The debate in the comments section of this blog over the proper response to the misrepresentation by Michael Heinrich of Marx’s law of the tendency of the rate of profit to fall has got lively (see my previous posts, https://thenextrecession.wordpress.com/2013/07/25/returning-to-heinrich/ and https://thenextrecession.wordpress.com/2013/07/25/returning-to-heinrich/). Some of the best Marxist economists in the world (Kliman, Freeman, Carchedi, Lebowitz) have pitched in and the debate continues. I have not really intervened in the debate so far, but I thought it might be appropriate to add a short post now as a small rejoinder to some of the questions and differences raised so far.
I think, understandably, that Professors Kliman and Freeman are concerned that none of us defenders of Marx’s law fall into the trap set by Heinrich who claims that supporters of the law are ‘fundamentalists’ and are trying to ‘prove’ Marx’s law by mathematics or by logic and that can’t be done. Heinrich says at one point that Marx spent a lot of time with mathematical formulations to ‘prove’ his law but gave up. But I am concerned (and I think Professor Carchedi is) that Professor Kliman’s formulation that the law ‘explains’ but does not ‘predict’ is in danger of conceding to Heinrich that the law is ‘indeterminate’, namely that it is the law of the tendency of the rate of profit to fall, rise and stay the same as circumstances permit. That is no law, as Heinrich says. But perhaps our differences here are just a matter of wording when Professor Kliman says that if the law was confirmed in the past then it is likely to be confirmed in the future and that is good enough proof? Or is he still making the law ‘indeterminate’ by this formulation? That is what worries me.
Let me put it this way. For the purposes of the debate, I think Marx’s law is similar to the law of gravity. In other words, if we see an apple come off a tree, we can predict that it will fall to the ground, but counteracting factors could intervene and the apple could get lodged in the tree or wind could blow it sideways for some time. But that would change nothing about the law of gravity and moreover our prediction that this apple and others would eventually fall to the ground. Eventually, the wind would subside and the apple would fall. Later there would be no wind and all the apples would fall, although there could be significant periods when no apples would fall. This does not make the law of gravity indeterminate. It would only be indeterminate if it was decided that the power of the wind was just as strong as gravity and also should be incorporated into the law of gravity. This is Heinrich’s main point: that a rising rate of surplus value is really a necessary part of Marx’s law, contrary to Marx’s view, and has equal power or weight in determining the direction of the rate of profit and therefore the law is indeterminate.
Marx says that the strength of the law, namely the tendency of the organic composition of capital to rise as capitalism expands the productive forces, is greater than the counteracting factors over time, in the same way that gravity exerts its downward pull on the apple and over time counteracting factors like wind will not prevail in stopping the apple falling. In this sense, the law is ‘unidirectional and irreversible’, like the law of gravity. The law of gravity does not say the apple will fall, rise or stay where it is depending on the circumstances, but predicts that it will fall. If, in reality, it does not fall but rises, that is because of the intervention of counteracting factors that are not part of the law as such.
Wind is not part of the law of gravity and a rising rate of surplus value is not part of the law of profitability (as such). We can show that this is the case for Marx’s law by starting with some assumptions that are realistic (the law of value operates and the organic composition of capital rises). On those assumptions, the rate of profit will fall. Then we can show that there are limits in reality for counteracting factors like a rising rate of surplus value to outstrip a rising organic composition of capital indefinitely, just like the wind cannot indefinitely triumph over the law of gravity. Thus the law is based on the reality of capitalist development and the class struggle, just as the law of gravity is based on realistic assumptions about the universe.
Moreover, it does not take hundreds of years before the wind gives way and the apple falls and before the law overcomes the counteracting factors and the rate of profit falls. If that were the case, it would be a pretty useless for our lifetime needs, like knowing that the moon will leave the earth’s orbit in 1.5 bn years and then the earth will start to wobble uncontrollably and life would become extinct. That is a prediction with not much immediate practical use.
In contrast, empirical evidence shows that the law of profitability operates over much shorter periods. We can show that the law is confirmed empirically on numerous occasions. There has been a secular decline in the rate of profit in the US since 1947. Sure, there are periods when the US rate of profit rose. In my view, the US rate of profit rose from 1982 to 1997, but the law tells me that this will not last and the rate of profit will eventually start to fall. Heinrich says you cannot know such a thing because the law is indeterminate.
What do Professors Kliman and Freeman say on this point? I’m not sure: they seem to say that, as the law is not ‘unidirectional and irreversible’, presumably you can have no idea if the US rate of profit will fall over the next decade or not until it has happened. But then they say that as it has been shown to fall in the past, so it is likely to do so in the future. I’m not sure that this interpretation of the law (even if it is Marx’s, as Professor Kliman claims) is a very powerful ‘explanation’ (to use their words) of the law. Ironically, Professor Kliman has spent much diligent and careful time arguing that the US rate of profit did NOT rise after 1982 and there has been a persistent fall in the US rate of profit since 1947. And Professor Freeman has recently presented a paper to ‘correct’ the evidence that the UK rate of profit rose after the mid-1970s, claiming that it continued to fall. If they are right, would that not support the view that the law is ‘unidirectional and irreversible’ in the sense above, and not indeterminate, as Heinrich argues? Perhaps the professors should make a study of periods when the rate of profit has risen and explain why. Does the rate of profit only rise when there is a slump and the value of capital employed is sharply destroyed? Does it not rise sometimes in periods of boom? If so, can the law explain or even predict these periods?
And that brings me to another possible difference, at least in the debate between Marxists trying to refute Heinrich’s bastardisation. Does the law just show how there are crises in capitalism, booms and slumps, driven by the up and down movement of the rate of profit; or does it go further and say that IN A WORLD ECONOMY, where capitalism is exhausting all sources of value creation, the rate of profit will fall secularly to new lows and thus make it more and more difficult for capitalism to develop the productive forces? In other words, the law shows why capitalism will come up against the ultimate barrier, namely capital itself, and so is a transient mode of production like other earlier class-based systems. It will increasingly descend into stagnation, decay and chaos unless the progressive class, the proletariat, takes over. If the law is just one of explaining recurrent booms and slumps in capitalism, that would suggest that capitalism could go on forever expanding the productive forces, albeit with waste, inequality and injustice. If it is more than that, then it provides support for the view that capitalism is not eternal.
In summary, can we reach an agreement in this debate? Let me pose some statements that could have yes or no answers.
1 ) The law is not indeterminate; instead it argues that the rate of profit WILL fall over time, like the law of gravity that the apple will fall if it breaks from the tree.
2) The law is not a fake mathematical ‘proof’ as claimed by Heinrich, but, based on reasonable realistic and relevant assumptions, it predicts that the rate of profit will fall over time.
3) The law is not a law of the tendency of the rate of profit to fall, rise or stay the same, depending on various counteracting factors that come into play. If the latter do, the rate of profit may rise, but eventually (and not in a hundred years), the counteracting factors cannot hold sway.
4) There is empirical evidence to back up the law, contrary to Heinrich.
5) The law goes further than just predicting booms and slumps, but also predicts capitalism’s eventual demise (in the sense of not taking the productive forces forward).
These are the questions for yes and no answers that may help you to know where you stand. My answers are yes to all these statements.