Richard Wolff and the deepening crisis

Capitalism’s crisis deepens by Richard D Wolff, Haymarket Books $18.95

The New York Times magazine has described Richard Wolff as “probably America’s most prominent Marxist economist”.  And that is probably not an exaggeration in the description of this emeritus Professor of Economics at the University of Massachusetts, Amherst and visiting professor at the New School University in New York.

Richard Wolff has been one of a handful of Marxist economists with full tenure at an American university.  And he has worked tirelessly to bring home to students and all who would listen in the US the Marxist alternative explanation of the nature of US capitalism and its current crisis.  Wolff has written several important economics books, sometimes with his close collaborator, Stephen A. Resnick.  In particular, their recent book,  Contending Economic Theories, neoclassical, Keynesian and Marxian is a very useful and clear explanation of the main strands of economics for those who don’t know.

His new book, however, is a compilation of his short articles and essays that he has written since the end of the Great Recession in 2010.  In many ways, it mirrors the approach that I adopted in my book, The Great Recession (Lulu 2009), which also was a series of essays and articles in chronological order covering the lead-up to the Great Recession and its immediate aftermath.

Wolff’s book is not chronological as such, as he breaks down his essays into themes about the current crisis: the first section looks the depth of the crisis and the responses of economists and politicians; the second part considers the specific issues of austerity, bank failure and debt; the third looks at the failure of government monetary and fiscal policy; and the final part looks at the socialist alternatives.

In the first section, Wolff outlines how mainstream economics has been dominated by and divided between neoclassical and Keynesian theories, while Marxist economic theory has been excluded and ignored.  And yet it is Marxian economics that best explains “capitalism’s repeated crises over the last century” (p7).  However, it is here that Wolff’s own view of the Marxist explanation of recurrent crises under capitalism appears – and it is very much the old ‘underconsumptionist’ thesis with extras added on about excessive household debt that many (indeed most) left Keynesians and Marxists have adopted as the explanation of the Great Recession.

According to Wolff, it was the end of rising wages in the neo-liberal period from the early 1980s and rising household debt to compensate for that which eventually led to the great slump as “mass worker exhaustion, stress and debt  drove the system to collapse” (p14).  Indeed, Wolff sums up five main reasons for the “persistence of the crisis” (what I call the Long Depression after the end of the Great Recession) – p31-34.  They are: the exhausted purchasing power of the working class; overcapacity and too much cash “without profitably productive outlets”; renewed speculation and debt; unending corruption; and no firm political and economic alternatives.

Now readers of my blog and my papers know that I do not agree that the Great Recession, and for that matter, previous capitalist slumps, were due to the lack of workers purchasing power or even just an excessive credit/debt bubble that burst.  For one of the earliest and best denials that underconsumption is Marxian economic theory, see this article by John Weeks back in 1982 (

For Wolff, the “classic contradiction” of capitalism is that capitalists “paid insufficient wages to enable workers to purchase growing capitalist output” (p166).  But the main contradiction, in my view, lies not in ‘insufficient wages’ but in Marx’s law of the tendency of the rate of profit to fall.  This tendency can for periods (sometimes long) be counteracted by more exploitation and new technology, but it eventually operates to drive down profitability and total profits, leading to a collapse in investment and then incomes and employment.

This explanation is entirely missing in Wolff’s book. Wolff’s five reasons for the Long Depression are true only because they describe the nature of the current low-growth world, but the explanation lies with continued low profitability (near post-war lows), a failure to reduce debt levels and the failure of business investment to recover as a result.  It’s not too much cash and capacity but too little profit.

Wolff does take up the “truth about profits” p81, but only to tell us that “profits have risen dramatically over the last 30 years”.  This is true if measured against GDP, as many do.  But this really only measures profit margins (profits per unit of output) not profitability in the Marxist sense, as profits over the stock of capital and labour employed.  On that measure, profitability has risen somewhat since the 1980s, only to start to decline again from the end of 1990s and is now below levels achieved 20 years ago in most major capitalist economies.  And now even profit margins are falling. By the way, Wolff’s book concentrates almost totally on the US capitalist experience.

In later sections, Wolff clearly exposes the failure of mainstream economic policies designed to restore the fortunes of US capitalism: whether it is ‘austerity’ policies; bailing out the banks; easy money etc.  So what is the alternative?  Wolff dismisses the prescriptions of the Keynesians like Paul Krugman or Robert Reich, pointing out correctly that the New Deal and deficit spending never “overcame the 1930s depression (World War 2 did)” p167.

A key problem with Wolff’s underconsumption theory is that it implies that if wages are made ‘sufficient’, then purchasing power returns and capitalist companies can sell and all is well.  This is the economic and political implication of the underconsumption theory: that capitalism can deliver as long as the distribution of profits and wages is pitched right as presumably it was in the Golden Age of the 1960s.

Wolff rightly does not draw that conclusion that flows from his analysis.  Instead, for him, the solution to recurrent crises and rising inequality lies in “changing the class structure of capitalist enterprises” and replacing them with “workers-directed enterprises.”  Wolff is concerned , rightly, to correct the view that the socialist alternative to capitalism is simply the public ownership of the major corporations and a national plan (p312-3).  Without democracy and workers control at company level there can be no real socialist development.  Otherwise state officials merely replace a capitalist board of directors.  This is “insufficient conceptually and strategically” (p316).

Wolff wants to include and emphasise the role of what he calls Workers Self-Directed Enterprises (WSDEs).  I think that Wolff still sees the necessity of a national plan based on collective ownership of the major sectors of the economy, finance, industry and key services, to be combined with WSDEs.  I hope so because the socialist alternative cannot just be the latter any more than it can be just the former.

30 thoughts on “Richard Wolff and the deepening crisis

  1. For Wolff, the “classic contradiction” of capitalism is that capitalists “paid insufficient wages to enable workers to purchase growing capitalist output” (p166).

    Is he talking about Keynesian theory or is it his opinon?

    If he’s talking about his opinion, then, I’m sorry, this is not a Marxist theory. Nowhere Marx stated an individual capitalist must pay a “sufficient wage” to his workers. He stated that the capacity for the working class to purchase the means of it’s own survival as such only applies to social capital, the capital as a whole.
    The State can suplement sub-living-standard wages with minimal social assistance etc. (as it happens, e.g. with Walmart in the USA). This can be easily measured by world population growth: as long as it keeps growing, there’s no “wage sufficience” problem for capitalism: value of labor force simply falls.

    On the other side, even if workers received “sufficient wages to purchase growing capitalist output” (he’s probably refering to improductive consumption, since, by definition, the working class must be unable to purchase the means of production in order for capitalism to exist), it does not stop the profit rate to fall, as mr. Roberts correctly highlights.

  2. Reblogged this on Reconstruction communiste Comité Québec and commented:
    Michael Roberts stll stands behind Karl Marx’s law of the tendency of the rate of profit to fall

    “For Wolff, the “classic contradiction” of capitalism is that capitalists “paid insufficient wages to enable workers to purchase growing capitalist output” (p166). But the main contradiction, in my view, lies not in ‘insufficient wages’ but in Marx’s law of the tendency of the rate of profit to fall. This tendency can for periods (sometimes long) be counteracted by more exploitation and new technology, but it eventually operates to drive down profitability and total profits, leading to a collapse in investment and then incomes and employment.

    This explanation is entirely missing in Wolff’s book. Wolff’s five reasons for the Long Depression are true only because they describe the nature of the current low-growth world, but the explanation lies with continued low profitability (near post-war lows), a failure to reduce debt levels and the failure of business investment to recover as a result. It’s not too much cash and capacity but too little profit.

    Wolff does take up the “truth about profits” p81, but only to tell us that “profits have risen dramatically over the last 30 years”. This is true if measured against GDP, as many do. But this really only measures profit margins (profits per unit of output) not profitability in the Marxist sense, as profits over the stock of capital and labour employed. On that measure, profitability has risen somewhat since the 1980s, only to start to decline again from the end of 1990s and is now below levels achieved 20 years ago in most major capitalist economies. And now even profit margins are falling. By the way, Wolff’s book concentrates almost totally on the US capitalist experience.”

  3. from: jim drysdale

    ‘Marx: Capitalism No Future’ UK©CS

    Marx is in demand. Capital, although rewarding, can be laborious. ‘Marx: Capitalism No Future’ restates, in an easy to read manner, the basic argument of Capital. The text makes use of Marxist categories, their use effortlessly bringing the reader to awareness of the essence of change in capitalist society. Daily, we are offered statistics to explain change. Never are we told the source, the nature, of change in society. Marx scientifically (dialectically) reveals that it is the movement of the categories that bring change, change that ensures that capital, capitalism, capitalist society are not eternal. That is, the very activity of capital’s own laws of motion are the source of the decline of capital. And, as daily existence is rapidly revealing to all, capitalist society continues to move from crisis to ever deepening crisis.

    Left academia has never fully understood Marx. Lazy minds. If Marx’s critique of capital had been at the level, as most left academics do, of statistics, data, i.e. appearance only empirical analysis then, Marx would never have been (and continues to be) demonised by the ruling capitalist class. His scientific, dialectical analysis terrifies the ruling capitalist class.
    Wolff, Harvey, Mason, Piketty and many others are the latest in a long line of very confused so-called Marxists who continue to bring a sense of relief to the ruling capitalist class. Some of left academia live well in the cloisters. They never, however, with their ‘statements of the obvious’ offer any kind of substantial education to the working class. Offering an appearance-only alternative to capitalist main-stream media appearance-only analysis is absolutely NO alternative.

    Read ‘Marx: Capitalism No Future’.

  4. To be fair to Wolff I think his approach is to mix populist propaganda with a dose of economic ABC’s. And I think he does this very well.

    The story of how productivity and real wages widened in the so called neo liberal era is a story worth discussing, and it is a story where Wolff can get in some class related political blows, which chime with people’s everyday experience.

    What is academic is simply talking about dialectical motion, how capitalism’s inner contradictions undermine itself. This is something workers can have difficulty relating to. The fact that there wages are being squeezed while the boss gets richer is something people can more easily relate to.

    Wolff is the best at popularising radical ideas. He is worth his in gold in this respect.

    1. Ditto. I’ve followed his articles and broadcasts for a long time, and the communication strategy seems to be simplicity and repetition, simplicity and repetition, and yet more simplicity. He just doesn’t seem to have any use for the tendency of the rate of profit to fall or the complexities of that discussion. Reminds me of Chomsky.

    2. Fool’s gold, maybe. Unabashed supporter of Syriza then, and more than willing to repeat that failure now:

      “Syriza, like Podemos in Spain and their counterparts growing everywhere, knew that the path forward out of lesser- evil politics would not be straight, upwards, and onwards. There would be reverses and battles lost, like the July decision by the Tsipras government to accept the harsh terms of economic survival imposed by the German- led troika. However, all the conditions that provoked the breakout from lesser- evil stasis are only pressing the poor and middle classes further in the direction that Syriza courageously pioneered. After what happened in Greece in July, Greeks and their counterparts across Europe and beyond better understand what they are doing, what they are faced with, and how they need to plan for and coordinate sharper breaks from a fast- polarizing and increasingly unacceptable capitalism.”

      That’s not simplicity. It’s simple-mindedness. It’s not repitition in the service of learning; it’s a compulsion for repeating failure.

      1. Wolff is great, the best I would say, at popularizing radical ideas, this ability is worth its weight in gold as it exposes people to thinking about those ideas and possibly going beyond them or developing them further. But without those individuals who popularize such ideas then people never even have the tools to go beyond the ideas because they have not been exposed to them.

        So Wolff is worth his weight in gold. Sartesian on the other hand is worth his weight in one of the less precious metals.

      2. Sure thing– provided of course, the accumulation of value is your gold standard; provided the perpetuation of value of production is your goal/gold.

        I actually don’t think I have any exchange value with any metal– gold, tin, maybe steel, but only because it is so overproduced.

      3. I just want to emphasize how much I agree with Henry’s assessment. I’m a base metal man to the core. Nothing precious about me, or any of my elements. Completely unrefined, too.

        Slag actually, and that’s at my best.

      4. Worth your weight in gold, in this context, refers to what you can bring to promoting radical ideas to the masses. Wolff is first class at this, you by your own admission are not.

        If you want to glory in this fact, admit you bring nothing but slag to the table then fine but i would think you would be better served lining up for the other team.

      5. Just can’t get beyond the value form can you, Henry? That’s a shame. People say the same thing– oh he exposes the masses to radical ideas– about Michael Moore, glossing over the role he played in channeling the mass strike and occupation in Madison, Wisconsin safely back into the Democratic Party.

        All of Wolff’s “gold” gets you where in this non-gold, the concrete world? Cheerleading for Syriza; then apologizing while you gear up to do it all over again with Podemos– “do us a favor” is I believe the phrase in the UK.

        I’ll stick with the non-exchangeable base metals.

        You think Wolff’s “underconsumption” presentation is VALUE-able? It sure is. That’s how he makes his living, marketing his supposed understanding of Marx. How IMPORTANT, as opposed to value-able that might be, is shown by the course followed by those forces he endorses– Syriza being the best example.

      6. One radical idea that Wolff presents to workers is the idea that they would be better off in a society where the organization of the firm was not based on the capitalist model, with board of directors making all the decisions etc but a society where the organization of the firm is based on the idea that workers make the decisions about what, where and how to produce etc etc.

        Wolff presents this is a way that is populist and gets the attention of people, rather than them falling asleep from chronic boredom.

        Once exposed to these radical ideas people may decide that actually Wolff does not have all the answers but his brilliant way of communicating has equipped me with the tools to evaluate where Wolff goes wrong and what the appropriate alternative approach should be. Ergo, we see a qualitative leap in working class consciousness thanks to these great teachers.

        Wolff’s presentation tries to ask the question, what drove the gap between productivity and wages and what are the consequences of that gap? Surely this is a pertinent question to ask for anyone interested in problems facing the working class?

        I am not convinced by your interpretation of Wolff as lead cheerleader for Syriza. From what I have read and listened to Wolff seems to be analyzing what the rise of Syriza means and how it can help progress things. But Wolff is pretty clear that the main thrust of his argument is that worker directed enterprises are the way forward.

        You seem to have problems understanding Wolff’s clear, concise and brilliantly argued narrative and hear only what you want to hear.

        That is usually an indicator of too many years spent in sectarian politics.

      7. Never been involved in sectarian politics since I’ve never been a member of any sect, or sectarian group, etc.

        Read Wolff’s website, his own analysis of Syriza, etc.

        I had no trouble understanding Michael Moore’s clear, concise, and really excellent movies. I just think that said movies don’t make him a Marxist, a “brilliant tactician” or worth his weight in gold to the struggle against capitalism.

        I’ve read Wolff and I’m pretty sure I understand his Marxism, and I think he’s wrong. Flat out wrong. But that isn’t the point. The point is conflating his “Marxism” with the “value” to the struggle against capitalism when he endorses Syriza or Podemos and the like.

        You, it seems to me, want to have it both ways, “separating” his Marxism, “worth its weight in gold” from his endorsement of Syriza, while at the same time conjoining his popularity, which is definitely associated with his endorsements of Syriza and Podemos, with Marxism.

        That’s a a recipe for failure. I’ve never said one should not read Wolff, but when you conduct your value-assay, include the warts.

    3. This: “For Wolff, the “classic contradiction” of capitalism is that capitalists “paid insufficient wages to enable workers to purchase growing capitalist output” — shows just how fundamentally flawed Wolff’s “Marxism” is. The entire origin of surplus value is that the worker is paid the value of labor-power, not the value of total product– that the workers reproduce their own value in less time than they working day. Workers NEVER are paid enough to purchase the “growing capitalist output”– if they were there would be no capitalism. So then we are left with the inexplainability– with Wolff, of capitalist cycles; of the long term trends in accumulation; the inexplainability of the LACK of permanent crisis.

      But hey, one man’s baloney is somebody else’s gold

  5. Because of the technological developments, it is impossible for Capitalism to recover from Underconsumption. The sum of money spent on production, both new fixed capital and variable capital will always be smaller than the sum spent a few decades ago.

    That is the correct formulation of the unavoidability of Crisis in Capitalism.

    The falling rate of profit due to the change of organic composition of capital can also be true but it is not a law because the organic composition doesnt always fall.

    Regarding the Worker Self directed enterprises, it is important to understand how investment is done, by whom, and whether the capital is owned only by specific workers and not society.

    Investment can be done in a distributed way, meaning that decisions on investment happen by the formation of groups of people with enough money to invest. Or an worker cooperative can decide to keep a percentage of the wages for investment.

    But it is important that the fixed capital, the machines, is owned by the society and not by the individual workers that invested, otherwise, we continue to have capitalism with worker cooperatives.

    That is the main reason why worker cooperatives do not offer an alternative to capitalism but one of the same, competing with each other and excluding people from work like any other capitalist enterprise.

  6. Cooperatives simply as cooperatives don’t constitute the alternative to capitalism, true. But remember Marx’s words from Capital Vol. III:

    “The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organisation all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of making the associated labourers into their own capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises. into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other.”

    (Capital Vol. III pp. 441-2)

    1. If the antagonism between capital and workers is resolved inside them, the antagonism remains outside ,firstly, between the worker cooperatives and ,secondly, between the worker-capitalists of the cooperatives and the workers who are not part of a cooperative.

      Mondragon, one of the biggest worker-cooperatives has two types of workers. The members have all the protections and rights that the cooperative provides. The others are part-time employed that can be fired at any time. New factories outside Spain have been stuffed with non-members as well.

      The percentage of the non-members has risen the past decade.

      In other words, worker-cooperatives are not by their nature anticapitalist, but they are from a gramscian point of view a way for people to learn of possible alternatives to capitalism through practice.

      On the other hand, the open value network and that I work on is anticapitalist because the fixed capital is shared by everyone that wants to work.

  7. Michael–

    You will have to forgive my ignorance as I am just beginning to learn about Marxism and economics in general, but I have a (possibly) dumb question:

    In your Jacobin article you said that, conventionally, profit margin is profit per unit output. However, what we really want to look at is the ratio of profits to total capital employed. And, if I understand things correctly, this ratio has a pressure on it to get smaller and smaller because of the further and further accumulation of capital.

    My question is this: how can it be true that at the same time as that ratio is getting smaller over time due to the growth of capital, we also have problems stemming from underinvestment? Doesn’t a growth in capital require a growth in investment?


    1. “profit margin is profit per unit output. However, what we really want to look at is the ratio of profits to total capital employed.”

      Marx and Engels in Capital III, and in Theories of Surplus Value show that these two measurements are in fact the same thing. In Theories of Surplus Value Marx writes,

      “{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay.”

      But, the average profit that each firm is entitled to receive is the average profit on the capital advanced, not the laid out capital. In Theories of Surplus Value Part Two, Marx makes this clear in setting out the errors made by Ricardo in trying to explain the divergence between exchange value and price.

      The average profit is added to the capital laid out in order to obtain the price of production, but as Marx and Engels demonstrate this means that the profit margin for capitals that turn over more rapidly than the average must thereby diminish. For example, suppose the average rate of profit in an economy is 10%. A firm advances £1,000 of capital, and thereby obtains £100 of profit. If its capital turns over once during the year, the £1,000 also represents its capital outlay, and so the price of production of its output will be £1,100, and consequently its profit margin is 10%, its rate of profit is 10%, and its annual rate of profit is 10%, equal to the average rate of profit.

      However, suppose the particular capital turns over 4 times during the year. Then its laid out capital will be £4,000, but the profit it adds to this laid out capital remains £100, the average profit it is entitled to on its advanced capital. In that case, its profit margin is only 2.5%, and that is its rate of profit, but its annual rate of profit, the profit it makes on the capital actually advanced is still 10%, equal to the average rate of profit, because although it has laid out £4,000 of capital it has only advanced £1,000 of capital.

      Marx sets this out in Capital III, Chapter 9.

      “The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production. Take, for example, a capital of 500, of which 100 is fixed capital, and let 10% of this wear out during one turnover of the circulating capital of 400. Let the average profit for the period of turnover be 10%. In that case the cost-price of the product created during this turnover will be 10c for wear plus 400 (c + v) circulating capital = 410, and its price of production will be 410 cost-price plus (10% profit on 500) 50 = 460.”

      Here the capital advanced is £500, and the profit is 10% = £50. But the laid out capital, the cost of production of the year’s output is only £410, because a large part of the firm’s capital is fixed capital that does not turn over during the year. So, its price of production is not £550, but £460. Its profit margin or rate of profit is then 50/410 = 12.20%. In reality, as Marx and Engels describe, as the amount of fixed capital employed increases, so the rate of turnover of the circulating capital increases, because the reason for introducing the new fixed capital is to raise productivity.

      The consequence of that is that in terms of the laid out capital, the proportion of materials, of circulating constant capital constant rises (which is the basis of the tendency for the rate of profit to fall), rises relative to both the fixed capital and the variable capital. So, for example if we look at the example that Engels gives in Capital III, we have

      “Let the capital rise to £15,000 owing to a constant growth of the productiveness of labour, and let it annually produce 30,000 pieces of the commodity at a cost-price of 13s. per piece, each piece being sold at a profit of 2s., or at 15s. The annual turnover therefore = 30,000×15s. = £22,500, of which £19,500 is advanced capital and £3,000 profit. The rate of profit p/k then = 2/13 = 3,000/19,500 = 15 5/13%. But p/C = 3,000/15,000 = 20%.”

      Here, as Engels describes the total capital advanced is greater than the total capital advanced, because the circulating capital turns over several times during the year. He also again makes clear that the profit p/k, the profit divided by the cost of production, is also what he and Marx define as the rate of profit, for the purpose of discussing the falling rate of profit. And, because the laid out capital is greater than the advanced capital here, the profit margin/rate of profit is just over 15%, whereas the annual rate of profit, or average rate of profit, which each capital is entitled to obtain is equal to 20%, because it is based on the advanced capital for one turnover period, not the laid out capital for the year.

      Marx sets this out in even greater detail later in discussing the rate of turnover and rate of profit on commercial capital. The distinction is also fundamental to Marx’s discussion of rent. There Marx sets out that surplus profits exist in all spheres, because some capitals produce commodities with a lower individual value than the average for that sphere. But, surplus profits exist in some spheres, because wherever the organic composition of capital is lower than the social average, the value of output is higher than the price of production.

      Initially, therefore, firms in such spheres sell their output at their values, not their price of production. It is only competition, he says, which results in other capitals entering the sphere, and reducing the prices of these commodities down to the price of production, which eradicates the surplus profits, otherwise, commodities would continue to sell at their exchange values not their prices of production. He sets this out in more detail in Theories of Surplus Value, which rather undermines the argument of the TSSI. However, as he sets out, in discussing rent, in agriculture this cannot happen, because in order to enter production capitals first have to rent land from landowners, who will not rent it to them for free. Consequently, an absolute rent arises, because capital will only enter production and cultivate land, when it can not only make the average profit on the capital advanced, but when it can also pay the absolute rent to the landlord.

      Consequently, in agriculture, the prices of commodities continue to be equal to their exchange value, not their price of production, the difference between the two being appropriated as rent by the landlord. Wherever, any such monopoly, or restriction on the free movement of capital into a sphere exists, Marx says, competition cannot eradicate the surplus profits caused by exchange values being higher than prices of production, and so the prices of commodities in such a sector continue to equal exchange values, and the difference between the price of production and the value is absorbed in some form of rent.

      Returning to the original point, if we examine the situation as Marx does at the level of social reproduction the situation becomes clear. In determining the laid out capital for any individual firm, then as Marx says above, the total value of the advanced fixed capital is not taken into consideration, but only the value of the wear and tear of that fixed capital. The reason for that is that it is only the wear and tear for that year which must be reproduced in the value of the commodity.

      For any individual firm, it does not actually lay out capital for that wear and tear, but must set it aside in a depreciation fund ready to replace the fixed capital when it has actually worn out. As Marx sets out in Capital II, on average in any one year, the fixed capital actually being replaced equals the amount of wear and tear value that all firms are setting aside and recovering in the value of their output.

      If we consider the position of the total social capital that is demonstrated by the fact that a portion of social labour time is devoted to replacing in kind all of the physically consumed constant capital. All of the raw materials that have been consumed must be replaced and so on. In terms of the fixed capital its clear that is true also. A certain proportion of social labour-time, i.e. a proportion of the society’s total output, has to be set aside for no other purpose than to simply replace or repair all of the buildings, machines and other fixed capital that actually did wear out during the year.

      Then a proportion of social labour-time/total output has to be set aside to physically replace all of the variable capital, i.e. all of those commodities consumed by workers, and required for their own reproduction. Only after all of these use values have been physically reproduced, is the rest of society’s output available as a social surplus, which is equal to its surplus value. At the level of society therefore, the value of total output is equal to c + v + s, because that is the total value/labour-time actually expended. Similarly, the rate of profit here is s/c + v, which is also equal to the profit margin. (Incidentally, as I’ve set out before, and as Marx sets out extensively in his critique of Adam Smith, this is not the same as a country’s GDP or National Income, which is only equal to the revenues obtained as wages, profits, interest and rent, i.e. is only equal to v + s, and thereby omits the vast amount of c.)

      In other words, if we were to assume that all of this output is equal to say 1,000 units, its cost of production would be c + v, and the cost of production of any unit of output would be c + v/1000. But, the amount of surplus value contained in each unit of output, would likewise be s/1000. As 1000 is a common term in both these cases, it can be removed, and so its clear that the profit margin per unit of output is the same as the profit margin for the total production.

      Yet, its clear for the reason that Marx sets out that this is completely different to the annual rate of profit, which is calculated on the advanced capital not the laid out capital. Bukharin in his Economics of the Transition Period, which was discussed some years ago by Ken Tarbuck, also describes this, and its effect for the USSR, in its industrialisation programme, because he sets out that where development is concentrated in industries that use large amounts of fixed capital, with long periods of turnover, this acts to reduce the annual rate of profit and thereby to lower the potential rate of growth.

      If I have £1,000 of profit I can advance this as capital. Suppose I produce and sell ice cream, and so I recover all of this capital at the end of the day in my sales, I can then advance this same £1,000 of capital again tomorrow. In a year it will have created £365,000 of output value plus profit, and a consequent amount of economic growth. If I produce wooden toys, the £1,000 of capital might not return to me for a month, when I have items available to sell. I can only advance this capital again at the end of the month, so it only turns over 12 times during the year, and only thereby results in £12,000 of output value plus profits.

      Marx also discusses this in Theories of Surplus Value, in terms of the difference between capitals involved in spheres that required lower levels of fixed capital, and those such as shipbuilding, which used a lot, and whose rate of turnover of capital was low. Ricardo, mistakenly thought that this was the reason for prices diverging from values, as he tried to maintain the idea that market prices revolved around values rather than prices of production. But, Marx demonstrates that it does have an important part to play in determining prices of production.

      1. Correction:

        I made the same slip that Engels made. When he wrote,

        “The annual turnover therefore = 30,000×15s. = £22,500, of which £19,500 is advanced capital and £3,000 profit. The rate of profit p/k then = 2/13 = 3,000/19,500 = 15 5/13%. But p/C = 3,000/15,000 = 20%.”

        He actually meant, as is clear from the rest of what he says, is,

        “”The annual turnover therefore = 30,000×15s. = £22,500, of which £19,500 is LAID OUT capital and £3,000 profit. The rate of profit p/k then = 2/13 = 3,000/19,500 = 15 5/13%. But p/C = 3,000/15,000 = 20%.”

        Similarly, I should have said,in the next paragraph,

        “the total capital LAID OUT is greater than the total capital advanced, because the circulating capital turns over several times during the year.”

  8. What’s most curious is to claim that capitalism’s “crisis” has been deepening when by every objective indicator that’s the precise opposite of what’s been happening.

    1. Bill,

      You have to remember that the crisis has been permanent for the last 200 years, and the collapse of capitalism has been about to happen for the same amount of time. The next recession is always about to happen, this year, or maybe next year, or if not definitely the year after that, and when next year comes, simply move that along one.

      The reality is, as when this argument was made by the Stalinists in the 1950’s, the vision of a statised, bureaucratic socialism that the majority of the catastrophists propose, brought about by the nationalisation of the 200 top monopolies or some other such nonsense, has been so unappealing to the vast majority of workers that those proposing it now seem to have realised that the only way their vision of socialism could ever appeal to anyone is if capitalism became so absolutely appalling that almost anything would be better than it. So, they are continually portraying capitalism in more or less moralistic tones that require it to be always on the verge of collapse, because its evil nature means it has no right to exist let alone actually succeed on any level.

      Its a far cry from Marx’s view of how socialism rises out capitalism, and on the back of its necessary achievements. Compare the moral socialists pessimistic views with what marx had to say praising Ricardo.

      “Ricardo, rightly for his time, regards the capitalist mode of production as the most advantageous for production in general, as the most advantageous for the creation of wealth. He wants production for the sake of production and this with good reason. To assert, as sentimental opponents of Ricardo’s did, that production as such is not the object, is to forget that production for its own sake means nothing but the development of human productive forces, in other words the development of the richness of human nature as an end in itself. To oppose the welfare of the individual to this end, as Sismondi does, is to assert that the development of the species must be arrested in order to safeguard the welfare of the individual, so that, for instance, no war may be waged in which at all events some individuals perish. Sismondi is only right as against the economists who conceal or deny this contradiction.) Apart from the barrenness of such edifying reflections, they reveal a failure to understand the fact that, although at first the development of the capacities of the human species takes place at the cost of the majority of human individuals and even classes, in the end it breaks through this contradiction and coincides with the development of the individual; the higher development of individuality is thus only achieved by a historical process during which individuals are sacrificed for the interests of the species in the human kingdom, as in the animal and plant kingdoms, always assert themselves at the cost of the interests of individuals, because these interests of the species coincide only with the interests of certain individuals, and it is this coincidence which constitutes the strength of these privileged individuals.”

      1. “Ricardo, rightly for his time”

        The inference being wrongly for the time Marx was living in!

        I know of no catastrophist who believes capitalism has been in a crisis for the last 200 years. Not one.

        I know of no catastrophist who believes the next recession is a year away, they all have a cyclical theory but that the crises will intensify. Engels suffered from this also.

        “has been so unappealing to the vast majority of workers”

        That should be the majority of workers living in those nations most advantaged by the imperialist system. Who in overall terms are a minority of the world working class. Further to be noted: as the less developed world gains relative to the advanced world the workers ‘love affair’ with capitalism diminishes in the advanced world. In the developing world this is more complex as for every spectacular winner you have a spectacular loser.

        In Capital volume one Marx continually calls our attention to the wretched conditions of the workers under capitalism. I read these passages as moral statements.

      2. Edgar,

        In the time that Marx was living in there were only three modes of production in existence – capitalism, feudalism and the asiatic. So, the reality was that of these capitalism remained, at that time, “most advantageous for production in general”. What is more, Marx repeatedly said so. There is what he says in Wage Labour and Capital,

        “And so, the bourgeoisie and its economists maintain that the interest of the capitalist and of the labourer is the same. And in fact, so they are! The worker perishes if capital does not keep him busy. Capital perishes if it does not exploit labour-power, which, in order to exploit, it must buy. The more quickly the capital destined for production – the productive capital – increases, the more prosperous industry is, the more the bourgeoisie enriches itself, the better business gets, so many more workers does the capitalist need, so much the dearer does the worker sell himself. The fastest possible growth of productive capital is, therefore, the indispensable condition for a tolerable life to the labourer.”

        As well as what he says in Value Price and Profit.

        “They ought to understand that, with all the miseries it imposes upon them, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society.”

        And that is consistent with what Marx says above, about those moral socialists of his time such as Sismondi, who could only see the evils of capitalism without recognising its progressive role, and the way it forms the foundation for the creation of Socialism. It was a point he had made much earlier in the manifesto against moralism.

        “In its positive aims, however, this form of Socialism aspires either to restoring the old means of production and of exchange, and with them the old property relations, and the old society, or to cramping the modern means of production and of exchange within the framework of the old property relations that have been, and were bound to be, exploded by those means. In either case, it is both reactionary and Utopian.

        Its last words are: corporate guilds for manufacture; patriarchal relations in agriculture.

        Ultimately, when stubborn historical facts had dispersed all intoxicating effects of self-deception, this form of Socialism ended in a miserable fit of the blues.”

        Lenin had to make the same arguments against the moral socialism of the Narodniks, and summed up in a paraphrase he made of a comment by Marx that they suffered not only from capitalism, but at the same time from not enough capitalism.

        The comment about a crisis for 200 years was sarcastic. But, logically, those catastrophists who believe that the cause of crises is the falling rate of profit should believe that there has been a developing and worsening crisis for the last 500 years during which capitalism has existed and been developing, because for all that time the Law of The Tendency of the Rate of Profit to Fall should have been operating reducing it to near zero by today, and at each new lower level should have been causing ever deeper crises!

        Michael argued several posts ago that a new recession was only a year away, or maybe a year after that, or a year after that!

        The catastrophists haven’t been able to convince workers of their vision of socialism even in those countries that don’t have the benefits of the imperialist system as you put it! Quite the contrary. Increasing numbers of workers in different parts of the globe, such as China, India etc, as they develop, have flocked to embrace capitalism, and the standard of living it could provide them.

        The statement about “advantaged” by the imperialist system is itself rather weird. What has benefitted those economies, and the workers within them, as Marx states above is not “the imperialist system”, but the fact, as Marx sets out in Capital, following on from Smith and the Wealth of Nations, is that these economies built great wealth, and rising living standards because of the accumulation of capital, and the fantastic rises in productivity it brought with it. As Marx puts it in the Manifesto,

        “The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation,
        railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground – what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?”

        That is why Marx believed that it was the continuation of this very process of capital accumulation and the development of the productive forces, the creation out of it of socialised capital that was the basis of socialism, and why he believed that it was in these more developed capitalist economies and not in the less developed economies that capitalism would develop.

        Marx was a modernist, and optimist not a catastrophist, and a look at his writings against the moralism of Sismondi, and the catastrophism of reactionaries like Malthus is evidence of it.

  9. Only in your fantasy world billjefferies. I must say I’m rather curious, what’s the colour of the grass in that world of yours?

  10. And that Marx quote about Ricardo proves there isn’t currently a deep crisis of capitalism how? Get out of the 1840’s Boffy.

  11. I think the workers are generally content with the collective bargaining, and the rights to unionize and strike.

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