Last April, Michael Heinrich, a renowned Marxist scholar, published an article in the US publication, Monthly Review (http://monthlyreview.org/commentary/critique-heinrichs-crisis-theory-law-tendency-profit-rate-fall-marxs-studies-1870s), in which he argued that Marx’s law of the tendency of the rate of profit to fall (LTRPF) made no contribution to the Marxist theory of capitalist crises. In particular, Heinrich said that the law was ‘indeterminate’, so that its premises did not lead to any precise conclusions. In that sense, it was no law at all. Also, it cannot be empirically justified in any scientific way. Moreover, Marx’s view on the relevance of the law was distorted by Engels’ editing of Capital and indeed in his later years, Marx probably dropped the law altogether as an explanation of crises because it was ‘indeterminate’.
Heinrich’s article provoked considerable discussion and debate among Marxist economists. Some of that debate took place on my blog. And my contributions have been neatly compiled here (mrhtprof).
Guglielmo Carchedi and I submitted a joint critical comment on Heinrich’s article to Monthly Review (MR) along with others
(https://thenextrecession.files.wordpress.com/2013/12/monthlyreview-org-essays_in_this_series-1.pdf).
In its December issue, the MR published these comments with a reply by Heinrich
(https://thenextrecession.files.wordpress.com/2013/12/monthlyreview-org-essays_in_this_series.pdf).
What follows is our (Carchedi-Roberts) reply to Heinrich’s response to our critique of his article (we are not saying anything about the other comments in MR).
The tendency and the counteracting tendencies
Heinrich says that a reading of Marx’s Capital Volume 3 in chapters 13 and 14 shows that Marx included a rising s/v in his law and not just as a counteracting factor. Heinrich says that a rising s/v is only regarded as a counteracting factor in chapter 14 as a ‘second case’, namely with an extended working day. So increased productivity as a reason for a rising s/v is part of the ‘law as such’ and not a counteracting factor and is dealt with in chapter 13 in that way.
He says: “When you want to prove anything about the consequences of capitalist development of productivity for the profit rate you have to consider both factors… If one considers only the effect of the rising c/v assuming a constant rate of surplus value, you tear apart two always connected consequences of the same cause. By this one reduces the “law” to a mathematical banality (unchanged numerator and increasing denominator leads always to a decreasing magnitude of the fraction) without any real meaning (the same cause which changes the denominator also changes the numerator which is excluded from the “law”). This seems the way in which Carchedi/Roberts consider the law…Using simple arithmetic even the dialectical minds of Carchedi and Roberts should recognize that an increasing organic composition as such is not enough to prove a falling rate of profit”.
But Marx’s ‘law as such’, namely that a rising organic composition of capital will tend to lower the average rate of profit in a capitalist economy, is not a ‘mathematical banality’. The ‘law as such’ is based on two key premises that are drawn from reality. The first is that all value in capitalist production is created by the exertion of living labour and second, that under capitalist accumulation, the organic composition of capital will rise. The maths flow from the realistic assumptions.
The ‘law as such’, as outlined Capital Volume 3 Chapter 13, isolates the effect of a rising organic composition on the rate of profit and then identifies the counteracting factors in Chapter 14 that check, delay or even reverse for a time the effects of the law. Marx separates the law from the counteracting factors precisely to reveal that ‘the law as such’ will eventually override any counteracting factors. So it is not indeterminate. It is only by wiping out the distinction between the tendency and the countertendency (implied in the incorporation of the countertendency within the law on the same foot as the tendency) that Heinrich can claim that the law is indeterminate.
Heinrich provides a numerical example designed to show that Marx’s law is indeterminate, based on Marx’s own (extreme) example of 24 workers being replaced by two workers when new technology is introduced. In his example, Heinrich shows that there must be a very large rise in c/v (from 25% to 3025%) to overcome the rise in s/v engendered by the new technology and the reduced number of workers before the ROP will fall. He adds that, unless we know the exact quantity of c being used, we don’t know whether the ROP will fall. So the law is indeterminate and our ‘dialectical minds’ are let down by the maths.
But in his example, Heinrich does not also consider what the increase in s/v was. In the first case with 24 workers, the rate of s/v was 48/240, or just 20%. In the second case, with two workers, it was 20/4 or 500%! So for the ROP not to fall, it will also require a very large rise in the s/v ratio. Marx’s purpose in his example was to show that eventually the rate of s/v would reach a physical limit (i.e. workers living on air), while there was no limit to the rise in c and thus c/v. So it does not matter how large the increase in c/v is but it does matter how large the increase in s/v is. Actually, in Heinrich’s version, the absolute amount of constant capital only has to double from 60 to just more than 120 to cause a fall in the ROP. So capitalists would only have to double their investment in labour-saving technology, while reducing the workforce to 2 from 24, to find a fall in ROP. The rate of s/v would have to rise 25 times to stop the ROP from falling!
Heinrich says that our ‘pretty example’ in our comment is based on the limitations of lengthening the working day, while he reckons the real issue is relative surplus value or increased productivity with the working day fixed. It’s true that our example in our comment does show a lengthening working day and not one with a constant or even decreasing working day. But our example is actually explaining that there are limits on a rising s/v even if the working day is extended. Indeed, given a fixed working day, a rising s/v will be limited even more quickly.
As we say in our comment: “it is not necessary to hypothesize such an extreme example. Given a working day of 8 hours, in the example above, even a rise in the organic composition from 2 to 3 requires a likely socially unsustainable increase in the working day from 8 hours to 9.3 hours. And even if this longer working day can be imposed on labour, the next wave of technological innovations will require a yet further lengthening of the working day. Of course, the above is only an example. As such, it is an illustration, not a proof.”
Heinrich says that “With a constant or even decreasing working day, s/v can rise through rising productivity, ignored in the argumentation of Carchedi/Roberts. And there is no visible limit for the rise of s/v as long as productivity can be increased (our emphasis)”. But there is a limit. This is Marx’s point. Let’s assume for the sake of simplicity, a constant working day. Recall that productivity is measured by output per unit of capital invested. If productivity increases, a greater share of the surplus product must go to capital and a smaller one to labour for s/v to rise.
For example, suppose output is made up of 80c+20v+20s = 120V. Output = 120. Thus the ROP = 20% and s/v = 100%. Now suppose productivity rises and the value composition of capital (VCC) rises to 81c/19v. If, as in Heinrich’s example, the working day (and thus the new value) remains the same at 40, then s = 21. The total value now rises to 121V and the ROP rises to 21%. The VCC rises from 80/20 (a ratio of 4) to 81/19 (a ratio of 4.26) by 0.26/4, a rise of 6.5%. The s/v rises from 20/20, (100%) to 21/19 (105.2%), a rise of 5.2%.
Now suppose that, following the increase in productivity, output rises to 160V. The % value of the means of production (MP) is 81/121 = 66.95%; the % value of labour’s means of consumption = 19/121 = 15.7% and the % value of capital means of consumption = 21/121 = 17.35%. If the 160 output is distributed according to the value of the three components in percentage terms, the ROP does not change. The 160 use values are distributed as follows: the MP needed for their reproduction 160×66.95/100 = 107.12; the labour needed for its reproduction 160×15.7/100= 25.12; and the capital needed for its reproduction 160×17.35/100 = 27.76. The total is 160 and the ROP is 27.76/132.24, or still at 21%.
The ROP will only rise if the distribution of 160 use values is skewed towards capital, e.g. the MP needed for their reproduction is still 107.12 use values (the same as above) but now the labour needed for its reproduction is not 25.12 but 25.12-5.00 or 20.12 and the capital needed for its reproduction is not 27.76 but 27.76+5.00 or 32.76. Now the ROP is 32.76/127.24, or 25.74%, up from 21%. The ROP has risen. But in terms of use values, wages have now fallen from 25.12 to 20.12.
In short, if the rising productivity is due to technological improvements and thus to a rising value composition of capital (VCC), if we consider a unit of capital (because productivity is output per unit of capital), and if the output is redistributed to the advantage of capital, rising productivity results in (1) a rising ROP and in (2) falling wages. Heinrich stresses only (1) but overlooks (2). But it is (2) that sets the limit to (1). It does not matter by how much productivity rises. Productivity could have risen from 120 to 240, instead of 160, and the results would have been the same. If the output is distributed according to the value of the three components in percentage terms, the ROP does not change. What matters is not by how much the productivity increases, but the redistribution of the greater output. Given the terms of the problem, wages must fall for the ROP to rise. And, like the limits on a fall in variable capital (labour force, the length of the day), there are social limits (class struggle) on lowering wages but none on raising constant capital.
Is the law a law?
Heinrich quotes from our comment: “Past developments can be predicted to recur in the future if we can argue that the same factors that determined the course of events in the past will keep operating in the future.” And he goes on: “I agree. But the determining factors must keep operating in the future really in the same quantitative relation. When in the past an increase of productivity resulted in an increase of the value composition c/v which was bigger than the increase in the rate of surplus value s/v, it must be demonstrated that the same must happen in the future. But where is the argument for that?”
Well, in our original critique, we explained that Marx’s law says that when the c/v rises more than s/v, the ROP falls and vice versa. The law predicts that when the c/v rises, over time, the ROP will fall. This prediction depends on the effects of rising productivity under the conditions of a rising c/v. As we have shown above, rising productivity leads to a rise in the ROP only if there is a fall in wages. And such an increase in the ROP due to a pro-capital redistribution made possible by productivity gains will eventually meet an obstacle, after which the ROP will start descending.
In our comment, we likened Marx’s law to Newton’s law of gravity. Heinrich rejected our analogy. Actually, Marx also used the law of gravity as an analogy in substantiating his law of value. The law of value makes itself felt “in the same way (that) the law of gravity asserts itself when a person’s house collapses on top of him” (Capital Vol 1 1976, p168.). All objects of mass on earth have a tendency to fall and will eventually do so from a height if counteracting forces (a ledge, a tree, bricks and mortar etc) no longer operate.
Heinrich retorts that Newton’s law of gravity has a precise numerical content and Marx’s law does not and cannot. He says: “does Marx’s law say that there is precise quantitative connection between any rise in c/v and any rise in s/v?” Well, yes it does. Marx’s law does say in what direction both ratios will go and also it says that if c/v rises more than s/v, then (ceteris paribus) the ROP will fall. Also, if we give c/v and s/v a precise measure, then we can give the ROP a precise measure. If a quantitative dimension is necessary to qualify as a law, then Marx’s law meets it.
Heinrich goes on to say that we (Carchedi/Roberts) don’t realise that Newton’s law of gravity was eventually ‘overthrown’ by Einstein’s general relativity theory. But of course we know the history of physics. The point of our analogy was to show Marx’s law has predictive value in the same way as Newton’s law of gravity. We could have used Einstein’s law for the analogy as well to show the same. Yes, science makes progress and one law may be found wanting (under particular circumstances) compared to another. Newton’s law has less predictive value when dealing with astronomical entities with huge mass or moving with the speed of light. But it is still pretty good for predicting what happens down here on terra firma.
Empirical verification
In his original article Heinrich stated that “With this law, Marx formulates a very far-reaching existential proposition which cannot be empirically proved or refuted.” In our view, contrary to Heinrich, Marx’s law is not a ‘far reaching existential proposition’ but a law like any scientific law, namely it has premises (realistic, we think) that lead to conclusions and/or predictions that can then be tested using whatever experiments or data are available.
In his response to our comments, Heinrich modified his argument about the law not being empirically verifiable “I do not say that it is impossible to get the information from statistical data, but it is not so easy and unambiguous as it sounds in the text of Carchedi/Roberts.” Sure, it is much more difficult to substantiate a theory or law in social organisation than with physical phenomena partly because humans are conscious beings that can react and change social forces and partly because there are usually way less data points to ensure some degree of statistical significance. But we never said that measuring value data on the basis of official data is easy and unambiguous. Nevertheless, we, as well as an increasing number of other authors, can still attempt to work out some indication as to the height and movement of the ROP.
Heinrich now seems to have stepped back from his original assertion. He now reckons that in principle Marx’s law can be empirically substantiated or not, as we do. And in our comment (and elsewhere) we present data to suggest just that, namely that, in the US and the UK, the trend of the ROP falls secularly through a zig zag movement. This explains the cycle of boom and slump under capitalism. Our and other people’s data can be rejected, but denying that empirical research is possible will not do. As we said in our comment, “there is a body of evidence to support the view that Marx’s law does operate in capitalist economies and that it is the key (underlying) factor in booms and busts. If Heinrich disagrees, then what is his evidence to the contrary and what alternative explanation does he offer that can be empirically analysed?”
Finally Heinrich defends his position that Marx ‘might’ have changed his mind about the law. His arguments are no stronger than before, except to say that in the 1870s Marx talked about crises, but never mentioned the law in relation to crises. Hmmm.