Back in May, I did a short post (https://thenextrecession.wordpress.com/2013/05/19/michael-heinrich-marxs-law-and-crisis-theory/) outlining my rejection of the arguments of Michael Heinrich, a Marxist scholar. He recently wrote an article in the US journal, Monthly Review, arguing that Marx’s law of profitability was faulty, empirically unproven or even unprovable and anyway, Marx decided to drop it in his later works and only editing distortions by Engels have left us epigones with the impression that Marx still supported the law (see monthlyreview.org-Crisis_Theory_the_Law_of_the_Tendency_of_the_Profit_Rate_to_Fall_and_Marxs_Studies_in_the_1870s__Mont).
Well, since then there have been several more responses to Heinrich’s arguments. Andrew Kliman et al has published a long reply (http://www.marxisthumanistinitiative.org/economic-crisis/the-unmaking-of-marxs-capital-heinrichs-attempt-to-eliminate-marxs-crisis-theory.html). Sam Williams has also started a two-part response on his blog (http://critiqueofcrisistheory.wordpress.com/2013/07/07/michael-heinrichs-new-reading-of-marx-a-critique-pt-1/) and more recently Ed George has delivered a very clear and perceptive defence of Marx’s law (http://edgeorgesotherblog.wordpress.com/2013/07/04/but-still-it-falls-on-the-rate-of-profit/). And as promised in my May post, G Carchedi and I have produced a joint piece in reply to Heinrich. I attach our draft here (Heinrich paper 22 June 2013 NEW-4) And we are working on an even more comprehensive paper dealing with not just Heinrich’s arguments but also other criticisms of Marx’s law of profitability and its role in crises. So readers who want to follow this debate now have plenty to read!
I am spending quite of bit of effort with Heinrich’s arguments because in doing so I think it will help to develop our understanding of Marx’s theory of crisis and the eventual demise of capitalism. But now in this post, I just want to spell out the implications for crisis theory and for the future of capitalism in accepting Heinrich’s position and rejecting Marx’s law. In my view, if Heinrich’s view is accepted, it would be crippling for a coherent theory of capitalist crises, but also for the key Marxist concept that capitalism is not an eternal economic system that can last forever but is a transitory mode of production like the slaveholding economy of the ancients, feudalism or Asian despotism.
In other words, the law is central to Marx’s materialist conception of history. If it is believed that, in the long run, the rate of profit might just as easily rise as fall or that it will tend to oscillate forever around some average value, as Heinrich suggests, then the capitalist mode of production takes on the character of a permanent ongoing system. Instead, Marx’s law of the tendency for the rate of profit to fall over the long run most convincingly demonstrates the transient nature of capitalism.
The more the world’s population is drawn into the capitalist mode of production, the more the law exerts its power of prediction. As the reserve army of labour globally is used up in new rounds of exploitation to create more value and surplus value, the more the law will begin to operate because the rise in the organic composition of capital (even after the cheapening effects on constant capital from new technology) will outstrip the rise in the rate of surplus value. Indeed, the more there develops a world rate of profit, the more the law of the tendency of the rate of profit to fall will operate (see my paper roberts_michael-a_world_rate_of_profit.). The rate of surplus value, among other counteracting factors, may change in such a way as to cause the rate of profit to rise for a certain time but the world rate of profit must fall in the long run.
As Jim Miller put it in his critique of the attack on the law by one of the founders of the Monthly Review school, Paul Sweezy: “If the rate of profit has not yet fallen, or its direction is not yet definitely demonstrated, nonetheless it must inevitably fall eventually. The rate of profit must fall in life or the theory is incorrect. The law is unidirectional and irreversible. The law is the law of the tendency of the rate of profit to fall, not the law of the tendency of the rate of profit to rise, fall or go whichever way it pleases.” (http://www.marxists.org/subject/economy/authors/miller/frop.htm). This same argument drove Henryk Grossman to his groundbreaking book on Marx’s law of breakdown and crises. As Marx says, the counteracting tendencies to the law “do not annul the general law. But they have the effect that the law operates more a tendency i.e. whose absolute realisation is held up, delayed and weakened by counteracting factors.” Marx 1981, p341-2.
The point is that increasing the rate of surplus value and thereby the amount of surplus value in relation to the advanced capital can only be achieved by methods that also increase the mass and value of constant capital employed in relation to the number of workers engaged in the production process (the technical composition of capital). This is key: Marx again: “Moreover, it has been demonstrated – and this constitutes the real secret of the tendency of the rate of profit to fall – that the manipulations to produce relative surplus value amount, on the whole, to transforming as much as possible of certain quantity of labour into surplus value on the one hand; and employing as little labour as possible in proportion to the invested capital on the other, so that the same reasons which permit raising the intensity of exploitation rule out exploiting the same quantity of labour as before by the same capital” Marx 1962, p228
The organic composition of capital must increase and this unavoidable growth in the organic composition ultimately sinks the rate of profit, no matter how high the rate of surplus value may climb. The more advanced the organic composition of capital, the less effect a rising rate of surplus value can have in overcoming a dwindling profit rate. With fewer workers employed, the product’s value becomes increasingly composed of value reflecting constant capital. “With the absolute amount of living labour newly incorporated into individual commodities decreasing enormously as production develops, the absolute mass of unpaid labour contained in them will likewise decrease, however much it may have grown as compared with the paid portion.” Marx, 1962, p221.
Sure, mathematically, the rate of surplus value could tend towards infinity (where workers live on air), as could the organic composition of capital, but well before that, the rate of profit would have fallen. That’s because each increase in productivity (hours of unpaid labour to paid labour) has less and less an effect on the rate of surplus value: “the smaller already the fractional part of the day falling to necessary labour, the greater the surplus labour, the less can any increase in productive forces perceptibly diminish necessary labour, since the denominator has grown enormously.” Marx 1973, p340.
Moreover, there is a social limit on the reduction in variable capital and thus the maximum rate of surplus value, set by the class struggle over the distribution of the value created between labour and capital. So the rate of profit will fall well before the rate of surplus value moves towards infinity. The tendency for the organic composition to rise is stronger because the rate of surplus value can only rise “within certain definite limits”, Marx 1981 p 333.
So the former tendency is the law and the latter is a weaker countertendency. The organic composition of capital and the rate of surplus value are not independent variables, either one of which might overpower the other. One rises as a tendency and the other as a countertendency – and by definition and reality, the latter is weaker.
Marx considered the law of the tendency of the rate of profit to fall as the most important law of motion of capitalism. And it is because it explains and predicts crises and slumps under capitalism. And it also explains why and predicts that capitalism cannot last. Either the working class will remove the capitalist class and introduce a democratically planned economy using the resources of the globe in common to develop socialism, or capitalism will descend into barbarism just as the ancient slave society of the Roman empire did or the Asian absolutist states.