Andrew Kliman and the ‘Neo-Ricardian’ Attack on Marxism, Pt 2

Marx, Okishio and Kliman and the rate of profit

The more interesting part of Kliman’s book “Reclaiming Marx’s ‘Capital’” is actually not his non-treatment of the transformation problem but rather his treatment of the laws that govern the rate of profit. Of special concern for Kliman is the so-called Okishio theorem, which supposedly refutes Marx’s law of the tendency of the rate of profit to fall.

The Okishio theorem, which was clearly inspired by the “neo-Ricardians,” is named after the Japanese economist Nobuo Okishio, who developed it. Okishio began as a bourgeois marginalist mathematical economist but evolved toward Marx. Unfortunately, somewhere along the way he seems to have fallen into the “neo-Ricardian” swamp, which the Japanese economist perhaps confused with Marxism—apologies to Ricardo, who developed the law of labor value as far as he could rather than scrap it like the misnamed “neo-Ricardians” have done.

According to the Okishio theorem, as long as the real wage remains unchanged it will never be in the interest of an individual capitalist to adopt a method of production that will cause the rate of profit to fall. Marx showed that the real wage—the use values of the commodities the workers buy with the money they receive in exchange for their labor power—is determined by what is necessary to reproduce their labor power.

Marx explained that the real wage consists of two fractions. One is an absolute minimum that is required to biologically reproduce the workers’ labor power. The real wage can never fall below this level for any prolonged period of time. If it did, the working class would die out and surplus value production would cease. The second fraction is the historical-moral component, which depends on the history of a given country and the course of the class struggle. The latter fraction of the real wage enables the workers to a certain extent to participate in the fruits of the development of civilization.

By contrast, Okishio assumed that the real wage of the workers would never change. Okishio then went on to prove mathematically that assuming this unchanged real wage it would never be in the interest of an individual capitalist to adopt a method of production that would actually lower the rate of profit. Assuming this unchanged real wage, the only innovations that would be adopted by the capitalists would be those that would raise the rate of profit.

Making these assumptions and using a “neo-Ricardian” model, Okishio drew the conclusion that Marx’s law of the tendency of the rate of profit to fall was internally inconsistent and therefore invalid. Okishio’s conclusion is very disturbing to Andrew Kliman, because Kliman’s theory of crises depends entirely on a falling rate of profit and not on the problem of realizing surplus value. Therefore, from Kliman’s point of view, if the Okishio theorem cannot be disproved, capitalism should be able, at least in theory, to develop without crises. (1)

The contradictions of the Okishio theorem

The Okishio theorem assumes an unchanged real wage. Marx, however, never attempted to demonstrate that the rate of profit would fall if the real wage were fixed. Instead, Marx showed that a given rate of surplus value can express itself in different rates of profit with different organic compositions of capital.

This was a great advance beyond Ricardian economics, because Ricardo had under the influence of Adam Smith ignored constant capital. Adam Smith held that constant capital can always be reduced to variable capital if you go back far enough. Under the influence of this incorrect idea of Smith, Ricardo treated the rate of surplus value and the rate of profit as identical.

Because Marx concluded that increasing mechanization—since the 1940s sometimes called “automation”—implied a rise in the ratio of constant to variable capital, he further concluded that if the rate of surplus value is given—everything else remaining equal—the rate of profit will fall with the growth in the organic composition of capital. (2)

The reason this is true is that when calculated in terms of values, or direct prices, it becomes clear that only the variable capital—living labor—actually produces surplus value—though this is hidden by the equalization of the rate of profit. Or what comes to exactly the same thing, if we solve the “transformation problem” in reverse, transforming prices of production back into direct prices, only variable capital will yield a profit. Constant capital—fixed capital, raw materials and auxiliary materials—yield a zero rate of profit.

Therefore, looking at the total social capital and assuming a given rate of surplus value—again holding other variables constant—the more the total social capital consists of constant capital as opposed to profit-yielding variable capital, the lower the rate of profit will be. It is not hard to calculate examples where a higher rate of surplus value will express itself in a lower rate of profit. It is perfectly possible, therefore, for a rising rate of exploitation of the working class to express itself in an actual fall in the rate of profit.

Robert Brenner and the falling rate of profit

Some years ago, the Marxist historian Robert Brenner published a book-length article on crises in the world capitalist economy in the English socialist journal New Left Review. Brenner’s approach to this problem, however, was peculiar in that, while he considers himself a Marxist, he used none of Marx’s fundamental categories in his analysis of the capitalist economy. Marxist writers sometimes do this for reasons of popularization. However, Brenner made it clear that he was omitting the Marxist categories not for this reason but because he rejected them.

This is particularly ironic, because Brenner attributes the post-1968 economic crises of capitalism precisely to a fall in the rate of profit, which he holds has been occurring since the end of World War II. Kliman notes in “Reclaiming Marx’s Capital” that Brenner specifically rejects Marx’s law of the tendency of the rate of profit to fall because he claims the Okishio theorem provides the formal mathematical proof that it is wrong.

Brenner summarized the Okishio theorem as holding that no capitalist would ever adopt an innovation that actually lowers the rate of profit. Therefore, Brenner reasoned, quite crudely, Marx’s theory of the tendency of the rate of profit to fall based on a rise in the organic composition of capital is quite obviously wrong. How could Marx have overlooked such an elementary point!

However, Brenner in his New Left Review article and in other writings does put a falling rate of profit at the very center of his analysis of the contemporary world capitalist economy and its crises. If we reject Marx’s analysis as being disproved by Okishio, what did cause the fall in the rate of profit?

Why competition, Brenner explains. Since the end of World War II, competition among the capitalists has been steadily increasing. According to Brenner, this increasing capitalist competition has led to a strong downward tendency in the rate of profit. And the fall in the rate of profit is behind the worsening crises of contemporary capitalism. Brenner takes us back to the era before Marx and before Ricardo, back to Adam Smith’s theory of the fall in the rate of profit, which Smith like Brenner attributed to increasing competition among capitalists.

Brenner’s approach to the problem of crises—what Marx would call vulgar economics—is therefore the opposite of the one that I took in my blog, which seeks to apply—not reject—Marxist theory to the whole problem of crises. And I believe it is the opposite of what Andrew Kliman is attempting to do as well.

The rate of profit could fall if real wages rise, according to Okishio

Actually Okishio did not deny that if the real wage increases the rate of profit could fall. But in this case, the supporters of Okishio claim that the fall in the rate of profit is caused by a rise in the real wage, not a rise in the organic composition of capital. Therefore, the “neo-Ricardian” supporters of Okishio claim that Ricardo was right against Marx when he held that only higher wages cause a fall in the rate of profit.

Marx’s law of the tendency of the rate of profit to fall

Marx, of course, was well aware that no capitalist would ever consciously adopt a method of production that would actually lower his or her rate of profit. Why would industrial capitalists ever introduce an innovative method of production that increases the organic composition of capital and therefore reduces their rate of profit?

An individual industrial capitalist might very well introduce a new method of production that increases the ratio of constant to variable capital—in everyday language introduce a labor-saving method—if it reduces the cost price—constant capital plus variable capital. That is, the capitalist will introduce the new labor-saving method only when the savings in the variable capital is greater than the increased cost of the constant capital—dead labor. This will mean that productivity of labor in our innovating capitalist’s factories, mines or fields will rise and the individual value of the commodity produced will fall.

This will mean that an hour of concrete labor preformed by the innovating capitalist’s workers now counts for a greater amount of abstract labor. This is true because our innovating capitalist only lowers the individual value of the commodity produced and not its social value. (3) But once the innovation becomes generalized, the social value of that type of commodity that our innovator produces will fall. Or what comes to exactly the same thing, an hour of concrete labor performed by the workers of our “innovating” capitalist will on average once again only represent an hour of abstract labor.

However, during the interval between the introduction of a new innovation by a particular capitalist and its generalization, our pioneering industrial capitalist is able to sell his or her commodities at a price well above the individual value—or individual price of production—though not above its social value—or social price of production. The difference between the price of production at which our “innovator” sells his or her commodity and the individual value represents a super-profit. This occurs every day in world capitalist competition.

However, once the innovation becomes generalized, the social value will fall, and sooner or later the price of the commodity—assuming the value of money remains unchanged—will also fall as market prices adjust to the new lower prices of production. Once prices have adapted to the new lower values and production prices of the commodity—which cannot happen without a competitive struggle, of course—and the rate of profit has again become equalized in all branches of industry—which also requires a competitive struggle—the general rate of profit will, all else remaining equal, be slightly lower than before.

Therefore, did our capitalist make a mistake in introducing the innovation? Not at all. For a transitional period—perhaps a prolonged transitional period—our innovating capitalist made a super-profit above and beyond the previous rate of profit. (4) Once production prices have adjusted to the new lower value of the commodity, a fellow capitalist in the same line of production who has not copied the innovation ends up with an even lower rate of profit and quite likely an outright loss. In the case of a loss, our laggard will lose all his or her capital sooner or later.

Therefore, the drive of every individual industrial capitalist to increase his or her particular rate of profit can very well lead to a fall in the rate of profit for all the contending capitalists. Unless our capitalists are able to organize a universal cartel that outlaws any innovation that increases the organic composition of capital—something the mutual antagonism among our competing capitalists renders impossible—there is no way to prevent a rise in the organic composition of capital. And this will mean— assuming the rate of surplus value remains unchanged and all else remaining equal as well—a fall in the rate of profit.

The supporters of the Okishio theorem claim that they have taken these effects into account, and say that their mathematical proof still holds. As long as the real wage but not the rate of surplus value remains unchanged, no industrial capitalist will ever adopt an innovation that will lead to a general fall in the rate of profit. Only innovations that raise the rate of profit will be adopted.

Marx versus Okishio

But remember, Marx never attempted to prove that the rate of profit would tend to fall if the real wage remains unchanged. He only demonstrated that the rate of profit will fall assuming a given rate of surplus value—all other things remaining equal—if the organic composition of capital rises. In order to avoid or minimize a fall in the rate of profit, Marx’s demonstration shows, the industrial capitalists must increase the rate of surplus value. If they do so insufficiently, the rate of profit might still fall even as the rate of surplus value rises.

If the rate of surplus value remains fixed, a rise in the productivity of labor that is implied in a rising organic composition of capital will mean that the standard of living of the workers will rise absolutely, even as it stagnates relative to the total national income (wages plus all incomes derived from surplus value). (5) The workers will therefore be able to participate to a certain extent in the fruits of the advancing productivity though they will be just as exploited as before.

Assuming a given rate of surplus value and a rising real wage, which is exactly what Marx’s Volume III examples assume, the difference between Marx and Okishio boils down to whether the rate of profit falls because of a rise in the real wage—Okishio—or because of a rise in the organic composition of capital—Marx. This brings us to the fatal flaw in the Okishio theorem.

The fatal flaw in the Okishio theorem

Okishio was a rigorous mathematical economist. How do we in a mathematically rigorous way actually compare the real wage in one period with the real wage in another period? Before we can compare the real wage at two different points in the development of capitalism, we have to render the two real wages earned by our workers in the two different periods quantitatively comparable. That is we have to render the use values of the commodities that workers buy with their wages quantitatively comparable. But before we can do this, we have to render the use values of the commodities the workers consume qualitatively identical. And here the Okishio theorem breaks down.

Back to the corn models

One way to render real wages qualitatively identical and therefore quantitatively comparable is to assume that real wages consist of a single commodity—such as corn of a given quality. Or alternately that real wages consist of commodities whose use values never change and remain in exactly the same proportion to one another. Both are fantastic assumptions that are completely divorced from reality. Therefore, there is no way to apply the Okishio theorem to real-world capitalism. It is only applicable in a “neo-Ricardian” dreamscape.

In the real world, there is no way to compare quantitatively the real wage at different times in the history of capitalist production. As the organic composition of capital rises and labor productivity rises with it, the commodities that the workers consume change qualitatively and not simply quantitatively. Therefore when applied to real-world capitalism, the Okishio theorem is mathematically undefined. As far as the logic of his math is concerned, Okishio might as well have divided by zero.

The comparisons we cannot make

For example, suppose we wanted to calculate the rate of profit today compared with the rate of profit in the epoch of Marx. If we adopt Okishio’s approach, we have to compare the real wage earned let’s say by a worker in London in 1860 and a worker in 2010. We have to make a quantitative comparison of the use values that workers buy in London in the year 2010 with the use values of the commodities that the workers who lived in London bought with their wages in 1860.

Today, except for maybe the worst paid workers in third world countries, workers have to purchase electricity for electric lighting, for example, and also acquire cheap radios, telephones and televisions. Better-paid workers—workers who live in the imperialist countries like Britain, for example—purchase many other commodities as well. For example, they buy automobiles to get to work, electric-powered clothes dryers and dishwashers, vacuum cleaners and computers. None of these use values even existed in 1860.

And the problem doesn’t end here. The kind of telephone a worker might have owned not in the time of Marx—there weren’t any telephones in the 1860s—but in the 1950s is quite different than the cell phones that many workers own today. How many 1950s dial phones equal a cell phone of today? One brand of cell phone has been advertising that it comes with James Cameron’s Avatar preloaded. What movies came preloaded on 1950s dial phones? Exactly how many black and white TVs from the 1950s equal in use value terms a modern color TV made in 2010? And as they become cheaper, exactly how many flat screen TVs equal in use value terms a now “old-fashioned” cathode-ray tube TV, not in terms of price but in terms of use values?

Even the food we buy today in 2010 London is far from being qualitatively identical to the food that a worker might have bought when Marx was writing “Capital” in 1860s London. Any attempt to make a quantitative comparison of the use values of the commodities that make up the workers’ “real wage” in say London in 1860 with London in 2010 in a mathematically rigorous way is hopeless.

As soon as you start to talk about real wages, you are calculating in physical terms. When analyzing the capitalist economy based on profit, which is measured in money—exchange value—terms, any attempt to explain it by calculating in physical terms, Kliman correctly points out, ends in a blind alley.

And the comparisons we can make

What we can do is compare the labor values of the commodities that make up the workers’ real wage in 2010 as compared to the (labor) values of the commodities that the workers consumed in 1860. Or even more precisely, since individual workers will purchase different “market baskets” of commodities with their money wages, we can compare the labor values of the commodities in money, in terms of gold, that workers receive today with the (labor) value of the commodities in money, in terms of gold, that workers received in exchange for their labor power in the days of Marx. Unlike the case with most commodities, in terms of quality a given weight of gold bullion of a given fineness has not changed since Marx was writing “Capital” in 1860s Britain.

And even better, we can then compare the hours of abstract human labor for which workers are paid today—on average for a given quantity of labor measured in terms of  hours—with the hours of abstract human labor for which workers were paid in Marx’s day for an identical quantity of labor by equating their pay to the amount of gold it represents. An hour of abstract human labor—a social substance—is qualitatively identical with any other hour of abstract human labor in both space and time. Therefore, the values of the money the workers were paid in say London in 1860 and are paid in London in 2010 are quantitatively comparable.

We can therefore in a mathematically rigorous way compare both the value of labor power, the value of the money—wages—the labor power is paid in, and the rate of surplus value that prevails today compared to that which prevailed when Marx was writing “Capital” in the 1860s. Similarly, we can compare the organic composition of capital in the two epochs, since the organic composition of capital is a ratio of values—constant and variable capital— consisting of hours of abstract human labor. These comparisons are logically consistent in the real world. Okishio’s comparisons are logically inconsistent outside the “neo-Ricardian” never-never land.

Any element of truth in the Okishio theorem?

The only elements of truth in the Okishio theorem are already included in a consistent way in Marx’s work. If in the face of a great rise in the productivity of labor, and we can assume a significant rise in the organic composition of capital, the workers’ general living conditions fail to improve—or lag far behind the growth in the productivity of labor—this will represent a huge increase in the rate of surplus value. That is, the ratio of unpaid labor performed by the working class to the paid labor will have risen sharply. Or, what comes to more or less the same thing, the (labor) value of labor power will have fallen sharply.

Changes in the organic composition partially governed by the rate of surplus value

What governs changes in the organic composition of capital? Of course, the advances of science and technology play an important role here. You can achieve a much higher degree of mechanization and with it a much higher productivity of human labor—what Marx called the technical composition of capital—with electric power than you can with the steam engines that dominated industrial production when Marx was writing “Capital.” Marx assumed—though this has been challenged by many bourgeois economists and by some Marxists such as Paul Sweezy—that a rise in the technical composition of capital will as a rule mean a rise in the organic composition of capital, though to a lesser degree.

Technical composition of capital versus organic composition of capital

The technical composition of capital is not the same as the organic composition, because the technical composition involves ratios of use values—and therefore cannot be calculated in a mathematically rigorous way—while the organic composition of capital involves a ratio of values—the ratio of the abstract labor embodied in the commodities that make up the constant capital to the abstract labor embodied in the commodity labor power.

A factory today may be stuffed full of powerful machines and may employ very few workers compared with a similar factory of 50 years ago, but the machines in today’s factories can be produced with relatively less labor than the machines in the factories of 50 years ago because of the rise in the productivity of the labor in the machine-making industry. Therefore, the rise in the organic composition of capital—which involves a ratio of (labor) values—will not be as great as it might first appear.

But if we assume a given rate of scientific and technological progress, the evolution of the organic composition of capital will be governed by the evolution of the rate of surplus value. The reason is that while on average an industrial capitalist has to pay the full value of the commodities that make up constant capital—dead labor—the industrial capitalist only pays for a fraction of the living labor of the workers. If it were otherwise, no surplus value would be produced and there would be no profit.

The higher the rate of surplus value the closer we are to the mathematical limit where all living labor is unpaid labor. The lower the rate of surplus value the closer we are to the opposite mathematical limit, where no surplus value is produced and the rate of profit falls to zero. This means that the higher the rate of surplus value—assuming a given rate of inventions from the domain of science and engineering—the lower the organic composition will be at a given point of time in the future, because capitalists will have less incentive to replace living labor with dead labor. Conversely, the lower the rate of surplus value the higher the organic composition of capital will be at a given point of time in the future, because capitalists will have a greater incentive to replace living labor with dead labor.

Long-term cyclical movements in the rate of profit

Suppose over a certain period of time the capitalist class is highly successful in raising the rate of surplus value. This raises the rate of profit in two ways. First directly, since with a given organic composition of capital—all other things remaining equal—a higher rate of surplus value express itself in a higher rate of profit.

Second indirectly, because again, all else remaining equal, a higher rate of surplus value implies a lower organic composition of capital at a given point in time in the future. The individual industrial capitalist is not interested in economizing on all the labor embodied in his or her commodities, but only on the labor that he or she actually pays for. Far from wanting to economize on the portion of labor that they do not pay for, our industrial capitalists want to maximize the unpaid labor. The unpaid labor is nothing else than the surplus value.

We can also see a kind of cyclical tendency for periods of rising rates of surplus value, low rates of growth in the organic composition of capital, and consequently rising rates in the rate of profit to be succeeded by periods of stagnating or falling rates of surplus value, and consequent rapid growth in the organic composition of capital, leading to a falling rate of profit. Some Marxist economists, such as Ernest Mandel, saw these more or less cyclical movements in the rate of profit as the material basis for the succession of long waves of rapid growth and then semi-stagnation.

Suppose we begin with a period where the rate of surplus value is high and consequently there is little or no growth in the organic composition of capital. The demand for labor power—abstracting the temporary interruptions caused by crises—will be high. Sooner or later, the labor market will again begin to shift in the direction of the sellers of labor power and against the buyers.

The capitalists will find it increasingly difficult to raise the rate of surplus value, and the rate of surplus value might even start to fall. At this point, the tendency of the rate of profit to fall will again powerfully assert itself. On one hand, a lower rate of surplus value will, all else remaining equal, express itself in a lower rate of profit. And since more of the living labor will be paid labor, the capitalists will be encouraged to once again replace living labor—variable capital—with dead labor—constant capital. The combination of a renewed rise in the organic composition of capital and a stagnation if not fall in the rate of surplus value will once again cause the rate of profit to fall.

Indeed, Marx explained that the tendency of the organic composition to rise comes not so much from the mutual competition between the individual capitalists but from competition—class struggle—between the sellers of labor power—the workers—and the buyers of labor power—the capitalists.

Consequences in the real world

Today in the imperialist countries—the United States, Western Europe and Japan—the factories that remain are extremely automated—have an extremely high organic composition of capital. However, because of the equalization of the rate of profit, these highly automated factories tend to yield to their owners the same rates of profit that far more labor intensive factories—that is, factories with a much lower organic composition of capital that are increasingly located in countries that for historical reasons have the lowest value of labor power and the lowest wages—yield to their owners.

The evolution of the rate of profit in recent decades

There has been much debate among Internet Marxists regarding the actual trend in the rate of profit since World War II and especially since the bottom of the “Volcker Shock” recession in 1982. Various and conflicting measures of the rate of profit have been made by the late Chris Harman and Michel Husson. While Harmen defended the view that the rate of profit has not recovered much since 1982, Husson, much like Bill Jefferies, sees a substantial rise in the rate of profit since 1982.

Husson and Harmen came out with different figures for the actual evolution of the rate of profit since the Volcker Shock of 1979-82. While I won’t offer any estimates of my own, some basic facts should be kept in mind when attempting to estimate the actual rate of profit on the total global social capital over the last 65 years.

First, we have to remember that the rate of profit must be measured in terms of real money—that is, gold bullion. Almost all calculations of the rate of profit that have been attempted fail to do this. Instead, they measure the rate of profit in terms of dollars of constant purchasing power. In effect, these are attempts to measure the rate of profit in terms of the use values of commodities—that is, in physical terms.

The inflation of the 1970s hid what was in reality a decade of major losses for capital—negative profits—that appear once profits are measured not in terms of dollars of constant purchasing power but in terms of real money—gold bullion. But such a situation where capital was still making profits in terms of dollars of constant purchasing power—in physical terms—but not in terms of (real) money—gold—could not have continued much longer. For a fuller explanation of this point, go to this post.

Remember the corn model that I examined in part 1 of this reply, where the capitalists make a 20 percent rate of profit in terms of corn but only break even in terms of money? In the 1970s, the real-world capitalists were not even breaking even in terms of real money—gold. Instead, they were incurring major losses. It was more “profitable” to simply hoard gold bullion in the 1970s than it was to make any kind of “investment.”

By the end of the 1970s, the world capitalist economy was approaching a total meltdown. The Volcker Shock of 1979-82 brought this situation to an end—though at the cost of the deep recession of 1979-82. The alternative would have been much worse as far as the capitalists were concerned. In the wake of the “Volcker Shock,” the rate of profit staged a speculator comeback, which is fully revealed only when the calculations are made in terms of gold and not constant dollars, which partially conceal the spectacular comeback of the rate and mass of profit. It is no accident that Volcker, now a senior advisor to the Obama administration, is such a revered figure in the capitalist world today.

The rate of profit after the Volcker Shock

The effects of the re-opening of China to capitalist investment following the reforms of 1978, the destruction of the planned economies of the Soviet Union and Eastern Europe after the rise to power of Mikhail Gorbachev in 1985 and the weakening and retreat of the workers’ movement (both parties and trade unions) since the 1970s have undoubtedly led to a huge rise in the rate of surplus value and fall in the average value of labor power on a world market-wide basis.

For example, instead of paying industrial workers $20 or $30 an hour—in today’s dollars—the industrial capitalists—corporations—can instead pay workers a couple of dollars and sometime less than a dollar an hour in China or other parts of Asia where the value of labor power for historical reasons is much lower.

This is why the big corporations headquartered in the United States, Western Europe and Japan are increasingly contracting out their production to factories located in Asia with its vast numbers of workers—with new workers constantly being recruited from the still huge peasant populations of China and India. You don’t have to be a math genius to see that this will have a significant impact on the rate of profit!

In the imperialist countries themselves, the corporations increasingly confine themselves to the design of new material use values—product development, experimental factories—or extremely automated factories that employ very few workers. For example, a relatively large number of fabs—factories that produce high-end computer chips such as central processing units (CPUs)—are still located in the imperialist countries—the United States, Western Europe and Japan. In Marxist terminology, fabs have a very high organic composition of capital. This is why the capitalists can “afford” the “luxury” of paying relatively high “first world wages” in these factories. Even with relatively high wages, labor costs in these highly automated factories are low.

Even here, however, most fabs are now located in Asian countries such as (South) Korea or in Taiwan where wages are now by Asian standards relatively high. Though growing, only a relatively small number of fabs are located in still low-wage China. (6) Instead, the capitalists use the low-wage countries for assembly—which is relatively labor intensive—or in the scientific language of Marx involve factories with a relatively low organic composition of capital. It is in these types of factories—which represent capital with a relatively low organic composition—where the bulk of the world’s industrial workers are employed and where most of the surplus value is actually produced.

The evolution of the rate of profit between 1945 and 1970

This situation beginning with the 1970s—in which the forces that tend to counteract the fall in the rate of profit have been operating with extraordinary force—is the opposite of the situation that prevailed in the first decades after World War II, where conditions were highly favorable for a fall in the rate of profit.

Then the organized workers’ movement had come out of World War II greatly strengthened. The fascist dictatorships of Hitler and Mussolini were destroyed, the Communist parties in Western Europe were greatly strengthened relative to the Social Democratic parties, while the Social Democratic parties were strengthened relative to the fully bourgeois parties. The colonial countries, one after the other, were winning at least their nominal independence. It was the era of the victorious struggle against Jim Crow in the United States followed by the great struggle in opposition to the war against Vietnam.

In Eastern Europe, capitalism was replaced by planned economies, and Western and Japanese corporations were largely excluded from China following the victory of the Chinese Revolution in 1949. Instead, the economic role of the Chinese state expanded greatly in the first decades following the victory of the Chinese people in 1949. The victory of the Cuban Revolution in 1959, as did the victory of Vietnam over first French and then American imperialism in the Indochinese wars, confirmed the trend.

In these years, fearing the further spread of “communism,” the capitalists were willing to make considerable economic concessions to the workers of Western Europe, Japan and the United States in the form of higher wages and greatly expanded social insurance. These developments, combined with the long wave of rapid economic growth in reaction to the Great Depression and the destruction of World War II, made it very difficult for the capitalists to increase the rate of surplus value. Instead, the capitalist were encouraged to replace increasingly costly living labor with dead labor. Or what comes to exactly the same thing, increase the organic composition of capital.

A new fall in the rate of profit?

We are beginning to see signs that forces that have worked to greatly raise the rate of profit over the last 40 years are coming to an end. As the demand for the commodity labor power soars in China, the Chinese workers are beginning to demand and win higher wages. The response on the side of capital to what the capitalists call wage inflation in China—having to pay wages measured in dollars as opposed to pennies in U.S. dollar terms—is both to increase the organic composition of capital within China while seeking even cheaper sources of labor in other countries such as India, Bangladesh and Vietnam, and no doubt increasingly in the coming years on the African continent. (7)

But in time accelerated industrialization will inevitably unleash tendencies for a rise in the value of wages in these countries that we are beginning to see in China and a new rise in the organic composition of capital, which will lead to a renewed fall in the rate of profit across the globe.

Of course, exactly how fast this happens will depend in no small measure on how quickly the world workers’ movement can draw the lessons and thus recover from the disastrous events of the last years of the 20th century.

The real problem, then, as Michel Husson realizes, is not to explain why the rate of profit has not fallen over the last 40 years—in the whole history of capitalism it is doubtful that conditions have ever been more favorable for a rise in the rate of profit—but rather why the performance of the world capitalist economy has not been a lot better than it in fact has been.

Why haven’t we seen a huge economic boom—or more strictly a long wave of unprecedented expansion in response to the jump in the rate of profit? Why did we get instead only the “Great Moderation”? And why did the most violent economic crisis since the super-crisis of 1929-33 break out in this period when there have been such powerful forces working to raise the rate of profit?

Bill Jefferies has also put great emphasis on the very real forces that have been working to raise not lower the rate of profit over the last 40 years. He has been predicting a “great boom”—or more strictly an expansionary long wave. But where is the “Great Boom”?

The answers to this question that I explored in my main posts I think involve the question of realizing the surplus value as well as the division of profit into interest and profit of enterprise. In order for the capitalists to make a profit, it is not enough to produce the surplus value, they must also realize it in money—and that means ultimately in gold—terms. In the final analysis, profit must be calculated not in “real” commodity or physical terms but in gold, that is money, terms.

Conditions necessary for a ‘Great Boom’

While a high rate of profit is a necessary condition for a “Great Boom,” it is not sufficient. A low rate of interest is also required that allows a high rate of profit to express itself in a high profit of enterprise.

In the period following the Volcker Shock, the rate of interest though gradually falling was for many years extremely high, and this discouraged productive investment despite a high rate of profit. Today, after decades of decline the rate of interest is now quite low, but the capitalists are having massive problems realizing the surplus value that they are wringing out of the workers as the huge inflation of credit—largely consumer credit—that took place in the years following the Volcker Shock finally contracts.

In my opinion, the Grossman-Mattick school is dead wrong when they assume that if the rate of profit is sufficient the problem of the realization of surplus value—finding markets—is automatically solved. On the contrary, to have a great expansion you need not only to produce surplus value in ever-greater amounts, you also need an expansion of the market, which is largely governed in the long run by the level of gold production. Any real prolonged capitalist prosperity needs a rising level of gold production, as I explained in the main posts. To have the kind of capitalist prosperity last seen in the first decades after World War II, you need a high rate of profit—in value terms—a low rate of interest and an expanding market.

The U.S. Federal Reserve System—the de facto world central bank under the dollar system—is under great pressure to expand the dollar monetary base—the token money it creates to whip up effective demand in order to get the world capitalist economy out of its current stagnation. But with the dollar price of gold now hovering around $1,200 compared to around $675 on the eve of the crisis in 2007, this involves great dangers.

While a massive dose of inflation would cause the rate of profit to soar in terms of paper dollars and maybe even constant dollars—in physical terms—for a while, the rate of profit calculated in terms of gold would probably plunge below zero just like it did in the 1970s. In addition, interest rates not only in real terms but also in terms of gold—which is what really counts under capitalism—would again soar in the wake of the new “Volcker shock” that would be necessary to restore positive gold profits.

A return to real capitalist prosperity requires not only a high rate of profit in terms of real money, gold, but also the maintaining of interest rates at today’s low levels. If a new inflation causes interest rates to soar, any prospect of a new capitalist prosperity would recede far into the future. This is why the Fed has recently been resisting engineering a new explosion in the “monetary base” despite signs that the “recovery,” such as it has been, is fading as government spending aimed at increasing demand is wound down in the wake of the April-May governmental debt crisis in Europe.  On August 27, Federal Reserve Chief Ben Bernanke indicated that he stands ready to resume rapid expansion of the monetary base if the economy continues to slow.

If, however, the Fed avoids a new big plunge in the dollar’s value against gold—and allows the current deflation of credit to continue—which preserves today’s low interest rates or even lowers them further—then once the huge surplus of commodities and surplus productive forces are liquidated that have been accumulated since the end of the Volcker Shock in 1982, a combination of a low rate of interest plus a high rate of profit could finally unleash a new world boom. It was exactly the combination of a low rate of interest and a high rate of profit in the wake of the Depression-World War II and an expanding market that set the stage for the post-World War II boom.

Given the depleted state of world gold mines, the final factor that is necessary for a prolonged period of capitalist prosperity—an expanding world market—might be harder to come by in the future. If no drop in commodity prices in terms of gold proves sufficient to raise the profitability of the world’s depleted gold mines to the point that gold production strongly expands, any future period of capitalist prosperity will be short lived. (8)

The barriers to a new “great boom”—or strong expansionary long wave—remain formidable. Assuming, however, that gold production can be raised once commodity prices in terms of gold have fallen sufficiently and the rate of interest remains low—that is, no repeat of the stagflation of the 1970s with its explosive rise in the rate of interest—a new global upswing in capitalist expanded reproduction will occur sooner or later.

This assumes, of course, that the workers’ movement allows the system of capitalist exploitation to continue—an assumption that despite the prolonged world reaction might prove unwarranted. If such a “boom” (9) does develop, it will bring a new rise in the demand for the commodity labor power and, let’s hope, a reviving world workers’ movement, which together will work to bring down today’s high rate of surplus value—or at least prevent its further growth—which will encourage a new movement on the part of the capitalists to replace living labor with dead labor. The organic composition of capital will rise and the rate of profit will once again decline guaranteeing a new era of sharper crises.

One of the contradictions of capitalism, as I explained in the main posts, is that the harder it is to realize surplus value the easier it is to produce it—leading to a rise in the rate of profit once the realization problems are overcome—while the easier it is to realize surplus value, the harder it is to produce it, leading to a fall in the rate of profit.

As Marx explained, only when a high enough rate of profit—and interest rates that are low enough to allow for an adequate profit of enterprise—coincide with favorable conditions for the realization of surplus value—the expansion of the world market—does capitalist production really surge forward.

It is because of all the contradictory tendencies, some of which I explored above, that Marx did not speak of the law of the falling rate of profit but rather the law of the tendency of the rate of profit to fall.

The richness of Marx’s law of the tendency of the rate of profit to fall gives us the ability to explain real-world events such as the dramatic shift of industrial production toward Asia accompanied by the decay of capitalism in the imperialist countries that began in the 20th century and more and more dominates the world economy in the opening years of the 21st. What a contrast with the Okishio theorem with its dependence on dreary “neo-Ricardian” “corn models.”

Kliman’s non-answer to the Okishio theorem

According to Kliman, the rate of profit in terms of value—and this is exactly the rate of profit that Marx’s law of the tendency of the rate of profit to fall deals with—has not fallen since World War II. He may well be right here, since as I explained above, while conditions were highly favorable for a fall in the rate of profit over the first 25 years after World War II, the reverse has been the case over the last 40 years.

However, instead of explaining that conditions have been extremely favorable for the forces that counteract the fall in the rate of profit over the last 40 years, but that these forces are bound to be reversed in the future—assuming the continued existence of capitalism and assuming the problems of realizing the surplus value that would have to be produced can be overcome—Kliman simply changes the subject.

Remember, Marx’s law of the tendency of the rate of profit to fall abstracts the whole problem of the realization of value and surplus value in money, and the fluctuations of the rate of profit across the industrial cycle. Instead, Marx assumes that all the value and surplus value that is actually produced is actually realized—a highly unrealistic assumption. Marx asks, if we abstract the problems of realizing value and surplus value in money what will be the long-term tendency of the rate of the profit?

Kliman calls attention to a different question entirely—the effect of changes in the value of existing capital on the rate of profit. These changes in the value of existing capital affect mostly fixed capital, because it has a long lifetime, but it can occasionally affect circulating capital as well. This is especially true in agriculture where favorable and unfavorable seasons can make a big difference in the (labor) values—and not just the prices—of agricultural commodities and raw materials such as cotton, wheat and cattle as favorable growing seasons succeed unfavorable growing seasons. Just such a sequence of events played a crucial role in the historical crisis of 1847-48, for example.

Kliman explains correctly that if capitalists have advanced a certain amount of capital, they must calculate their profit—if any—on the amount of capital they advanced and not on the current value of commodities that make up the advanced capital. Indeed, capitalist accountants are well aware of this. That is why capitalist firms periodically write off the value of their existing assets. Sometimes a corporation will report a large quarterly loss based on just such a write-off on its books. Such write-offs reduce the profits that would be earned on the advanced capital if such write-offs did not have to be made.

Like Marx, accountants distinguish between the depreciation due to wear and tear—the transfer of value to the commodities the “assets” help produce—and the functional—what Marx called moral depreciation—of existing assets due to the fall in the value of new machines brought about by the drop in the labor socially necessary to produce them. Or alternately, the development of more powerful machines that require the same amount of labor to produce than the less powerful machines they are replacing.

As Kliman notes correctly, this phenomenon is a powerful factor in the formation of crises. It is worth noting that perhaps the most powerful force that offsets the fall in the rate of profit—the devaluation of machinery that is the inevitable result of the rise in the productivity of labor—is itself a force that works toward the formation of crises in the capitalist expanded reproduction process. Kliman and the TSSI school make a very important point here.

Falling prices and Marx’s law of the tendency of the rate of profit to fall

Kliman notes that a rise in the productivity of labor tends to lower the prices of commodities, and that falling commodity prices lower profits. He is correct against marginalist and “neo-Ricardian” economists who claim that “real” profits—profits calculated in physical terms do not actually decline when prices drop. Despite his lack of a correct theory of money, Kliman senses that profits have to be calculated in terms of money not commodities.

What Kliman analyses is the fall of the rate of profit within a particular industrial cycle. The massive devaluation of capital—especially long-lived fixed capital—that occurs due a rise in the productivity of labor during major cyclical upswings must be subtracted from the profits that capitalists would make if this devaluation of existing capital did not occur. In some cases, this subtraction can transform profits into losses.

Major devaluations of fixed capital that begin in the sphere of production—rising productivity and falling values—spread to the sphere of prices and profits and eventually lead to a major destruction of capital. This destruction of capital takes several forms. It may take the form of a write-down of the value of fixed capital on the books, or it may take the form of factories and indeed whole companies being sold at a small fraction of their former value to other capitalists. The factories are transferred from the “weak hands” of the old capitalist owners to the “strong hands” of buyers who purchase them at a fraction of their former value. Or even more dramatically, old factories are physically destroyed. Who can forget the pictures of the huge steel mills that generations of steel workers had toiled in being razed to the ground in the U.S. state of Pennsylvania in the early 1980s.

The resulting contraction in constant capital brought on by this destruction of existing capital has the effect of lowering the organic composition of capital and paves the way for a renewed rise in the rate of profit. As Kliman shows, these cyclical movements in the rate of profit certainly play a crucial role in the swings of the industrial cycle and crises. However, this is not the same thing as the secular tendency of the rate of profit to fall across the cyclical fluctuations of the industrial cycle that Marx was analyzing.

The method of abstraction

Not all abstractions are valid. For example, Kliman quotes the English economist Joan Robinson:  “[C]onsider an economy consisting of capitalists and workers . . . whose only product is Ricardo’s ’corn’. There are no prices of commodities, since there is only one commodity.” This is what Marx called a violent abstraction. Why isn’t this a legitimate abstraction?

An economy that produces only one product is not only an absurdity. Such an economy is so simple that it doesn’t even have a division of labor and so is not by definition a commodity producing economy. Any commodity production—not to speak of a capitalist economy—requires a division of labor and exchange. If only one “commodity” is produced, there would be no exchange whatsoever and by definition no commodity production. Corn models that claim to explain the capitalist economy are among other things abstracting everything that makes production capitalist.

Nor are models assuming two commodities such as corn and iron a much better abstraction. Capitalism is the highest form of commodity production, which involves the production of a huge quantity of commodities of many different use values. This indeed forms the starting point of Chapter I of Volume of I of “Capital.” A simple barter commodity economy is not a capitalist economy.

For example, if there are only two commodities, what is supposed to be the money commodity? This is why the “neo-Ricardians” end up calculating in physical terms, which Kliman so rightly deplores. Profit, after all, is not measured in the use value of commodities in general but rather in terms of the use value of the money commodity. In scientific terms, profit is surplus value realized in and measured in the use value of the money commodity.

However, abstractions are absolutely necessary if we are to analyze something as complex as a capitalist economy. We have to leave many things out if we are to grasp the essentials of the capitalist economy. Of course, what we can leave out depends on the exact problem we are analyzing.

Some examples of how Marx used abstraction

Marx abstracted not only market prices but prices of production throughout the first two volumes of “Capital.” This abstraction was necessary to reveal the most important and paradoxical feature of the capitalist mode of production. Suppose the capitalist pays the worker the full value of her labor power. Then there is no violation of the principle of the “fair and equal exchange” of commodities containing equal quantities of labor. Isn’t this the very essence of (bourgeois) democracy and equality?

Assuming the law of value operates in its purist form, there is no violation of the principle of exchange of equal quantities of labor. (10) Yet the capitalist still makes a profit by obliging the worker to perform unpaid labor just as was the case under slavery and feudalism, where there was no pretext of equal exchange.

If Marx had begun where the vulgar economists­—including the “neo-Ricardians”—begin with the observation that free competition tends to equalize the rate of profit leading to the formation of “costs of production” around which market prices fluctuate, he would not have been able to explain either the origin or nature of surplus value.

Marx makes other abstractions in other parts of “Capital” where he answers different questions. For example, when he tackles reproduction in Volume II of “Capital,” he not only abstracts prices of production and the equalization of the rate of profit, he abstracts technological change.

In contrast to Marx, economists of the neo-classical marginalist school claim that economic growth arises from technological change and “innovations.” They don’t understand that in order to explain expanded reproduction with technological change you first must explain expanded reproduction without technological change and innovations.

Though Marx’s models of simple and expanded reproduction showed capitalist growth without technological change, this didn’t prevent Marx and Engels from emphasizing the importance of technological change elsewhere. Whether or not to abstract something is determined by the problem you are seeking to solve. Abstraction is a powerful tool, but it must like all powerful tools be used correctly.

In analyzing the tendency of the rate of profit to fall, Marx could not abstract technological change. Changes in the techniques of production are at the heart of Marx’s analysis of the tendency of the rate of profit to fall. Instead, Marx abstracted the very factors that Kliman emphasizes—the change in the value of existing capital as labor productivity grows. If we do not make this abstraction, we will inevitably mix up the temporary fall in the rate of profit caused by the devaluation of the existing elements of (mostly) fixed capital, with the more fundamental permanent tendency of the rate of profit to fall due to the increase of the organic composition of capital—constant capital (dead labor) relative to variable capital (living labor).

This abstraction is a little more complex than some of the other abstractions made by Marx. It actually is akin to the differential calculus for any math fans out there. In the differential calculus, we have to calculate a rate of change at a point along a curve—for example the velocity of a planet at a particular point in its orbit.

As the productivity of labor increases as capitalism develops, the organic composition of capital increases. But at the same time, it causes the value of the commodities that make up the existing capital to drop, just as Kliman and the TSSI school emphasize. So Marx has to imagine a capitalist economy at two points in its development. At the earlier point, there is a lower organic composition of capital, and at the later point there is a higher organic composition of capital.

Here he further has to assume—however unrealistically—that the prices of production and rate of profit have fully adjusted to the preceding changes in values, something that will never be the case in the real world. Only by making this abstraction can Marx calculate the rate of profit at the two discreet points in time, showing that, assuming a fixed rate of surplus value and all other variables remaining unchanged, the rate of profit will be lower at the second point in time where the organic composition of capital is higher than it was at the first point in time where it is lower.

If we don’t make this actually rather complex abstraction, the economic law that Marx is exploring will be completely obscured by the “noise” of ever-changing values and prices that are constantly chasing to catch up with the ever-changing—and generally declining—values of commodities. Kliman deals with noise—which is important for other questions such as crisis theory—but ignores the problem that Marx is illuminating through his carefully chosen abstraction.

Perhaps privately Kliman believes that the Okishio theorem is valid in the abstract and that contrary to Marx there is no long-term tendency of the rate of profit to fall. But since profits still fall within each industrial cycle due to the destruction of the value of the existing capital—a process highlighted by the TSSI approach—this cyclical fall in the rate of profit is sufficient to explain crises. If so, Kliman should state this clearly and not pretend to be defending Marx’s very different theory—which of course may be right or wrong—of the long-term tendency of the rate of profit to fall, which abstracts crises and the industrial or business cycle entirely.

Final observations

Kliman claims that his book is accessible for the general reader. In fact, in my opinion it will be very difficult for anybody to make much of it who is not familiar with the world of the professional economist, especially those who are involved with or in criticism of the “neo-Ricardian” school. Certainly, a general knowledge of Marxist economics such as one might pick up in a class series run by a socialist organization, or even an independent study of Marx’s “Capital,” would be completely insufficient for purposes of making much of this book. For those who are coming to Marx for the first there is nothing to be gained from reading this book.  It is of interest only for those who already have a thorough grasp of both Marx and “neo-Ricardianism.”

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1 The Okishio theorem is a favorite of professional Marx refuters and is often cited in certain university economics departments—especially it seems in Britain. Marx described the law of the tendency of the rate of profit to fall as the most important law of political economy. Until after World War II, virtually all schools of political economy had held that the rate of profit tends to fall with capitalist development. The different schools of economics gave different explanation for why this is so.

Adam Smith held that increasing competition among capitalists would lower the rate of profit as capitalism developed. Ricardo rejected Smith’s explanation. He held that the rate of profit falls as capitalism develops due to the use of increasingly poor agricultural lands as the population expands. While real wages remain at subsistence levels due to Malthus’s law of population—which Ricardo supported—what Marx would later call the value of labor power would tend to increase because of the increase in value of agricultural goods from the poorer lands, leading to a fall in the rate of surplus value.

In addition, the growing shortage of highly fertile agricultural land would divert an increasing amount of the surplus value—or net revenue, as Ricardo called it—to differential rents—the only kind of rent recognized by Ricardo—collected by the landlords. Eventually, the rate of profit would fall so low that the progress of human civilization would come to a halt, since Ricardo held that capitalism was the final form of economic organization that could never be surpassed by a higher mode of production.

Marx explained that Ricardo was greatly alarmed by the fall in the rate of profit, because he sensed that capitalism contained an internal barrier. Capitalism is driven by profit, but the more capitalism develops the more profit itself is undermined. Not exactly what one would expect if capitalism is the final form of human economic organization that Ricardo along with all the other (bourgeois) political economists hold that it is.

Even the early marginalists believed that the rate of profit—or rather the rate of interest—would decline as capitalism develops and capital becomes “less scarce.” They, however, drew the benign conclusion that the sharp difference in incomes between workers and capitalists would be reduced with the further development of capitalism.

Keynes was alarmed by the fall in the rate of profit. He blamed the mass unemployment that occurred in post-World War I Britain on the falling rate of profit, which was causing what Marx called the profit of enterprise—the difference between profit and interest—to disappear. Keynes hoped, however, that a steady-state capitalism—simple reproduction—would eventually replace capitalism based on expanded reproduction—as the rate of profit fell to very low levels and the rate of interest could gradually be reduced to zero.

Ironically, one of the first economists to deny the falling tendency of the rate of profit was the Marxist Paul Sweezy in his “Theory of Capitalist Development,” first published in 1942. In that work, Sweezy claimed that the alleged (constant) capital-saving based innovations that had been blamed by Keynesian economists such Alvin Hansen for the Depression of the 1930s meant that the organic composition of capital did not tend to rise. Later in “Monopoly Capital,” published in 1966, Baran and Sweezy replaced Marx’s law of the falling tendency of the rate of profit with the “tendency of the surplus to rise” as a result of the growing power of giant corporations with their monopoly pricing power.

During the “cold war” years after World War II, marginalist economists, who had generally ignored Marx up to that point, became interested in refuting Marx’s law of the tendency of the rate of profit to fall, because they were eager to show that capitalism could last forever. It was in this atmosphere that the Okishio theorem was developed.

2 Marx explained that even with a given rate of surplus value—for convenience Marx generally assumed a 100 percent rate of surplus value—there are many factors that can counteract the fall in the rate of profit. For example, assuming a given rate of surplus value and a given organic composition of capital—all else remaining unchanged—if the turnover of variable capital increases in a given period of time, the rate of profit will rise.

The turnover of variable capital can be increased due to either improved methods of transportation or the opening up of new markets or the expansion of existing ones. This explains, for example, why the “defense” of the Suez Canal is so important for American imperialism. If the Suez Canal were for any reason closed, it would be perfectly possible to send the ships around Africa. But the now increased length of the transportation period would slow the turnover of variable capital, which would lower the annual rate of profit.

There are factors that Marx explored in Volume III of “Capital” that tend to raise the rate of profit and therefore counteract the falling rate of profit. For this reason, Marx doesn’t talk about the law of the falling rate of profit but rather the law of the tendency of the rate of profit to fall. The economic laws that govern capitalism to a large extent arise out of the measures the capitalists are forced to take, whether individually or collectively, that counteract the fall in the rate of profit.

The foreign policy—as well as the domestic policy—of the government of the United States and other capitalist countries in no small measure can be explained by the struggle to counteract the falling tendency of the rate of profit. For example, the stubborn and continuing support of the U.S. government for Israeli apartheid in no small measure stems from Israel’s role in guarding the Suez Canal—in effect guarding the turnover period of variable capital. Therefore, the law of the tendency of the rate of profit to fall remains valid even if the rate of profit does not actually fall in a given period of time.

3 Or, strictly speaking, it will initially lower the social value of the commodity only very slightly, assuming the capitalist who first introduces the innovation produces only a very small percentage of the total quantity of the commodities that are produced of a given use value and quality.

4 This is especially true in the epoch of monopoly capitalism where monopolies, frequently helped by state intervention in the form of patents and other forms of so-called “intellectual property,” can prevent the generalizations of innovations for many years.

5 Remember, this is not necessarily so. If the values of raw or auxiliary materials rise due, for example, to a depletion of hydrocarbons or minerals, a rise in the organic composition of capital can reflect a fall in the productivity of labor.

6 This is an example of how low wages are a barrier to technological progress and the growth in the productivity of labor. While the (bourgeois) economists like to talk about the need to increase labor productivity, somehow they forget to point out that the key to doing so under the capitalist system is to make the commodity labor power more costly for the capitalists to buy by raising wages. This gives the capitalists an incentive to economize on living labor making labor more productive. However, it has the “side effect” of lowering the rate of profit, something that (bourgeois) economists cannot abide!

7 In his book “The Age of Turbulence,” Alan Greenspan, the now largely discredited former head of the U.S. Federal Reserve Board, was obsessed with the “danger” that the wages of the workers might actually rise bringing the profit bonanza of the post-Volcker Shock years to an end.

8 Of course, a strong new expansionary long wave could greatly aggravate the problems of global warming and other environmental problems with possibly disastrous effects. But the examination of these extremely important questions is beyond the scope of this reply.

9 Technically, a series of industrial cycles where the expansionary phases are much stronger than the crisis-depression phases.

10 All earlier attempts to explain the origin of surplus value—for example, by the Ricardian socialists—assumed that a violation in principle of exchanges of equal quantities of labor for equal quantities of labor does take place. It was by showing that surplus value is produced even when there is no violation of equal quantities of labor exchanging for equal quantities of labor that Marx, in the words of Engels, made socialism a science.