) or surplus profit, while those whose individual value stands above the market price(i.e. those of capitalist A) will be unable to realise a part of the surplus-value which they contain.”

      But, the individual value of both is the same here. Both employ machines that have the same value 5 x 500, and £1000 of variable capital. The individual value of the commodities of one could only vary compared to the other, if one had better machines than the other, if one had more productive workers and so on. Its possible as Marx says that there might be a difference if one capitalist is more canny than the other, and is able to negotiate a better price than the other, but as Marx says this takes us outside the labour theory of value an the assumption underlying the analysis that commodities exchange at their values.

    • Boffy Says:

      The situation we have here is that described by Marx in Volume II. M -M’ is the circuit of newly invested money capital. It occurs only once, for that reason. At M’, it splits into M+m, the original money form of the productive capital, and m, the money form of the surplus value produced.

      M is now the circuit of the productive-capital value. In this case, the value of 2 machines, plus the variable capital. If we have expanded reproduction then m is now the circuit of the newly invested money capital. M, the money form of the productive-capital value equals £2,000, which is the reproduced form of the productive capital (2 machines, plus variable capital), and m is the money form of the newly invested productive capital = 2 machines.

  5. jlowrie Says:

    Now supposing our enterprising capitalist, in the grip of entrepreneurial enthusiasm, continues to expand, purchasing additional machines at the new price,( with the same variable capital, although this would be unlikely). We get:

    £6000c £1000v £1000s 14.3% r/p, which capital(9 machines) produces 4500 dolls at £1.66. Though the price of the dolls has fallen by almost 50%, their number has increased by 450 %. Clearly our capitalist has been guilty of overproduction and , unable to sell his commodities, goes bankrupt.
    Marx notes:
    ”The much greater costs that are involved in an enterprise based on new inventions…….The extent of this is so great that the pioneering entrepreneurs generally go bankrupt …Thus it is generally the most worthless and wretched kind of money-capitalists that draw the the greatest profit from all new developments”(Capital Vol. 3 p199).

    • Boffy Says:

      But, it doesn’t. The value of a machine is £500, so the value of 9 machines is £4,500. A fundamental tenet of the Labour Theory of Value is the constant capital cannot pass on more value to the end product than it contains itself. The constant capital has a value of only £4,500, and that is the maximum value it can pass on to the final product.

      By using the price paid by this capitalist rather than the value of the capital used in production you have abandoned Marx’s Labour Theory of Value in favour of a factor cost or marginal cost theory of value. By passing on a greater proportion of value from the constant capital than the constant capital itself possesses, you have converted it from being constant capital to being variable capital! In so doing you have completely undermined not only the LTV, but Marx’s material basis for class struggle.

      Because in the model you have set out the machines are circulating rather than fixed capital, i.e. they are fully consumed in a single production cycle, the model you have now arrived at is in any case impossible. Whatever the individual value of each firms dolls, they can only be sold at their social value, and their social value is equal to the labour-time currently required or their production.

      The constant capital can only be reproduced out of the realisation of the value of the dolls sold. The price of the dolls has fallen to £3 from 4, as a consequence of the fall in the value of machines. They have M = £2000, and m = £1000.

      Even if we assume that this particular capitalist has been fortunate, and the price of machines only falls after they have sold their output, but before they replace their machines, so that they were able to sell the dolls at £4,000, and thereby pocket a capital gain of £1,000, if they continue production on the same scale (i.e. they pocket this £1,000 capital gain,) then in the next cycle their capital will be

      2 machines value £1,000 + variable capital £1,000. So, we would then have c 1,000 + v 1000 + s 1000 = 3000.

      If we have expanded reproduction so that the capital gain is pocketed, but the surplus value is accumulated we would have:

      M’ = (M=m) = M £1,000 + m £1,000.

      M is reproduced in the form of 2 machines, so simple reproduction can occur on the basis of P…P. He started with 2 machines, 2 machines are reproduced. m is newly invested, again in the form of 2 machines. We now have:

      c 2000 + v 1000 + s 1000 = 4000.

      If we assume that production has doubled, the price per doll now falls to £2. But, this is unrealistic – for many reasons, i.e. no materials are included here, and variable capital has not increased. However, if we continue. Then in the next circuit we have:

      c 3000 + v 1000 + s 1000.

      At no point, is it possible to arrive at your figure of £6,000 of constant capital – at least not until another 3 circuits have been undertaken – because the value of the production is never sufficient (even allowing for the fortuitous position this capitalist was in to begin with) to reproduce that amount of constant capital!

    • Boffy Says:

      “£6000c £1000v £1000s 14.3% r/p, which capital(9 machines) produces 4500 dolls at £1.66. Though the price of the dolls has fallen by almost 50%, their number has increased by 450 %. Clearly our capitalist has been guilty of overproduction and , unable to sell his commodities, goes bankrupt.”

      How do you know they have overproduced! As Marx points out demand rises as price falls. With substantial fall in prices of dolls here, its likely that demand would have risen considerably. In fact, the price of dolls would have fallen far more than on the basis of your calculation, because the value of the 9 machines now employed even on your basis of the price paid for them is £4,500 not £6,000.

      You seem to have confused yourself by thinking that the original machines have continued in production even though you have fully depreciated them in the first year! In other words, you transferred their entire value in the first year to the product. In that case new machines would have to have been bought to replace them, and even on a price paid rather than value basis these new machines would only cost £500!

  6. jlowrie Says:

    Our canny capitalist however, persuaded of the verity of the protestant ethic, decides to expand only modesty:

    £4000c £1000v £1000s 20% r/p with 5 machines producing 2500 dolls at £2 each. These have a reasonable chance of clearing the market, but in the course of time her capital accumulates. Where to invest this surplus capital? In new ventures with the attendant risks? In speculation?
    Max notes:
    ”Overproduction of capital and not of individual commodities- though this overproduction of capital always involves overproduction of commodities-is nothing more than over accumulation of capital” (Ibid. p359).
    ”Thus we have the singular phenomenon that the same capitalists who deny overproduction of commodities admit overproduction of capital”. And
    ”It is the fall in the profit rate that provokes the competitive struggle between capitals and not the reverse” (Ibid. p365). And
    ”Simultaneously with the fall in the profit rate, the mass of capital grows, and this is associated with a devaluation of the existing capital, which puts a stop to this fall and gives an accelerating impulse to the accumulation of capital value”(Ibid. p357). To summarise:
    ”The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour”(Ibid. p319).

    Now who could deny the latter?

    • Boffy Says:

      Except that Marx nowhere equates the long-term tendency of the rate of profit to fall, which he says only occurs over very long periods, with the eruption of periodic crises of overproduction! In fact, in Theories of Surplus Value, which is where he undertakes the analysis of crises,he says the opposite. He says,

      “A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

      Marx is at pains to point out in his analysis of the general rate of profit that falls in one sphere are counteracted by rises in the rate of profit in others. If we take your capitalist, then despite the fact that you have calculated the values of constant capital, prices and rates of profit incorrectly, she could indeed invest in some new area of production, and by its very nature such new areas of production generally have a lower organic composition of capital, and higher rate of profit, so that when then looking at the total social capital we find that the average organic composition will have been reduced, and the general rate of profit will have risen!

  7. jlowrie Says:

    Heinrich is of course not the first Marxist to cast doubt on the TRPTD. For example Meek (Economics and Ideology 1967 p126) states that Marx’s laws of motion of capitalism may be summarised as:
    1. the law of the falling rate of profit
    2. the law of the increasing severity of cyclical crisis
    3.the law of concentration and centralisation of capital
    4. the law of increasing misery of the working class

    According to Meek only the third law ”has manifested itself on the surface of reality in a reasonably unambiguous manner.”

    Here Meek takes leave of dialectics : if 3. is true, so is 1.; if 1. is false so is 3.
    Marx explains:
    “A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process,in so far as both express the development of productivity.Accumulation in turn accelerates the fall in the profit rate…. the fall in the profit rate again accelerates the concentration of capital, and its centralisation.” (Vol.3 p349)
    As for 4. the increasing misery of the working class does not mean that it is getting progressively poorer. It means rather that as capital accumulates at one pole, at the other the labouring class is denuded of all objective wealth, ”Labour as absolute poverty: poverty not as shortage, but as total exclusion of objective wealth”(Grundrisse P296).
    As for 2. Meek’s assertion of its falsity seems to smack of a certain antiquated naiveté concerning the ability of capitalism to overcome its contradictions. The law of the falling rate of profit is not of course the cause of cyclical crisis, but it is the condition of their occurrence.
    I would suggest that part of the misunderstanding of Marx’s argument lies with his Ch 14 ”Counteracting Factors” where these are not dialectically integrated as his logic suggests they really are. This is due I would reckon not only to the unfinished nature of the work but also that such an integration could only be manifestly effected at the level of the world market,with an analysis of which I believe Marx meant to crown his investigations.(e.g.in the 1857 plan cf Rosdolsky p12). “the expansion of foreign trade…..becomes the specific product of the capitalist mode of production as this progresses, through the inner necessity of this mode of production and its need for an ever extended market” (VOL3 p344).
    The bourgeoisie call it ”globalisation”; we call it the tendency for the rate of profit to decline!

  8. jlowrie Says:

    Under Boffy’s calculation cost of each doll would be £1.40 not 71p. Sorry!

  9. Boffy Says:

    “Here Meek takes leave of dialectics : if 3. is true, so is 1.; if 1. is false so is 3.”

    Meek is wrong about 2 and 4 and only partially correct about 3. There is no law in Marx about increasing severity of crises, as the quote I gave above from Theories of Surplus Value demonstrates. There is certainly no theory of Marx about increasing misery of the working class. That is simply Lassalle’s Iron law of Wages, which Marx demolished, and which has been propounded by Stalinists.

    In fact, Marx shows why capital is led to increase workers real living standards, because it produces increasing numbers of use values, which it has to sell to workers. Marx refers to this as being the “Civilising Mission” of Capital, in the Grundrisse.

    But, clearly there is absolutely no reason why if 3 applies, that 1 follows. In fact, in Volume I of Capital, Marx shows why it doesn’t. That is that alongside the concentration and centralisation goes a massive reduction in the value of constant capital. It also probably implies a significant increase in the rate of surplus value.

    But, Volume I, Marx points out that alongside this concentration and centralisation also goes fragmentation. If centralisation and concentration were a one-way street, then today we would have only one or two companies controlling everything. But, Marx points out that capital fragments, new capitals arise. Similarly, old industries where the organic composition of capital has hit very high levels, also tend to get replaced, by newer industries where the OCC is lower.

    In Volume III of capital, Marx also points out that for very large capitals it is not the rate of profit that is determinant for accumulation but the mass of profit. It is only the small capitals that really suffer from a falling rate of profit, because they are not compensated by the increase in the mass of profit.

    Globalisation has clearly resulted in a huge increase both in the mass and in the rate of profit. That is why it has been able to undertake such a huge increase in accumulation, whilst also amassing large money hoards. Those who want to argue there has been a fall in the rate of profit have to explain where the capital came from to create massive new economies in China and elsewhere, to create whole new industries that did not exist 30 years ago, and yet still has had masses of realised surplus value left over and stored as money hoards in sovereign wealth funds, and in trillions of dollars sitting on corporate balance sheets!

  10. jlowrie Says:

    I thank Boffy for his comments. Clearly he is right and I really blundered by forgetting that the full value of of the constant capital is transferred, and so cannot be transferred again. Let us review the situation. Originally we had a capitalist A producing 1000 dolls with 2 Machines:
    2000c 1000v 1000s 331/3% r/p £3 per doll P £3000
    He expands to 4 machines, buying the old ones (Borrowed capital=£2000)
    4000c 1000v 1000s 25%% r/p £2.5 per doll P£5000
    ( This is what I should have argued, originally) But can he in fact clear the market with an output of 2000 dolls at only a marginally reduced cost? Another capitalist B decides to invest in new ones to increase productivity, costing £500 each.

    2000c 1000v 1000s 331/3% r/p £1.5 per doll P£3000 We assume that now her cost price has halved she can sell 2000. She is now able to realise an extra profit( because she sells them at their market value of £3 each), so she decides to expand to 8 machines=4000 dolls.

    4000c 1000v 1000s 20% r/p £1.25 per doll P £5000

    Alas we seem to be back with the falling rate of profit. Boffy rightly will say that there is of course a continuous reduction in the value of constant capital. But what is causing the machine construction industry to increase their productivity?

    • Boffy Says:

      This is a bit confused, but from what I can make out of it, still wrong. Firstly, if the price of a machine has fallen to £500, the two additional machines would be bought at £500, not £1000. Secondly, the social value of the dolls in both cases is the same. The LTV requires that all commodities on the market at the same time have the same social value. That social value is determined by the labour-time currently required for reproduction. It has nothing to do with what prices were paid for inputs, and even supporters of the TSSI accept that point.

      So, if that is now 2000 c + 1000 v + 1000 s, that is the value the dolls will be sold for. Its true that the first capitalist paid £2,000 for his first two machines, and these fall to £1,000, passing that value on to the end product, so he only recovers £1,000. But, provided this was his own money, this is not a problem, because the cost of replacing those two machines is now only £1,000 not £2,000.

      He is still in a better position than he was before, because his initial constant capital-value of £2,000 (2 machines) is reproduced. But, now his surplus value of £1,000 now buys 2 machines whereas previously it would have only bought 1. In reality, then the rate of profit on the productive capital, must clearly have risen not fallen, because the capital expands now by 2 machines not one.

      You are confusing yourself here, because you have constructed a rather unusual model where the only constant capital is made up of machines, and where production increases, therefore, without any increase in materials, and worse still variable capital.

      In fact, unless you assume a radical change in the level of productivity, the amount of variable capital would rise in proportion to the increase in constant capital, and along with it the surplus value would also rise. Then the fall in the rate of profit would disappear.

      On the other hand, if you assume that productivity has risen such that the number of machines rises, but the amount of variable capital and surplus value does not, you would similarly have to assume a rise in the rate of surplus value, so the rate of profit would rise both as a consequence of that, and of the fall in the value of the constant capital.

    • Boffy Says:

      Just to try to clarify your argument. You have a capitalist who has invested £2000 in two machines to produce 1000 dolls. She also invests £1,000 in variable capital.

      They produce the dolls. There are two possibilities here:

      1) The dolls are sold at their value, raising c 2000 + v 1000 + s 1000 = £4,000, or

      2) The price of machines falls before the dolls are sold. The value of the machines falls to 2 x £500, and this is passed in to the value of the dolls, so

      c 1000 + v 1000 + s 1000 = 3000

      Here, the capitalist will have suffered a £1,000 capital loss on the machines. But, out of this £3,000 they can now replace the two original machines consumed in production, and buy two additional machines using the surplus value.

      If we look at the rate of surplus value and rate of profit. Before the fall in the price of machines the we had s’ = 100% and r’ = 1000/3000 = 33.3%.

      Now we have s’ = 100% and r’ = 1000/2000 = 50%.

      In other words the rate of profit has risen not fallen.

  11. jlowrie Says:

    Marx argues (Capital Vol.3 p349-350),
    ” A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process, in so far as both express the development of productivity. Accumulation in turn accelerates the fall in the profit rate……on the other hand the fall in the profit rate again accelerates the concentration of capital, and its centralisation, by dispossessing the smaller capitalists and expropriating the final residue of direct producers.” Detroit and the Chinese peasant readily spring to mind as illustrations. A hundred years ago my home town had several car companies!
    Marx continues, “a fall in this rate slows down the formation of new, independent capitals….it promotes overproduction, speculation and crises, and leads to the existence of excess capital…”
    Further,” this gradual growth in the constant capital, in relation to the variable, must necessarily result in a GRADUAL FALL IN THE GENERAL RATE OF PROFIT, given that the rate of surplus-value …. remains the same.”(Marx’s emphasis, Ibid. p318) This follows on from “this gradual change in the composition of capital does not just characterise certain individual spheres of production, but occurs in more or less all spheres, or at least the decisive ones, and that it therefore involves changes in the average organic composition of the total capital belonging to a given society…”
    Further, ‘the development of labour productivity involves a law, in the form of the falling rate of profit, that at a certain point confronts this development itself in a most hostile way and has CONSTANTLY to be overcome by way of crisis.” (Ibid. p367, my emphasis).
    Now look, I am far from desiring to score debating points against Boffy,but I feel that these arguments by Marx do not quite bear out parts of Boffy’s exposition. If he or anyone else can clear up what I see as confusion, then I should be most grateful.
    For example Boffy is correct. Marx does affirm, ”The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods.”(Ibid. p346) But how does this square with p318?
    Boffy says, “Marx nowhere equates the TRPTF with the eruption of periodic crises of overproduction.” I don’t think anybody argues this, but clearly Marx thought there was a connection. This needs to be explicated. Surely the TRPTF is the condition of such periodic crises? Anyway, I am certainly open to enlightenment by Boffy or any other. That periodic crises result in the devaluation of capital and hence arrest the operation of the law I believe is the general view, but we need, or at any rate I do, much more detailed expositions!

    • Boffy Says:

      I think you need to understand Marx’s method of explication. He frequently makes comments like this, in order to explain a general point clearly before moving on to add in additional factors that essentially reverse the original position. Just look at his comments about the effects of machinery in Volume I. To read the original position, it would mean today machines had replaced nearly all labour, and their would have been continual growing mass unemployment as labour was replaced.

      But, in fact, in the following chapters Marx sets out that rising levels and rates of surplus value arise from that mechanisation, that new capitals are established that absorb labour, that capital grows absolutely, so although labour falls relatively, it too grows absolutely. He goes on to set out all of the vast new industries that this expansion of capital creates, the need for transport and so on.

      Its true that the rise in productivity is the basis of the growth of accumulation and a fall in the rate of profit. But, it is also the basis, as Marx sets out elsewhere of the absolute increase in surplus value. Moreover, it is also the basis of a rise in the rate of surplus value, because it leads to a rise in relative surplus value. It also leads to a reduction in the value of constant capital, and therefore, to a rise in the rate of profit.

      If you read the Chapter on the relation of the rate of surplus value to the rate of profit this is set out. In fact, Engels in editing it said he had terrible trouble with it, and as it appears, it is still very confused. The idea was to identify the effects of various changes in the value of v, s’, c and the organic composition on the rate of profit, by taking each individually. The problem is you can’t, because each variable impacts the others. So, in the end, the only rational way to understand this section as Engels basically says is that you have to consider the various comparisons as comparisons not of changes in the same capital, but as comparison between different capitals.

      But, the point of all these instances was to say, for example, if v, changes and nothing else, what is the effect on the rate of profit? In doing so, Marx was not at all trying to claim that v could change independently of anything else. He was simply trying to isolate the effects of changes in any particular variable, for the purposes of explanation.

      So the statement if c/v rises without any rise in s/v, then r’ must fall, is mathematically true. But, if c/v rises then as Marx sets out elsewhere, this implies a rise in productivity. s/v would then rise, and the consequence of a rise s’ is a rise in the rate of profit. A rise in productivity means that c is likely to become cheaper, so although the technical composition of capital may rise, the value composition may fall. Moreover, as Marx points out in Volume III, for large capitals it is the amount not the rate of profit that is decisive for accumulation. Finally, the growth in s, means that capital is available to set up new capitals, and these capitals will generally have lower c/v than older capitals, so for he total social capital the rate of profit would be likely to rise.

      Marx did not see a connection between the falling rate of profit and crises, and his lengthy analysis of crises in Theories of Surplus Value demonstrates that. That is not to be confused with the fact that particular industries can suffer a falling rate of profit, and indeed a sharp fall in the rate of profit. But, as Marx sets out in TOSV, this fall in the rate of profit is not the same as the tendency for the rate of profit to fall. It is as Marx sets out there, the consequence of rapid growth. A rapid accumulation of capital causes a sharp rise in demand for raw materials etc, that cannot be immediately met. The price of materials rises, so k rises, and the rate of profit falls. In fact, Marx sets out that this rise in materials prices may be such that the price of the end product rises to a level where it cannot be sold, so the producers have to absorb some of the cost increase from their profits in order to sustain demand at a level that enables production to continue.

      “Surely the TRPTF is the condition of such periodic crises?”

      No, the condition for those crises is set out by Marx in TOSV. It is the four contradictions at the heart of capital. The contradiction within the commodity between Use Value and Exchange Value, in the separation of production and consumption, in the role of money as means of circulation and means of payment, and in disproportion in supply of capital.

  12. jlowrie Says:

    I invite others to comment on Boffy’s arguments about the centralisation and concentration of capital. While they seem valid enough, I feel he downplays their extent. They are after all tendencies, not inexorable laws.
    As for the law of the increasing immiseration of the working class, Boffy is of course correct in asserting that as capitalism develops the workers dispose of a greater quantity of use values. What is meant by “immiseration”? Mandel in his introduction had argued for interpreting this as ”the relative impoverishment” of the working class. I argue on the contrary that immiseration should be understood not as relating to the standard of living or level of real wages at all, but rather that as capitalism develops so more and more of the population is separated from real property and is pauperised, this meaning: ”separation of property from labour appears as the necessary law of this exchange between capital and labour. Labour posited as non-capital as such is….not-raw material,not-instrument of labour, not-raw-product:labour separated from all means and objects of labour,from its entire objectivity…..this complete denudation….Labour as absolute poverty:poverty not as shortage, but as total exclusion of objective wealth.”( Grundrisse p295-296) Again, the Chinese peasants come to mind. With the restoration of capitalism first the communes were privatised, then the products of their labour more and more assumed the nature of commodities, next their instruments of production did so and now finally what was once communal land is being expropriated and a land market has developed. Even in the richest counties most people on wages are at best only a few months from penury. To understand immiseration in this way makes better sense and conforms to the manner in which capitalism unfolds.

    • Boffy Says:

      Your comments on immiseration are correct. However, bear in mind again that Marx, particularly in the Grundrisse is setting out “pure” categories. Marx understood that even in Britain the pure category of labour described there did not exist, i.e. owning nothing other than labour-power.

      Moreover, the separation from the means of production exists at an individual not a collective level. In Volume III, Marx sets out that the monopoly of private capital i.e. of the very big individual capitalist families, reaches its limits that are burst asunder – “the expropriators are expropriated” – by the development of collective, social capital in the form of the Joint Stock Companies and Co-operatives. These two forms of social capital Marx says are the transitional forms of property on the way to socialised property, and the co-operative commonwealth.

      They allow individual to overcome the problem of the increasing separation from the means of production by combining their resources, and particularly of using credit. In the Chapter on Credit, Marx sets out how it is the basis of the growth of the Joint Stock Company, which also mobilises the resources of the middle class and even workers, into huge congealed blocs of capital.

      The Joint Stock company, however, allows wealthy individuals to own a majority of shares, and so it simply reproduces the contradictions of capital. That is why he says,

      “The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises. into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.”

  13. jlowrie Says:

    In the example I gave of capitalist B, she would sell her dolls at £2.50, not £3 each, i.e.below their value but above their cost price.

  14. Daniel Rocha Says:

    Suppose that the wages and working hours staying the same, and all the produced commodities sold, the surplus will remain unchanged if the price of the machines, raw materials and auxiliary matters are halved.

    The price per unity will be halved, since the socially accepted time to produce every unity will be also halved.

    The market is not infinite, at a certain point it will saturate. So, the profit will just be the same if people are fir

  15. Daniel Rocha Says:

    I meant above, raw materials and auxiliary matters are doubled, not halved.

    • Boffy Says:

      The price would not double if only the constant capital doubled, because the new value added by labour would remain the same. However, there is a valid point here, that Marx makes in Chapter 6 Of Volume III, and in Part 2 Of Theories of Surplus Value.

      He sets out how when production increases rapidly because of a new machine or rapid accumulation, supply of raw materials cannot respond quickly so raw material prices rise. That price rise is passed on to the end product in the way you describe. The market may not be able to take this price rise so demand falls. Either, capitalists absorb some of the increased costs out of profits, or else they have to reduce supply to the level of demand, which means some businesses may go bust. This is one actual cause of crises that Marx and Engels cite. But, it has nothing to do with the tendency for the rate of profit to fall.

      The tendency is always for the suppliers of the raw materials to ramp up production, because the high prices have brought them high profits. This leads to alternating gluts and famines – this is also the so called Cobweb Theorem developed by Nicholas Kaldor.

      According to Marx, however, the general tendency of this process is to reduce the value of the constant capital and thereby to raise the rate of profit. Another example, he gives is of the introduction of spinning machines which caused a glut of yarn, and falling yarn prices. But, the glut was overcome by the introduction of weaving machines, which used the now much expanded supplies of cheap yarn, and also produced large amounts of cheap cloth with it. The market expanded thereby to swallow up this new large volume of use values at these lower prices.

      Over production is always relative as Marx points out, it is only ever an over production of commodities at prices that the market cannot or will not pay.

      • Daniel Rocha Says:

        If you everything cheaper, you use less working hours, considering the total social capital. If everything is cheaper, even money, that is, precious metals, with which the workers can satisfy their minimum needs, will imply that the ratio of both variable capital and constant capital remain the same.

        The only way an individual capitalist can increase its share of profits is to increase its proportion of constant capital within the total. Since all capitalists think alike, the proportion the ration of variable capital to constant will always fall.

  16. Boffy Says:

    There are also reasons for believing that if Marx and Engels were alive today they would wonder what this debate was about. In Vol III, Marx writes,

    “The foregoing five points may still be supplemented by the following, which, however, cannot be more fully treated for the present. With the progress of capitalist production, which goes hand in hand with accelerated accumulation, a portion of capital is calculated and applied only as interest-bearing capital. Not in the sense in which every capitalist who lends out capital is satisfied with interest, while the industrial capitalist pockets the investor’s profit. This has no bearing on the level of the general rate of profit, because for the latter profit = interest + profit of all kinds + ground rent, the division into these particular categories being immaterial to it. But in the sense that these capitals, although invested in large productive enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted. In railways, for instance. These do not therefore go into levelling the general rate of profit, because they yield a lower than average rate of profit. If they did enter into it, the general rate of profit would fall much lower. Theoretically, they may be included in the calculation, and the result would then be a lower rate of profit than the seemingly existing rate, which is decisive for the capitalists; it would be lower, because the constant capital particularly in these enterprises is largest in its relation to the variable capital.”

    Later he says,

    ““The rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished. It would die out. The rate of profit is the motive power of capitalist production.”

    But, of course, the formation of capital fell into the hands of the large oligopolistic corporations long ago. The kind of removal of such large capitals from the calculation of the average rate of profit, because they are no longer privately owned, and because the managers are concerned about their salaries etc rather than profits, and the stockholders are concerned about their dividends and capital gains, happened decades ago.

    Put this together with marx’s comments about the Joint Stock companies being the transitional form towards Socialism, and Engels comment in his Critique of the Gotha Programme,

    ““Capitalist production by joint-stock companies is no longer private production but production on behalf of many associated people. And when we pass on from joint-stock companies to trusts, which dominate and monopolise whole branches of industry, this puts an end not only to private production but also to planlessness.”

    and you sort of wonder whether Marx and Engels would consider modern capitalism to be a different beast to the one analysed in the pages of Capital.

  17. Daniel Rocha Says:

    The comment about joint stock being a sort premonition to socialism must be seen in a dialectical way. At one hand you have the highest degree of alienation from work, since stock holders are completely unaware of what happens in the production process, yet, on the other hand, you have that this same group of people who collectively owns the means of production. This is the highest point of tension that can exist in capitalism, where the bourgeois is at total opposition to the proletariat, which are completely aware of the means of production and yet owns nothing.

    This is unlike the classical capitalism where the capitalist not only owns, but manages the workers and directly confronts them.

  18. jlowrie Says:

    I thank Boffy for his considerate and indeed insightful comments.
    I am glad that he agrees that increasing immiseration has nothing to do with standards of living. We meet this distortion again and again, for example , the ex- Marxist D. R. Greene in his ”From Marx to Mises” (1992) repeats the nonsense that Marx believed capitalism would impoverish the working class. We have to remember that ownership of a house is a use value and not really a property;more a possession like a car. Similarly ownership of a number of shares does not confer real objective wealth. As we can see even in the richest countries as soon as a wage earner loses her job for any length of time, she soon has to sell the shares and indeed the house. Anyway, we also see that hundreds of millions of Chinese and other peasants have been denuded in the last twenty or so years of their objective ability to reproduce themselves and been plunged into the ranks of wage slavery.
    Incidentally, I agree with Boffy that we should really talk of oligopolistic capitalism rather than monopoly capitalism; or at any rate this follows from his argument. Further it is quite mistaken to talk of bourgeois democracies; all capitalist states are oligarchies.

  19. jlowrie Says:

    Where are we now in understanding the operation of the TRPTF? ”the mystery around whose solution the whole of political economy since Adam Smith revolves..” (Vol. 3 p319). I remember when I read Samuelson’s snide dismissal of the TRPTF with the comment that the rate of profit was not falling,thinking that he was like a silly schoolboy who imagined he had refuted the law of gravity by constructing a heavier than air flying machine. However that may be, I do not think we can skate over the seeming contradiction between pages 318 ”gradually’ and 367 ”constantly”, and p346 ”over long periods”, by appeals to Marx’s method of explication as such, and in fact Boffy’s own arguments seem to suggest another approach. The problem I tentatively suggest lies with Marx’s having explicated the counteracting factors as if they were separate factors, when in reality they they are all dialectically interdependent: the TRPTF , while it is the point of departure in Marx’s analysis, is in reality constantly in operation, in the sense that those factors that occasion the TRPTF are also those that give rise to its being overcome e.g the increasing accumulation of capital and its centralisation lead to a greater scale of constant capital to variable, which leads to a fall in profit, which in turn calls forth a cheapening of constant capital, which then allows the rate of surplus value to rise and consequently the rate of profit, which leads to a further accumulation of capital, permitting in time a further increase in productivity, and thus a lowering of the value of both constant and variable capital, and thus the checking but by no means the cancellation of the law of the fall of the rate of profit. The effects of the law however only manifest themselves at long intervals e.g in the car industry where capital is extremely concentrated and centralised to an extent that must have been unimaginable to the industry’s early pioneers.
    I should be glad to learn of others’ criticisms!

  20. jlowrie Says:

    I wish to consider further the law of gravity. In order to fly the downward force of gravity must be overcome. Gravity posits a barrier to flying( the other is drag). This barrier is overcome by upward lift,which must be greater than the downward force of gravity. With lift and and gravity in opposition to each other, increased lift and decreased weight are objects of aircraft design.Consequently the centre of gravity of a plane must be carefully determined. Otherwise lift can be destroyed, the plane stall and the force of gravity assert itself. Only the most powerful of jet fighters can fly straight up and even they will eventually meet a barrier.
    We see then that the physics of aerodynamics do not annul the law of gravity, but ultimately express it, in that in the formulations of their theories they have constantly to take into account its effect.
    I feel we should understand the TRPTF somewhat analogously. It cannot be equated with a secular fall in the rate of profit, as Samuelson does: as if in, say, around 1750 the rate of profit had been very high and has been declining since. Rather the existence of this law obliges capitalism to take countervailing measures. ”the development of labour productivity involves a law, in the form of the falling rate of profit, that at a certain point confronts this development itself in a most hostile way and has constantly to be overcome by way of crises” (Vol. 3 p367). The TRPTF posits barriers to the accumulation of capital that capital is forced to overcome, thereby again accelerating the accumulation of capital.

  21. jlowrie Says:

    ”We have shown in general, therefore, how the SAME causes that bring about a fall in the general rate of profit provoke counter-effects that inhibit this fall, delay it and in part even paralyse it.” Might one not add ”even reverse it”? ”These do not annul the law…..the law operates therefore simply as a tendency, whose effect is decisive only under certain circumstances and over long periods” (Ibid. p346 ).
    ”Decisive… over long periods” is what exercises us all. We might query with Meek whether the TRPTF ”has manifested itself on the surface of reality in a reasonably unambiguous way”? But why do we formulate the question in this manner? Why do we not then also ask if accumulation has accelerated, if productivity has risen, if the concentration and centralisation of capital has occurred, these being according to Marx different expressions of the same process? And I would add ”the immiseration of the working class”, this being understood in the meaning I have argued for above. Clearly in the contemporary world these processes have manifested themselves only too unambiguously, so much so that one can only marvel at Marx’s amazing prescience! If the latter are true, then so is the TRPTF, all being moments in the same dialectical development.
    In fact as one surveys contemporary capitalism one can only wonder in embarrassment that Meek, who never became a reactionary ( unlike say Ian Steedman who gravitated from the CP to being an economic adviser to some religious foundation, no doubt to warn them off designating as value ”their blessed labours in the vineyard of the Lord”),could be so limited as to pen such!
    If we do look at contemporary world capitalism for empirical confirmation, what do we find? Great cities like Detroit and even Chicago on the verge of bankruptcy. Even a bourgeois economist like Paul Craig Roberts, former assistant secretary of the treasury under Reagan of all people, talks of a gangster elite plunging the American economy into the abyss.(How The Economy Was Lost, 2010).
    How about Japan, 25 years ago regarded as the most successful major economy ever? As the source of cheap labour from the peasantry has been exhausted, the birth rate has plummeted and Japan, unlike the U.S., has not permitted the immigration of cheap labour, the rate of profit has fallen.Consequently they have switched production to China .
    And in China? After the revolution the eight hour day was introduced. After the reintroduction of capitalism, the working day is at least twelve hours, often seven days a week, in the most appalling conditions. Hundreds of thousand of children are kidnapped every year to be sold into factories and brothels. Well it certainly counteracts the TRPTF by raising the rate of Surplus Value? And of course more and more peasants continue to be driven from their land to accelerate ”modernisation”, or rather to further depress the cost of variable capital and offset the TRPTF!
    And Africa?Another way to counteract the TRPTF is to cheapen the elements of constant capital by ”foreign trade” e.g. plundering the raw materials of Africa, which ought to be a rich continent by any rational system.(cf Bassey, ”To Cook A Continent”2012 and Bond, ”Looting Africa” 2006).
    I reckon Marx got it right!

  22. jlowrie Says:

    We are still left with the question of what causes crises in capitalism, where we have considerable disagreement. Here we might gain some insight from a consideration of the problems faced by Marxist biologists( I strongly recommend Lewontin and Levins’ “The Dialectical Biologist”, even if you never read any other book on biology!)
    Steven Rose in his ”Lifelines”(2005 p10 to 14) presents the following fascinating puzzle: What causes a frog to jump into a nearby pond on catching sight of a snake?
    The physiologist says, ”The frog jumps because the muscles of its legs contract; in turn these contract because of impulses in the motor nerves arriving at the muscles from the frog’s brain… arriving at the brain from the frog’s retina.”
    The ethologist says, ”The physiologist ….has told us how the frog jumped but not why it jumped. The reason why is because it sees the snake and in order to avoid it.”
    The developmental biologist says, ” The only reason the frog can jump at all is because during its development, from single fertilised egg… to mature adult, its nerves, brain and muscles have be come wired up in such away that such a sequence of activity is inevitable or at least most probable given the starting conditions.”
    The evolutionary biologist says, ”The frog jumps because during its evolutionary history it was adaptive for its ancestors to do so to the sight of a snake; those that failed to do were eaten, and hence their progeny failed to be selected.”
    The molecular biologist says,”The frog jumps because of the biochemical properties of its muscles…. and hence because of chemical properties, and hence of physical properties.” Rose describes this as reductionist, and remarks ”that this is not a causal chain in the sense the physiologist uses the phrase. It is not a question of first one thing happening.., then another. If the word ’cause’ is used at all here, it must mean something quite different from how it is used in physiology. The confusion about the several ways in which ’cause’ is used has bedevilled scientific thinking since the days of Aristotle.”
    Rose observes that biology needs all five types of explanation. It all depends on our purpose in asking the question.” Excessive deference should not be paid to more reductionist type of explanations.” e.g it’s all in the genes, it’s all in the commodity.
    He further observes that the sciences, and he includes the social sciences, deal with different levels of organisation of matter. The divisions between levels are confused.”In part they are ontological and relate to scale and complexity, in which successive levels are nested one within another.”(p304)
    I cautiously suggest that we need to look for explanations of economic crises at multifarious levels.

  23. Boffy Says:

    You are quite right that we need to look for the causes of crises in multiple areas. That is precisely what Marx did. His abstract theory of crises is that they result from the contradictions of capital. He cites four, but some of them overlap. The contradiction inherent in the commodity between exchange value and use value, the separation of production and consumption, the role of money as means of circulation and means of payments, and disproportion in supply.

    He also, in Volume II of Capital locates the sources of crises in the circuit of Capital, i.e. in each of its three stages. Money-Capital to Productive-Capital, Productive-Capital to Commodity-Capital, Commodity-Capital to Money-Capital. Each of the four contradictions above provide the potential for crisis at these three stages.

    To understand what Marx says about the Falling Rate of Profit and overproduction in Volume III, you need to understand what he says about crises in Volume I, II and in Theories of Surplus Value, some of which is also covered in the Grundrisse, as well as what he says earlier in Volume III.

    Most people miss out the comment in Volume III that the example of Absolute Overproduction described is then described as “an extreme case”. But, what Marx is describing is not overproduction arising from some long term tendency for the rate of profit to fall, but simply repeating what he has said elsewhere. That is that there are various reasons why accumulation can accelerate and lead to a rise in the costs of constant capital. That is what the extreme case is indicating, i.e. production has expanded so much that all available labour power has been employed to an extent that wages have risen, and its impossible to employ additional labour-power profitably.

    This is only a version of the example he gives of the shortage of cotton in the 1840’s and 50’s, and most markedly in the 1860’s during the US Civil War, that drives up the price of cotton to levels where production cannot be undertaken profitably. This looks like the Falling Rate of profit, but it isn’t. Just as he criticised Smith for seeing that as a permanent state of affairs, this only applies until such time as new methods of supplying cotton cheaply arise.

    The same thing happened several times in the Industrial Revolution. An invention in weaving causes demand for yarn to rise, pushing up prices. A new spinning invention is introduced that slashed the price of yarn, and a glut of yarn arises, until a new weaving machine can absorb it. The same thing has happened with microchips, one time glut, one time shortage etc.

    I am writing a series of blog posts – Marx and Engels Theories Of Crisis – covering all this, so I will not have time for further comments here.

  24. Boffy Says:

    One last point before I leave this discussion. A few weeks ago I posted an article Effect Of Changes In The Social Capital which sets out using some actual data, some guesstimates etc. the effect on the average rate of profit of the changing nature of the total social capital, i.e. the move in the 19th Century from agriculture to industry, and the move in the last 50 years or so from industry to services.

    It indicates a point made by Marx that although the continual accretion of capital in some industries will lead to a tendency for the rate of profit to fall, the continual creation of new industries, new use values acts in the opposite direction. New types of industry always start with a lower than average organic composition of capital, but their proportion of the total social capital means they cannot overly influence the average rate.

    However, as these new industries grow – usually far more rapidly than existing industries – their proportion of the total social capital grows too, and so does their effect on the formation of the average rate of profit. Consequently, even as the rate of profit in these industries might itself fall, the effect of their growing share of total social capital can mean the overall average rate of profit rises!

    I would suggest that has been precisely the case with the growth of service industries, as well as the growth of all those new industries based on the microchip, biotechnology, gene techhnology and so on.

  25. jlowrie Says:

    Boffy’s analysis here surely is both consonant with reality and follows from a dialectical understanding of the TRPTF. It flies in the face of reality to interpret the latter as meaning that the rate of profit always falls. Rather the TRPTF explains what happens if countervailing factors do not assert themselves, namely the rate of profit falls UNLESS etc. Noway does the TRPTF rule out a rise in the rate of profit; quite the contrary, as I understand it, it demands it! Otherwise we would be talking of the decumulation of capital!
    Looking again at the analogy from gravity,aircraft design and technology are more and more able to overcome the barrier posited by gravity,but should the designers get it wrong,e.g by falsely determining the centre of gravity of the aircraft, then the pilot might find himself with a crisis on his hands and the aircraft plunge to earth. This does not mean that by being able to build more and more heavy aircraft the designers are progressively falsifying the law of gravity; quite to the contrary their very designs give eloquent testimony to its truth! It is the same with capitalists!

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