Gravity, the Higgs boson and the law of the TRPF

I’ve just returned from Paris where there has been a joint conference of academic leftist economists organised by the Association of Heterodox Economists (AHE), the International Initiative for Promoting Political Economy (IIPPE), the Association Francaise d’Economie Politique (AFEP), and the World Association of Political Economy (WAPE).  Phew!  That’s a lot of acronyms.  Anyway, hundreds of participants came to hear a series of papers, four at a session, for over three days on a range of economic subjects, many with a Marxist perspective, even more with Keynesian angle and others that I cannot define.

Among the many, I also presented a paper entitled, A world rate of profit.  But more on that later.  After I delivered my paper along with others, Professor Simon Mohun from the floor raised an important methodological issue of the nature of Marx’s law of the tendency of the rate of profit to fall (TRPF).  Professor Mohun saw it a bit like Newton’s law of gravity, namely that it was always there, pressing us down towards the centre of the earth, but because of the buildings we have constructed with steel and concrete, none of us were driven into the ground by it.  I think the implication of this analogy was that Marx’s law was ever-present but never actually happens, although, of course, with gravity, apples do fall from trees.  Behind Professor Mohun’s analogy may be the view that capitalist crises can and do take place when the rate of profit is rising, not falling as the law of TRPF would suggest.  Indeed, Professor Mohun has argued that a rising rate of profit is a better indicator of crises than a falling one.  For more on his counter-intuitive conclusion, see my previous post on this  (A class rate of profit, 23 January 2012).

But even if the gravity analogy does not quite work, it does raise an important point about the nature of economics.  Is it a science like physics or more a social explanation that leads to action (i.e. revolution) and so is not dependent on so-called scientific proofs of evidence.  Well, I have to say, that I think Marxist economic analysis ought to follow scientific method, which for me is to develop a theory that is causally and logically consistent and then test it as best you can with evidence and data, in order to confirm the theoretical explanation and even generate some predictions.  Of course, we must not get carried away by the power of empirical analysis.  Results are rarely conclusive. Disagreement is widespread, as the debate over the US rate of profit shows.  Some theories are so strongly believed that no amount of empirical evidence will dislodge them, as we find with neoclassical mainstream economics.   And there is academic dishonesty — fake data, mistaken (and even fraudulent) statistical inference and more.   Statistics can be manipulated to make almost any result look reasonable.

I think a better analogy than gravity is the news about the Higgs boson – the apparently now discovered missing sub-atomic particle that can help to explain the most fundamental workings of the universe.  In 1964, Professor Higgs and others developed a theory that required the existence of the Higgs boson as the missing part of the jigsaw that could link gravity with sub-atomic, electromagnetic and other forces of the universe.  Higgs predicted its existence and physicists have spent nearly 50 years trying to find a method of testing whether he and his colleagues were right and the Higgs boson is real.  After spending $6bn to build the Hadron Collider, they compiled evidence from piles of data, analysed it in separate teams and have now concluded that the Higgs boson does exist to a 99% or more degree of confidence.

I think we must try to conduct economic research on similar scientific lines, hopefully at less cost.  There used to be a view among many Marxist economists that there was no need to test Marxist theory against data as this was crude empiricism or ‘positivism’.   So, for example, the law of the TRPF was right in explaining recurrent economic crises, but as value categories could not be detected with hard evidence from the world of capitalist data,  we should not try.  Let’s just continue to argue the toss about what Marx said and meant, just like the sophists in ancient Greece.   I’m afraid that many papers presented in Paris seem to continue this tradition.  In my view, the approach that all you needed was theory and no evidence is really an excuse for avoiding a task that might not produce the ‘right’ result.

There was some excuse for sticking to theory in the 1970s as Marxist economics came under attack from the school of Sraffians and ‘neo-Ricardians’ among heterodox economists who tried to trash theoretically the law of value and the law of the TRPF.  So the question of evidence did not even arise.  But thanks to more recent Marxist scholarship led by the likes of Alan Freeman, Guglielmo Carchedi and Andrew Kliman (among others), Marx’s law of value and theory of crisis has been proved logically consistent and theoretically valid, culminating in Kliman’s brilliant book Reclaiming Marx’s Capital (available on Amazon and elsewhere and see my review in my book, The Great Recession, chapter 23), for which Kliman ought to have got an ‘alternative’ Nobel prize for economics.

So Marxist economics has moved from the question of whether Marx’s theory is not just logical but whether it is right, namely that it is consistent with reality.  This should not be as tall an order as finding the Higgs boson and we have made progress in this too.  The Great Recession confirmed that the Marxist theory of crisis was right in an obviously stark way.  But Marxist economists have also started to deliver hard evidence and data that can be analysed and interpreted, of course, not necessarily with any agreement (see my paper,The profit cycle and economic recession)!

At the Paris conference, there were many papers with a semi-Keynesian orientation that wanted to argue that the Great Recession was the result of a financial crisis and had little to do with the operation of Marx’s law of profitability. And this is still the dominant view among economists, even most Marxists.  It is even more dominant among leftist economic journalists.  Take, for example, the recent column by Larry Elliott, the economics editor of the Guardian, entitled “Confidence is the key to lasting global economic recovery” (http://www.guardian.co.uk/business/2012/jul/08/confidence-key-global-economic-recovery?INTCMP=SRCH).

Relying on the ideas of a new book by the Keynesian Paul Ormerod called Positive Linking, Elliott argues that the crisis came about and has continued because of a ‘loss of confidence’ (not a loss of profit) by capitalists to invest.  The answer to the crisis is that confidence must be restored.  Apparently, we need to change a ‘bias towards pessimism’ into a ‘bias towards optimism’ and then all will be well.  “Lasting recovery will only come when that pessimism bias is eradicated, and it is proving tough to shift. A change in mood could happen at any time, in which case activity will pick up far more quickly than anybody currently expects”.  So apparently, it is nothing to do with the failure of the capitalist mode of production for profit but merely irrational pessimism.  This is literally wishful thinking!

Luckily, there were also papers in Paris that aimed to provide hard evidence to show that profitability is the underlying cause of capitalist crises i.e. Marx’s law ‘as such’, namely that a rising organic composition of capital (OCC) will eventually lead to a fall in the rate of profit.  For example, Rama Vasudevan presented her paper jointly authored with Deepankar Basu that they published last year on measuring the US rate of profit in all ways possible (deepankar_basu_ramaa_vasudevan_technology_distribution
_and_the_rate_of_profit_in_the_us_countdown
).  I discussed this paper and its conclusions in a recent post, Profits call the tune, 26 June 2012.

There was also a very interesting paper by Peter Jones from the Australian National University (Jones_Peter-Depreciation,_Devaluation_and_the_Rate_of_Profit_final) in which he offers a new way of measuring the US rate of profit to show that it moved in line with changes in the organic composition of capital.  It’s quite technical, but important.  Jones argues that the main counter-tendency to the law of TRPF was not the cheapening of constant capital (machinery, plant and technology) or a rising rate of surplus value, but a quicker turnover time in employee compensation so that capitalists needed less working capital to generate new value.  When you adjust for this, the US rate of profit then moves in line with the OCC.  There are other things in Jones’ paper worth discussing and I shall return to it at a later date when I have looked more closely at the data.

Then there was a paper by Georg Liodakis (Liodakis_George-Transformation_and_Crisis_of_World_Capitalism), in which Professor Liodakis argues that just looking at the US rate of profit is not sufficient to explain Marx’s theory of crisis on a global scale.  Marx’s value theory is really one based on the world economy, not on a nation state, although Marx developed it using data from the British economy.  Liodakis says: “important Marxist scholarship has recently offered the best explanation available of the current crisis of capitalism, based on the law of the TRPF”. But Liodakis says we Marxists need to go further.  After giving my own work a bit of beating, he comments that “Roberts’ important insight related to financialization and the decline in capitalism’ ability to develop productive forces  may be true for the US, but may not be equally true for world capitalism as a whole, especially if we take into account new accumulation frontiers such as China and India.  Indeed, “the real unfolding of crisis cannot be fully grasped within any particular national context, the actual prospects of capitalism can be fully assessed only by exploring its global trends.”

That brings me to my own paper.  In it, I make an attempt to develop the concept of a world rate of profit and put some quantitative figures on it (roberts_michael-a_world_rate_of_profit).  It is really is work in progress and so don’t hold me to every line.   As Professor Mohun commented, it was a ‘heroic effort’ by which I think he really meant foolhardy – and maybe so.  But anyway, the paper argues “that in the 21st century, for the first time in the history of capitalism, we can begin to recognise a world rate of profit that is meaningful”.  I attempt to develop a world rate of profit that includes all the G7 economies plus the four economies of the BRIC acronym.  This is what I find.  The rates of profit have been indexed at 100 for 1963 (see the paper for sources and methods of measurement).

So there was a fall in the world rate of profit from the starting point of the data in 1963 and the world rate has never recovered to the 1963 level in the last 50 years. The rate of profit reached a low in 1975 and then rose to a peak in the mid-1990s. Since then, the world rate of profit has been static or slightly falling and has not returned to its peak of the 1990s. This suggests that boom of the late 1990s and early 2000s was not based on rising profitability, as many have argued, but more on a credit bubble and the growth of fictitious capital. And the data seem to confirm the view that I reached when looking at just the US rate of profit, namely that world capitalism is in a down phase for profitability.

There is a divergence between the G7 rate of profit and the world rate of profit after the early 1990s. This indicates that non-G7 economies have played an increasing role in sustaining the rate of profit, while the G7 capitalist economies have been suffering a profitability crisis since the late 1980s and certainly since the mid-1990s.  This suggests that globalisation was the major force that enabled the counteracting factors to dominate in the 1990s. Capitalism became truly global in the late 20th century, a period that was similar but way more powerful than in the ‘globalisation’ period of the late 19th century. That’s because the huge increase in capitalist investment into so-called emerging capitalist economies brought into the capitalist mode of production for the first time a huge supply of peasant and non-capitalist labour, and much of it at a cost below the value of labour power, i.e. super-exploitation.

But my data do indicate that these countervailing factors are no longer sufficient to drive up the world rate of profit for now. This suggests that further destruction of capital values will be necessary through another significant slump in global capitalism to raise profitability. Only then could the remaining potential value from the world supply of labour be utilised to restore the health of world capitalism.

Finally, let me bring to you attention two things that happened outside Paris.  G Carchedi presented a new paper to the London Marxism Festival to explain why Keynesian policies don’t work to help labour and/or save capitalism (you can read it here, London 6 July 2012-2).  Again, I shall return to this in the future.  And Mick Brooks also launched his new book, Capitalist crisis: theory and practice (published by Expedia).  It is a clear and purposeful Marxist account of the causes of the Great Recession that strips away the jargon.  Again, I’ll return to a more considered analysis of Brooks’ book in the future.

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15 Responses to “Gravity, the Higgs boson and the law of the TRPF”

  1. BrianJay Says:

    “Higgs boson does exist to a 99% or more degree of confidence”
    Michael its a lot higher than that and clearly delineates real science from social science like catastrophic anthropogenic global warming which requires levels of proof of 95% or in some cases 33%.
    Real science will only accept a 5 sigma proof or a 1 in a million certainty. If you combine the two independent experiments, the risk of a false positive multiplies: the LHC says that there is a 7-sigma (via the Pythagorean theorem), or “1 in a trillion” (via a product), risk of a false positive.
    Sorry for the pedantry I must get out more

  2. Emerson Says:

    What, from under the rock you came from, Brian?

  3. H.A. Cox Says:

    Michael,
    Thanks a lot for this very insightful post. I think it raises most of the important questions of Marxian economics.
    ‘it does raise an important point about the nature of economics. Is it a science like physics or more a social explanation that leads to action (i.e. revolution) and so is not dependent on so-called scientific proofs of evidence. ‘
    Every time I see this question raised I go back and whip myself with this quite impatient letter of Marx To Kugelman below. He certainly thought that he was scientifically investigating a society in which labor needs to be socially distributed in order to reproduce itself through commodities. In simple commodity production, each producer make commodities to sell in the market and acquire use values produced as commodities by other producers. In a capitalist commodity-pruducing society, labor is distributed not for consumption but to acquire wealth in the form of surplus value. As Alan Freeman pointed out in one of his essays: value is a relational concept, not an identity, of labor to price. Marx, in effect, was investigating how, in a capitalist society the laws of what makes Sammy run, how, and what are the limits of his running ability if any.
    ‘Every child knows a nation which ceased to ,, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labor of society. That this necessity of the distribution of social labor in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance , is self-evident. No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves. And the form in which this proportional distribution of labor asserts itself, in the state of society where the interconnection of social labor is manifested in the private exchange of the individual products of labor, is precisely the exchange value of these products.
    ……………
    The vulgar economist has not the faintest idea that the actual everyday exchange relations can not be directly identical with the magnitudes of value. The essence of bourgeois society consists precisely in this, that a priori there is no conscious social regulation of production. The rational and naturally necessary asserts itself only as a blindly working average. And then the vulgar economist thinks he has made a great discovery when, as against the revelation of the inner interconnection, he proudly claims that in appearance things look different. In fact, he boasts that he holds fast to appearance, and takes it for the ultimate. Why, then, have any science at all?’ Letter to Kugelman,1868

    So, I agree with you that Marxian economics needs to be and is a scientific enterprise. Because the bourgeoisie gather statistics using different categories and often lie with those statistics, it is difficult to gather information to analyze correctly what is happening in the world economy. But I do believe we can adequately do so to be able to explain the nature of the world crisis to working people as being caused by capitalist accumulation, and argue about it with those Marxist who do not think the FROP has anything to do with the current crisis. But to do that, we have to understand the relationship of the FROP to crises and capitalist accumulation.
    ‘So, for example, the law of the TRPF was right in explaining recurrent economic crises, but as value categories could not be detected with hard evidence from the world of capitalist data, we should not try.’
    I do not think that the biggest problem is that it is difficult to gather adequate imformation; the biggest problem is that most Marxist limit discussion of the FROP to its relationship to ‘recurrent economic crisis, rather than to the increasing difficulty that capital has with accumulation due to the threat of a decline in the ‘mass’ of surplus value. With the increased concentration and centralization of capital, the major imperialist countries increasingly need to seek surplus value exogenously to its existing capital. This necessity leads to credit bubbles and the resulting increase in the mass of debt, mad scrambles to increase the exploitation and intensity of labor, and, above all, the creation of new markets (BRAC) where the value of labor power was far below that of the Imperialist powers. The Imperialist powers did not ship much of prodcuction to the South because it was more profitable, it did so because further investment in productive capacity in the Imperialist countries would have led to a lowering of the ‘mass’ of surplus value and a collapse like 1929. Though there is a relationship between the FROP and recurrent crisis, the important relation is between the FRAP and esisting capital becoming a fetter on accumulation.

    • GrahamB Says:

      The imperialist countries export capital and production precisely because a higher rate of profit is achievable by doing so.

      The various bubbles (fictitious capital) to 2007 reflected the gap between productive investment and profit – and the global grow in the latter. After the deep financial crisis of 2008 in the imperialist countries, non-financial corporations are hoarding profits and hence productive investment is relatively low. Real wages have been cut, with the medium term project being to reduce the social element of wages – austerity.

  4. cocoapony Says:

    Coming back to the economics thing, michael,
    …and as will become clear, it is not my strength by anybody’s standards…
    won’t it be the case that by the time capitalism gets through its supply of “super-exploitable” ‘third world’ labour, it will have in the mean time turned western countries into third world states
    …and thus the machine/monster can move back to renewed pastures?

  5. don Says:

    There’s that confidence fairy.

    And what explains the loss of confidence?

  6. Jim Devine Says:

    Perhaps the tendency for the rate of profit to fall is like gravity, which, as we know, pulls the Moon toward the Earth. In the Moon’s case, there’s another force (inertia) which keeps it from hitting the Earth. In crisis theory, what is the other force? When the rate of profit falls, the capitalists eventually respond, via class struggle, purging of excess capitals, and/or technical innovation, to raise it back again. So there’s no real downward trend (unless, perchance, the abolition of capitalism drives it to zero).

  7. keith sellick (@littlekeithy) Says:

    Marx, as far as I recall, specifically said that the TPRF could be measured and tried.

    The two books on the Origins of Marx’s Capital by the Australian academic (name escapes me but it is in my pile of books somewhere) hinted at attempts that he made, using GVA if my memory is correct. The books cited Engels saying it was measurable but there were problems with the data at that current time. Also Marx’s work on turn over time and profits used actual figures from firms.

    Furthermore Marx said that the bourgeoisie “recognised” that the rate of profit declined, it is in Smith and Ricardo, but could not come up with an explanation of why. His “critique” was in providing an explanation lodged within the process of accumulation itself rather than just increases in wages as put forward by Smith.

    There is also the question of debt, a relatively new phenomenon in its size and scope, which has both been a driver of neo-liberalism in the form of types of capitalist enterprise such as private equity, hedge funds etc and complicates the measuring of the TRPF.

    For example in the chapter in vol III on countervailing tendencies Marx’s points to joint stock (ie shareholders) and the way it is treated by the bosses as not being part of the ROP and therefore a countervailing tendency (the inference being it would have reduced the ROP if it had been included). Obviously it is, dividends are a return on an outlay of capital despite or because of their fictitious characteristics. Part of the neo-liberal programme has been about increasing shareholder value, which has been documented by bourgeois commentators, Should debt also be included?

    (I believe Michael as made calculations of the ROP that have included consideration of debts)

    As for a global rate, I would argue that there is a tendency towards it but costs of entry, types of markets, states etc would cause variations in its uniformity. How far globalisation of capital has smoothed out these variations is a moot point.

    (I did some calculations for the UK, US, France and Germany before 2008. They showed that France and Germany were uniform and stable, with the UK a bit higher and then the US highest of the four. The latter two had show a rise in 1990s and early 2000s.)

    Looking at the comments above, I am not sure that this means that the capitalists refuse to invest in the current period because they believe that it will lower the rate of profit globally, that appears to be assigning them a collective viewpoint beyond their capacity or even ability given the necessary role of competition. Rather they hoard because they won’t obtain the returns that they expect historically. Marx again in vol III talks about hoarding as a response in a recession.

    Finally, I believe it does have importance as a social law that should be proved empirically as it explains the crisis ridden nature of capitalism as being a product of its inherent contradictions. If Marxists argue it can not be measured and only discussed its effects then how can we win the argument for a planned economy to overcome the ROP and its effects?

    Otherwise it strikes me we would only be arguing a point of faith: these things happen because of something that we cannot prove, and that would hardly arm ourselves against the right or the Keynesians who can point to proofs of their theories, albeit wrong.

  8. John Smith Says:

    Hi Michael,
    I was fortunate to be at the Paris conference and to be present in your most interesting panel. I was delighted to see that you’d used my graphic showing the global shift of the industrial working class to low-wage countries (entitled ‘Global industrial workforce’ in your paper)… but I was disappointed that you did not attribute it.
    This graphic originally appeared in 2010 in my PhD thesis, ‘Imperialism and the Globalisation of Production’ (available from http://www.mediafire.com/?5r339mnn4zmubq7), and appeared in ‘Imperialism and the Law of Value’, which was published in Global Discourse Vol.2, Issue 1 from which you lifted it. I have since withdrawn this paper from Global Discourse. I submitted a much-revised version of this article to the Paris conference, but without this graphic. The graphic, extended to 2010, also appears in my article ‘Outsourcing, financialisation and the crisis’, in International Journal of Management Concepts and Philosophy, 6.1/2:19-44.

    • michael roberts Says:

      John
      I promised to check if I constructed it myself from raw data or ‘lifted’ it from your paper and forgot. Will check at earliest opportunity. If I did get it from you. Is it okay to use it in a revision of my paper that I plan with proper attribution? M

      • John Smith Says:

        Certainly! – JS

      • michael roberts Says:

        John

        Just checked and I must have got the data from your paper as I can see that you have done a lot of work from the ILO employment data to construct it and I certainly did not do that for this paper! And anyway, the idea for this compelling comparison was yours. I had a look at the latest ILO EO report data and can see how you managed it – nice.

        I see that the ILO reckons that for 2011, the EM industrial workforce is now 576m, a huge jump from 412m in 2000 and up even through the Great Recession, while in developed economies it has fallen to just 104m from 121m in 2000.

        I am revising my paper in the light of various criticisms some of which you heard in Paris, so I shall post the revision on my blog and make sure your work on this is properly recognised in that.

      • John Smith Says:

        Dear Michael,

        many thanks. I look forward to reading the revised paper, and to our next encounter at some conference or other.

        best wishes

        John

  9. Joanne Telfer Says:

    One of the problems I think about the gravity analogy is that laws and tendencies are not the same.

    I note your reference to sophistry which leads naturally to the Socratic response to sophistry which was of course dialectics. What distinguishes Marxist economics I believe from classical or neoclassical models (including those of perhaps some superficial Marxists) is the dialectic of class struggle which is at the heart of Marx’s approach but of little interest to his detractors..

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