Marxians, Marxists, profitability, investment and growth

I continue my campaign, along with a small band of like minds, arguing that the ups and downs of real economic growth are driven by changes in business investment.  And, in a capitalist economy, that investment is driven by the level and movement in the profitability of capital and in the mass of profits generated by the workforce and appropriated by the owners of that capital.  To me, this seems a simple and realistic analysis: profit rules.  But this thesis is dismissed, ignored and rejected by mainstream, post-Keynesian and other ‘Marxian’ economists,

Mainstream economists reckon economic growth comes from a growing workforce and rising productivity per worker.  That is true by definition, but what drives each component?  According to mainstream economics, it is exogenous population growth plus the consumption and savings decisions of millions of individuals that materialise through the ‘hidden hand’ of the ‘market’ into aggregate supply and demand for goods and services.  The consumer rules, growth follows.

According to the Austrian school, economic growth does come from investment.  But it is the direct result of savings.  The supply of savings will create investment and consumer demand through the workings of the market.  Savings rule, growth follows.

According to the Keynesians, of various hues, it is consumer and investment demand that creates incomes and then savings.  Demand creates supply through the workings of the market (but sometimes with the help of government).  With the mainstream Keynesians, consumption by households rules; for the so-called post Keynesians, investment rules.  For both, demand rules, growth follows. But for neither does profit nor profitability play a causal and central role in changing investment or consumption; on the contrary, the reverse is the case.  As Keynes put it: “Nothing obviously, can restore employment which does not first restore business profits. Yet nothing, in my judgement, can restore business profits that does not first restore the volume of investment.”  (Collected Writings Vol 13, p343).

In a recent discussion on the nature of Marx’s Capital and its relevance today, Prof Riccardo Bellofiore made a distinction between Marxians and Marxists.  ‘Marxian’ economists are people who have taken Marxist theory forward to deal with new developments in capitalism, while ‘Marxists’ are stuck in the past of Marxist dogma and 19th century capitalism.  It seems to me, however, that ‘Marxian’ economists tend to bend to the mainstream or Keynesian view that, while profit is obviously key to the nature of exploitation under capitalism, it plays no role in explaining the pace of economic growth or the regular and recurrent slumps in that output under capitalism. For an explanation of that, we must look to instability in the banking and financial system, the growth of credit (or debt), rising inequality squeezing labour’s purchasing power (‘underconsumption’), or monopoly ‘stagnation’ (a glut of profit).  But don’t look to changes in the profitability of capital or the movement of profit and value created in the production and productive sectors of the economy.  That’s old fashioned.

Well, I must be an old-fashioned ‘Marxist’ (well, at least, I am old).  I am continuing the battle against ‘revisionism’ of ‘Marxians’ to promote Marx’s law of value and his law of profitability as an interconnected explanation of the causes of economic growth and crises under capitalism.  So sometimes, it is relieving to get some support from mainstream economics.

First, Matthew Klein in the FT has a piece that points out that the conventional view of the relatively poorer rate of investment in Europe compared to the US is due to the weakness of its banks and their refusal to lend is wrong. There is no supporting evidence for this ‘credit’ cause of slow growth.  In Europe, the collapse in credit is due to a lack of demand for borrowing not restrictions by banks.  As the graph of Eurozone bank lending and loan demand shows, “the … demand for credit collapses out of proportion of anything bankers expressed about their willingness to lend”.

EZ bank lending

Klein goes on, “it’s difficult to look at all this and argue the problem has been the supply of credit. Something else seems to be at work.”

Paul Krugman in a blog post praised Klein’s analysis. Krugman reckoned it confirmed his long held view that the cause of the stagnation in Japan during the 1990s was not bad banking but the Keynesian ‘liquidity trap’ i.e. too high interest rates and a desire to hoard cash, not spend: “there’s little support for the bad-banks-did-it story, even though everyone repeats it. But look back at my 1998 BPEA on Japan, which is more or less where I came in. …I argued (154-158) that the nonresponse of monetary aggregates was exactly what you should expect in a liquidity trap, and that there was little evidence (174-177) that banking problems were actually central to the economy’s weakness.”

Be that as it may, we could also remind ourselves what Krugman said back then about Japan. “It appears as if the slump could go on forever. A dynamic analysis makes it clear that it is a temporary phenomenon—in the model it only lasts one period, although the length of a “period” is unclear (it could be three years, or it could be 20). Even without any policy action, price adjustment or spontaneous structural change will eventually solve the problem. In the long run, Japan will work its way out of the trap, whatever the policy response”. So apparently, liquidity trap or not, Japan would recover.  When it did not, Krugman pushed to break the trap with quantitative easing which he reckoned would do the trick.  As we know, after several bouts of QE from Japan’s monetary authorities, Japan remains stagnant, with five technical recessions since QE was introduced.

What Krugman does not refer to in his post on Europe’s banks is that Klein adds a little note from David Watts from CreditSight.  Watts finds that if he runs growth in sales revenues and the level of utilisation of existing capacity for Eurozone non-financial companies against business investment, he finds there is a close correlation.  In other words, what drives business investment are the level of sales and profits.   Klein concludes: You don’t need any estimate of a “credit channel” (or “policy uncertainty” or “confidence”) to explain why companies boost or cut their capex. They spend when it’s profitable, and don’t when it isn’t.”

The simple answer is best.  Recently, the Bank for International Settlements (BIS) latched onto the same point—that the Great Recession and the subsequent weak and slow recovery in the major economies was a product of the collapse in business investmentr_qt1503g

As the BIS put it: “Business investment is not just a key determinant of long-term growth, but also a highly cyclical component of aggregate demand. It is therefore a major contributor to business cycle fluctuations. This has been in evidence over the past decade. The collapse in investment in 2008 accounted for a large part of the contraction in aggregate demand that led many advanced economies to experience their worst recession in decades. Across advanced economies, private non-residential investment fell by 10-25 percent.”  And the BIS went on: “the uncertainty about the economic outlook and expected profits play a key role in driving investment, while the effect of financing conditions is apparently small.”

So the bank dismisses the consensus idea that the cause of low growth and poor investment is the lack of cheap financing from banks or the lack of central bank injections of credit, just as Klein finds. Instead, the BIS looks for what it calls a “seemingly more plausible explanation for slow growth in capital formation,” namely, “a lack of profitable investment opportunities.”  Companies are finding that the returns from expanding their capital stock “won’t exceed the risk-adjusted cost of capital or the returns they may get from more liquid financial assets.” So they won’t commit the bulk of their profits into tangible productive investment. “Even if they are relatively confident about future demand conditions, firms may be reluctant to invest if they believe that the returns on additional capital will be low.”

And now to back the BIS analysis up and give us old-fashioned ‘Marxists’ some Xmas cheer (sorry too early), there is a new analysis by mainstream economists Kothari, Lewellen and Warner from three American business schools,  called The behavior of corporate investment.  The authors find a close causal correlation between the movement in US business investment and business profitability.AggregateInvestment

In the graph below, the authors show the return on total assets of US non-financial companies (measured as after-tax profits as a percentage of assets – red dotted line); and the rate of fixed investment against total assets (blue line).  What does it show?  That the US non-financial corporate rate of profit fell secularly from the 1950s, reaching a low in the mid-1980s and then consolidating or rising a little after that.

Quarterly fixed investment (Capx) and after-tax profits (NI) scaled by lagged total assets for nonfinancial corporations from 1952–2010. Data come from the Federal Reserve’s seasonally-adjusted Flow of Funds accounts. Shaded regions indicate NBER recessions.

Profitability and investment

Those who are regular readers of this blog will not be surprised at that finding.  But the graph also shows that business investment (as a share of assets) has declined in tandem with profitability.  Again, this confirms the work of ‘Marxist’ economists like Kliman, Jones and Tapia Granados, among others.

The three mainstream authors of the paper find that “investment growth is highly predictable, up to 1½ years in advance, using past profits and stock returns but has little connection to interest rates, credit spreads, or stock volatility. Indeed, profits and stock returns swamp the predictive power of other variables proposed in the literature.”  And that “Profits show a clear business-cycle pattern and a clear correlation with investment.” The data show that investment grows rapidly following high profits and stock returns—consistent with virtually any model of corporate investment—but can take up to a year and a half to fully adjust. This was exactly the conclusion that I have reached in my own study and jointly with G Carchedi (  See my graph below.

profits call the tune

The authors find that “investment growth is closely linked to recent profit growth and stock returns but only weakly related to changes in interest rates, stock volatility, and the default spread. We find no evidence that investment drops following a spike in aggregate uncertainty, contrary to the predictions of many models with irreversible investment. We also find no evidence that investment growth slows after a rise in short-term or long-term interest rates, contrary to the idea that Federal-Reserve-driven movements in interest rates have a first-order impact on corporate investment.”  So all the alternative explanations of crises offered by monetarists, Keynesians and post-Keynesians have no empirical backing.

The authors also measured the predictive causal correlation between changes in profits, GDP and investment and the Great Recession.  They found that “if investment maintained its historical connection to profit growth, investment was predicted to drop by 14.7%, roughly two-thirds the actual decline of 23.0%.”  This two-thirds figure is almost exactly what I found for the period 2000 to 2013. I found that the correlation between changes in the rate of profit and investment was 64%; second, the correlation between the mass of profit and investment was 76%; and third, the correlation between the rate of profit (lagged one year) and the mass of profit was also 76%.

US corporate profit and investment

Finally, the authors found that “at least three-quarters of the investment decline can be thought of as a historically typical drop given the behavior of profits and GDP at the end of 2008. Problems in the credit markets may have played a role, but the impact on corporate investment is arguably small relative to a decline in investment opportunities following the 2008 recession and financial crisis.”  

You can’t beat old fashioned ‘Marxist’ economics.



46 Responses to “Marxians, Marxists, profitability, investment and growth”

  1. Boffy Says:


    According to Marx, Capital III, Chapter 39, the accumulation of capital does arise naturally from the growth of population. In fact, in that Chapter, Marx specifically attacks Ricardo’s thesis that such accumulation could only be driven by higher prices, which drive higher profits. That of course, is not to say that a higher rate of profit may not stimulate additional accumulation and vice versa. It is to say, as Marx does that the issue is more complex than that. Each individual capital is driven by competition to seek to obtain as larger share of the market, and so of the potential mass of profit as possible. If demand rises, the market expands, therefore, each capital will seek to capture as much of that market as possible. It has no other choice, because the objective laws of capital, and its need for survival, drive that decision. So, each capital must accumulate capital, i.e. produce more, and that remains true whether the profit it obtains from this additional production is higher, lower, or the same.

    Marx dismisses Ricardo’s argument, and says that even if market prices and profits remain constant, there will be capital accumulation, because of the expansion of demand, which enables each individual capital to expand its mass of profit, and competition between capitals drives them to seek to do so.

    “… the extension of cultivation to larger areas — aside from the case just mentioned, in which recourse must be had to soil inferior than that cultivated hitherto — to the various kinds of soil from A to D, thus, for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production.” (p 672)

    “The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.” (p 672-3)

    • Boffy Says:

      The consequence of this is quite clear that the determining factor is the extent to which individual capitals believe that the market is likely to expand or contract, and so how much they need to expand their own production to capture the expansion of that market. If individual capitals believe that the future is uncertain, and that consumers – be they end consumers or productive consumers – will not expand their demand, then its unlikely that producers will splurge on additional investment, its unlikely that new capitals will enter the market.

      That is especially true, when the owners of loanable money-capital are able instead to speculate in financial markets underpinned by central banks money printing, and so where large capital gains are available, and where the representatives of those money-lending capitalists on company boards, see the potential for such large capital gains from similar speculation rather than productive investment.

      It is particularly the case, when consumers for thirty years have been loaded up with ever increasing amounts of debt, which not only must they pay back and service, but which limits their ability and desire to take on further debt to fund current consumption, especially as large numbers of those consumers have so much debt that they now rely on pay day lenders charging usurious levels of interest, and on credit cards that also charge exorbitant rates of interest.

      That is also more the case today, when modern capital is characterised by oligopolies that have considerable amounts of knowledge about the potential future nature of demand from consumers, and who play their future investment accordingly. So, Andrew Kliman is quite right when he points to this nature of consumer demand and investment planning when he writes,

      “Companies’ decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)

      • sartesian Says:

        “Companies’ decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)

        I think that assertion fails to distinguish between a capitalist’s explanation for why he or she does something, and the compulsion that capital imposes on the capitalist to do something.

        For example, the CEO of Maersk-Moller might say that the decision to purchase 11 EEE class container ships (capable of carrying more than 18,000 TEU (twenty-foot-equivalent-unit) containers was based on projected increases in demand– in the trans-Pacific trade corridor, and in the Asia-Europe corridor.

        But, capital, the “logic” of capital, dictates this expansion, this accumulation, regardless of “demand,” as the EEE ships have lower operating costs, greater capacity, and thus, capture a greater share of the total available surplus value, the “composite profit” in the shipping industry. The class EEEs do this, even now with the tremendous fall-off in profit in the industry. Maersk has been able to report some profit, although severely reduced during this period, and has gone ahead with its decision to purchase the 11, although, because of the severly reduced profit, it has cancelled the option for 6 additional.

        Clearly, one of the signature characteristics of capitalism is the organization, or expression, of the means of production themselves as commodities. And capital in the means of production must do what capital does– expand value, that is to say transfer the already existing value embodied in it to a greater mass of commodity values through the aggrandizement of labor-power.

        The point being, that the bourgeoisie only “see” demand through the lens of profit. Demand does not exist outside the… get ready… law of the tendency of the rate of profit to fall. “Technical progress” that is to say greater masses and concentration of fixed assets will indeed cause companies to increase output, until the amassing of capital is overwhelmed by the decline in the rate of profit which it, the very same amassing of capital, triggers

    • Henry Says:

      For Marx population is an abstract term that means nothing without understanding how that population is made up. E.g. class composition.

      So when Boffy says that the accumulation of capital does arise naturally from the growth of population there is much he is missing out. Which is pretty much the whole cannon of Marxism!

  2. Apostolis Xekoukoulotakis Says:

    Keep up the good work. An avid reader of your blog, being introduced by Alex Callinicos tweets. It would be nice if you joined twitter and made those tweets.

    I am a hacktivist working on the ryaki platform, a platform that prohibits internally the existence of any profit, while at the same time being competitive to the outside world.

    I have also been working on a simulation software, (not working at the moment), which try to show the effect of technology on the economy, influenced by the Marx’s decreasing rate of profit.
    The software is microeconomic in nature, a tool that simulates the economy on the standard behaviour of economic agents.
    You can look at it as it progresses here:

    It is my belief that profits and the emergence of classes is the result of uncertainty, risk aversion, information asymmetry etc. I conclude that these issues can never be solved because we can never have perfect information and thus perfect markets. I think that Marx’s work should be viewed in this light.

    From the graph on profits, it appears that after 1980, profit has stabilized at 0.4-0.5 percent. My explanation is that they cannot go lower. They are practically zero. Maybe in this next phase, profits will be driven by capital devaluations.

  3. sartesian Says:

    “It is my belief that profits and the emergence of classes is the result of uncertainty, risk aversion, information asymmetry etc.”

    You left out labor-power. More than a mere technicality. Or oversight.

    • Apostolis Xekoukoulotakis Says:

      I explain why surplus value exists, or in other words, why the value created is different than the value given to the workers.

      In other words, I explain why workers are paid just to maintain their labor power.

      Marx concluded that private property and capital was the reason for surplus value. I explain how capital and private property do that in microeconomic terms.

  4. Luis Enrique Says:

    umm, mainstream economics has many theories of endogenous growth, and I think also says investment decisions are taken in view of expected profits.

  5. Jan Lust Says:

    Dear professor Roberts, Just a quick look at the syllabi of the programs at Business Schools or just follow some lectures of an MBA and you will know enough: Investments are ruled by profitability. It is all about profits and, in the end, nothing more. Thank you for this article. Kind regards, Jan Lust Artículos:

    De: Michael Roberts Blog Para: Enviado: Martes, 24 de noviembre, 2015 4:44:50 Asunto: [New post] Marxians, Marxists, profitability, investment and growth #yiv8995735654 a:hover {color:red;}#yiv8995735654 a {text-decoration:none;color:#0088cc;}#yiv8995735654 a.yiv8995735654primaryactionlink:link, #yiv8995735654 a.yiv8995735654primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv8995735654 a.yiv8995735654primaryactionlink:hover, #yiv8995735654 a.yiv8995735654primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv8995735654 | michael roberts posted: “I continue my campaign, along with a small band of like minds, arguing that the ups and downs of real economic growth are driven by changes in business investment.  And, in a capitalist economy, that investment is driven by the level and movement in the p” | |

  6. peggydobbins Says:

    Decision by profit seekers to invest, to buy equipment, material and labor power, we may safely presume is a function of anticipated profit; but I think it safer to say decision not to invest can be predicted from falling rate of profit, which is more certain

    • Boffy Says:

      That seems to be logically inconsistent. The actual fall in the rate of profit is something that has or has not happened, whereas, by definition the anticipated profit is something yet to be achieved.

      If the reported rate of profit shows that it has fallen, but the anticipated rate of profit is higher, what then should the capitalist do? Should they not invest, because the past rate of profit, over which they can now exercise no control, because it is history, is lower, or should they in anticipation of higher profits, because the economy has strengthened invest more?

      On the basis of Marx’s quote given earlier, its clear that marx thought that if businesses see the potential for higher demand, they will tend to seek to expand their production, and so to invest capital to take advantage of it.

      As someone who has run my own business, as well as taking such decisions in other businesses, and observed how such decisions are made in others, I would suggest that it is anticipation of future demand that is decisive, not past profits over which I could no longer exercise any influence, and which would, therefore, be the equivalent of trying to drive by looking through the rear view mirror.

      When I ran my own business, I sought orders, and then invested the necessary capital to be able to meet them. I never once thought that just because I had had a good week or month that that in any way determined whether the next week or month would be good.

      The same was true when I worked in the sales department of a large manufacturer. There again the process was that orders were first obtained, and then passed to the production control department, who planned out production for the next few months, and from which the necessary investment of capital for materials and so on was determined.

      When I worked for a small textile company, I had to seek out orders, as well as buying material for their fulfilment, and undertaking the costing to win the orders. Once again it was the potential demand that determined the investment of capital, not vice versa.

      What is more, in nearly all cases, the movement in profit played little role. The textile company I worked for, for example, had a range of fixed costs to meet, as it was not going to simply close down, and even the wages of the workers tended to come into that category. The determinant was not whether a higher rate of profit could be obtained, but simply whether more profit in total could be obtained.

      When I ran my own business, and when I obtained orders for the small textile business, the decision to invest additional capital to win additional orders was never based upon it providing a higher rate of profit. The only consideration, in that respect was whether the anticipated profit was sufficient to justify the investment of the additional capital.

      What is more, there were a number of occasions when additional work was taken on, where the rate of profit obtained was quite low, or near zero, but where it was justified, because it meant that existing fixed capital could be used that otherwise would have stood idle.

      • sartesian Says:

        Well, I know a bit about this too, having been involved large capital purchases of rolling stock in the railroad industry. First things first, the so-called “individual capitalist” only sees “demand” through the lens of profit and through that lens, he or she knows that the market is always bigger than his or her “individual” capital. All the compulsions of capital get worked out through, and manifested in, competition. Thus capital investment decisions MIGHT be driven by “confidence” that the market is expanding; OR such decisions can be driven by the fact that the increased technical investment allows the individual capitalist to produce at a lower cost and thus sell above the production cost, claiming a larger portion of the total available profit.

        The market for hauling grain may or may not expand in the next 2 seasons, but if I purchase new locomotives with better traction effort efficiency, less fuel consumption, a significantly greater mean distance and mean time between failures, I can haul the grain, or coal, or chemicals or auto parts at a lower cost and with greater efficiency than the other railroads. I might even be able to reduce my locomotive fleet because of less “down time,” increase the asset utilization rate of my “fixed assets” which in this case are rolling fixed assets, use only 2 locomotives were previously three were required.

        “Demand” is but one expression of capital’s need to aggrandize surplus value.

        And for just that reason, the need to aggrandize greater masses, and rates of surplus value, not only drives technical investment, but it also compels utilization of that increased technical investment at its maximum efficiency– i.e. increased output, regardless of so-called demand. This is exactly what happens with overproduction. It is exactly the story of the cyclicality in, for example, semiconductor fabrication.

    • Boffy Says:


      There are other inconsistencies arising from the propositions put forward.

      The first proposition is that profits drive investment. So, if the rate of profit rises this causes investment to rise, and vice versa. Capitalists will use a greater proportion of the revenue they obtain as profit, and use it to accumulate as capital, rather than to spend as revenue.

      The second proposition is that there is a tendency for the rate of profit to fall. If we take this second proposition, and combine it with the first we arrive at a conclusion that there must be a tendency for investment to fall, because there is a tendency for the rate of profit to fall. In other words, capitalists use a smaller proportion of profit to accumulate as capital, and a larger proportion to consume unproductively as revenue, or as saving. If they save, then this saved money-capital goes into the money market, and depresses interest rates. Lower interest rates mean that the capitalised value of revenue bearing assets – shares, bonds, land etc. – rises, creating a capital gain for holders. That creates a tendency for speculation in these assets to obtain this capital gain. Either way, therefore, the profit received as revenue bye the capitalist tends to be spent unproductively rather than advanced as additional capital. In other words, alongside the tendency for the rate of profit to fall, we should see a corresponding tendency to invest, to decline too.

      The first question would be whether in fact, the history of the last 200 years shows any such tendency not to invest, because the rate of profit today, if it has been tending to fall continuously, over time, must be much lower, with a correspondingly much lower tendency to invest going along with it. I would suggest that the vast amounts of capital accumulate seen over that period, shows no such reluctance by capital to invest, as a long term trend rather than bouts of under investment, just as there are bouts of over investment.

      The second question would be how such a tendency for capitalists to increasingly invest less, but spend more sits with Marx’s basic assumption that for objective reasons capital must accumulate. Hist statement was that capital must “accumulate, accumulate” not “spend, spend”, or “save, save”.

      In fact, as Marx says, the same increasing productivity required for the falling rate of profit, causes the necessaries and luxuries consumed by the capitalists and other exploiters to fall in value. So, less of their revenue is required for this unproductive consumption, leaving a greater portion available for accumulation. In addition, as Marx describes when productive capital was owned by private capitalists, they obtained profit as revenue, which they apportioned between their consumption and accumulation. But, productive capital became socialised long ago, in its majority, and the profit now goes not to the private capitalist, but to the socialised capital, i.e. the firm. The individual capitalists have been transformed into mere owners of loanable money-capital, on which they now receive not profits but the average rate of interest, in the shape of dividends on shares, and interest on bonds. This interest is much less both in amount and rate than is the actual profit obtained by the socialised capital.

      As Marx puts it,

      “But in the sense that these capitals, although invested in large productive enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted.”

      So, again, more of the profit is available for accumulation rather than needing to be set aside to cover the unproductive consumption of the individual capitalist.

      A further conclusion would also be that if the law of falling profits creates a corresponding tendency for accumulation to fall, because profits drive investment, then this tendency for accumulation to fall, would mean that the tendency to over accumulate would decline alongside it. In Capital Volume I, Marx explains that the reason that capitalism did not experience crises of overproduction prior to 1825, is that production continued to be based on handicraft production. Although, this production, in the factory, benefited from economies of scale and division of labour, output only tended to rise in line with population growth, and so of the market. It is machine production, which changes that, and creates a constant revolutionising of technique, which expands production faster than the market creating overproduction. For example,

      “(When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.)” (Theories of Surplus Value, Chapter 17)

      If the law of falling profits, thereby creates a tendency for investment to fall, because profits drive investment, then this constantly declining tendency to invest, and accumulate must lead to less of this capital being over accumulated, and causing output to expand faster than the market for that output. In other words, it creates a tendency for crises of overproduction to decline as history progresses, and capital develops. That seems to be the exact opposite of the conclusion those who propose the Law of The Tendency For The Rate of Profit to Fall, as the main or only cause of such crises, wish to arrive at. Even more is it at odds with those who agree with Ricardo and Malthus that such crises must intensify so as to threaten the existence of capitalism itself.

      • sartesian Says:

        Boffy forgets or deliberately ignores certain critical aspects of Marx’s discussion of the law of the tendency of the rate of profit to fall, namely that a) it– the law– is itself an expression and result of INCREASED accumulation b) that it– the law–is accompanied by and generates OFFSETTING tendencies c) that it is in fact the limits and barriers of this law that drives the bourgeoisie to overcome the limits through migration of capital to new areas (and not just geographic ones).

        We can express the impact of the law on the bourgeoisie with many fewer words than Boffy requires to obscure its operation:

        There is no decline in the rate of profit that in itself signals the “ultimate end” of capitalism, as each decline requires the bourgeoisie to respond. Yet there is no decline in the rate of profit that the bourgeoisie can afford, literally, to ignore At specific junctures this response requires the attempt to reduce the price of labor below its VALUE, below its time of reproduction, its cost. The law of the tendency of the rate of profit to decline, which is inherent in the law of value, is the product of the relations between classes, and can only be overcome in class struggle.

      • sartesian Says:

        And– one more omission of Boffy’s; it is not case that the decline in the rate of profit means that accumulation becomes negative. The tendency of the rate of profit to decline means that, if not offset, the RATE of accumulation, the increment, the relation of accumulation to the already existing mass of capital, will diminish.

  7. peggydobbins Says:

    I really appreciate your laser focus on p r o f I t

  8. Webb Traverse Says:

    What I don’t understand is, what practical difference does this all make in the here and now?

    Lenin knew we can’t achieve communism immediately: we need a bridge economy.
    If the bridge economy is something like NEP, where the democratic state runs certain strategic industries (“the commanding heights”), while leaving other sectors in private hands… well how is this different from what the leftist post-keynesians say we should do?

    I genuinely don’t see how is NEP incompatible with a Kaleckian mixed economy with Job Guarantee. To me, in practice, they basically look the same.

    Or market socialism. There are a few post-keynesian market socialists, like Abba Lerner…

    In other words, what would a truly “marxist” policy look like in today’s Argentina or today’s UK or today’s Hungary?

    Perhaps Mr. Roberts could write a blog post about this, I feel it would be of great interest to many of his readers.

    (It’s an honest question, I truly don’t see any essential practical difference.)

    • Rob Says:

      I second Mr. Webb Trasverse’s suggestion for a post dealing with this issues.

      My thoughts have followed similar path lately.

    • sartesian Says:

      Lenin thought the “bridge” so to speak was an international revolution. Absent that, no “local” national economic policy could ever bring about socialism. That’s not a mere technicality. Russia was not a robust capitalist economy before the revolution. It wasn’t even a capitalist economy. It was integrated, in its backwardness, into the world markets of capitalism, but capitalist relations of production had not taken root in agriculture (Lenin’s assertion to the contrary notwithstanding), and the industrial capitalist centers were enclaves.

      The NEP was not a “bridge economy,” in any way shape or form, and absent again an international revolution could not lead to “socialism.”

      We can’t speculate on how a “true” socialist economy would function in Argentina separate and apart from a) the organs of power developed in a proletarian revolution in Argentina b) the extension of that revolution internationally.

      • Webb Traverse Says:

        I agree: we need an international revolution to bring about COMMUNISM.

        However, in practice, spreading the revolution internationally takes time. We’re talking about decades here!

        Meanwhile, you still need to run an economy.

        So, again, what could a genuine workers’ party do with the economy, if they happen to win an election (or seize power by other means) in a country like Argentina or Japan or Poland?
        Saying they should wait while the other parts of the world become socialist is a cop out.

      • sartesian Says:

        Nobody’s asking anyone to wait. I don’t think we can talk about “running an economy” separate and apart from the organs of class power developed in, by, and for the revolution.

        So…how do we perceive the revolution coming to, and expressing, its power in Argentina.

        I think we can eliminate the “election” route from our considerations; administering capitalism on behalf of the bourgeoisie is a bridge to nowhere.

        The question might be better phrased as: what does it take to eliminate capitalism in Argentina, or Japan, or Poland.

      • Webb Traverse Says:

        I agree we shouldn’t abstract from the historical conjuncture. Every country today is embedded in global capitalism. And most work with bourgeois state apparatuses.

        BUT I still think these are reasonable questions:

        What policies in the here and now would serve best the interests of the 99%?

        If it’s something like NEP (Mr. Roberts mentioned “the commanding heights” a few times in his posts), then how is that different form a leftist keynesian dirigisme?

  9. Memet Says:

    I can’t understand why you insist on posing “profitability” vs. “demand” as if those two are exclusive concepts and has no relation whatsoever.

    • Boffy Says:

      Quite right. A use value only has value as Marx sets out in Capital I, Chapter 1, if it is both the product of labour, and if it really is a use value, i.e. someone demands it.

      Moreover, Marx sets out in Capital III, that this applies to the total production of a commodity as well as individual commodity units. There may be demand for widgets, and as a producer of widgets, I may produce them by the most efficient means, so that each widget contains only the minimum amount of labour-time required for its production.

      However, Marx says, if the market value of a widget is then £1, and I produce 10,000 widgets, it does not mean that they have a value of £10,000, because it depends on whether there is demand for 10,000 widgets in the market, at a market value of £1. If in fact, there is only a demand for 8,000 widgets, at a price of £1, then 2,000 widgets have been overproduced, they are not use values, and have no value. Consequently, the value of the £10,000 widgets produced is not £10,000, but only £8,000, equal to the actual amount of necessary labour required, as opposed to the amount of labour-time expended on their production. The consequence then is that each widget can only be sold for £0.80, which affects how much profit is made on it.

      If this price is not just below its market value, but also below its cost of production, there is a partial crisis of overproduction, because not only does the capital make no profit, but it cannot even reproduce the capital consumed in production. Sinclair for example, expended lots of labour-time producing C-5’s, but they had little value, because no one wanted to buy them, at their price of production.

      It is the point Marx makes in Chapter 15 explaining crises of overproduction. Commodities are not just produced, but also have to be sold, and sold in a market itself marked by wide variations between consumers, dictated by productive relations. As he sets out, commodities can be produced that theoretically contain large amounts of surplus value pumped out of the workers that produced them – in fact, as he sets out, this is usually the case prior to a crisis of overproduction – but unless those commodities can be sold at prices that equal the price of production, that surplus value cannot be all realised, and, in fact none of it may be realised.

    • Rob Says:

      I think that the idea is that demand and profitability can be related but are different concepts. it’s possible to get a lot of ‘demand’ without profits: in a market with a strong competence, for instance.

      Capital is not interested in demand its interested in profitability.

      For deciding investments (that following the thesis of this blog is a fundamental part of demand) the interest is in future profitability; that could come from big demand but also from big margins (in a monopoly for instance).

      • Boffy Says:

        “it’s possible to get a lot of ‘demand’ without profits:”

        Not in Marx’s terms its not, because, marx points out that Capital only knows one kind of demand, and that is “effective demand”, demand backed up by the ability to pay, and to pay the market value, or price of production of the commodity.

        As the price of production includes the average rate of profit, it is impossible to have such demand, without the profit that goes with it.

        The difference here is between demand and need. I might think I need a Ferrari, but I don’t demand one, because I’m not prepared to back up my need with the required money to buy one at the necessary price of production. Its the same mistake the Tories and others make in talking about housing demand.

        They claim that high prices are the consequence of excessive demand. In fact, the contrary is the case, demand is actually highly constrained because fewer and fewer people can back up their need for a house with the required funds to be able to buy one. The same reason explains why builders have not been falling over themselves to take advantage of these exorbitantly high prices to build more houses to make large profits.

        They know that at these prices, there is very little demand for any additional new houses, and so they would be overproducing if they built more. The high prices have caused land prices to rise, along with higher capitalised land prices caused by low interest rates. So any surplus profits that builders might have obtained have been appropriated by landowners, and that also means that if builders produced more houses, under current conditions, the overproduction, would cause them to make losses.

      • sartesian Says:

        Complete, total, absolute bollocks from Boffy, and a perfect example of why those who respond to Boffy get so irritated– for example just a while ago, Boffy was telling us how the decline in the price of copper wasn’t really triggered by the loss of “demand” precipitated by a general decline in the rate of profit. Nope, “demand” was good. Here Boffy tries to untie himself from his own knot by twisting Marx into a Moebius strip, where “demand” is always demand at the price of production.

        Boffy does make one thing clear: it’s not just ignorance to shapes his “interpretation” of Marx. It’s deliberate distortion.

      • Boffy Says:

        The essential position is set out by Marx in Capital III, Chapter 10.

        “First, the different individual values must be equalized at one social value, the above-named market value, and this implies competition among producers of the same kind of commodities and, likewise, the existence of a common market in which they offer their articles for sale. For the market-price of identical commodities, each, however, produced under different individual circumstances, to correspond to the market-value and not to deviate from it either by rising above or falling below it, it is necessary that the pressure exerted by different sellers upon one another be sufficient to bring enough commodities to market to fill the social requirements, i.e., a quantity for which society is capable of paying the market-value. Should the mass of products exceed this demand, the commodities would have to be sold below their market-value; and conversely, above their market-value if the mass of products were not large enough to meet the demand, or, what amounts to the same, if the pressure of competition among sellers were not strong enough to bring this mass of products to market. Should the market-value change, this would also entail a change in the conditions on which the total mass of commodities could be sold. Should the market-value fall, this would entail a rise in the average social demand (this always taken to mean the effective demand), which could, within certain limits, absorb larger masses of commodities. Should the market-value rise, this would entail a drop in the social demand, and a smaller mass of commodities would be absorbed. Hence, if supply and demand regulate the market-price, or rather the deviations of the market-price from the market-value, then, in turn, the market-value regulates the ratio of supply to demand, or the centre round which fluctuations of supply and demand cause market-prices to oscillate.”

    • Boffy Says:


      You are quite right about the interrelationship between profit and demand, as the quote from Marx, Capital III, Chapter 10, I have given below indicates.

      As Marx sets out, the market value is a function not just of the individual values of commodities – being an average of those individual values – but itself depends upon the conditions of demand and supply within the market. As Marx sets out, if there is a large amount of demand, it may only be capable of being satisfied by capital being employed in those areas where the individual value is higher, i.e. where the costs of production are higher, so that he average figure itself is dragged upwards. The same applies if demand is lower, it may be possible to meet this demand solely from the most efficient, low cost production, so the average will be lower.

      Marx details this much more in his Theory of Rent, examining the effect of demand on the requirement to bring into cultivation additional land, where the cost of production may be higher or lower than the current average, with a consequent effect on the price of production and degree of any surplus profit.

      But, as he sets out in Chapter 10, not only can additional production result in the market value falling, because the new production takes place under more favourable conditions, the market price itself can then fall below this market value, if the increase in market demand does not rise as much as this increased supply.

      So, if production becomes more efficient, the market value falls, so that the pivot around which market prices revolve itself is set lower. This would result in an increase in demand, but that demand need not rise as a result of this reduced market value, by the same proportion as the increase in supply. In that case there is an overproduction, so that the market price will fall below this market value, until the excess is cleared, and supply falls to the level of demand.

      In essence, as Marx sets out, the value of what was produced was less than it appeared to be, because the excess production represented unnecessary social labour-time, and cannot be counted as value producing. In which case, there are two effects at work here. Firstly, even if demand and supply were in balance – and as he sets out here in balance can only mean in balance at the market value, because capitalism only knows one kind of demand and that is effective demand, the ability to back up demand with the ability to pay the market value – the market value would be lower, because production is now more efficient. The market is balanced at a lower market value, and higher levels of both demand and supply.

      Secondly, the cause of the lower market value, and greater efficiency may be the introduction of some large new source of supply. The consequence of this additional lower cost production whilst causing the market value to fall, and so demand to rise, may also be to cause the total amount of supply to rise by more than this rise in demand. Marx sets that out in his analysis of rent, for example.

      Suppose, new sources of oil, or copper are discovered, which tends to happen after a period of high prices caused by demand outstripping supply has occurred – for example after 1999, when the new long wave boom commenced. First, of all we get the opposite condition, again described by Marx in Chapter 10, whereby the market price exceeds the market value, and so surplus profits and rents arise. But, these surplus profits encourage exploration and development of new fields, and mines.

      Eventually, these new oilfields (or shale production) and mines come on stream, and they may be lower cost production than the current average. In which case, the market value would fall, and induce a rise in demand. But, whether or not they are lower cost production, the consequent rise in supply may be greater than the rise in demand. So supply, will exceed demand at the market value (price of production), which is the pivot point around which the market price rotates, and so the market price will fall.

      As the price of production is a price which embodies the average rate of profit, if the market price falls below it, then not all of the produced profit can be realised, and some of the higher cost producers may even make losses.

      That is what we see currently with a range of commodities, whose supply has increased over the previous period in response to higher realised profits, as demand outstripped supply, and so where the market price exceeded the price of production, in the way Marx describes. Now the reverse of that situation exists, whereby oil production, copper production, food production and so on has risen as a result of this additional investment, so that the market values of these commodities is lower, and demand has risen, but has not risen by as much as the increase in supply, so that the market price then falls even below the price of production.

      A look at Oil Demand both current and projected, for example, shows that it has not declined, but continued to grow. So, the lower price cannot be attributed to lower demand. It is due to both lower cost production being brought on stream, and because supply has risen faster than demand, at the price of production, so that, as marx sets out in Chapter 10, the market price falls below the price of production, until that excess supply is removed.

  10. Memet Says:

    Sartesian, I think it would be better for all of us not to personalize the debate. Why should anyone bother to commit “delibarate distortions”? What would be the use of it? Let’s concentrate just on the arguments please.

    • sartesian Says:

      If you read the body of Boffy’s posts, you will see that his claims about Marx’s law of the tendency of the rate of profit to decline have been countered with extensive citations from Marx’s works on this tendency. That Boffy still persists discussing the law without mentioning the countervailing tendencies, Marx’s own assertions that the tendency does in fact produce crisis and overproduction, then you must conclude that Boffy is deliberately ignoring those aspects of Marx’s analysis, and such deliberation is a distortion.

      Boffy says on the one hand that companies make decisions about investment and output based on assumptions of demand, not profit, or the technical capacity of the means of production.

      He even gives us his little vignette about the textile company accepting work even if it produced no profit to keep the machinery running. But what is this, except the compulsion once the technical component of capital has increased to increase output, regardless of demand, which Boffy defines as being able to meet the price of production which always includes the general rate of profit?

      Still Boffy reproduces this from Kliman…

      “Companies’ decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)”

      …to argue that the accumulation of capital, of fixed capital in particular does not cause increases in output.

      Now this is the most basic of mistakes, The capitalist increases the technical component of production to increase relative surplus value, to increase the rate of extraction. So the steel mill owner introduces greater technical value through increased fixed assets in the production process. Instead of taking 10 workers 4 hours each to make a ton of steel, it takes 10 workers 2 hours each to make a ton. The working day is 10 hours. What does the steel mill owner do? Send the workers home after 5 hours without any reduction in wage? Of course not. The steel mill owner doubles the output of the mill regardless of the “effective demand” he or she imagines is out there.

      A mistake is a mistake, but a pattern of repeated mistakes is something else altogether, and that something else is distortion.

      Boffy can blabber all he wants about respectful disagreement, but that too is just bollocks. Distortion is the most disrespectful of arguments.

  11. Bruce Wallace Says:

    I’m afraid Sartesian speaks the truth and sometimes it’s necessary to say it like it is. “Complete, total, absolute bollocks from Boffy, and a perfect example of why those who respond to Boffy get so irritated.” And that’s because it is total bollocks. We get so irritated because it’s impossible to engage Boffy in reasoned “debate” as he says he’s a Marxist but totally mangles the ideas he’s supposed to propound. If you try to point this out to him you get 5,000 word incomprehensible replies.

    • Boffy Says:

      Except you never provide any reasoned debate, only school yard name calling, and abuse such as “total bollocks”, though that represented some kind of argument rather than the inability on your part to actually muster an argument. A look back over the last couple of years would show that it is Artesian that is the one who posts huge slabs of irrelevant verbiage, that he clearly doesn’t understand as with most trolls, which is why I don’t even bother to read anything he says.

      A look at the reasoned debate I put forward on Dobbs Blog a couple of years ago, shows a number of interesting points, starting with the title that Dobbs gave to it.

      Then we have an example of the kind of reasoned debate Bruce has to offer. He and Dobbs had just accused me of being in the SPGB, wrong on so many counts; he had accused me of holding a state capitalist analysis of the USSR, wrong again. You might have thought that he and Wallace after so many basic errors would have been more circumspect, and humble, but no Bruce gives us the full force of his intellect in response, by saying,

      “So Boffy isn’t in the SPGB. Good job for the SPGB. I don’t think a lot more studying will help this guy as even with a little knowledge he appears hapless. I mean who the hell cares if he is unimpressed with world known Marxist economists? Good for a laugh tho I must say.”

      And there speaks the voice of the future Socialist Society that people authoritarians would impose upon us where only the members of the self-selected elite are entitled to have an opinion, and the masses have to keep quiet and do as they are told.

      No wonder Wallace and Dobbs continued to make similar elemental mistakes in their WW article, claiming that Marx had not written chapters in Capital II, that he had, or claiming that the rate of turnover was only a “novelty” of little relevance to the discussion of the rate of profit, and yet they now want to point to the work of Maito, for whom it is a central point of his study!

      No comrade, its you that has mangled Marx’s theory, which is perhaps a consequence of the short time you have been studying it, compared to others of us, who do not feel so bold as to proclaim ourselves “experts”. It is you that has failed to justify your arguments when they are challenged, whether it is your failure to take into account the effect of the rate of turnover, the effect of all the countervailing forces working against the tendency for the rate of profit to fall and pretty much on everything else too. Its very much like the attitude of members of the Militant Tendency I came across in the 1970’s and 80’s, who had a similar attitude that no one had the right to criticise their self-proclaimed wisdom, and which on most occasions turned out to be nothing of the kind.

      • sartesian Says:

        I hope you’re not referring to me as “comrade,” because I certainly am not one. And I’ve never proclaimed myself an “expert.”

        As for the rate of turnover, the point of Marx’s discussion in volume 3 is that the rate of turnover is accounted for by making the calculation on an annual basis. If it turns over 4 times or 2 times in a year, that’s how we calculate the numerator and the denominator, on the sum total of the yearly profit and the sum total of the yearly costs of production.

        That’s one.

        And where, we ask the Great Boffy does Marx ever claim that the increased turnover of circulating capital is the SAME THING as the turnover of the TOTAL capital? He does not. He states quite explicitly that the rate of profit is calculated on that part of capital consumed completely in production PLUS that part that still remains– i.e. the fixed assets.

        That’s two.

        Boffy’s other great misdirection is his channeling of Okishio, such that Marx himself(!) somehow, according to El Boffo, argues that the rate of profit is calculated based on replacement costs, not “sunk” costs– as if the devaluation of capital is somehow money in the capitalists’ pockets. What crap.

        That’s three..

        The careful reader will note how Boffy avoids any response to this:

        “Now this is the most basic of mistakes, The capitalist increases the technical component of production to increase relative surplus value, to increase the rate of extraction. So the steel mill owner introduces greater technical value through increased fixed assets in the production process. Instead of taking 10 workers 4 hours each to make a ton of steel, it takes 10 workers 2 hours each to make a ton. The working day is 10 hours. What does the steel mill owner do? Send the workers home after 5 hours without any reduction in wage? Of course not. The steel mill owner doubles the output of the mill regardless of the “effective demand” he or she imagines is out there. ”

        So I’m arguing that Kliman is wrong in this; and Boffy is wrong in repeating Kliman’s mistake.

        Does the increased technical component, investment, value accumulated in the means of production require increased output? Yes or no?

        That’s four.

        I certainly know what Marx says about this. Move along, Boffy, you’re blocking traffic.

  12. Bruce Wallace Says:

    “He and Dobbs had just accused me of being in the SPGB, wrong on so many counts; he had accused me of holding a state capitalist analysis of the USSR, wrong again. You might have thought that he and Wallace after so many basic errors would have been more circumspect, and humble, but no Bruce gives us the full force of his intellect in response, by saying,”

    Boffy that is just untrue as I had absolutely nothing to do with Steve Dobbs blog. He wrote an entry on you and I had no knowledge of the content until it appeared. It’s one thing to say somebody is a troll and name caller etc. but I can’t let you get away with that one because it’s just untrue.

    As for the stuff about being part of an elite, of being authoritarian and so on that is just paranoia on your behalf. I’m not even an economist and, unlike you, don’t have a degree in it.

    I’m fully open to criticism but what I’m not open to is your distorted mishmash of Karl Marx’s work. Such as suggesting that I don’t take account of “the effect of all the countervailing forces working against the tendency for the rate of profit to fall and pretty much on everything else too”.

    That is arrant nonsense as anybody who understands the LTRPF knows that there are six main counter-tendencies identified by Marx which are “brought forth” by the very fall in the rate of profit. The main reason being that the LTRPF is a double edged dialectical law.

    The other point I would like to make is you occasionally cite data which is totally false.

    For example in your reply to me and Steve Dobbs in the Weekly Worker you wrote:

    “Moreover, the low growth in the UK (until this year) and in parts of Europe can be more readily ascribed to deliberate economic policies of austerity. Until late 2011, northern Europe was growing fairly rapidly, with Germany having annualised growth rates of around 5% in a number of quarters, and Sweden 7%.”

    To quote Sartesian here this is “total, absolute bollocks” because I checked. Neither Germany nor Sweden have had a growth rate anything like this IN ANY QUARTER this century. If you don’t believe me check the data:

    • Boffy Says:

      Reply To Wallace

      “”Boffy that is just untrue as I had absolutely nothing to do with Steve Dobbs blog. He wrote an entry on you and I had no knowledge of the content until it appeared. It’s one thing to say somebody is a troll and name caller etc. but I can’t let you get away with that one because it’s just untrue.”

      I didn’t call you a troll, I said Artesian is a troll, which is why I have read what you have said, and never read what he says. It is why I am replying to you as at least a real person. The substantive point about what I said was that your close associate Steve Dobbs had gone out of his way to write two blog posts attacking me that were factually incorrect on a number of issues that were easily checked given my forty years active involvement in the Labour Movement, and membership of Trotskyist organisations during that time. The substantive point is that after I had pointed out those fundamental untruths, you came in to support your associate Dobbs, with a typical response of abuse, and elitist suggestions that someone with an honours degree in Economics, 40 years of studying Marx, and an equivalent amount of time writing about that, including for said Trotskyist organisations, had no business disagreeing with other well known Marxist economists!

      Is it paranoia to talk about your response being elitist? No its simply pointing out that in your non-responsive comment on Dobbs blog, you suggest that only members of some self-selected group of economists that you agree with have a right to be listened to, and anyone outside that group’s view is irrelevant. Is is paranoid to make that point, when one of the comments you make in your 5,000 word rant against me in the WW is that I am a “bungling amateur”, and another is that I “quotes Marx as if he was an expert” implying that it is only such experts who have a right to make such quotes!

      You then say that I cite data that is false, and reference the growth rates for various countries. But, the data I cited was from the same source as that you used yourself. The difference was in the way that source provides different bases of measurement. This is what they actually say in relation to the Annual figure that I was citing.

      “Annual Growth Rate in Sweden averaged 2.57 percent from 1994 until 2015, reaching an all time high of 7.70 percent in the fourth quarter of 2010 and a record low of -6.20 percent in the second quarter of 2009.”

      Trading Economics – Sweden.

      It appears that you share the same misunderstanding of the different bases for measuring GDP as your friend Artesian.

      This is what the same source actually says about Germany.

      “GDP Annual Growth Rate in Germany averaged 1.32 percent from 1992 until 2015, reaching an all time high of 6 percent in the first quarter of 2011 and a record low of -7.90 percent in the second quarter of 2009.”

      So, we can move on from your error on that count.

      “Boffy will no doubt come back on this to correct my ignorance but I’ve had about as much of his bilge as I can stand.”

      And there in lies your problem, because when someone actually presents facts and arguments that disprove your claims, you seem to find it impossible to reconcile yourself to the idea that you might just have been wrong, and so you are much more comfortable to respond with name calling and abuse than reasoned argument.

      Its like your presentation over the Law of The Tendency for the Rate of Profit to Fall. You do not seem to understand the difference between Marx’s explanation of that law as arising from rising social productivity, caused by improvements in technology, so that the proportion of raw material costs (circulating constant capital) in the value of output rises, whilst the proportion of the cost of that output accounted for by wear and tear of fixed capital, and of labour-power rises, and the fact that the rate of profit can at times fall for entirely different and opposite reasons.

      It is why, Marx says

      “Growth of capital, hence accumulation of capital, does not imply a fall in the rate of profit, unless it is accompanied by the aforementioned changes in the proportion of the organic constituents of capital. Now it so happens that in spite of the constant daily revolutions in the mode of production, now this and now that larger or smaller portion of the total capital continues to accumulate for certain periods on the basis of a given average proportion of those constituents, so that there is no organic change with its growth, and consequently no cause for a fall in the rate of profit. This constant expansion of capital, hence also an expansion of production, on the basis of the old method of production which goes quietly on while new methods are already being introduced at its side, is another reason, why the rate of profit does not decline as much as the total capital of society grows.”

      (Capital III, Chapter 15)

      Yet, in Capital III, Chapter 6, he describes the way not only the rate of profit, but even the mass of profit, any be squeezed at times, for reasons quite apart from and opposite to those which stand behind the Law. That is, if productivity falls rather than rises, so that the value of the inputs rises, under conditions where the increased costs of those inputs cannot be passed on into final product prices, and have to be absorbed out of surplus value by manufacturers. So, he writes,

      “Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries, even if fluctuations in the price of raw materials are not accompanied by variations in the sales sphere of the product, and thus quite aside from the relation of demand to supply.”

      He then sets out the situation where these prices of inputs cannot be passed on, usually during a boom which raises incomes and consumption. Marx continues,

      “This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.”

      This, in fact, is the situation that Marx was describing in Theories of Surplus Value, Chapter 17, which you wrongly interpreted as being about the Law of the Tendency for the Rate of Profit to Fall, but where in fact, Marx was criticising Ricardo for advancing the same argument that you have been defending.

      In Chapter 6, Marx spends considerable time analysing the potential drop in the mass of surplus value, and consequent fall in the rate of profit caused not by rising productivity, causing a rising organic composition of capital, but by FALLING productivity causing a rise in the price of raw material inputs, which results in a rise in the VALUE composition of capital, which results in a fall in the rate of profit, and potential for crises of overproduction. The entire Chapter from that perspective is about the effect of these changes in market prices and the potential for causing squeezed profits, and crises. So, he analyses the consequences of the shortage of cotton due to the US Civil War, and titles that section – “American Civil War. Cotton Famine. The Greatest Example of an Interruption in the Production Process through Scarcity and Dearness of Raw Material”.

      He points out that these rising prices of inputs may themselves be due to increased demand by manufacturers, during a boom period, such as that after 1843, which was founded upon rising masses and rates of profits, not a period when the rate of profit was tending to fall! And the same thing applies to a squeeze on profits during a boom caused by that same rising demand for inputs in relation to labour. Marx comments,

      “Given the necessary means of production, i.e. , a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e. , the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.” (Chapter 15)

      In other words, if the rate of surplus value remains constant due to steady technological conditions and social productivity, then the creation of surplus value depends upon the existence of an available supply of labour-power. But, it is precisely during periods of technological stability, and stable levels of social productivity that capital accumulation causes the available labour supply to start to be used up! He discusses that situation in Theories of Surplus Value Part 1, to demonstrate what happens when that reserve of labour-power starts to get used up, so that firms compete for the available supply of labour-power. It causes wages to rise, and surplus value to get squeezed!

      And the effect of that he also refers to in Capital III, Chapter 15.

      “In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

      So, for example, when you quoted this from Theories of Surplus Value,

      “”Reproduction cannot be repeated on the same scale. A part of fixed capital stands idle and a part of the workers is thrown out on the streets. The rate of profit falls because the value of constant capital has risen as against that of variable capital and less variable capital is employed.”

      You advanced this as evidence of Marx advocating the LTPRF as a cause of crisis, but in fact, it is nothing of the kind, because what this actually section is about is not the LTPRF, causing a falling rate of profit due to rising productivity, but a fall in the rate, and potentially the mass of profit, due to FALLING profit productivity, and a rise in input prices that cannot be passed on into final product prices.

      So in the paragraph prior to the one you chopped out, Marx says,

      “ (A crisis can arise: 1, in the course of the reconversion [of money] into productive capital; 2.  through changes in the value of the elements of productive capital, particularly of raw material, for example when there is a decrease in the quantity of cotton harvested.  Its value will thus rise.  We are not as yet concerned with prices here but with values.)”

      Marx later in this section, shows that a high demand for materials due to a boom also cause the market price of these inputs to rise, as supply fails to match demand at the market value/price of production, and this has the same effect as the value of the inputs rising due to falling productivity.

      “The value of the raw material therefore rises; its volume decreases, in other words the proportions in which the money has to be reconverted into the various component parts of capital in order to continue production on the former scale, are upset.”

      Which is the OPPOSITE of the condition of rising productivity and a rising technical, and so organic composition of capital, whereby MORE material is processed by the same mass of labour, and whereby the total value of that material processed rises, even as rising productivity causes the unit prices of that raw material to fall, as one of the countervailing forces.

      “More must be expended on raw material, less remains for labour, and it is not possible to absorb the same quantity of labour as before.  Firstly this is physically impossible, because of the deficiency in raw material.  Secondly, it is impossible because a greater portion of the value of the product has to be converted into raw material, thus leaving less for conversion into variable capital.  Reproduction cannot be repeated on the same scale.  A part of fixed capital stands idle and a part of the workers is thrown out on the streets.  The rate of profit falls because the value of constant capital has risen as against that of variable capital and less variable capital is employed.”

      Again, this is the OPPOSITE of the LTPRF where it is rising productivity, which causes the value of constant capital to fall, and so the value composition of capital to fall (unless the value of labour-power falls by a larger amount for the same reason), but where the technical composition of capital rises, as more material is processed per unit of labour, and so where the organic composition of capital rises. Here it is falling productivity, which causes the amount that must be set aside to reproduce the constant capital to rise, leaving less of the total product to be expended to reproduce labour-power, so that reproduction is curtailed rather than expanded!

      That Bruce is how you conduct rational debate, rather than simply calling people names, or calling their arguments “bollocks”.

      • Boffy Says:

        Correction: Para 12

        “whilst the proportion of the cost of that output accounted for by wear and tear of fixed capital, and of labour-power rises” should read falls not rises.

      • sartesian Says:

        Since Boffy never reads what I write, if anybody else out there who thinks Boffy has the slightest understanding of Marx’s critique cares to answer the questions as he or she thinks Boffy would, please feel free to do so.

        You can even adopt Boffy’s “method” and include slabs of quotes that have nothing, precisely nothing, to do with the issues at hand.

    • sartesian Says:

      From Boffy: “Until late 2011, northern Europe was growing fairly rapidly, with Germany having annualised growth rates of around 5% in a number of quarters, and Sweden 7%.”

      Which I challenged also, and which Boffy thinks is still valid.

      Boffy of course uses his usual method of cherry-picking and then uses the cherries to proclaim a trend.

      Remember, Boffy’s claim that “until late 2011, northern Europe was growing fairly rapidly– that’s the claim; with Germany and Sweden providing examples “in a number of quarters” to support the argument that “northern Europe” was growing fairly rapidly until late 2011 (which slowdown Boffy then claims was the result of misguided austerity policies).

      So pointing to a single quarter, or 2 quarters of annualized growth (where you take the quarterly growth and compound it for the year) is a)irrelevant [so unlike Boffy to include anything irrelevant] b) an attempt at misdirection, or in my uncharitable view, deliberate distortion of the meaning of the data by abstracting it from the context of the very argument the data is supposed to support.

      So.. looking at the Eurostat database for the years 2007-2011, you find that Northern Europe was in fact NOT growing strongly in the recovery from the trough of the recession, and that the annualized growth rates for certain quarters depends upon the declines in 2009 being so steep. Germany’s GDP declined some 9% peak to trough in the recession. The 5% annualized rate for quarterly GDP growth hardly counts as “strong growth” when annual growth from the previous GDP peak in 2007 through the end of 2011 was about 2 percent.

      Sweden’s quarterly GDP peaked in 4Q 2007 and tumbled 20 percent to its low in the 1Q in 2009. Sweden did not exceed its previous peak until the 4Q 2010. Strong growth through 2011? Not hardly, as Sweden’s GDP was essentially flat throughout that year.

      I looked at the data for: Belgium, Luxemburg, Finland, Netherlands, Germany, Sweden, Denmark, Norway (not an EU, but certainly a Northern European country), Latvia, Lithuania, Estonia, Poland, Austria, the UK. A case can be made for strong growth through late 2011 in Latvia, Lithuania, and Estonia, but those countries combined account for 1% of the GDP aggregate for the group.

      You can annualize anything you want– monthly rates, weekly, rates, daily rates, and then claim “see, I told you those annualized rates were achieved,” but that’s just dissembling and misdirection. The argument made by Boffy was that the economies of the Northern European countries were growing fairly rapidly through late 2011. No such real annual, aggregate growth took place.

      Boffy, knowing what thin ice he was on with his unsupported claim, left himself a back door to make his grand exit– an annualized rate based on a couple of quarters.

      With all due respect, all rational discourse leads to one simple conclusion– Boffy is dishonest.

  13. Bruce Wallace Says:

    Ok Boffy here is the data for Sweden that was “growing fairly rapidly” with annualised rates of 7%. Look Boffy here’s the truth about the Swedish economy. It’s highest growth rate in the past 22 years was 2.7%.

    As we say in Scotland awa n’ bile yer heid!

    Actual 1.10

    Previous 0.60

    Highest 2.70

    Lowest -3.90

    Dates 1993 – 2015

    Unit percent

    Frequency Quarterly

    Sweden is a major North European economy. In 2013, more than 123 SEK million were invested in Research and Development, which comprises a research ratio of 3.3 percent in relation to the country’s GDP, significantly above the EU average of 2.01 percent (2013). Despite strong finances, the Swedish economy slid into recession in 2008 and growth continued downward in 2009 as export demand and consumption fell. Strong exports of commodities and a return to profitability the banking sector drove a rebound in 2010, but growth slipped in 2012. In 2014 both private and public spending rebounded, as well as fixed investment which grew the most in seven years. On the expenditure side, household consumption is the main component of GDP and accounts for 46 percent of its total use, followed by government consumption (26 percent) and gross fixed capital formation (23 percent). Exports of goods and services account for 45 percent of GDP while imports account for 41 percent, adding 4 percent of total GDP. This page provides – Sweden GDP Growth Rate – actual values, historical data, forecast, chart, statistics, economic calendar and news. Sweden GDP Growth Rate – actual data, historical chart and calendar of releases – was last updated on November of 2015.

  14. Bruce Wallace Says:

    Boffy says: “You might have thought that he (Dobbs) and Wallace after so many basic errors would have been more circumspect, and humble.”

    Indeed there’s nothing like humble pie or, when in Germany, strudel. I mean since the economy was growing by 5% (according to Boffy) in 2011 there’d be plenty cash going around to buy it. Alas no as we have another basic made up Bofferism because here are the actual facts for German economic growth:

    Actual 0.30

    Previous 0.40

    Highest 2.00

    Lowest -4.50

    Dates 1991 – 2015

    Unit percent

    Frequency Quarterly

    Boffy will no doubt come back on this to correct my ignorance but I’ve had about as much of his bilge as I can stand.

  15. Giorgos Says:

    Michael Roberts, please never stop being an “old fashioned Marxist”.🙂

  16. Memet Says:

    I think this long passage from Lenin shows Micheal’s mistake of belittling the role of demand. It also gives us a the main points for criticizing the “left Keynesians”:

    “Sismondi’s view that accumulation (the growth of production in general) is determined by consumption, and his incorrect explanation of the realisation of the aggregate social product (which he reduces to the workers’ share and the capitalists’ share of revenue) naturally and inevitably led to the doctrine that crises are to be explained by the discrepancy between production and consumption. Sismondi fully agreed with this theory. It was also adopted by Rodbertus, who formulated it somewhat differently: he explained crises by saying that with the growth of production the workers’ share of the product diminishes, and wrongly divided the aggregate social product, as Adam Smith did, into wages and “rent” (according to his terminology “rent” is surplus-value, i.e., profit and ground-rent together). The scientific analysis of accumulation in capitalist society[1] and of the realisation of the product undermined the whole basis of this theory, and also indicated that it is precisely in the periods which precede crises that the workers’ consumption rises, that underconsumption (to which crises are allegedly due) existed under the most diverse economic systems, whereas crises are the distinguishing feature of only one system—the capitalist system. This theory explains crises by another contradiction, namely, the contradiction between the social character of production (socialised by capitalism) and the private, individual mode of appropriation. The profound difference between these theories would seem to be self-evident, but we must deal with it in greater detail because it is the Russian followers of Sismondi who try to obliterate this difference and to confuse the issue. The two theories of which we are speaking give totally different explanations of crises. The first theory explains crises by the contradiction between production and consumption by the working class; the second explains them by the contradiction between the social character of production and the private character of appropriation. Consequently, the former sees the root of the phenomenon outside of production (hence, for example, Sismondi’s general attacks on the classical economists for ignoring consumption and occupying themselves only with production); the latter sees it precisely in the conditions of production. To put it more briefly, the former explains crises, by underconsumption (Unterkonsumption ), the latter by the anarchy of production. Thus, while both theories explain crises by a contradiction in the economic system itself, they differ entirely on the nature of the contradiction, But the question is: does the second theory deny the fact of a contradiction between production and consumption, does it deny the fact of underconsumption? Of course not. It fully recognises this fact, but puts it in its proper, subordinate, place as a fact that only relates to one department of the whole of capitalist production. It teaches us that this fact cannot explain crises, which are called forth by another and more profound contradiction that is fundamental in the present economic system, namely, the contradiction between the social character of production and the private character of appropriation.” (Lenin, A Characterisation of Economic Romanticism)

    • sartesian Says:


      Have to say that Lenin makes an incorrect characterization and from that establishes a meaningless argument.

      That production and consumption are SEPARATED from each other, are distinct categories in an economy, does not mean that they are necessarily contradictory.

      Certainly the reduced consumption by workers is much more important, and essential, as a source of capitalism’s success rather than a cause of crisis.

      Exactly what is the supposed contradiction between production and consumption? That the producers cannot consume all they produce? So what? How is that a contradiction– how does that negate the purpose of capitalist accumulation, which is the expansion of value?

      That there is unevenness, dis-equilibrium, disproportion in the capitalist economy is not in dispute– there is always dis-equilibrium and disproportion in the capitalist economy. But what makes the dis-equilibrium appear critical? What is the force that move capital from expansion to contraction, through its cycles, and into periods of sustained slowdowns, and extended downturns? That “force” is certainly not restricted consumption or reduced demand.

  17. Frank Kavanagh Says:

    I wish I knew enough about Capital to intervene but I wish people would stop saying Boffy is talking Bollocks! I don’t agree with him and the internet is not the best place for discussions on capitalism, that’s why we have papers like the Weekly Worker to thrash out arguments.

    • sartesian Says:

      But what he claims, and all that he makes up, which is quite a lot, is bollocks. No reason to let it go unchallenged, and every reason to dispute his misrepresentation.

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